AFS Markets Blog: Morning 22/07/2026

• Meanwhile in markets, stocks and bonds are in the red following the eleventh consecutive night of US strikes on Iran. The latest strikes show a shift in focus – from threats to the Strait of Hormuz on the coast to cities deep inside Iran;

• Brent crude has climbed back above the $90 handle after Trump downplayed reports of ongoing talks between the two sides, saying that until Tehran is "ready to meet in a meaningful way, we have no interest." Trump – much like the hardline camp in Iran’s leadership – currently seems unwilling to shift back to the memorandum of understanding, which is essentially what the latest ceasefire proposals amount to. Instead, both sides continue lobbing missiles across the Gulf in the hope that this will force the other to make concessions;

• While crude prices have risen, US Treasury yields are largely holding steady at yesterday's close. Asian equities have given up their earlier gains in the session, with the Nikkei now down a quarter of a percent. S&P 500 futures are also sitting on quarter-percent losses;

• In our neck of the woods, French Prime Minister Sébastien Lecornu admitted in an interview that he is "not too optimistic" France can meet its 2026 budget target of reducing the headline deficit to 5 percent of GDP. The latest European Commission forecasts – released at the end of May – already suggested the goal would be difficult to achieve, forecasting a 2026 deficit of 5.1 percent of GDP (unchanged from 2025);

• There's no sign yet, though, that the government has abandoned its ambition to get the deficit below 5 percent of GDP in 2027. Real action will be needed next year to make that happen – under the latest EU Commission forecasts France's headline deficit is set to widen further to 5.7 percent of GDP in 2027;

• French government bonds have already been under pressure for a while. On a year-to-date basis, French 10-year bonds have been among the weakest performers among major Eurozone nations, with only Italian BTPs underperforming. As we noted yesterday, the 10-year French OAT-Bund spread remains near its highest level since the US-Iran conflict began;

• In overnight news, Ukrainian President Zelenskyy dismissed armed forces commander-in-chief Oleksandr Syrskyi. Nationwide protests had been calling for his removal following last week's firing of popular Defense Minister Mykhailo Fedorov – who had reportedly been in a power struggle with the army chief;

• That's not the only news out of the region – the Kremlin is reportedly hardening its stance on the peace process, which has been on a prolonged hiatus since the Iran war erupted. Russia is now said to be unwilling to return captured areas in the Sumy and Kharkiv regions as part of any deal, following what's being described as increasingly confrontational statements out of Washington. We'll be keeping a close eye on Raiffeisen Bank International – our market proxy for peace hopes, given its large exposure to Russian assets – to see how it responds to this news;

• Looking ahead, the calendar is completely empty today – so it's another day of Iran headline watching ahead. Tomorrow we finally get the first major event of the week: the ECB's interest rate decision – where rates are set to be held steady.

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