Investors reacted positively to a further de-escalation in the Middle East last week.
Equity and bond markets extended their gains for a third consecutive week as the US–Iran ceasefire continued to hold and the prospect of negotiations towards a broader agreement appeared to gain traction; however, the ceasefire expires on 22 April, with no deal yet in place. The situation remains tense, particularly regarding the status of the Strait of Hormuz.
Looking ahead, US–Iran negotiations, alongside April flash Purchasing Managers’ Index (PMI) data, will remain in focus amid the ongoing oil shock and uncertainty surrounding the Strait.
Market recap
Beyond the numbers
Macroeconomics
In the US, the March Producer Price Index (PPI) came in lower than expected (0.4% m/m; 4.0% y/y), reassuring markets about the limited pass-through of higher energy prices to the broader economy. Core PPI rose just 0.1% m/m and 3.8% y/y, unchanged from the previous month.
US business sentiment was mixed but more constructive overall: a rise in the Philadelphia Federal Reserve (Philly Fed) and New York Empire State manufacturing indexes reassured investors about the resilience of the economy, supported by rising new orders, while a weakening National Association of Home Builders (NAHB) index (housing sentiment) and industrial production data (March: -0.5% m/m) highlighted pockets of weakness at sector level.
In the eurozone, final March inflation data came in slightly higher than expected (1.3% m/m; 2.6% y/y), driven by a sharp rebound in energy prices (7% m/m; 5% y/y, following -3.1% y/y the previous month), while core inflation remained contained at 2.3% y/y.
The recent core Consumer Price Index (CPI) and Producer Price Index (PPI) readings have broadly reassured central bankers, whose communications have adopted a relatively less hawkish tone than in recent weeks.
In China, Q1 gross domestic product (GDP) grew 5.0%, marginally above expectations, supported by strong export performances over the quarter. However, March activity data were mixed, pointing to a two speed economy, with robust production and selected exports contrasted by weak consumption and housing data.
Looking ahead, attention this week will turn to April flash PMIs across developed markets, with a focus on new orders and pricing dynamics amid the oil crisis and the ongoing closure of the Strait of Hormuz. In parallel, US retail sales will provide an insight into how consumers are navigating the oil shock. In the UK, labour market, retail sales and CPI data will be key ahead of the next Bank of England (BoE) meeting.
Equities
Global equities continued their rebound for a third consecutive week, with the MSCI ACWI delivering a total return of +3.9% last week. Investors welcomed a further de-escalation in the Middle East that led to the reopening of the Strait of Hormuz. Over the past three weeks, markets have priced out worst case scenarios, namely a prolonged conflict, with easing oil pressures, receding interest rates and resilient earnings helping to drive one of the fastest recorded rebounds to new highs.
US equities rallied the most last week, with the S&P 500 gaining +4.5%, the Nasdaq rising +6.8% and the Magnificent 7 climbing +8.5%, with major indices breaking past previous record highs. The risk on mood lifted appetite for the global technology sector, which surged +7.6%, while the energy sector fell -3.7% as oil prices tumbled. Traditionally defensive sectors lagged behind once again, with utilities down -1.6%, consumer staples little changed, and healthcare up +1.4%.
Major US banks opened the Q1 earnings season with strong results and upbeat commentaries on the health of the US economy, indicating that consumers were weathering the energy shock, cushioned by tax refunds. A cooler than expected US producer price inflation reading for March also contributed to the risk on mood.
While geopolitical developments will continue to steer markets in the days ahead amid renewed tensions over the weekend and the Strait being closed off again, the distribution curve of outcomes has narrowed and is supporting a risk on environment. With trends in corporate profits one of the more durable drivers of markets, investor focus will also turn to the 93 S&P 500 companies publishing results in the week ahead for more clues.
Easing oil prices, lower rates and resilient earnings have driven one of the fastest rebounds to new highs.
Fixed income
Bond markets rallied for a third consecutive week as the US–Iran ceasefire continued to hold and negotiations towards a broader deal appeared to gain traction. The biggest market moving event came on Friday, when Iran’s foreign minister declared the Strait of Hormuz fully open to commercial shipping, pushing rates down and spreads tighter.
On rates, Germany led, with 2 year Bund yields falling 19 basis points (bps) and 10 year Bund yields down 10 bps, although it is worth noting that 2 year yields remain considerably above pre conflict levels (2.62% versus 2.24%). The UK’s 2 year gilt yields dropped 14 bps against a 7 bp decline at the long end. US rates fell more modestly – 9 bps at the 2 year and 7 bps at the 10 year –, consistent with the US being less directly exposed to the energy supply disruption than Europe is. That said, the move on Friday alone was significant, with US 10 year yields falling 10 bps following the announcement on the Strait of Hormuz.
For the week, Treasuries returned 0.7%, investment grade (IG) 0.9%, high yield (HY) 1.5%, additional tier 1 (AT1) bonds 1.4% and emerging market (EM) debt 2.3%. Since the trough on 30 March, the rally has been substantial, with spreads doing most of the work: Treasuries 0.7%, IG 1.3%, HY 2.5%, AT1s 2.9% and EM 4.0%.
EM was the clear standout, driven mostly by spread compression, which has narrowed from 290 bps three weeks ago to 240 bps, back to near pre conflict levels. This move reflects the direct link between the Strait of Hormuz and EM risk premia. Oil importing emerging economies, which bore the brunt of the energy shock, benefited most from the de escalation.
The risk to this rally is already materialising. Over the weekend, Iran reversed the Strait of Hormuz reopening after US President Trump maintained the US naval blockade on Iranian ports and Islamic Revolutionary Guard Corps (IRGC) gunboats opened fire on vessels attempting to transit the Strait. Rates naturally opened higher on Monday while spreads widened, although the reversal has not been very significant so far. The ceasefire expires on 22 April with no deal currently in place, and Iran has signalled it will not attend the next round of talks until the blockade is lifted. The situation remains tense. The medium term impact on supply chains and energy markets is yet to be felt in full, and markets continue to look complacent about these risks, with spreads already at or below pre conflict levels.
Government bond yields fell across developed markets last week, led by Germany and the UK.
Forex & Commodities
Last week, the US Dollar Index (DXY) fell by just over 1%, to levels of around 98.00. The decline reflected increasing confidence among market participants that the US–Iran ceasefire agreement would be extended, leading to a permanent agreement and a reopening of the Strait of Hormuz.
These hopes were dashed over the weekend, with the outcome of US–Iranian negotiations still unclear. The main US data release over the coming week will be US March retail sales data (21 April). Markets anticipate that headline sales will print at 1.3% m/m and 0.2% (excluding autos and gas). Overall, there are no significant event risks for the USD over the coming week, and recent ranges are likely to persist.
The GBP faces several event risks over the coming week, with the publication of UK March Consumer Price Index (CPI) data and unemployment data for February. Headline and core CPI are both expected to print at 3.2% y/y. The data are likely to show a large rise from February, given the impact of energy prices. Any rise in long end gilt yields is unlikely to be supportive for the GBP, given fiscal risks and the upcoming local elections in May. A poor showing in the May local elections could place further pressure on UK Prime Minister Starmer, leading to a less market friendly replacement.
The main risk for the EUR will be the publication of ZEW and PMI data for April. The PMI data will be closely watched, as a deterioration in manufacturing outcomes, given higher energy input costs, is likely to limit upside risks for the EUR/USD in the near term.
Gold traded higher to above USD 4,800 per oz, reflecting initial optimism about a US–Iran peace agreement. Further talks in the near term should result in a more constructive outlook for gold. Investor positioning is a lot cleaner than before, increasing the price impact from even small positioning increases in the coming weeks
Further US–Iranian negotiations in the near term are likely to support gold prices.
The opinions expressed herein are correct as at 20 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.
