Last week could have wreaked havoc on the U.S. bond market with CPI/PPI data and the Fed's decisions, but inflationary pressures are easing and the job market appears to be normalizing—a perfect mix for bond performance. However, Europe's outlook is darkening with a snap election in France.

• Political and fiscal uncertainty: the Rassemblement National's (RN) gains in the European elections introduce political and fiscal uncertainty into France's fixed income market. Key risks include potential policy shifts towards increased public spending, undermined investor confidence, and heightened market volatility. • Market reactions: immediate market reactions have already seen selloffs in bonds, with increased yields on French government bonds (OATs) and a steepened yield curve. Foreign investors are particularly concerned about capital outflows and the broader economic implications within the Eurozone. • Credit rating downgrade: the recent S&P downgrade highlights the need for careful monitoring of France's credit rating and its impacts on the fixed income market. • Future risks: if the RN performs similarly in the upcoming legislative elections, the risk to France's bonds could intensify, driven by potential shifts in fiscal policy and sustained political uncertainty

As the ECB and BoC initiate rate reductions of 25 basis points, contrasting sharply with the U.S.'s robust job market and steady rates, the world turns its eyes to the upcoming FOMC meeting to gauge the potential implications of this growing transatlantic policy divergence.

As the ECB gears up for its imminent policy meeting, expectations are high for a rate cut—the first since March 2016. Yet, the journey beyond this initial step is fraught with uncertainty, as Europe grapples with fluctuating inflation and complex economic signals, highlighting the volatile terrain central banks continue to navigate.

Next week, the European Central Bank (ECB) is likely to embark on a new phase of its monetary policy: normalisation. After maintaining very restrictive rates to combat higher-than-target inflation, the ECB is poised to ease this restrictiveness. The first rate cut, expected next week, comes 266 days after the last rate hike, closely aligning with the historical average between cycles. Based on recent comments from ECB members, the rate cut is almost a certainty. However, the path to the terminal rate, which should be the neutral rate—which neither stimulates nor restrains the economy—will be long and winding.

In just ten days, the ECB will unveil its latest policy decisions, potentially starting with a modest rate cut of 25 basis points. While this initial step is anticipated, the path beyond remains clouded in uncertainty, highlighting the unpredictable economic landscape we find ourselves navigating.

Despite a recent less hawkish stance from the Fed and emerging signs of a weakening US job market, last week's inflation figures suggest a cautiously improving outlook for fixed income investments. However, ongoing challenges such as increased supply, diminished foreign demand, and a persistently inverted yield curve continue to pose risks.

A week of sharp movements in U.S. Treasury yields reflects a broader market recalibration, as fresh economic data and Fed rhetoric temper expectations for rate cuts, casting new shadows on fixed income outlooks.

The Bank of England (BoE) is set to release its crucial monetary policy decisions this Thursday, a pivotal event with implications that could reverberate across global markets.

The latest FOMC meeting delivered a mixed message that caught markets off guard. Chair Powell acknowledged enduring inflation challenges while outlining a dovish path forward with an anticipated shift towards monetary normalization by year-end coupled with a reduction in quantitative tightening starting June 1st. This dual approach prompts questions about the Fed's strategy to remain restrictive yet assist the Treasury with an unprecedented supply surge (#monetization).