Last week demonstrated that good economic news isn’t always positive market news when inflation remains an issue. Friday’s strong jobs report reinforced the economy’s strength and the earnings environment, but gave the Fed reason to focus on inflation. As a result, yields moved back toward 4.8%, rate-hike expectations increased, and the market’s margin for error narrowed.
This week adds another complication: oil. Brent is now approaching $100 as escalating Middle East tensions threaten energy supplies, adding another potential source of inflation just as the Fed prepares to make its September 16 decision.
This week, the top factors to watch are:
- CPI/PPI (Thu/Fri): These are arguably the most important numbers before the September 16 Fed meeting. Friday’s strong jobs report gave the Fed more room to focus on inflation.
- Treasury yields and global rates: The 10-year remains the market’s pressure gauge, trading around 4.79%. 4.8% remains the key level for equities; a sustained break above it, particularly toward 4.9%, would put additional pressure on valuations. Japan is increasingly raising the risk of further interest-rate pressure.
- Oil is becoming a Fed problem: Brent is approaching $100, and WTI is above $93 as escalating Middle East tensions threaten global energy supplies. The psychological level threshold is $100 on Brent and would reinforce the argument that inflation is the Fed’s bigger near-term risk.
- Canadian Tariffs: Canada implemented reciprocal tariffs from 15-50%, adding more inflationary pressure. Any relief to the trade war would be beneficial.
The 10-year is testing 4.8%, Brent is approaching $100, and the labor market just surprised sharply to the upside instead of confirming a slowdown. None of those things break the bull market, but together they raise the degree of difficulty.
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