Amid all the geopolitical, trade policy and AI concerns, the past week ended up being perhaps less eventful than expected. But a sense of unease is still lingering in the markets, with bond yields trading lower, jittery moves in main equity indices and implied oil volatility at elevated levels.
Donald Trump announced that he would replace the now-illegal IEEPA tariffs with a universal 15% Section 122 tariff for the next 150 days – but for now, only a lower 10% rate has been enacted. Before the Supreme Court’s ruling we estimated that the pre-substitution average tariff rate was hovering close to 16%, so for now, businesses get to enjoy at least a temporary window of cheaper imports.
US Trade Representative Jamieson Greer mapped the path forward, flagging that the rate could rise to 15% or higher for ‘some countries’ (but maybe not all of them?). Looking beyond the 150-day period, the long-term tariff mix will include a combination of country-specific section 301 tariffs and product-specific section 232 measures, both of which the president and USTR can impose without congressional approval after an investigation. Greer noted the administration is looking to start the said investigations soon but did not yet specify which economies would be targeted first. Check our base case assumptions and implications from Reading the Markets USD – Tariff ruling not a game changer for macro outlook, 24 February.
US and Iran have continued talks in Geneva. Omani Foreign Minister Badr Albusaidi, who is mediating the talks, said the two sides had made ‘significant progress’ yet concrete results seem elusive. Earlier in the week, US Secretary of State Marco Rubio demanded that Iran should be willing to address not just its nuclear, but also its ballistic missile program. But the latest sources suggest the US is now focusing on just the former issue and pushing Iran to destroying its three main nuclear sites while transferring all its remaining enriched uranium to the US, which Iran opposes. Last week, Trump said the world would find out over 10-15 days whether the US would resort to military action. The vague deadline lands on early March, but at least in his State of Union Speech Trump still highlighted preference for a diplomatic solution instead. Talks will continue next week in Vienna.
Next week, the most important data release out of the euro area will be the February Flash HICP. At the time of writing, country-specific data has been mixed, with inflation ticking up to 1.0% y/y in France (cons. 0.8%), 2.3% y/y in Spain (cons. 2.2%), but down in German regional figures. We forecast euro area headline inflation accelerating slightly to 1.8% (from 1.7%) and core steady at 2.2%.
In the US, the focus will be on the long list of labour market releases. Early high-frequency indicators, like jobless claims, ADP’s weekly private sector employment estimate and Indeed Hiring Lab’s daily online job postings have generally signalled improving labour market conditions into February. We still expect a modest slowdown in NFP growth to +70k and unemployment rate steady at 4.3%.
In the UK, the spring budget will be presented on Tuesday. While we do not expect any meaningful changes to the fiscal outlook, we note that UK markets continue to be particularly sensitive to political uncertainty.
