2026 Weekly Update

Market update

The S&P 500 closed the week at 7165.08, +0.55% higher. The Dow Jones closed at 49230.71, -0.44%, with the Nasdaq higher by +1.50%. The volatility index VIX closed the week at 18.71, up from 17.48. The Euro Stoxx 600 fell -2.54%.

The 10-year UST closed at 4.30%, up from 4.25% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 62bps. US Corporate Bond spreads: Investment Grade spreads narrowed -7bps at 81bps and High Yield spreads narrowed -29bps at 328bps. German 10-year Bunds yield closed at +2.99% up from +2.96% a week before. In Europe, Corporate Investment Grade spreads narrowed -11bps at 92bps and High Yield narrowed -31bps at 324bps.

The US Dollar Index (DXY) appreciated +0.44% last week and closed at 98.53. The Euro closed at 1.1722 (-0.37%); the Yen depreciated -0.47%, closing at 159.38 and the Swiss Franc depreciated -0.42%, closing at 0.785. Gold closed at $4709.5, depreciating -2.50%. Oil was higher, Brent closed at $105.33 (+16.54%) and WTI at $94.4 (+12.58%).

Macroeconomy

Fed meeting

On Wednesday, investors expect the Fed to stay on hold maintaining rates at 3.5-3.75%. As per recent speeches, Inflation risks have risen but are still attentive to both risks: “implications are uncertain. Attentive to risks on both sides of the mandate”. The key question is if the Fed still thinking about cuts or pivoting to no cuts already. Investors expect Powell to sound cautious on any near-term policy change, but to reiterate conditions for eventual cuts while indicating that hikes are not part of the base case. A potential risk on the hawkish side is if the Fed sounds skeptical of any cut this year.

Next Fed chairman

During Kevin Warsh nomination hearing, we heard about several topics. In terms of policy outlook, he expects the Fed to be less data dependent and more supply-side economics noncommittal on the near-term policy outlook. The Fed will likely have some “tough decisions” ahead; such as "inflation trend is quite favorable", citing alternative measures of inflation (trimmed mean, median etc.) and calling for a rethinking of the inflation framework; repeated mentions of supply-side gains - productivity growth is likely to be disinflationary, implying that this could allow the Fed to cut rates even amid strong growth. Regarding the Fed’s balance sheet, Warsh expects a gradual approach to a smaller, shorter-dated balance sheet; he reiterated preference for a smaller balance sheet with a shorter-dated treasury-only portfolio. He mentioned that the Fed should work with the Treasury to shrink the balance sheet "slowly and deliberately". Investors expect limited balance sheet reduction, no sales of Treasury securities, and not before 2027. With respect to communications, Warsh advocates for less communication and he mentioned that “I do not believe in forward guidance”; changes to dot plot and press conferences are possible, but unlikely by unilateral decision; Warsh prefers less communication but encourages “family fights” during FOMC meetings. Related to Fed independence, he mentioned: “the president never asked me to predetermine, commit, fix, decide on any interest rate decision in any of our discussions, nor would I ever agree to do so”.

US PMI

The S&P Global US Manufacturing PMI climbed to 54.0 in April 2026, up from 52.3 in March and surpassing market expectations of 52.5, according to preliminary data. This marks the strongest improvement in factory business conditions since May 2022, driven by production growth hitting a four-year high and new orders rising at the fastest pace since May 2022. Input inventories also contributed positively, increasing marginally but at the quickest rate since January. Supplier delivery times lengthened significantly, the most since August 2022, boosting the PMI, though some delays stemmed from Middle East war-related supply constraints rather than pure demand-driven vendor activity. The sole negative factor was employment, which contracted for the first time since July 2025.

European Central Bank

At its Thursday meeting, markets expect the ECB to keep policy unchanged, maintaining a data-dependent stance and closely monitoring whether inflation expectations begin to de-anchor. Recent statements from Governing Council members have shown unusual alignment: policymakers see clear value in waiting until June to gain greater clarity on the indirect and second-round effects of the Middle East conflict on both growth and inflation. The length of the conflict will be decisive for the policy outlook. If current conditions persist into June—with ongoing disruptions in the Strait of Hormuz and increasing shortages of products, the risk of non-linear impacts on inflation and growth will rise substantially. In such a scenario, the ECB may be compelled to deliver “recalibration” hike(s) in June (or July/September). However, investors expect any hike to be short-lived, as the pass-through to core inflation should be more limited than during the 2022 energy shock, while the drag on growth would intensify more rapidly.

Europe PMI

April PMIs provide clear evidence of the impact of the Middle East conflict on the euro area economy. The Composite PMI fell by 2.1 points to 48.6, dipping into contraction territory and ending a 15-month sequence of growth. The reduction in business activity was driven by the services sector, which declined by 2.8 points to 47.4. The manufacturing sector showed some resilience, reporting higher output; however, the increase in sales was largely due to advanced ordering from clients in anticipation of expected shortages and price increases. The conflict also caused severe supply-chain disruptions, with manufacturers experiencing the greatest lengthening of suppliers’ delivery times since mid-2022. Meanwhile, cost pressures continued to build considerably, especially in the manufacturing sector, with input price inflation accelerating once again. There were also signs of passthrough to services prices charged, notably in Germany.

Bank of England

The Bank of England will meet on Thursday with traders expecting the bank to stay on hold. This contrasts with the communication during last meeting, which was materially more hawkish, opening the door to potential rate hikes if inflationary pressures prove too strong. However, Governor Andrew Bailey has been recently signaling that investors were getting ahead of themselves as they also weigh the risks to growth. The situation is notably different from 2022, as the economy is already in a fragile state. As such, the Bank is likely to remain on hold, seeking more evidence in the data regarding the risks of second-round effects. Nonetheless, some further hawkish elements could emerge from the meeting.

UK data

The UK labor market showed more signs of weakness as the economy added fewer jobs than expected, with further contractions in both vacancies and payrolled employees. Stagflationary risks have increased amid the Middle East conflict, with headline CPI rising to 3.3% y-o-y due to higher energy and food prices, as well as increases in energy-sensitive services. Core inflation remained more contained at 3.1%, supported by lower core goods prices, suggesting that businesses are finding it difficult to fully pass through higher costs. Nevertheless, the inflation outlook still faces upside risks, as indicated by the latest PMIs. S&P Global preliminary UK Composite PMI for April showed the biggest rise in its input prices index from one month to the next since records began 28 years ago, hitting its highest level since a period of double-digit inflation in late 2022. Composite PMI accelerated to 52 from 49.8 in March largely driven by inventory build-up.

Highlights

Oil

Oil markets are undergoing one of the most abrupt disruptions in recent memory, triggering a 2.9 mbd (million barrels per day) drop in global consumption since December and a staggering 9.8 mbd contraction in supply in March, most of it from OPEC. The speed and scale of this supply shock, compressed into a single month, stand out even when compared to the COVID-19 crisis, which saw a similar contraction over six months. Yet, despite a resulting 4.7 mbd deficit, Brent prices seem to not have fully internalized the magnitude of the disruption, suggesting that market participants may be underestimating the persistence or global impact of the current supply constraints. The shortage in refined products, particularly jet fuel, now trading at more than five times its price at the start of the Ukraine war, highlights the uneven impact across the oil complex and raises questions about the resilience of global supply chains. Notably, China’s ability to deploy private refinery activity, thanks to pre-war inventory accumulation and alternative sourcing, has provided a solution not just for its own economy but also for neighboring countries, temporarily mitigating the risk of a broader regional energy shortage. Looking forward, the market’s relative calm price response may reflect a persistent belief in a near-term resolution, with a reopening of the Strait of Hormuz seen as the most likely scenario given mounting international pressure and internal divisions in Iran. However, the scale of the current deficit and the important product shortages imply that any delay or setback in reopening could translate into more important price spikes.

On rates

Rates and credit markets faced pressure again last week as expectations of a prolonged stagflationary shock intensified. Inflation expectations climbed, with the US 1-year inflation swap rising 29bps to 3.38% and the Eurozone equivalent up 47bps to 3.44%. This shift led investors to anticipate a more hawkish stance from central banks, driving the probability of an ECB rate hike by June from 62% to 82%, while expectations for a Fed rate cut by December dropped significantly before partially rebounding late in the week. Against this backdrop, government bond yields moved higher: the 10-year bund yield rose 3.4bps to 2.99%, and the 10-year US Treasury yield increased 5.2bps to 4.30%. As a result, US Treasuries posted negative returns, with investment-grade and high yield corporate bonds also declining, though both outperformed government bonds. In Asia, Chinese rates remained stable as the People’s Bank of China left its benchmark lending rates unchanged for the eleventh consecutive month, reflecting confidence in the country’s growth outlook following robust first-quarter GDP data.

On earnings

The Q1 2026 earnings season continues to deliver robust results, with 28% of S&P 500 companies having reported so far. Of these, 84% have posted EPS above estimates, above the 5-year average of 78%, and the average earnings surprise is at 12.3%, also exceeding historical norms. The S&P 500 is on track for double-digit year-over-year earnings growth for the sixth consecutive quarter, and the blended net profit margin for the index has reached a record 13.4%, the highest of the past 15 years. Positive surprises have been cross-sectorial, with Industrials, Information Technology, Health Care, and Materials leading the way, while Financials and Communication Services have also contributed meaningfully to the overall growth rate. In contrast, the Energy sector has seen downward revisions to EPS estimates. Last week, strong earnings from data center and AI-focused companies such as Intel (INTC), Baker Hughes (BKR) or Vertiv (VRT) supported the S&P 500 and Nasdaq. Tesla (TSLA) also reported a notable beat, with Q1 EPS of $0.41 versus $0.38 expected, driven by significant margin expansion and robust free cash flow. Looking ahead, this week will be pivotal, with an important part of S&P 500 market capitalization set to report after the close on Wednesday, including tech giants Alphabet, Microsoft, Amazon, and Meta, followed by Apple on Thursday. Other key earnings to watch include Visa, Coca-Cola, Novartis, and T-Mobile on Tuesday and Exxon Mobil and Chevron on Friday.

What to watch

• Monday: US Dallas Fed manufacturing activity; China industrial profits; Germany GfK consumer confidence
• Tuesday: US Conference Board consumer confidence; Japan BoJ rate decision & jobless rate

• Wednesday: US durable goods orders; Germany CPI; Fed & BoC rate decisions
• Thursday: US Q1 GDP & jobless claims; China PMIs; Eurozone & Germany Q1 GDP, CPI; ECB & BoE rate decisions

• Friday: US ISM index & vehicle sales; Japan Tokyo CPI