Two months into the Iran war, the global macro picture is no longer defined purely by the initial oil shock. Markets have staged a strong recovery from their March lows, helped at times by hopes of talks or a broader ceasefire, even as risk remains elevated because ceasefire efforts have repeatedly stalled and oil has stayed high enough to keep inflation concerns alive.
The result is a classic late-shock environment; equities have rebounded sharply, but bond markets, currencies and business surveys still reflect a world dealing with higher energy costs, uncertain policy paths and uneven corporate resilience.
Oil prices have remained structurally higher, reflecting ongoing risks to supply routes and production with Brent crude trading at a sustained premium relative to pre-conflict levels. At the same time, gold has alternated between safe-haven demand and pressure from higher yields and a firmer dollar.
United States
The US has experienced a less direct energy shock than Europe or most of Asia, but the war has clearly altered inflation expectations, Treasury pricing and business sentiment. April flash business activity showed a recovery in activity, with the S&P Global U.S. Composite PMI rising to 52.0. However, the survey also highlighted that the conflict was boosting prices and intensifying cost pressures, proving growth remains resilient, but energy-driven inflation is re-entering the system through supply chains, transport costs and corporate pricing decisions.
Shorter-dated U.S. Treasury yields drifted higher in late April as inflation pressures built up, pointing to the risk that elevated oil could keep Treasury yields higher for longer even as equities approach records levels.
The war has reduced confidence in an easy disinflation path and made the Federal Reserve’s next move less straightforward. Equity markets, however, have remained notably resilient. Both the Nasdaq and the S&P 500 hit new highs, supported by continued technology leadership and improved earnings sentiment as periodic optimism around de-escalation lifted risk appetite.
Corporate earnings have generally surprised to the upside, particularly in energy, industrials linked to defence and infrastructure, and technology segments tied to AI investment. The US dollar has remained firm, supported by relatively higher yields and its safe-haven status during periods of uncertainty.
The United Kingdom
The UK economy continues to face a more fragile backdrop, with subdued growth and more persistent inflation dynamics than other developed markets. The rise in energy prices has had a pronounced impact on household costs, reinforcing existing cost-of-living pressures.
Annual inflation accelerated to 3.3% in March 2026, and is likely to remain above 3% into the second quarter as higher energy prices pass through the system. This has prompted the BOE to adopt a more cautious stance, delaying rate cuts amid concerns that inflation could remain above target for longer.
PMI data presents a mixed picture. Services activity has shown modest expansion, while manufacturing remains under pressure due to weak external demand and rising input costs. Business confidence has been subdued, reflecting both domestic challenges and global uncertainty.
UK gilt yields have remained elevated, reflecting persistent inflation expectations and a slower anticipated pace of monetary easing.
Equity markets have participated in the global rebound but have lagged US markets. The FTSE has been supported by its heavy exposure toward energy and commodities, which have benefited from higher oil prices.
Europe
In Europe, the renewed rise in energy prices has complicated the disinflation process and raised concerns about growth momentum. Economic activity slowed to a nine-month low in early April while inflation edged back towards 3%, highlighting the region’s sensitivity to energy shocks. Bond yields have edged higher across the region in response to rising inflation expectations.
PMI indicators suggest a fragile recovery. Manufacturing activity remains weak, particularly in export-oriented economies such as Germany, while services have provided some support to overall growth. The energy shock continues to weigh on industrial production, margins and business sentiment.
Corporate earnings across the region have become increasingly differentiated. Industrials and other energy-sensitive sectors are facing margin pressure from higher input costs, while exporters and selected defensives have shown greater resilience.
European equities have recovered alongside global markets but continue to reflect structural growth challenges and sensitivity to external demand conditions. The euro has traded in a relatively narrow range, shaped by shifting policy expectations and global risk sentiment.
Japan
Japan continues to remain exposed to higher energy import costs, currency weakness, and supply chain uncertainty.
Japan’s flash manufacturing PMI rose to 54.9 in April, the fastest pace of factory expansion in four years indicating Japan has avoided a sharp downturn in industrial activity. Export resilience and strong demand in technology-related sectors have supported this performance.
Services activity has shown steady expansion, supported by domestic demand and tourism. However, high energy import prices and a weaker yen continue to raise the burden on households and many domestic firms.
The Bank of Japan has continued its gradual policy normalisation, allowing yields to rise modestly while maintaining accommodative financial conditions. Japanese government bond yields have edged higher, though they remain low relative to global peers.
Japanese equities have performed well, supported by corporate governance reforms, a weaker yen, and strong earnings in export-oriented sectors. The yen has remained under pressure against the US dollar, reflecting yield differentials and ongoing capital outflows.
China
China’s economy continues to face structural challenges, compounded by external pressures from higher energy costs and weaker global trade, while policy support has helped stabilise growth, momentum remains uneven.
Inflation has remained subdued compared to other major economies, providing the People’s Bank of China with room to maintain an accommodative stance. Targeted stimulus measures have been implemented to support key sectors, including infrastructure and manufacturing.
PMI data has shown modest improvement, with manufacturing activity stabilizing after earlier weakness. However, demand remains fragile, particularly in the property sector and among consumers.
Chinese equity markets have remained volatile but have participated in the broader global recovery. Investor sentiment remains cautious, reflecting concerns about structural growth and policy effectiveness.
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Sources
Data and insights sourced from Reuters, Bloomberg, Financial Times, U.S. Bureau of Labor Statistics, Federal Reserve, Bank of England, European Central Bank and OECD.
Disclaimer
This content is for general information purposes only and does not constitute financial, investment or legal advice. The views expressed are based on current market conditions and are subject to change without notice. Past performance is not a reliable indicator of future results. Capital is at risk.
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