U.S. markets remain closed on Monday for Labor Day, but investors are preparing for a pivotal week, with fresh labor market data set to potentially cement expectations for a Federal Reserve rate cut later this month. Meanwhile, the legal battle over sweeping U.S. tariffs continues, with a federal appeals court recently rejecting the levies imposed during the Trump administration.
Holiday-thinned trading and mixed Asian equities
With the U.S. holiday thinning liquidity, Asian markets showed mixed movements: Japan’s Nikkei and South Korean stocks slipped, while Chinese equities extended their recent rally, boosted by stronger-than-expected manufacturing survey results. Shares of Alibaba (NYSE:BABA) jumped more than 10%, marking its biggest single-day rise since 2022, driven by optimism for its cloud business.
Wall Street has steadily rebounded since April’s tariff-driven selloff, supported by hopes that President Donald Trump’s tariffs will not derail the U.S. economy and by excitement over AI-related investment returns. Analysts note that this week’s economic data and the Fed’s rate decision could strongly influence sentiment heading into September.
Legal challenges to Trump-era tariffs
The Trump administration’s tariffs have faced multiple legal challenges, particularly regarding the president’s use of emergency powers. A decisive ruling came Friday when the U.S. Court of Appeals for the Federal Circuit rejected the tariffs, upholding a lower court decision. The White House has until mid-October to appeal to the Supreme Court or let the ruling take effect.
In a client note, Vital Knowledge analysts commented, “The appeals court decision is at best neutral for markets. It won’t come close come close to eliminating Trump’s import taxes, and it just creates more uncertainty for Corporate America as the White House searches for a studier legal scaffolding for its draconian trade policy[.]”
Labor market data in focus
Friday’s U.S. payroll report is set to offer insights into the broader economy and test whether investors’ expectations of a Fed rate cut are justified. Last month’s soft report reinforced bets on lower borrowing costs, even as policymakers remain cautious about inflation. Fed Chair Jerome Powell highlighted increasing risks to the job market at a Wyoming symposium. According to CME’s FedWatch Tool, there is currently more than an 87% chance that the Fed will reduce rates by 25 basis points at its Sept. 16-17 meeting. Economists expect nonfarm payrolls to rise by 74,000 in August, near July’s 73,000 figure.
China’s manufacturing activity
A private survey indicated that China’s factory activity grew at the fastest rate in five months in August, providing a positive signal amid weaker official data. The RatingDog China General Manufacturing PMI rose to 50.5 from 49.5 in July, surpassing the forecast of 49.7 and moving into expansion territory.
“New export orders are still in contraction, but the pace of decline has eased. That’s encouraging, yet we shouldn’t get carried away, because external demand looks partly pulled forward while domestic demand stays soft, so the upside to output may be limited unless domestic demand firms up,” said Yao Yu, Founder at RatingDog. Employment remained constrained, falling for the fifth consecutive month, with rising input costs and supply delays tempering optimism.
Oil prices higher amid geopolitical concerns
Oil markets moved higher on Monday, with traders balancing potential supply disruptions from Russia-Ukraine airstrikes against OPEC+ output increases and the effects of U.S. tariffs on demand. By 03:41 ET, Brent October futures gained 0.5% to $67.81 per barrel, while WTI rose 0.6% to $64.36 per barrel. Both contracts fell over 7% in August amid concerns of a supply glut from ongoing production increases.
“Oil prices settled lower last week despite growing European calls for secondary sanctions on buyers of Russian oil and gas. The mild reaction may suggest the market is becoming increasingly numb towards sanction risks,” analysts at ING said. Meanwhile, Ukraine’s president warned Sunday that the country would retaliate against Russian drone attacks on power facilities, following weeks of airstrikes targeting energy infrastructure that threaten Russian oil exports.
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