Trump to appeal tariff ruling, warns of economic consequences
Investing.com - A legal fight over sweeping U.S. tariffs hangs over markets ahead of a holiday-shortened trading week. Investors will also be gearing up for the release of key employment data, as well as a raft of business activity figures and the Federal Reserve "Beige Book" report. Broadcom is due to headline the earnings slate this week, along with software firm Salesforce.
1. Legal fight over Trump tariffs
The Trump administration’s tariffs have faced a range of legal challenges, particularly from those who have argued against the president’s use of emergency executive branch powers to put the import taxes in place.
Investors were gauging a crucial ruling from the U.S. Court of Appeals for the Federal Circuit issued late on Friday which rejected U.S. President Donald Trump’s sweeping tariffs. The White House now has until mid-October to appeal to the Supreme Court, or else the ruling comes into effect.
Media reports have suggested that Trump officials have long anticipated that the high court would eventually need to settle the matter, adding that the administration is confident that the tariffs -- and Trump’s push to assert his authority to enact them -- will eventually be supported by 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.
2. Jobs data looms large
Headlining the economic calendar this week will be release of the latest labor market report on Friday, which could provide insight into the health of the wider economy and serve as one of the final tests of investor confidence that a Fed will slash rates at its September meeting.
An unexpectedly soft U.S. payrolls report last month bolstered bets that the Fed would cut borrowing costs, even as policymakers remain wary of lingering inflationary pressures.
Fed Chair Jerome Powell later suggested at a closely-monitored speech at an economic symposium in Wyoming that risks to the job market were increasing. As of Monday morning, there was a more than 87% probability that the Fed will reduce rates by 25 basis points from its current range of 4.25% to 4.5% at the end of its two-day gathering on Sept. 16-17, according to CME’s FedWatch Tool.
Economists are estimating that nonfarm payrolls will come in at 74,000 in August, not far from the mark of 73,000 in July. The previous data set was itself a cause of controversy, with deep downward revisions sparking Trump’s ire and leading to the ouster of the commissioner of the Bureau of Labor Statistics, which compiles the monthly jobs figures.
3. U.S. ISM figures
Along with separate gauges of private-sector employment and job openings, the weekly agenda will also feature readings of business activity that could shed some light on the effect of Trump’s tariff policy.
The Institute for Supply Management’s manufacturing purchasing managers’ index for August is tipped to stand at 48.9, ticking up from 48.0 in the prior month. ISM’s services sector PMI metric, meanwhile, is seen at 50.5, compared to 50.1 previously.
In both cases, a mark below 50 denotes contraction and above that level indicates expansion.
U.S. manufacturing -- which makes a little over 10% of the American economy -- contracted for a fifth straight month in July, while employment at factories slumped to a five-year low.
Services, accounting for more than two-thirds of the economy, mostly flatlined during the month. The segment has also endured a period of weakening employment.
4. Beige Book ahead
Elsewhere, the Fed is due to publish its latest "Beige Book" on Wednesday, offering one of the last snapshots of the economy before the central bank’s September policy meeting.
It will be first such report since July, when contacts across several industries warned that they anticipate cost pressures will "remain elevated in the coming months."
This would increase the "likelihood that consumer prices will start to rise more rapidly by late summer," the report noted, adding that all of the Fed’s 12 districts have flagged that effect of Trump’s trade policy.
The Beige Book, which aims to bring together surveys and observations from commercial and community contacts at each of the Fed’s regional banks, also showed that many were worried about a possible slowdown in business. At the same time, uncertainty around the trajectory of the tariffs has led some companies to postpone major hiring and layoff decisions, the report said.
5. Broadcom to report
Highlighting the earnings docket this week will be returns from semiconductor group Broadcom.
The quarterly report may offer a fresh glimpse into an outlook for artificial intelligence spending that has soured in the wake of underwhelming results from several firms heavily exposed to the nascent technology.
Last week, Nvidia, considered one of the focal points of the AI boom, further contributed to these worries after it unveiled a lukewarm current-quarter sales forecast. While still comparatively outsized in absolute dollar terms, the outlook -- weighed down by the exclusion of potential China sales -- disappointed investors who have come expect blowout 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, adding that results from Salesforce on Wednesday will be "a big test for the group."