Market Review 27th April 2026

Everything you need to know, Simplified!

Summary

• Equity markets paused after a sharp April rebound, with US strength supported by corporate earnings, while Europe and other regions lagged amid ongoing Middle East uncertainty

• Oil has surged to $105 per barrel (bbl) but the market has adapted well to the historic supply shock through rerouted flows and emergency supply

• The energy shock is feeding into inflation, with UK Consumer Price Index (CPI) rising to 3.3%, though pressures remain largely energy-led for now

• Central banks are expected to look through the spike, with inflation expectations still anchored, keeping the bar high for further tightening even as rate cuts are pushed out

• A busy week ahead, with major central banks expected to hold rates, alongside US growth rebounding and early signs of a conflict-related slowdown in euro area data.

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Market Review

Schrödinger’s Strait: oil shock, contained

The market recovery in April has been more sprint than marathon. While the US clung to its highs last week thanks to some strong corporate results, Europe and other regions slipped back, once again reacting to developments in the Middle East. The ceasefire may have been extended, but it remains fragile. The Strait of Hormuz is simultaneously open and closed (‘Schrödinger’s Strait’), and negotiations are stale, at best.

With both sides unyielding and with President Trump keen to end the conflict, it may well be that further military escalation is needed to expedite the war. There are hawkish members of the administration who are inclined to ‘finish the job’ in forcing regime change and this remains a potentially overlooked near-term risk for markets. For the moment, a continuation of extended ceasefires and stalemated negotiations seems the most likely outcome and equities are attempting to look through it all and focus on the rosier fundamental picture.

Oil remains the market’s most direct pressure point. Brent rose 16.5% last week to $105/bbl, yet some analysts have noted that the move still looks contained relative to the scale of disruption. The Arab oil embargo in 1973 removed roughly 5% of global supply and drove a 400% price surge. Today’s shock is significantly larger, yet prices have moved from around $60 to $100, surging rather than spiralling.

As highlighted by economist Ed Yardeni, this reflects a market that is far more adaptive than in past crises.

First, supply has not disappeared, it was disrupted and now, where possible, is being rerouted. Saudi Arabia and the UAE have pushed alternative pipeline infrastructure to capacity, diverting flows away from the Strait and offsetting the loss of seaborne supply by c.7m barrels per day (c.35% of the supply previously through the Strait).

Second, emergency supply has filled part of the gap. Strategic reserve releases and policy flexibility to accommodate sanctioned barrels, have injected additional liquidity into the market.

Third, headline prices are masking regional stress and illiquidity. While Brent has consolidated near $100, physical markets, particularly in Asia, are far tighter, with buyers paying substantial premiums to secure immediate supply. The global benchmark and futures (where two parties agree today to buy or sell something at a set price on a future date) therefore understate the severity of local dislocations in the spot market.

Fourth, like the old saying ‘the cure for high oil prices is high oil prices’ demand is already adjusting lower. Higher prices are beginning to ration consumption, from reduced air travel to government-imposed efficiency measures across emerging markets. The International Energy Agency (IEA) now expects global oil demand to contract this year.

Finally, and perhaps most importantly, the global economy is simply less energy intensive than in previous decades. That lowers the price required to rebalance supply and demand, preventing the kind of extreme price spikes seen in the 1970s. The global economy is more protected against high energy prices and $150 could well be the new $100, the level previously assumed to cause a recession.

All these factors considered, a reasonable base case may be for oil to trade between $85 and $100/bbl for the short to medium term.

The energy shock is already feeding into headline inflation. In the UK, CPI rose to 3.3% in March, up from 3.0%, with the increase almost entirely attributable to higher energy prices. A similar pattern, to a lesser extent, is evident in the US.

For now, central banks are likely to look through the initial energy-driven spike. Core inflation remains relatively contained and, longer-term inflation expectations are still anchored. Futures prices in the UK still show inflation undershooting the Bank of England’s 2% target over the medium term. Rate cuts have been delayed, but the bar for renewed tightening remains high. As long as expectations stay anchored and second-round effects are contained, this is more likely to slow the pace of easing than reverse it entirely. As long as a resolution to the conflict remains elusive, bond yields in the UK and Europe are likely to remain elevated and the probability for more structurally embedded inflation is increased.

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The week ahead

Central bank meetings:

There are a total of ten central bank meetings this week including the Bank of England, the US Federal Reserve, the European Central Bank (ECB) and the Bank of Japan. All are expected to hold rates steady while maintaining flexibility to hike rates if signs of second-order effects begin to appear.

US GDP growth:

Economic growth in the US is expected to have accelerated in the first quarter to 2% from 0.5% in the final quarter of last year. The temporary slowdown in Q4 was driven predominantly by the government shutdown. This year consumer spending has softened slightly on the back of elevated inflation fears while business investment has been robust.

Euro-area GDP growth:

Growth in the first quarter is expected to come in at 0.2%, a slower pace that evidences the first bit of damage from the conflict in the Middle East. The figures are released the same day as the ECB’s rate decision and the inflation report for April. Inflation is expected at 3.0%, up from 2.6%.

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