Markets enter a holiday-shortened week under the shadow of legal uncertainty surrounding U.S. tariffs. Investors are also preparing for critical employment data releases, a series of business activity metrics, and the Federal Reserve’s “Beige Book.” On the earnings front, semiconductor company Broadcom and software giant Salesforce are set to take center stage.
Legal dispute over Trump-era tariffs
The tariffs implemented during the Trump administration have faced multiple legal challenges, particularly from parties questioning the president’s use of emergency powers to impose import duties.
Investors are closely monitoring a pivotal decision from the U.S. Court of Appeals for the Federal Circuit issued late Friday, which rejected President Donald Trump’s broad tariffs. The White House has until mid-October to appeal to the Supreme Court, or the ruling will take effect.
Reports suggest that Trump officials anticipated the Supreme Court would ultimately have to resolve the matter, and the administration remains confident that the tariffs—and Trump’s assertion of authority to enact them—will eventually receive support from the court’s conservative majority.
“Global trading partners will no doubt find it premature to be celebrating just yet, but we’ll be interested in seeing whether the Treasury market comes under any further pressure if the US has to hand back already received tariff revenues,” analysts at ING said in a note.
Jobs data takes the spotlight
Friday’s labor market report is expected to provide insight into the broader economy and act as a key test of investor confidence in a potential Fed rate cut at the September meeting.
Last month’s softer-than-expected payrolls data increased expectations for a reduction in borrowing costs, despite ongoing concerns about persistent inflation.
Fed Chair Jerome Powell also cautioned in a speech at an economic symposium in Wyoming that risks to the labor market were rising. As of Monday morning, the CME FedWatch Tool indicated more than an 87% probability that the Fed will cut rates by 25 basis points from the current 4.25%-4.5% range at the conclusion of its two-day meeting on Sept. 16-17.
Economists are projecting that August nonfarm payrolls will come in at 74,000, close to July’s 73,000. Controversy over prior revisions led to the dismissal of the commissioner of the Bureau of Labor Statistics.
U.S. ISM manufacturing and services data
This week’s calendar also includes readings on private-sector employment, job openings, and key business activity figures, providing insight into the effects of Trump’s tariffs.
The Institute for Supply Management’s (ISM) manufacturing PMI for August is forecast at 48.9, up from 48.0 in July. Meanwhile, the ISM services PMI is expected at 50.5, slightly above July’s 50.1. Readings below 50 indicate contraction, while levels above 50 signal expansion.
Manufacturing, which accounts for just over 10% of the U.S. economy, contracted for the fifth consecutive month in July, with employment at factories falling to a five-year low. Services, which make up more than two-thirds of the economy, were mostly flat, with employment trends weakening.
Beige Book preview
The Fed will publish its latest “Beige Book” on Wednesday, providing one of the final snapshots of economic conditions before the September policy meeting.
The report, the first since July, highlighted concerns from contacts across industries about ongoing cost pressures. “This would increase the likelihood that consumer prices will start to rise more rapidly by late summer,” it noted, adding that all 12 Fed districts reported impacts from Trump’s trade policies.
The Beige Book also showed that many companies were delaying hiring and layoffs amid uncertainty over tariffs, signaling caution in business activity.
Earnings focus: Broadcom and Salesforce
Broadcom (NASDAQ:AVGO) will lead the earnings schedule this week. Its quarterly report may provide insight into AI-related spending trends, which have weakened after several tech companies reported disappointing results.
Last week, Nvidia (NASDAQ:NVDA), a key player in AI, released a cautious sales forecast for the current quarter. While still sizable in absolute terms, the outlook disappointed investors who have come to expect exceptional figures from the AI bellwether.
“While investors are pulling back from AI, they seem to be returning to software, an industry many fear could suffer displacement/disruption risk from AI,” analysts at Vital Knowledge said in a note. They added that Salesforce’s results on Wednesday will be “a big test for the group.”
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