CICC has released a research report highlighting that global assets are set to face a series of significant challenges in September. The acceleration of AI-related debt issuance could increase volatility in US Treasury yields, a hawkish pivot from Fed Chair Warsh raises the risk of an interest rate hike, and escalating US-Iran tensions are pushing oil prices sharply higher. The firm advises investors to maintain confidence and patience, suggesting that the timing for policy corrections may be drawing near. It argues that short-term market fluctuations will not reverse the broader trend of global liquidity easing and recommends using market dips to increase allocations to US and Chinese technology stocks as well as gold.
Where to Begin
A new wave of AI-related financing could hit the market in September. In mid-August, long-end US Treasuries experienced a rapid sell-off, with the 30-year yield briefly exceeding 5.3%. CICC previously noted that the primary driver behind this rise in long-term rates was not increased supply from the US Treasury but rather an expansion in AI-related corporate credit supply. As tech giants continue to expand capital expenditures and extend the duration of their financing, long-duration AI credit is competing with US Treasuries for the same pool of duration-focused capital. This new issuance of corporate bonds lifts the term premium across the entire market, passively pushing up long-end US Treasury yields. For the full year, the firm projects that net supply of investment-grade corporate bonds will approach $1 trillion in 2026, a year-on-year increase of over 70%, while net supply of coupon-bearing Treasuries will actually decline to $1.2 trillion. This indicates that the supply pressure in the bond market stems not from Treasuries but from corporate bonds. As AI-related bond supply increases, credit spreads for leading US tech companies have also widened to varying degrees recently.
September is traditionally a peak issuance season for US investment-grade credit. The supply pressure from US credit bonds is likely to rise again. According to a Bloomberg aggregation, underwriters expect approximately $215 billion in new investment-grade corporate bonds to be issued in September. With long-duration capital already significantly depleted, a new wave of concentrated issuance could once again push up financing costs and term premiums for credit, creating disturbances for long-end US Treasuries. Meanwhile, the equity market is also facing financing pressures. So far this year, US IPO proceeds total approximately $137.6 billion, a 464% year-on-year increase, with SpaceX's single offering of roughly $85.7 billion marking the largest IPO in US history. AI-related equity financing is still heating up in the autumn. Anthropic has already filed for an IPO in June and is currently advancing its listing preparations, with the market anticipating a potential launch as early as October. If AI financing is released in a concentrated manner, bond issuance could increase duration supply and disrupt long-term rates, while IPOs could divert risk capital. Together, these factors could put pressure on high-valuation assets.
Why Timing the Fed's Next Move Is Tricky
Geopolitical risks are on the rise, and the increase in oil prices is slowing the pace of improvement in inflation, although core inflation may remain at low levels. Since late August, tensions in the Middle East have escalated again. The volume of commodity ship passages through the Strait of Hormuz has fallen to its lowest level since May. Renewed conflict between Saudi Arabia and the Houthi rebels has led to attacks on Saudi energy facilities, raising concerns about potential energy supply shortages. As a result, Brent crude oil has risen steadily from its local low of $87.8 per barrel on August 26, briefly breaking through $100 per barrel on September 9. The firm believes the oil price surge could cause a temporary rebound in the US nominal CPI for August, but core inflation is still expected to continue cooling. The US August CPI is scheduled for release on Friday, September 11. CICC's asset allocation team forecasts that the US nominal CPI will rebound to 0.36% month-on-month (from 0.07% previously, consensus at 0.4%), maintaining a year-on-year rate of 3.37%. Core CPI is expected to remain at a low 0.18% month-on-month (from 0.22% previously, consensus at 0.2%), with the year-on-year rate falling to 2.35%. The rebound in headline inflation is mainly due to the energy component. August is typically a seasonally weak month for oil prices, but this year prices have risen against the seasonal trend, pushing up the nominal CPI. Core CPI, however, is likely to stay low due to two factors. On one hand, high-frequency data shows that wholesale used car prices have declined more steeply over the past two months, which, when transmitted to retail prices, could slow the month-on-month growth of the used car CPI component. On the other hand, falling import prices and tariffs are also suppressing inflation in other core goods.
The market generally views Friday's CPI report as the decisive data point for whether the Fed will hike rates in September. However, if the above forecasts materialize, the CPI may not provide a clear signal before the Fed meeting. If Warsh wishes to hike rates, he can emphasize the rebound in month-on-month headline inflation and the fact that year-on-year improvement has stalled. Following the logic of his Jackson Hole speech, if inflation is not falling "fast enough," the Fed should act. If he wishes to avoid a hike, he can emphasize that core inflation is only 0.2% month-on-month and still trending downwards year-on-year. The same data, viewed from different perspectives, can lead to diametrically opposed policy implications. Of course, accounting for statistical error, the firm's forecasts could also be wrong. If inflation comes in significantly higher or lower than expected, it could offer a clearer policy signal ahead of the September FOMC meeting.
Why Only a Hawkish Shift Could Lead to an Uncomfortable Scenario
Fed Chair Warsh has clearly turned hawkish at Jackson Hole, increasing the risk of a September rate hike. Warsh previously stated that if inflation remained persistently high, further hikes might be necessary. This time, he has gone further, arguing that inflation must not only decline but must do so "clearly and fast enough" towards the 2% target; otherwise, the Fed would still need to take action. This is the first time Warsh has set an explicit requirement on the speed of disinflation, significantly lowering the bar for a rate hike. Unlike the rapid inflation decline of the past two months, the recent rebound in oil prices will naturally slow the pace of disinflation, increasing the risk of a September hike. Another incremental piece of information from the Jackson Hole meeting is that Warsh has refused to view recent data improvements as a change in trend. Although the US labor market has cooled recently, consumption growth is showing signs of marginal slowdown, and CPI has cooled for two consecutive months, Warsh still emphasizes that the improvement in underlying inflation is limited, attributing the employment slowdown mainly to a contraction in labor supply, and suggesting that the economy and job market remain resilient.
CICC suggests Warsh's forceful hawkish interpretation of dovish data may be aimed at repairing the credibility of the dollar. The firm believes that the US economic fundamentals do not actually support a rate hike. The underlying inflation trend is not high, the oil price increase has not caused a significant "second-round effect," and in the future, inflation is still expected to continue falling towards 2%. The labor market is also cooling. Coupled with the approaching midterm elections, further tightening also faces political constraints. Therefore, this may just be rhetorical hawkishness from Warsh. The firm's base case remains that there will be no hike in September, but it is now impossible to rule out the possibility that the Fed might "overcorrect" to restore its credibility by hiking. By clearly lowering the threshold for action at Jackson Hole, the September FOMC meeting may face a dilemma: failing to hike could damage policy credibility, while hiking could further harm the economy and increase political costs, leading to high policy uncertainty. Given that markets have already priced in rate hikes in Europe and Japan for September, if the Fed also begins to tighten, all three major central banks would be tightening simultaneously, creating a significant shock to global liquidity conditions.
When the Pressure Could Ease
The timing of a policy correction may be drawing closer. After September, the pressure from AI-related debt issuance might ease temporarily. The firm believes that multiple US policies are currently flawed. If the economic and market conditions continue to deteriorate, policies could be corrected at any time. First, with only two months left until the midterm elections, the optimal solution for the US is to quickly end conflicts to reduce oil prices and inflationary pressures. Second, US employment, consumption, and inflation have all been slowing over the past two months. The rebound in some employment and inflation data in September will not be sustainable. It is highly probable that US inflation will fall to around 2% next year, and the AI revolution will lower the long-term inflation trend. In fact, the Fed has every condition to wait for inflationary pressures to ease naturally. It could choose not to hike rates now and wait for inflation to fall before starting to cut. Even if it does hike in September, it might quickly correct course and resume rate cuts. Regardless of whether there is a hike in September, the future direction of monetary policy may still return to easing. Third, the pressure from AI bond financing might ease marginally after September. September is the traditional peak issuance season for US credit bonds, but the firm expects issuance pressure to decline seasonally from October to November, reducing the disturbance to term premiums and long-term rates.
Asset Allocation Strategy: Favor Gold and Tech Stocks Over US Bonds
In light of the above analysis, the recent pullback may create opportunities for increasing allocations at lower prices. The key lies in when the turning point appears. If the FOMC meeting on September 16 results in a rate hike, it might be the last one, and the market could start trading on the "bad news out" theme, with stocks and gold potentially falling first and then rising after the meeting. If there is no hike in September, the short-term risk of a hike is directly alleviated. However, the Fed's strong hawkish stance without action might further weaken its policy credibility, which would be even more beneficial for gold. From an event perspective, the period after the September FOMC meeting could be a rebound window with a favorable risk-reward ratio, and the firm suggests focusing on it. Meanwhile, considering the uncertainties surrounding the US-Iran situation and economic data, the market could also start rebounding before the FOMC meeting, triggered by events such as Trump quickly ending the conflict, a significantly lower-than-expected US CPI, or other major policy changes. Trading tactics need to maintain flexibility. Since the bull market trends for gold and US/China tech stocks remain intact, investors are advised not to mechanically wait for a specific time point. If the market sees a clear pullback in the coming weeks, it is acceptable to consider gradually increasing stock and gold allocations even before the Fed meeting.
Looking at different asset classes: Gold remains the most clear-cut overweight candidate. Whether it's the Fed eventually turning towards easing, which would improve liquidity, or recent policy missteps that damage dollar credibility, the medium-term logic for gold remains unchanged. Any pullback should be seen as an opportunity to add to positions. US and Chinese stocks can still be accumulated on dips, especially in the Technology sector. The AI industry trend has not reversed; the recent correction is more due to capital and sentiment pressures than a fundamental deterioration in earnings. If policy and liquidity pressures ease, high-valuation assets could have greater rebound elasticity. However, the firm advises against rushing to buy the dip in US Treasuries. The risks from AI-related financing and potential rate hikes in September could continue to disturb long-end yields. The certainty for long-dated bonds is lower than for gold and stocks. Compared to betting on a rapid decline in long-term yields, CICC holds a more neutral view on US Treasuries, recommending investors to patiently wait for policy risks and supply pressures to subside.
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