Go Back to Go – Do Not Pass Go

Surprise! The US Supreme Court ruled most import tariffs — as imposed by the Trump administration under the Emergency Economic Powers Act (IEEPA) — illegal, invalidating an estimated $130–$160 billion in tariff revenues.

Trump was furious. He called many people many names and said that he will find other ways to keep tariffs — the central piece of his international policy — alive, and that he is now imposing new 10% tariffs globally. And that was hiked to 15% on Saturday… What a mess!

No one knows what’s next. The White House said that the bilateral deals that have been agreed remain valid, but no one understands how trade partners can be imposed an additional 15% and still keep their original trade agreement. Meanwhile, the new 15% tariff itself cannot last forever, given that the legal provisions President Trump invoked only allow for temporary duties.

There is also no clarity regarding whether and how the US will refund companies that were subjected to tariffs illegally and have probably already passed these costs on to clients.

But in the aftermath of the first year with tariffs, the US trade deficit ballooned to the largest levels since 1960, and a recent New York Fed study showed that Americans — companies and households — have shouldered almost 90% of the tariffs imposed on the world by their government. Trump was furious after that study came out too… obviously.

In summary, it feels like a “Go Back to GO. Do Not Pass GO.” moment in terms of trade uncertainty. We’re back to square one, and the knock-on effects on companies, industries, countries and US debt levels are blurry again.

So what does it all mean for the markets?

Naturally, the ruling was perceived as great news by companies hit by tariffs and asking for refunds, while US sovereign yields were marginally higher on the idea that refunding companies for tariffs that should never have been collected will increase US debt — now approaching the $39trn mark.

The US dollar index slipped from a three-week high, while gold and silver have been rallying since tariff talk returned to the headlines. The Nikkei, European and US futures are notably down into the open this Monday morning as tariff uncertainty re-enters the arena, while the Hang Seng index — back from the Lunar New Year break — is diverging positively, led by technology stock gains, as the Kospi pulled back from a fresh ATH.

All in all, the week will be full of Trump and tariff news, and the latter could help commodities extend their rally, weigh on the US dollar, and pressure tariff- and trade-sensitive sectors and indices. In this context, the FTSE 100 should outperform peers, while mainland European indices could come under renewed pressure.

Good news for Europe is that Eurozone and UK PMIs beat expectations last week. And with inflation now back to the 2% policy target, the European Central Bank (ECB) could provide support if needed.

That’s not the case for the US, though. Data released last Friday showed that US growth slowed much more than expected last quarter (from 4.4% to 1.4% versus 2.8% expected by analysts) — dragged down by a record-long government shutdown (which lasted almost half of the three-month period), softer consumer spending (in line with Walmart’s weak forecast) and weaker trade (you know why). Meanwhile, price pressures rose faster in December; Core PCE, the Federal Reseve’s (Fed) preferred gauge of inflation, returned to the 3% mark — the highest level in two years — pushing Fed doves to further trim their rate-cut bets despite the soft-looking GDP number. The chances for a June rate cut stand close to a coin flip. Happily, the Fed could still inject liquidity to put a floor under any potential selloff, as they have been doing since last summer.

Zooming into the other major topics of the moment: a software company called RingCentral, specialized in cloud communications, jumped 30% on Friday after delivering strong quarterly earnings that beat expectations — confirmation that many companies may have been overly hit by fears that AI will destroy their business. Strong earnings could help them out of the water. Salesforce, Snowflake and Zoom earnings will be closely watched this week.

But the AI anxiety trade continues to look for its next victim. On Friday, cybersecurity software companies took a dip in the chilly water after Anthropic introduced a new tool that “scans codebases for security vulnerabilities and suggests targeted software patches for human review.” CrowdStrike and Cloudflare fell 8%, while the Global X Cybersecurity ETF fell nearly 5% and closed at its lowest level since November 2023. A story to follow.

This week is Nvidia earnings week! Nvidia is due to release its earnings on Wednesday after the close and is expected to deliver strong results that will likely beat expectations. The last time Nvidia disappointed investors was before the AI buzz started, before 2023. Plus, strong TSMC results and Big Tech’s eye-popping spending plans play in Nvidia’s favour. Yet investors will dig into the numbers, especially to see how much of the revenue Nvidia reports has actually been received. More broadly, strong results from Nvidia won’t reduce rising stress around massive AI spending, which is increasing the debt levels of Nvidia’s Big Tech clients — who could eventually be forced to trim their plans if investors push back by selling their stocks.

Let’s see. It will be another week full of tariff drama and earnings!