What moved in the last 24 hours

With the weekend limiting official U.S. economic releases, markets spent the past day preparing for a dense week of data, Treasury supply, and earnings. The focus remains squarely on the inflation trajectory, labor-cost dynamics, and the path of policy rates into early November. Liquidity conditions were typical of a weekend, and price discovery is set to re-accelerate as cash markets reopen and headline flow intensifies.

Policy expectations are in a holding pattern ahead of the early-November Federal Reserve gathering, with the pre-meeting blackout period curbing fresh official commentary. In that vacuum, investors are relying on incoming price and wage readings, the Treasury’s funding plans, and corporate earnings guidance to refine their views on growth durability and inflation persistence.

Across asset classes, the narrative is familiar: term premia and supply considerations continue to influence longer-dated Treasuries; equity investors are parsing earnings quality and 2026 guidance assumptions; credit risk appetite remains sensitive to rate volatility; and the dollar’s tone reflects relative rate differentials and global growth divergence. Energy and shipping headlines remain a potential source of cross-asset volatility given their implications for inflation and margins.

Macro themes setting the tone

Inflation and wages

Two gauges will dominate the debate this week: the personal consumption expenditures (PCE) inflation report and the quarterly Employment Cost Index (ECI). PCE informs the Fed’s preferred inflation lens, especially the core services components tied to wages and shelter. ECI provides a cleaner read on compensation than average hourly earnings and can reshape how markets handicap the inflation trend into year-end.

Supply, term premium, and the curve

Treasury issuance and the quarterly refunding announcement are back in focus. Any change in coupon auction sizes, mix, or issuance guidance can ripple through the curve, particularly the 5–30-year sector, by altering expected term premium. The interplay between refunding details and near-term economic data will likely set the tone for curve steepening or flattening impulses.

Earnings quality over headline beats

With earnings season in full swing, investors are placing more weight on margin sustainability, AI-related capex payback timelines, inventory discipline, and the health of the consumer. Guidance language on 2025–2026 demand, pricing power, and cost controls may matter more than headline EPS beats, especially for rate-sensitive and long-duration equities.

Policy path into early November

Fed officials are constrained by blackout rules, so market-implied policy expectations will respond primarily to data and financial conditions. The baseline remains a lengthy hold with data-dependence, but re-acceleration risks in inflation or wages could nudge terminal-rate expectations and push out the timing of any eventual easing. Conversely, softer inflation and wages could reinforce the case for patience without additional tightening.

Seven-day outlook: what to watch

  • PCE inflation (latest month): Focus on core services ex-housing and the breadth of disinflation across goods.
  • Employment Cost Index (Q3): A cooler quarterly pace would support the view that wage pressures are easing, especially in services.
  • Consumer confidence readings: Sentiment, labor-differential, and inflation expectations will be key for consumption resilience.
  • ISM/PMI manufacturing updates: New orders, prices paid, and employment sub-indices can foreshadow Q4 momentum.
  • Treasury’s quarterly refunding announcement: Coupon sizes, issuance mix, and any commentary on bill share versus duration.
  • Short- and intermediate-tenor auctions: Bid metrics (bid-to-cover, indirect participation) as a read on demand depth.
  • Corporate earnings: Margin guidance, capex intentions, and inventory commentary across cyclicals, defensives, and megacap tech.

Potential market pathways

If inflation and wages cool

  • Rates: Easing pressure on the belly and long end; curve could flatten if front-end policy expectations stay anchored.
  • Equities: Multiple support for quality growth and long-duration tech; cyclicals benefit if growth holds while rates ease.
  • Credit: Tighter spreads on improved risk sentiment, especially in higher-quality IG; HY supported if earnings guidance is steady.
  • Dollar: Modest consolidation or drift lower against high-beta FX; EM FX benefits if global risk sentiment improves.

If inflation or ECI re-accelerate

  • Rates: Bear-steepening risk if long-end term premium rises alongside stickier inflation; front-end reprices higher-for-longer.
  • Equities: Rotation toward value and profitability; pressure on long-duration names and richly valued segments.
  • Credit: Wider spreads led by rate-volatility-sensitive sectors; primary market concessions increase.
  • Dollar: Broad support on higher U.S. real yields; cross-asset volatility likely lifts.

If refunding surprises on duration

  • Upsized long-duration supply: Upward pressure on 10–30-year yields, steeper curve, higher term premium.
  • Greater bill share or steady coupons: Relief for the long end; improves risk sentiment across equities and credit.

Cross-asset focal points

Rates and Fed expectations

Term premium remains sensitive to supply signals and data surprises. Watch breakeven inflation dynamics: a rise led by breakevens, rather than reals, would point to inflation concerns; a rise in real yields would imply broader growth or policy repricing and tends to weigh more on equities.

Equities

Investors are rewarding earnings visibility and balance-sheet strength. Within cyclicals, order books, pricing commentary, and inventory normalization are central. Within tech, attention is on capital intensity, AI monetization timelines, and free cash flow durability. Defensive sectors may gain if rate volatility picks up or if margin commentary turns cautious.

Credit

Spread direction is tethered to rate volatility and earnings tone. New-issue activity typically picks up into month-end and early month; concessions and orderbook depth will be a timely read on risk appetite. Watch for any shift in demand between long corporate duration and front-end high-quality paper as the curve evolves.

FX and commodities

Dollar moves should track U.S. real-rate swings and global growth divergences. Energy headlines can channel into inflation expectations and rate pricing. For equities, input-cost commentary from transport, industrial, and consumer companies provides a real-time check on commodity pass-through.

Risks to the outlook

  • Data revisions: Benchmark changes or revisions to inflation and employment could alter the narrative abruptly.
  • Policy communication: Even in blackout, leaks or misinterpretations of data can lead to outsized moves in thin liquidity.
  • Funding and liquidity: Month-end rebalancing and supply settlement can amplify moves in the long end of the curve.
  • Geopolitics and energy: Supply disruptions or shipping bottlenecks can lift headline inflation and unsettle risk assets.

Investor playbook for the week

  • Into PCE and ECI: Keep an eye on real-time wage trackers and services inflation proxies; sensitivity runs highest in the 2–5Y sector and long-duration equities.
  • Refunding headline risk: Be prepared for curve shifts around announcement time; relative-value opportunities can open between bills and 10–30Y coupons.
  • Earnings micro versus macro: Prioritize margin detail and 2026 capex plans over single-quarter beats; watch guidance language on pricing power.
  • Hedge selection: For rates shocks led by term premium, long-end hedges are more effective; for policy shocks, front-end protection is cleaner.
  • Volatility management: Event clusters can push implied vol higher; scaling exposure around releases can reduce gap risk.