Global equity markets surged higher over the month of April. The U.S. and Iran agreed to a ceasefire, which had investors hoping the end of the conflict in the Middle East was nearing. Furthermore, the ceasefire largely put a lid on oil prices moving much higher over the month. Markets brushed aside concerns about inflation, which has picked up around the world. The Bank of Canada (BoC), U.S. Federal Reserve Board, European Central Bank (ECB), Bank of England and Bank of Japan all held their policy interest rates steady in April.

In April, the U.S. reported its economy expanded in the first quarter of 2026 at a faster pace than the previous quarter. Economic growth slowed in Europe. In China, the economy expanded by 5.0% year-over-year in the first quarter, putting it on track to exceed the government’s 2026 targets.

In Canada, the S&P/TSX Composite Index advanced, led by the health care sector. U.S. equities also advanced and reached a new record high. Yields on 10-year government bonds in Canada and the U.S. moved higher alongside inflation. The price of gold finished slightly lower, while the price of oil edged higher over the month.

Ceasefire agreement reached but end of conflict unknown   

The conflict in the Middle East persisted over April, keeping the Strait of Hormuz effectively closed. There was a sliver of hope the conflict may be coming to an end when the U.S. and Iran agreed to a two-week ceasefire as they negotiated an agreement to end the war. However, a meeting in Pakistan between officials from both countries did not provide the desired results. As the end of the two-week ceasefire was coming to an end, the U.S. and Iran decided to extend the ceasefire, and have another meeting in Pakistan. That meeting never took place after U.S. President Donald Trump cancelled the U.S. envoys’ plan to attend. The U.S. and Iran remain at odds over the Strait of Hormuz and the U.S. blockade of Iranian ports. Trump expressed concern that removing the naval blockade in the strait would delay talks about ending Iran’s nuclear program. The price of oil was largely unchanged over April but remains well above the price before the conflict began. At month-end, the conflict was ongoing, but both sides are keeping their end of the bargain towards a ceasefire. Negotiations have not delivered a clear path to the end of the conflict.

Canada’s inflation rate accelerates   

As reported in April, Canada’s inflation rate accelerated in March as energy costs soared amid the conflict in the Middle East. The conflict has effectively closed the Strait of Hormuz, which is a key waterway in the global distribution of oil, raising concerns about the global supply of oil. Europe expressed concern about running out of jet fuel. The head of the International Energy Agency has said we are facing a severe energy crisis given the loss of approximately 13 million barrels of oil per day. Canada’s annual inflation rate increased to 2.4% in March from 1.8% in the previous month. Meanwhile, the annual core inflation, which excludes more volatile items, was largely unchanged. However, there’s concern inflation could go even higher. The BoC said it sees inflation reaching 3.0% this year before falling back to its 2% target next year. At its April meeting, the BoC held its benchmark overnight interest rate steady at 2.25%. Canada’s economy was in relatively solid shape prior to the beginning of the conflict, expanding by 0.2% in February, owing to much stronger manufacturing activity. Statistics Canada estimated no growth in March, showing the potential impact of higher inflation and geopolitical tensions on the economy. There are signs inflation could move even higher in the months to come, which could weigh on overall economic activity.

Shaky outlook for U.S. consumer spending   

Consumer spending in the U.S. has been relatively solid, but the outlook is clouded in response to expectations of surging inflationary pressures and an uneven outlook for the labour market. As reported in April, retail sales increased by 1.7% in March, which was the largest monthly increase since March 2025, just before the implementation of “Liberation Day” tariffs. Sales were aided in part due to tax returns. Strong sales growth was seen at motor vehicles and parts dealers and at furniture and home furnishing stores. While sales were broad-based, the largest increase was at gasoline stations, which posted a 15.5% increase over the month. This was driven by a higher prices for gasoline, rather than an increase in volume of purchases. Over the first quarter of 2026, consumer spending was relatively solid, positively contributing to the U.S. economy, which expanded by 2.0%, annualized over the quarter. While the results point to a solid picture at the beginning of 2026, the outlook for sales is a bit clouded amid geopolitical tensions in the Middle East. Energy prices have risen substantially, which is pushing up inflationary pressures. This could impact consumer and business spending in the months to come.

Europe’s economic activity under pressure

The conflict in the Middle East, rising oil prices and ongoing global trade tensions are showing signs of weighing on Europe’s economy. Private business activity in Europe pulled back in April and marked its fastest contraction since November 2024. The S&P Global Eurozone Composite Purchasing Managers Index fell to 48.6 in April from 50.7 in the previous month. April’s decline was mainly due to a fall in services sector activity, which contracted for the first time in 11 months. Conversely, manufacturing sector activity improved. The conflict in the Middle East, which pushed up oil prices, is having a negative impact on Europe’s economic activity. And Europe is now facing much higher inflationary pressures. Europe’s annual inflation rate rose by 3.0% in April from 2.6% in March, which could put pressure on already fragile consumers and businesses. The ECB elected to hold its key interest rates steady at its meeting in late April. ECB President Christine Lagarde said the possibility of a rate hike was on the table at this meeting. Future decisions will be dependent on incoming data, with the ECB seeing upside risks to inflation and the potential for economic activity to moderate.