CNBC Biweekly Report: Interest Rates, Oil Prices, and AI Pulling Markets in Three Directions Amid Volatility

Over the past two weeks, markets have felt like they were simultaneously pulled into a warzone press conference and a tech expo. On one hand, missile threats from Iran and uncertainty around naval mines in the Strait of Hormuz remain high, while crude oil inventories have dropped to 40-year lows, accelerating energy supply risks. On the other hand, NVIDIA, Amazon, Microsoft, and Google continue to ramp up investments in AI and cloud infrastructure, prompting markets to reassess their long-term cash flow potential.

Following Federal Reserve Chair Kevin Warsh’s downplaying of future rate path guidance, interest rate expectations have become significantly more volatile. Meanwhile, progress in draft negotiations between Iran and Oman over Hormuz passage caused oil prices to spike and then retreat. With inflation, interest rates, employment data, and geopolitical tensions all pulling in different directions, where are U.S. equities, the yen, and crude oil headed? And how will global capital position itself?

1. Fed Downplays Forward Guidance, Rate Expectations Turn Volatile

From late July to early August, Chair Warsh deliberately softened guidance on future interest rate trajectories and hinted at reducing meeting frequency. For markets heavily reliant on forward guidance, this implies policy signals will become less predictable—akin to turning off navigation and asking investors to find their own way. As a result, the S&P 500 briefly plunged, and long-term Treasury yields rose. Subsequently, Fed officials reiterated that rate hikes remain possible if needed, aiming to keep inflation expectations under control.

At the same time, ADP Research showed a clear slowdown in July job growth, yet the ISM Services Index remained in expansion territory. Combined with second-quarter GDP growth of 1.5% annualized and signs of recovering consumer and investment activity, this creates a contradictory mix: “growth is still holding up, but inflation remains concerning.” Market views on a September rate hike are divided, with interest rate futures open interest hitting record highs—indicating continued near-term volatility in U.S. equities, but also creating pullback opportunities for long-term investors.

2. Geopolitical Risks in the Strait of Hormuz Drive Crude Oil Volatility

In late July, after U.S. forces intercepted multiple Iranian missiles, markets shifted to a more conservative risk assumption: if the Strait of Hormuz were blocked, oil supply pressures would intensify. This concern was amplified by U.S. commercial and strategic reserves falling to 40-year lows and refineries operating near full capacity, pushing oil prices sharply higher amid tight supply-demand conditions.

However, the situation shifted days later. Oman and Iran reached a preliminary agreement on a draft passage route, and Qatar indicated the draft was circulating regionally. Reports even suggested Iran might allow European assistance in mine clearance. As market interpretation shifted from “wartime premium” to “diplomatic progress,” oil prices retreated and risk asset sentiment improved. Still, the agreement has not been finalized—geopolitical risks have only temporarily cooled, not disappeared.

3. Market Focus Shifts from Capital Expenditure to Cash Flow

Amid rising and volatile interest rates and oil prices, the investment logic of tech giants in AI remains under scrutiny. Amazon, Microsoft, and Google are converting AI infrastructure investments into cloud services and multi-year enterprise contracts. For corporate clients, they’re purchasing not just computing power, but comprehensive AI subscription solutions. For cloud providers, this enhances revenue predictability and supports the growth of higher-margin cloud businesses. This explains why markets returned to buying large-cap tech stocks even after the Fed turned cautious and rates spiked.

NVIDIA sits at the core of the AI infrastructure supply chain. The company has driven over $750 billion in AI-related financing and transactions and plans to provide up to $250 billion in guarantees for OpenAI. However, as funding momentum, demand expectations, and market valuations rise in tandem, the risk of misalignment between fundamental growth and stock price appreciation increases. For Taiwan’s AI supply chain and U.S. mega-cap tech stocks, long-term trends remain strongly supported, but short-term valuation swings and capital rotation risks are also rising.

4. Yen’s Short-Term Moves Driven by Policy Signals

After the yen plunged to a 40-year low against the dollar, it surged over 3% in a single day on July 30, primarily due to joint intervention by Japanese and U.S. authorities to curb yen depreciation. Coupled with the Bank of Japan’s gradual move toward monetary policy normalization, the yen’s short-term movements are now more influenced by policy signals than pure fundamentals.

For global asset pricing, the yen’s sharp swings are more than just currency news—they affect the unwinding of carry trades and the pace of capital flowing back into Asian assets. While Taiwan’s stock market, supported by AI and tech heavyweights, may not move in lockstep with the yen, if Japanese equities regain investor interest due to currency and policy themes, the relative appeal of Asian markets could be reshuffled.

ChinHeng Investment Strategy

Choosing Long-Term Trends Amid the Noise

In an environment of uncertain rate paths,反复 negotiations over Hormuz, and volatile yen movements, short-term market sentiment swings are inevitable. But from a medium- to long-term perspective, fundamental momentum remains intact. U.S. and Taiwan equities are supported by AI and long-term cloud contracts, with clear industry growth narratives and improving earnings visibility—maintaining a “long-term bullish” stance. Japanese equities also benefit from policy normalization, potential yen strength, and corporate governance improvements, warranting a “long-term bullish” view. Commodities like crude oil, pulled by geopolitical tensions and inventory imbalances, may remain highly volatile, but fundamentals may not justify sustained sharp price increases—hence a “relatively conservative” stance is advised, prioritizing risk management over momentum-driven buying.

ChinHeng Recommended Funds

A49038 Neuberger Berman Taiwan 5G Equity Fund Subscribe

A23042 Fuh Hwa U.S. New Star Fund Subscribe

A45027 Franklin Templeton Global Growth Fund Subscribe

“ChinHeng Buy Funds” operates independently

This information is for reference only. “ChinHeng Buy Funds” has made every effort to provide accurate opinions and information from reliable sources but cannot guarantee completeness. Under the latest Financial Consumer Protection Act, to enhance investor services, we implement an “Investor Attribute Assessment” process. Upon completing the “Investment Risk Suitability” assessment on our website, product suitability rules will apply based on your profile, and you’ll be asked to update annually. Failure to complete the assessment may affect your trading ability.

Fund investments are intended for long-term holding; expecting high short-term returns is inappropriate. Fund prices and returns may fluctuate, and investors may not recover their full investment. Investors should understand and assess risks before subscribing.

For foreign currency-denominated funds, investors bear exchange rate risks when converting distributions or redemption proceeds into New Taiwan Dollars. If the NTD strengthens against the fund’s currency at conversion, investors may incur exchange losses.

Funds may employ mechanisms such as “fair value pricing” (or “anti-dilution”), short-term trading restrictions, and “swing pricing.” Details are in each fund’s prospectus. Investors must comply with stated trading rules and restrictions.

Each fund has been approved or recognized by the Financial Supervisory Commission but does not imply zero risk. Past performance of fund managers does not guarantee minimum returns. Managers act as prudent professionals but are not liable for fund profits or losses, nor do they guarantee returns. Investors should read the prospectus and investor guidelines carefully before investing.

Fund-related expenses (including distribution fees) are disclosed in the prospectus and investor guidelines. Investors can access them via the Public Information Observation Station or Fund Information Observation Station. Funds may invest in loss-absorbing bonds issued by financial institutions (including CoCo Bonds and TLAC Bonds). If an institution’s capital falls below thresholds or faces severe operational or bankruptcy risks, these bonds may be written down, converted to equity, or have terms modified (maturity, coupon, payment dates), or distributions suspended.

Non-investment-grade bond funds, lacking investment-grade ratings or unrated, are highly sensitive to interest rate changes. They may suffer losses due to rising rates, reduced liquidity, or issuer default. These funds are unsuitable for risk-averse investors and should not dominate a portfolio. Some funds or sub-funds may invest in U.S. Rule 144A bonds—private placements with higher liquidity risk, incomplete financial disclosure, and price volatility.

Fund distributions do not represent actual returns, and past distributions do not guarantee future ones. Net asset values fluctuate due to market factors.

Distribution yield is calculated as: (Distribution per unit ÷ NAV before ex-dividend date) × 100%. Total return including dividends: [(NAV at month-end of ex-dividend month + Distribution per unit) ÷ NAV at end of previous month] × 100%.