Key Takeaways
- The U.S. Empire Manufacturing Index surged to 11.9 in August, significantly exceeding expectations, while July retail sales showed a slight deceleration from prior months.
- Traders have trimmed their aggressive bets on Federal Reserve rate cuts, though market consensus still anticipates a September rate cut followed by another later in 2025.
- President Trump announced impending tariffs on steel and chips next week, simultaneously asserting that China's economy is struggling and preparing for a high-stakes meeting with Russian President Vladimir Putin in Alaska.
- The U.S. Import Price Index rose 0.4% month-over-month in July, surpassing forecasts and suggesting potential inflationary pressures from abroad.
- HSBC downgraded networking giant Cisco (CSCO), citing limited upside potential and missed fiscal Q4 results and 2026 outlook.
U.S. Economic Data Presents Mixed Picture
Recent economic indicators offer a mixed view of the U.S. economy. The U.S. Empire Manufacturing Index for August soared to 11.9, significantly outperforming expectations of 0.0 and rising sharply from the previous month's 5.5. This indicates a strong rebound in manufacturing activity within New York state.
Conversely, U.S. Retail Sales for July showed a slight moderation. Advance retail sales increased by 0.5% month-over-month, falling short of the 0.6% estimate and the revised 0.9% from the previous month. Core retail sales, excluding autos, rose by 0.3%, meeting expectations but down from the prior 0.5%. Despite the slight deceleration, consumer spending remains resilient, with some analysts noting consumers may have pulled purchases forward ahead of anticipated tariffs.
Meanwhile, the U.S. Import Price Index for July increased by 0.4% month-over-month, exceeding the estimated 0.1% and reversing a previous decline. This rise, particularly in petroleum prices, suggests that imported goods could contribute to inflationary pressures. The year-over-year import price index remained at -0.2%. In Canada, manufacturing sales for June saw a modest increase of 0.3% month-over-month, a turnaround from the previous -0.9% decline but slightly below the 0.4% estimate.
Federal Reserve Rate Cut Expectations Shift
Traders have begun to trim their more aggressive bets on Federal Reserve interest rate cuts, with the odds of a September rate cut falling to around 85% from near certainty. This reassessment follows a bigger-than-expected jump in U.S. wholesale prices, which suggested companies are passing along higher import costs related to tariffs. Despite this, a September rate cut is still widely anticipated, with markets pricing in at least half a percentage point of rate reductions by the end of 2025.
Council of Economic Advisers Chair Miran declined to comment directly on pending rate cuts but stated that overall inflation indexes have been "very well behaved." Miran also reported that the Consumer Price Index (CPI) has maintained a 1.9% rate since President Trump took office, and asserted there is "no evidence whatsoever of tariff-induced inflation."
Trump's Trade and Foreign Policy Agenda
President Donald Trump is set to introduce new tariffs on steel and chips next week, though he indicated the initial rates would be lower. Trump previously stated that a 100% tariff on foreign-made semiconductors would be imposed, with exemptions for companies building in the U.S. The President also commented that China's economy is "not doing well economically."
In foreign policy, President Trump has boarded an aircraft to attend a meeting with Russian President Vladimir Putin in Alaska. Trump warned that the meeting "could be severe consequences" and that "something is going to come of it." He emphasized that the two countries are "not doing business until they get the war stopped" in Ukraine, suggesting that ongoing attacks by Russia are likely an attempt at negotiation. Trump also stated that Ukraine "has to decide territory" in any potential resolution.
Corporate News: HSBC Downgrades Cisco
In corporate news, HSBC has downgraded networking giant Cisco Systems (CSCO) from "Buy" to "Hold," setting a price target of $69. The downgrade comes as HSBC believes further gains for Cisco will be harder to achieve, citing the company's fiscal Q4 results and 2026 outlook missing HSBC's estimates due to a slowing networking segment. HSBC noted that Cisco's strength in artificial intelligence infrastructure orders is being offset by weakness elsewhere.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.