Trump launches global tariff of 15% after SCOTUS ruling

In focus today

In Germany, the February Ifo index is released. We expect an improvement as the PMI report last Friday was surprisingly strong on all parameters, particularly the manufacturing sector which recorded growth for the first time since ECB started hiking rates in 2022.

Overnight in China, Loan Prime Rates are expected to remain unchanged, marking another non-event. Historically, adjustments to these rates only occur following changes to the reverse repo rate, which has remained stable since May.

This week offers a light macroeconomic calendar, leaving room for geopolitics to remain a key market driver. On Tuesday, focus turns to US consumer confidence and President Trump's State of the Union address, while Friday brings the release of euro area flash HICP and US PPI figures.

Geopolitical tensions are in focus as US and Iranian negotiators are set to meet in Geneva on Thursday to discuss an Iranian nuclear proposal. Polymarket currently assigns a 21% probability of a US strike on Iran by 1 March and 57% by 31 March. Join us tomorrow, Tuesday 24 February, 13-13.30 CET, for a webinar hosted by our Chief Economist covering geopolitics, Minna Kuusisto. Get a walk-through of the key need-to-knows and what-ifs regarding the tensioned situation in the Middle East.

Economic and market news

What happened since Friday

In the US, the Supreme Court ruled 6-3 against President Trump's IEEPA tariffs, with Chief Justice Roberts and two Trump appointees joining the liberal justices. Trump criticised the ruling, calling the majority "disloyal to the Constitution" and claiming the court was influenced by foreign interests. In response, Trump announced a 15% universal tariff rate under Section 122 of the Trade Act of 1974, which permits tariffs for 150 days before requiring congressional approval - aligning with our base case. Uncertainty over IEEPA payment refunds remains. The European Parliament's trade chief plans to propose freezing ratification of the US-EU trade deal during today's extraordinary meeting of the EP negotiating team, citing unclear US trade policy and the need for legal clarity. Markets reaction has been relatively modest, with the 10-year UST higher and the dollar weaker.

Friday's US data provided mixed signals. February PMIs showed manufacturing declining to 51.2 (prior: 52.4), reflecting a broad weakening across output, selling prices and new orders. The services index remained more stable at 52.3 (prior: 52.7), with new orders and employment weakening slightly but selling prices index rising.

Q4 GDP growth fell short at 1.4% Q/Q annualised (cons: 3.0%), driven by weaker net exports and public spending, likely related to the shutdown. Notably, the net export component reflects tariff-driven swings in international trade flows rather than changes in final demand. Excluding these effects, growth still slowed down towards the end of the year, though more modestly. While AI-related capex spending accelerated, it was offset by weaker private consumption, particularly on goods.

Finally, December's PCE inflation surprised to the topside, with headline at 2.9% y/y (cons: 2.8%) and core at 3.0% y/y (cons: 2.9%).

In the euro area, the February flash composite PMI rose to 51.9 (cons: 51.5), driven by manufacturing PMI at 50.8 (cons: 50.0), its highest level since ECB started hiking rates in 2022. Services PMI rose to 51.8 (cons: 51.9). The rising price indexes in the manufacturing sector suggest some goods price pressures are slowly emerging. Overall, the data was a hawkish surprise, supporting the ECB's "good position".

Additionally, the ECB's negotiated wages indicator rose to 2.95% y/y in Q4 from 1.9% y/y in Q3 driven by one-off inflation compensation payments rather than signalling renewed wage pressures. Wage growth continues to cool as labour demand eases, with the broader ECB-preferred compensation per employee measure, due 6 March, offering a fuller picture.

Equities: Global equities had a strong day on Friday, up about 0.5%, driven by the cyclical stocks and the large cap stocks. S&P500 rose 0.7%, Nasdaq by 0.9% and Russell 2000 virtually unchanged. Stoxx600 was 0.8% higher. Vix dipped below 20. The Mag7 companies were in the driver seat with particular Alphabet and Meta coming higher. The knee jerk-reaction to SCOTUS ruling invalidating Trump's reciprocal tariffs was seen as positive, albeit we caution on expecting a relief rally on the back of the ruling.

FI and FX: The knee-jerk reaction following the US Supreme Court ruling was for the unusual combination of higher rates and weaker USD. The changes were however relatively modest. Focus at the start of the week will be on the union speech by President Trump tomorrow which will be particularly interesting given the latest trade policy developments as well as the geopolitical developments surrounding Iran.