The past week saw some reasonably dramatic swings in markets, largely driven by evolving trade tensions between the U.S. and Europe. Last week ended with concerns about rising U.S. treasury yields, with the 30-year yield hitting multi-year highs. This sell-off in bonds was attributed to fiscal sustainability worries after the passage of the "Big Beautiful" tax bill in the U.S., which is expected to significantly increase budget deficits.

However, the main focus quickly shifted to trade after President Trump threatened to impose a 50% tariff on European imports by the weekend, accelerating the previous timeline and tariff level. This initially sent U.S. and European stocks lower, while further pressuring bonds and the U.S. dollar on fears of economic fallout.

The tone reversed sharply on Monday after Trump backed off the immediate tariff threat, agreeing to delay the deadline to July 9 to allow more time for negotiations. This relief rally sent European stocks surging, with the German DAX gaining 1.7%. The U.S. also joined the rally upon returning from the Memorial Day holiday, with the Nasdaq jumping 2.5% and S&P 500 rising over 2%.

In FX markets, the Australian dollar hit a year-to-date high even as the U.S. dollar strengthened, while the Chinese yuan also firmed. The euro garnered attention after ECB President Lagarde promoted its potential as a reserve currency to rival the U.S. dollar.

In economic data, U.S. consumer confidence rebounded strongly in May, though details revealed ongoing concerns about tariffs and job security. Durable goods orders were soft, likely impacted by previous pull-forward activity ahead of tariffs. Inflation readings were mixed, with Eurozone readings surprising to the downside while Japan saw its fastest CPI growth in 15 months.

The Reserve Bank of New Zealand cut rates by 25bps as expected, while the Reserve Bank of Australia's Lowe reiterated readiness to ease if needed in response to trade risks. Focus now shifts to Australian CPI and retail sales, as well as developments in U.S.-China trade talks ahead of the G20 summit in late June.

In a surprise development, Japanese bond yields tumbled, led by a 19bp drop in the 30-year, on speculation the government may alter issuance plans. The moves reverberated globally, pressing U.S. and European yields lower as well. This followed Japanese yields getting back to levels they hadn't seen in a decade and investors are not sure if this is a good thing or not for an economy that desperately wants to see some growth and inflation but is also highly indebted. Sounds familiar.

Overall, the week reflected how sensitive global financial markets remain to trade policy uncertainty, with assets reacting swiftly to any signs of escalation or progress. While worst-case outcomes were avoided for now, the path forward remains highly uncertain as tense negotiations continue on multiple fronts. Investors remain closely attuned to the Trump administration's next moves and the potential economic repercussions.