Oil prices rise, interest rates under pressure, China-US truce eases

On Wednesday, SPY fell 0.72%, QQQ fell 0.84%. But over the past 5 trading days, SPY is still up 1.82%, QQQ is still up 5.18%, which indicates yesterday was a pullback, not a full bearish reversal. Today's main themes revolve around two things: Trump continuing tough talk on Iran, and China and the U.S. moving the trade truce one step forward; the market is repricing between 'tighter oil' and 'don’t let trade get worse for now'.

Start with the geopolitical line. In his UN speech, Trump demanded that Iran 'make a deal, or be destroyed'. Put plainly, Middle East risk has not cooled and is instead rising. When the market hears such rhetoric, the most direct thought is not a war of words but whether energy supply will tighten. Because if the conflict escalates, oil transportation, insurance, and shipping costs may all rise, and oil prices will be the first to reflect that.

This concern already showed up in Wednesday's tape. Brent-related BNO rose 4.23% in a single day, and USO also rose 3.30%. To be blunt, capital voted first with oil prices: the market is pricing in 'supply-tilt-tight'. When oil goes up, the trouble isn't limited to gas stations. Transportation companies' costs rise, and airlines, chemicals, and logistics get squeezed. Further down the chain, inflation pressure becomes harder to reduce.

Once inflation sticks, the Fed is less willing to cut rates quickly. Another new piece of news yesterday connected to this thread: U.S. economic data was on the hot side, pushing mortgage rates to a year-to-date high, and the 10-year Treasury yield shot to levels not seen since 2006. Two terms need plain-language translation here. 'Mortgage rates' are ordinary people's home loan rates; the '10-year Treasury yield' can be understood as the market's thermometer for long-term borrowing costs. The higher this thermometer, the more expensive long-term money is.

The transmission chain is clear: Middle East risk raises oil price expectations; oil prices raise inflation concerns; inflation worries make it harder for the Fed to ease; the result is long-term rates pinned high. High borrowing costs hit real estate harder, and small companies suffer more because they rely on financing and have thinner cash buffers. Imagine mortgage rates, corporate loans, and bond issuance costs all rising together—many projects move from 'still doable' to 'let's wait'.

At the same time, the diesel export ban backed by Trump adds another flare to this inflation chain. Diesel is not a small category; it relates to trucks, farm machinery, and industrial transport. Put plainly, diesel is the economy's 'moving fuel'. If export policy disrupts supply, prices become more volatile and ultimately feed back into transport and consumer prices. Critics in the news worry this could drag the U.S. economy further down; the logic is this: when energy policy is tightened too aggressively, the cost side tends to be hit first.

But today is not only bad news. Before the China-U.S. leaders' meeting in Washington, the trade truce was extended. This is key. Put plainly, the two sides at least pressed pause on 'continuing to increase pressure' for now. For companies, the worst fear is not the tariff rate itself, but that the rules change again tomorrow. Extending the truce gives multinationals a bit of breathing room—supply chains, orders, and inventory management can face fewer shocks.

However, there is a subtle detail in this détente: Xi Jinping came to Washington this time without the originally planned Chinese business delegation of corporate executives. That signal is nuanced. It indicates that while the negotiation atmosphere hasn't continued to deteriorate, a full restoration is still far off. To put it more bluntly, the parties have set the table, but the meal hasn't arrived. The market will therefore show a typical reaction: it welcomes 'not getting worse', but it won't immediately price in 'all clear'.

So today you see two forces pulling simultaneously. First, Middle East risk and diesel policy push inflation and rate pressure higher. Second, the China-U.S. truce extension gives global trade and the tech supply chain some breathing room. The former directly pressures bonds, real estate, and small caps; the latter is more likely to support large tech and supply-chain-related assets. That's why, although the market pulled back on Wednesday, not every direction fell together—oil rose first, while growth stocks behaved more like consolidating at highs.

Next, look at several ETFs, separating 'what has already happened' from 'what the model sees ahead'.

First, look at TLT, the long-duration U.S. Treasury ETF. TLT actually fell 0.52% over the past 5 trading days. The ETF Radar model is negative for the next 1 to 3 months, with consistent signals. There are three pieces of quantitative evidence behind this. First, the market-implied federal funds rate path ZQ is about 4.055%. Put plainly, futures markets expect no rapid rate cuts in the short term. Second, the 10-year Treasury yield is at 4.96%. Put plainly, long-term borrowing costs remain elevated. Third, TLT has had a real net redemption of -22.34 hundred million USD since September 17, i.e., -4.90% AUM. AUM is assets under management; this indicates real money is withdrawing from duration assets. 'Duration', in plain terms, are long bonds particularly sensitive to interest rates. Although today's news included some easing from the China-U.S. talks, the model believes this is insufficient to change the medium-term structure of 'high rates pinning down long bonds'.

Next, look at IEF, the intermediate U.S. Treasury ETF. IEF actually fell 0.49% over the past 5 trading days. Looking ahead, the model reading points negative for IEF, with multiple pieces of evidence aligned. First, the CFTC 10-year Treasury net position is -1,868,126 contracts. CFTC positions represent large players' net directional bets in the futures market; such a large net short indicates the market overall still leans toward higher rates. Second, IEF has had 30-day net outflows of -0.74% AUM and 90-day net outflows of -10.48% AUM, indicating funds are persistently leaving. Third, IEF's excess return versus AGG is -0.75%. Excess return, put plainly, means it is underperforming its benchmark peers. Note one divergence: IEF had a small rebound over the past 8 days, accumulating +0.16%, but the model remains negative because it looks at the next 1 to 3 months, not a short-term breather.

Third, look at IYR, the U.S. real estate ETF. IYR actually fell 1.43% over the past 5 trading days. ETF Radar is negative on IYR for the outlook, with consistent signals. The reason is straightforward: mortgage rates are at year-to-date highs, and real estate most fears expensive borrowing. Quantitatively, IYR accumulated a -4.61% move in this window while SPY rose 4.83%, meaning an excess return versus SPY of -9.44%. Put plainly, it significantly underperformed the market. Looking at flows, over the past 5 trading days and since September 16 there was a small net inflow of 1500 ten thousand USD, and 30-day net outflows improved to -1.81% AUM, indicating selling pressure is less frantic than before. But the rate story hasn't changed, so price weakness remains.

Fourth, look at QQQ. QQQ actually rose 5.18% over the past 5 trading days. As for the outlook, the ETF Radar model is biased positive for QQQ over the next 1 to 3 months, with consistent signals. To be clear, this theme is not directly tied to today's 'Middle East oil' story; it is more of a systemically independent medium-term stance, but it does get a tailwind from 'China-U.S. truce, tech chain not worsening'. There are three pieces of quantitative evidence. First, the COT report shows net longs narrowing from -31,872 to -6,387, a week-on-week change of +25,485. COT reflects large traders' positions, indicating those who were short have been covering. Second, QQQ's excess return versus SPY is +4.70%, put plainly, it has outperformed the market by 4.7%. Third, systemic liquidity is 5,8690 hundred million USD, up 780 hundred million USD over 4 weeks. Systemic liquidity can be understood as the market's 'water level', which is generally more favorable to growth stocks. But there is a divergence: QQQ has had net creations/redemptions of -35.87 hundred million USD since September 7, and over the past 5 trading days funds also had net outflows of -0.86% AUM, meaning the price is rising but some money is withdrawing even as it rises; whether performance and liquidity can continue to support the price remains to be seen.

Fifth, look at SMH, the semiconductor ETF. SMH actually rose 11.35% over the past 5 trading days. Looking ahead, the data point to a positive outlook for SMH, with concentrated evidence. First, DRAM spot front-month prices rose 20.91%, and DDR5 16Gb rose 30.3%. Put plainly, spot memory prices are rising, indicating upstream supply-demand tightness. Second, SMH's excess return versus SOXX is +8.78%, meaning it has risen 8.78% more than the broader semiconductor index. Third, since September 16 net creations/redemptions show inflows of 4.90 hundred million USD, and 30-day cumulative inflows of +3.30% AUM, indicating capital is following. Today, if the China-U.S. truce at least gets extended, it helps sentiment for the semiconductor chain; but the model places more weight on the hard evidence of memory prices and fund flows.

Putting this together, the market is really repricing two things today: on one side oil prices and interest rates, and on the other side trade and the tech supply chain. The oil side keeps pressuring long bonds, real estate, and small caps; the trade side gives the tech chain a breather, but not a full clearing. The news is fresh, the system stance is medium-term, and there is a divergence between short-term and mid-term signals—this is itself a warning.

A final reminder: the above are system quantitative model directional forecasts for the general market and do not constitute investment advice tailored to you; consult a licensed investment advisor before investing.