Global markets rallied in April, recovering from March’s losses as strong earnings and continued AI-driven growth supported investor sentiment. However, the ongoing Iran conflict and elevated oil prices continue to create uncertainty around inflation and economic growth.
Markets recover as tensions persist
Global equity markets rebounded during April, with U.S. equities climbing to fresh highs and the FTSE 100 regaining ground. European and Asian markets also moved higher as investors responded positively to strong earnings and improving market sentiment.
Despite the rally, the broader backdrop remains complex. The U.S.-Iran conflict continues to weigh on the global outlook, adding inflationary pressure and uncertainty around economic growth. While optimism briefly improved following a proposed two-week ceasefire, negotiations have since stalled.
Energy markets remain a key focus. Disruption in the Strait of Hormuz has continued, contributing to significant volatility in oil prices. Crude oil rose above $126 a barrel at one stage, reaching its highest level since 2022 following comments from President Donald Trump suggesting the U.S. blockade of Iranian ports could continue for months.
Fed keeps rates on hold
The U.S. Federal Reserve held interest rates steady for a third consecutive meeting as inflation increased and economic uncertainty remained elevated. U.S. inflation rose sharply from 2.4% in February to 3.3% in March, driven largely by higher energy prices.
This marked the largest inflation increase in almost two years and echoed the energy-driven inflation shock experienced following the invasion of Ukraine. Consumer sentiment has fallen to a record low as households react to rising costs, with gasoline prices climbing above $4 a gallon.
Despite this, the labour market remained resilient. Employers added 178,000 jobs in March while unemployment edged down to 4.3%.
UK inflation rises
The Bank of England also kept interest rates on hold at 3.75% during April despite increasing inflationary pressures. UK inflation rose to 3.3% in the year to March, up from 3% previously, largely driven by higher fuel costs.
Economic uncertainty and rising prices have pushed consumer confidence to a two-year low. The UK’s reliance on imported gas leaves the economy particularly exposed to energy shocks, with inflation expected to remain elevated in the near term.
The labour market showed mixed signals. Unemployment fell to 4.9%, while regular pay growth slowed to 3.6%, marking its weakest level since late 2020.
China’s growth rebounds
China’s economy grew 5% year on year during the first quarter, demonstrating resilience despite disruption from the Iran conflict. Industrial output rose 5.7% in March while retail sales increased 1.7%.
The Chinese economy has so far absorbed the shock relatively well, supported by substantial oil reserves and renewable energy investment. However, growth is expected to slow later in 2026 as higher energy costs begin feeding through to inflation.
Europe faces stagflation concerns
In Europe, the European Central Bank kept interest rates on hold at 2% for a third consecutive meeting. Eurozone inflation rose sharply to 2.6% in March from 1.9% in February, largely due to higher energy prices.
Private sector output weakened across the region, with softer demand and slowing activity. Manufacturing has held up better, but falling confidence and rising costs have increased concerns about stagflation across the eurozone.
Markets remain sensitive to geopolitical developments
April demonstrated how quickly market sentiment can shift in response to geopolitical developments.
While equity markets recovered strongly, elevated energy prices and persistent uncertainty surrounding the Middle East conflict continue to cloud the outlook for inflation, interest rates and economic growth.
For long-term investors, periods like this are a reminder of the importance of maintaining a diversified portfolio and focusing on long-term financial goals rather than reacting to short-term market volatility.