Chigold Biweekly Report: How Should Markets View the Coexistence of Geopolitical Risks and High Interest Rates?

Over the past two weeks, global markets have fluctuated under multiple pressures: Middle East conflicts have expanded from the Strait of Hormuz to the Red Sea, pushing oil prices to rebound strongly from late-June lows; U.S. long-term Treasury yields have risen above 5%, while the European Central Bank has signaled it may hike rates again, increasing funding costs and suppressing corporate valuations. At the same time, memory and artificial intelligence (AI) themes remain market focal points, but the Trump administration's new 'forced labor tariff' measures could impact Taiwan and the EU. With war, oil prices, and interest rates creating a triple threat, how should investors assess risks and identify relatively resilient sectors?

1. Two Key Middle East Shipping Chokepoints Under Pressure, Oil Back in Focus

Since mid-July, U.S. forces have conducted daily airstrikes on Iranian military targets and imposed a de facto blockade on the Strait of Hormuz. Tehran has threatened to destroy infrastructure and instructed allies to act in surrounding waters. Subsequently, Yemen’s Houthi militants escalated attacks, vowing to blockade the Red Sea and directly targeting Saudi oil export facilities.

Markets reacted swiftly—Brent crude briefly surged to around $101 per barrel, though it retreated this morning as U.S.-Iran strikes paused. However, tensions remain extremely high. Asian buyers are forced to reroute via Africa’s Cape of Good Hope or through Egypt, lengthening voyages and increasing insurance premiums, further exacerbating global inflation pressures. Trump briefly considered charging a 20% 'toll' on vessels passing the Strait of Hormuz, but paused the plan due to opposition from Gulf allies. Nonetheless, the naval blockade and airstrikes on Iran continue, making short-term de-escalation in the Middle East unlikely.

2. Interest Rates Rising, Stock Valuations Falling?!

Escalating conflict fuels more persistent inflation expectations. Since the beginning of the year, U.S. 30-year Treasury yields have repeatedly exceeded 5%, reflecting market anxiety over fiscal deficits and sticky inflation. ECB President Lagarde also hinted that if energy prices reignite inflation, a rate hike in September cannot be ruled out. In other words, long-term global funding costs may remain on a 'higher for longer' trajectory. U.S. data appears resilient on the surface: June retail sales grew moderately, the labor market remains stable, initial jobless claims declined, and July consumer confidence rebounded to a five-month high. However, homebuilder sentiment has weakened, housing market stress is widening, and cash flow pressures on businesses and households under high interest rates are beginning to surface. While U.S. equities are still supported by AI themes, further valuation expansion has become more difficult than before.

3. Tariff Pressures Expand, Adding New Variables to Global Supply Chains

The Trump administration plans to impose at least a 10% tariff on goods from multiple countries, including Taiwan and the EU, citing 'forced labor' prevention. Although fuels and some sensitive items are temporarily exempt, the marginal pressure on export-oriented economies in electronics and manufacturing is rising again. At the same time, the U.S. has threatened to impose a 50% tariff on certain Canadian goods, increasing uncertainty across North American supply chains. For Taiwan and Asian manufacturers, this brings two changes: on one hand, opportunities for order shifting may increase; on the other, trade barriers and compliance costs will also rise. As tariff issues intersect with Middle East risks, global companies face a 'new normal' of rising costs and declining visibility.

4. AI Momentum Continues, with Interest Rates and Memory Cycles as Key Variables

Despite geopolitical and interest rate headwinds, artificial intelligence remains one of the most watched themes in capital markets. Federal Reserve Chair Kevin Walsh, when questioned during a congressional hearing about AI infrastructure’s impact on prices, effectively brought 'AI server inflation' into formal policy discussions. On the corporate side, Elon Musk revealed that Micron is supplying large volumes of memory to Tesla, actively stockpiling for its AI and autonomous driving systems, indicating that high-end memory and computing demand remain on an upward trajectory. This is positive for AI-related stocks in both U.S. and Taiwan markets, as Taiwan’s semiconductor and memory supply chains remain critical nodes in global AI hardware. However, high interest rates mean higher discount rates, so for AI stocks to sustain price gains, actual earnings and shipment growth—not just thematic speculation—will be essential.

Chigold Investment Strategy

How to Allocate Between Risk and Growth Amid War and Tariffs?

In the current environment of heightened Middle East tensions, elevated long-term yields, and rising tariff risks, commodities like oil are being pushed up by geopolitical factors, but volatility has also increased. Operationally, a 'neutral' to 'moderately conservative' stance is recommended, avoiding chasing highs. In contrast, U.S. and Taiwan equities can maintain a positive long-term outlook, supported by resilient U.S. economic and labor fundamentals, and sustained demand for AI and high-end memory providing real growth momentum for tech stocks. Strategically, focus on funds targeting financially strong, cash-flow-stable leading companies that genuinely benefit from AI and advanced manufacturing trends. Investors can also leverage Chigold’s 'Super Bottom King' mechanism to automatically add positions during short-term pullbacks triggered by geopolitical events.

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