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27 Apr 2026 | 3 minutes to read
A lot’s happened but little’s changed. Another week of mixed signals and stray soundbites has not given investors much clarity about how the Iran war will end. At the weekend, hope of a resolution by the time Presidents Xi and Trump meet on 14 to 15 May was scuppered by news that renewed peace talks had stalled. Meanwhile, markets are peering through the fog of war and trying to focus on company fundamentals. It’s an uneasy balancing act. Evidence of economic harm is mounting. But earnings per share (EPS) expectations for key equity indices are relatively high.
Lufthansa has cut 20,000 flights this summer as it attempts to save around 40,000 tonnes of jet fuel. The timing may suit the German airline as it’s currently fighting industrial action from pilots and cabin crew over pay, pensions and working conditions. Chicago-based United Airlines cut its full-year forecasts and now expects earnings of $7 to $11 per share, down from $12-$14. And online travel agent titan Booking reported weaker summer demand; it now expects more last-minute reservations as travellers try to avoid the disruption of cancelled flights.
Looking ahead, equity markets are being buoyed by expectations of strong EPS growth for this year and next – around 16% for the S&P 500. Artificial intelligence (AI) advancements are partly responsible. But the boost is more widespread, with other industries and businesses also expectant. The market is broadening. So, investors will hope that the gap between economic crisis and business-as-usual can be bridged as soon as possible, lest uncertainty drags on confidence.
Business activity in both the UK and US picked up in March, but the recovery comes with a warning: inflationary pressures are picking up.
In the UK, S&P Global's Flash Composite Purchasing Managers’ Index (PMI) rose to 52 from 50.3, beating expectations of 49.9 and returning to moderate growth (a PMI above 50 indicates economic expansion). Manufacturing production and services contributed. But some of this momentum appears temporary, with firms bringing-forward orders and rebuilding inventories amid concerns over future supply disruptions. The dominant theme from the survey was a sharp rise in costs. Input price inflation climbed to its highest level since 2022, suggesting renewed upward pressure on consumer prices in the months ahead.
A similar pattern is emerging in the US. The Flash Composite PMI increased to 52, a three-month high, up from 50.3 in March. Manufacturing output led the gains recording 55.7, a four-year high, partly due to stock building amid supply concerns. While services activity also improved, demand remained soft. Crucially, inflation signals strengthened significantly, with both input costs and selling prices rising at their fastest pace since mid-2022. US businesses appear to be passing on higher costs to their customers.
Both the UK and US economies are showing signs of short-term resilience, but the rebound is fragile. Rising cost pressures – likely linked in part to ongoing tensions in the Middle East – will challenge policymakers.
Higher food and fuel prices have pushed inflation up in the UK as the impact of the Iran war starts to hit consumers. The UK Consumer Prices Index (CPI) rose +3.3% over the year to March, compared to +3% over the year to February, according to the Office for National Statistics (ONS). Forecasters reckon CPI could top 4% this year. But a return to the double-digit inflation after Russia invaded Ukraine in 2022 is highly unlikely. Meanwhile, the ONS also reported that unemployment unexpectedly fell from 5.2% to 4.9% in the three months to February, partly as fewer people actively looked for work. Wages rose at an annualised pace of 3.6% over the same period, the weakest since late 2020.
Where does this leave policymakers at the Bank of England when they meet to set interest rates this week? A relatively sluggish economy and the prospect of stagflation – low growth, high inflation and relatively high unemployment – make any decision tricky. As a net importer of energy, the UK is vulnerable to energy price shocks. If central bankers raise the policy rate to head off potentially higher inflation, they risk compounding tighter credit conditions for already-squeezed consumers. Waiting-and-seeing risks inflation taking root. Consensus suggests that rate-setters will do nothing, preferring to hope that the blip is temporary and that geopolitics will improve.
The government itself is not immune to the rate-setters’ decision. The UK 10-year gilt yield ended the week above 4.9%, meaning the UK’s borrowing costs are higher than in many other advanced economies.
US Federal Reserve Chair nominee, Kevin Warsh, pledged not to be a “sock puppet” for President Trump at a confirmation hearing last week. If elected, Warsh promised regime change at the Fed, including a review of how inflation is measured, and plans to start to shrink its balance sheet. He also said that the current ‘forward guidance’ communication method – whereby policymakers indicate the future path of interest rates – is unhelpful and he preferred less rehearsed scripts.
The Senate will now get to vote on Warsh’s nomination after Republican senator, Thom Tillis, dropped his opposition. That came after the Department of Justice announced that it would drop all criminal investigations against incumbent Chair Powell regarding the $2.5bn renovation of the central bank. The trade-off removes the biggest block to Warsh’s nomination to succeed Powell when his term ends on 15 May.
South Korea’s economy grew at +1.7% in the first quarter of the year, the strongest rate for 5 years, on semiconductor demand and domestic resilience
Swiss banking reforms in play, as systemically important banks in Switzerland considered too-big-to-fail may have to fully capitalise their foreign subsidiaries under a new proposal from the Federal Council. The move could require UBS to raise $20bn in additional capital
Apple Inc.’s Tim Cook will become executive chairman of the board of directors after a 15-year tenure as CEO at the world’s third largest company. John Ternus, senior vice president of Hardware Engineering, will succeed him
German economic sentiment has weakened to its lowest level since December 2022. The ZEW Indicator fell to -17.2 in April, from -0.5 in February and below expectations of -5
Aerospace and AI company Space Exploration Technologies Corp. (SpaceX) continues to eye an IPO in late June. Reportedly targeting a $1.75trn valuation, it could become the world’s most valuable public company at flotation
Japanese inflation rises as higher energy prices have reportedly prompted the Tokyo Metropolitan Government to urge staff to wear shorts to work to use less air conditioning. Headline inflation, released last week, accelerated to 1.5% in March from 1.3% in February, as the effects of the Iran war began to feed through to prices
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