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Global equity markets finished higher over the week ended February 20 on improving sentiment towards artificial intelligence stocks and relatively robust corporate earnings. Equity markets also got a boost on Friday after the U.S. Supreme Court voted against U.S. President Donald Trump’s tariffs.
In a 6-3 vote, the Supreme Court voted against President Trump’s use of emergency powers to impose tariffs on most other countries around the world. The decision invalidates the ‘Liberation Day’ tariffs. The Supreme Court will leave it to lower courts to sort out any potential refunds to businesses, which could total approximately US$170 billion. President Trump did not agree with the decision. President Trump said he would sign an order to impose a baseline 10% global tariff under Section 122 of the Trade Act of 1974. He will also order several trade investigations that could all allow him to put more permanent tariffs into place.
In Canada, the S&P/TSX Composite Index advanced, led by the information technology sector. U.S. equities edged higher. Yields on 10-year Government of Canada bonds moved lower, while 10-year U.S. Treasury bonds increased. The price of gold increased slightly, while the price of oil surged higher.
Canadian inflation edges lower
Canada’s annual inflation rate fell to 2.3% in January from 2.4% in the previous month, coming in below the 2.4% economists had expected.
The slowdown was driven by a decline in gasoline prices, which fell by 16.7% year over year. Conversely, the growth in food prices accelerated in January, due in part to the HST holiday in January 2025.
Core measures of inflation – median and trim – both moderated to 2.5% and 2.4%, respectively, in January.
Canadian retail sales finished 2025 falling by 0.4% in December, which was less than originally expected by Statistics Canada (StatsCan). Retail sales growth was relatively muted over 2025 amid concerns about the economy and labour market. StatsCan estimated that retail sales rose by 1.5% in January 2026.
Inflation data reinforced expectations the Bank of Canada (BoC) will hold its policy interest rate steady on March 18. The BoC said it believes the rate is at an appropriate level but noted several geopolitical and trade risks that could disrupt its outlook.
U.S. economic growth misses expectations
U.S. gross domestic product expanded by 1.4%, annualized, in the fourth quarter of 2025, according to an advanced estimate. However, this was below the 2.8% growth economists had expected, and the 4.4% pace of growth in the third quarter of 2025.
Consumer spending slowed over the quarter. Meanwhile, exports and government spending fell over the fourth quarter.
The personal consumption expenditure price index (PCE) rose by 2.9% year-over-year in December, up from the 2.8% annual increase in the previous month. Prices for goods accelerated in December over November.
Personal spending increased by 0.4% in December, while personal income increased by 0.3%.
The fourth-quarter slowdown was largely driven by a decline in government spending in response to the U.S. government shutdown. Otherwise, economic growth may have been closer to expectations. The sharp slowdown highlights how policy and geopolitical tensions can weigh on economic activity.
U.K. economy expands in November
The U.K. economy grew by 0.3% in November, rebounding from October’s contraction. This was the fastest pace of monthly growth since June 2025.
The economy got strong contributions from its services sector, along with a pickup in goods production.
Within the services sector, rising wholesale and retail trade contributed to growth, as did the information and communication industry.
Significant gains did come from its industrial sector. Manufacturing production surged by 2.1% in November, which was its largest gain since February 2025. Factoring into this big improvement was Jaguar Land Rover reopening its factories after a six-week shutdown due to a cybersecurity attack. Higher manufacturing output was also seen in the pharmaceutical and basic metals industries.
The result was welcome news for an economy that struggled for traction in 2025 amid global trade tensions. The Bank of England (BoE) lowered interest rates again in December looking to provide some support to the U.K. economy but the outlook for more rate cuts is uncertain, with the BoE stating it will continue to monitor the path of inflation.
U.K. sees lower inflationary pressures
The annual inflation rate in the U.K. was 3.0% in January, slowing from the 3.4% rate in the previous month.
This marked the lowest rate of inflation in the U.K. since March 2025, largely in response to slower growth in prices for transportation and food.
Meanwhile, the core inflation rate dropped to 3.1% in January, which was its lowest level since September 2021.
Looking at the labour market, the U.K. economy added 52,000 jobs over the three months to December 2025. Still, the unemployment rate edged higher to 5.2% as the number of unemployed persons increased.
With inflation showing signs of slowing and underwhelming economic growth, expectations for the Bank of England (BoE) to lower its policy interest rate at its next meeting heightened. The BoE held its key interest rate steady at 3.75% at its last meeting, once again seeing a narrow vote among BoE officials.
Japan’s economy avoids a technical recession
According to a preliminary estimate, gross domestic product in Japan grew by 0.1% in the fourth quarter of 2025, meaning the economy narrowly missed a technical recession after falling by 0.7% in the third quarter.
On an annualized basis, Japan’s economy grew by 0.2%.
Rising business investment contributed to growth over the quarter. On the other hand, household spending slowed. Net trade detracted from growth, suggesting the lingering impact of trade tensions with the U.S.
Japan’s inflation rate slowed to 1.5% in January, which marked its slowest rate since March 2022. The price growth for food, transportation and health care slowed in January.
The inflation data could inhibit the Bank of Japan’s (BoJ) plans to keep raising interest rates. Markets are expecting the BoJ to raise its policy interest rate again as early as April.
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