Finsphere
Issue 26 | April 2026 
Your Monthly Guide on Global and Local markets from our Business Head’s Desk. 
Markets Rattle as Geopolitical Tensions Rise
Oil price shocks and cautious central banks trigger a global sell-off amid rising inflation concerns.
Dear Clients and Stakeholders,
March has considerably altered the global climate with war clouds gathering over global economy. The conflict in Middle East has selectively shut the Strait of Hormuz, crippling energy supply chains leading to a huge surge in oil prices, creating panic among investors. The situation has also prompted Central Banks across regions to adopt a more cautious stance, signaling a halt in further interest rate cuts. While global economic engine was already showing signs of a slowdown, the prospects of a high inflationary environment have stoked fears of a slowdown further, resulting in a sell off across asset classes. In fact, OECD in its interim economic outlook for 2026, has indicated that global GDP is expected to ease to 2.9% in 2026, following a 3.3% growth in 2025 while inflation projection has been revised to 4% from the earlier 2.8%.
The escalations in the conflict along with a revolving door of deadlines from President Trump roiled sentiments resulting in ‘March mayhem’ across asset classes. In the US, S&P 500 shed 5.38%, Nasdaq lost 4.75% while Russell 2000 plunged 5.11%. European and Asian equities did not fare any better with most indices posting deep monthly losses. India’s Nifty 50 and Seoul’s Kospi turned out to be the worst performers with the indices plunging 11.31% and 13.86% respectively. Bond markets also witnessed a sharp sell-off resulting in bond yields rising across regions.
However, April has brought with it a sliver of hope with Iran indicating it had the ‘will to negotiate’, the strongest signal of de-escalation from the Iranian side since the start of the conflict. But any optimism was brief as tensions continued to escalate on the ground with strikes and retaliatory strikes. Further, President Trump’s comments on Saturday that US would hit Iran hard if the Strait isn’t opened within 48 hours, was the latest in the revolving door of deadlines. Given the fluidity of the situation, the ongoing developments and management’s business outlook are expected to sway the market till a stronger signal on de-escalation emerges.
United States
Policy caution amid prolonged conflict in the Middle East
The US macroeconomic environment continues to reflect moderating but resilient growth, with the Federal Reserve maintaining a cautious policy stance. The Fed held rates steady at 3.5%–3.75% for a second consecutive meeting in March 2026, acknowledging solid economic activity but subdued job gains and persistently elevated inflation. While policymakers retained expectations of one rate cut in 2026 and another in 2027, upward revisions to both growth and inflation forecasts underscore a higher-for-longer policy stance, particularly amid uncertainty stemming from geopolitical tensions.
Inflation dynamics remain mixed. Headline CPI held steady at 2.4% in February, supported by rising energy prices, while core inflation remained contained at 2.5%. However, upstream price pressures intensified, with producer price inflation accelerating sharply to 3.4% year-on-year, driven by a surge in goods prices. This divergence suggests renewed pipeline pressures, potentially delaying the pace of disinflation. Meanwhile, labour market indicators highlighted underlying robustness. While the unemployment rate edged down to 4.3% in March, non-farm payrolls witnessed 178k job additions, much higher than the anticipated 60k jobs.
Economic activity indicators were mixed. Industrial production growth moderated to 0.2% month-on-month, reflecting continued strength in manufacturing and mining, while consumer demand showed resilience with retail sales rebounding 0.6% after a contraction in January. Meanwhile, the trade deficit widened modestly to $57.3 billion in February 2026, with both exports (+4.2%) and imports (+4.3%) rising sharply, highlighting continued import dependence amid concentrated tariff action from US administration.
Overall, the US economy is increasingly being characterized by resilient consumption, labour market strength amid sticky inflation. This combination provides the Fed room to maneuver, reinforcing the Fed’s wait and watch approach especially amid the ongoing conflict in the Middle East.
Eurozone & UK
Rising inflation risks re-emerge amid weakening activity
In the Euro Area, the European Central Bank maintained rates unchanged, signaling a cautious stance as geopolitical tensions introduced upside risks to inflation and downside risks to growth. Inflation rose to 1.9% in February, driven by a rebound in services and core inflation, even as energy prices continued to decline. The ECB’s upward revision to inflation forecasts—particularly for 2026—reflects growing concerns around energy-driven price pressures.
Labour market conditions remain relatively resilient, with unemployment ticking up marginally to 6.2% from historic lows. However, activity indicators deteriorated further, with industrial production contracting sharply by 1.5% month-on-month, led by broad-based declines across manufacturing segments. This divergence highlights a fragile growth environment despite stable labour conditions.
In the United Kingdom, macroeconomic conditions remain mixed. GDP growth remained subdued at 0.1% quarter-on-quarter, with weakness in services and construction offsetting strength in manufacturing. The Bank of England kept rates unchanged at 3.75%, highlighting risks of second-round inflation effects from rising energy costs.
Inflation remained steady at 3.0%, while producer price pressures eased, indicating some moderation in pipeline inflation. Labour market conditions showed signs of stabilization, with unemployment holding at 5.2%, although still elevated relative to historical levels. Consumer activity weakened, with retail sales declining 0.4% in February after a strong January. However, external trade provided a positive surprise, with the UK recording its first trade surplus in over a year at £3.92 billion in January, supported by strong export growth.
Europe continues to face a delicate balance between easing inflation and weakening growth, with recent energy shocks adding complexity to the policy outlook.
Asia
Diverging trajectories as China stabilizes and Japan faces renewed volatility
In China, inflation rebounded sharply to 1.3% in February, largely due to seasonal effects from the Lunar New Year, while producer price deflation eased further by 0.9%. This suggests a gradual normalization in price dynamics, though underlying demand remains uneven. Activity indicators were relatively strong, with industrial production accelerating to 6.3% and retail sales improving to 2.8%, supported by holiday consumption. However, labour market conditions weakened slightly, with unemployment rising to 5.3%, reflecting ongoing pressures in the domestic economy. The People’s Bank of China maintained its policy rates unchanged, signaling a preference for targeted support over broad-based stimulus, particularly in light of external uncertainties and structural imbalances, including property sector stress and weak consumer sentiment.
In Japan, the macroeconomic picture remains mixed. Growth surprised to the upside, with GDP expanding 1.3% annualized in Q4, supported by domestic demand and fiscal stimulus. However, high-frequency indicators suggest renewed loss of momentum, with industrial production contracting sharply by 2.1% month-on-month and retail sales declining 0.2% year-on-year.
Inflation moderated further to 1.3%, falling below the Bank of Japan’s target, while producer price pressures eased. Despite this, the BoJ maintained rates at 0.75%, signaling a gradual normalization path while closely monitoring geopolitical risks and energy prices. Trade dynamics weakened, with export growth slowing sharply (+4.2%) and import growth accelerating (+10.2%), leading to a significant narrowing in the trade surplus to JPY 57.3 billion. Labour market conditions remained stable, with unemployment at 2.6%, reflecting underlying structural tightness.
Overall, Asia presents a divergent macro landscape, with China showing cyclical stabilization while Japan grapples with a slowdown in growth and demand conditions.
India
Domestic resilience persists despite rising external and inflationary pressures
India’s macroeconomic momentum remains robust, supported by strong domestic demand and stable labour market conditions, although external pressures and inflation are beginning to re-emerge. Inflation rose to 3.21% in February, marking a continued normalization driven primarily by food prices. Wholesale price inflation also accelerated to 2.13%, reflecting rising input costs across primary and manufactured goods, indicating building pipeline pressures.
Labour market conditions remained resilient, with unemployment declining to 4.9%, supported by strength in manufacturing and policy support measures. Industrial activity remained strong, with industrial production growth accelerating to 5.2%, driven by robust manufacturing output.
However, infrastructure output slowed sharply to 2.3%, indicating some moderation in core sector momentum, particularly in energy-related segments. On the external front, the trade deficit widened significantly to $27.1 billion, driven by a surge in imports (+24%), particularly precious metals, alongside weak export (-0.8%) performance. Additional pressure stems from recent US tariff measures and geopolitical disruptions impacting trade flows.
Overall, India continues to demonstrate relative macro resilience, underpinned by domestic demand and industrial strength. However, rising inflationary pressures and external imbalances warrant close monitoring.
Conclusion
The global macroeconomic environment remains characterized by heightened uncertainty. Persistent geopolitical tensions, particularly in the Middle East, have reintroduced inflation risks through higher energy prices, complicating the disinflation trajectory across major economies. While growth momentum in developed markets is moderating, sticky inflation continues to constrain policy flexibility, leading to a prolonged higher-for-longer rate environment. While the ramifications of the war in the Middle East are being felt across the globe, Asian economies such as Japan, Korea, China and India which depend significantly on the Strait of Hormuz for their energy needs could face the brunt of the conflict, if the war continues for a prolonged period. Overall, the evolving situation in the Middle East will remain the key determinant of global economic conditions in the near term.
At Chola Securities, we remain steadfast in our commitment to helping you navigate these complexities with clarity and foresight. As always, we aim to align your investments with evolving opportunities while ensuring resilience against emerging headwinds.
We sincerely thank you—our valued clients and investors—for your continued confidence and partnership. Together, we look forward to embracing the challenges and opportunities of the months ahead, ensuring sustained growth and success.
Warm Regards,
N Senthilkumarh
President, Chola Securities