Following the announcement of a two-week US–Iran ceasefire on Tuesday, 7 April, risk assets were supported by the perception that the worst may have been avoided.
However, the region remains on edge, as illustrated by the collapse of peace negotiations between the US and Iran. As a result, tensions in the Middle East intensified over the weekend, with the US imposing a naval blockade on the Strait of Hormuz, heightening concerns about oil supplies. Markets are likely to continue reacting swiftly to any new developments.
Market recap
Beyond the numbers
Macroeconomics
US consumers bore the brunt of rising oil prices last week. The University of Michigan’s consumer sentiment index plummeted by 11% to a historic low of 47.6 in early April, far below market expectations of 52.0 and down 9% from a year earlier, as households flagged fears that an Iran-driven surge in energy costs would significantly erode their purchasing power.
Those fears appear well-founded: the March inflation reading came in stronger than expected, with consumer prices accelerating from 2.4% to 3.3% year-on-year, the highest annual reading since May 2024, propelled by a notable 21.2% month-on-month surge in petrol prices. Core inflation, however, offered a degree of temporary reassurance. Stripping out food and energy, prices rose just 0.2% on the month and 2.6% year-on-year, both a tenth of a percentage point below forecasts. With core services continuing to decelerate (shelter prices are down from 0.3% to 0.2% month-on-month), second-round effects have yet to materialise, giving the Federal Reserve room to look through the supply-side shock, at least for now.
The outlook for consumer spending looks equally fragile. Even prior to the conflict, real personal consumption grew by a meagre 0.1% month-on-month, with households drawing down savings to sustain expenditure; the personal savings rate slipped from 4.5% to 4.0%, a sign that organic spending momentum is moderating.
Meanwhile, the Institute for Supply Management services index fell to 54.0 in March from 56.1 in February, below the consensus of 55.0. New orders rose to their highest level since February 2023, but the prices-paid component surged to 70.7, its highest reading since October 2022, which is consistent with rising consumer inflation expectations and also suggests that pipeline price pressures remain very much alive.
Germany offered little comfort: industrial output contracted by 0.3% month-on-month in February, well below the 0.7% consensus, dragged down by a sharp decline in construction, while manufacturing output was broadly flat, still struggling to recover from the steep falls recorded at the turn of the year. The prospect of a sustained rebound looks dim given the elevated energy prices, although fiscal policy is supporting domestic orders.
This week, markets will be watching US small business sentiment and the producer price index for evidence of pass-through price pressures, alongside initial jobless claims, as a barometer of labour market resilience. In the eurozone, February industrial production and the final March Consumer Price Index (CPI) readings will be published.
Equities
Global equities continued their rebound for a second consecutive week, with the MSCI ACWI delivering a total return of +4.1% and ending the week less than 3.0% away from its all-time record close, registered on 25 February 2026.
While the previous week’s gains were driven by hopes of a US–Iran de-escalation, investors received confirmation last week with the announcement of a two-week ceasefire on Tuesday. This set off sharp gains across high-beta and cyclical sectors, with risk appetite being sustained into week’s end as US inflation data came in largely in line with expectations.
Global technology names led the pack, progressing +5.9% last week, followed by materials at +5.4% and consumer discretionary at +5.3%. As oil prices declined, so did the global energy sector, which shed -2.6%. Traditionally defensive sectors such as healthcare, consumer staples, and utilities also lagged behind amid a risk-on environment (+0.6%, +1.1%, and +2.0%, respectively).
Markets have been quick to return to near-record highs, while the situation in the Middle East remains fragile. Developments over the weekend, including a US naval blockade of the Strait of Hormuz following the failure of peace talks, could undermine these gains in the near term.
While the path to an eventual US–Iran agreement remains opaque, the belief that the worst has been avoided is providing a lifeline to risk assets as long as negotiations continue. The key variable remains the duration of global oil supply disruption and its impact on future growth estimates. Geopolitical headlines are set to continue to steer global equities in the week ahead, with investors also closely following Q1 reporting and commentary on current trading as earnings season kicks off.
Equity growth estimates hinge on the duration of global oil supply disruptions.
Fixed income
The two-week US–Iran ceasefire sparked a rally in spreads. Investment-grade (IG) and high-yield (HY) spreads, at 77 basis points (bps) and 310 bps, respectively, have now fully retraced their widening and are tighter than when the conflict started, an impressive feat given that navigability of the Strait of Hormuz remains severely constrained. Notably, spreads in the Middle East compressed by 36 bps but remain above pre-conflict levels. Markets rallied on the removal of a tail risk rather than on a resolution, leaving credit valuations dependent on the ceasefire holding and the Strait of Hormuz reopening in a sustained manner, both of which, following the US naval blockade, remain uncertain.
Rate moves were muted and mixed, which in itself is informative. The initial reaction to the ceasefire was a significant move lower from Monday’s peak to Tuesday’s trough: US Treasuries fell by 6 bps, Bunds by 19 bps, and gilts by 28 bps. However, rates recovered most of the move, ending the week flat to slightly higher, with Bunds up 7 bps. The divergence between the US and Germany is worth noting: Powell has differentiated the Federal Reserve’s reaction function from those of the European Central Bank (ECB) and the Bank of England (BoE), arguing that anchored inflation expectations allow the Fed to look through supply shocks, even as the March Federal Open Market Committee (FOMC) minutes showed some members acknowledging the possibility of rate hikes. The ECB, by contrast, has been more vocal about second-round effects from energy, and the Bunds’ move this week is consistent with markets pricing in less urgency around ECB cuts on the prospect of a potential resolution of the conflict.
For the week, US Treasuries returned 0.2%, IG 0.4%, HY 0.9%, additional tier 1 (AT1) 1.3%, and emerging market (EM) 1.8%. The more spread-sensitive the segment, the stronger the return, consistent with a broad compression of geopolitical risk premia rather than a rates-led rally.
The more spread-sensitive segment led the stronger performance, consistent with a broad-based compression of geopolitical risk premia.
Forex & Commodities
The USD weakened slightly following last week’s ceasefire announcement. However, these losses were not sustained, and the EUR/USD has since traded to levels below 1.17. CPI data printed at its highest level in two years, reflecting the impact of higher energy prices. The FOMC statement had no discernible effect on the USD, despite a generally dovish tone. There are few important US data releases in the coming week, and the USD is likely to trade as a reflection of broader risk sentiment. The scope for significant USD weakness is curtailed by the impact of higher energy prices and changing Fed rate-cut expectations.
The GBP faces downside risks over the coming week, reflecting potential Bank of England (BoE) Monetary Policy Committee (MPC) speeches at this week’s International Monetary Fund (IMF) spring meetings. Watch for any signals that the MPC will look through initial rises in inflation, giving markets scope to rein in front-end rate expectations. Further upside in the EUR/GBP is expected over the remainder of the year.
The USD/CNY fell to around 6.83 last week, reflecting the weaker USD. The coming week presents upside risks for the CNY, given the forthcoming publication of Q1 gross domestic product (GDP), March activity, and trade balance data. Our stance on the CNY remains constructive, with the USD/CNY expected to fall to around 6.70 by year-end.
Gold traded higher last week to around USD 4,800 per oz, following the US–Iran ceasefire announcement. A sustained ceasefire would be supportive for gold, as it would help moderate inflation and reduce the likelihood of further central bank rate hikes, lowering both nominal and real interest rates. Exchange-traded fund (ETF) inflows rose over the past week, indicating that retail investors are finally buying the dip.
The scope for significant USD weakness is limited by higher energy prices.
The opinions expressed herein are correct as at 13 April 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
