The week that was …
Economic round-up
Supreme Court rules US tariffs illegal
The US Supreme Court issued its ruling on tariffs levied under the International Emergency Economic Powers Act, judging them to be illegal. This accounts for the majority of tariffs levied on US trading partners since ‘Liberation Day’ last April. Read more in ‘In focus’ below and from the FT here
US government shutdown hurts Q4 growth
The US economy grew at an annualised rate of just 1.4% in the fourth quarter of 2025, as the government shutdown weighed on growth. This was significantly down on the 4.4% recorded in the previous three-month period and significantly behind expectations of 2.8%. A slowdown in consumer spending was also evident. Read more from the FT here
UK government enjoys budget surplus
The UK government reported a record £30.4bn surplus in January – £15.9bn higher year-on-year and £6.3bn above the Office for Budget Responsibility’s forecast in November. This is the highest surplus since records began in 1993, fuelled by higher tax receipts. Read more from the Independent here
UK inflation at 12-month low …
UK inflation dropped to 3%, its lowest level in nearly a year, with airfares, petrol and food prices contributing to the fall. The news could pave the way for an interest rate cut as soon as next month. Economists predict that UK inflation could drop to the government target of 2% by April. Read more from the Independent here
… while retail sales hit four-year high
UK retail sales volumes rose at the fastest annual pace in nearly four years in January. Online and instore sales volumes rose 4.5%, compared with a year earlier – the biggest increase since February 2022 and significantly ahead of forecasts. Read more from Reuters here
UK business sentiment edges up
UK businesses extended their recovery in February, while consumers also started the year strongly. The S&P Global UK Composite Purchasing Managers’ Index stood at 53.9 in a preliminary report for February – up from 53.7 in January and the highest level since April 2024. Read more from Reuters here
UK employment numbers weak
The Office for National Statistics reported “weak hiring activity” in the UK, as the unemployment rate hit 5.2%. Youth unemployment was particularly high, with the rate for 16 to 24-year-olds now sitting at 16.1%. Average pay meanwhile was up by 4.2% – down from a revised 4.4% in the three months to November. Read more from the BBC here
Japan inflation slows
In a welcome boost for prime minister Sanae Takaichi, Japanese headline CPI inflation fell to its slowest pace in two years in January. Consumer prices excluding fresh food rose 2% from a year earlier in January, which was in line with economists’ forecasts. Read more from Yahoo Finance here
Markets round-up
US investors exit US equities …
US investors have been pulling money out of US equities at the fastest pace since 2010, according to LSEG/Lipper data. In the last six months, US-domiciled investors have pulled around $75bn (£55.5bn) from US equity products, with the outflows accelerating since the start of 2026. Read more in ‘In focus’ below and from Reuters here
… while European equities see record inflows
Global investors have been pouring record sums into European equities. They could now see their highest-ever monthly inflows in February, following two consecutive record weekly flows of about $10bn, according to data from EPFR, which tracks ETF and mutual fund flows. Read more from the FT here
US stocks bounce on tariff news
The US market ended higher on Friday, led by gains in the megacap technology companies after the Supreme Court ruled against the legitimacy of Donald Trump’s global tariffs. Describing the ruling as a “disgrace”, the US president said he would impose a 10% global tariff for 150 days under Section 122 of the Trade Act of 1974 to replace the emergency duties announced from last April onwards. Read more from Reuters here
US bond yields edge upwards
The 10-year US treasury yield ticked higher on Friday after the Supreme Court’s tariff decision, while long-dated bonds rose even more. Torsten Slok, chief economist at Apollo, said approximately half a percentage point of the inflationary rise seen last year was due to tariffs. Read more from CNBC here
Private credit threat as Blue Owl shutters
There were concerns over the private credit sector after Blue Owl Capital permanently restricted withdrawals from one of its retail-focused debt funds. The asset manager sold $1.4bn of loan assets held in three of its private debt funds. Read more from CNBC here
Klarna shares slump
Klarna shares slumped by more than a quarter on Thursday after the ‘buy now, pay later’ group reported a $273m net loss for 2025 and also increased its bad-loan provision. The stock had already halved since a $15bn IPO in September and its current market value now stands at $5.3bn. Read more from the FT here
“More problems may be coming down the line for the US dollar – not least that the Supreme Court ruling may hamper the administration’s ability to raise tariffs, which had been the one thing holding down the deficit.
Selected equity and bond markets: 13/02/26 to 20/02/26
| Market | 13/02/26 (Close) |
20/02/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5622 | 5712 | +1.6% |
| S&P500 | 6836 | 6871 | +0.5% |
| MSCI World | 4510 | 4528 | +0.4% |
| CNBC Magnificent Seven | 393 | 400 | +1.7% |
| US 10-year treasury (yield) | 4.05% | 4.1% | |
| UK 10-year gilt (yield) | 4.42% | 4.36% |
Investment round-up
First listing on LSE’s Private Securities Market
The first asset has been launched on the London Stock Exchange’s Private Securities Market under the FCA’s ‘PISCES’ framework. The asset is a so-called ‘TPEIC’ – an exchange-enabled structure that allows secondary trading in private equity assets – holding secondary shares in Oxford Science Enterprises.
BlackRock smallcap trusts to merge
The boards of BlackRock Smaller Companies and Throgmorton investment trusts have proposed a merger on the basis of “significant portfolio overlap”. The combined company would hold around £780m of net assets and would deliver “greater scale, liquidity and cost efficiencies”, according to the boards.
Janus Henderson shutters four multi-asset funds
Janus Henderson is to close four of its Core multi-asset funds from 15 April 2026, due to underperformance and a lack of interest from new investors. The funds to be shut are the group’s Core 3 Income; Core 4 Income; Core 5 Income and Core 6 Income & Growth portfolios, which hold £60m of assets between them.
Active lagged passive in 2025
Actively managed mutual funds and ETFs trailed their passive counterparts in 2025, according to the semi-annual Active/Passive Barometer from Morningstar. The research shows fewer that two-fifths (38%) of actively managed mutual funds and ETFs beat their asset-weighted average passive composite last year.
Franklin and Invesco trusts vote for tie-up
The first of two shareholder votes confirming the tie-up between the Franklin Global and Invesco Global Equity Income investment trusts has passed, with shareholders approving the scheme of reconstruction and members’ voluntary winding-up at the first meeting.
EdenTree completes relabelling
EdenTree Investment Management has renamed a number of its funds as part of a labelling of its whole fund range. The firm plans to apply the FCA’s sustainability focus label to its remaining seven unlabelled funds, becoming the only UK fund house with a fully labelled product range.
… and the week that will be
Potential for military conflict grows
US president Donald Trump is building up a vast military force in the Middle East, having warned Iran to reach a deal within a “maximum” of 15 days – or else “bad things will happen”. The potential for conflict continues to be felt in commodities markets. In the meantime, talks between Russia and Ukraine in Geneva collapsed due to disagreements over territory. Read more from the FT here
Can Nvidia steady stockmarket jitters?
The release of the latest results from artificial-intelligence bellwether Nvidia Corp this week has the potential to steady a jittery stockmarket worried over AI spending and now digesting a new wave of tariffs. There are also earnings reports due from a number of other technology groups, including some of the larger software providers that are currently under siege over worries AI will upend their businesses. Read more from Reuters here
The week in numbers
US inflation: Consensus forecasts have US prices, as measured by the US producer price index, rising 0.3% month-on-month over January.
US consumer confidence: Consensus expectations are for the US consumer confidence index to fall to 83 in February, from 84.5 the month before.
FTSE 350 earnings: Companies representing some 20% of the FTSE 350’s total market capitalisation report this week, including HSBC, IAG and Rolls-Royce.
In focus: Dollar signs
In the middle of responding to the Supreme Court’s ruling on his approach to imposing tariffs, Donald Trump hailed the performance of the US stockmarket under his tenure, enthusing: “Our stockmarket has just recently broken 50,000 on the Dow and, simultaneously and even more amazingly, broken 7,000 on the S&P – two numbers that everybody thought upon our landslide election victory could not be attained.”
Markedly less upbeat than the US president, the most recent Bank of America Fund Manager Survey paints a very different view of US assets. Despite global fund managers remaining ‘uber-bullish’ – with cash levels sinking to a record low – there was notable bearishness on the US. The AI bubble – primarily a US phenomenon – was listed as the top tail-risk yet fund managers were also adopting their most bearish stance on the US dollar in more than a decade. The Dollar Index (DXY) is now close to its four-year low.
The greenback is clearly under pressure, with JP Morgan strategists Meera Chandan and Arindam Sandilya pointing out in a note that foreign investors were increasing hedging on their dollar-denominated holdings. Investors with large US equities holdings are trading in currencies that are making new highs against the dollar, they add.
More problems may be coming down the line for the US currency – not least that the Supreme Court ruling may hamper the US administration’s ability to raise tariffs, which had been the one thing holding down the deficit. Official statistics suggest the country is collecting around $30bn (£22.2bn) a month in tariff revenue, with total receipts reported to be $124bn to date. Meanwhile, the budget shortfall in January totalled approximately $95bn – down about 26% from a year ago.
“The US dollar may soften if tariff refunds increase the deficit and reduce the policy-tightening impulse from higher import prices,” says Rob Burdett, head of multi-manager at Nedgroup Investments. “Elsewhere, lower input costs ease pressure on margins, especially for retailers and manufacturers.”
The latest GDP reading also offered cause for concern. Although most economists acknowledge the government shutdown had had a significant effect, the reading was still behind expectations. The advance estimate for US GDP in the fourth quarter of 2025 was 1.4% – compared with economists’ expectations of 2.8% and meaningfully lower than the 4.4% in the prior period. This reduced GDP growth for the year to a relatively anaemic 2.2%.
Relief from trade uncertainty may act as a tailwind for cyclicals and import-dependent sectors such as IT hardware – including semiconductors, although they will most likely be included in sectoral tariffs – retail and industrials.”
The one saving grace for the US currency may be inflation data. The Personal Consumption Expenditures price index data – also released last week – showed inflation as remarkably sticky, unexpectedly increasing from 2.8% in November to 2.9% in December.
“This suggests that while inflation is no longer accelerating dramatically, underlying price pressures remain somewhat sticky,” says Daniela Hathorn, senior market analyst at Capital.com. “The GDP price index at 3.7% reinforces the idea that inflation has cooled from peak levels but is not yet fully tamed.” This may keep interest rates higher than markets are currently pricing and could therefore support the dollar.
Even so, while hedging the dollar is one thing, a wholesale sell-off of US assets is another – and here two further pieces of data suggest worrying trends. First, stats from EPFR indicate European equities are seeing record sums from global investors. After two record weekly flows of $10bn, they are now likely to see their highest ever monthly inflows in February.
At the same time, LSEG/Lipper stats show domestic US investors are pulling money out of US equities at the fastest pace in at least 16 years in response to the growing weakness of the megacap technology companies and the prospect of better opportunities elsewhere.
The data showed US-domiciled investors have pulled $52bn from US equity products since the start of 2026 alone – the highest outflows for this period since 2010. The current wobbles around artificial intelligence are undoubtedly part of the problem. The US is front-and-centre of the AI trade and the country’s stockmarkets are heavily geared to its success. If investors are moving away from AI, it will dent US markets.
Would the ending of the trade tariffs boost US equities? Burdett thinks it might. “For equities, the ruling against the tariffs is widely expected to lift US and global equities,” he says. “Relief from trade uncertainty may act as a tailwind for cyclicals and import-dependent sectors such as IT hardware – including semiconductors, although they will most likely be included in sectoral tariffs – retail and industrials.”
The US boasts a healthy consumer, manoeuvrability in monetary policy, energy independence, dominance in capital markets and the massive tailwind that is the AI buildout - and that momentum isn’t going anywhere.”
That, however, will depend on whether Trump persists with his determination to impose equally high tariffs via other means. At the time of writing, he is now saying he will impose 15% tariffs across the board. Falling tariffs might have been a boost for the US domestic economy but the revival of uncertainty is clearly problematic.
There are mixed views on whether the ‘Sell America’ trade is real. “You have a large country in which a lot of investors have put a lot of money,” reasons Fabiana Fedeli, chief investment officer equities, multi-asset and sustainability at M&G. “There are huge overweight positions and that country is becoming more complex and less stable.
“The currency is becoming less stable and therefore we have to think differently. That does not mean the US might not become a safe haven again if we have a more stable relationship between politics and the Fed, or something else happens within the administration. But we need to think in a more agile way. The best chance to build resilience is diversification.”
For her part, Kriti Gupta, global investment strategist at JP Morgan, says investors need to be watching the 90-day correlation between the dollar and the S&P 500. “If it is positive, it means investors are trading US assets as one – the clearest indication that jitters remain and could reemerge,” she adds. The group’s data suggests this correlation has been positive since mid-January.
Nevertheless, Gupta also believes the US still offers investment opportunities not available elsewhere that argue against a wholesale ‘Sell America’ trade. “The US boasts a healthy consumer, manoeuvrability in monetary policy, energy independence, dominance in capital markets and the massive tailwind that is the AI buildout,” she argues. “And that momentum isn’t going anywhere.”
In this context, it is worth noting that the treasury market has been relatively well-behaved, despite threats to sell down US bonds in response to the administration’s wilder policy initiatives – indeed, the 10 and 30-year US treasury yields are down for the year to date. This is where the ‘Sell America’ trade could prove most problematic, but there are few signs of it yet.
Read more on this from Bloomberg here, from European Business here and from J.P. Morgan here
In focus: Midsummer mergers?
Investment trust merger activity appears to be hotting up, with the announcement BlackRock’s two flagship smaller companies trusts are set to become one. In the same week, the Franklin Global and Invesco Global Equity Income deal has been approved, while some sweeteners were put on the Aberdeen Equity Income and Shires deal.
It continues the significant M&A activity seen in 2025, which included the acquisition of Care REIT, BBGI Global Infrastructure and Harmony Energy Income being taken private, the merger of Invesco Asia Trust and Asia Dragon Trust, JPMorgan Global Growth & Income’s tie-up with Henderson International Income, plus Fidelity European merging with the Henderson European Trust. AVI Japan Opportunity has also proposed a tie-up with Fidelity Japan while potential merger between HICL Infrastructure and The Renewables Infrastructure Group was proposed and then abandoned.
The immediate impetus for this is the presence of activists. Saba has exercised a powerful force in the industry as trusts scramble to avoid becoming takeover targets. As Darius McDermott, managing director at Chelsea Financial Services, told the Investors Chronicle: “What Saba has done is really highlight the potential value in closing discounts and the illiquidity of a number of smaller investment trust companies.” Some Saba-targeted funds have taken a different approach – Smithson, for example, has ditched its investment trust structure and plans to convert to an open-ended fund.
There are also longer-term considerations, however. If investment trusts can build greater scale and improve liquidity, they should receive a better hearing from wealth managers. There has been considerable consolidation in the wealth management sector and smaller trusts have become unviable for many discretionary portfolios.
Equally, investment trusts recognise they need to build their retail shareholder presence to protect against declining wealth-manager flows and replace their ageing shareholder base. That means appealing more to hobbyist platform investors.
Trusts with greater size and marketing budgets can make more noise. In that regard, there have been press reports investment trust boards have been shifting away from hiring finance and accounting professionals and bringing in M&A and marketing expertise, as they look to target retail investors.
For the most part, the M&A activity has been well-targeted and should be beneficial for investors – for example, there is significant overlap in the two BlackRock portfolios. And while the failure of the HICL Infrastructure/TRIG deal shows shareholders do have their limits, M&A should still be an important tool in ensuring the investment trust sector adapts to a potential new shareholder base and is fit for the future.
