AFS Markets Blog: Morning 20/10/2026

• Meanwhile in markets, bonds aren’t benefiting much from the weakness in equities, and AI-related equities in particular. I’d blame stubbornly high energy prices for the lack of bids in bonds;

• Equities in Asia are lower this morning, with losses ranging from 0.4% for Chinese onshore markets to 1.5% for the Nikkei and more than four percent for the Korean Kospi. Mind you that the Kospi is down more than forty percent from this year’s ATH. And approaching the July lows. The twenty something stocks on our AI screener are down twelve percent for the month on average. Down the most are Korean chip producer SK Hynix (-34%) and cloud compute provider CoreWeave (-30%);

• Monthly losses for broader equity markets are contained as they say. The Stoxx 50 is down 2.7%, the S&P 500 is down a more measured 1% while the Nasdaq has shed 3.9%. At the same time, for the month Bund yields are down 2-15bps across a bull-flattening curve as over-zealous ECB rate hike bets have been priced out. UST yields are actually up for the month, with 5y to 30y yields up 6-13bps across a bear-steepening curve;

• The outperformance of Bunds versus US Treasuries can be attributed to the ECB’s more successful campaign to dampen rate hike expectations. This month, a good 25bps or so in hikes have been lobbed off forwards for tenors of around 1-year ahead. On the other hand, the USD OIS forward curve is unchanged on a monthly basis;

• And speaking of the ECB, in the latest Bloomberg poll I have penciled in the deposit rate peaking at a lowly 2.75%, with the final hike in December. Which compares with market pricing of about 3.25%. My low-ball estimate is based on the assumption that core inflation will peak slightly below 3% next spring. And taking into account the ECB’s obvious reluctance to hike rates;

• A good example on the mood on AI soaring is French electrical equipment maker Schneider, which manufacturers stuff that goes into data centers. Last Thursday, the company released blowout earnings that show no letup in AI (related) demand for the next two years. But the stock is down 4.5% since Thursday. In any case, Schneider’s Swiss rival ABB published earnings this morning. Chances are that the stock won’t fare any better than Schneider;

• Elsewhere, Brent crude oil futures have hit the $110 handle this morning while Dutch natgas futures are levitating marginally below the 90 euros per MWh handle. Furthermore, European gasoil futures are within touching distances of this year’s high. Clearly, President Trump’s diesel deal with the Kremlin and the recurring Ukraine deal talks headlines aren’t having the intended effect of driving down prices. Ditto for the White House’s narrative that shipping through the Strait of Hormuz has returned to about 75% of pre-war levels. We haven’t heard that claim for a while now. Instead, we have headlines of Iranians firing at commercial shipping;

• In FX space the dollar is a tad softer while the euro is rebounding as the French protests slash riots have quieted down. EURUSD has managed to crawl back to the 1.12 handle. For the record, the OAT Bund spread – aka Le Spread – closed at a post-Eurozone crisis high of 148bps yesterday;

• There isn’t any market moving overnight news. Instead, we must make do with Ukraine war headlines. President Trump sounded kind of reluctant to accept President Putin’s suggestion of a trilateral summit with Chinese leader Xi Jinping to settle Ukraine. Instead, Trump said he preferred to talk about denuclearization, not carving up the world in spheres of influence. At the same time, Trump’s special envoy and real estate buddy Steve Witkoff will travel to Moscow soon for talks with Putin;

• Looking ahead, today’s calendar is boringly empty except for some second-tier US and Eurozone economic data. That means more Iran/Ukraine headline watching: choose your poison.

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