Global markets, particularly in the U.S., were on the back foot over the past week as investors grappled with geopolitical uncertainty and economic data indicating softening growth.  U.S. stocks dropped quite sharply at the end of last week while European shares, emerging markets and Australian equities were down slightly. Bond yields slipped lower in the US and edged higher in Europe.

In the U.S., markets fixated on a dizzying array of headlines and policy moves from the new Trump administration. Equities wobbled after retail giant Walmart warned that profits would be pressured by tariffs. Confidence indicators, including PMI surveys and the University of Michigan consumer sentiment gauge, unexpectedly declined and revealed rising inflation expectations - a potential headache for the Federal Reserve if price pressures prove stubborn. U.S. housing data and regional manufacturing surveys also disappointed, hinting at a loss of economic momentum.

In Europe, markets were remarkably stable during a widely watched German election, where the centre-right CDU/CSU alliance retained power but will need to negotiate with multiple parties to cobble together a working coalition. However, the surge in support for the far-right AfD spotlighted the polarisation and discontent simmering in Europe's biggest economy. Amid frantic diplomacy between the U.S., Europe and Russia over Ukraine's fate, pressure mounted on Germany to ramp up defence spending and take a larger geopolitical role. Eurozone PMI surveys painted a patchy picture, with strength in manufacturing offset by services weakness in France.

The Bank of Japan confronted a fresh spike in inflation, driven by surging food costs, and the yen strengthened past the closely watched 150 level against the dollar as markets bet on a continued normalisation of ultra-easy policies. In China, faint hopes for a breakthrough in trade negotiations with the U.S. helped lift sentiment and supported the yuan.

Australia saw a relatively quiet week. Wages data and unemployment figures were roughly in line with expectations, showing a tight labor market but no signs yet of an inflationary breakout that would pressure the RBA to slow its rate-cutting trajectory. The Australian dollar rebounded after a tumultuous start to the year, helped by improved risk appetite and U.S. dollar softness. The upcoming CPI release will provide an important signpost for the inflation outlook.

The Australian reporting season continued to deliver more positive earnings surprises than disappointments, albeit the trend is deteriorating as the month progresses. Stronger margins remain the key source of better earnings given easing inflationary pressures, although sales are a bit lighter as pricing power wanes. Technology stocks and industrials have delivered solid earnings while consumer stocks have struggled. The big recent change on the ASX has come from financials, with the banking sector collectively weighing on the market following underwhelming updates from National Australia Bank, Westpac, ANZ, and Bendigo & Adelaide Bank, which pulled richly valued sector leader CBA down with them. The big banks collectively look expensive relative to their earnings outlook and competitive position and a market rotation away from banks may well have begun.

Overall, markets remain highly attuned to geopolitical crosscurrents as a potential peace deal over Ukraine and Sino-U.S. trade negotiations approach key decisional points. While recent economic data has hinted at softening growth in major economies, sentiment has proven resilient so far, with investors still willing to "buy the dip" and give policymakers the benefit of the doubt. The week ahead featuring Eurozone inflation figures and U.S. PCE data will test this delicate balance.