1Q 2026 Review and Outlook

The first quarter of 2026 was dominated by uncertainty over the military action by the United States and Israel against Iran, which began in March. The stated objective from Washington was to weaken Iran's military and nuclear capabilities. Markets reacted in a relatively orderly fashion: oil prices moved higher, equities and bonds showed resilience, and the US dollar strengthened modestly. The report identified energy and logistics as the main channel of concern, noting that roughly one-fifth of the world's oil passes through the Strait of Hormuz and that disruption there would raise oil prices, shipping costs and insurance premiums. A ceasefire was announced in early April and equities welcomed the news, although the situation was described as fragile.

After a strong start to the year, March brought higher volatility and a significant part of the earlier gains was given back. The S&P 500 fell 4.3% over the quarter, driven largely by weakness in the technology sector and the late surge in oil prices. The MSCI World index declined, pulled lower by US markets, while other regions held up better: Japan's TOPIX gained 3.6%, selected emerging markets, particularly India, held up relatively well, and Europe was described as somewhere in the middle. Rising energy prices supported commodities, and bonds had to contend with inflation concerns and slowing growth.

US trade policy remained a source of uncertainty, with tariffs effectively in the 15% to 30% range reshaping global supply chains and bringing higher costs and renewed inflationary pressure. The report described global growth as moderating and noted that the US economy had been losing momentum before the conflict. In currencies, the dollar received short-term support from risk aversion, the euro and the pound stabilised as central banks moved through easing cycles, and the Swiss franc behaved as a safe haven.

The report also discussed the outlook, including the risks around elections, geopolitical tension, oil prices and inflation, and the possible consequences of a prolonged disruption in the Strait of Hormuz.

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