Written by: Chao Xiang Research

On Thursday, U.S. stocks fell for the fourth consecutive trading day, with the S&P 500 down 0.58% at 7591.70 points, the Nasdaq down 0.65% at 26081.720 points, and the Dow down 0.60% at 52064.10 points. The VIX reported 17.28, an increase of about 5.3%. The core factor suppressing the market is the August PPI data exceeding expectations, rising 5.4% year-on-year, higher than the market's expectation of 5.3%, and further up from the previous value of 4.7%. The 10-year U.S. Treasury yield rose over 5 basis points to 4.849%, reaching a nearly three-year high, while the 2-year yield stood at 4.442%. However, the market did not see a uniform decline, as Apple rose 3.56%, leading the seven tech giants, Meta increased by about 4%, and the Wind U.S. Technology Seven Giants Index slightly rose by 0.11%. The storage chip sector collectively corrected. Brent crude oil surpassed $107, and gold recovered to $4400. On the same day, the European Central Bank announced a 25 basis point interest rate hike. Tonight's U.S. August CPI data will be the most crucial variable of the week.

PPI exceeding expectations boosts rate hike prospects, U.S. Treasury yields reach a nearly three-year high

The U.S. August PPI rose 5.4% year-on-year, higher than the market expectation of 5.3%, and up from the previous value of 4.7%; month-on-month it rose 0.4%, consistent with expectations and marking the largest increase since May. The core PPI rose 0.2% month-on-month, below the expectation and previous value of 0.3%, but year-on-year it still reached 4.6%. After the data was released, the 10-year U.S. Treasury yield temporarily rose to around 4.89% during the trading session.

Traders have increased the probability of a Fed rate hike in September to over 70%, fully pricing in the expectation of the first rate hike at the latest by October. The 2-year Treasury yield rose over 3 basis points to 4.442%, narrowing the spread with the 10-year yield to about 40 basis points, further tightening the pricing of the Fed's policy path.

The U.S. dollar index fell for the third consecutive trading day, down 0.06% to 98.78. The divergence between Treasury yields and the dollar's movement has appeared, as rising oil prices pushed up inflation expectations, but the dollar did not strengthen in response; concerns over fiscal discipline and debt supply are weakening the dollar's safe-haven appeal.

Besides interest rates, geopolitical risks were another main pressure line on Thursday.

Brent crude exceeds $107, Middle East situation shifts from blockade to shipping war

The conflict in the Middle East has escalated further. The U.S. military has expanded its strike range to Iranian oil transport vessels, while Houthi forces attacked energy facilities within Saudi Arabia, and Iran has carried out large-scale retaliation against commercial tankers and U.S. military targets. The focus of conflict has shifted from the risk of supply disruptions in the Strait of Hormuz to a shipping war over control of the strait, spilling over into Saudi Arabia and the Red Sea.

International oil prices continue to soar. Brent November contracts rose 6.34% to $107.63 per barrel; WTI October contracts rose 6.69% to $102.48 per barrel. The diesel crack spread approached $100, and the Saudi Aramco Jazan refinery has not been able to operate normally since being attacked in July, making tight diesel supply more noteworthy than crude oil itself.

The energy sector was the only sector of the S&P 500 to close up, rising 1.09%. The industrial sector and non-essential consumer goods sector fell 1.51% and 1.39%, respectively, leading declines.

Under pressure on the market, there was obvious divergence within tech stocks.

Apple and Meta perform strongly against the trend; storage sector corrects collectively

The internal trends of tech stocks were divergent. Apple rose 3.56% to $326.57, while Meta increased by about 4%, with its newly released personal AI entity Muse from the previous day continuing to gain funding recognition. Microsoft rose 0.16% and Google C rose 0.61%. The Wind U.S. Technology Seven Giants Index slightly rose by 0.11%.

The storage sector collectively faced corrections. The Philadelphia Semiconductor Index fell 2.66%, with 25 of the 30 component stocks declining. Intel fell over 6%, Lam Research fell 5.65%, ARM fell over 4%, Micron Technology fell nearly 4%, and Qualcomm, AMD, ASML, NVIDIA, and TSMC fell over 2%. SK Hynix closed down nearly 5% at $188.25, giving back some of the prior gains.

The correction in the storage sector does not mean that the industry logic of AI hardware has been negated. In the previous few trading days, stocks like SK Hynix and Micron had continuously reached new highs, accumulating significant short-term gains, and the rate jump following the unexpected PPI triggered profit-taking. The tug-of-war between the long-term order logic of storage and optical communication and the short-term valuation pressures will remain a focal point of observation in the coming days.

Regarding Chinese concept stocks, the Nasdaq China Golden Dragon Index fell 2.08%. Alibaba fell 2.8%, and iQIYI fell 5%.

In the commodity markets, gold and industrial metals showed clear divergence in trends.

Gold recovers to $4400, industrial metals face pressure

Gold rose 1.07% to $4402.00 per ounce, reaching a high of $4434.1 during the session, regaining the $4400 mark; silver rose 2.32% to $67.28 per ounce. According to the World Gold Council, global gold ETF net inflow in August was $18 billion, marking the second-largest single-month inflow in history. The total asset management scale increased to $615 billion, and the holdings reached 4189 tons, a new historical high.

Industrial metals faced pressure. COMEX copper futures fell 5.24% to $6.5275 per pound, with the rising Treasury yields and tightening dollar liquidity creating dual pressure on industrial metals.

Bitcoin was about $78137, down 0.52% in 24 hours; Ethereum was about $2461, down over 1%.

Today's Focus

U.S. August CPI data. This is the last inflation data of the week and a key variable determining the September rate hike path. The year-on-year PPI exceeding expectations has pushed the rate hike probability to over 70%, and the performance of the CPI will determine whether this probability continues to rise or falls back. Traders are extrapolating the CPI from PPI breakdown data; simple regression shows that the month-on-month CPI for August is about 0.4%, consistent with market expectations, but faster than the previous month. If the core CPI month-on-month exceeds 0.3%, the expectations for a rate hike will be further reinforced; if it is below 0.2%, the market may gain a brief respite.

Market feedback after Apple's new product launch. Apple’s stock price rose 3.56% on Thursday, leading the seven giants, but initial sales and supply chain feedback for the foldable iPhone Duo still need time to verify. Whether the pricing in the consumer electronics supply chain has switched from launch expectations to sales verification is a direction that needs to be tracked moving forward.