Overnight, the market took two heavy blows

At Monday’s close, tensions surged again—oil prices, the US dollar, and US Treasury yields all climbed simultaneously. Oil prices broke through the $80 warning mark (already above it), the 10-year US Treasury yield touched the critical 4.7% mark (closing right at it), and the US Dollar Index approached the 100 level (right at the threshold).

The market took two heavy blows (one sent Treasury yields soaring, the other caused US stocks to turn lower):

The first blow came from oil prices, whose breakout rally (not only breaking above $80 but also surpassing the 50-day moving average) reshaped the global market landscape.

As we mentioned in today's "Global Market Notes":

US Treasury yields are almost "tracking" oil price increases point by point, and the odds of a rate hike in September are now nearly fifty-fifty again.

Rising oil prices have not only pushed up US Treasury yields but also lifted the probability of a Federal Reserve rate hike to 52% (up from 44% last Friday). This blow has actually landed on the Fed. On Monday, Cleveland Fed President Loretta Mester even said it’s time to begin "multiple" additional rate hikes.

The second blow came from Nvidia, hitting one of the core “beliefs” of tech stocks. Nvidia announced the creation of an AI computing power financing platform with six major Wall Street institutions, aiming to leverage over $500 billion in third-party capital. Following this news, US equities turned lower.

$500 billion is itself a striking figure. It's not that Nvidia will spend $500 billion of its own funds, nor have the six institutions already committed an immediate $500 billion; this is a target fundraising scale. What’s even more unsettling is concern that the AI industry chain could gradually form a “circular financing” pattern.

Take the simplest example: Suppose Company A invests in Company B. After receiving the funds, Company B buys products from Company A. With increased revenue, Company A invests further in B. As a result, both A and B see their revenues grow, investors assign higher valuations to them, and it becomes easier for both companies to raise fresh funds. With more financing, they can further expand investments, and so the whole story forms a cycle—this is so-called “circular financing.”

After Monday’s close, I need to update this week’s outlook a bit. Originally, we characterized Monday as “shock,” Tuesday as “silence,” and Wednesday’s CPI as the “epicenter.” Now, Monday’s tremor hasn’t faded completely; it left a variable for Tuesday—crude oil.

If on Tuesday oil prices fall back below $82 and the 50-day moving average, and US Treasury yields follow suit and drop, then the market can calm down again and await Wednesday’s CPI. But if on Tuesday oil continues to rise and Treasury yields test or even break through 4.70% once more, things will be different.

Today, keep your eye on two closing numbers: Can US crude oil hold above $82 (with $80 as the warning line and $82 as the confirmation line), and can the 10-year US Treasury yield stay below 4.70%?

The two questions left by Monday must be answered on Tuesday—after touching the warning lines, can the market retreat from them? (Wall Street Intelligence Circle)