US Supreme Court Strikes Down Trump's Tariffs

For the week ending 20 February 2026

As of midday Friday, global equities were modestly lower on the week as megacap US companies held back cap-weighted indices while the broader market performed better. The yield on the US 10-year Treasury note was little changed at 4.10%, while the price of a barrel of West Texas Intermediate crude oil rose $3.80 to $66.60 amid growing tensions with Iran. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 20.5 from 21.2.

MACRO NEWS

US Supreme Court Stikes Down IEEPA tariffs, punts on refunds

In a 6-to-3 decision on Friday, the US Supreme Court struck down US President Donald Trump’s use of the International Emergency Economic Powers Act (IEEPA) as the basis for imposing tariffs on goods imported from overseas. The Court did not address the issue of whether the hundreds of billions of dollars in tariffs already collected will need to be refunded. We will examine the ruling in more detail later today in a Rapid Response.

Amid shutdown, US GDP grew less than expected in Q4

The US economy grew at a 1.4% annualized rate in the final quarter of 2025, due in part to the 43-day US government shutdown at the start of the period. Consumer spending rose a solid 2.4% while government spending fell 16.6%. Private sales to domestic private purchasers, a core measure of growth, rose a sturdy 2.4% Economists had expected GDP  to increase by 2.8%. The final piece of the December inflation puzzle was released at the same time as the GDP data and showed that the core personal consumption expenditures price index rose 3% year-over-year, slightly above the 2.9% consensus forecast and up from 2.8% in November.

US pressure on Iran ramps up

As the US military buildup in the Middle East continues, the US and Iran met for a second round of talks on Tuesday. While progress was reportedly made, US Vice President JD Vance warned that Iran has failed to acknowledge some core US demands. Oil prices firmed this week on the potential for renewed US military action. President Trump said Thursday that a decision on whether to strike Iran will be made in the next 10 to 15 days. On Thursday, the Wall Street Journal reported that Trump is considering a limited strike on Iran to compel them to dismantle their nuclear program. If that fails, larger strikes would follow. On Friday morning, Trump confirmed that line of thinking.

Sell America? The data say otherwise

Foreign investors bought more than twice the amount of US stocks in 2025 as they did the year before. Non-US purchases climbed to $720.1 billion on a net basis last year, up 134% from $307.5 billion in 2024, according to US Treasury Department data released on Wednesday. Total foreign net purchases of all long-term US financial assets (including stocks and bonds) reached $1.55 trillion in 2025, up from $1.18 trillion the previous year.

Lagarde said to be considering early ECB exit

The Financial Times reported Tuesday that European Central Bank President Christine Lagarde is contemplating leaving the ECB’s helm before the end of her term in October 2027; sources say she wants to enable outgoing French President Emmanuel Macron and German Chancellor Friedrich Merz to find a new leader for the ECB before the French presidential election in April 2027. The rumored action has redirected attention towards the ECB and away from concerns regarding the possible decline in Federal Reserve independence. The euro has weakened modestly since the speculation surfaced despite denials from the ECB. Lagarde told the Wall Street Journal on Thursday that completing her mission of ensuring price and financial stability and protecting the euro will take until the end of her term.

Takaichi sets agenda

Upon being officially appointed prime minister after her recent landslide election, Sanae Takaichi said her government will overhaul Japan’s budgeting process, which she expects to take about two years. She also pledged that her government will increase defense spending and strengthen alliances, and to implement “responsible and proactive fiscal policies,” including a two-year cut in the sales tax on food to help address affordability issues. Takaichi said the government is closely monitoring markets and seeks to earn the market’s trust through sustainable fiscal policy.

QUICK HITS

Preliminary global PMIs for February showed solid growth outside the US, while activity in the US cooled slightly.

Amid rising productivity from existing wells, US oil production rose to a record 13.6 million barrels per day in 2025, according to the US Energy Information Administration.

Fitch Ratings said this week that Latin American sovereign credit ratings outlooks are “mostly stable” and that they “skew positive.” There are five sovereigns on Positive Outlook, zero on Negative Outlook, 12 on Stable Outlook, and three in the “CCC” category, where outlooks are not typically assigned.

Canada’s annual inflation rate fell to 2.3% in January from 2.4% in December.

A drop in orders for commercial aircraft saw US durable goods orders fall 1.4% in December, though nondefense capital goods orders excluding aircraft rose 0.6%, beating expectations.

A Bloomberg analysis of Q4 earnings calls shows that mentions of AI disruption almost doubled compared to the third quarter.

This week, Canada unveiled its Defence Industrial Strategy to create 125,000 jobs and reduce its reliance on the US.

British Prime Minister Keir Starmer is considering accelerating defense spending to 3% of GDP by 2029. Meanwhile, President Trump renewed his opposition to the UK ceding ownership of the Chagos Islands, which include a strategically important joint US-UK military base on Diego Garcia, to Mauritius.

Share prices of US private credit firms fell this week after Blue Owl Capital halted redemptions on a retail-focused private credit fund.

Industrial production in the eurozone decreased by 1.4% in December, marking a slowdown after three consecutive months of growth.

Real GDP in Japan grew 0.2% on an annualized basis in Q4, weaker than economists' median estimate of 1.6%. Consumer spending, the biggest component of GDP, grew 0.1%, showing the fragility of domestic demand as households continue to cope with inflation.

US housing starts rose 6.2% December, while building permits rose 4.3%. Both were substantially stronger than expected.

UK unemployment edged up to 5.2% in December from 5.1% in November, hitting its highest level in over a decade.

Federal Reserve Governor Michael Barr said this week that the effects of AI are likely to be “profoundly positive” in the long run but could “deeply disrupt labor markets” in the short term. The effects of the technology could raise the neutral rate and imply a higher setting for policy rates than previously, he said. Barr added that the AI boom is not sensitive to monetary policy.

The US and Japan have agreed on $39 billion of Japanese investment in the US as the first tranche of the $550 billion agreed to as part of Japan’s trade deal with the Trump administration. The funds will support projects that include critical minerals, oil and gas infrastructure, and power generation.

In January, the UK inflation rate fell from 3.4% to 3% year-over-year — the lowest since March 2025. With inflation moving in the right direction, odds of a rate cut from the Bank of England in March are now above 80%.

Exports from Japan surged 16.8% in January, led by AI chips.

UK retail sales rose 1.8% month-over-month in January, dramatically exceeding estimates.

The US trade deficit — the gap between imports and exports in both goods and services — was $901.5 billion last year, slightly smaller than the $903.5 billion deficit recorded in 2024, the US Commerce Department said Thursday. The trade gap with China fell to $202.1 billion in 2025 from $295.5 billion in 2024.

Amid persistent overcapacity, the IMF has called on China to halve its industrial subsidies.

The minutes of the January 2026 Federal Open Market Committee meeting showed that policymakers were divided over future interest rate policies. While the committee unanimously decided to maintain the federal funds rate at 3.5%-3.75%, members debated next steps. Some supported further rate cuts if inflation aligns with expectations, while others emphasized the need to prioritize inflation control over labor market support. A few members even suggested potential rate hikes if inflation remains above target.

Canadian retail sales fell 0.4% in December, while the prior month’s sales were revised slightly lower to up 1.2%.

EARNINGS NEWS

With about 85% of the constituents of the S&P 500 Index having reported, blended earnings per share (which combines reported data with estimates for those that have yet to report) rose 13.6% compared with the same quarter last year, according to data from FactSet. Blended sales have risen 9.25% year-over-year. Q4 is shaping up to report the largest increase in revenue growth since Q3 2022.

THE WEEK AHEAD

Monday: US factory orders

Tuesday: US Case-Shiller Home Price Index; Conference Board consumer confidence; President Trump’s State of the Union address

Wednesday: Eurozone CPI

Thursday: US jobless claims

Friday: Japan retail sales; eurozone ECB inflation expectations; Canada GDP; US PPI

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Past performance is no guarantee of future results.

Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.