Oil and Copper Rally Lift Inflation, Making It Harder for the Fed to Ease Policy

On Friday (2026-09-04) the U.S. stock market showed some divergence. SPY fell 0.39%, up 0.11% over the past 5 trading days; QQQ rose 0.18%, up 0.35% over the past 5 trading days. The first picture ETF Radar sees is that the broad market didn’t crash, but oil, copper and geopolitical risk are still pushing the market toward “inflation reaccelerating.”

The three things most worth connecting over the past two days are packed together. First, talks between the U.S. and Ukraine about ending the conflict reported “positive results.” Second, the U.S. and Iran have been striking vessels around the Strait of Hormuz, pushing oil prices higher. Third, U.S. employment data came in stronger than expected, lifting expectations that the Federal Reserve may continue tightening in September. Put these three on one chart and the market doesn’t see isolated headlines but an entire chain: “more expensive energy, stickier inflation, and rates harder to cut.”

Start with the Russia-Ukraine front. Two U.S. presidential envoys met with Zelensky; reports say the sides are moving toward long-term peace and establishing channels of communication. Why is this signal important? Because the Russia-Ukraine conflict affects more than the battlefield — it also impacts food, energy, and European risk sentiment. Imagine the market’s worst fear is having no exit at all. As soon as negotiations and communication appear, even if a real ceasefire is still far off, traders will start to pull back the “worst-case scenario” a bit. As a result, European-related assets, the food chain, and risk-off sentiment may all get a temporary breather.

But that breather didn’t hold long; the Middle East stepped on the gas again. Mutual attacks between the U.S. and Iran around shipping have revived fears of prolonged disruption in the Strait of Hormuz. Think of the Strait of Hormuz as an artery of global energy transport — a lot of oil passes through it. If shipping is affected, the market worries not about a few barrels less today but about transport disruptions over a period of time, higher insurance costs, and buyers preferring to bid for nearer-term cargoes. As a result, Brent climbed to $97, crude continued to strengthen, and gold returned to high levels.

It doesn’t stop there. Copper also hit a record high. Reports gave two reasons: one is strong long-term demand — grid investment, artificial intelligence, data centers, and electric vehicles all require large amounts of copper; the other is short-term tight supply, with the market worried the U.S. may impose new import tariffs on refined copper, causing large volumes of copper to flow early into the U.S. and tightening supplies elsewhere. Put plainly, when copper and oil rise together, the market naturally thinks “upstream costs are more expensive again.” “Upstream costs” refer to the prices of raw materials at the front end of production.

This transmits to the Fed. The latest U.S. employment growth was stronger than expected, lifting market expectations that the Fed could raise rates in September or at least keep rates high. High rates, in plain terms, mean borrowing is more expensive and financing for companies and households is tougher. If oil and copper are pushing inflation up and employment is not weak, the Fed is less willing to ease quickly. The whole chain is: energy and metals prices rise → inflationary pressure is harder to abate → the Fed is more likely to keep rates high → greater pressure on real estate, long-duration assets, and high-valuation growth stocks. The term duration, simply put, means assets with a “longer payback period and greater sensitivity to rates,” such as long-term bonds and some high-valuation tech stocks, which are more vulnerable to this.

At the same time, China had a somewhat stabilizing piece of news. The Ministry of Finance will recently issue 3000 hundred-million-yuan special sovereign bonds to support 8 central financial firms in replenishing core Tier 1 capital. Core Tier 1 capital, in plain terms, is the strongest “safety cushion” for banks and insurers. The thicker the cushion, the stronger the financial system’s resilience, and the more confident lending and underwriting becomes. This line is not the same as Middle East oil prices, but it provides the market with another picture: external noise, internal fortification. For Chinese assets, this kind of news acts more like a medium-term stabilizer.

However, there was a real countercurrent today. Semiconductors surged on Friday (2026-09-04): SOXX rose 3.52% on the day. This indicates that short-term funds are not entirely following the script of “high rates suppress tech.” Sometimes the market trades industry cyclicality and inventory restocking first, and only later circles back to trade rates. In other words, there is a temporary divergence between news flow and the mid-term model view.

Below, a look at several ETFs most relevant to today.

First XLE, the U.S. energy sector ETF. XLE actually rose 2.20% over the past 5 trading days. ETF Radar’s model is biased positive for the next 1 to 3 months, with fairly consistent signals. This ties directly to today’s theme: rising Middle East shipping risk lifts oil prices, and energy companies’ profit expectations typically benefit. Quantitatively there are three points. First, CFTC net longs are +94,281 contracts. Net longs, in plain terms, are how many bullish positions remain after subtracting bearish positions among large futures traders. Second, week-over-week they increased by +10,261 contracts, up 12%, and are at the 100th percentile of their own range, meaning bullishness from this group of funds is already at a very high level. Third, U.S. commercial crude inventories are 711,064, at a relatively low level. Low inventories, in plain terms, mean the buffer in storage is thin. Add net inflows of +1.15% AUM over the past 5 days — AUM is the fund’s total assets under management — and inflows as a share of AUM indicate money is still moving in. Note that such inflows can also lead to crowding, meaning many participants are on the same side and volatility can amplify.

Next BNO, the Brent crude ETF. BNO actually rose 8.99% over the past 5 trading days. ETF Radar’s model is also biased positive for the next 1 to 3 months, with consistent signals. It is almost the most direct play on today’s Middle East theme. Quantitative evidence: BNO has risen a cumulative 30.13% in this theme window, outperforming SPY by 26.48%. Outperforming SPY, in plain terms, means much stronger than the U.S. broad market. Looking at the same set of large crude futures positions, net longs are likewise +94,281 contracts, and have been rising for the past 4 periods. Another important reading: the slope between the front-month price and the price 12 months out is about 28.8%. This can be simply understood as: the market is willing to pay a higher premium for oil available now, indicating tighter near-term supply. BNO has already risen quickly over the past 5 trading days, so short-term volatility may be larger, but the model is looking at the next 1 to 3 months, not just these days.

Third, SOXX. While the five-day exact rise isn’t listed in the price table, SOXX rose 3.52% on Friday (2026-09-04) and is down 4.31% over 20 days — a clear short-term rebound. Looking ahead, ETF Radar’s model is biased negative for SOXX over the next 1 to 3 months, with consistent signals. Here the divergence needs to be made clear: semiconductors surged on Friday, but the model is mid-term and thinks a more hawkish rate path could pressure later valuations. Quantitatively: first, U.S. nonfarm payrolls were 16.2 ten-thousands, versus an expectation of only 5.5 ten-thousands — a clear beat. A beat, in plain terms, means the economy and jobs are hotter than the market had thought. Second, the predictive market-implied probability of a more hawkish stance in 2026 is 0.69, meaning about a 69% market bet that the Fed will be tougher. Third, Fed net liquidity is 5,7690 hundred-million-dollars, down 710 hundred-million-dollars over 4 weeks. Net liquidity, in plain terms, can be thought of as the market’s “water level”; a marginal decline in that level is generally not friendly to high-valuation sectors. So the picture here is: short-term prices are rising, but the model is more cautious for the coming months — the divergence itself is a warning.

Fourth, MCHI, the China ETF with heavy internet and financial weights. MCHI actually fell 0.58% over the past 5 trading days. ETF Radar’s model is biased positive for the next 1 to 3 months, with consistent signals. This connects directly to today’s Chinese capital-replenishment news: replenishing core capital is equivalent to thickening the local financial system’s safety cushion. Quantitatively, MCHI has had cumulative net inflows of +2.09% AUM over the past 30 days, indicating funds have not been continuously exiting. Inflows as a share of AUM, in plain terms, mean some new money has entered the fund’s size. Longer-term supportive arguments before the system include improving broker profitability: the combined H1 revenues of 43 brokerages were 3647.10 hundred-million-yuan, and parent-net-profit was 1553.70 hundred-million-yuan, up 44.8% and 49.07% year-on-year, respectively. This shows the profitability recovery in the financial chain already has data support. Acknowledged divergence: MCHI is still down 2.93% over the past 20 days, meaning the short-term price is still digesting external shocks, but the model is medium-term and not focused on a day or two.

If you compress today’s clues into one sentence: peace talks gave the market a bit of breathing room, but Middle East shipping risk, oil and copper rising together, and stronger-than-expected employment pushed the pressure for “higher rates for longer” back up; meanwhile, China’s financial capital replenishment looks more like adding a local safety cushion. One more reminder: the above are system quantitative model directional forecasts for the general market and do not constitute investment advice tailored to you personally; please consult a licensed investment advisor before investing.