Geopolitics, Energy Shocks and Inflation Expectations Drive April Market Volatility
April was dominated by ongoing geopolitical tensions in the Middle East, with developments surrounding the Strait of Hormuz driving sharp swings across global markets. Oil prices moved back above $100 per barrel during the month as ceasefire negotiations between the US, Israel and Iran repeatedly stalled, renewing concerns around inflation and global trade disruption. Central banks remained cautious against this backdrop, with the Bank of England holding interest rates at 3.75% and the Federal Reserve (Fed) also leaving policy unchanged. While periods of renewed diplomacy supported recoveries in risk assets toward month-end, markets remained highly sensitive to geopolitical headlines and the potential impact of higher energy prices on inflation and economic growth.
US/Israel-Iran tensions drive renewed energy market volatility
- Markets experienced significant volatility throughout April as ceasefire negotiations between the US, Israel and Iran repeatedly broke down before later resuming through diplomatic channels.
- Disruption to shipping activity through the Strait of Hormuz pushed Brent crude prices back above $100 per barrel at points during the month, reigniting concerns around inflation and supply chain pressures.
- Goldman Sachs warned that higher oil prices could reduce global oil demand by 1.7 million barrels per day year-on-year during the second half of 2026, highlighting concerns around weakening consumption.
- Investor sentiment improved toward month-end following reports that negotiations between the US and Iran would resume in Pakistan. This helped support a broad-based recovery in risk appetite.
UK economy shows resilience despite inflation pressures, but ongoing conflict points to a troubled road ahead
- The Bank of England voted 8–1 to leave interest rates unchanged at 3.75%, with external member Huw Pill again voting for a 0.25% increase amid concerns over persistent inflationary pressures.
- UK Manufacturing Purchasing Managers’ Index (PMI) rose to 53.7 in April, marking a four-year high and the sixth consecutive month above the 50-point expansion threshold, supported by stronger demand from the US, China and India.
- UK retail sales increased 0.7% month-on-month in March, ahead of expectations for 0.3%, with the Office for National Statistics citing stronger fuel and non-food spending.
- Consumer confidence weakened sharply during April, with the GfK consumer confidence index (a monthly survey-based measure of how confident UK households feel about the economy and their personal finances) fell to -23, the lowest reading since October 2023 and the largest monthly decline in a year.
US economy remains resilient as inflation concerns re-emerge
- US inflation, measured by the Consumer Price Index (CPI), rose 3.3% year-on-year in March, accelerating from the previous month as higher fuel prices continued to feed through into headline inflation.
- The Fed left interest rates unchanged, although the decision was divided 8-4, the largest dissent among policymakers since 1992, reflecting uncertainty around the future path of inflation and rates.
- The US economy expanded at an annualised rate of 2% during the first quarter of 2026. This was supported by resilient consumer spending and continued strength within the labour market.
- Consumer sentiment weakened during April, with the University of Michigan sentiment index falling to 49.8, while one-year inflation expectations rose to 4.7%, highlighting growing concern over rising prices.
Global equity markets were volatile in April, initially weakening as geopolitical tensions escalated and energy prices spiked, before recovering later in the month as diplomatic progress helped stabilise sentiment. Technology-related areas remained comparatively resilient, supported by ongoing investment in artificial intelligence infrastructure, semiconductor demand and data centre expansion. In contrast, more economically sensitive (cyclical) sectors saw a wider range of outcomes as investors reassessed the outlook for growth and inflation, leading to greater dispersion in returns across those areas of the market.
Bond markets were also unsettled as investors recalibrated expectations for future interest rate cuts in light of renewed inflation concerns linked to higher energy prices. Government bond yields rose across several major economies, while credit markets proved relatively steady despite periods of volatility. Commodity markets were dominated by sharp movements in oil prices as developments around the Strait of Hormuz continued to evolve, reinforcing the importance of diversification and multiple sources of return during periods of heightened uncertainty.
In suimmary
Against this backdrop, markets are likely to remain sensitive to developments in geopolitics, inflation data and central bank commentary in the near term. Periods of volatility can feel uncomfortable, but they are a normal feature of investing and often reflect short-term uncertainty rather than a change in long-term fundamentals.
This is where disciplined financial planning plays an important role. Portfolios are designed with diversification at their core, helping to spread risk across different regions, sectors and asset classes. This means that while some areas may experience sharper fluctuations in response to shifting economic conditions, others can provide stability or offsetting performance over time.
Staying invested through these periods, and maintaining a focus on long-term goals rather than short-term market movements, remains central to achieving outcomes.