Market overview
After a third successive week of gains, global stock markets are, for the most part, trading at higher levels than they were before the outbreak of the Middle East conflict on 28 February 2026. All the more impressive given persistent fears the conflict may lead to a global inflationary shock and hit economic growth.
The on-off news cycle
As to what has driven the turnaround in sentiment, an obvious first port of call would be tangible signs of de-escalation in the Middle East, notably the Iranian regime announcing the re-opening the Strait of Hormuz on Friday 17 April. Markets’ buoyant mood, however, had been in evidence before then. And this, despite the breakdown of peace talks and the announcement of a blockade of the vital shipping channel by the US during the weekend of 11-12 April.
Escalation during the weekend and de-escalation during the following week appears to be the predominant news flow cycle of this conflict. The week ahead could follow the same pattern after Iran announced the closure of the Strait of Hormuz once more in response to the US blockade during the weekend of 18-19 April. Any thoughts that the US blockade was a token act were put to bed following the US Navy’s seizure of an Iranian vessel…during the weekend. If the cycle holds, expect to see de-escalation during the week ahead, perhaps in the form of a social media post from US President Trump—he did after all thank the Iranians for reopening the Strait— or via more peace talks especially with the ceasefire due to expire on Wednesday 22 April. Let’s hope it does. But is the war currently front and centre of investors’ minds anyway? For the conflict is not the only game in town—other factors are at play too.
Strong start to Q1 reporting season
Take the first-quarter earnings season. It’s still early days but last week saw major US banks post decent numbers. Arguably more important, the banks also provided generally positive commentary on the current economic situation and the health of the US consumer, further reinforcing the view that the US economy at least is proving resilient in the face of the war. Investors will be hoping the tone has been set for the rest of the season, particularly when it’s the turn of Big Tech to report.
Supportive economic data too
In line with the encouraging bank commentary, economic data remains market friendly, on the whole. In the US, last week saw positive manufacturing and general activity data released as well as a lower-than-expected producer price index (PPI) print for March—up 0.5% month-over-month (M/M) compared to the 1% expected. And in the UK, M/M economic growth came in at a much stronger-than-expected 0.5% in February compared to the 0.1% forecast. While one month’s data does not a summer make and with the estimate covering the month before the war commenced, the print does at least point to the UK economy entering the conflict in a better position than previously thought.
Whether economic data and corporate earnings continue to have a supportive tilt will likely depend on the conflict ending sooner rather than later. For that to happen, much work (and talking) still needs to be done. Breaking the on-off news cycle would be a helpful start.
Weekly market moves and economic news:
The MSCI All Country World Index (MSCI ACWI) ended the week up 3.9%— year-to-date (YTD) the index is up 6.5%.
United States:
A hat trick of weekly gains for US stock markets. The main index was up 4.5%, enough to push the market not only into positive territory for the year (+4.5% YTD) but also to all-time highs. Large-cap growth stocks stood out, rising +6.7%. Small caps weren’t far behind courtesy of a 5.6% weekly gain, while value added +2.4%. YTD, small caps remain well ahead (+12.3%), followed by value (+8.5%). Growth still has some way to go then but is now at least in positive territory YTD (+0.8%).
US Treasuries enjoyed the feel-good-factor with the yield on the 10-year Treasury ending the week down seven basis points to 4.25% (up eight basis points YTD); the 2-year Treasury yield fell nine basis points to 3.71% (up 23 basis points YTD). Most of the downwards move in yields took place on Friday following the, albeit brief, re-opening of the Strait of Hormuz, an indication that the conflict and its impact on the economy are currently the main drivers in the US Treasury market.
United Kingdom:
With a 0.7% weekly gain (+8.6% YTD), UK large caps fell short of global and US indices. The 3.9% rise clocked by the more domestically focused mid caps (+4.3% YTD) suggest Prime Minister Keir Starmer’s ongoing troubles surrounding his decision to appoint Peter Mandelson as the UK’s ambassador to the US are not overly troubling London’s stock markets.
Similarly, UK government bond markets appear more concerned by other matters, specifically the economic fallout of the war. On this, comments from Bank of England (BoE) Governor Andrew Bailey indicating that the central bank is "in no rush" to raise rates helped push the yield on the 10-year UK gilt down seven basis points to 4.76% (up 29 basis points YTD). Sterling too seemed unconcerned, closing unchanged at US$1.35. A week is a long time in politics. Any signs that Starmer’s days as premier are numbered may raise concerns that he could be replaced by someone less bond-market friendly and more willing to turn the spending taps on.
Europe ex UK:
European stocks ended the week up with the MSCI Europe ex-UK Index rising 2.3% (+5.8% YTD). At the national level, Germany stood out with a 3.8% gain (+0.9% YTD). France tacked on 2.0% (+3.5% YTD); Italy 2.6% (+9.2% YTD); and Switzerland 2.0% (+3.1% YTD).
As with the BoE, European Central Bank rate-setters pointed out they too are in no hurry to hike interest rates. A well-timed smaller-than-expected increase in the annual rate of eurozone inflation to 2.5% in March backed the message up. Good news for government bonds with the yield on the 10-year German Bund finishing down 10 basis points at 2.96% (up 10 basis points YTD). Finally, the euro strengthened against to US$1.18 compared to US$1.17 previously.
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