Written by: Chaoxiang Research

The window for U.S.-Iran negotiations has expired, and the prospects for a long-term agreement are bleak. The three major U.S. stock indices fell for the second consecutive day, with the Dow Jones hitting a two-week low. The S&P 500 fell 0.52% to 7745.06 points, the Dow Jones fell 0.51% to 53459.78 points, and the Nasdaq fell 0.32% to 26644.911 points. The VIX reported 17.42, up 6.48%. All of the "Seven Tech Giants" fell, with Meta leading the decline by dropping 3.5%. However, storage chip stocks and optical communication stocks rose against the trend, with the Philadelphia Semiconductor Index rebounding 1.6%, returning to the bull market territory. Middle Eastern risks drove U.S. Treasury yields higher, with the 30-year Treasury yield reaching a new high since 2007. The prospects of a U.S.-Iran agreement boosted crude oil prices, with Brent crude closing above $90 for the first time in three weeks. Gold reached a new high in over two months. The U.S. dollar index fell for three consecutive days, with the offshore yuan breaking 6.74 during the session, hitting a new high in over three years. The market's main line is clear, geopolitical risks are rising, pushing up oil prices and safe-haven assets, but the demand logic for AI chips is still strengthening, with funds continuously increasing their positions in storage and optical communication.

The U.S.-Iran Negotiation Window Has Expired, Long-term Agreement Prospects Are Bleak, Oil Prices Stand Above $90

The core macro variable on Monday is geopolitics. The window for the memorandum of understanding between the U.S. and Iran has expired, and the two sides have not reached a delay agreement. Trump stated he is not in a hurry to end the war in Iran and does not seek to extend the U.S.-Iran memorandum of understanding, claiming that the Iranian side "will not reach the kind of agreement that I believe is necessary," and warned that if Oman obstructs the negotiations, there will be "heavy bombings." The Iranian side is equally tough, ruling out the possibility of extending the memorandum of understanding and stating that a final deadline for U.S. compliance has been set.

There are no signs of narrowing the gap in positions between the two sides, and oil prices surged in response. WTI September crude futures rose 2.55% to $84.50 per barrel, reaching a new high this month; Brent October crude futures rose 2.65% to $90.87 per barrel, closing above $90 for the first time in three weeks.

Middle Eastern oil-producing countries continue to secretly transport crude oil through the Strait of Hormuz by shutting down transponders, reportedly exceeding 4 million barrels per day, but this secret supply chain has not completely offset the geopolitical risk premium. The upward momentum for oil prices in the short term still comes from political levels, rather than from supply and demand fundamentals.

The 30-Year U.S. Treasury Yield Hits a New High Since 2007, U.S. Treasury Sell-off Continues

U.S. Treasury yields continue to rise. The 30-year U.S. Treasury yield briefly rose above 5.31%, hitting a new high since 2007. The 10-year U.S. Treasury yield is about 4.72%, up about 3 basis points during the day; the 2-year U.S. Treasury yield is about 4.18%, up about 1 basis point during the day.

The core factor driving the rise in long-end yields is supply pressure. Companies are issuing bonds on a large scale to support the AI boom, with the issuance of U.S. investment-grade bonds reaching $145.2 billion in August, surpassing the monthly record of $136 billion set in August 2020. At the same time, the nearly $2 trillion annual fiscal deficit of the U.S. government continues to push up Treasury supply.

Major overseas holders are also reducing their holdings. Data from the U.S. Treasury Department shows that in June, Japan and China led overseas sell-offs of U.S. Treasuries, with both Japan and China, along with the UK as the three biggest "creditors", reducing their holdings. China's holdings decreased by $25.9 billion to $633.4 billion after rebounding in May, reaching a new low since 2008.

Bank of America Hartnett stated in a recent research report that U.S. Treasury debt is approaching the $40 trillion mark, with the AI financing boom driving corporate debt supply to surge by 61% year-on-year, structurally crowding out Treasury buyers, with debt interest payments reaching $1.4 trillion. Hartnett believes that going long on gold is the best hedge against U.S. dollar depreciation, bond collapse, and political risk.

The Chip Index Returns to a Bull Market, Storage Stocks and Optical Communication Stocks Lead the Market Higher Against the Trend

The rise in U.S. Treasury yields has constrained the seven giants, but the semiconductor sector, which has an independent demand logic for AI chips, has strengthened against the trend. The Philadelphia Semiconductor Index rebounded 1.6%, with this bear market lasting only 21 days, the shortest since March 2020.

Storage chip stocks performed the strongest. SanDisk rose nearly 9%, and Western Digital rose over 5%. Micron's five-day cumulative gain reached 17.5%. The market believes that the impressive financial data recently disclosed by Anthropic and OpenAI is the most important catalyst for chip stocks right now, boosting visibility for AI chip demand.

Optical communication stocks also strengthened simultaneously. Coherent rose nearly 8%, and Lumentum rose 4.6%. The demand for high-speed optical interconnection in AI data centers continues to be validated, with funds continuing to concentrate in the more certain AI hardware sub-sector amidst macro uncertainty.

SpaceX rebounded over 4%. Previously, SpaceX faced continuous pressure due to capital expenditure concerns, and Monday's rebound shows that the market still has confidence in the long-term logic of AI infrastructure investment.

All Seven Giants Closed Lower, Further Divergence in Trends Between Chips and the Seven Giants

All seven "tech giants" closed lower on Monday, becoming the main drag on the market. Meta led the decline with a drop of 3.5%, while the other six companies experienced relatively mild declines.

The collective weakness of the seven giants is set against the backdrop of continued rising U.S. Treasury yields. Higher long-end rates put pressure on the valuation discount rate for high-valuation growth stocks, leading funds to temporarily withdraw from large tech stocks amidst macro uncertainty.

However, the withdrawal of funds does not represent a systemic exit; the strengthening of the chip index shows that funds have merely shifted within the tech sector, moving from the seven giants to the more certain AI hardware sub-sector.

The Dollar Falls for Three Consecutive Days, the Renminbi Hits a Three-Year High, Gold Rises to a Two-Month High Driven by Safe-Haven Demand

The U.S. dollar index fell for the third consecutive day, hitting a new low in over two months during the session. The offshore yuan broke 6.74 during the session, hitting a new high in over three years. Gold reached a new high in over two months, rising over 1% during the session, with COMEX August gold futures up 0.85% to $4417.8 per ounce. Rising U.S. Treasury yields typically put pressure on gold, but the safe-haven demand brought by rising geopolitical risks outweighed interest rate factors.

Bitcoin broke $64,000 during the session, rising 3% from the day's low. Digital assets received support against the backdrop of a weakening dollar. COMEX August silver futures rose 1.74% to $66.121 per ounce.

Today's Focus

On Tuesday, the market focus has two directions.

One is the follow-up development of the U.S.-Iran situation. Whether there will be new contacts or an escalation of confrontations after the expiration of the memorandum of understanding will directly affect the movement of oil prices and risk assets. Trump's statement of "not being in a hurry to end the war in Iran" indicates that the geopolitical risk premium is unlikely to be eliminated in the short term.

The other is Baidu's earnings report and conference call. The pull effect of AI large models on cloud business and the recovery pace of advertising business are the core points of interest. Against the backdrop of the Golden Dragon Index continuously underperforming, Baidu's earnings report will test whether there has been a marginal change in global investment attitudes towards Chinese concept stocks.