Written by: Chao Xiang Research

On Thursday, all three major U.S. stock indices closed higher, with the S&P 500 up 1.06% to 7747.71 points, marking the largest single-day gain since August 4; the Dow Jones rose 1.18% to 53686.11 points; and the Nasdaq climbed 1.40% to 26584.06 points. The VIX reported at 14.32, down about 5.8%. The yield on the 10-year U.S. Treasury fell back to around 4.77%, while the 2-year yield was around 4.36%. The core reason driving the market higher was Fed Governor Waller releasing dovish signals, indicating that if inflation continues to slow, he would be inclined to support keeping interest rates unchanged in September, with the probability of a rate hike dropping from 63% to 52%. The U.S. ISM Services PMI rose to 55.4 in August, hitting a six-month high. NVIDIA announced the acquisition of Hugging Face for $12.93 billion, its largest single acquisition to date, and NVIDIA's stock rose by 3.20%. Bitcoin was around $77,300. The dollar index fell by 0.11% to 99.51. OpenAI released GPT-6 Astra. Lululemon fell more than 8% in after-hours trading.

Waller's dovish stance, September rate hike probability drops from 63% to 52%

Fed Governor Waller released the most explicit dovish signal since the current rate hike cycle began on Thursday. Waller stated that recent data finally shows signs of slowing inflation and expects next month's CPI and PPI to be at "reasonable levels." If the data continues this trend over the next two weeks, he would be inclined to support keeping interest rates in the 3.50% to 3.75% range unchanged in September. Waller noted that the current interest rate setting could bring the U.S. back to a 2% inflation level, and it's possible to wait for another meeting to make a decision.

After Waller's comments, interest rate expectations rapidly cooled. Traders' bets on a September rate hike dropped from 63% to 60%, and then further down to 52%. U.S. stocks, treasuries, and gold all rose simultaneously.

However, the inflation data is not entirely favorable. The U.S. ISM Services PMI rose to 55.4 in August, exceeding the expected 54.3, reaching a six-month high. The prices paid index increased to 72.6, the highest since August 2022, as rising energy costs are broadly transmitted to the services sector. The rise in service sector price pressures means that the decline in inflation may not be smooth, and Waller's conditional statement of "if the data continues this trend" still requires validation.

NVIDIA's $12.9 billion acquisition of Hugging Face, OpenAI releases GPT-6 Astra

On the corporate front, NVIDIA was the most closely watched name on Thursday. NVIDIA agreed to acquire the AI open-source platform Hugging Face for $12.93 billion, marking its largest single acquisition to date. Jensen Huang stated that the platform will remain open, allowing free uploading and downloading of models without enforcing the use of NVIDIA hardware. This acquisition aims to control core nodes of the open-source ecosystem. NVIDIA's stock rose by 3.20%.

On the same day, OpenAI released GPT-6 Astra, claiming it was trained using 100,000 GPUs, with cybersecurity capabilities reaching the company's "critical" level for the first time, capable of identifying unknown software vulnerabilities and developing exploitation methods, although its strongest features are not yet fully open. ChatGPT, Claude, and Grok briefly experienced downtime for nearly 4 hours, but have since recovered. The AI industry is undergoing a phase where improved model capabilities and challenges in infrastructure stability are occurring simultaneously.

In individual stocks, Snowflake rose 16.55% after earnings, Broadcom fell 2.74%, and Ciena dropped 10.36%. Lululemon fell over 8% in after-hours trading. Tesla rose 5.42%, continuing a momentum that saw nearly 20% increase in August into the beginning of September.

ISM Services PMI hits a six-month high, AI infrastructure drives widening trade deficit

In macro data, the U.S. trade deficit in July expanded by 24.4% month-on-month to $88.6 billion, the highest since March 2025. The AI infrastructure boom is driving a surge in capital goods imports, with computer accessories experiencing the largest single-month increase in history, and net exports are expected to drag third-quarter GDP down by over 1.3 percentage points. Physical investments in AI are transitioning from corporate earnings numbers to macro statistical data, with surges in imports of chips, servers, and data center equipment reshaping the U.S. trade landscape.

Yen rises nearly 3% in two days past 156, dollar index falls below 99.51

In the currency market, the dollar against the yen fell 1.83% to 155.759 on Thursday, with a cumulative decline of nearly 3% over the past two trading days, marking the largest two-day increase for the yen since August 2024. A hawkish member of the Bank of Japan has stated that there is a possibility of unconventional and consecutive rate hikes, with the market fully pricing in a 25 basis point rate hike in September. The auction results for Japan's 30-year government bonds were better than expected, providing temporary relief in the global bond market. The dollar index fell by 0.11% to 99.51.

Tonight's focus

U.S. August non-farm employment data (tonight). The ADP added only 38,000 jobs, signaling a weakening labor market, while the ISM Services PMI gave a signal of expansion in the service sector, with the two sets of data pointing in different directions. Tonight's non-farm data will be the last employment report before the September FOMC meeting, and it is a key variable to verify whether Waller's "trend of slowing inflation" can be sustained. If non-farm figures significantly fall below expectations, the probability of a September rate hike may further decline; if the data is strong, the dovish expectations brought about by Waller's speech may be revised.

The core signal from overnight U.S. stocks is that Waller's dovish remarks have temporarily interrupted the rising trend of rate hike expectations. However, the ISM Services prices index rose to the highest since August 2022, indicating that the decline in inflation still has the potential for fluctuations. The market is trading on the expectation of a "pause on rate hikes," which is predicated on the ability of the data over the next two weeks to validate Waller's assertion of a "continuing trend of slowing inflation."