Five Market Themes to Watch This Week as Bond Yields and Fed Policy Stay in Focus

Government bond yields, Federal Reserve policy and US economic data are among the main issues facing investors this week, alongside corporate results that could provide further indications about consumer spending.

Minutes from the Federal Reserve’s September meeting are due on Wednesday, while US services-sector data will offer an update on economic activity. Levi Strauss (NYSE:LEVI) and PepsiCo (NASDAQ:PEP) are also scheduled to report earnings.

1. Bond Yields Remain a Focus at Start of Fourth Quarter

Monday marks the beginning of the first full trading week of the fourth quarter, with the S&P 500 up more than 12% so far this year and trading near the record high reached in August.

Investors are preparing for the fourth-quarter earnings season later this month, as well as another Federal Reserve interest-rate decision and the November 3 mid-term elections.

Government bond yields have recently risen to their highest levels in decades as markets assess inflation risks associated with higher energy prices, spending on artificial intelligence infrastructure and continued economic growth.

Bond-market moves have also extended beyond the US. French government debt is expected to remain in focus after the spread between French and German 10-year bond yields recently reached its widest level since 1990.

Deutsche Bank analysts said: “Given the high stress and high alert in bond markets, the main focus in the week ahead will be on central banks, with the minutes from the September FOMC meeting on Wednesday and the ECB’s account of its latest meeting on Thursday.”

2. Fed Minutes Could Provide Further Rate Guidance

Minutes from the Federal Open Market Committee’s September meeting are scheduled for Wednesday and could provide additional information about policymakers’ decision to increase interest rates for the first time since 2023.

The Fed raised its overnight target rate by 25 basis points to a range of 3.75% to 4% as inflation remained above the central bank’s 2% target.

Rate projections released in September indicated that some policymakers considered another increase in borrowing costs potentially appropriate before the end of the year.

Market expectations for an October increase have subsequently declined. New York Fed President John Williams indicated last week that there was no urgency for another immediate increase, while weaker September employment data also reduced expectations for action this month.

3. US Services PMI Due Monday

Investors will also be watching Monday’s non-manufacturing purchasing managers’ index from the Institute for Supply Management.

The index is expected to decline to 55.1 from 55.4 in August. A reading above 50 indicates expansion.

The services sector accounts for approximately two-thirds of US economic output. In August, activity increased and new orders reached their highest level in three and a half years, while input prices also rose.

The latest report could therefore provide further information on both economic activity and inflationary pressures in the services sector.

4. Levi Strauss Earnings Put Consumer Demand in Focus

Levi Strauss (NYSE:LEVI) is scheduled to report quarterly results after Wednesday’s closing bell, providing another indication of consumer demand ahead of the broader earnings season.

Shares in the company have fallen more than 4% this year, despite Levi Strauss raising its full-year profit outlook in July.

The company has expanded its range of looser-fitting denim products aimed at Gen Z consumers while continuing to develop its higher-margin direct-to-consumer business.

Speaking to investors in July, Chief Executive Michelle Gass said Levi Strauss was seeking to capture a “sizable premium segment” that the company had not previously accessed.

5. PepsiCo Results Follow Changes to Snack Pricing

PepsiCo (NASDAQ:PEP) is also due to report results this week, shortly after announcing plans to increase prices on selected chip products in response to inflation.

A company spokesperson cited by Reuters said the increases would be in the low- to mid-single-digit percentage range across selected brands, while adding that PepsiCo was seeking to limit price increases where possible.

The company has been managing higher input costs alongside changes in consumer preferences and increased sensitivity to household expenses.

In February, PepsiCo reduced prices on products including Lay’s and Doritos following consumer resistance to earlier increases.

Levi Strauss & Co stock price

PepsiCo stock price