After the Strikes, Is September More Likely to Hike, or Less Able To?
Hello. After Warsh spoke on Friday, one estimate put the odds of a September rate rise at 60 per cent. Over the weekend US forces struck Iran and Brent crude went above US$90.
Dearer oil makes inflation harder to hold down. But this particular fire is burning on the supply side, where a rate rise will not put it out and will press on demand as well. In three days, September became a harder question.
This was Warsh's first appearance at Jackson Hole as chair. He restated the commitment to holding inflation down, and coverage rated the speech "moderately hawkish". He made clear he was not offering forward guidance; a former Fed vice chair said he had given it anyway.
The market took him at his word: the two-year Treasury yield jumped, spot gold fell from US$4,649.60 last Thursday to US$4,478.90 intraday today, a drop of 3.7 per cent, and bitcoin slipped to US$77,779.
Equities did not go down with it. $Invesco QQQ(QQQ)$ fell 0.65 per cent and $Vanguard S&P 500 ETF(VOO)$ 0.21 per cent. The names with thick current profits rose: $Microsoft(MSFT)$ up 1.68 per cent, $Apple(AAPL)$ 1.63 per cent, $Alphabet(GOOG)$ 1.53 per cent and $Meta Platforms, Inc.(META)$ 1.21 per cent. Memory barely moved — $Micron Technology(MU)$ down 0.27 per cent, SanDisk flat, $SK hynix(SKHY)$ down 0.35 per cent — because what prices those now is the contract price, not the federal funds rate.
The two that fell hardest were not knocked down by him either.
$NVIDIA(NVDA)$ fell 4.57 per cent to US$217.55, a day after setting a record for a single-day gain in market value. It has paused its revenue-sharing arrangements with AI cloud firms, on antitrust concerns.
That report surfaced after Thursday's close, when all that was known was the pause. Now the reason is known too — not that it does not want to lend, but that lending this way may bring trouble. The language of the past few days had built Nvidia up into a banker to the AI boom and then the central bank of AI; one thing a central bank least wants said about it is that it is both referee and player in a game of its own making.
Stifel raised its target from US$282 to US$315 the same day, citing the second quarter and that roughly US$108 billion guidance for the current one. The price was cut and the target was lifted together.
$Marvell Technology(MRVL)$ fell harder, down 10.28 per cent at US$216.62. With the 8.02 per cent it lost after hours the night before, the two cuts took its gain for the year from 184 per cent to 154.91 per cent.
Its problem is timing. Reports say revenue from the roughly US$120 billion custom-silicon arrangement with Google will be recognised later than expected — one headline had Google's US$120 billion promise arriving too late. The order has not gone away; the money simply comes in more slowly than the share price had assumed.
It also sharply raised its outlook for financial years 2027 and 2028; Oppenheimer reiterated Outperform on the day of the 10 per cent fall and lifted its target from US$300 to US$325; and one analyst said plainly that the problem was the price, not the quarter.
What the two share is not that their earnings sit far in the future. It is that neither share price had left room for bad news. An antitrust worry, revenue recognised a step later — at another price, each would have been an aside.
The weekend's event is a different kind, and nobody can sidestep it. On 30 August local time US forces struck Iranian rocket launchers that reports say were preparing to lay mines in the Strait of Hormuz. It was the first American use of force against Iran in more than a month, after a stretch in which the pressure had come through sanctions. Brent rose to US$90.035, up 2.20 per cent from a previous close of US$88.10.
Before that, Brent had been falling: it closed last Friday at about US$89.3, capping a weekly drop of more than 5 per cent. Traders at that point read the Iran standoff as a dispute over sanctions and economics rather than a threat to physical barrels. The strike had not happened when the market closed, and energy shares barely moved.
A ceasefire between Washington and Tehran was reported last Wednesday, on a single source and with no official confirmation. No announcement followed. Air strikes did.
What is actually in place is messier than either the ceasefire story or the war story: 6 to 8 million barrels a day still move through Hormuz; Goldman Sachs estimates Gulf exports have recovered to 15 to 16 million barrels a day, below the 22 to 24 million before the conflict but well above March's trough of 5 to 6 million; and Iran and Oman have agreed a revenue-sharing framework for the strait, with Tehran adding that this does not mean it reopens immediately. An Iranian official said on Friday that restarting talks was "not impossible".
Two sets of results follow this week. $Dell Technologies Inc.(DELL)$ reports after Tuesday's close, with consensus at about US$5.01 a share on revenue of about US$45.85 billion; it fell 3.39 per cent on Friday. Broadcom reports after Wednesday's close, with consensus at about US$3.30 a share on revenue of about US$29.95 billion, and fell 0.74 per cent.
What to watch in Broadcom's results is exactly where Marvell came unstuck: when a large custom-silicon order turns into revenue.
That 60 per cent was priced off what he said on Friday. It now has one more thing in it that he does not control — the oil price. Dearer oil feeds inflation, which on that logic argues for a hike; but it is burning on the supply side, where a rate rise will not put it out and will only press on demand as well. September can either raise anyway and risk failing to hold oil down, or leave it and let inflation run. Neither road is a good one.
The above is personal analysis, not investment advice.
💬 【Talking Point】
Brent fell more than 5 per cent last week as traders decided the Iran standoff was about sanctions rather than barrels — then US forces struck rocket launchers said to be preparing to mine Hormuz, and Brent went back above US$90. Six to eight million barrels a day still pass through the strait. Do you price this as a supply risk that has not been taken seriously enough, or as a premium that keeps being sold as soon as it appears?
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