Financial markets grappled with competing forces last week as trade tensions, economic data releases, and central bank actions painted a complex picture. The overarching theme was uncertainty surrounding U.S. tariffs and their impact on global growth.

The week began with the U.S. dollar hitting a nearly two-year low after President Trump doubled steel tariffs despite legal challenges. This escalation renewed fears of retaliatory measures from trading partners like Canada and Europe. However, hopes emerged that a pragmatic solution could still be reached with China.

These trade jitters were reflected in a divergence between equity and bond markets. The tech-heavy Nasdaq posted solid gains, bolstered by strong Nvidia earnings, while bond yields retreated on growth concerns. Yields on 10-year Treasuries fell 11 basis points on the week.

Economic data presented a mixed bag. Weaker than expected U.S. manufacturing figures and construction spending hinted at the toll of tariff uncertainty on business activity and investment. However, a surprise jump in job openings in April suggested underlying labor market resilience. This was tempered by sluggish hiring, raising the stakes for Friday's nonfarm payrolls report.

Oil prices whipsawed, caught between OPEC+ production increases and supply risk from U.S.-Iran tensions and Russia-Ukraine fighting. The possibility of flagging Chinese demand added another layer of complexity.

Japan’s core inflation hit a more than two-year high of 3.6% in May, driven by persistent food price increases. This keeps the Bank of Japan under pressure to consider additional rate hikes. However, a drop in factory output in April highlighted the challenge policymakers face in balancing inflation concerns with the economic fallout from U.S. tariffs and cooling global demand.

In Australia, the RBA minutes revealed a robust debate about the size of the latest rate cut. NAB revised down its GDP forecast to 0.2% for Q1, well below the central bank's estimates, bolstering the case for further easing. Markets are now pricing in an 80% chance of a July cut.

Globally, the OECD downgraded its 2025 growth forecast from 3.1% to 2.9%, highlighting the impact of trade headwinds. However, it predicted a rebound for Australia in 2024 as lower rates support consumption.

In Europe, falling inflation and unemployment presented a "Goldilocks" scenario, though the ECB is still expected to cut rates soon. Meanwhile, China's Caixin manufacturing PMI slipped to a 32-month low, reflecting the damage from trade tensions on factories.

Now the focus is shifting to Friday's U.S. jobs report for clues on whether trade turmoil is significantly denting the labor market. With the Fed on hold, any signs of weakness could tilt the balance towards easing.

Overall, markets remain highly attuned to trade developments, with the path of tariffs and negotiations likely to drive sentiment in the weeks ahead. The interplay of growth concerns and still-resilient economic data is keeping investors guessing. Against this uncertain backdrop, policymakers are walking a tightrope between supporting growth and maintaining stability.