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The past week saw markets and economies grappling with ongoing trade tensions, slowing economic data, and uncertainty around central bank policy. The long-awaited U.S.-China trade talks in London grabbed headlines but failed to produce any concrete breakthroughs, leaving tariffs in place and contributing to a subdued global growth outlook. Nevertheless, that was enough to send economically sensitive emerging markets and US small caps up a few percent and leave most other markets in positive territory.

On the data front, signs emerged that the U.S. economy is starting to feel the strain of trade disputes and fading fiscal stimulus. The U.S. services ISM slipped into contraction territory, weekly jobless claims hit their highest level since July 2023, and the nonfarm payrolls report, while solid, showed some underlying softness. This led markets to pare back expectations for Fed rate cuts this year. Fed Chair Powell pushed back on Trump's calls for more aggressive easing, underscoring the central bank's patient stance barring a material deterioration in the data.

In China, export growth slowed sharply in May, declining nearly 35% year-on-year to the U.S. alone, as higher tariffs disrupted trade flows. While exports to other regions helped offset the U.S. slump, the data highlighted China's economic vulnerability and reliance on the rare earths trade as a bargaining chip. Negotiations between the U.S. and China continued in London with positive rhetoric but no substantive deal.

Europe saw mixed economic signals. UK jobs data surprised to the downside, showing cracks in the labour market and prompting the Bank of England to consider further gradual easing. However, industrial production in several euro area economies held up better than feared. The ECB cut rates as expected and signalled a likely pause ahead, placing the onus on fiscal policy to support growth amid trade headwinds.

In Australia, the NAB business survey painted a picture of slowing activity, margin compression, and still-elevated labor costs, complicating the RBA's easing path. GDP growth remained sluggish in Q1 despite some temporary factors. Across the Tasman, New Zealand's growth outlook saw an upward revision, raising the odds of an RBNZ pause in July.

Market moves reflected the shifting economic landscape. Bonds rallied on growth concerns and central bank easing, with UK gilts outperforming. Equities were mixed, with U.S. stocks proving resilient while Europe saw more pressure. The U.S. dollar held steady, but the British pound slid on weak data. Commodities presented a mixed picture, with oil pulling back on rising inventory expectations and gold benefiting from safe-haven flows.

Looking ahead, U.S. inflation data and trade developments will be key watchpoints, with markets eager for signs that tariff-related price pressures will prove transitory. Central banks will remain data-dependent and attuned to downside risks, but may be reluctant to meet market expectations for aggressive easing until economic conditions markedly deteriorate. Amid this uncertainty, volatility is likely to persist across asset classes. In this week's video we discuss with Andrew Hunt how this is likely to materialize in bond markets, where we are seeing some early signs of volatility.