Sample Category Title

EUR/GBP breached 0.8744 resistance a few times last week but failed to sustain above there. Initial bias remains neutral this week first . On the upside, decisive break of 0.8744 should confirm that fall from 0.8863 has completed as a correction at 0.8661. Further rise should then be seen back to retest 0.8663 high. On the downside, break of 0.8685 support will turn bias back to the downside for 0.8611. Sustained break of 38.2% retracement of 0.8221 to 0.8663 at 0.8618 will carry larger bearish implications and turn outlook bearish.

In the bigger picture, rise from 0.8221 medium term bottom (2024 low) is seen as a corrective move. Upside should be limited by 61.8% retracement of 0.9267 to 0.8221 at 0.8867. Sustained trading below 55 W EMA (now at 0.8632) should confirm that this corrective bounce has completed. In this case, deeper fall would be seen back to 0.8201/21 key support zone. However, decisive break of 0.8867 will suggest that EUR/GBP is already reversing whole decline from 0.9267 (2022 high). That should pave the way back to 0.9267.

In the long term picture, price action from 0.9499 (2020 high) is seen as part of the long term range pattern from 0.9799 (2008 high). Range trading should continue between 0.8201 and 0.9499, until there is clear signal of imminent breakout.

EUR/AUD stayed in range above 1.6620 last week as consolidations continued. Initial bias stays neutral this week first and further fall is expected. Decisive break of 1.6620 will resume the larger decline from 1.8554 to 138.2% projection of 1.8554 to 1.7245 from 1.8160 at 1.6351 next. However, firm break of 1.6830 resistance will indicate short term bottoming, and bring stronger rebound.

In the bigger picture, fall from 1.8554 medium term top is seen as reversing the whole up trend from 1.4281 (2022 low). Deeper decline should be seen to 61.8% retracement of 1.4281 to 1.8554 at 1.5913, which is slightly below 1.5963 structural support. For now, risk will stay on the downside as long as 1.7245 support turned resistance holds, even in case of strong rebound.

In the longer term picture, rise from 1.4281 is seen as the second leg of the pattern from 1.9799 (2020 high), which is part of the pattern from 2.1127 (2008 high). Current development argue that it has already completed at 1.8554. Sustained trading below 55 M EMA (now at 1.6603) will confirm this bearish case, and pave the way back towards 1.4281.

EUR/CHF stayed in range trading above 0.9092 low last week. Current development suggests that 0.9092 is already a short term bottom, and slightly lengthier consolidation is underway. Strong rebound might be seen to But upside should be limited by 38.2% retracement of 0.9394 to 0.9092 at 0.9207. On the downside, firm break of 0.9092 will resume larger down trend.

In the bigger picture, down trend from 0.9928 (2024 high) is still in progress with falling 55 W EMA (now at 0.9326) intact. Next target is 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. Outlook will stay bearish as long as 0.9394 resistance holds, in case of rebound.

In the long term picture, EUR/CHF is also holding well inside long term falling trend channel. Down trend from 1.2004 (2018 high) is still in progress. Outlook will continue to stay bearish as long as falling 55 M EMA (now at 0.9739) holds.

Canadian Highlights

• The U.S. Supreme Court decision to strike down the IEEPA tariffs offers limited near-term relief for Canada, as ample uncertainty remains.
• Canada’s trade diversification thus far relies heavily on gold and oil, raising questions about whether it is sustainable.
• Focus remains on the CUSMA review process, with the resulting uncertainty expected to hang over the economy.

U.S. Highlights

• A Supreme Court decision on Friday struck down a large chunk of President Trump’s second-term tariffs.
• January FOMC minutes reinforced a shift in the balance of risks toward inflation, with policymakers signaling little urgency to resume rate cuts.
• GDP growth cooled to 1.4% at the end of 2025, reflecting a sharp contraction in federal outlays. Core PCE inflation rose to 3.0% y/y in December, remaining well above target.

Canada – IEEPA Tariff Struck Down, But Uncertainty Lingers

The biggest piece of news this week came Friday morning as the U.S. Supreme Court struck down the U.S. administration’s use of IEEPA legislation to impose tariffs. These duties were 35% on non-CUSMA compliant goods flowing from Canada to the United States. The market reaction was relatively muted as the decision was expected given the skepticism expressed by justices in oral arguments in November. Canadian equities are up this week as rising commodities prices have buoyed prospects for the energy sector. Meanwhile, bond yields were little changed on the week as the stream of economic data left the narrative on the country’s economic prospects relatively unchanged.

For Canada, the removal of the IEEPA tariffs represents some limited near-term relief, but it would be optimistic to assume this tariff relief is permanent or provides a sustainable upside risk to growth. First, the administration is likely to use other tariff tools, including the possibility to apply 50% duties on countries for trade practices deemed to “discriminate” against the U.S. We expect some new form of tariff regime will be established. Moreover, the IEEPA tariffs only applied to the subset Canadian goods that were not compliant with CUSMA rules of origin and that were not covered under Section 232 tariffs (autos, steel, aluminum, etc.), leaving many goods unaffected by the decision.

This week’s trade data gives some indication of the tariff impact. Exports to the U.S. were down $30.9 billion through 2025, of which $15.5 billion were in categories of goods affected by Section 232 tariffs. Of the remaining $15.4 billion decline, $13.5 billion is attributable to a decline in oil exports (which have been weighed down by lower prices and refinery outages in the U.S.). The decline in exports of goods that are not oil, gold, or covered by Section 232 was roughly $3.8, down a meagre 1.4% relative to last year.

So, the focus for Canada remains the trade landscape and ongoing efforts to diversify its trade partnerships. As of December, Canada shipped roughly 68% of its goods exports to the U.S. The figure is down significantly from the 76% registered in December 2024, roughly unchanged since October. The 68% share is similar to the export composition during the pandemic, and a level of interaction not seen in over 40 years (Chart 1).

The rotation is underway, but it’s not all good news. Exports that are being negatively affected by U.S. tariffs are struggling to find new markets. Much of Canada’s success on the trade front has relied on two commodities; gold and oil. Total exports to the U.S. are down $30.9 billion through 2025, while flows to the rest of the world are up $28.8 (Chart 2). However, strip out the effects of these two commodities and the declines to the U.S. register $19.3 billion with a smaller $10.5 billion offset from the rest of the world.

This lack of new export markets for affected industries and the prominent role of commodities prone to large price changes does little to assuage concerns about the long-term sustainability of the current export mix, and the prospects for Canadian industry. Looking forward, the CUSMA review is set to pick up steam, and the resulting uncertainty is expected to hang over the economy.

U.S. – Tariff Uncertainty Makes a Comeback

Financial markets were largely rangebound for much of this week as investors digested the January FOMC minutes and an important run of macro data. Early market reaction to the Supreme Court’s decision to strike down a large chunk of President Trump’s second term tariffs appears broadly positive, with the S&P 500 is up 0.9% from last week’s close at time of writing.

The Supreme Court ruling found that the law that underpins many of Trump’s global tariffs – the International Emergency Economic Powers Act (IEEPA) – “does not authorize the President to impose tariffs”. The decision did not rule on how or if tariffs that have already been paid should be refunded – a potentially messy process. We expect the U.S. administration will act quickly to recreate its tariff regime using justification from other statutes. For more on this, see our commentary here.

Prior to the tariff decision, the January FOMC minutes dominated the financial market limelight. Two key takeaways stood out from the minutes. First, the balance of risks has shifted away from labor market weakness and toward inflation staying uncomfortably high. Driving home this point was the fact that most committee members judged that “downside risks to employment had moderated, while the risk of more persistent inflation remained”. Importantly, this assessment occurred before the release of last week’s delayed payrolls report, which showed a firmer labor market than many feared. Second, most participants judged that the current policy rate is closer to neutral rather than restrictive. That assessment diminishes the urgency to resume rate cuts.

This week’s macro data broadly echoed the tone of the minutes, even as growth was weaker than expected at the end of 2025. Fourth-quarter GDP growth came in at 1.4% annualized in the first estimate, a notable slowdown from 4.4% in the third quarter (Chart 1). The disappointment was driven largely by a steep pullback in federal outlays, reflecting the 43-day government shutdown. Importantly, final sales to private domestic purchasers rose 2.4%, underscoring the resilience of underlying private sector demand despite the headline slowdown.

The December personal income and outlays report added further color to the economic backdrop at year‑end. Real consumer spending was up just 0.1% m/m in December, reflecting a pullback in goods spending. Inflation pressures, meanwhile, re‑accelerated at the margin. Core PCE inflation rose to 3.0% y/y, remaining well above target (Chart 2).

All told, even after accounting for this morning’s miss on Q4 growth, we still feel that the U.S. economy has entered 2026 with considerable momentum. That said, it appears that 2026 may start off in similar fashion to 2025 after all – with elevated tariff uncertainty. This reinforces the notion that the Fed will remain on hold for the time being, as it waits for the policy fog to clear.

Summary

• As expected, the Supreme Court struck down the president's authority to levy tariffs under the International Emergency Economic Powers Act (IEEPA). President Trump was quick to announce new tariffs. The bottom line is these actions did not deliver complete relief to affected importers, but it did ease their burden even if refunds will take awhile.
• The ruling invalidates the legal basis for IEEPA tariffs, but it does not trigger automatic refunds. Importers must pursue refunds individually through established claims processes.
• Potential refunds are large, but unlikely to be fully realized. Roughly $264B in tariff revenue was collected last year, and we estimate about half—around $130B—was collected under IEEPA. The true total may be somewhat higher once January–February collections are included, but refunds will be handled case by case, meaning not all IEEPA tariff revenue is likely to be returned.
• Any refunds will arrive gradually. Payments are expected to trickle in over months, if not years, and should be delivered directly to the importers who originally paid the tariffs.
• The administration retains the ability to re‑impose tariffs, but nothing grants the President the same broad power with immediate effect as IEEPA would have.
• President Trump announced a 10% global tariff under Section 122 of the Trade Act of 1974 "effective immediately". He also announced starting Section 301 investigations.
  • Section 122, Trade Act of 1974: President can impose tariffs up to 15% for 150 days to address balance-of-payments issues. Tariffs can be extended indefinitely with Congressional approval. No federal investigation required.
  • Section 301, Trade Act of 1974: U.S. Trade Representative can impose tariffs for four years, under the President's direction, if it finds unjustifiable, unreasonable or discriminatory action against U.S. businesses and/or a violation of trade agreements. Tariffs may be imposed indefinitely, if continuation is requested and extended every four years.
• This action keeps the 10% baseline global tariff effectively active, but lowers the higher IEEPA tariff burden for countries exposed to 'reciprocal' tariffs under IEEPA. These actions result in a lower total tariff burden. We estimate the average U.S. effective tariff rate is now around 13% in the wake of today's actions, rather than the ~16% based on policy as of yesterday.
• Tariffs weighed on U.S. goods imports last year as firms were cautious about committing to foreign sourcing amid unsettled and frequently changing tariff policy. Some shifts in trade flows signal some rejiggering of sourcing, though permanent effects may be overstated thus far.

The Court Ruling is Something Short of a Complete Policy Reset

The Supreme Court’s decision to strike down the administration’s broad‑based tariffs imposed under the International Emergency Economic Powers Act (IEEPA) marks a meaningful legal turning point, but not a clean policy reset. The ruling invalidates reciprocal and fentanyl‑related tariffs enacted under IEEPA, opens the door for importers to seek refunds potentially totaling around $130 billion, and sharply curtails the president’s authority to impose sweeping tariffs without involvement.

What the decision does not do is remove tariffs from the trade policy landscape. Alternative statutory paths remain available to the administration, while none confer the same breadth or immediacy as IEEPA. In fact, President Trump announced today that all existing Section 232 and 301 tariffs remain in effect, and a 10% global tariff takes effect immediately under Section 122. He also announced the start of Section 301 investigations.

Navigating the Detour: Trade Flows in a Still-Tariffed World

The experience of U.S. importers over the past year makes clear that tariffs constrained trade less by raising costs outright than by injecting persistent uncertainty into sourcing decisions.

The U.S. collected nearly $265 billion in tariff revenue last year, more than three times the amount collected in 2024. Measured against total imports that means the realized average effective tariff rate rose to roughly 8% last year, up from just under 3% the year prior. With a full year of data now available, the key question is how this dramatic increase in tariffs ultimately affected U.S. import behavior.

At first glance, the answer appears counterintuitive. Total goods imports increased last year, rising 4.3% above 2024 levels. But, that top line figure obscures important underlying weakness. Once gold‑related categories are excluded, the annual gain in goods imports is cut roughly in half, suggesting the headline strength overstates the true momentum in import growth.

A closer look reveals that import growth was highly concentrated in a narrow set of categories, particularly high‑tech goods. Imports of computers, computer accessories, communications equipment, and semiconductors surged 35% over the year, consistent with other indicators showing businesses prioritizing investment in all things tech being viewed as critical to future competitiveness. While these categories were not the only contributors to import growth, they were decisive. Excluding them entirely, goods imports fell 3.6% last year (Figure 1). The lag in underlying imports suggests firms were cautious about committing to foreign sourcing amid unsettled and frequently changing tariff policy.

Supply Chains in Motion: Structural Shift or Tactical Workaround?

Tariffs also coincided with notable shifts in the geographic composition of U.S. imports. As shown in Figure 2, imports from China declined sharply, while shipments from other Asian economies increased. Figure 3 highlights the countries that gained—and lost—share of U.S. imports over the year. In particular, Taiwan, Vietnam and Thailand more than offset the decline in imports from China, at least in aggregate terms.

Whether this pattern reflects a genuine reorientation of global supply chains or merely a rerouting of trade flows is difficult to determine with certainty; it could well be a little of both. Source country does not necessarily imply source product either, and there is precedent for firms adjusting final assembly locations to mitigate tariff exposure. Following the first U.S.–China trade war in 2017–2019, for example, Chinese firms established or expanded production facilities in Southeast Asia, blurring the distinction between diversification and transshipment. The current data likely reflect some combination of both dynamics.

Not all country‑level shifts appear structural. Some look temporary and category‑specific. Imports from Switzerland, for instance, were driven largely by a surge in gold‑related inflows, while imports from Ireland were boosted by pharmaceutical products—a category in which Ireland accounts for roughly 40% of total U.S. imports. In both cases, demand appears to have been at least partially pulled forward ahead of potential tariff changes, and both series are historically volatile.

Cautious Adjustment, Not a Clean Break

Taken together, the data suggest that businesses are indeed reassessing supply chains in response to historically high tariffs—but the adjustment process remains incomplete. Rather than a wholesale retreat from global sourcing, the pattern so far is one of caution, selectivity and timing shifts. We repeatedly hear this anecdotally in our discussions with banking clients that source materials from overseas. Firms are willing to import when the strategic value is high, but understandably reluctant to expand exposure broadly amid policy uncertainty.

With underlying imports suppressed by hesitation rather than capacity constraints, goods imports may be ripe for a rebound in coming months, even despite tariffs. Lean inventories require replenishment whether or not uncertainty persists. Headline import growth is likely to remain a poor guide to the true state of trade, masking weakness beneath a narrow set of resilient—and strategically important—categories. The Supreme Court ruling doesn't reset trade policy, and President Trump's swift actions signal tariffs are here to stay even if they are adjusted in coming months.

Summary

• Canada Q4 GDP: Negative Q4 GDP Sets the Stage for a BoC Cutting Restart • (02/27)
• Australia January CPI: A Soft(er) Print Ahead, Not a Green Light for March Hike • (02/25)
• India Q4 GDP: Disregard a Q4 Slowdown, Solid Growth Ahead • (02/27)
• Mexico Biweekly CPI: Banxico Flirting with Policy Error • (02/24)

G10

Canada GDP • Friday

Negative Q4 GDP Sets the Stage for a BoC Cutting Restart

We expect Q4-2025 GDP to undershoot consensus, contracting by 0.8% quarter-over-quarter (SAAR) following an exceptionally strong Q3. Quarterly growth has been volatile, reflecting large swings in trade and inventories, and Q4 is likely to mark a reversal. We see a pullback in exports alongside a moderation in inventory accumulation as the key drags on activity. On a monthly and year-on-year basis, we look for GDP growth of 0.1% and 0.4%, respectively. While growth through 2025 has proven more resilient than anticipated—supported by solid domestic demand and inventory dynamics—we expect momentum to fade in 2026. Rising trade tensions should weigh on business investment, while a softer labor market increasingly constrains household spending. Consensus expectations of 1.0%-1.5% growth in 2026 (roughly in line with potential) implicitly assume a benign outcome from USMCA renegotiations, either a muddle-through status quo or a successful renewal. More adverse scenarios, including materially higher tariffs or a USMCA withdrawal, would likely push annual growth into negative territory, depending on the severity of the shock. Against this backdrop, the balance of risks to growth remains clearly skewed to the downside. Combined with ongoing disinflation, this reinforces the asymmetry in Bank of Canada (BoC) policy toward easing. We expect the BoC to restart rate cuts in Q2, potentially as early as the April meeting, coinciding with the release of a new Monetary Policy Report and updated forecasts.

Australia CPI • Tuesday

A Soft(er) Print Ahead, Not a Green Light for March Hike

For next week's January inflation print, we expect headline CPI to ease slightly to 3.6% year-over-year (vs. 3.7% consensus), with trimmed mean CPI holding at 3.3%, in line with consensus. Even in the event of an upside surprise, we do not see this as sufficient to raise the likelihood of a near-term RBA hike. We continue to expect the next rate increase in May to 4.10% and see greater downside risk to the hiking path. The reason for this conviction comes from the fact that inflation pressures are increasingly driven by policy-related and regulated components rather than competitively priced market goods, which should limit the RBA’s scope to tighten further. Consistent with this view, at the RBA’s most recent monetary policy meeting where they hiked rates, their forecasts showed headline and trimmed mean inflation peaking in Q2-2026, while the Cash Rate was held at 3.85%, with further hikes only anticipated beyond that point.

EMs

India Q4 GDP • Friday

Disregard a Q4 Slowdown, Solid Growth Ahead

We expect India's economy softened at the end of last year as tariff uncertainty disrupted local activity. But now that a U.S.-India trade deal, as well as an EU-India trade agreement, has been reached, some of that uncertainty should be lifted and activity can be supported going forward. Point being, Q4 GDP data may show an economic deceleration, but we would view these data as backward-looking at this point. On a go-forward basis, India can be one of the top performing major economies in 2026. Reduced trade uncertainty helps, which combined with the lagged effects of prior Reserve Bank of India (RBI) easing, we believe India's economy can grow ~7% this calendar year. Reduced trade and geopolitical uncertainty as well as improved growth prospects should also be an input into RBI policymakers monetary policy decisions. Policymakers opted to keep rates unchanged at the February meeting, and while the balance of risk is tilted toward additional easing later this year, we believe rates will be left unchanged for an extended period of time as growth recovers and the economy reflates. Perhaps the most interesting dynamic in India is the path of the rupee. INR has faced persistent depreciation pressure despite broad-based U.S. dollar depreciation. RBI FX intervention has done little to prevent or materially disrupt INR weakness, while constant intervention has made India's external buffers less robust. To be clear, the RBI has adequate FX reserves, so running out of firepower is not necessarily an issue. But with inflation below target, manufacturing becoming more of a focus and FX reserves being drawn down, we often wonder why the RBI does not let INR be a more market-driven currency. For us, should current FX policy continue to be pursued, INR is likely to remain under pressure for the foreseeable future and USDINR will consistently set new all-time highs.

Mexico Biweekly CPI • Tuesday

Banxico Flirting with Policy Error

Financial markets continue to price near-term Banxico easing, and next week's biweekly CPI may offer additional insight into whether market participants are getting ahead of themselves or accurately predicting rate decisions in Mexico. Rather than offer a view on the direction of biweekly inflation data, we wish to highlight that should data be consistent with rate cuts and Banxico indeed ease monetary policy in March and possibly again later this year, we would view those decisions as taking Banxico to the edge of a policy mistake. A few more Banxico rate reductions would make the Fed-Banxico rate spread historically narrow and not the most appealing carry profile to sustain capital flows into Mexico. Also, Banxico has limited FX reserves and, at least historically, has not opted to purchase FX reserves to build external buffers. Shock events are common, and Mexico is potentially exposed to a material shock scenario this year: USMCA negotiations. For now, we believe the USMCA re-negotiation will not cause much damage to Mexico, but the risk of an unfavorable trade agreement (or perhaps no North America trade agreement) is elevated. Additional Banxico rate cuts do not offer much room for error in Mexico and leaves MXN vulnerable to a trade-related shock, or any other external shock that may materialize. Our base case is for MXN to outperform Latam peer FX on political stability, but if political stability is upended, MXN can experience a sharp selloff that takes USDMXN back to a 20-handle quick.

Monday, Feb 23, 2026

Tuesday, Feb 24, 2026

Wednesday, Feb 25, 2026

Thursday, Feb 26, 2026

Friday, Feb 27, 2026

Summary

U.S. Week in Review:

• This week’s data delivered a familiar theme with an important twist. The U.S. economy continues to be shaped by powerful forces in high-tech and AI-related investment, but recent releases suggest the growth story may finally be broadening. At the same time, trade flows are moving in a less supportive direction, reminding us that not all parts of the economy are pulling in sync.

U.S. Week Ahead:

• Consumer confidence likely rebounded modestly in February after January’s decade low as cooler inflation and a better jobs report offered relief, even as high living costs and geopolitical risks persist.
• Construction spending likely improved at year-end, though we expect the results to be mixed beneath the surface, with data center construction driving strength but continued weakness in residential and structures investment expected as high interest rates and economic uncertainty continue to constrain activity.

U.S. Week in Review

Broadening Drivers of Growth: Unpacking GDP and Looking Ahead

We had maintained a well-below consensus forecast for fourth quarter GDP and the official release this morning confirmed our suspicions that a government shutdown and a gold-excluded trade balance held back broader growth during the period. The annualized rate of GDP came in at just 1.4%, roughly half the 2.8% growth rate expected by the consensus.

Government spending, negatively impacted by the longest-ever shutdown, pulled growth lower by nine-tenths of a percentage point (chart). Net exports added less than a tenth of a percentage point (0.08) to the headline figure. Both commercial and residential fixed investment were slight drags during the fourth quarter as well.

The growth drivers were largely consumer (which boosted growth 1.6 percentage points) and business fixed investment spending (which added 0.5 percentage points, even after accounting for the drag from structures). In terms of underlying U.S. growth, it was strong. We've emphasized this measure a lot throughout 2025: real final sales to private domestic purchasers, which removes government, inventories and net exports, the most volatile components this year. That measure was up at a 2.4% annualized clip in Q4 and 2.7% for the full year, only slightly below the pace registered last year, demonstrating a more stable growth picture (chart).

In plain English: If you exclude trade volatility and the associated impact on inventories, the overall economy is doing about the same as last year. Yet, for much of that period, resilience in business investment has been more optical than organic—a surge in AI and high-tech spending masking softness elsewhere. Orders, production, and imports tied to computers, communications equipment, and semiconductors have surged, while more traditional capital goods struggled to keep pace. This was true in Q4 as well where the 3.2% annualized pickup in real equipment investment was due entirely to stronger investment in information processing equipment, while other areas of capex (industrial, transportation, other) declined.

December durable goods orders and January industrial production also released this week hint that this imbalance may be starting to ease. Core capital goods orders stabilized, and shipments rose at a pace consistent with solid equipment investment growth. Stripping out the notoriously volatile aircraft category reveals modest but broad-based gains across most durable goods sectors, enough to handily exceed low expectations.

On the production side, manufacturing output rose at the fastest monthly pace in nearly a year. While high-tech continues to dominate in level terms, output excluding high-tech also posted its strongest gain in almost 12 months, reaching its highest index reading in more than two years. In short, the AI investment boom remains intact, but it is no longer the only game in town.

Supportive tax incentives and an early year pickup in commercial and industrial lending appear to be encouraging firms to finance projects beyond AI infrastructure. That shift matters: A more balanced capex cycle would make the expansion more durable and less dependent on a single sector carrying the load.

If investment and production offered a positive signal, trade delivered a counterweight. December saw a sharp widening in the trade deficit, driven by a large increase in imports alongside a decline in exports. On the surface, that combination pointed to a meaningful drag on fourth quarter growth. But digging deeper tempers the headline. More than half of the widening was due to non-monetary gold flows, which are excluded from GDP calculations and reflect asset reallocation rather than underlying production demand. Adjusting for gold significantly reduces the apparent deterioration in net exports, thus explaining the flat contribution to headline Q4 growth.

The trade data also underscore how much last year’s import weakness may have been overstated. Goods imports finished 2025 well below where they began the year, particularly outside of high-tech categories, but the evidence points more toward caution than capitulation. Firms appeared to adopt a wait-and-see approach amid tariff uncertainty rather than execute a wholesale restructuring of supply chains.

With inventories lean and little sign of large scale onshoring, there is scope for imports to rebound modestly this year—even if tariff rates remain elevated. Ongoing legal and policy uncertainty around tariff authority, as well as upcoming reviews of trade agreements, means trade policy will remain a swing factor, but not necessarily an ever-tightening constraint.

At the end of the day, consumers are still spending. Real personal consumption expenditures advanced at a 2.4% annualized rate in Q4, driven by solid services-sector demand, which offset a modest pullback in goods purchases. If you're looking for a sign of caution in the GDP data, we'd highlight the fact that the services resilience looks to be driven by non-discretionary categories like healthcare, housing & utilities and financial services. The more discretionary-oriented areas (transportation, recreation and food & accomodation) all lagged or posted modest growth rates. That development doesn't leave us overly concerned of a consumer pullback as we've cautioned of a soft finish, but it signals some stress in the consumer sector. We expect more favorable after-tax income growth and larger average tax refunds to help offset some of this household pressure this year.

Taken together, this week’s indicators tell a nuanced story. Beneath the noise, there are early and encouraging signs that investment and production growth are becoming more broad based, reducing the economy’s reliance on the high-tech sector alone. At the same time, trade is shifting from a big tailwind to a mild headwind for growth as imports normalize.

The message is not one of reversal, but of rebalancing. Momentum within the domestic economy is improving in a healthier way, even as external dynamics complicate the growth arithmetic. As we look ahead, the sustainability of the expansion will hinge less on a single sector’s boom and more on whether this nascent broadening continues to take hold.

U.S. Week Ahead

Consumer Confidence • Tuesday

The Consumer Confidence Index fell to its lowest level in a decade in January, with a deterioration in the labor market, high living costs and geopolitical tensions contributing to the drop. The weakening jobs backdrop is particularly weighing on household sentiment: The labor differential fell to a post-pandemic low, with more consumers reporting jobs as "hard to get." While this alone is not enough to stop households from spending, it does result in more cautious spending behavior, especially for those with less discretionary income.

We look for a bit of payback in February's print and expect the index to rise to 90.5 from 84.5 previously. Though the labor market is far from perfect, the employment report for January was broadly encouraging, which will likely provide some relief to consumer's weakening views of the labor market. Likewise, the CPI report came in cooler than expected in January, which may also provide support to consumer confidence. That said, despite the more-positive month of data, persistent worries of tariffs, foreign interventions and high cost of living are likely not going away soon and will continue to weigh on consumer confidence.

Construction Spending • Friday

Construction spending declined 0.6% in September before rebounding 0.5% in October, making overall construction spending virtually unchanged since August. Private construction was the main drag, with residential and nonresidential outlays both declining on an annual basis. Single‑family residential spending fell sharply as builders pulled back amid high mortgage rates and elevated inventories, while at the same time manufacturing, commercial and healthcare construction also weakened. Multifamily spending stabilized after earlier declines, and public construction outperformed, rising year-over-year on gains concentrated in education, water and waste projects.

November and December construction spending data will be released next week, and we look for modest monthly increases of 0.4% and 0.2%, respectively. While there remains room for growth in areas such as data center construction, we look for continued near-term weakness in residential and structures investment as high interest rates and economic uncertainty continue to constrain activity.

The U.S. Supreme Court ruling against broad tariffs imposed by the U.S. administration under the International Emergency Economic Powers Act (IEEPA) removes government authority to collect them going forward. Still, other legislative authorities are open for the administration to re-instate tariffs.

IEEPA measures accounted for about 60% of tariff revenue reported by U.S. Customs and Border Control in fiscal 2025 and 2026 to-date. The remaining 40% of revenue were collected via other statues including Section 301 and 232 that are not impacted by the ruling.

There are significant questions that also remain—including if or when tariff revenues collected under IEEPA will be repaid.

The ruling will have less impact on Canadian trade than most other countries. Most Canadian exports are already exempt from IEEPA tariffs via an exemption for CUSMA compliant trade.

Other product specific (section 232) tariff measures have been a larger issue for the Canadian economy and those were not impacted by the court ruling.

We continue to view maintaining free trade under CUSMA—including through negotiations to extend the agreement later this year—as more important for the Canadian external demand outlook than court rulings.

Our 2026 forecast rests on the key assumption that CUSMA exemptions will be preserved to maintain lower-friction bilateral trade with the U.S.

IEEPA ruling likely won’t meaningfully change Canada’s tariff backdrop

The U.S. administration has vowed to re-instate tariffs if IEEPA measures are struck down. Statutorily, there are various other channels that allow them to do so.

In the meantime, non-IEEPA measures that account for about half of U.S. tariffs in place prior to the ruling remain unaffected by the court decision.

Other measures, including Section 232 tariffs imposed on a key range of Canadian products like metals, autos, and lumber, accounted for the bulk of duties collected from Canadian exports so far. Importantly, these measures were not under review by the U.S. Supreme Court.

Source: USA Trade Data Online, RBC Economics

*Calculation based on Executive Orders posted on the Federal Register. Could be under-counting S232 tariffs imposed on steel and aluminum content of non-specified products, or over-counting Section 232 tariffs from overlaps with other measures.

Canada has limited exposure to IEEPA tariffs

By our count, 89% of Canadian exports to the U.S. in December were not charged with tariffs because they’re compliant with rules of origin requirements in CUSMA.

That leaves IEEPA measures only effective on less than 5% of exports to the U.S. In December (with the remainder accounted for by Section 232 tariffs), Canada faced an average effective U.S. tariff of 3.1%—the lowest of all major U.S. trade partners.

Moving forward, there are reasons to be optimistic that exemptions will remain in place, largely because they benefit businesses on both sides of the border.

We counted in the past that they effectively lower the U.S. average tariff by 6%, particularly benefitting importers in the 22 U.S. states where Canada is the largest source of imports as of 2025. Still, potential for changes remains a key risk to our baseline forecast.

Canada may lose advantage globally but could see increased U.S. demand

For other major U.S. trade partners (outside of Mexico, which also benefits from lower tariffs thanks to CUSMA/USMCA exemptions), IEEPA tariffs tend to account for the majority of U.S. tariffs, making the Supreme Court ruling more consequential.

If IEEPA tariffs are not replaced, other countries could see significant tariff reductions, and Canada could lose status as the lowest tariffed U.S. trade partner. On the flip side, U.S. tariffs will be halved, leading to increases in U.S. industrial activity and foreign demand.

We continue to view Canada’s international trade risks as a function of one: Canada’s competitive position in the U.S. import market; and two: broader, overall resilience in U.S. import demand tied to the severity of tariffs—the removal of IEEPA tariffs (if not replaced) is actually a negative for the former, but would be a positive for the latter, balancing the impact of the IEEPA ruling on Canada’s economy.

The U.S. administration’s response to the Supreme Court’s ruling against IEEPA tariffs could overshadow economic data releases in the week ahead. We have noted before that the government has multiple options to reimpose those measures using other legislation.

And, in Canada’s case, an exemption for CUSMA compliant trade means most exports were already exempt from IEEPA tariffs with product specific section 232 tariffs (not impacted by the ruling) the main source of tariffs on Canada (Issue in Focus for more).

We continue to view maintaining CUSMA-related exemptions more important for Canada than the IEEPA ruling itself.

Canadian GDP growth appears to have stalled in Q4

International trade uncertainty and volatility has been a persistent feature in the growth backdrop over the last year, but we expect a flat Q4 gross domestic product reading for Canada next Friday was in part due to temporary disruptions in the economy with signs of stronger activity late in the quarter.

Following two soft growth prints in October and November, we expect a 0.2% increase in December that would be slightly above Statistics Canada’s 0.1% advance estimate. That would leave Q4 tracking close to our (and the Bank of Canada’s) forecast for no growth after a 2.6% annualized increase in Q3.

The silver lining to a soft looking quarter is that most of the weakness was concentrated in October and November with industry reports for December mostly positive.

Manufacturing and wholesale sales surged 2.1% and 1.8%, respectively, as auto production bounced back from disruptions related to a semi-conductor shortage in November. Education services in December likely recouped more of the weakness from Alberta’s teachers’ strike in October after a partial bounce back in November.

Those disruptions—along with impact from a postal strike in October—combined to subtract almost three-quarters of 1% from annualized Q4 GDP growth, according to our estimates.

Still, soft spots remain. The manufacturing sector continues to struggle from U.S. tariffs. Home resales pulled back in December (and again in January), and retail sales were unchanged from November.

Rise in business investment but residential likely fell

We expect to see a pick-up in business investment in Q4 as key indicators like electrical equipment and parts’ imports rose.

Moderating trade uncertainty likely helped with stabilizing sentiment and investment intentions. Most companies surveyed in the BoC Q4 Business Outlook Survey didn’t expect further deterioration in the tariff and trade backdrop going forward.

Residential investment likely contracted after bigger increases in Q2 and Q3, given declines in home resales, construction and housing starts in Q4. Elsewhere, household consumption and net trade likely grew modestly although our tracking of RBC card spending data pointed to a drop-off in consumers’ buying momentum (especially among discretionary items) in January.

The BoC already assumed flat Q4 GDP in their January forecasts, and much of the weakness appears to have been due to one-off factors. In the meantime, labour markets continue to show signs of improving with the unemployment rate broadly edging lower.

With interest rates already bordering stimulative levels, we don’t think it’s likely or necessary for the central bank to cut again.