Last week saw a mix of data in the UK, as headline inflation unexpectedly rose to 4.0%, while average earnings growth slowed to 6.5%. Inflationary pressures have significantly eased, and a resumption of the downward trend is anticipated in the coming months. Despite economic headwinds, the job market remains relatively robust, with unemployment holding steady at 4.2%.

Expectations for rate cuts in the UK have been scaled back by the markets, with approximately 1% of cuts currently projected by the year-end.

In Europe, headline inflation met expectations at 2.9%, and markets are factoring in potential rate cuts of up to 1.40%, given the persistently weak underlying economic fundamentals.

In the US, forecasters are still pricing in up to 1.50% of rate cuts for the year, possibly beginning in March, as the Federal Reserve shifts its focus from inflation to growth.

While the outlook for interest rate differentials continues to influence market sentiment, central bank policymakers are pushing back against the market's aggressive pricing for rate cuts, citing unprecedented uncertainty. This resistance is impacting global equity markets and pushing yields higher.

Geopolitical concerns remain at the forefront of investors' minds due to the escalating tensions. Disappointing Chinese growth data is weighing particularly on the European economy, and authorities are likely to implement additional economic stimulus.

Looking ahead to next week, there is little in terms of data, and no changes are expected at the European Central Bank meeting. Consequently, political events are likely to be the driving force behind market momentum.