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.

Trade tensions are moving back into the spotlight.

The Trump administration has introduced a new tariff regime covering the vast majority of US imports after the temporary 10% global tariffs expired. The new duties, ranging from 10% to 12.5%, apply to 60 trading partners and cover approximately 99.4% of US trade.

In addition, President Donald Trump announced a new trade investigation into the European Union, saying it will likely result in substantial additional tariffs on the 27-member bloc. Trump accused the EU of unfairly targeting US companies through regulatory actions and fines against American technology firms, pointing specifically to the recent USD 1 billion fine imposed on Google.

Markets: remain calm despite the tariff announcements

• Equities: Investors remained relatively calm, with markets continuing to focus on the ongoing earnings season rather than the latest trade headlines

My View: Markets continue to display remarkable resilience.

The latest measures represent another step toward a more protectionist US trade policy. While the tariff rates themselves are relatively modest compared with previous rounds of trade restrictions, they increase uncertainty for global supply chains and multinational companies already facing higher financing costs and geopolitical risks.

So far, investors have largely ignored the growing number of geopolitical and trade-related headlines, placing far greater emphasis on strong corporate earnings and the AI investment story. However, tariffs are effectively another form of taxation. They increase costs for importers, businesses and, ultimately, consumers.

The direct economic impact of today's measures may be limited, but the direction is clear. Trade barriers are rising again, adding another potential source of inflation at a time when central banks are still far from declaring victory over price pressures.

For now, markets are willing to look through these developments. Whether they can continue to do so will largely depend on whether tariffs remain a negotiating tool or evolve into a broader global trade conflict.

Investors should not underestimate the cumulative effect. Rising tariffs, persistent geopolitical tensions and elevated AI-related capital spending all point in the same direction: a world becoming structurally more expensive and more uncertain. In such an environment, markets may prove less forgiving than they have been over the past several months.

Last night, Alphabet became the first of the major hyperscalers to report second-quarter earnings, providing investors with an important first look at the economics behind the AI investment cycle.

Hyperscalers: the world's largest cloud computing companies, operating massive global data center networks capable of scaling computing power almost without limits. The leading hyperscalers include Alphabet (Google Cloud), Microsoft (Azure), Amazon (AWS) and Meta, all of which are investing hundreds of billions of dollars into AI infrastructure.

Alphabet delivered another strong quarter. Revenue exceeded expectations, supported by an impressive 82% year-over-year increase in Google Cloud revenue, while operating income remained solid.

However, one number overshadowed everything else.

The company raised its expected 2026 capital expenditure (capex) to USD 195–205 billion, up from the previous guidance of USD 180–190 billion. Second-quarter capex alone doubled from a year ago to USD 44.9 billion, reflecting the enormous investments required for AI infrastructure.

Although the operating business remains highly profitable, Alphabet's capital expenditures now exceed its quarterly operating income. As a result, free cash flow turned negative, highlighting how aggressively cash is being reinvested into the AI race.

Markets:

• Equities: Global markets are down led by technology stocks, with Nasdaq Futures down -1.5%; Google is down -7%

• Bonds: yields continue to climb, US 10y yield around 4.71%, US 30y at 5.19%, Japan 10y yield 2.78%

• Commodities: Oil prices jumps more than 5%, with WTI around USD 91/barrel and Brent around USD 100/barrel

  Precious metals: fall, gold at USD 4’050/oz, silver trades above USD 57/oz

• Currencies: USD is rising

• Cryptos: falling slightly - Bitcoin at USD 65k

• Volatility: jumps above 19, however still low

My View: Last night's results confirm a concern I have highlighted for quite some time. The AI race is becoming a capital expenditure race.

Alphabet is spending enormous amounts of cash simply to remain competitive. The hope is that these investments will eventually generate attractive returns. I remain increasingly skeptical.

Today, the company is spending more cash than it generates from its operations. That leads to negative free cash flow. While this is not unusual during periods of heavy investment, it is still a warning sign that investors should not simply ignore.

The common counterargument is straightforward: if investment spending slows in the future, free cash flow will recover quickly. That is true in theory.

The problem is that the money has already been spent. Even more importantly, can these companies realistically reduce CapEx? Every major technology company fears falling behind in AI. The competitive pressure has created an environment where spending is almost mandatory. It increasingly resembles a winner-takes-all race in which nobody feels able to step off the accelerator.

Another factor deserves close attention.
Chinese AI companies continue to demonstrate that highly competitive models can be developed with significantly lower investment budgets than their US counterparts. If similar performance can ultimately be achieved with a fraction of the capital, investors should begin asking difficult questions about whether the current spending levels are economically justified.

Regular readers know my position on the broader AI cycle. I believe artificial intelligence will become a valuable productivity and supporting tool across many industries, knowing that the perfect tool without any mistakes remains wishful thinking.

I remain far less convinced that today's unprecedented spending will ultimately generate returns that justify the hundreds of billions of dollars currently being invested.

The technology itself is not my concern, the economics behind the AI race are.