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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.

Full report in PDF. 

Markets

ECB President Lagarde elaborated yesterday in her regular testimony before European parliament on the divergence between actual and perceived inflation. Inflation perceptions matter because they also influence inflation expectations. BoE governor Bailey earlier this week made a similar remark. By doing so, today’s monthly ECB Consumer Expectations Survey (January) drew some extra attention. On the positive side: both perceived inflation over the previous 12 months and expectations for the next 12 months decreased by 0.2 ppt to respectively 3% and 2.6%. Both obviously remain more sticky above the central bank’s 2% target than actual (core) inflation numbers. Expectations for inflation 3-years ahead remain unchanged though at 2.6%, matching the highest level since March 2023. News on the actual inflation front was mixed. The day started with higher-than-expected February readings for both France (0.8% M/M & 1.1% Y/Y vs 0.5% & 0.8% expected) and Spain (0.4% M/M & 2.5% Y/Y vs 0.3% & 2.3% expected) but German numbers offered some counterweight (0.4% M/M & 2% Y/Y vs 0.5% & 2.1% expected). Aggregate numbers for the euro zone are scheduled for next Tuesday. Consensus expects a 0.4% M/M pick-up with the headline number still leveling at 1.7% Y/Y because of (energy-related) base effects. Risks are slightly tilted to the upside of expectations. The euro made a very small attempt to gain on the first higher national inflation numbers (EUR/USD 1.18 to 1.1820), but the move rapidly fizzled out. In the US, producer prices were the economic highlight. Both headline and core PPI rose faster than expected (0.5% M/M & 0.8% M/M) in January with annual readings coming in at 2.9% (from 3%) and 3.6% (from 3.3%) respectively. On a positive note, goods price deflation went from -0.1% M/M in December to -0.3% M/M in January. The Fed has been very attentive to this metric as it is linked to the US trade agenda. Services price inflation accelerated to 0.8% M/M though, in what are mixed signals though for the US central bank. Markets ignored the numbers as they were overshadowed by geopolitical risk aversion. The US Embassy in Jerusalem authorized the departure of non-emergency US government personnel and their family members for their US mission in Israel due to safety risks. The warning comes after a third round of (deadlocked) nuclear talks between the US and Iran in Geneva yesterday. Earlier, the US announced that it was pulling personnel from Lebanon. Markets are on high alert on possible US military action and err on the side of caution going into the weekend. Brent crude prices set a new short-term high at $73/b. Core bonds gain ground with German and US yields dipping between 1-4 bps across the curve. For the US that means a test of key support at 3.4% for the 2-yr and 4% for the 10-yr. In FX space, the trade-weighted dollar keeps bumping into the 98 resistance area. Risks of a break rise in closing, upward, triangle pattern. The Swiss franc outperforms (see below). The combination of risk off and another political blow to the Labour government (losing Manchester area by-election to Greens) pushes EUR/GBP through 0.8750 resistance.

News & Views

The monthly economic barometer on the Swiss economy from the KOF Economic Institute again improved in February to 104.2 after a slight decrease in January (103.3).KOF analyzes that the barometer “continues its upward movements of the previous months and remains above its medium-term average”. It concludes that the positive outlook for the Swiss economy is reinforced. The improvement is mainly visible in demand side indicator bundles for the likes of consumption and foreign demand. Indicators on the production side are painting a more mixed picture. Manufacturing even showed a setback. Within manufacturing, particularly the sub-indicators for the metal industry and for paper and printing products are experiencing a setback. A more favourable outlook is exhibited by the sub-indicators for the electrical industry as well as for the textile industry. Aside from the KOF indictor, the Swiss State Secretariate for Economic affairs also released Q4 GDP data. GDP growth, adjusted for sporting events, grew by 0.2%, coming on the back of a 0.4% quarterly decline in the previous quarter. Activity was mainly supported by domestic demand. Private consumption rose a solid 0.4%. Construction investment (+1%) and investment in equipment also recorded significant growth. Goods exports rose 0.6%. Imports were 2.7% higher. The Swiss franc jumped again sharply higher today with EUR/CHF falling below the 0.91 big figure, a historic strong level except for the early 2015 spike. However, this move was probably mainly due to safe haven flows due to tensions in the Middle East rather than Swiss eco data.

The Canadian economy contracted by 0.6% (quarter/quarter, annualized) in Q4, below the Bank of Canada's projections for a flat reading  and consensus forecast for a more muted decline of -0.2% q/q. For 2025 as a whole, the Canadian economy grew 1.7%, a step down from 2024's 2% pace.

The contraction in output was driven entirely by an inventory drawdown, which subtracted 4.2 percentage points from headline GDP growth. Underlying domestic demand held up much better, rising by 2.4% q/q.

Consumer spending rebounded in Q4, rising 1.7% q/q (annualized), following a 0.8% contraction in Q3. The recovery was driven primarily by services spending (+3.6% q/q), while durable goods outlays continued to decline (-2.8%). That pulled overall goods spending down to -0.9%, marking a second consecutive quarterly decline.

Residential investment declined by 4.4% q/q, after two strong quarters. Weaker ownership transfer costs and renovations, alongside continued softness in new construction, weighed on the aggregate.

Non-residential structures investment also declined (-3.2% q/q). Encouragingly, however, business investment in machinery and equipment and intellectual property products rebounded, signalling a renewed momentum in productive investment after a prolonged period of hesitation from the business sector.

Government spending was strong, rising 3.1% q/q. The increase was driven by a pick up in investment accelerated to 20.4% q/q, up from upwardly revised 16.5% in Q3, supported by higher government investment in weapons systems.

Net trade added roughly 1.5 percentage points to overall GDP growth. Export growth accelerated 6.1% q/q, up from an upwardly revised reading of 3.8% q/q in Q3. Imports also recovered, rising 1.1% q/q after posting one of the largest quarterly contractions in the prior quarter.

The monthly GDP by industry data was also released, where output expanded 0.2% m/m in December, a tick higher than consensus expectations. Statistics Canada's advanced guidance for January points to flat growth, suggesting Canada's economy entered the new year with softer momentum.

Key Implications

Canada ended the year on a weaker footing as businesses drew down inventories, weighing on headline growth.  For 2025 as a whole, the economy slowed to a 1.7%, primarily due to lower exports to the United States. That said, domestic demand grew at a better 2.3% pace, supported by stronger government spending. The rebound in consumption and the return of non-residential investment in the fourth quarter provide some reassurance that underlying demand is stabilizing.

Still, today's report is weaker than the Bank of Canada's January projections for a flat reading, reinforcing their view that momentum remains limited. There is still evidence of labour market slack and inflation gradually moderating. Taken together, these dynamics suggest that the Bank of Canada will remain on the sidelines, and the policy rate at 2.25%.

Daily Pivots: (S1) 1.1773; (P) 1.1801; (R1) 1.1828; More….

No change in EUR/USD's outlook as sideway trading continues. Intraday bias remains neutral. Near term risk will remain on the downside as long as 1.1928 resistance holds. Below 1.1740 temporary low will target 1.1576 support next. Firm break there should confirm rejection by 1.2 key psychological level and turn near term outlook bearish. However, break of 1.1928 argue that fall from 1.2081 has completed as a correction, and revive near term bullishness. Retest of 1.2081 should then be seen next.

In the bigger picture, as long as 55 W EMA (now at 1.1494) holds, up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2 key psychological level will add to the case of long term bullish trend reversal. Next medium term target will be 138.2% projection of 0.9534 to 1.1274 from 1.0176 at 1.2581. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.

Daily Pivots: (S1) 0.7716; (P) 0.7735; (R1) 0.7759; More….

USD/CHF falls notably today but remains bounded in established range. Intraday bias remains neutral for now. In case of another rise, upside should be limited by 55 D EMA (now at 0.7824) to complete the pattern. On the downside, below 0.7627 will bring retest of 0.7603. Firm break there will resume larger down trend, and target 0.7382 projection level next. However, sustained break of 55 D EMA will indicate that a larger scale corrective bounce in underway and target 0.8039 resistance next.

In the bigger picture, down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8123 resistance holds.

Daily Pivots: (S1) 155.71; (P) 156.13; (R1) 156.55; More...

Intraday bias in USD/JPY remains neutral and more consolidations could be seen below 156.81. On the upside, above 156.81 will resume the rally from 152.25 to 157.65 resistance first. Firm break there will target a retest on 159.44. high. On the downside, however, break of 153.90 will bring deeper fall to 152.25 support. Overall, with 38.2% retracement of 139.87 to 159.44 at 151.96 intact, price actions from 159.44 are seen as a corrective pattern. Also, rise from 139.87 is expected to resume through 159.44 at a later stage.

In the bigger picture, outlook is unchanged that corrective pattern from 161.94 (2024 high) should have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94. This will remain the favored case as long as 55 W EMA (now at 151.93) holds. However, sustained break of 55 W EMA will argue that the pattern from 161.94 is extending with another falling leg.

Daily Pivots: (S1) 1.3426; (P) 1.3501; (R1) 1.3556; More...

GBP/USD is still holding above 1.3432 support and intraday bias remains neutral for the moment. On the downside, below 1.3432 will resume the fall from 1.3867 to 1.3342 support. Firm break there should confirm that it's already correcting the whole rise from 1.2099. However, break of 1.3574 resistance will argue that the decline has completed as a near term correction, and turn bias back to the upside for retesting 1.3867.

In the bigger picture, as long as 1.3008 support holds, rise from 1.3051 (2022 low) should still be in progress for 1.4284 key resistance (2021 high). Decisive break there will add to the case of long term bullish trend reversal. However, firm break of 1.3008 will raise the chance of medium term bearish reversal and target 1.2099 support next.

Stronger-than-expected US PPI data has unsettled financial markets, shifting sentiment toward a more defensive footing. The persistence of upstream inflation pressures reinforces the view that the Fed will remain cautious and resist calls for rapid rate cuts. Although US President Donald Trump and senior White House officials have continued to advocate for lower rates, the data argue for restraint. Inflation at the producer level suggests cost pressures from tariffs have not fully dissipated, making premature easing a risk.

Equity markets reacted swiftly. DOW futures slid more than -500 points after the release, signaling a weaker open. The move reflects renewed anxiety that monetary policy may stay restrictive for longer than previously hoped. At the same time, Treasury markets rallied. 10-year yield fell below the 4% psychological level on safe-haven flows, signaling that bond investors are increasingly concerned about growth risks even as inflation remains elevated. Gold and Silver rallied strongly alongside falling yields, reflecting demand for protection against both macro uncertainty and policy volatility.

For the Dollar, the picture is mixed. On one hand, risk-off sentiment should be supportive. On the other, falling yields weigh on rate differentials. As a result, Dollar gains remain tentative, with the opposing forces largely offsetting each other.

Elsewhere, Sterling remains under broad-based pressure for a different reason. The Green Party delivered a landmark victory in the Gorton and Denton by-election, taking a seat long considered safe for Labour. The outcome represents a significant political setback for Prime Minister Keir Starmer. The defeat intensifies scrutiny over Starmer’s leadership and could complicate the government’s fiscal and economic agenda.

Yen has staged a mild recovery, aided by comments from Japan’s Finance Minister Satsuki Katayama. She emphasized that authorities are closely monitoring currency developments and signaled urgency over recent weakness. Still, verbal intervention can only go so far without concrete policy action. Markets remain cautious, and follow-through buying has been limited.

For the week, Yen remains the worst performer despite today’s bounce. Sterling and Kiwi follow behind. Swiss Franc stands out as the strongest currency, with Aussie and Euro also firm. Dollar and Loonie are positioned mid-table.

In Europe, at the time of writing, FTSE is up 0.38%. DAX is down -0.10%. CAC is down -0.43%. UK 10-year yield is down -0.03 at 4.246. Germany 10-year yield is down -0.017 at 2.682. Earlier in Asia, Nikkei rose 0.16%. Hong Kong HSI rose 0.95%. China Shanghai SSE rose 0.39%. Singapore Strait Times rose 0.62%. Japan 10-year JGB yield fell -0.045 to 2.112.

US PPI rises 0.5% mom in January as services drive monthly jump

US producer prices rose more than expected in January, with headline PPI climbing 0.5% mom against forecasts of 0.3%. The increase was largely driven by a sharp 0.8% gain in final demand services, while prices for final demand goods declined -0.3%.

On an annual basis, PPI eased slightly from 3.0% yoy to 2.9% yoy, but above expectations of 2.6%. The moderation in the yearly rate does little to offset the firm monthly momentum, particularly as underlying measures continue to trend higher.

Core PPI excluding foods, energy, and trade services rose 0.3% mom, marking the ninth consecutive monthly increase. Over the past 12 months, this core gauge advanced 3.4%, suggesting persistent pipeline price pressures.

Canada GDP beats in December with 0.2% mom growth, but fragile start to 2026,

Canada’s economy closed 2025 on a slightly firmer note, with GDP rising 0.2% mom in December, above expectations of 0.1%. The expansion was driven by gains in both services-producing and goods-producing industries, suggesting a modest rebound in activity toward year-end.

Services industries led the monthly increase, rising 0.2%, supported by wholesale trade, the public sector, and transportation and warehousing. Meanwhile, goods-producing sectors also expanded 0.2%, partially reversing back-to-back declines in October and November, with manufacturing and utilities contributing to the recovery. In total, 11 of 20 industrial sectors recorded growth in December.

Advance estimates suggest real GDP was essentially unchanged in January, pointing to a fragile start to 2026.

The quarterly picture was less encouraging. GDP by industry edged down -0.1% in Q4 following a solid 0.6% expansion in Q3. Manufacturing was the main drag, contracting -1.5% in the quarter—its third decline of 2025 and fourth in the past five quarters—highlighting persistent weakness in the sector.

Swiss GDP returns to modest 0.1% qoq growth, domestic demand stabilizes Q4

Switzerland’s economy returned to modest growth in Q4, with GDP expanding 0.1% qoq. While slightly below expectations of 0.2%, the reading marks a rebound from the -0.4% contraction recorded in Q3. According to the State Secretariat for Economic Affairs, performance varied across sectors, with domestic demand providing the main source of support.

The chemical and pharmaceutical industry, a key pillar of the Swiss economy, grew 1.9% after a sharp decline in the previous quarter, aided by pickup in exports. However, the rest of manufacturing contracted by -1.3% amid subdued sales and weaker export performance. Overall, industrial value added stagnated, though goods exports edged up 0.6% following two quarters of decline.

Domestic final demand rose 0.5% and helped stabilize the broader economy. Private consumption expanded 0.4%, while construction investment increased 1.0% on stronger building activity. Retail activity surged 2.0%, supporting a 1.7% rise in trade value added.

Swiss KOF barometer strengthens to 104.2, demand outlook improves

Switzerland’s economic outlook brightened in February as the KOF Economic Barometer rose from 103.3 to 104.2, beating expectations of 103.1. The increase resumes the upward trend seen in recent months after a brief dip in January and leaves the gauge comfortably above its medium-term average of 100.

According to KOF, the improvement reinforces a positive outlook for the Swiss economy, with strength concentrated on the demand side. Indicator bundles linked to consumption and foreign demand both point to favorable momentum.

However, the production side presents a more "mixed" picture. While some sectors remain stable, manufacturing is experiencing a setback, signaling that industrial momentum has yet to fully align with the broader demand recovery.

Subsidy effect pulls Tokyo core CPI down to 1.8%, but underlying inflation firms

Inflation in Tokyo eased further in February, with core CPI (ex-fresh food) falling to 1.8% yoy from 2.0% yoy. While slightly above market expectations of 1.7% yoy, the reading marks the third straight monthly slowdown and the lowest level since October 2024, slipping back under the BoJ’s 2% target.

The primary driver was a sharp drop in energy prices, which declined -9.2% yoy as the government’s temporary utility subsidies began to take effect. The program has mechanically dampened readings and was broadly expected to weigh on inflation for several months.

Beneath the surface, however, price dynamics remain more persistent. Core-core inflation (excluding fresh food and energy) rose to 2.5% yoy from 2.4% yoy, suggesting domestic demand conditions and wage-driven pricing remain intact. Headline CPI also ticked up modestly from 1.5% yoy to 1.6% yoy.

Japan's industrial production rose 2.2% mom on auto strength, but forward signals soft

Japan’s industrial production rose 2.2% mom in January, marking the first increase in three months, though falling well short of expectations for a 5.5%. .

Production expanded in 13 of 15 sectors, with automakers posting a notable 9.1% gain amid solid demand for passenger vehicles both domestically and overseas. However, weakness persisted in production machinery, where output declined on softer demand for semiconductor-manufacturing equipment.

The Ministry of Economy, Trade and Industry maintained its assessment that industrial production “fluctuates indecisively”. Officials noted that companies remain wary of US tariff policy developments and the Chinese growth outlook, even if no direct impact was evident in the latest data.

Looking ahead, manufacturers expect output to dip -0.5% in February and -2.6% in March.

In contrast, retail sales surprised to the upside, rising 1.8% yoy against expectations of just 0.2%.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3426; (P) 1.3501; (R1) 1.3556; More...

GBP/USD is still holding above 1.3432 support and intraday bias remains neutral for the moment. On the downside, below 1.3432 will resume the fall from 1.3867 to 1.3342 support. Firm break there should confirm that it's already correcting the whole rise from 1.2099. However, break of 1.3574 resistance will argue that the decline has completed as a near term correction, and turn bias back to the upside for retesting 1.3867.

In the bigger picture, as long as 1.3008 support holds, rise from 1.3051 (2022 low) should still be in progress for 1.4284 key resistance (2021 high). Decisive break there will add to the case of long term bullish trend reversal. However, firm break of 1.3008 will raise the chance of medium term bearish reversal and target 1.2099 support next.

US producer prices rose more than expected in January, with headline PPI climbing 0.5% mom against forecasts of 0.3%. The increase was largely driven by a sharp 0.8% gain in final demand services, while prices for final demand goods declined -0.3%.

On an annual basis, PPI eased slightly from 3.0% yoy to 2.9% yoy, but above expectations of 2.6%. The moderation in the yearly rate does little to offset the firm monthly momentum, particularly as underlying measures continue to trend higher.

Core PPI excluding foods, energy, and trade services rose 0.3% mom, marking the ninth consecutive monthly increase. Over the past 12 months, this core gauge advanced 3.4%, suggesting persistent pipeline price pressures.

Full US PPI release here.

Canada’s economy closed 2025 on a slightly firmer note, with GDP rising 0.2% mom in December, above expectations of 0.1%. The expansion was driven by gains in both services-producing and goods-producing industries, suggesting a modest rebound in activity toward year-end.

Services industries led the monthly increase, rising 0.2%, supported by wholesale trade, the public sector, and transportation and warehousing. Meanwhile, goods-producing sectors also expanded 0.2%, partially reversing back-to-back declines in October and November, with manufacturing and utilities contributing to the recovery. In total, 11 of 20 industrial sectors recorded growth in December.

Advance estimates suggest real GDP was essentially unchanged in January, pointing to a fragile start to 2026.

The quarterly picture was less encouraging. GDP by industry edged down -0.1% in Q4 following a solid 0.6% expansion in Q3. Manufacturing was the main drag, contracting -1.5% in the quarter—its third decline of 2025 and fourth in the past five quarters—highlighting persistent weakness in the sector.

Full Canada GDP release here.