Written by: Trend Research

On Tuesday, the three major U.S. stock indexes fell for the second trading day in a row, with the Dow down 0.63% at 52093.11 points, the S&P 500 down 0.45% at 7585.73 points, and the Nasdaq down 0.78% at 25981.57 points. The VIX closed down 0.12 points at 16.98, after rising nearly 8% during the day. The core pressure on the market stems from the dual impact of soaring oil prices and expectations of interest rate hikes, with WTI crude oil rising 4.38% to $105.83 per barrel, Brent crude up 2.90% to $108.75 per barrel, and diesel futures settling at a record high. The market has priced in a 94% probability of a 25 basis point rate hike by the Federal Reserve in September, with the yield on the 10-year Treasury note briefly rising to 5.041%, the highest level since 2007, before retreating to 4.996% at the end of trading. The Philadelphia Semiconductor Index ended its previous streak of declines, climbing 1% to 11250.38 points, with Skyworks jumping over 13% and Qualcomm rising over 4%. Oracle fell 3.07% to $140.35, announcing a layoff of about 13% to finance AI expansion. This evening, the Federal Reserve's interest rate decision and dot plot will be announced.

The 10-year Treasury yield reached 5.041%, with the market almost fully pricing in a rate hike

The Treasury market was the core source of macro pressure on Tuesday. The yield on the 10-year Treasury bond briefly rose to 5.041%, the highest level since 2007, then retreated from the high, ultimately rising 0.82 basis points to 4.996%. The yield on the 30-year Treasury rose by 1.73 basis points to 5.365%. The yield on the 2-year Treasury fell by 0.57 basis points to 4.654%.

Market pricing indicates that the probability of a rate hike in September has exceeded 94%. A Reuters survey shows that over 80% of economists surveyed expect the Federal Reserve to raise rates by 25 basis points to 3.75%-4.00% at this meeting. The market focus has shifted from the rate hike itself to the guidance provided by the dot plot on subsequent paths.

The expectation of a rate hike is not unfounded. In recent weeks, global bond yields have continued to rise, with increasing concern that geopolitical conflicts in the Middle East will exacerbate inflation and lead central banks to adopt a hawkish stance, resulting in a sell-off of government bonds. European bonds have come under similar pressure, with the yield on the UK's 10-year government bonds rising by 2 basis points to 5.386%, and Germany's 10-year government bond yield rising by 1.9 basis points to 3.533%.

Closure of Saudi oil pipeline combined with Libyan oil field shutdown, WTI surged 4.38%

Geopolitical risks continue to push oil prices higher. A key oil pipeline in Saudi Arabia has been shut down, coupled with shut down of Libyan oil fields, increasing supply risks in the oil market. The market was already tightening due to supply losses caused by the Iranian war.

U.S. Energy Secretary Granholm stated on Monday that the shutdown of the Saudi east-west oil pipeline would last for days, but it could soon resume operation. However, the UK is concerned that this pipeline may essentially remain shut for six weeks. The market is more focused on actual supply, and there has been a limited reaction to verbal statements, as the impact of a tight physical market still outweighs news aimed at alleviating supply concerns.

As of the close, light crude oil futures for October delivery on the New York Mercantile Exchange settled at $105.83 per barrel, an increase of 4.38%; London Brent crude futures for November delivery settled at $108.75 per barrel, up 2.90%. Diesel futures settlement prices reached a record high. The transportation cost of U.S. crude oil shipped to Asia soared to $44.8 million, a historic high, compared to about $17.8 million before the outbreak of the Iranian war.

Energy stocks rallied across the board, with ConocoPhillips up 3.34%, Occidental Petroleum up 2.81%, Chevron up 2.62%, and ExxonMobil up 2.54%. The energy sector was the strongest performer of the day.

In the context of overall pressure on the market, the semiconductor sector exhibited signs of independent performance.

The semiconductor sector rebounded against the trend, with Skyworks rising over 13% leading the charge

The semiconductor sector showed divergence after previous sharp declines. The Philadelphia Semiconductor Index rose 1% to 11250.38 points, with Skyworks up over 13%, QORVO up 9.34%, Qualcomm up 4.25%, AMD up 2.19%, ON Semiconductor up 2.16%, and ARM, ASML, and Marvell Technology up over 1%.

Memory concept stocks rose high but fell low. SK Hynix fell 0.46%, SanDisk fell 1.36%, Micron Technology rose 0.39%, and Seagate Technology fell 4.19%. The performance of the memory sector contrasts with the prior trading day's drop in optical communications, with capital rotation continuing within the chip sector.

Most large tech stocks declined. Amazon fell over 2%, Microsoft fell 1.64%, Google fell 1.26%, Tesla fell 0.67%, and Apple fell 0.52%; NVIDIA rose 0.57% and Meta rose 0.70%. The seven major U.S. tech giants index fell 0.68% to 71610.95 points.

Apart from chips, Oracle's layoffs and capital expenditure expansion were another focus of the tech sector for the day. Oracle fell 3.07% to $140.35, marking the fifth consecutive day of decline. The company announced layoffs of about 21,000 employees in the latest fiscal year, with a total workforce reduction of about 13%, financing AI infrastructure expansion by cutting labor costs. The company's capital expenditures for the first fiscal quarter reached $28.5 billion, far exceeding the $8.5 billion in the same period last year. Morgan Stanley maintained a neutral rating, suggesting that gross margin and free cash flow conversion for the AI infrastructure business are key variables for valuation reassessment. Meanwhile, founder Ellison canceled a plan to sell approximately $7.5 billion worth of stock.

Chinese concept stocks generally fell, with the Nasdaq Golden Dragon China Index down 1.14%. Xpeng Motors fell 4.48%, Li Auto fell 3.37%, and Missfresh fell over 15%.

Outside the tech sector, both the exchange rate and the crypto market were under pressure.

Strong dollar puts pressure on crypto assets, with gold and silver continuing to weaken

The U.S. dollar index rose 0.23% to close at 99.616. The yen fell to 155.09 against the dollar, and the euro fell to 1.1543 against the dollar.

The cryptocurrency market faced severe sell-offs. The U.S. Senate, with a result of 49 votes in favor and 50 against, failed to reach the 60-vote threshold required to advance the "Digital Asset Market Clarity Act" (CLARITY Act). Bitcoin fell 3.06% in 24 hours, briefly dipping to $74,910. Ethereum fell 3.1% in 24 hours, with a peak intraday drop of over 8.3%, hitting a low of approximately $2,407.

Precious metals continued to weaken. COMEX gold futures fell 1.56% to $4,340.00 per ounce, and COMEX silver futures fell 2.20% to $63.76 per ounce. Expectations of rate hikes and soaring Treasury yields continue to suppress precious metal prices.

What to watch tonight

The Federal Reserve's interest rate decision and dot plot (2 AM Thursday Beijing time). A 25 basis point rate hike has been fully priced in by the market, with the real variable being the dot plot's guidance on subsequent paths for the year. If the dot plot indicates another rate hike within the year, long-term rates will come under further pressure; if the wording is dovish, the market may gain some respite. This is the first major test of credibility faced by Federal Reserve Chair Waller since taking office.

U.S. retail sales for August (8:30 PM Beijing time). This is the last important consumer data before the Federal Reserve's decision, with consensus estimates predicting a month-on-month increase of 0.3% in overall retail sales, compared to a previous decrease of 0.6%. If retail sales exceed expectations, it will strengthen rate hike expectations and further push up Treasury yields; if the data weakens, it may provide a temporary respite for the rate market. Against the backdrop of soaring oil prices and long-term rates exceeding 5%, marginal changes in consumption data will be magnified in pricing.