Markets Weekly Outlook - The gavel falls on global tariffs as inflationary fears return to the fold

• The US Supreme Court struck down the administration's broad global tariffs under an emergency act (IEEPA). However, the administration is pivoting to alternative legal tools.
• US financial markets reacted positively to the tariff ruling but had to contend with a disappointing 1.4% GDP report and higher-than-expected inflation data (PCE price index up 0.4% MoM).
• A 5% weekly gain in oil prices, combined with persistent inflation data, has brought inflationary pressures back to the fore.
• The market's attention shifts to high-stakes corporate earnings especially Nvidia, as the bellwether for the AI boom and crucial economic data, including the Australian Monthly CPI and US Consumer Confidence.

When looking back at the week that was, there is no place better to start than the Supreme Court ruling in the United States.

In a significant legal blow to the administration, the US Supreme Court ruled on February 20, 2026, that President Trump exceeded his constitutional authority by using the International Emergency Economic Powers Act (IEEPA) to bypass Congress and impose broad global tariffs.

While the 6–3 decision effectively strikes down the legal justification for many of the administration's "Liberation Day" and fentanyl-related levies, it does not mean the end of trade restrictions.

The ruling specifically targets the use of emergency statutes for taxation, yet leaves intact several other tariffs such as those on steel, aluminum, and certain auto parts that are grounded in different legal frameworks like Section 232 or Section 301.

Consequently, while the court has dismantled the specific "emergency" scaffolding the President relied upon, the administration has already signaled it will pivot to alternative statutory tools to keep its wider trade agenda standing.

What is the way forward?

The Supreme Court’s decision focused strictly on the boundaries of executive power rather than the merits of trade protectionism, meaning the administration's broader tariff objectives remain very much alive. While the previous legal justifications have been stripped away, they are being rapidly replaced by new statutory foundations, ushering in a volatile transition period for the global economy.

Businesses now face a period of deep instability as they navigate the unlikely prospect of receiving full refunds for past duties and the high probability of "replacement tariffs" that will restore costs to their previous levels.

Ultimately, while the specific legal "scaffolding" has been dismantled, the administration is already rebuilding its trade barriers; regardless of the court's stance on the Constitution, the era of high tariffs appears far from over.

How did markets react?

Read More: Tariffs struck down, major volatility ahead? – North American session Market wrap for February 20

US financial markets reacted positively to the Supreme Court's decision on Friday with all three major indexes climbing immediately following the ruling and securing a winning week overall.

While investors were encouraged by the legal blow to the administration’s trade barriers, they also had to weigh a disappointing GDP report showing growth slowing to 1.4% alongside higher-than-expected inflation data.

Treasury yields moved upward as the loss of tariff revenue sparked concerns over a widening fiscal deficit and increased bond supply.

Internationally, the optimism was even more pronounced; Europe’s STOXX 600 index surged to a new all-time high, and gold prices continued their ascent as a weakening dollar and persistent geopolitical uncertainty fueled demand for safe-haven assets.

The continued rise in Gold prices is a nod to the uncertainty which Friday's decision brings despite the optimism. In short, the decision in some ways brings more questions than answers.

Inflation back to the fore

The US PCE price index rose 0.4% month-over-month in December 2025, following a 0.2% increase in November, the most since February and above market expectations of 0.3%.

This coupled with a 5% weekly gain for Oil prices has reignited fears of inflationary pressures returning which would complicate matters for the global economy.

In December 2025, the European Central Bank projected that a 14% spike in oil prices would potentially add 0.5 percentage points to eurozone inflation over the long term, while shaving a modest 0.1 percentage points off annual growth.

This outlook is particularly sensitive to Europe’s heavy reliance on imported energy, which often causes the Euro to weaken against the Dollar as fuel costs rise. Since those projections were made, oil prices have already climbed by that exact 14% margin, bringing the ECB’s cautionary scenario into reality.

Meanwhile, across the Atlantic, the Federal Reserve expressed concern in its January 2026 meeting minutes about the persistent risk of inflation remaining above target, even suggesting that future interest rate hikes could be necessary.

Despite these hawkish signals from central bankers, investors appear relatively unfazed, continuing to price in two rate cuts for the year, a sentiment supported by the fact that domestic gasoline prices remain near multi-year lows, providing a crucial psychological buffer for the markets.

If oil prices do continue to rise and the geopolitical situation in the Middle East continues to escalate, there may be real risks to the inflationary outlook moving forward.

The week ahead sees the focus shift from macroeconomic policy debates to high-stakes corporate earnings and inflation data.

The AI Litmus Test: Nvidia and Software Earnings

The primary catalyst for Wall Street will be Nvidia’s quarterly report. As the bellwether for the artificial intelligence boom, Nvidia’s results and guidance will determine if the massive valuations in the semiconductor sector remain justified.

Beyond hardware, the spotlight moves to the "software layer" of AI. Results from Salesforce, Snowflake, Intuit, Zoom, and Zscaler will be scrutinized to see if enterprise spending on AI software is finally translating into significant revenue growth. These reports follow a period of market stagnation caused by hawkish Fed signals and rising geopolitical tensions.

Central Banks and the "balancing act" Dilemma

Central banks face a difficult balancing act, often described as a choice between fighting persistent inflation and supporting slowing growth.

United States: On Wednesday, the CB Consumer Confidence index will be a vital indicator of whether high interest rates and inflation are finally breaking the American consumer’s resilience.

Australia: Wednesday also brings the Monthly CPI indicator. If inflation remains above the RBA’s target band, markets may price in a higher probability of a March rate hike.

Japan: The market will watch a speech by BoJ’s Takada on Thursday for hints regarding the timing of further policy normalization, alongside Friday's Industrial Production and Retail Sales data.

Energy and Geopolitics

Rising oil prices (with Brent Crude seeing recent volatility) remain a wildcard. Tensions between the US and Iran have added a risk premium to energy markets, complicating the inflation outlook for central banks. Investors will monitor whether energy costs continue to climb, potentially forcing a "higher for longer" interest rate environment.

Summary of Key Dates:

Feb 24 (Tue): US Factory Orders.

Feb 25 (Wed): Nvidia Earnings; AU Monthly CPI; US Consumer Confidence.

Feb 26 (Thu): Salesforce & Snowflake Earnings; BoJ Takada Speech.

Feb 27 (Fri): Japan Industrial Production; US Jobless Claims.

Market Sentiment: Expect a "show me the money" attitude from investors. If AI leaders fail to beat high expectations or if inflation prints hot in Australia and Europe, the current market divergence where the ASX 200 has outperformed lagging US indices, could widen.

From a technical perspective, the US dollar index (DXY) has had an impressive week and rally which finally ran out of steam around the 98.00 handle.

Without a daily candle close above the 98.00 handle, the overall bearish trend remains intact despite the strong rally.

If the DXY is able to break higher there is a confluence level just above which houses the 100 and 200-day MA and rests around the 98.50 handle.

It will be an intriguing week for the US dollar as markets fully digest the Supreme Court tariff decision and the Trump administrations response.

US Dollar Index (DXY) Daily Chart, February 20, 2026

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