Last week kicked off with bond yields pushing higher globally, driven by factors like rising debt concerns in the United States and political worries in France about the far-right gaining a majority in legislative elections. China's Caixin manufacturing PMI came in slightly higher than expected, providing another reason for the Bank of Japan to consider raising interest rates.

As the week progressed, US stocks rallied while bond yields declined following dovish comments from Fed Chair Jerome Powell, who expressed comfort with the disinflationary trends in the US economy. However, a surprise jump in job openings suggested the labour market remains tight. In Europe, inflation remained stubbornly high, complicating the ECB's rate cut plans.

The spotlight then turned to key political events - the UK general election delivering a historic majority for the Labour party, and the final round of France's legislative elections. Markets had largely priced in a Labour win in Britain, expecting broad policy continuity, especially on fiscal matters. The French election outcome was more consequential, with no party winning an outright majority, reducing the chances of radical policy changes that could unsettle markets.

On the data front, a sharp drop in the US ISM Services index into contractionary territory sparked a stock market rally and decline in bond yields, in hopes it would allow the Fed to cut rates sooner. However, the latest jobs report painted a mixed picture - headline job growth was stronger than expected but the unemployment rate ticked up, wage growth slowed, and the participation rate increased slightly. This reinforced expectations for a possible September rate cut by the Fed, but an imminent move in July still seems unlikely.

In other key economies:

• The Bank of Canada is now seen as more likely to cut rates in July after unemployment rose

• The Reserve Bank of Australia remains in wait-and-see mode amid confusing signals on consumption and inflation

• The Reserve Bank of New Zealand is expected to hold rates steady but acknowledge economic weakness

Looking forward, important events in the week ahead include US CPI and PPI inflation data, UK monthly GDP, Japan wage figures, and testimony by Fed Chair Powell to Congress. Markets remain intently focused on any signs that could shift the monetary policy outlook, especially in the US.

Overall, this past week highlighted how markets are delicately balanced between expecting an economic slowdown that enables central banks to cut rates, while seeking reassurance that the landing will be soft enough to avoid a serious downturn. Political risks, though ever-present, appear to be moderating in Europe. However, uncertainty lingers over the US 2024 election, especially the prospect of a second Trump term. In this fluid environment, economic data and central bank commentary will be closely scrutinised for clues on the growth and policy trajectory.