Make-or-Break Week for Bond Yields as Markets Await PCE, Jobs Data

Yields are moving higher again to start the week as geopolitical tensions in the Middle East ramp up and WTI crude oil jumps over 2% early in the trading day.

But this week, it's all about bond yields. The economic calendar is packed with both hard and soft data that will shape how the Federal Reserve views the path for rates, especially since a number of Fed speakers will be weighing in on the numbers in near real time. If economic data continues to reflect a resilient labor market and persistent inflationary pressures, bond yields may continue trending higher. However, if markets have already priced in much of this data, there is a possibility of a short-term relief rally in bond prices, which would push yields lower and may provide a tailwind for equities.

The CME FedWatch tool shows a roughly 66% likelihood of a 25-basis-point rate hike at the Oct. 28 Fed meeting.

Four Fed Leaders Speak This Week

Three Fed officials are scheduled to speak today, with Michelle Bowman, Lisa Cook, and Thomas Barkin kicking off the week. The key focus will be on Bowman and Cook, since they're voting members and have been relatively cautious on the inflation outlook over the last several months. Austan Goolsbee, the Chicago Fed President, is another voice to keep on the radar this week. He has shifted his tone slightly in recent months, leaving room for a meaningful geopolitical de-escalation to change his view on inflation going forward.

Economic Data to Watch: Jobs and Prices

On the data front, this week brings jobs, inflation, and consumer confidence reports. On Tuesday, we'll get the monthly Job Openings and Labor Turnover Survey (JOLTS), which estimates the number of job openings in August. The Street consensus calls for 7.23 million openings, but what will be interesting is the impact of back-to-school hiring and retail postings ahead of the holiday season. Consumer Confidence will also be a key headline mover on Tuesday, as recent sentiment readings from the S&P Global PMIs (purchasing managers indexes) and the University of Michigan have sparked intraday volatility over the past week.

On Wednesday, we'll get Personal Consumption Expenditures (PCE) prices, with the market anticipating a relatively hot Core PCE print. The Cleveland Fed is currently estimating that August Core PCE will rise 0.28% month over month, 0.1 percentage point higher than July's reading. On a year-over-year basis, Core PCE is expected to climb 3.4%, well above the Fed's 2% target, according to the Cleveland Fed Inflation Nowcasting.

Finally, on Friday we get the Non-Farm Employment Change report, which came in better than expected last month. The market is expecting between 90,000 and 98,000 jobs to be added in September, well below August's 162,000. Keep in mind that the August and September labor reports tend to be volatile due to seasonal factors such as back-to-school hiring, retailers staffing up for the holidays, and construction firms racing to finish projects before winter.

All of these events could have major implications for bond yields by the end of the week.

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