AFS Markets Blog: Morning 23/07/2026

• Meanwhile in markets, the Iran war continues to dictate headlines and thus move markets. Crude and natural gas prices have edged up further this morning after the Yemeni Houthis reportedly hit two oil tankers in the red sea with air strikes. While the strikes still aren’t confirmed, what we do know for certain is that the threat of such strikes has forced tankers to turn back from the incredibly vital Red Sea route;

• It’s not all bad news though as one of our preferred war accounts, @BabakVahdad, tweeted about rumors of a US outreach via the mediators for a temporary truce with Iran. True or not, the US did launch a – checks notes – twelfth round of daily air strikes against Iran, with reports this morning of several targets having been hit in Western Iran. Predictably, the Iranians lobbed back missiles in retaliation, targeting radar installations in Jordan;

• Turning to some market commentary, earlier in the session Brent crude futures hit the $96 handle. It will only take a few headlines of further escalation of violences to hit the psychological level of $100 a barrel. Even more worrisome for our ECB friends (who announce rates this afternoon) is the proportionally stronger increase in Dutch natural gas futures prices. Excluding the March 19 intraday spike, futures prices at $63.44 per MWh or thereabout are at the highest level since the outbreak of the war;

• Gold, yes, gold, is going places. The barbarous relic is literally climbing the wall of worry – higher energy prices and higher real yields – and further rebounding of the lows that lie around $3,900 per troy ounce. Gold has risen nearly four percent to $4,125.9 this week, a truly remarkable performance when we compare the price action with the epic sell-off when the war broke out. And speaking of real yields, Treasury real yields are at their highest level in a year and a half or so;

• Elsewhere, punters are starting to get cold feet about next week’s FOMC meeting. Since Chairman Warsh has refused to give proper forward guidance, and given the man’s apparent crusade against inflation, about 8bps of hikes are priced in. Making the meeting ‘live’. Given Warsh’s tirade against inflation, he should hike by a quarter of a percent next week. The inflation situation will still be bad two months from now or in December. Why wait?

• Be aware that in his last public performance (his testimony before Congress) Chairman Warsh was a tad less hawkish than he was at the June FOMC presser. Next week we will learn if we can take his tone changes at face value, or if he has a penchant for shocking and awing markets;

• In the Asian session US Treasury yields are loitering close to Wednesday’s highs. That means that the 2y is at its highest level in years. And that the 10y and 30y are only a smidgen below the war highs;

• Equities have been doing reasonably well this month, clearly outperforming the bond market. Asian equities are up this morning, with gains of around a percent for Japanese and Chinese offshore markets. Over in the AI boom/bubble corners of the market, hardware players have rebounded this week, with gains ranging from 2.3% for Nvidia to 13% for Sandisk. Sandisk – it must be mentioned – is up 3,619% over the past twelve months. That’s no typo;

• The broad dollar is mixed this morning: down a tad versus the majors but flat versus EM currencies. USDJPY at 163.1 is marginally below Tuesday’s highs, which triggered a bout of verbal intervention by Japanese policymakers;

• Looking ahead, eyes will be on the ECB meeting. Which consensus and markets expect to be a hold. While the ECB will not give obvious guidance for the September meeting, President Lagarde’s tone will be hawkish, especially when taking the rise in gas prices into account. Thus setting the stage for a quarter point hike in September.

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