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21 Apr 2026 | 3 minutes to read
Markets are seemingly trading more on spin than substance after the Strait of Hormuz effectively closed just 24 hours after it had reopened at the weekend. Investors – perhaps more barrel-half-full than barrel-half-empty so far – will be looking for meaningful diplomatic progress and a ceasefire extension this week to sustain recent rallies.
Several equity markets made all-time highs last week. For the S&P 500, it took just 11 trading days to do so from its recent low on 30 March – the fastest recovery in 75 years following a drawdown of at least -8%. However, beneath the headline the market is split, with only 58% of the S&P 500’s companies above their 200-day moving average price, when historically more durable rallies have exceeded 70%. Taiwan, Japan, Israel and Brazil were all among equity markets to make new all-time highs. Equity investors are clearly pleased to come up for air.
Unsurprisingly, Brent crude oil quickly slipped, falling -10% on the news the Strait was open. Benchmark 10-year bond yields fell, with the US Treasury to 4.24% and the respective UK gilt to 4.68%. Counterintuitively, gold increased on the news, advancing +1.7%, potentially as buyers returned after a liquidity squeeze. However, in a potential early sign of leadership change, industrial metals including copper, aluminium and zinc began to outshine gold. The dollar index – which measures the greenback versus a basket of currencies – weakened a little.
Straight talking is needed. But politics in the Middle East are messy. A stray bullet or arbitrary drone attack could quickly reverse any diplomatic progress. If the crisis is soon resolved, policymakers may get the breathing room to assess its damage to their pre-Iran playbooks – acknowledging that some of the economic scarring has yet to come.
The UK economy grew 0.5% in February according to preliminary figures published by the Office for National Statistics (ONS) last week. The print was far better than economists’ consensus expectations. Any evidence of underlying strength will be warmly welcomed given the prior print suggested the economy little more than flatlined in January, while signs of labour market weakness have been evident, with unemployment rising. Over February, the all-important services sector grew by 0.5%, as did production, while construction rose a full 1.0%. Monthly data can be subject to revision, but the less volatile three-month period to February also showed GDP advancing 0.5%, up from a 0.3% expansion over the three months to January. Of course, February’s data is already rather stale. Official data will inevitably take a hit when the impact of the ongoing impasse in the Middle East begins to filter through. The US and Iran launched military operations from 28 February.
The International Monetary Fund (IMF) warned that the UK could suffer the biggest economic impact from the Iran war amongst major developed market economies, echoing a similar revision made by the Organisation for Economic Development (OECD) a few weeks earlier. The IMF now forecasts UK growth amounting to 0.8% in 2026, down from the 1.3% they were forecasting in January.
As a net importer, the UK’s vulnerability to energy shocks could be laid bare by the current crisis. And expectations as to the likely path for monetary policy have performed an about turn as a result. Far from cutting interest rates as inflation fell towards the Bank of England’s (BoE) 2% target, the prospect of rate hikes to combat rising inflation are again a distinct possibility. Futures markets currently expect one rate hike over the next 12 months – a huge change from the two rate cuts priced prior to the conflict. The BoE is likely to hold rates steady near term. The latest UK inflation data is due to be published later this week.
China’s economy surprised markets this week, with GDP expanding by 5% year-on-year in the first three months of 2026, according to the National Statistics Bureau. This beat economists’ expectations of 4.8% growth and marks a pick-up from expansion of 4.5% in the previous quarter – evidence of economic resilience despite the Middle East conflict. Although the full effect of the conflict is yet to show up in official data.
Exports strength led the rebound. A surge in overseas demand, particularly early in the quarter, lifted shipments of electronics, machinery, autos and ships. Rising global investment in artificial intelligence (AI) supported demand for advanced high-tech exports like robotics, semiconductors and electric vehicles.
However, the picture remains less convincing domestically, as investment and consumer spending continue to exhibit weakness. Urban fixed asset investment, which includes real estate and infrastructure, rose just 1.7% year-over-year in March, missing expectations. While retail sales growth slowed to 1.7% from a 2.8% increase in January and February, highlighting the current cautious sentiment among Chinese consumers.
Although headline Chinese GDP growth is holding up better than expected – and sits within Beijing’s newly lowered 4.5-5% target range – its economy remains imbalanced, relying heavily on overseas demand and its industrial manufacturing might.
Hungary – Following his election victory, new Hungarian prime minister, Péter Magyar, announced he would drop opposition to the EU’s €90bn loan to Ukraine. However, the new government will not contribute to the loan. Hungary’s budget deficit remains restrictive and the Hungarian government’s 10-year borrowing costs currently stand at c.6%, although they dropped from a recent peak of over 7.5% in late March
US banks’ results – Several US investment banks reported strong first quarter earnings. Bank of America, Morgan Stanley, Citigroup, Goldman Sachs, JP Morgan Chase and Wells Fargo collectively saw profits increase some 12% from a year earlier
Private credit exposure – The Federal Reserve (Fed) is asking major US banks to report their exposure to the private credit industry. Policymakers wish to evaluate risk following an increase in fund redemptions as amid rising investor concern over loan quality transparency. The Fed wishes to assess the potential for contagion across the financial system
Standard Life / Aegon – Standard Life has agreed to buy the UK arm of Dutch financial services group, Aegon, for £2bn. Standard Life said the deal would bring the pensions and savings group’s assets under administration to £480bn
US Beige Book – The Fed published their latest Beige Book report on economic conditions last week, describing the Iran war as a “major source of uncertainty” for US businesses. The contrast with the prior report (February) reveals a trend decline in spending for lower-income consumers, while companies are increasingly adopting a wait-and-see approach, with decision making complicated by heightened the current backdrop
Global tourism – In what could be a significant early sign, Thailand’s central bank lowered its 2026 GDP growth outlook to 1.3%, from 2.5% in February, citing decreased travel due to the conflict in Iran. Officials announced tourism from the Gulf region fell to almost nil in March while arrivals from developed market economies also declined
Nvidia – the US tech giant unveiled the world’s first open-source AI models for quantum computing, designed to help researchers and enterprises build quantum processors capable of running useful applications
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