Stress in global bond markets continues to build. With three major central banks in focus within just three days, monetary policy is once again taking center stage.

The US 10-year Treasury yield climbed above 5% yesterday, reaching its highest level since 2007, as persistent inflation concerns, elevated oil prices and expectations of tighter monetary policy continue to put pressure on government bonds.

The move is not limited to the United States. Bond yields remain elevated globally, with Japan’s 10-year yield around 3%, while European government bond yields are also trading near multi-year highs.

Today, yields are moving largely sideways as investors wait for tonight’s Federal Reserve decision. Markets now widely expect the Fed to raise rates by 25 basis points to 4.00%.

And the Fed is not the only major central bank in focus this week.

Tomorrow, the Bank of England is expected to keep interest rates unchanged at 3.75%, despite UK inflation accelerating to 3.1% in August from 2.9% in July.

On Friday, the Bank of Japan is expected to raise rates by 25 basis points to 1.25%, which would bring its policy rate to the highest level in 31 years.

Markets:

• Equities: Rebounding after recent losses

• Bonds: yields moving sideways - US 2y yield above 2.62%, US 10y yield above 4.97%, Japan 10y yield 3.0%

• Commodities: Oil prices moving lower, WTI at USD 102/barrel and Brent around USD 105/barrel
  Precious metals prices higher, gold USD 4’355/oz, silver above USD 64/oz

• Currencies: US dollar almost unchanged - Japanese Yen unchanged USDJPY 155

• Cryptos: continue to fall - Bitcoin towards USD 75k

• Volatility: The VIX index falls back below again 17 (opportunity for hedging!)

My View: What a difference a few weeks can make. Before Jackson Hole, almost no market participants expected a September rate hike. Even a week ago, investors remained divided over whether the Fed would actually move.
My view remained clearly outside the broad market consensus: With Iran war to start, I said the Fed needs to raise rates again to address persistent inflationary pressures.

Before the Iran war and the renewed oil shock, markets expected the Fed funds rate to be around 3% by September. Tonight, it is expected to move to 4%. A 25-basis-point hike itself should not have a major impact on markets, as it is now largely priced in. In fact, the decision could provide some short-term relief.

However, the bigger issue goes far beyond tonight’s decision. In my view, the Fed is still running behind the curve, and the bond market already started to recognize it.
I therefore expect the upward pressure on bond yields and downward pressure on bond prices to persist, even if tonight’s decision temporarily calms markets.

The second oil-price shock within a relatively short period is increasingly feeding through to inflation and, in my view, could have a broader economic impact than the first shock in May.
Much will depend on the oil price from here. Oil inventories are tighter and strategic reserves provide considerably less flexibility than during the first shock. This reduces the ability to cushion another major supply disruption.
I therefore expect upward pressure on oil prices to persist, with the risk of another substantial price spike remaining elevated.
If the current environment persists, I believe another Fed rate hike will ultimately be necessary.

Interestingly, the sentiment index has moved back into “Fear” territory, yet broader financial markets are still showing remarkably little genuine stress.
This divergence deserves attention. As highlighted in my Weekend Mailing, investor complacency could suddenly come to an end. If sentiment turns decisively, today’s highly crowded and leveraged market could quickly face a situation where almost everyone tries to exit through the same door at the same time.

In such an environment, a market drawdown could unfold very quickly.

AI leaders call for a slowdown. Fresh concerns around the rapid development of artificial intelligence are putting AI-related stocks under pressure.

OpenAI CEO Sam Altman said the company welcomes safety requirements for frontier AI labs and joined other leading AI executives over the weekend in calling for the industry to slow the pace of AI development.

Altman warned of two ways AI progress could go “very badly”: society could ultimately lose control of the future to AI, or too much power could become concentrated in the hands of a single person or company.

The warnings are not limited to OpenAI. Anthropic CEO Dario Amodei has also called for an immediate slowdown in the development of increasingly powerful AI models, warning that capabilities are advancing faster than the industry’s ability to ensure adequate safety and oversight.

Safety concerns have intensified significantly in recent days. Last week, an Anthropic researcher resigned, warning that some of those developing advanced AI systems believe the technology could pose catastrophic risks before the end of the decade. Employees at both Anthropic and rival OpenAI have subsequently raised further concerns about the potential consequences of increasingly powerful AI systems.

Markets:

• Equities: Falling mostly led by Tech and AI related stocks

• Bonds: yields moving higher - US 2y yield above 2.6%, US 10y yield above 4.99%, Japan 10y yield 2.99%

• Commodities: Oil prices rise again, WTI at USD 104/barrel and Brent around USD 109/barrel
  Precious metals prices fall, gold USD 4’275/oz, silver above USD 63/oz

• Currencies: US dollar moving higher - Japanese Yen falls sharply USDJPY 154

• Cryptos: rise - Bitcoin towards USD 78k

• Volatility: The VIX index moves higher above 17 (last opportunity for hedging!)

My View: The fact that the companies leading the AI race are themselves calling for the race to slow down should get investors’ attention.

After the extraordinary amount of capital that has flowed into AI infrastructure, semiconductors and related companies, this raises an important question for financial markets:

What happens to today’s extremely optimistic AI growth assumptions if safety concerns, regulation or the industry itself ultimately forces AI development to slow down?

But there may be another dimension investors should consider. Do the leading US AI companies increasingly realize that China is catching up faster than previously expected?

The AI race between the US and China is in full swing, and recent developments suggest that the technological gap has narrowed substantially. This makes calls from some of America's most important AI companies to slow frontier development particularly interesting.

President Trump highlighted exactly this strategic dilemma over the weekend, rejecting calls for a slowdown and stressing the importance of winning the AI race against China.

This creates an extraordinary contradiction: The US government wants to accelerate to beat China, while some of America's leading AI companies are warning that development is moving too fast.

At the same time, the financial stakes are enormous. Anthropic is moving toward a potential IPO, while OpenAI has postponed its own listing plans until next year. Both companies will continue to require enormous amounts of capital to finance the computing power and infrastructure needed to remain at the frontier.

So another question arises: Could the window of opportunity to raise enormous amounts of investor capital be starting to close?

The entire AI investment story still depends heavily on expectations of extraordinary future growth. If concerns about safety intensify, China continues to close the technological gap and broader financial markets enter a period of turbulence, investor appetite, and valuations, could change very quickly.

What looks like an almost unlimited pool of capital today may not remain available indefinitely.

This story adds another layer of uncertainty to an already challenging market environment. Technology and AI-related stocks have held up remarkably well despite the growing number of red flags across financial markets.

Investor complacency could suddenly come to an end, as highlighted in my Weekend Mailing. If sentiment turns decisively, a highly crowded market could quickly face a situation where almost everyone tries to exit through the same door at the same time.

In such an environment, a market drawdown could unfold very quickly.

At the same time, markets are increasingly pricing in another Fed rate hike, with the probability now around 90%, compared with roughly 50/50 only last week.

Higher bond yields, oil above USD 100, renewed inflation pressure, geopolitical risks and now growing uncertainty surrounding the AI investment story create an increasingly challenging combination.

The number of flashing red lights is increasing, while markets are still pricing in remarkably little stress.

US inflation remained stubbornly elevated in August, reinforcing the case for the Federal Reserve to raise interest rates at next week’s meeting.

The Consumer Price Index rose 0.4% month-on-month and 3.4% year-on-year, both in line with expectations.

However, underlying inflation pressures were somewhat stronger than anticipated. Core CPI increased 0.3% month-on-month, 0.1 percentage point above consensus, while the annual core rate came in at 2.4%.

Despite persistent inflation, elevated bond yields and oil prices above USD 100/barrel, investors appear remarkably complacent. US equity futures initially spiked following the release, while volatility moved lower.

Markets:

• Equities: Moving higher, with US futures initially spiking after the CPI release

• Bonds: yields falling from intraday highs - US 2y yield above 2.6%, US 10y yield above 4.92%, Japan 10y yield 2.99%

• Commodities: Profit taking in oil prices, WTI falling back below USD 99/barrel and Brent around USD 104/barrel
  Precious metals prices jump, gold USD 4’390/oz, silver above USD 65/oz

• Currencies: US dollar almost unchanged - Japanese Yen moves higher USDJPY 153

• Cryptos: Risk-on sentiment moves prices higher - Bitcoin above USD 77k

• Volatility: The VIX index falls back towards 15 (good opportunity for hedging)
  

My View: After yesterday’s Producer Prices, today’s CPI report is the final major inflation indicator the Fed will receive before next week’s policy meeting, which concludes on Wednesday.

As highlighted in my Weekend Mail, I continue to believe the Fed needs to hike rates. From an economic perspective, I see little reason not to. The bigger question is one of credibility and independence in case the Fed should keep rates on hold.

What concerns me even more is the market’s reaction. There are currently several major warning signs: persistent inflation, oil above USD 100/barrel, historically elevated bond yields and continued geopolitical uncertainty.

Yet markets are showing almost no signs of stress. Equities remain resilient, risk assets are moving higher and volatility has fallen back towards 15.

This combination should not be ignored. Complacency seems to be the biggest risk right now.

When investors stop taking obvious risks seriously, markets become increasingly vulnerable to a sudden repricing. With volatility still low, I continue to see attractive opportunities to hedge portfolios before markets potentially start taking these warning signs more seriously.

US producer prices added another warning signal for inflation.

The Producer Price Index (PPI) rose 0.4% in August, in line with expectations, while July was revised slightly higher to +0.1%. On an annual basis, producer price inflation accelerated to 5.4%, slightly above forecasts and remaining at a highly elevated level.

Excluding food and energy, core PPI increased 0.2%, slightly below expectations of +0.3%.

The latest data comes at a particularly difficult moment for the Federal Reserve. Oil prices have surged above USD 100/barrel, adding another potential source of inflationary pressure, while government bond yields continue to climb.

As a result, markets are increasingly adjusting their expectations for next week's Fed meeting. The probability of a September rate hike has risen to around 70%, although a significant share of investors still expects the Fed to leave rates unchanged.

Markets:

• Equities: Broadly lower

• Bonds: yields moving to new highs - US 10y yield above 4.92%, Japan 10y yield 2.92%

• Commodities: Oil prices substantially higher, WTI around USD 100/barrel and Brent around USD 106/barrel
  Precious metals prices fall, gold USD 4’365/oz, silver above USD 64/oz

• Currencies: US dollar slightly higher - Japanese Yen falls, USDJPY 154

• Cryptos: Risk-off sentiment is weighing on cryptos - Bitcoin falling down to USD 77k

• Volatility: The VIX index rises slightly 17 (still good opportunity for hedging)
  

My View: Scott Bessent's attempts to calm the bond market have so far produced an uncomfortable result: US borrowing costs have risen even further.

The message from the bond market is becoming increasingly clear. Investors see persistent fiscal deficits, a rapidly growing debt burden, stubborn inflation and renewed upward pressure from energy prices. If Washington wants investors to finance this debt, they are increasingly demanding higher compensation.

The latest PPI reading gives bond investors another reason to demand higher yields.

This is also increasingly moving market expectations towards the scenario I have been highlighting for some time. I have consistently expected the Fed to raise rates in September, while the broader market remained considerably more optimistic about the inflation outlook and monetary policy.

Markets are now starting to price this scenario more aggressively, with the probability of a hike rising to around 70%. However, a significant share of investors still expects rates to remain unchanged.

With producer inflation at 5.4%, oil above USD 100 and bond yields reaching new highs, the Fed's room for manoeuvre is becoming increasingly limited.

The inflation problem is far from solved, and the bond market is increasingly forcing investors to face that reality.

Tomorrow’s CPI figures should provide further clarity on the inflation outlook and could ultimately determine the Fed’s decision next week.

Oil prices continue to rise substantially, with Brent crude trading above USD 100 per barrel again after several weeks below that level.

The main driver remains the escalating conflict between the US and Iran. The US has started targeting Iranian oil tankers, while Tehran retaliated immediately with attacks on US naval assets and military bases across the Middle East.

One fact remains unchanged: the Strait of Hormuz is effectively closed and remains far from normalization.

Markets:

• Equities: broadly down while tech stocks held up well.

• Bonds: yields moving above recent highs - US 10y yield 4.84%, Japan 10y yield 2.88%

• Commodities: Oil prices substantially higher, WTI around USD 97/barrel and Brent around USD 101/barrel
  Precious metals prices higher, gold back towards USD 4’400/oz, silver above USD 67/oz

• Currencies: US dollar slightly higher - Japanese Yen higher, USDJPY 154

• Cryptos: suffer with risk-off stance - Bitcoin back towards USD 78k

• Volatility: The VIX index rises slightly above 16 (still good opportunity for hedging)
  

My View: For several weeks, my view on oil has stood clearly apart from the broader market consensus. While investors were pricing in a normalization of the Strait of Hormuz and relatively contained oil prices, I repeatedly highlighted that oil was trading too low relative to the underlying geopolitical and supply risks.

That risk is now increasingly being repriced.

At the same time, oil inventories fell to historically low levels, limiting the ability to offset supply disruptions through reserve releases indefinitely.

The broader implications are becoming increasingly important for financial markets: higher oil prices → renewed inflation pressure → higher bond yields → tighter financial conditions.

This is exactly the wrong direction for both Washington and financial markets.

With oil above USD 100, bond yields pushing back towards new highs and geopolitical tensions escalating, the probability of broader market turmoil is increasing.

Last week, I increased my existing long volatility exposure, as I continue to see meaningful downside risk in equity markets.

Seasonality adds another risk factor: September and October have historically been challenging months, particularly around US midterm-election years.

For now, my positioning remains defensive.

The US labor market delivered a significant upside surprise in August.

Nonfarm payrolls jumped by 162’000, well above the consensus estimate of just 53’000, while the unemployment rate remained unchanged at 4.1%, in line with expectations.

August marked the strongest monthly job gain since March and represents a clear rebound from the slowdown seen during the summer months.

This comes just one day after markets rallied following comments from Fed Governor Christopher Waller, who indicated that he intends to vote against a rate hike in September.

The combination highlights the growing uncertainty around the Fed’s next decision.

Markets:

• Equities: Mixed

• Bonds: yields moving back higher after yesterday's drop - US 10y yield 4.78%, Japan 10y yield 2.91%

• Commodities: Oil prices almost unchanged, WTI around USD 91/barrel and Brent around USD 96/barrel
  Precious metals prices lower after yesterday's rally, gold at USD 4’430/oz, silver falls below USD 66/oz

• Currencies: US dollar slightly higher - Japanese Yen falls again, USDJPY 156

• Cryptos: - Bitcoin back below USD 80k

• Volatility: The VIX index fell back below 15 (still good opportunity for hedging)
  

My View: With the labor market showing renewed strength, the Fed can increasingly focus on its main remaining problem: inflation.

A resilient labor market gives policymakers significantly more room to keep monetary policy restrictive or tighten further without having to worry immediately about employment.

That makes next week’s inflation data even more important.

If inflation remains elevated or surprises again to the upside, I see a September rate hike as a very realistic scenario, particularly after today’s strong employment report.

Investors remain almost evenly divided on the September decision, highlighting just how uncertain the outlook has become.

In my view, the combination of a resilient labor market and persistently elevated inflation continues to argue for tighter monetary policy rather than an early end to the Fed’s hiking cycle.

The next Fed meeting will be an important test of how independently the central bank can really act.

Global bond yields have climbed to their highest levels since 2008, as rising oil prices fuel renewed inflation concerns and Fed Chairman Kevin Warsh’s hawkish stance pushes markets to price in further monetary tightening.

In Japan, the 10-year government bond yield reached 3.0% for the first time since 1996, while US Treasuries remain under significant pressure. The US 30-year Treasuries are experiencing its worst run since 2006.
Importantly, US yields have now moved clearly above the levels seen before Treasury Secretary Scott Bessent’s recent interventions in the bond market. The temporary relief has effectively disappeared.

As yields rise, bond prices fall. With investors increasingly expecting yields to move even higher, selling pressure in the bond market is building as investors try to avoid further price losses. This creates the risk of a self-reinforcing dynamic: further bond selling pushes prices lower and yields even higher.

Inflation is adding further pressure. Eurozone annual inflation accelerated to 3.3% in August from 2.9% in July, making an ECB rate hike in September increasingly likely.

Markets:

• Equities: Global stocks moving lower

• Bonds: yields moving higher - US 10y yield 4.79%, Japan 10y yield 3.0%

• Commodities: Oil prices moving higher, WTI around USD 87/barrel and Brent around USD 92/barrel
  Precious metals prices lower, gold at USD 4’375/oz, silver falls below USD 65/oz

• Currencies: US dollar slightly higher - Japanese Yen falls again, USDJPY 160

• Cryptos: - Bitcoin back below USD 78k

• Volatility: The VIX index slowly moving highe towards 16 (still good opportunity for hedging)

My View: I started highlighting the trend toward higher yields early, and it seems investors are finally beginning to recognize the reality.

As mentioned repeatedly, investors focusing purely on equities while ignoring the macro picture and developments in other asset classes could be making a serious mistake. Yield levels like these cannot simply be ignored. And neither can what is happening inside bond portfolios.

Bonds are generally classified as lower-risk investments because they typically experience less volatility than equities and, when held to maturity, provide a defined return through coupon payments and repayment of principal.
However, during periods of persistently rising yields along the whole yield curve, bond prices fall, moderately at the short end, but potentially significantly at the long end of the curve.

This matters because conservative and risk-averse investors traditionally hold substantial allocations to bonds. Many of these investors are therefore losing money precisely in the asset class they consider the defensive part of their portfolios.

For much of the period between the Global Financial Crisis and the Russia-Ukraine war, investors operated in an environment of declining yields and disinflation. Falling yields pushed bond prices higher and generated attractive returns for bond investors.

Today, that mechanism is running in reverse with expectations:Higher inflation → higher yields → lower bond prices → negative returns in bond portfolios.

At the same time, higher government yields increase refinancing costs and accelerate the debt problem. The debt spiral is not moving in the right direction, and it is gaining speed.

This becomes particularly important as we enter September, historically one of the more difficult months for equity markets, with midterm-election years deserving additional attention.

The key message remains unchanged: yields are at dangerously high levels, bond markets continue to flash warning signals, and the pressure from debt, inflation and refinancing costs is increasing rather than disappearing.

This is one of the major risks I have highlighted for some time, and one of the reasons why I remai mainly positioned for falling markets.

After roughly a month of relative military calm, the US and Iran have exchanged strikes again, bringing geopolitical risk in the Middle East back into focus.

American forces struck an island in the Strait of Hormuz, while Iran responded by launching attacks on the United Arab Emirates and Jordan.

At the same time, US Treasury Secretary Scott Bessent said today that the objective of the economic pressure on Iran remains to force Tehran back to the negotiating table. However, he also acknowledged that President Trump believes Iran is still “not ready” to make a deal.

Markets: risk appetite fades

• Equities: Most major indices are trading in the red as geopolitical uncertainty returns

• Bonds: Yields are moving higher again. The US 10-year yield is back around 4.76%, while the Japanese 10-year yield has risen to around 2.95%.

• Commodities: Oil prices are higher, with WTI around USD 85/barrel and Brent around USD 90/barrel.
  Precious metals stabilized following Friday's decline, with gold around USD 4,430/oz and silver around USD 66/oz.

• Currencies: The US dollar is weaker against most major currencies, while the Japanese yen has stabilized around USDJPY 160

• Cryptos: slighlty higher - Bitcoin around USD 78k

• Volatility: The VIX index remains at low levels moving back above 15 (still good opportunity for hedging)
  

My View: The resumption of strikes does not come as a surprise to me. The combination of renewed military action and continued economic pressure confirms that the conflict remains far from resolved.

As highlighted repeatedly over recent months, I have remained skeptical that this conflict can be brought to a sustainable end under the current circumstances. The fundamental issues remain unresolved: the Strait of Hormuz, Iran's nuclear ambitions, sanctions and the broader geopolitical balance in the region.

The US increasingly appears to be searching for a way out without having found one. Washington is combining military pressure with economic pressure in the hope of forcing Tehran back to negotiations. But if Iran remains unwilling to accept Washington's terms, the options become increasingly limited.

And the political clock is ticking. The US midterm elections are getting closer. Oil prices remain elevated, inflation remains persistent and US consumers are already paying more for goods and services.
A renewed escalation in the Middle East, particularly one that pushes energy prices significantly higher, would add another layer of pressure on the US consumer and the economy.

That creates an increasingly uncomfortable situation for the Trump administration: maintaining pressure on Iran risks higher oil prices and inflation, while backing away risks appearing politically and strategically weak.

With the midterms approaching, the pressure on Washington to find a solution will only increase.

For markets, the key risk remains unchanged: any meaningful escalation around the Strait of Hormuz could quickly turn today's relatively calm market reaction into a spike in oil prices and a much larger risk-off move.

All eyes will be on Kevin Warsh later today, when he delivers his first major speech since becoming Federal Reserve Chairman at the annual Jackson Hole symposium.

Markets will focus on whether Warsh adopts a hawkish tone on inflation and provides any guidance on the future path of interest rates. Investors will also watch for comments on the recent stress in the Treasury market and Treasury Secretary Scott Bessent’s interventions.

Expectations for clear guidance remain low.

Nevertheless, with inflation rising again, Treasury yields elevated and consumer weakness becoming more visible, his tone alone could move markets.

Markets: wait and see

• Equities: European stocks higher while US falls after yesterday’s move

• Bonds: yields moving higher - US 10y yield back at 4.69%, Japan 10y yield 2.93%

• Commodities: Oil prices stable, WTI around USD 83/barrel and Brent around USD 88/barrel
  Precious metals prices higher, gold at USD 4’610/oz, silver moves above USD 70/oz

• Currencies: US dollar almost unchanged Japanese Yen falls again, USDJPY 160

• Cryptos: lower after recent rally - Bitcoin back below USD 80k after a quick move above USD 81k

• Volatility: The VIX index remains at low levels falling below 15 (still good opportunity for hedging)

My View: A hawkish Warsh could put short-term pressure on risk assets.

Gold and silver could face a short-term setback, although my medium- to long-term constructive view on precious metals remains unchanged. The recent crypto rally could also lose momentum.

A stronger focus on inflation could push bond yields higher again, potentially offsetting the impact of Bessent’s recent interventions.

The Fed faces a difficult combination: inflation remains too high, while higher costs increasingly pressure consumers and an economy already carrying historically high levels of debt.

Cutting rates risks fueling inflation, while staying restrictive increases pressure on consumers, growth and debt refinancing costs.

My view remains unchanged: the Fed is still behind the curve. Therefore, anything other than a hawkish tone from Warsh would come as a surprise to me.

Nvidia delivered another massive quarter last night, reporting USD 96.2 billion in revenue, while Q3 guidance came in at an extraordinary USD 108 billion.

Even more impressive was the longer-term outlook. The company indicated estimated revenue growth of around 70% for fiscal 2028, significantly above previous Wall Street expectations.
Based on the current consensus projection of approximately USD 396 billion in revenue for fiscal 2027, another 70% increase would take Nvidia's annual sales to roughly USD 673 billion.
At that level, Nvidia would overtake Apple and Alphabet based on current Wall Street revenue projections and rank behind only Amazon among the largest US technology companies.

And according to CEO Jensen Huang, even that extraordinary growth rate is constrained by supply rather than demand.

“Our demand is much greater than 70%,” Huang said during the earnings call. “Our supply allows us to confidently deliver 70%, and we’re going to continue to work with our supply chain to increase on that.”

Markets: Nvidia shares are up more than 7% in pre-market trading

• Equities: AI-related stocks are rallying, with Nasdaq futures up more than 1%.

My View: The strong quarter itself is not much of a surprise. Neither is the strong outlook at current stage.
Nvidia remains at the very center of the unprecedented global AI infrastructure buildout, and Jensen Huang's comments make one thing very clear: the immediate problem is not demand. It is supply.

But this is exactly where I continue to question the sustainability of the broader AI cycle. Why?
Because in my view, the AI sector is increasingly driven by the same force currently dominating parts of the equity market: FOMO.

Companies are afraid of falling behind and potentially losing the AI race. As a result, they are buying as much computing capacity as they can secure. The primary question currently does not appear to be: What return will we generate on this investment?

Instead, it is: What happens if our competitors invest and we don't?

That creates an extraordinary demand dynamic. But extraordinary demand today does not automatically mean extraordinary returns tomorrow.

Remember the Toilet Paper?
Think back to the beginning of the pandemic. There was never fundamentally a shortage of toilet paper. But people became afraid that there could be one. That fear itself created the shortage. People rushed to stores and bought far more than they actually needed because everyone feared being the one left without any.

I increasingly see similarities in today's AI chip market. Companies fear being left behind. Therefore, every available chip is being bought. The enormous demand then reinforces the perception that even more capacity is needed, encouraging companies to invest even faster.

The difference, of course, is that we are not talking about toilet paper. We are talking about hundreds of billions, potentially trillions, of dollars in capital expenditure. And that capital is not free.

The bigger question: Who ultimately pays for It?
Nvidia's numbers demonstrate how much money is currently flowing into AI infrastructure. They do not yet answer the much more important long-term question: How much money will ultimately come out of it?
The hyperscalers are spending enormous amounts on chips, data centers, energy infrastructure and networks. Increasingly, part of that expansion is also being financed through debt.

At the same time, several constraints are becoming increasingly difficult to ignore:
Higher bond yields make financing these investments more expensive.

Data centers require enormous amounts of electricity, while power availability and grid capacity are becoming bottlenecks in several regions.

Operating costs remain substantial, even after the infrastructure has been built.

Resistance against new data centers is increasing in some communities because of electricity consumption, water usage, land requirements, noise and infrastructure pressure.

And perhaps most importantly, the end consumer is showing increasing signs of weakness.

That matters because somewhere at the end of the AI investment chain, someone eventually has to generate enough additional revenue and cash flow to justify these enormous investments.

At the same time, pressure on consumer credit is increasing, banks are becoming more cautious and tighter lending standards could further constrain economic activity.

None of this questions Nvidia's current operational strength. The company is delivering extraordinary numbers and currently sits in perhaps the strongest position anywhere in the AI ecosystem.

Another important driver behind Nvidia’s extraordinary revenue growth is its enormous pricing power. With demand exceeding supply, Nvidia can sell not only more chips, but also increasingly expensive chips. However, this raises an important question: How sustainable is that pricing power?
Therefore, today’s exceptional revenue growth should not simply be extrapolated into the future. More competition could eventually pressure both Nvidia’s pricing power and margins.

Nvidia's success today does not automatically validate the economics of every dollar being invested across the AI ecosystem.
That distinction is becoming increasingly important. For the current growth trajectory to continue at anything close to today's pace, AI ultimately needs to generate enough productivity gains, revenues and cash flows to justify hundreds of billions in infrastructure investment.

Maybe it will. But today's valuations already assume that it will.
They leave very little room for a scenario in which AI infrastructure spending slows, financing costs remain elevated, power constraints intensify or companies simply begin asking a question that currently seems secondary:

What is the actual return on all this investment?

Nvidia just crushed the numbers. The bigger test for the AI cycle will come when its customers have to prove that they can do the same.

The Federal Reserve’s preferred inflation measure provided another reminder today that inflation remains far from defeated.

The Personal Consumption Expenditures (PCE) Price Index rose 0.2% month-on-month in July, pushing the annual headline inflation rate to 3.7%. Both readings came in 0.1 percentage point above market expectations.

Core PCE, which excludes volatile food and energy prices and is generally considered a better indicator of underlying inflation trends, increased 0.2% month-on-month and 3.3% year-on-year, in line with expectations.

Markets: reacted negatively to the inflation data,

• Equities: Europe higher while US falls

• Bonds: yields rebound after yesterday’s drop - US 10y yield back at 4.66%, Japan 10y yield 2.89%

• Commodities: Oil prices fall for second day, WTI around USD 81/barrel and Brent around USD 87/barrel
  Precious metals prices little changed, gold at USD 4’615/oz, silver moves towards USD 68/oz

• Currencies: US dollar moves higher, Japanese Yen falls again, USDJPY 159

• Cryptos: lower after recent rally - Bitcoin above USD 78k

• Volatility: The VIX index remains low around 15 (still good opportunity for hedging)

My View: As highlighted repeatedly in recent publications, inflation remains one of the most important indicators to watch going forward.

And the environment is hardly supportive of a sustained return toward the Fed’s 2% target. Tariffs, renewed trade wars, geopolitical conflicts and elevated commodity prices all have the potential to create additional inflationary pressure.
At the same time, extremely high government debt levels and rising bond yields are pushing debt-servicing and refinancing costs increasingly higher.

This creates a difficult combination for the Federal Reserve.

The risk is that the Fed remains behind the curve. If inflation proves more persistent or starts accelerating again, policymakers could eventually be forced to raise rates faster, even as economic growth and the consumer are already weakening.

That would intensify the pressure from both sides: higher prices reduce purchasing power, while higher interest rates increase financing costs for consumers, companies and governments.

The first cracks are already visible in the US consumer. As highlighted in my recent Market Insights, July retail sales fell, “help with mortgage” are googled like in 2008.

The longer inflation stays elevated, the more difficult the situation becomes.

The Fed faces an increasingly uncomfortable choice: tolerate inflation above target or tighten financial conditions further and risk accelerating the economic slowdown.
Neither is particularly attractive for financial markets. Inflation is therefore not just an inflation story anymore. It is increasingly becoming a growth, debt and financial-stability story as well.

Canada strikes back. Just days after US–Canada trade negotiations collapsed, tariffs are back in focus.

Today, Canada announced retaliatory tariffs on CAD 27.6 billion, roughly USD 20 billion, of US goods, matching the latest US tariffs dollar-for-dollar. Washington's new 50% tariffs on the same value of Canadian goods came into effect on August 22.

Canada's counter-tariffs will take effect on September 8, with duties ranging from 15% to 50% across hundreds of products. The measures target sectors including steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics.
At the same time, Ottawa unveiled a CAD 7.5 billion support package for Canadian businesses and workers affected by the escalating trade conflict.

The tit-for-tat escalation marks another significant deterioration in the relationship between two of the world's closest trading partners.

Only days ago, both sides still appeared relatively close to reaching an agreement. Instead, negotiations collapsed and have now been replaced by 50% tariffs and direct retaliation.

Markets:

• Equities: So far, the market reaction remains surprisingly muted, with no major moves in either US or Canadian equities.

My View: Are tariffs coming back as a major market topic?

Investors had almost forgotten about the tariff story. Attention shifted toward the Middle East, inflation, rising global bond yields and, increasingly, the US debt situation.

However, current escalation between Canada and the US is an important reminder that the trade wars are far from over.

The first question is why Washington is again willing to escalate tariff pressure against one of its most important trading partners.
One possible explanation increasingly worth considering is the US fiscal situation.
As highlighted repeatedly in recent Market Insights, the bond market is starting to demand greater fiscal discipline from Washington. US debt has moved above USD 40 trillion, refinancing costs are rising rapidly, and investors are increasingly questioning the sustainability of the current fiscal trajectory.

Against this backdrop, tariffs serve more than one purpose. They are a negotiating instrument, but they also generate additional government revenue.
This does not mean that reducing the debt burden is the sole or even primary reason behind the latest tariffs. The Trump administration has consistently used tariffs to pursue broader trade, industrial and political objectives. But with fiscal pressure increasing, the revenue component should not be underestimated.
Washington urgently needs additional sources of income while simultaneously trying to avoid politically difficult spending cuts or tax increases.

The second interesting development is Canada's willingness to retaliate aggressively.
Until now, most countries confronted with US tariff threats have ultimately prioritized negotiations and concessions over a major escalation. China has been the clearest exception.

Canada is now taking a noticeably tougher approach. It raises an interesting broader question: Are governments increasingly concluding that demonstrating strength is more effective than immediately making concessions to Washington?

Recent geopolitical confrontations, including the US conflict with Iran, may reinforce the perception that aggressively pushing back can create negotiating leverage. Whether this strategy will work for Canada remains to be seen, but Ottawa is clearly signaling that it is not willing to simply accept Washington's terms.

For financial markets, today's announcement may still look like a side story. But investors should not ignore the signal. If the US increasingly turns toward tariffs as both an economic policy instrument and a source of government revenue, Canada may not be the last country facing renewed pressure.
And if more governments respond with meaningful retaliatory tariffs, the consequences could quickly become more relevant for global trade, corporate margins, supply chains and, importantly, inflation.

Tariffs are back on the radar — and today's escalation shows that this topic is far from resolved.

Japan’s inflation pressures are building again at a challenging time for the economy.

Headline inflation accelerated to 1.9% in July, the highest level this year (up from 1.6% the month before), driven partly by rising energy costs following the Iran war. Core inflation, excluding fresh food but including energy, came in at 1.8%, in line with expectations.

Energy prices increased for the first time since November 2025 despite government subsidies, reflecting the sharp rise in oil prices caused by the conflict in the Middle East.

The pressure is even more visible further up the supply chain. Wholesale inflation reached 7.2% in July, with electricity charges making the largest contribution. This raises the risk that higher input costs will increasingly be passed through to consumers over the coming months.

Food inflation is adding further pressure, with fresh food prices jumping 7.0%, up sharply from 3.9% in June.

Markets:

• Equities: The Nikkei 225 index closed slightly lower

• Bonds: The trend toward higher yields continues, Japan 10y yield 2.88%, 30y yield 4.06%

• Currencies: Japanese Yen almost unchanged despite higher yields, USDJPY 159

My View: Japan is increasingly caught between inflation, currency weakness and a cooling economy.

Higher inflation is certainly not what Japan wants to see at this point in the economic cycle.

The combination of higher energy prices and a persistently weak yen is particularly problematic for an economy heavily dependent on imports. A weaker yen makes energy and other imported goods more expensive, creating additional inflationary pressure.

This explains why Japan has a clear interest in a stronger currency.

However, the latest intervention in the yen provided only temporary relief. Its impact faded quickly, and the broader weakening trend remains intact. More importantly, even significantly higher Japanese bond yields have so far failed to provide meaningful support for the currency.

At the same time, recent macroeconomic data point toward a cooling Japanese economy.

This leaves the Bank of Japan in an increasingly difficult position. If inflation remains elevated while the yen continues to weaken, the pressure to raise interest rates will increase. But tighter monetary policy into a slowing economy risks putting an end to the current economic cycle.

And then there is Japan’s enormous debt burden. With one of the highest government debt-to-GDP ratios in the world, Japan is particularly sensitive to structurally higher interest rates. Rising yields gradually translate into higher refinancing costs as existing government debt matures and needs to be rolled over.

There is, however, an important difference compared with the US Treasury market: Japanese government bonds are predominantly held domestically, including by the Bank of Japan, domestic banks, insurers and pension funds. This reduces Japan’s dependence on foreign investors, but it does not eliminate the longer-term consequences of higher borrowing costs.

The situation remains fragile: Weak yen → higher import costs → higher inflation → pressure for higher rates → weaker economic growth.

There is also a potential global consequence that should not be underestimated. Japan remains one of the largest foreign holders of US Treasuries. To stabilize the Yen, Japan could continue to sell US Treasuries which leads to higher US yields. And, as Japanese government bond yields rise, domestic bonds become increasingly attractive to Japanese investors. This could reduce demand for US Treasuries or even encourage some capital to be repatriated back to Japan.

With the US Treasury market already facing enormous refinancing requirements and pressure on long-term yields, Japan is another important factor to keep on the radar.

Japan’s problems are therefore not necessarily isolated. Further stress in the yen and Japanese bond market could increasingly spill over into global fixed-income and overall financial markets.

Not to forget: the Japanese yen is a key funding currency for global carry trades. Any sharp appreciation could trigger a rapid unwinding of these positions, resulting in significant and sudden asset flows across global markets.

Just one day after long-term US Treasury yields surged to levels not seen in nearly two decades, Washington is stepping in.

The US Treasury Department announced that it will at least double the size of its liquidity-support debt buybacks in the long end of the Treasury market, starting September 9. The measures specifically target the 10–20 year and 20–30 year maturity segments, where pressure has been particularly pronounced.
The maximum size of individual buyback operations will increase from USD 2 billion to at least USD 4 billion.

The objective is clear: improve liquidity and relieve pressure in the long end of the US government bond market.

The market reaction was immediate. Treasury yields dropped sharply, while US equity futures jumped, once again showing how sensitive equity markets have become to developments in the bond market.

Yesterday's move in the 30-year yield to a new 19-year high was another warning signal. Today, Washington responded.

Markets:

• Equities: Mixed as the news impact was only short lived

• Bonds: yields falling across the globe - US 10y yield above 4.65%, Japan 10y yield 2.90%

• Commodities: Oil prices slightly higher, WTI around USD 86/barrel and Brent around USD 91/barrel
  Precious metals prices jump higher, gold close to USD 4’460/oz, silver moves towards USD 65/oz

• Currencies: US dollar falls, Japanese Yen strengthened, USDJPY 157

• Cryptos: higher - Bitcoin above USD 65k

• Volatility: The VIX index little changed with level above 15 (still good opportunity for hedging)

My View: Market intervention continues and is a clear sign how dramatic the situation is, less than half a step towards the edge.
The bigger question is: for how long can this work?

Calling today's announcement outright "market manipulation" may be too simplistic, because Treasury buybacks are an established debt-management tool designed to improve market liquidity. But the broader pattern is becoming increasingly difficult to ignore.

Whenever financial conditions become uncomfortable, another measure appears to stabilize markets. The Treasury is now increasing its presence precisely where the pressure has become most visible: the long end of the US government bond market.
This can certainly provide short-term relief. But it does not address the fundamental reasons why long-term yields have been rising.

The US debt burden remains enormous. Fiscal deficits remain elevated. Refinancing costs are increasing. Inflation remains above the Fed's target. And the government continues to require substantial amounts of new financing.

Furthermore, major holders of US Treasuries, such as China and Japan, have increasingly been on the sell side, adding further pressure to an already strained bond market.

Buying back bonds can improve liquidity. It cannot make the underlying debt problem disappear.

The political dimension should also not be underestimated. With the November midterm elections approaching, the Trump administration has a strong incentive to prevent a disorderly rise in yields and a corresponding correction in equity markets.

In my view, the stock market remains one of the administration's strongest economic arguments going into the midterms. Washington therefore has every incentive to keep financial conditions supportive for as long as possible.

The question is what happens when markets begin to demand fundamental solutions rather than additional support measures. For now, investors are celebrating lower yields and higher equity prices.

But today's intervention reinforces my broader view: The bond market is increasingly signaling the key risk for global financial markets, and the growing public debt problem remains one of the most underestimated risks.

Just one day after long-term US Treasury yields surged to levels not seen in nearly two decades, Washington is stepping in.

The US Treasury Department announced that it will at least double the size of its liquidity-support debt buybacks in the long end of the Treasury market, starting September 9. The measures specifically target the 10–20 year and 20–30 year maturity segments, where pressure has been particularly pronounced.
The maximum size of individual buyback operations will increase from USD 2 billion to at least USD 4 billion.

The objective is clear: improve liquidity and relieve pressure in the long end of the US government bond market.

The market reaction was immediate. Treasury yields dropped sharply, while US equity futures jumped, once again showing how sensitive equity markets have become to developments in the bond market.

Yesterday's move in the 30-year yield to a new 19-year high was another warning signal. Today, Washington responded.

Markets:

• Equities: Mixed as the news impact was only short lived

• Bonds: yields falling across the globe - US 10y yield above 4.65%, Japan 10y yield 2.90%

• Commodities: Oil prices slightly higher, WTI around USD 86/barrel and Brent around USD 91/barrel
  Precious metals prices jump higher, gold close to USD 4’460/oz, silver moves towards USD 65/oz

• Currencies: US dollar falls, Japanese Yen strengthened, USDJPY 157

• Cryptos: higher - Bitcoin above USD 65k

• Volatility: The VIX index little changed with level above 15 (still good opportunity for hedging)

My View: Market intervention continues and is a clear sign how dramatic the situation is, less than half a step towards the edge.
The bigger question is: for how long can this work?

Calling today's announcement outright "market manipulation" may be too simplistic, because Treasury buybacks are an established debt-management tool designed to improve market liquidity. But the broader pattern is becoming increasingly difficult to ignore.

Whenever financial conditions become uncomfortable, another measure appears to stabilize markets. The Treasury is now increasing its presence precisely where the pressure has become most visible: the long end of the US government bond market.
This can certainly provide short-term relief. But it does not address the fundamental reasons why long-term yields have been rising.

The US debt burden remains enormous. Fiscal deficits remain elevated. Refinancing costs are increasing. Inflation remains above the Fed's target. And the government continues to require substantial amounts of new financing.

Furthermore, major holders of US Treasuries, such as China and Japan, have increasingly been on the sell side, adding further pressure to an already strained bond market.

Buying back bonds can improve liquidity. It cannot make the underlying debt problem disappear.

The political dimension should also not be underestimated. With the November midterm elections approaching, the Trump administration has a strong incentive to prevent a disorderly rise in yields and a corresponding correction in equity markets.

In my view, the stock market remains one of the administration's strongest economic arguments going into the midterms. Washington therefore has every incentive to keep financial conditions supportive for as long as possible.

The question is what happens when markets begin to demand fundamental solutions rather than additional support measures. For now, investors are celebrating lower yields and higher equity prices.

But today's intervention reinforces my broader view: The bond market is increasingly signaling the key risk for global financial markets, and the growing public debt problem remains one of the most underestimated risks.

Global bond yields are back in focus. The pressure is increasingly broad-based.

The US 30-year Treasury yield reached a new 19-year high on Tuesday, as concerns about the US fiscal trajectory, persistent inflation and rising oil prices continued to put upward pressure on long-term borrowing costs.

The move is not limited to the United States. Government bond yields across several major developed markets have climbed to levels not seen in decades:

• The US 30-year Treasury yield briefly reached a new 19-year high before easing back towards 5.28%.

• The US 10-year Treasury yield trades above 4.70%.

• Japan’s 10-year government bond yield reached its highest level in around 30 years.

• Germany’s 30-year yield climbed to its highest level since 2011.

• France’s 30-year yield moved to a post-2008 high.

• UK government bond yields also moved higher with 30-year yield close to its highest point since 1998.

China remains one of the notable exceptions with deflationary pressure.

Debt, Deficits and Inflation
The renewed pressure on US yields comes as the country's fiscal situation continues to deteriorate. The US fiscal deficit jumped to USD 432.3 billion in July, its highest monthly level since March 2021, pushing the year-to-date shortfall towards USD 1.8 trillion.

At the same time, financing the nearly USD 40 trillion national debt is becoming increasingly expensive. Interest costs have reached roughly USD 1.2 trillion this year, or USD 3 billion a day.

Inflation adds another layer of pressure. While recent monthly inflation readings have been relatively moderate, the annual inflation rate remains clearly above the Federal Reserve's 2% target. Rising oil prices amid continued Middle East tensions could add renewed inflationary pressure over the coming months.

Markets:

• Equities: global indices are trading lower

• Bonds: yields moving higher across the globe (China one exception) - US 10y yield above 4.71%, Japan 10y yield 2.94%

• Commodities: Oil prices higher, WTI around USD 85/barrel and Brent around USD 91/barrel
  Precious metals prices fall back, gold close to USD 4’355/oz, silver moves towards USD 64/oz

• Currencies: US dollar sideways, Japanese Yen weakens, USDJPY 160

• Cryptos: mixed - Bitcoin above USD 64k

• Volatility: The VIX index little changed with level above 15 (still good opportunity for hedging)

My View: This is another topic I have highlighted several times because I believe it has the potential to become a major source of market turmoil.

The problem is not simply that yields are rising. It is where they are rising from and how much debt now needs to be financed at these higher rates.

The US government is currently spending roughly USD 3 billion every single day on interest payments alone. With debt approaching USD 40 trillion, higher yields increasingly feed directly into higher government financing costs. More debt has to be refinanced at higher rates, pushing interest expenses higher and putting additional pressure on future deficits.

It can become a self-reinforcing cycle: higher yields → higher interest costs → larger deficits → more borrowing → further upward pressure on yields.

And the consequences are not limited to governments. US households continue to suffer from elevated mortgage rates and already-stretched finances. One particularly concerning signal: Google searches for “help with mortgage” have reportedly risen above levels seen during the 2008 housing crisis.

Higher long-term yields also mean higher financing costs for companies, more expensive mortgages and consumer credit, and higher discount rates for equity valuations. This becomes particularly relevant for highly valued growth and technology stocks.

Japan adds another dimension to the global bond-market risk. I highlighted the increasingly difficult situation yesterday in “17.08.2026 - Japan - Walking on the Edge”. A weak yen, imported inflation, rising government bond yields and an extremely high government debt burden create a particularly challenging combination.

For years, financial markets became accustomed to extremely low interest rates and cheap refinancing. That environment is gone.

If global long-term yields continue to move higher from here, investors may eventually be forced to reassess equity valuations, government debt sustainability and the broader consequences of a world carrying record amounts of debt at significantly higher financing costs.

In my view, the massive accumulation of public and private debt, including off-balance-sheet and shadow liabilities, remains one of the most underestimated systemic risks to global financial markets.

Japan is increasingly becoming one of the most important risks for global financial markets.

The Japanese economy expanded at an annualized rate of just 1.1% in Q2 2026, slowing from a revised 1.9% in the previous quarter and clearly missing market expectations of around 2.0%. On a quarterly basis, GDP increased only 0.3%. Private consumption was essentially flat, while business investment weakened, highlighting the fragility of domestic demand.

The Japanese yen remains extremely weak, increasing the cost of imported goods and energy and therefore adding to inflationary pressures. Meanwhile, Japanese government bond yields continue to rise.

Today, the 10-year Japanese government bond yield reached 2.93%, its highest level since 1996. Markets are increasingly pricing the possibility that the Bank of Japan will have to tighten monetary policy further in order to stabilize inflation expectations and the yen.

Markets:

• Equities: Japan’s Nikkei 225 Index is close to record highs.

• Bonds: Japan's 10-year government bond yield reached 2.93%, its highest level in around three decades

• Currencies: The Japanese yen is weakening again, moving back towards the critical USDJPY 160 area despite the recent intervention

My View: Japan in an increasingly uncomfortable position:

Weak economic growth.
Weak currency.
Persistent inflation pressures.
Rising interest rates.
Rising government borrowing costs.

And all of this is happening in a country carrying one of the largest government debt burdens in the developed world.

Japan is caught in a difficult policy loop. A weaker yen increases import prices, particularly for energy and commodities. That adds to inflation.

Higher inflation increases pressure on the Bank of Japan to raise interest rates. Higher interest rates push Japanese government bond yields higher. And higher yields ultimately make refinancing Japan's enormous government debt increasingly expensive.

The problem therefore becomes self-reinforcing. But this is not an isolated Japanese issue.

Japan is also the largest foreign holder of US Treasury securities, with holdings of more than USD 1.1 trillion. That creates another important connection.

When Japan intervenes to support the yen, it needs foreign currency resources to buy yen. Selling or mobilizing foreign reserve assets, including US Treasury holdings, can therefore create additional pressure on the US Treasury market.

This matters because the United States itself has little interest in seeing Treasury yields rise substantially further.

The US government already faces an enormous refinancing burden. Treasury data show USD 867 billion of interest expense fiscal-year-to-date, while recent estimates put US government interest costs at roughly USD 3 billion per day.

Higher Treasury yields would make that problem even larger. This helps explain why the recent currency intervention was so remarkable.
At the end of July, the United States joined Japan in supporting the yen, an unusually coordinated intervention. The US Treasury sold reserve assets and purchased yen alongside Japan, while additional mechanisms were discussed to give Japan access to dollar liquidity without forcing large sales of US Treasuries.

There is therefore a clear alignment of interests: Japan wants to prevent further yen depreciation. The US wants to avoid Japan having to aggressively liquidate Treasury holdings to defend its currency.

But the effect of the intervention is already fading. The yen initially strengthened sharply following the coordinated action, but has since weakened again towards 160 against the US dollar.

And there is another reason why investors should watch Japan extremely closely: The Yen Carry Trade.
For decades, Japan's extremely low interest rates made the yen one of the world's most important funding currencies.

Investors could borrow cheaply in yen and invest the proceeds in higher-yielding assets elsewhere.

As long as Japanese interest rates remained low and the yen remained weak or stable, this strategy worked extremely well. But the mechanism can also move violently in reverse.

If Japanese interest rates rise substantially or the yen suddenly appreciates, investors using yen-funded positions may be forced to reduce those trades and buy yen to repay their borrowing.

That can create a powerful feedback loop: Yen strengthens → carry trades lose money → investors reduce leverage → assets are sold → yen is bought back → yen strengthens further.

The risk is therefore much bigger than Japan itself. A rapid yen appreciation or sharp BoJ tightening could trigger a disorderly large-scale carry-trade unwind and forced a large-scale deleveraging across global financial markets, putting pressure on equities, bonds and other risk assets simultaneously.

This is why Japan deserves far more attention from global investors. The Bank of Japan and political leaders are effectively walking on the edge.

For now, policymakers have managed to keep the system relatively stable. But the room for policy mistakes is getting smaller.

Japan may currently be one of the most underestimated transmission risks for global financial markets.

The US and Iran have agreed to extend their ceasefire today, just as the 60-day period under the Memorandum of Understanding (MoU) was set to expire.

However, no details regarding the duration or conditions of the extension have been announced so far.

More importantly, an extension of the ceasefire should not be confused with progress towards a final agreement. The 60-day period was originally intended to provide Washington and Tehran with time to negotiate a broader settlement. According to Iran, however, these negotiations never properly began. Tehran argues that US violations of the memorandum prevented the diplomatic process from moving forward.

Negotiations therefore remain effectively stalled. Tensions have increased further in recent days. Iran has made clear that it is unwilling to negotiate under the current conditions, while President Trump has escalated the rhetoric surrounding the Strait of Hormuz, even suggesting that the strategic waterway could become US territory, a position immediately rejected by Tehran.

Markets:

• Equities: US markets trading positive while Europeans are lagging

• Bonds: yields moving higher - US 10y yield above 4.70%, Japan 10y yield 2.93%

• Commodities: Oil prices sideways, WTI around USD 82/barrel and Brent around USD 88/barrel

  Precious metals prices higher, gold close to USD 4’400/oz, silver moves towards USD 66/oz

• Currencies: US dollar clearly lower, Japanese Yen weakens, USDJPY 159

• Cryptos: with a plus - Bitcoin above USD 63k

• Volatility: The VIX index remains below 15 (good opportunity for hedging)

My View: The ceasefire extension therefore appears, at least for now, to buy time rather than resolve any of the fundamental disagreements between Washington and Tehran.

It reduces the immediate risk of renewed military escalation, but does not change the underlying conflict:
The Strait of Hormuz remains unresolved.
The nuclear issue remains unresolved.
And the negotiating positions of both sides remain far apart.

Without a final agreement, the risk of another sharp spike in oil prices remains elevated.

For Iran to make meaningful concessions on its nuclear program and fully reopen the Strait of Hormuz, the US will likely have to offer substantial concessions in return. At the same time, Tehran has shown little willingness to simply accept Washington’s conditions and continues to insist on its own demands regarding sanctions, frozen assets, the US military presence and the future administration of the Strait.

This puts Trump in a difficult political position. A deal involving major concessions to Tehran could easily be portrayed domestically as the US having failed to achieve its objectives after months of confrontation. Ahead of the November midterm elections, such an outcome would be politically difficult to sell.

Therefore, I believe Trump has a strong incentive to play for time until the midterms.

Extending the ceasefire does exactly that: it reduces the immediate risk of escalation while postponing the difficult compromises required for a lasting agreement.

For markets, the distinction is important: The ceasefire has been extended. The underlying risks have not disappeared.
The Strait of Hormuz remains a major geopolitical risk, and with oil markets still highly vulnerable to supply disruptions, investors should not become complacent simply because today’s deadline has been pushed back.

US Retail Sales Post a Surprisingly Sharp Decline

US retail sales fell 0.6% month-on-month in July, sharply missing expectations for a 0.1% increase. In June, sales had still risen by 0.2%.

Several factors contributed to the decline. Generous tax refunds that supported consumption during the second quarter have largely been exhausted. In addition, Amazon brought forward its Prime Day discount event from July to June, boosting the previous month's figures. Lower gasoline prices also reduced revenues at gas stations, while auto sales weakened.

However, the weakness goes beyond these temporary effects.

Core retail sales, which exclude volatile categories such as automobiles and gasoline and are an important input into GDP calculations, fell 0.4% in July.

This matters because consumer spending remains the backbone of the US economy, accounting for more than two-thirds of economic output.

Markets: continue to shake off almost any bad news.

• Equities: US markets trading positive while Europeans are lagging

• Bonds: yields moving higher - US 10y yield above 4.66%, Japan 10y yield 2.88%

• Commodities: Oil prices slightly positive, WTI around USD 82/barrel and Brent around USD 88/barrel

  Precious metals prices up, gold above USD 4’385/oz, silver trades above USD 65/oz

• Currencies: US dollar clearly lower, Japanese Yen weakens, USDJPY 159

• Cryptos: continue lower - Bitcoin below USD 63k

• Volatility: The VIX index remains around 14.5 (good opportunity for hedging)

My View: Surprising consumer weakness? Not to me.

I have highlighted for months that the consumer is one of the weak spots of the US economy.

Many economists still expect the weakness to prove temporary, arguing that rising equity markets have increased household wealth and could continue to support spending. In particular, higher-income and older households may increasingly use some of their accumulated wealth gains to finance consumption.

This is particularly important in the United States, where consumer spending represents more than two-thirds of GDP. If the consumer weakens materially, it becomes increasingly difficult for the broader economy to remain unaffected.

The argument that the stock market rally will compensate for weaker underlying consumer fundamentals is, in my view, too optimistic.

The average US consumer does not have a sufficiently large direct exposure to equities to translate rising stock prices into materially stronger consumption. Much of household equity exposure is concentrated among wealthier households or held indirectly through retirement accounts. Meanwhile, many consumers continue to face elevated living costs, expensive financing conditions and increasing pressure on disposable income.

Therefore, I expect consumer weakness to persist and potentially deepen. A view that remains more cautious and that does not meet the current market consensus.

And this brings us back to markets. How far can this rally go? Endless?

FOMO is probably the best description of the current environment. Investors increasingly appear afraid of missing further upside rather than focused on whether current valuations adequately compensate for the risks.

But FOMO is rarely a sustainable investment strategy. Historically, it tends to become most powerful during the later stages of a momentum cycle.

Markets currently appear to be pricing an almost perfect scenario: resilient growth, contained inflation, supportive monetary policy, strong corporate earnings and limited geopolitical escalation.

Nothing seems to be priced in for things going wrong.

That creates an increasingly asymmetric risk/reward profile. When expectations are this high and volatility this low, it does not necessarily take a major crisis to trigger a correction.

Sometimes, one single negative headline is enough.

With the VIX around 14.5, complacency remains elevated. In my view, this continues to offer an attractive opportunity to hedge portfolios before volatility returns. After the spike it will be too late.

US producer prices came in softer than expected today, providing another positive inflation signal for markets.

The Producer Price Index (PPI) was unchanged in July, below expectations for a 0.2% increase. June was revised to a decline of 0.1%.

Core PPI, excluding food and energy, increased 0.2%, also below the 0.3% consensus estimate. However, core PPI excluding trade services rose a stronger 0.4%.

On an annual basis, the picture remains less comforting: headline PPI stands at 4.7%, while core PPI is at 4.2%.

Markets reacted positively to the softer print. US equity futures moved slightly higher, Treasury yields declined and traders further reduced expectations for a Federal Reserve rate hike in September.

Markets:

• Equities: US futures reacted slightly positively to the inflation print

• Bonds: yields falling after inflation print - US 10y yield above 4.67%, Japan 10y yield 2.85%

• Commodities: Oil prices slightly lower, WTI around USD 81/barrel and Brent around USD 87/barrel

  Precious metals prices lower, gold above USD 4’390/oz, silver trades above USD 65/oz

• Currencies: US dollar slightly lower, Japanese Yen weakens, USDJPY 159

• Cryptos: continue to trade sideways - Bitcoin back towards USD 63k

• Volatility: The VIX index remain low, 14.5 (good opportunity for hedging)

My View: What surprises me most about the July inflation data is how little of the rise in oil and broader commodity prices has so far filtered through to headline inflation.

The latest PPI report follows several other indicators pointing in the same direction: after inflation accelerated earlier this year, driven partly by the Iran war and President Donald Trump's tariffs, the rate of price increases is beginning to ease.

But I would be very careful extrapolating this trend.

As highlighted repeatedly in recent Market Insights, commodity prices are rising on a broad basis. It is not only oil. Industrial metals, precious metals and agricultural commodities have all moved higher, creating higher input costs across a wide range of industries.

These pressures typically do not feed through to consumer prices immediately. There is a lag.

Therefore, I do not expect inflation to cool as much or as sustainably as markets currently hope. Inflation is likely to remain persistent, and investors still need to adapt to a structurally higher-inflation environment.

The Fed, in my view, remains behind the curve.

Interestingly, market expectations have shifted substantially over the past few days. Traders have reduced expectations for a September rate hike and are increasingly pushing the next potential move into October or December.

But September should not be written off.

Between now and the September 15–16 FOMC meeting, another round of economic data, commodity-price developments and geopolitical headlines could quickly change the inflation outlook again.

Markets are celebrating softer inflation today. The bigger question is whether it will stay soft.

US inflation came in exactly as expected — and markets are celebrating.

The Consumer Price Index rose 0.1% in July, bringing the annual inflation rate to 3.4%.

Excluding food and energy, core CPI increased 0.2% month-on-month and 2.5% year-on-year. All readings were in line with Wall Street expectations.

Despite inflation moving away from the Federal Reserve's 2% target, traders reduced the probability of a Fed rate hike in September, providing another boost to risk assets.

Markets:

• Equities: US markets move higher, while Europe lags behind

• Bonds: yields move lower - US 10y yield above 4.67%, Japan 10y yield 2.85%

• Commodities: Oil prices slightly lower, WTI around USD 82/barrel and Brent around USD 88/barrel

  Precious metals prices continue their rally, gold above USD 4’430/oz, silver trades above USD 66/oz

• Currencies: US dollar obviously lower, Japanese Yen weakens, USDJPY 159

• Cryptos: do not join the euphoria - Bitcoin back towards USD 63k

• Volatility: The VIX index falls below 15 (good opportunity for hedging)

My View: Investors are celebrating an inflation number that was higher, but exactly as expected. Even more remarkably, traders are reducing bets that the Fed will hike rates in September.

Remember: 3.4% inflation versus the Fed's 2% target.

In my view, investors have become too optimistic about the Fed and too euphoric about markets. The Fed remains behind the curve.

Clearly, the positive momentum trade is back. Falling yields, a weaker US dollar and declining volatility are providing another supportive backdrop for risk assets.

But sentiment can change very quickly. Headlines continue to be dominated by risks that, in my view, markets are largely choosing to ignore.

An oil-price spike remains a realistic scenario. Iran has sent a clear message that it is unwilling to make further concessions to President Trump and continues to insist on its key negotiating demands, including the unfreezing of around USD 300 billion in assets.

At the same time, the inflation story goes beyond oil. Commodity prices are moving higher across the board, including industrial metals and agricultural commodities. This is feeding into input costs across a broad range of products and could create renewed inflationary pressure further down the road.

Tomorrow brings the next important inflation test, with US Producer Price Index data due in the afternoon.

Markets currently appear to be pricing an almost perfect combination: persistent economic growth, no further acceleration in inflation and a more dovish Fed.

I remain skeptical that this rally is sustainable.

Oil is back in focus.

US crude oil inventories in the Strategic Petroleum Reserve have fallen below 300 million barrels, the lowest level since January 1983, as the conflict in the Middle East drags on.

At the same time, doubts are growing again that Washington and Tehran will reach an agreement to fully reopen the Strait of Hormuz.

According to recent reports, President Donald Trump appears willing to accept an agreement with Iran without first reaching a broader nuclear deal. The immediate priority would simply be to restore freedom of navigation through the Strait of Hormuz.

However, even this appears increasingly difficult.
Trump said on Sunday that the US is currently “only semi-negotiating” with Iran, despite having insisted last week that Washington and Tehran were holding talks. He also indicated that the US could continue relying on its naval blockade to pressure Tehran rather than launching another major wave of airstrikes.

Iran, meanwhile, is taking a harder position. Foreign Ministry spokesman Esmaeil Baqaei said on Monday that the US must first lift its blockade before Tehran would agree to fully reopen the Strait.

Markets are beginning to reassess the situation. Oil prices jumped around 5% on Monday as doubts increased that the US and Iran will reach an agreement anytime soon.

This follows a decline of more than 7% last week after US Treasury Secretary Scott Bessent suggested that an agreement restoring freedom of movement through Hormuz could be reached shortly.

So far, no agreement has materialized. Instead, the positions of Washington and Tehran appear to have hardened.

Markets:

• Equities: US markets are down while Europe closed higher

• Bonds: yields move up again - US 10y yield above 4.70%, Japan 10y yield 2.81%

• Commodities: Oil prices rally, WTI around USD 82/barrel and Brent around USD 87/barrel

  Precious metals prices continue the rally, gold above USD 4’380/oz, silver trades above USD 66/oz

• Currencies: US dollar gets stronger, Japanese Yen weakens again, USDJPY 159

• Cryptos: falling - Bitcoin back towards USD 64k

• Volatility: The VIX index with minor change above 15 (good hedging level)

My View: There is no surprise to me that oil is back in focus.

For weeks, I have highlighted that this conflict is far from settled and that reaching a sustainable agreement will be extremely difficult.

I have also repeatedly pointed to the combination of falling US oil reserves and oil prices that, in my view, have not adequately reflected the geopolitical reality. With the Strategic Petroleum Reserve now at its lowest level since 1983, the room to cushion another major oil shock has become increasingly limited.

I do not expect the Strait of Hormuz to fully reopen anytime soon.

Trump needs to find a solution. So far, however, the situation is arguably worse than before the war began at the end of February. Iran still holds considerable leverage through the Strait of Hormuz, unless the economic damage at home eventually forces Tehran to compromise.

But there is an important asymmetry: an oil price shock can inflict significant damage on the entire global economy, while Iran's economic crisis remains primarily a domestic problem.

That makes the current situation particularly dangerous for financial markets.

Higher oil prices feed directly into the key risks markets are already facing:

Higher oil prices → higher inflation → higher bond yields → greater probability of rate hikes → weaker consumers → pressure on financial system → pressure on equity valuations.

And with US Treasury yields already moving back above 4.70%, another sustained rise in oil prices could quickly become a much broader market problem.

This is not the time to chase risk assets.

I continue to favor elevated cash allocations, precious metals and appropriate hedging while waiting for better opportunities.

The latest US labor market data delivered a significant downside surprise this afternoon.

US nonfarm payrolls unexpectedly fell by 23’000 in July, compared with expectations for an increase of around 80’000. June was revised down to a loss of 20’000 jobs, while May was revised lower to just 63’000.

The revisions are particularly noteworthy. Over the past 12 months, the US economy has now added an average of just 34’000 jobs per month, pointing to a clear slowdown in the labor market.

At the same time, the unemployment rate edged lower to 4.1%. However, this was accompanied by another decline in the labor force participation rate to 61.4%, its lowest level in more than five years.

US stock futures moved higher as investors interpreted weaker employment data as reducing the probability of a Fed rate hike.

Markets:

• Equities: US Futures jump +1% together with global indices

• Bonds: only slightly lower on the longer end - US 10y yield above 4.63%, Japan 10y yield 2.80%

• Commodities: Oil prices slightly higher, WTI around USD 76/barrel and Brent around USD 81/barrel

  Precious metals prices rally, gold above USD 4’350/oz (+2.6%), silver trades above USD 64/oz (+4%)

• Currencies: US dollar is falling, Japanese Yen stronger at USDJPY 157

• Cryptos: gained - Bitcoin back above USD 65k

• Volatility: The VIX index remains low at 15 (good hedging level)

My View: Inflation remains the Fed's bigger concern at the moment. The Fed itself has made clear that bringing inflation back toward its 2% target remains the priority.

Yet markets are currently paying much more attention to the labor market.

Why? Because investors are hoping for bad job data.

A weakening labor market increases the probability that the Fed will step away from a potential rate hike. That explains today's initial market reaction: jobs disappoint, yet stock futures move higher.

Once again, bad economic news is being interpreted as good news for markets.

But there is another side to the story.

If the labor market continues to deteriorate while inflation remains elevated, the Fed could increasingly find itself caught between two problems: persistent inflation on one side and a weakening economy on the other.

Today's report may reduce expectations for another rate hike, but a US economy that is starting to lose jobs in combination with sings of slowing in the last quarter, with yields remaining elevated, corporates on high debt levels, this hardly good news in itself.

For now, markets are celebrating the prospect of fewer rate hikes. Let's see whether this short-term relief lasts, or whether investors eventually turn the coin and start focusing on what weaker job data actually says about the underlying economy.

Debt is becoming one of the defining themes across the US economy. Government debt, consumer debt and corporate debt are all reaching new extremes, while financial markets continue to show remarkably little concern.

The US government's outstanding debt has climbed to a record USD 39 trillion.

US consumers have also accumulated a record USD 18.8 trillion of debt. More concerning is the deterioration in credit quality. Credit card balances more than 90 days overdue continue to rise rapidly, with roughly one in eight outstanding credit card balances now seriously delinquent. Auto loan and leasing delinquencies are also approaching levels last seen during the Global Financial Crisis.

Corporate America is showing increasing signs of strain as well.

The AI investment race has forced several companies to aggressively expand their balance sheets. Oracle has become one of the most prominent examples. Following massive AI-related capital spending, the company's free cash flow fell to approximately negative USD 23.7 billion, while total debt has risen to roughly USD 130 billion. Credit markets are taking notice. The cost of insuring Oracle's debt has climbed to levels last seen during the 2008 financial crisis, and S&P recently downgraded the company to BBB-.

Oracle is not alone. The hyperscalers continue to invest at record levels in AI infrastructure, with capital expenditure increasingly exceeding internally generated cash flows.

Markets: remain calm

• Equities: European equities outperform, while technology shares underperform. South Korea's KOSPI declines another -4.5%

• Bonds: yields almost unchanged - US 10y yield above 4.64%, Japan 10y yield 2.76%

• Commodities: Oil prices slightly higher, WTI around USD 76/barrel and Brent around USD 81/barrel

  Precious metals prices with minor moves after yesterday's rally, gold above USD 4’265/oz, silver trades above USD 61/oz

• Currencies: another day without major moves, Japanes Yen weakens already again with USDJPY 158

• Cryptos: almost flat - Bitcoin at USD 64k

• Volatility: The VIX index on the lows at 15.5 (good hedging level)

My View: Debt levels have moved beyond what I consider healthy across nearly every part of the financial system.

As long as investors continue accepting ever higher leverage, the system can continue functioning. Confidence remains the key ingredient. However, if investor sentiment changes, highly leveraged structures can unwind much faster than markets expect.

The overall picture reminds me of previous financial cycles.

Before the Global Financial Crisis in 2008, excessive leverage accumulated quietly beneath the surface while markets remained relatively calm. Today's environment is different in many respects, but one characteristic looks familiar: debt continues to expand while investors increasingly assume the system can absorb it indefinitely.

It feels like stretching an elastic band further and further. The difficult question is not whether it is stretched, but when it finally breaks.

Another question keeps bothering me.

Why is the Federal Reserve repeatedly forced to inject liquidity into the financial system while inflation remains well above its long-term target? Under normal circumstances, monetary policy should remain restrictive until inflation is brought under control. Instead, policymakers appear increasingly concerned about financial stability.

That raises the possibility that vulnerabilities beneath the surface are larger than markets currently anticipate.

I have highlighted for some time that the US consumer represents one of the weakest links. Household debt continues to rise, mortgage financing remains expensive, and auto loan delinquencies have returned to levels associated with previous periods of financial stress.

If one important domino falls, confidence can disappear surprisingly quickly and trigger a much broader market reaction.

This is not intended to spread fear, but rather to encourage preparation.

Many investors have only experienced markets where every correction was followed by a rapid V-shaped recovery and eventually new all-time highs.

My own experience has been different. I witnessed the technology and telecom crash in 2000-2001. Many telecom companies never recovered their previous valuations. I also experienced the Global Financial Crisis in 2008, after which numerous European banking stocks never returned to their former highs.

History shows that not every market leader eventually comes back.

In a severe financial crisis, cash becomes one of the most valuable assets because it provides flexibility while others are forced to sell.

I also continue to see precious metals as an important strategic allocation. Central banks remain aggressive buyers, reflecting their desire to diversify reserves and reduce dependence on the US dollar.

Meanwhile, bond yields remain elevated, energy prices are higher than historical averages, consumer prices continue to rise, and inflation remains persistent. All this is adding more stress to the already stretched system.

At the same time, retail investors are loaded on stocks with highest leverage levels ever seen. This has also been the case right before the 2001 and 2008 collapse. It is definitely a sign of late late cycle and marks a big warning for the coming weeks.

Finally, market volatility remains unusually low. From a portfolio management perspective, periods like these often provide an attractive opportunity to purchase downside protection while hedging costs remain relatively inexpensive.

Markets remain focused on the Strait of Hormuz, where headlines continue to drive oil prices.

Iranian Foreign Ministry spokesperson Esmail Baghaei said Iran and Oman have agreed on the coordinates for a commercial shipping route through the Strait. However, he stressed that this does not mean the waterway is safe, citing the continued US naval presence and ongoing military tensions.

Despite the diplomatic progress, the security situation remains fragile. Attacks on tankers and cargo ships continue, highlighting that one of the world's most important energy corridors is still far from secure.

Meanwhile, geopolitical risks are widening. Reports suggest Yemen's Houthis are preparing for a full-scale confrontation with Saudi Arabia, following the announcement of a "general alertness" phase and renewed threats against regional shipping.

While markets are pricing hopes of de-escalation, the reality on the ground remains highly uncertain.

Markets:

• Equities: Global markets mixed as investors continue to rotate between AI and defensive sectors.

• Bonds: yields almost unchanged - US 10y yield above 4.64%, Japan 10y yield 2.81%

• Commodities: Oil prices almost stable, WTI around USD 75/barrel and Brent around USD 80/barrel

  Precious metals prices saw a sharp rally adding more than 4%, gold above USD 4’255/oz, silver trades above USD 62/oz

• Currencies: another day without major moves, USDJPY 157

• Cryptos: see some gains - Bitcoin at USD 64k

• Volatility: The VIX index fell again below 16 (good hedging level)

My View: Markets appear to be pricing hope rather than reality.

An agreement on shipping coordinates is not the same as a guarantee that the Strait of Hormuz is open and safe. The region remains heavily militarized, sea mines continue to pose a threat, and attacks or attempted attacks on tankers and cargo ships remain a regular occurrence.

The recent decline in oil prices reflects expectations of de-escalation rather than a meaningful improvement in security conditions. In my view, investors are once again underestimating the geopolitical risks.

At the same time, President Trump appears to be buying time as he looks for a way to de-escalate the conflict without suffering a political setback. For now, Iran holds significant leverage. It can choose to negotiate on its own terms or continue applying pressure through intermittent drone and proxy attacks, keeping uncertainty elevated and preventing a genuine return to normality in the region.

Therefore, I believe the probability of another sharp spike in oil prices remains high.

Over the past few weeks, oil prices have once again shown a negative correlation with equity markets. A renewed surge in crude prices would likely add inflationary pressure, push bond yields higher, and weigh on investor sentiment. As a result, another oil price spike could also trigger a renewed correction in global equity markets.

Short-term headlines once again became the main market driver.

Markets rallied after US Treasury Secretary Scott Bessent said in an interview with CNBC that "we are in talks with the Iranians," adding that "there is a chance we may have a deal today or tomorrow to open the Strait and move towards a more normalized position in this conflict."

The comments immediately fueled hopes of a de-escalation in the Middle East. Oil prices dropped sharply, while US Treasury yields also moved lower as investors priced in reduced inflation risks.

The prospect of lower yields provided another boost for the AI trade, helping technology stocks outperform.

Markets:

• Equities: Global markets traded higher, with U.S. equities leading the gains. Technology stocks outperformed, lifting the Nasdaq by around 2.5%.

• Bonds: US lower while Japan government bond yields continue to rise - US 10y yield above 4.64%, Japan 10y yield 2.86%

• Commodities: Oil prices fell sharply on market noise, WTI around USD 76/barrel and Brent around USD 80/barrel

  Precious metals prices advance, gold above USD 4’075/oz, silver trades above USD 59/oz

• Currencies: no major moves, Japanese Yen weakens again after latest intervention, USDJPY 157

• Cryptos: no significant moves - Bitcoin at USD 63k

• Volatility: The VIX index almost unchanged at 16 (god hedging level)

My View: Markets continue to react aggressively to every headline coming out of Washington.

The question is: why?

Over recent months, investors have repeatedly priced in optimistic geopolitical headlines, only to reverse those moves once reality failed to match the rhetoric. Yet every new statement seems to trigger the same response.

From Washington's perspective, there are strong incentives to encourage lower oil prices and lower bond yields.

Higher oil prices risk pushing inflation higher again. At the same time, higher Treasury yields would make refinancing an already enormous US debt burden even more expensive. With federal debt now exceeding USD 40 trillion, every increase in interest rates and yields carries significant fiscal consequences.

The government therefore has every reason to prefer lower yields and calmer markets.

Meanwhile, the behavior in technology stocks has become increasingly extreme. Seeing some of the world's largest companies gain well into double digits within a single trading session is not a sign of a normally functioning market. It reflects exceptionally aggressive positioning rather than fundamental value creation.

Retail investors continue to pour leveraged money into equities at a pace reminiscent of previous speculative peaks. Similar behavior was observed during the Dot-com bubble and again before the Global Financial Crisis. History never repeats perfectly, but excessive leverage and momentum-driven buying tend to follow familiar patterns.

Nothing fundamental has changed.

The geopolitical situation remains highly uncertain, fiscal challenges continue to grow, and valuation concerns in parts of the AI sector have not disappeared.

Today's rally looks less like a reassessment of fundamentals and more like another wave of FOMO-driven momentum.

Eventually, markets will have to distinguish between headlines and reality. Until then, volatility is likely to remain elevated beneath the surface, even if headline indices continue pushing higher.

After the recent sell-off, investors were quick to return to the market following another strong round of Big Tech earnings. Once again, the familiar "buy the dip" mentality dominated trading.

Amazon surged around 11% after reporting its fastest revenue growth in more than four years, reinforcing confidence that cloud computing and AI spending continue to support its business.

Apple delivered a far less reassuring message. The stock fell almost 8% after warning that supply constraints could limit growth in the coming quarters. Investors also need to consider whether the expected increase in iPhone prices will weaken demand, particularly as Apple continues to struggle to regain momentum in China.

Microsoft gained an extraordinary 15.5%, adding almost USD 500 billion in market capitalization in a single trading session. Even by the lofty standards applied to mega-cap technology companies, the market's reaction was remarkable.

Supported mainly by Microsoft's results, the Nasdaq 100 rallied 3.4% after six consecutive losing sessions, as investors once again decided that a roughly 10% correction represented a buying opportunity rather than the beginning of a broader downturn.

Markets:

• Equities: US futures lower after trading more than 1% higher earlier in the session

• Bonds: yields continue to rise - US 10y yield above 4.73%, Japan 10y yield 2.80%

• Commodities: Oil prices continued their advance, WTI around USD 85/barrel and Brent around USD 88/barrel

  Precious metals: lower, gold at USD 4’045/oz, silver trades above USD 57/oz

• Currencies: USD slightly higher

• Cryptos: significantly lower - Bitcoin at USD 62k

• Volatility: The VIX index almost unchanged with 17

My View: Once again, investors are chasing short-term gains by aggressively buying the dip. In my view, they are largely ignoring the broader macroeconomic picture.

The war involving Iran continues to push oil prices higher, and I believe the risk of a much larger price spike still lies ahead. Higher energy prices would inevitably feed into inflation, putting further upward pressure on government bond yields and increasing the likelihood of additional interest rate hikes.

Meanwhile, the Federal Reserve remains behind the curve. Despite increasingly restrictive market conditions, investors continue to price in an optimistic scenario that I believe is inconsistent with current macroeconomic risks.

For me, the combination of rising oil prices, persistent inflation, higher bond yields and tighter monetary policy ahead is not a favorable backdrop for risk assets.

I therefore keep my positioning unchanged. I continue to expect considerably more market turbulence ahead.

Do not try to catch a falling knife.

As widely expected, the Federal Reserve left its benchmark interest rate unchanged at 3.50%–3.75%, despite markets assigning roughly a 30% probability of a rate hike ahead of the meeting.

The FOMC voted 9-3 to keep interest rates unchanged, with three members dissenting in favor of an immediate rate hike. The split highlights growing concern within the Committee that inflation risks remain elevated.

Warsh reiterated the Fed's commitment to restoring price stability.

"Inflation remains elevated, and the Federal Open Market Committee is firmly committed to ensuring price stability. We have one objective, and that is 2% inflation."

Markets reacted with significant volatility throughout the announcement and the subsequent press conference.

One notable move came in the Treasury market. The 30-year Treasury yield climbed to its highest level since 2007, while the 2-year yield declined, further steepening the yield curve.

Following the meeting, futures markets increased the probability of no rate change at the next meeting to 35%, while pricing a 65% probability of a rate hike in September.

Markets:

• Equities: European markets continue to outperform while US futures stabilize after yesterday's decline.

• Bonds: Mixed performance. Long-term US yields moved higher while the 2-year yield eased slightly - US 10y yield above 4.7%, Japan 10y yield 2.80%

• Commodities: Oil prices resumed their advance, WTI around USD 85/barrel and Brent around USD 92/barrel

  Precious metals: little changed, gold at USD 4’060/oz, silver trades above USD 57/oz

• Currencies: USD little changed after yesterday's drop

• Cryptos: moving higher - Bitcoin at USD 64k

• Volatility: The VIX briefly moved above 20 before easing slightly below that level

My View: The Fed left interest rates unchanged despite several factors that would traditionally argue for a more restrictive stance: oil prices remain elevated, a new wave of tariffs is adding inflationary pressure, uncertainty has increased, and inflation continues to run well above the Fed's 2% target.

I continue to hold what remains a relatively isolated view: the Federal Reserve is running behind the curve, particularly if energy prices remain elevated or move even higher and the economy avoids a near-term recession.

Even more important than the decision itself is the new communication framework under Kevin Warsh.

After two policy meetings, it remains difficult for investors to assess how the new Fed Chair intends to conduct monetary policy. Unlike the Powell era, the Federal Reserve no longer publishes projections for interest rates or the broader macroeconomic outlook. Investors therefore receive far less insight into how policymakers assess the economy, the inflation outlook, or the likely path of future policy.

For financial markets, this represents a significant shift away from the transparency and forward guidance that have characterized the Fed over recent years.

Ironically, while Warsh's comments were intended to project confidence and stability, they have instead created greater uncertainty. The Fed's decision to leave rates unchanged appears difficult to reconcile with its own message that inflation remains elevated and that returning inflation to 2% remains the central objective.

Looking ahead, I believe investors should also recognize how dependent the current US economy has become on the ongoing AI investment cycle. Much of today's economic strength is being supported by unprecedented capital spending on artificial intelligence infrastructure. Should that investment cycle slow materially, the economy could quickly transition from solid growth toward recession, or, even more challenging, stagflation.

In that scenario, the Federal Reserve would eventually be forced to cut interest rates. However, if inflation remains elevated because of higher energy prices or persistent tariffs, those rate cuts would likely come later rather than sooner, leaving policymakers with very limited room to maneuver.

Since Friday, the Nasdaq Index has fallen below an important technical support level, breaking to the downside from the sideways trading channel that had been building since May. The move represents a deterioration in the technical picture and increases the risk of further selling pressure.

As I highlighted on Friday on my Instagram @etfmandate and in my Weekend Mail, a confirmed break of this support level would likely trigger additional selling as technical traders and momentum investors reduce exposure.

A similar picture is unfolding in South Korea. The KOSPI Index has fallen by more than 10% today, led by heavy losses in semiconductor and memory stocks. The decline has been amplified by forced liquidations and margin calls, accelerating the downward move.

The weakness remains concentrated in technology, particularly in companies closely linked to the AI investment theme.

Markets:

• Equities: Technology stocks continue to underperform, while many other equity markets remain relatively resilient

• Bonds: little changed, US 10y yield around 4.62%, Japan 10y yield 2.78%

• Commodities: Oil prices stabilized after falling yesterday, WTI around USD 82/barrel and Brent around USD 86/barrel

  Precious metals: fall, gold at USD 4’025/oz, silver trades above USD 57/oz

• Currencies: USD little changed

• Cryptos: moving lower - Bitcoin at USD 63k

• Volatility: moves higher with the VIX index towards 19, however, remains rather low

My View: Technology continues to lead the market lower, and that deserves close attention.

So far, the selling has largely remained concentrated in semiconductor and AI-related stocks. However, rising volatility and forced selling through margin calls increase the risk that weakness spreads into other sectors of the market.

Technical breaks often become self-reinforcing. Once key support levels fail, systematic strategies, momentum funds and leveraged investors frequently become sellers at the same time. That does not necessarily signal the start of a bear market, but it does increase the probability that the current correction extends further before a sustainable bottom is established.

For now, the technical picture has become more important.
I will be watching closely whether these support breaks trigger broader risk reduction across global equities or remain largely confined to the technology sector.

This week's earnings from Microsoft, Apple, Amazon and Meta are now in sharp focus. They will provide another key test of whether today's AI-driven valuations can still be justified. With expectations remaining exceptionally high, the reports and outlooks have the potential to move not only technology stocks but the broader market in either direction.

After threatening further heavy strikes before the weekend, the United States has suspended military attacks on Iran for the past two days. President Donald Trump stated that he had ordered a halt to the strikes, while Iran has also refrained from retaliatory action.

The temporary pause has fueled speculation that both sides are using the time to reassess their positions. At the same time, reports continue to circulate that the United States is facing growing pressure on its stockpiles of precision-guided munitions and Patriot interceptors, which are essential for protecting US assets and Middle Eastern allies against ongoing drone and missile attacks.

The economics of the conflict also remain striking. Using a Patriot interceptor costing roughly USD 4 million to destroy a drone worth approximately USD 30,000 is an extremely expensive defensive strategy and raises questions about the long-term sustainability of such operations.

Markets: welcomed the pause in hostilities.

• Equities: rising globally with US Futures up more than 1%

• Bonds: falling slightly, US 10y yield around 4.64%, Japan 10y yield 2.78%

• Commodities: Oil prices fall substantially by 7%, WTI around USD 84/barrel and Brent around USD 91/barrel

  Precious metals: advance, gold at USD 4’095/oz, silver trades above USD 59/oz

• Currencies: USD slightly lower

• Cryptos: moved higher over the weekend already, now flat - Bitcoin at USD 65k

• Volatility: moves lower with the VIX index at 17

My View: Markets are once again behaving as if the conflict is moving toward a lasting resolution. I remain skeptical.

In my view, this looks far more like a tactical pause than the end of the war. Both sides may simply be buying time, to replenish munitions, reposition military assets, and reassess their next steps.

From a strategic perspective, I do not believe the United States is currently in a strong position to dictate the outcome of this conflict. Iran still retains meaningful leverage, and many of the fundamental issues that triggered the escalation remain unresolved.

The market's willingness to quickly price out geopolitical risk reminds me how rapidly sentiment can swing from fear to optimism. History suggests these assumptions often prove premature.

For investors, nothing has changed.

I continue to view the geopolitical risks as elevated. At this stage, I see no reason to change my portfolio positioning.