That said, the energy market’s reaction to the weekend news is muted. Investors are reacting more to the news that Gulf nations are finding ways out of the Strait of Hormuz – by going dark and ferrying oil through the Strait, then transferring it to tankers in the Gulf of Oman to sail away to customers. According to Bloomberg, Gulf producers channel more than 4mbpd out of the Persian Gulf, keeping oil prices in check despite the deteriorating geopolitical situation. As such, both US and Brent crude trade flat this morning: near $82pb for the former and a touch below $89 for the latter.

But sovereign yields tell a different story. US yields kicked off the week flat, but Asian yields gapped higher, with the Japanese 10-year yield jumping past 2.92% – the highest since 1996. We saw a comparable jump in Australian and New Zealand yields – suggesting that the move was more global than Japan-centric.

As for Japan, rising hawkish Bank of Japan (BoJ) expectations have so far failed to give support to Japanese bonds and the yen. The USDJPY is softer this morning due to a broadly softer US dollar, weakened by the latest softness in US jobs, inflation and retail sales data. Any fresh rally in oil prices could, however, put a floor under the US dollar selloff, temporarily.

The longer-term outlook for the US dollar and US bonds looks bearish: investors dislike the boiling Middle East war, which is costing the US way more than it was supposed to (it was supposed to be a few-week operation), while the exploding US debt and the lack of budget discipline from the Trump government weigh on appetite for US debt, as the national debt is about to surpass the $40 trillion mark.

Last week, the US 10-year auction settled at the highest yield since 2007, while the 30-year bond auction settled above 5.20% – despite softening hawkish expectations for the Federal Reserve (Fed). And rising global yields could – at some point – threaten equity risk appetite.

But not today. US and European futures are in positive territory heading into the weekly opening bell. In fact, Q2 earnings have been so strong that investors are not willing to jump off the back of the bull, conscious that the underlying economic and geopolitical issues are not necessarily bad for company earnings: higher – and volatile – energy prices have been a boon for global energy companies, while banks printed strong results thanks to increased trading activity and financing of the AI buildout. If oil prices remain in check, keeping central bank hawks at bay, there is little reason for investors to jump ship.

This week, however, we will have a better idea of the possible K-shaped US growth, with big retailers due to announce how they performed in Q2 amid rising energy prices, higher inflation and weakening consumer sentiment. I expect to see soft results for many retailers, and a strong quarter for those offering low prices – like Walmart – but the latter will probably not change the fact that the biggest earners in the S&P 500 earned big despite the potentially weakening consumer leg of the economy. On the contrary, results pointing to weaker domestic consumption could further tame inflation worries, help ease Fed hike bets and hence put downward pressure on US yields. That would be a positive development for the major US indices, heavy in technology.

Similarly for Europe, the underlying economies may be struggling with higher energy prices and rising inflation worries, but the Stoxx 600 – which makes more than half of its revenue from outside the continent – printed a strong earnings season, also thanks to robust energy and bank earnings. The biggest risk is a renewed rise in energy prices, which would push yields higher on hawkish European Central Bank (ECB) bets. So, oil prices will matter for keeping Stoxx 600 appetite in check near ATH levels. Any fresh push in Brent above $90pb could spoil sentiment, and appetite would become increasingly sensitive to energy prices if Brent makes a fresh attempt towards $100pb.

Interestingly, or perhaps not so much, there is one place where yields are being pressured lower – not higher: China. Chinese bond markets diverge notably from their Western and major Asian peers. The Chinese 10-year yield has fallen to its lowest level in a year on the back of weakening consumer spending that keeps the Chinese economy near the cusp of deflation despite soaring technology and AI growth. The 10-year paper now yields 1.68%. In 2004, it was near 5%.

News this morning that Alibaba’s open-weight models accumulated more than 3 billion – yes, 3 billion – global downloads helps lift Alibaba’s stock price in Hong Kong ahead of Thursday’s earnings. Appetite for the Hang Seng peaked in early August on worries that Chinese AI rivals are also facing headwinds due to the huge AI spending needed to keep up with their US rivals, while American AI champions announce fast-growing revenues ahead of their upcoming IPOs. The race is on. Having some exposure to Chinese tech champions could be an interesting hedge against the impact of Chinese competition on Western peers – and their broader AI circles.