US September CPI, US corporate earnings, and geopolitical developments form the three main themes for the market this week.

As the selloff in the US Treasury market temporarily eased, major global stock markets broadly rose last week, with the Nasdaq and S&P 500 each hitting record highs.

While the US dollar continued to hold firm, spot gold dipped early last week before recovering to close near the $4,200 round-number level.

The euro fell for a fifth consecutive week, touching a fresh 17-month low.

This week's focal points

1. US September CPI data and the Fed's rate outlook

2. Geopolitical tensions and the impact of oil prices on markets

Key economic data this week includes US CPI, PPI, and retail sales, as the market's博弈 over the Fed's policy path for the remainder of the year enters a critical phase.

China's CPI and Australia's employment data are also worth watching.

Meanwhile, bank stocks will kick off the third-quarter earnings season.

In addition, Middle East tensions and oil prices remain important drivers for the market.

Focus One: US September CPI – Wednesday 20:30

The market widely expects US September CPI year-over-year to accelerate from 3.4% to 3.7%, with core CPI projected to rise from 2.4% to 2.5%.

Inflation is currently the economic data point of greatest concern to Fed officials, and this reading could set the tone for the rate decision at the end of the month.

Ahead of the key inflation data, interest rate markets have already priced the probability of a Fed rate hike in October below 20%.

Recent remarks from several heavyweight voting members also revealed a stance of "cautious observation" in the near term.

If inflation data comes in above expectations, it could reinforce market pricing for a rate hike; if below expectations, it could weaken that expectation.

The actual performance of various assets depends on the divergence between the data and market expectations, with considerable uncertainty.

Beyond CPI, other US economic data this week includes Thursday's PPI and retail sales figures.

In addition, China's CPI and Australia's employment data are also worth watching.

Focus Two: Geopolitical Tensions and Bond Market Turmoil

Trump stated last week that he would not launch an attack on Iran before the US midterm elections.

But after Houthi forces attacked a Saudi airport causing significant casualties, he said "the US will study whether to join Saudi strikes against the Houthis."

The recurring Middle East tensions and persistently elevated oil prices have exacerbated inflation risks, which is one reason global bond yields have continued to climb in recent weeks.

Other contributing factors include the central bank rate hike cycle and poor fiscal conditions across countries, with France currently facing the most severe situation (which has driven the euro to a 17-month low).

However, there are some positive developments in the energy market.

Because US domestic diesel prices rose to historic highs as elections approach, the US announced last Friday a suspension of sanctions on Russian diesel exports, and then on Sunday Trump declared "Russia and Ukraine reached an energy ceasefire" (warning Ukraine not to attack Russian refineries).

WTI crude oil futures fell to around $90 after the market opened this week, while Brent crude edged higher and remained above $103.

The chart below shows the correlation between oil prices and 10-year US Treasury yields is 0.31, but with the Nasdaq it is as high as -0.65, indicating that rising oil prices continue to exert obvious pressure on the bond market (where prices and yields move inversely) and the stock market.

Focus Three: US Earnings Season Begins This Week

US third-quarter earnings reports will roll in this week.

Chart: Bank stocks vs. S&P 500 performance over the past three months. Source: TradingView

Bank stocks will once again lead the way, including JPMorgan, Goldman Sachs, Citigroup, and Wells Fargo on Tuesday, followed by Bank of America and Morgan Stanley on Wednesday.

Investors will closely watch the impact of rising US Treasury yields on banks' trading and lending businesses.

Bank stocks fell sharply after the Fed's September rate hike, while the S&P 500 hit a record high over the same period.

For the broader US stock market, the latest LSEG forecast shows S&P 500 third-quarter earnings will grow 31% year-over-year.

But it is worth noting that most of the earnings growth in US stocks this year has been contributed by tech stocks.

Clearly, the tech-led narrative and AI story remain intact, and high earnings growth can to some extent offset the negative impact of high interest rates (financing costs), which also explains why the S&P 500 and Nasdaq have repeatedly hit new highs recently.

Therefore, the performance of tech stocks over the coming weeks will become an important window for testing the reasonableness of current US stock valuations and the AI investment logic.

XAUUSD Gold 4-Hour Technical Pattern Record

Chart: XAUUSD 4-hour. Source: TradingView

Gold broke out of the downward channel in place since August after ending a two-week losing streak.

On the 1H chart, EMA20 and EMA50 formed a golden cross; on the 4H chart, 4175 is the technical level the market is watching, while 4238 and 4100-4110 correspond to the upper and lower reference zones respectively.

The above is merely an objective record of technical patterns, does not represent future performance, and does not constitute any trading advice; subsequent direction depends on changes in the dollar, yields, and policy expectations, with considerable uncertainty.

If pressure builds and gold falls back, a break below 4175 could see prices once again probe the 4100-4110 area for support.