April 2026 Market update - Iran war weighs on global markets
- stefanl6
- 4 days ago
- 4 min read
Updated: 2 days ago
Conflict in the Middle East has unsettled markets, driving volatility and raising concerns over inflation.
Energy shock clouds the outlook.
The Iran war has created fresh uncertainty for the global economy, complicating efforts by central banks to contain inflation. Its effects have rippled across markets, fuelling volatility and clouding the outlook for growth.
Wholesale oil and gas prices have surged, with experts warning that if prices remain elevated, goods and services could become more expensive. The extent of any rise in inflation will depend on how long the conflict lasts and when tankers can pass through the Strait of Hormuz again.
Global equities have come under pressure and bond yields have risen. Despite this, US stocks have held up relatively well, supported by solid earnings and economic resilience. Central banks are now expected to keep interest rates higher for longer, with the possibility of further increases if price pressures persist.
Soaring fuel costs have also weighed on the US economy. Gasoline prices hit $4 a gallon, their highest since 2022, undermining President Donald Trump’s claims to be tackling the cost of living. Labour market data has weakened, with payrolls falling by 92,000 in February and unemployment rising to 4.4%.
With volatile oil prices and weaker job data, the US Federal Reserve (Fed) held interest rates steady at its March meeting. US inflation remained at 2.4% in February, ahead of the energy shock triggered by the conflict.
Bank of England holds rates.
The Bank of England kept interest rates at 3.75% amid growing concern over rising energy prices. As a major energy importer, the UK is exposed to higher oil and gas costs,
which threaten efforts to bring inflation back to its 2% target. Inflation held at 3% in February, with increases likely in the coming months.
The UK economy slowed in January, even before the latest energy price rises. Growth was flat, following a 0.1% increase in December. The unemployment rate rose to 5.2% in the three months to January, while earnings growth also eased.
China’s economy rebounds.
China’s economy showed signs of recovery in early 2026, supported by stronger factory activity, consumption and investment. Large oil reserves and a shift towards renewables should help cushion the short-term impact of supply disruptions. However, a prolonged conflict would increase the economic cost.
China set a growth target of 4.5% to 5%, the first time it has fallen below 5% since 1991, reflecting structural challenges, including the property downturn. In Europe, the European Central Bank (ECB) kept interest rates at 2% for the sixth consecutive meeting as inflation rose to 1.9% in February.
Higher energy prices could push inflation above target and weigh on growth in the coming months. It is important to remember that while geopolitical shocks can trigger
short-term volatility, history shows markets tend to recover over time. We will continue to monitor developments closely and adjust our views accordingly.
Market-moving events
Shifting headlines. Global equities and bonds were volatile and ended the month weaker as investors priced in rising inflation and interest rate risks. European, emerging market and Asian equities were hit hardest, while small caps also came under pressure. A late relief rally on hopes of easing Middle East tensions offered limited support. Bond yields in the US, Europe and UK moved higher overall, reflecting expectations of tighter policy.
Energy prices surge. Oil was a standout performer, rising sharply after the closure of the Strait of Hormuz removed a significant share of global supply. The speed of the move was among the strongest in decades. As a key driver of inflation, the surge has intensified concerns about persistent price pressures and their impact on growth.
Geopolitical risks rise. Uncertainty has increased amid concerns over supply chains, energy security and broader economic disruption. In response, the OECD has downgraded global growth forecasts and raised inflation expectations across multiple regions. This combination of weaker growth and higher inflation underscores the increasingly challenging outlook for policymakers and investors.
Investment highlights
Crystallised gains in US energy position. During the month, we took profits from our US Energy ETF following a strong rally driven by the Middle East conflict. The proceeds were redeployed into Japanese government bonds. We also further reduced our US large-cap exposure to increase our allocation to Japanese government bonds.
Reduced US equities; increased global bonds. Throughout the month, we further reduced our US Equity Leaders Fund exposure and redeployed the funds into to the Omnis Global Bond Fund, reflecting caution around stretched US equity valuations.
Tactical positioning rewarded. Overweight positions in US energy and global bonds were
positive drivers of performance during a volatile period.
Remain cautiously positioned. We continue to hold a moderate overweight position in bonds and an underweight allocation to equities, with a particular bias away from US large caps. We expect market leadership to broaden as the dominance of US mega caps fades and the AI-led narrative comes under greater scrutiny.
Issued by Omnis Investments, which is authorised and regulated by the Financial Conduct Authority. Registered address: Auckland House, Lydiard Fields, Swindon SN5 8UB. This update reflects our view at the time of writing and is subject to change. The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your financial adviser. Omnis Investments is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. Past performance should not be considered as a guide to future performance.