The US August PCE price index will test the upside risks to inflation. Friday's non-farm payroll report will assess the resilience of the labor market, influencing expectations of Fed rate hikes. Long-term US Treasury yields are fluctuating at high levels, and the high-interest-rate environment continues to suppress valuations in non-AI sectors. In the coming week, starting September 26th, inflation, employment, and manufacturing PMI data from multiple countries will be released. Investors will use the PCE, CPI, and non-farm payroll reports to reassess the Fed's future rate hike path. The persistently high US Treasury yields and the extreme sector divergence in US stocks will bring a new round of fundamental testing. Major US stock indices remained volatile at high levels, with the market heavily reliant on the AI sector for support. Non-AI sectors generally faced pressure, and significant divergence emerged within the market. The US September non-farm payroll report, due next Friday (October 2nd), is the culmination of the week, coupled with Wednesday's PCE price index. These two sets of data will be key indicators for Wall Street's assessment of the Federal Reserve's policy. Simultaneous release of CPI and PMI data from multiple countries globally will allow investors to glean marginal changes in global inflation and economic conditions, directly impacting US Treasury yields. The Fed completed its rate hike in September, and most officials have indicated the possibility of another rate hike this year. The strength of inflation and employment data will directly influence market pricing of Fed policy. "When you calmly examine the current market focus, the Fed and interest rates are undoubtedly paramount," said a macro strategist. "The inflation and employment reports can reflect how the Fed's decision-making approach may change, and fluctuations in US Treasury yields will quickly transmit to the equity market."

The problems in the bond market—and the problems beneath the surface?

Despite the resilience of the equity market thanks to the AI sector, the pressure of continuously rising US Treasury yields remains a persistent concern. Market research shows that over the past six years, most increases in benchmark US Treasury yields have occurred within a three-day window surrounding the non-farm payroll report and speeches by key Federal Reserve officials. The current market logic is that the Fed officials' continued emphasis on upside inflation risks, the optimistic outlook for the job market, coupled with the huge capital demand from AI industry capital expenditures and high expectations for US economic growth, have collectively pushed up neutral interest rates and US Treasury yields. Market strategists stated in a report that "against the backdrop of strong economic resilience and sticky inflation, the risk of rising long-term yields has not been completely cleared," further exacerbating the structural divergence among stock market sectors. High Treasury yields are suppressing the valuations of most non-AI companies, while technological iterations related to AI agents are impacting financial services companies. Market funds continue to concentrate on the AI sector, resulting in a generally positive index performance, but most non-AI sectors have been weak. Next week, the oil market will see API and EIA inventory data, coupled with uncertainties in the US-Iran geopolitical situation. Oil price fluctuations may transmit to energy-side inflation expectations, further affecting the bond market and inflation pricing. Last week, the US released crude oil reserves; we can observe the consumption situation this week.

Inflation and employment data released in quick succession

The market will focus on a series of global economic indicators: Australia's September cash rate decision, the US September Conference Board Consumer Confidence Index, and the US August JOLTs Job Openings; China's official manufacturing PMI and SPGI manufacturing PMI; Germany's preliminary September CPI; the US ADP employment, PCE price index, and Chicago PMI; Thursday's CPI in the UK, France, Germany, and the Eurozone, the final US SPGI manufacturing PMI, and Challenger job cuts; Friday's Tokyo CPI and Eurozone CPI, culminating in the US September non-farm payroll data.

Several Federal Reserve officials will also be giving speeches this week.

Goolsby, Musalaim, and Williams will speak early Wednesday morning; Barkin, Lisa Cook, and Goolsby will speak in succession early Thursday morning, while the Bank of Japan will also release a summary of its September policy meeting; Williams and Dallas Fed President Logan will participate in discussions and deliver speeches early Friday morning, and these speeches will continue to revise market interest rate expectations. The Fed's latest economic projections show that the median core PCE inflation forecast for the end of 2026 has been revised upward to 3.4%, higher than the 3.3% in the June dot plot; the core PCE rose 3.3% year-on-year in July, still some distance from the 2% target. After the September rate hike, FOMC members predict a high probability of another rate hike this year, bringing the median policy rate to 4.1%. Twelve members support one more rate hike, four believe two rate hikes are needed, and two advocate keeping the rate unchanged. Strategists say, "The market will be relatively reassured if inflation data shows a slight decline, but not a rapid one. If PCE and CPI data rise more than expected again, coupled with significantly stronger-than-expected non-farm payrolls, the market will quickly price in further Fed rate hikes, pushing up US Treasury yields and suppressing the stock market." The high-interest-rate environment presents multiple challenges to the equity market, not only increasing corporate financing costs but also intensifying competition for funds between stocks and bonds due to rising US Treasury yields. The Fed's preferred core inflation indicator, PCE, will be released on Wednesday to measure US inflation trends. Currently, the market is focusing on PCE and CPI data from various countries to assess marginal changes in global inflation expectations; Friday's non-farm payroll data will examine the strength of the labor market and assess the momentum of US economic growth. Geopolitical conflicts causing oil price disturbances also pose a potential upward risk to energy inflation.