This Week: Three Risks Could Shake the Market

Markets are heading into a data-heavy week, with U.S. PCE inflation, nonfarm payrolls and oil prices all capable of shifting the outlook for rates and risk assets.

The biggest question is whether the latest inflation and jobs data will give the Fed another reason to stay hawkish.

Three Things to Watch

1. U.S. PCE Inflation — Sept. 30

August PCE is expected to remain elevated, with headline inflation at around 3.7% and core PCE at 3.3%. A hotter-than-expected reading could reinforce expectations for another Fed hike and push Treasury yields and the dollar higher.

2. U.S. Nonfarm Payrolls — Oct. 2

Markets expect September payroll growth to slow to around 100,000, with unemployment at 4.2%. But a stronger-than-expected jobs report could add to the case for a more hawkish Fed.

3. Oil & Geopolitical Risk

The situation around the Strait of Hormuz remains a wildcard. Any renewed disruption could quickly put a supply premium back into oil prices, reviving inflation concerns just as markets are watching the Fed's next move.

The Risk to Watch

The market is already dealing with elevated Treasury yields. If inflation stays sticky, jobs remain resilient and oil prices move higher at the same time, the pressure could spread from bonds to the dollar, gold and U.S. equity indices.

With several major catalysts arriving within days of each other, volatility could pick up quickly across markets.