Forget the pancakes, it’s Tariff Tuesday.

The euro and sterling popped higher against the dollar yesterday as the prospect of increased defence spending in Europe to support Ukraine was viewed as potentially boosting economic growth, with equity markets also rallying and bond yields rising. In the US, weak manufacturing data weighed on the dollar and contributed to a decline in Treasury yields, while equity markets extended their day’s losses after confirmation that tariffs on Canada, Mexico and the China would go ahead from today. The euro is trading at $1.0515 against the dollar this morning while the pound is at $1.2715, both more than holding all of yesterday’s gains, while EURGBP is largely unchanged from yesterday morning at £0.8270.

In government bond markets, German and UK 10-year yields spiked higher at the start of the week, increasing by the best part of 10bps, while equivalent US yields fell by around 5bps (with expectations for Fed rate cuts firming some more). In equity markets, Euro area stocks gained almost 1.5% and the FTSE 100 in the UK added around 0.75%, while the S&P 500 reversed all of Friday’s gains, shedding more than 1.5%. Not surprisingly, some of yesterday’s moves in European bond and equity markets are being reversed at the start of play this morning (with yields lower and stocks weaker) following the announcement on tariffs.

The US administration has confirmed that 25% tariffs on Canada and Mexico (10% in the case of oil imports from Canada) and an additional 10% tariff on China will come into effect from today, with Canada and China announcing retaliatory measures of their own and the Mexican government expected to make a statement later today. The economic effects of tariffs will depend in part on how long they remain in place, and it wouldn’t be surprising at all if “deals” were made that would see them lifted again at some stage.

The latest ISM survey of manufacturing in the US showed new orders and employment contracted in February, while output growth slowed sharply albeit remaining in positive territory. Input costs for manufacturers rose as well with 31% of respondents reporting an increase last month, up from 21% in January.

Inflation in the Euro area nudged down in February according to the flash reading, albeit coming in a touch higher than the consensus forecast. The headline rate fell to 2.4% from 2.5% in January, while core inflation fell to 2.6% from 2.7%. The decline in core inflation was led by lower services inflation, down to 3.7% from 3.9% in January (and 4% in December), more than offsetting an increase in core goods inflation to 0.6% (from 0.5%).

For the day ahead, the economic data calendar is extremely light with unemployment in the Euro area the only release of note.