April 2026 Market Overview
April was characterised by a sharp recovery across financial markets, as investors looked through the initial shock of March's geopolitical escalation. Sentiment improved following the announcement of a two-week ceasefire and the start of US-Iran talks, providing some relief despite ongoing uncertainty, even as oil prices remained elevated. The US has emerged as the world's largest crude exporter, helping offset supply disruptions while the blockade continues to constrain Iran's oil revenues. However, optimism faded towards month-end as negotiations stalled and the US cast doubt on Iran's latest proposal, which excluded the nuclear issue, signaling it was unlikely to be accepted and contributing to renewed upward pressure on oil prices. The US dollar retreated to levels close to those seen prior to the escalation of the conflict, while gold's recovery stalled as rising inflation risks and expectations of higher-for-longer interest rates weighed on the asset.
AI-led Investment Supporting US Growth
In the first quarter, US GDP remained supported at around 2%, largely driven by a surge in business investment, particularly in AI-related infrastructure and technology. This reflects the significant capital being deployed by major technology firms, with combined AI-related capital expenditure from companies such as Amazon, Meta, Microsoft and Alphabet expected to reach around $725 billion in 2026. At the same time, the consumer, traditionally the backbone of the US economy, is showing signs of strain amid rising costs and a lower savings rate. This points to a more business-led recovery, where growth is being driven by corporate investment rather than household demand, which may explain why the strength in the economy is not being felt as broadly as in more traditional cycles.
From Expected Cuts To Potential Hikes
The path for global interest rates has shifted as uncertainty linked to the conflict has increased. Prior to the war, markets had priced in close to three rate cuts from the Fed, as illustrated in the graph, but these expectations have largely been reversed. While all four major central banks kept rates unchanged this month, the outlook has become less clear, with a more cautious tone emerging across regions. The ECB has shifted from an expected pause to potential rate hikes from June, while the Bank of England has similarly signalled that rates may need to rise if energy-driven inflation persists. Overall, although policy remains unchanged for now, the direction of travel has become more uncertain, with markets increasingly sensitive to inflation developments and the evolving geopolitical backdrop.
Credit Default Swaps
CDS spreads narrowed in April following the sharp widening seen in March, indicating some easing in credit market concerns. US CDS declined from 92 to 81, while European CDS moved lower from 78 to 63, suggesting an improvement in perceived credit risk across both regions. Despite this pullback, US CDS remains elevated relative to earlier in the year, pointing to a lingering degree of caution in credit markets.
Performance
April saw a sharp rebound across global equity markets, reversing much of the weakness experienced in March and lifting most indices back into positive territory year to date. US markets led the recovery, moving above their February levels and fully retracing the March drawdown. In contrast, other regions including Europe, Japan, and emerging markets, while posting solid gains, remain below their February peaks, indicating a more uneven recovery.
On the other hand, volatility remained elevated through April, with only modest changes from March despite the strong rebound in equity markets. Notably, Japan and South Africa remain among the most volatile markets on both a 30- and 90-day basis, indicating continued sensitivity to global developments. While some markets have stabilised, overall volatility remains above the lows seen earlier in the year, pointing to a still uncertain backdrop despite the recovery.