Last week trade developments dominated sentiment but underlying economic trends remain sluggish. Central banks are in wait-and-see mode amid mixed data. Geopolitical risks around Ukraine and unpredictable U.S. trade policy continue to loom large.

The biggest development was the announcement of a trade deal between the U.S. and EU on Sunday. The deal sets a 15% baseline tariff on EU exports to the U.S., including autos which previously faced a 25% tariff. While worse than the previous status quo, it averted the 30% tariff President Trump had threatened. The EU also agreed to purchase $750 billion in U.S. energy over 3 years and invest $600 billion in U.S. projects. Although details are sketchy. European leaders reacted tepidly, acknowledging it was the best deal possible but expressing no enthusiasm.

This follows a similar deal between the U.S. and Japan earlier last week. President Trump appears to be pushing a minimum 15% tariff, framing deals as a win even when the terms are worse for trading partners than before. The UK is a notable exception, maintaining its 10% tariff.

Initial market reactions were positive, but faded as reality set in. The Euro fell sharply and European equities retreated on realisation the deal will still be a drag on growth. U.S. equities were mixed while the U..S dollar strengthened. Oil prices jumped on expectation of increased European energy purchases from the US.

In other trade news, the U.S. and China agreed to a 90-day extension on negotiations past the August 12 deadline. Talks continue but a breakthrough seems unlikely.

Economic data painted a mixed picture. U.S. consumer confidence rose but the outlook for jobs weakened. The trade deficit narrowed on a sharp drop in imports. Q2 GDP estimates were revised up to 3-3.25% on trade, but underlying consumer demand looks soft.

In a similar vein the Australian inflation number came in slightly below expectations, with the RBA's preferred trimmed mean measure at 2.7% year on year at the end of  the June quarter. Underlying the headline number was weaker services inflation, lower transport and fuel costs as well as imported goods. While demand appears stable, the level of domestic consumption looks quite low compared to pre-COVID levels, likely due to factors like fewer international students and travelers as well as an uncertain, cost constrained consumer. Markets are now pricing in lower implied inflation of around 2.4% over the next five years for Australia, just above the RBA's target band. This has raised expectations that the RBA may have room to cut interest rates sooner rather than later, although this seems to be in the context of weaker overall demand in the economy.

The Fed and Bank of Canada both held rates steady as expected. Ahead of the Fed decision, the US Treasury announced a huge $1 trillion Q3 borrowing requirement. Jerome Powell looks set to keep his job for now after President Trump backed off calls for his firing.

Key upcoming events include Mega-cap tech earnings from Microsoft, Meta, Amazon and Apple, the U.S. jobs report on Friday, and ongoing volatility in oil prices as a 10-day deadline was set for Russia to end the war in Ukraine before facing secondary sanctions.