Global Economy & Markets, Weekly Roundup 28/04/26
US equity markets hit fresh record highs despite elevated risks in the Middle East as corporate earnings for Q1:2026 provide support
Recent geopolitical developments surrounding US and Iran relations, point to a still elevated degree of uncertainty, despite some tentative signs of de-escalation, with the S&P500 hitting a fresh record high in the past week (7165, see Markets section). Nevertheless, oil prices remain persistently high at $110 per barrel as physical constraints start to kick in, hovering above the baseline assumptions embedded in the ECB’s March meeting projections.
Against this backdrop, the ECB is very likely to keep its key policy rate unchanged, for now, at 2.0% on Thursday, as will seek greater clarity on both the duration of the conflict and the potential second round effects stemming from elevated energy prices. Investors’ attention is expected to shift to President Lagarde’s Press conference, particularly for any signals regarding the direction and timing of the next policy steps, as the Governing Council remains vigilant against inflation risks.
In that context, euro area headline inflation for April will be closely watched (due on April 30th), with our estimates pointing to +2.9% yoy, up from +2.6% yoy in March and +1.9% yoy in February. Moreover, the first estimate of euro area real GDP for Q1:2026, due also on Thursday, is expected to point to growth below trend, with our estimates pointing to +0.2% qoq (+0.9% year-over-year) from +0.2% qoq (+1.2% year-over-year) in the final quarter of 2025.
Note, however, that incoming survey evidence for Q2:2026 appears less reassuring, as both business and consumer confidence indicators for April deteriorated sharply, falling to multi year lows. Taken together, these developments underscore a weakening growth backdrop which, when combined with renewed inflationary pressures, reinforces the policy challenge facing the ECB, as well as the associated volatility in fixed income markets.
The Federal Reserve is also expected to keep policy rates unchanged at 3.75%, as inflation dynamics have recently intensified following the renewed rise in gasoline prices (+18.9% yoy in March). Headline CPI increased to +3.3% yoy in March from +2.4% yoy in February, with the April print expected to firm further to +3.6% yoy according to our estimates.
At the same time, US real GDP growth is estimated to have expanded at an average quarterly annualized rate of c. +1.0% (Q4:2025 and Q1:2026), down from +2.5% qoq saar in the 9M:2025. Taken together, the combination of firmer inflation and softer growth argues for a patient stance by the FOMC, particularly given that policy rates remain in restrictive territory, in contrast to the euro area. Against this backdrop, market pricing that embeds no FFR cuts over the course of 2026 appears broadly fair.
As this is likely to be the final scheduled meeting under Chair Powell’s tenure, we do not expect any form of strong signaling regarding the rate path. The recent decision by the Department of Justice to drop its investigation into Chair Powell related to the renovation of Federal Reserve facilities opened the door for Kevin Warsh to be nominated as the next Fed Chair, potentially as early as May or June.
The most noticeable takeaway from Warsh’s Senate hearing was the absence of a compelling argument in favor of fast interest rate cuts, alongside a renewed emphasis on Fed’s balance sheet reduction, albeit with a slow pace, and a preference for a broader assessment of inflation dynamics.
Recent geopolitical developments surrounding US and Iran relations, point to a still elevated degree of uncertainty, despite some tentative signs of de-escalation, with the S&P500 hitting a fresh record high in the past week (7165, see Markets section). Nevertheless, oil prices remain persistently high at $110 per barrel as physical constraints start to kick in, hovering above the baseline assumptions embedded in the ECB’s March meeting projections.
Against this backdrop, the ECB is very likely to keep its key policy rate unchanged, for now, at 2.0% on Thursday, as will seek greater clarity on both the duration of the conflict and the potential second round effects stemming from elevated energy prices. Investors’ attention is expected to shift to President Lagarde’s Press conference, particularly for any signals regarding the direction and timing of the next policy steps, as the Governing Council remains vigilant against inflation risks.
In that context, euro area headline inflation for April will be closely watched (due on April 30th), with our estimates pointing to +2.9% yoy, up from +2.6% yoy in March and +1.9% yoy in February. Moreover, the first estimate of euro area real GDP for Q1:2026, due also on Thursday, is expected to point to growth below trend, with our estimates pointing to +0.2% qoq (+0.9% year-over-year) from +0.2% qoq (+1.2% year-over-year) in the final quarter of 2025.
Note, however, that incoming survey evidence for Q2:2026 appears less reassuring, as both business and consumer confidence indicators for April deteriorated sharply, falling to multi year lows. Taken together, these developments underscore a weakening growth backdrop which, when combined with renewed inflationary pressures, reinforces the policy challenge facing the ECB, as well as the associated volatility in fixed income markets.
The Federal Reserve is also expected to keep policy rates unchanged at 3.75%, as inflation dynamics have recently intensified following the renewed rise in gasoline prices (+18.9% yoy in March). Headline CPI increased to +3.3% yoy in March from +2.4% yoy in February, with the April print expected to firm further to +3.6% yoy according to our estimates.
At the same time, US real GDP growth is estimated to have expanded at an average quarterly annualized rate of c. +1.0% (Q4:2025 and Q1:2026), down from +2.5% qoq saar in the 9M:2025. Taken together, the combination of firmer inflation and softer growth argues for a patient stance by the FOMC, particularly given that policy rates remain in restrictive territory, in contrast to the euro area. Against this backdrop, market pricing that embeds no FFR cuts over the course of 2026 appears broadly fair.
As this is likely to be the final scheduled meeting under Chair Powell’s tenure, we do not expect any form of strong signaling regarding the rate path. The recent decision by the Department of Justice to drop its investigation into Chair Powell related to the renovation of Federal Reserve facilities opened the door for Kevin Warsh to be nominated as the next Fed Chair, potentially as early as May or June.
The most noticeable takeaway from Warsh’s Senate hearing was the absence of a compelling argument in favor of fast interest rate cuts, alongside a renewed emphasis on Fed’s balance sheet reduction, albeit with a slow pace, and a preference for a broader assessment of inflation dynamics.