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Investing.com - U.S. markets are set to be closed on Monday, although investors are preparing for a potentially consequential week that will see the unveiling of fresh labor market data. Analysts have suggested that the figures could all but cement expectations that the Federal Reserve will cut interest rates at its upcoming policy meeting later this month. Elsewhere, a legal battle over sweeping U.S. tariffs rages on, with an appeals court rejecting the Trump administration’s levies.
1. U.S. markets closed for Labor Day
U.S. markets are due to be shuttered on Monday in observance of Labor Day.
With the holiday making for relatively thin trading, Asian shares were mixed, with Japan’s Nikkei and stocks in South Korea slipping. Still, equities in China extended their recent bull run, fueled in part by a stronger-than-anticipated survey on manufacturing activity in the world’s second largest economy.
Hong Kong shares of e-commerce titan Alibaba (HK:9988) also notched a double-digit spike, its largest one-day surge since 2022, thanks to enthusiasm around the prospects for its cloud unit.
Investors are gearing up for a return this week from a muted summer period. Awaiting them are a host of key upcoming events, including a slew of economic data points and a crucial Federal Reserve interest rate decision -- both of which could sway sentiment in September.
Following a tariff-driven swoon in April, Wall Street has marched steadily higher, spurred on by hopes that U.S. President Donald Trump’s sweeping levies will not -- as many have feared -- plunge the U.S. economy into a recession. Optimism around the potential returns from massive investments in artificial intelligence has underpinned stocks as well.
2. Legal battle over Trump’s 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.
A crucial ruling was delivered late on Friday, when the U.S. Court of Appeals for the Federal Circuit rejected the tariffs, upholding a lower court decision. 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.
In a note to clients, analysts at Vital Knowledge said the the appeals court decision is "at best neutral" for markets, flagging 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[.]"
3. Economic data ahead this week
Headlining the economic calendar this week will be release of the latest labor market report on Friday, which could provide some insight into the health of the wider economy and serve as one of the final tests of investor confidence that the 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 in 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.
4. China factory activity data
China’s factory activity expanded at the fastest pace in five months in August, a private-sector survey showed on Monday, offering a glimmer of improvement amid weaker official signals.
The RatingDog China General Manufacturing PMI rose to 50.5 in August from 49.5 in July, exceeding a forecast of 49.7 and breaking into expansion territory above the 50-point growth threshold.
The jump was largely driven by a surge in new orders, the survey noted, even as export demand continued to decline for a fifth consecutive month. Meanwhile, firms reported their fastest accumulation of unfinished work in six months.
"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.
Despite the uptick, manufacturers remained cautious on hiring, with employment contracting for the fifth month running. Rising input costs, fueled by sharper raw material price increases, and persistent supplier delays also tempered optimism.
5. Oil higher
Oil prices were higher in choppy trading on Monday, as traders weighed supply disruptions linked to airstrikes in the Russia-Ukraine conflict against the prospect of rising output and the impact of elevated U.S. tariffs on demand.
By 03:41 ET, Brent Oil Futures expiring in October had risen 0.5% to $67.81 per barrel, while West Texas Intermediate (WTI) crude futures also ticked up 0.6% to $64.36 per barrel.
Both contracts dropped more than 7% in August, dragged down by supply glut fears from steady OPEC+ production hikes.
“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 in a note.
Meanwhile, Ukraine’s president said on Sunday that the country would retaliate against Russian drone strikes on its power facilities. Both sides have exchanged air attacks in recent weeks that have targeted energy infrastructure and threatened to put a crimp on Russian oil exports.