AFS Markets Blog: Morning 31/07/2026

• Meanwhile in markets, both bonds and tech stocks are rebounding, with the former benefitting from a relative lull in the Iran war weighing on energy prices, and the latter benefitting from well-received hyperscaler earnings;

• Starting with bonds and energy prices, UST yields have dipped further below the highs of the week, with the short end underperforming on the back of Fed Chairman Warsh’s lack of hawkishness at his second interest rate decision on Wednesday. 2y UST yields are down 10bps for the week as a September quarter point rate hike is no longer fully priced in. The 30y is up 3bps for the week and trades close but below the high of the week, which in turn was the highest level since 2007;

• I clock Brent crude futures at $87 a barrel, representing a decline of almost 10% for the week. Dutch natural gas futures prices are also down by about 10% for the week. The decline in energy prices is first and foremost a case of what didn’t happen: more violence. With no overnight tit-for-tat US-Iran strikes, and with President Trump announcing with much fanfare that Hamas will disarm as part of his Gaza peace plan, crude and gas don’t have anything to go on. The Gaza deal is particularly important as a report from Axios (of course) claimed that the Iranians had advised Hamas not to go along with Trump’s Board of Peace deal. One wonders if the US is able to let Iran’s other proxies in the region drift away from its influence;

• Turning to the tech side of things, the AI boom/bubble is alive and well. Amazon and Microsoft announced better than expected earnings reports were well-received – for a change. The takeaway from the earnings releases is that demand for cloud capacity is outstripping supply, which, in turn, is a boon for the chip designers and manufacturers stocks. Amazon is up nearly 10% in afterhours trading while Microsoft’s post-earnings gain of half a trillion dollars in market cap is equal to the market cap of most S&P 500 stocks combined. And if you like more of such superlatives, the folks at Bloomberg news quote executives of chip manufacturer SK Hynix as saying that this year’s fiscal profits will exceed the company’s combined profits of the past 27 years. Perhaps the only fly in the ointment is AI laggard Meta, which is trading flat in afterhours trading;

• In the Asian session, we see a completely ‘normal’ 1-day gain of 17% for the Kospi. Samsung and SK Hynix are both up more than 20%. The big phat gains have even infected S&P 500 futures, which are up more than a percent. Alas, former Fed Chairman Greenspan would have used an even bigger superlative than “irrational exuberance” for the tech fest. Our present-day Fed overlord is more inclined to cheerlead the bonanza;

• At this stage, I don’t think the rebound in tech is something that should weigh on USTs and Bunds yet. The tech rebound can easily be dismissed as a dead cat bounce – everything is still below its peak by quite the margin. Though perhaps the dead cat analogy isn’t really fitting as all these high-flying tech stocks and indices are up for the year with gains ranging from 4.6% for Nvidia (the laggard these days) to 439% (no typo) for storage chip maker Sandisk;

• Regardless, for tech to sink bonds, I think we would need to see tech share prices rebounding much further. Or an acceleration of investment spending that should further boost growth and inflation. Regardless, the AI boom is probably putting a floor under yields as the US economy, which looked oh so shaky in 2024 and 2025, is on much firmer footing, with even the labor market apparently recovering. I would go so far as saying that even the lousy Eurozone economy is doing better than expected in the sense that we’re enduring the Iran war shock better than expected;

• Elsewhere, the Bank of Japan meeting was another disappointment. Which was kind of flagged by Japan’s surprise intervention yesterday, which sent USDJPY plunging 5 points to 158.00. At pixel time, we were trading in the 160 handle after the central bank signaled no rush to tighten despite an upgraded economic assessment as the Japanese economy is weathering the fallout from the Iran war better than expected. Thank the tech boom for that resilience;

• The yen’s surge has also benefited EUR, which has rebounded to from the mid-1.14s to 1.152. The broad dollar is down for the week, with the greenback shedding half a percent versus EM currencies and more than a percent versus the majors. What’s weighing on the dollar is the fact that the yentervention was supported by the US Treasury – the takeaway being that the US doesn’t mind a weaker dollar;

• Elsewhere, be aware that a September ECB hike is no longer fully priced in. Warsh’s meekness and lower energy prices are to blame. For the record: yours truly and probably almost every ECB watcher out there has penciled in a quarter point hike for that meeting;

• Looking ahead, today’s calendar is uneventful and focus will turn to next Friday’s US labor market figures. Given the summer holiday lull, there isn’t much else on the calendar for the upcoming week.

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