US equity markets recovered after yesterday's heavy sell-off. The MSCI Asia-Pacific index rose 0.9%, and futures on European and US indexes have recouped much of yesterday's losses. The main focus remains the release of the personal consumption expenditures (PCE) index—the Fed's preferred inflation gauge. The market expects PCE to answer whether an additional rate hike in October is necessary.
At the same time, the 30-year Treasury yield rose for a sixth consecutive day on Tuesday, reaching 5.56%, a high not seen since 2002. Ten-year yields stabilized around 5.23%. Investors are demanding ever greater compensation for holding long bonds amid concerns about persistent inflation, rising public spending, and a wave of corporate borrowing to finance AI projects. Traders are also ramping up bets on higher yields, which is itself a source of risk because these positions can be closed quickly and in a coordinated fashion if early signs of economic cooling appear.
Oil continues to complicate the picture. After a sharp fall, Brent recovered slightly and rose about 0.6% to $103.20 per barrel today. JPMorgan and Goldman Sachs nonetheless see flows from the Middle East returning to pre-war levels despite shipping risks. Talks over the Strait of Hormuz send mixed signals, and the market remains cautious. High energy prices support Fed rate expectations, which push yields up and weigh on non-yielding assets.
September has been the dollar's best month since June. The yen strengthened about 0.2% to 156.95 per dollar after Japanese authorities intensified language about possible market intervention earlier this week. The dollar benefits while holders of yen shorts now face intervention risk; exporters losing revenue in weaker currencies suffer, and oil importers face higher costs.
A separate theme is the technology sector. SoftBank rose more than 6% after reports that OpenAI is seeking at least $30 billion in new funding at a $1.4 trillion valuation. That supported sentiment in the AI sector, although growing corporate borrowing to fund AI projects remains one driver pressuring the long end of the yield curve.
As I noted above, the key event today is the PCE release. Economists expect a monthly acceleration in both headline and core PCE. A positive surprise would confirm the Fed's hawkish stance and support arguments for an October hike, while a soft print would call the next step into question and ease some yield pressure. I believe this report will set the tone for trading for the rest of the week, and the market will react sharply in either direction to any deviation from forecasts.
According to the technical chart, buyers' immediate task today is to clear resistance at $7,698. That would show upside strength and open the way to $7,718. Controlling $7,737 would further cement the bulls' position. On the downside, if risk appetite falls, buyers must defend $7,679. A break there would quickly push the index back to $7,656 and open the road to $7,631.
