Andy Burnham's victory in the Makerfield by-election puts him closer to Downing Street, but markets reacted cautiously amid uncertainty over his economic stance. Investors worry a Burnham premiership could shift Labour further left on fiscal policy, potentially loosening spending discipline. The lack of clear policy signals left gilts trading without major direction.

James Carter of W1M noted Burnham has yet to demonstrate willingness to curb fiscal commitments, citing support for the state pensions triple lock. While Richard Hughes advising Burnham offered some reassurance, many investors expect changes to fiscal rules and increased borrowing. The Bank of England held rates steady at 3.75% as oil prices retreated from recent highs, providing temporary relief to bond markets.

However, stability in the Iran-US peace deal remains fragile, threatening to push government bond yields higher. Citi analysts warned a Burnham leadership would inherit a precarious fiscal position with limited tools for meaningful change. The real test comes when Burnham must articulate his economic vision to markets.

Meanwhile, US PCE inflation data due Thursday will sharpen views on energy cost impacts, with Fed median estimates rising to 3.6% for 2026. German economic indicators may show modest improvement as the energy shock eases, though recovery remains tentative. Markets now balance domestic political risks against global energy volatility.

Andy Burnham faces immediate scrutiny on fiscal credibility, while German economic data this week could signal whether the Middle East peace deal translates into tangible recovery for Europe's largest economy.