Markets Rally After Supreme Court Strikes Down Trump Tariffs; UK Posts £30.4bn January Surplus

Markets rally after Supreme Court rules IEEPA does not authorize tariffs

Stock markets moved sharply after the US Supreme Court held that the International Emergency Economic Powers Act (IEEPA) does not authorize the president to impose global reciprocal tariffs. The ruling, handed down in a 6-3 decision, removed a key legal basis for the tariff program and triggered immediate market reactions across equities, bonds and currency markets.

• US equities: intraday moves were notable — the Dow Jones Industrial Average traded near 49,533 (+0.3% at one point) while the S&P 500 showed gains near +0.3%. The tech-heavy Nasdaq remained relatively flat as investors re-priced trade-policy risk.
• UK equities: the FTSE 100 strengthened, trading around 10,700 (about +0.7%), close to a recent record high of 10,715.
• Fixed income: US Treasury prices fell modestly, pushing yields slightly higher as markets digested the implications for trade policy, potential refund flows and future issuance.

Key quotable analysis

• The court ruling removes a principal legal foundation for the tariff program and increases the probability that previously collected tariffs could be refunded or otherwise revisited.
• Any sizeable refund program would likely be phased over time and financed in part via short-term Treasury issuance, which would put upward pressure on short-duration yields until net impacts are clarified.

Market implications and legal pathways

While the IEEPA ruling narrows one route for broad reciprocal tariffs, legal and administrative alternatives remain. Multiple other statutory mechanisms or trade remedies could be invoked over time; however, many of these require additional administrative procedures, investigations or Congressional action and are likelier to produce more targeted measures than a global reciprocal tariff program.

Refunds: The ruling increases the likelihood of refunds for some tariff payers, but timing and scale are uncertain. Markets are pricing both the prospect of refunds and the possibility of offsetting measures that could sustain an elevated effective tariff rate over the medium term.

US macro: Q4 2025 growth slowed; PCE inflation accelerated

Fresh US data showed real GDP growth slowed to an annualised 1.4% in Q4 2025 (about 0.35% in the quarter), with contributions from consumer spending and investment partially offset by declines in government spending and exports.

Inflation: The Personal Consumption Expenditures (PCE) price index rose 0.4% month-on-month in December. Core PCE (excluding food and energy) also rose 0.4% month-on-month, exceeding broad expectations of a 0.3% rise. The firmer PCE print reinforces upside risks to inflation measures closely followed by the Federal Reserve.

Federal spending and shutdown effects: Federal expenditure contracted sharply in Q4, imposing a significant drag on headline GDP growth. This drag is expected to reverse in early 2026 as temporary shutdown-induced reductions in activity unwind, supporting a stronger GDP print in Q1.

Investment and consumption dynamics

• Consumption: Goods spending weakened in Q4 but services spending remained resilient, implying underlying demand is still intact.
• Investment: Equipment and AI-related investment continued to support business fixed investment, and tax changes are expected to broaden capex spending in 2026.

UK public finances: record January surplus of £30.4bn

The UK public sector recorded a record monthly surplus of £30.4 billion in January 2026. Key details:

• Surplus: £30.4bn in January 2026 (the largest monthly surplus since records began in 1993, not adjusted for inflation).
• Year-on-year change: This was £15.9bn higher than January 2025 and roughly double the surplus in January 2025, reflecting stronger tax receipts.
• Drivers: Higher-than-expected revenue from self-assessed tax receipts combined with relatively stable public spending and lower net debt interest costs.
• Fiscal trajectory: Borrowing over the first ten months of the current financial year is lower than the same period a year ago, placing the deficit on course to undershoot some forecasts ahead of the spring fiscal statement.

Market and policy relevance

• For UK markets (FTSE 100), the surplus and unexpectedly strong retail and private sector data reduce near-term fiscal risk, supporting risk assets and sterling.
• For policymakers, a larger-than-expected surplus provides the chancellor greater flexibility heading into the spring statement, though ongoing spending pressures and benefits costs will remain in focus.

UK real economy: retail and private sector growth

Complementing the government finance surprise, UK retail sales and private sector activity showed stronger momentum: private sector growth hit a 22-month high and retail sales beat forecasts. Quarterly GDP growth for the UK slowed to 0.1% in Q4 2025, but the January fiscal and activity prints point to a firmer start to 2026.

Trading and portfolio considerations (for professional investors)

• Equity positioning: Reduce risk premia associated with tariff uncertainty; short-term volatility may persist as legal and administrative follow-ups emerge.
• Fixed income: Expect some near-term upward pressure on short-term US yields if refund-related issuance is priced in; monitor Treasury bill supply dynamics.
• FX and cross-market flows: UK positive fiscal surprises and stronger activity can support sterling versus major peers, while US macro/inflation surprises influence dollar strength and rate expectations.

Bottom line

The Supreme Court decision narrowing IEEPA-based tariff authority removed a key policy overhang for markets, but the ruling also raises transitional questions about refunds and alternative trade measures. Simultaneously, a record UK January surplus (£30.4bn) and resilient UK retail and private sector data improve the fiscal backdrop for the UK. Together, these developments justify recalibrated risk positions across equities, bonds and currencies as investors reassess trade policy risk and near-term growth-inflation dynamics.