Energy Markets and the Oil Shock

Markets in April were dominated by the continuing energy shock, with the Iran conflict and disruption to shipping through the Strait of Hormuz becoming the central driver of asset prices. Oil moved sharply higher, with Brent rising above $120 per barrel late in the month, pushing inflation expectations higher and unsettling bond markets in particular.

Equity Markets

Equity markets were volatile although surprisingly strong. US indices reached fresh highs during the month, supported by strong technology earnings and continued enthusiasm around AI-linked investment. However, gains faded late in April as oil prices surged and investors reassessed the impact of higher energy costs on margins, consumers, and central bank policy.

Bond Markets and Central Bank Policy

Bond markets came under renewed pressure. Rising oil prices fed directly into inflation concerns, lifting long-dated yields across major economies. This reflected a market increasingly uncomfortable with the combination of sticky inflation, heavy government borrowing, and limited room for central banks to ease policy.

Central banks responded cautiously, so far. The Federal Reserve left rates unchanged at 3.50%–3.75% in April, while the Bank of England also held rates at 3.75%, warning that higher inflation was now difficult to avoid given the energy shock. The ECB faced a similar dilemma, with eurozone inflation rising to 3% in April while growth remained weak. Nevertheless, some policy makers warned that rate rises may be needed should the conflict persist.

Regional Divergence

The regional impact of the oil shock was uneven. Commodity exporters and energy companies benefited where they were not disrupted, while energy-importing economies, particularly in Europe and parts of Asia, faced renewed pressure. Economic risks were now decisively tilted to the downside, particularly for emerging markets with greater exposure to imported energy costs.

Gold and Precious Metals

Gold remained supported by geopolitical uncertainty and central bank demand, although higher bond yields limited the scale of its rebound. This left precious metals caught between two competing forces: the appeal of safe-haven assets during conflict, and the opportunity cost created by higher real yields, as well as the continued easing of the sugar rush seen earlier in the year.

Outlook

Overall, the positive sentiment that built through the month is beginning to ease. Earlier optimism around earnings and technology leadership remained intact, but it was increasingly challenged by the return of energy-driven inflation and tighter financial conditions. Markets are not yet pricing a full recession, but the balance of risks has deteriorated. The next phase will likely depend on whether the oil shock proves temporary, and whether central banks can remain patient without allowing inflation expectations to become embedded.