April 2026: Turmoil in the markets

 

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April 2026: Turmoil in the markets

Steve Hiscock:

Hello to everyone listening to our podcast, the Active Investor with SGH. I’m Steve Hiscock, the chair of the company, and it’s my pleasure to be your host again for today’s episode. Today we’ll be looking at what’s happened over March 2026, and we’ll be discussing the outlook going forward. This podcast is being recorded on the 8th of April 2026 and joining me again today to discuss what’s happened is Rob Hogg, our Chief Investment Officer. Rob, welcome back again. What a month or couple of months it’s been.

Rob Hogg:

What a couple of months it’s been. Yes.

Steve Hiscock:

And so, we’ve decided to make the title of this thing “Turmoil in the Markets” because I really think that’s what we’re seeing at the moment.

So, the market in March in particular. Has been entirely dominated by the war in the Middle East, as we know, and the markets have been very weak. And Rob, I’ll get you to talk about that. But I’ll also get you to talk about the most recent news that there’s a two-week ceasefire and what your thoughts are on that.

Acknowledging that literally that has only come over the wires in the last 20 minutes. So, we don’t really know the impact at this stage, but it’ll be useful to get your thoughts. But firstly, Rob, could we start with what’s been happening over March?

Rob Hogg:

Yeah, Steve, so as I’m sure everyone listening would realize a month entirely dominated by, the war in the Middle East and that’s seen and as a sort of a top line effect weaker equity markets, particularly in Europe. But equity markets across the globe or lower. And that was a progressive thing as well during the course of the month as the war went on and on far beyond what some of the most optimistic investors had hoped, which was for a short, sharp war as it progressed.

So, we saw equities progressively weaken over the course of the month. We also saw interest rates progressively rise over the course of almost all of the month, and that was particularly at what we call the shorter end of the yield curve. So, we’re talking about bonds, government bonds here that are issued with a two-year term to maturity.

Those are the ones that are most sensitive to changes. In expectations about interest rates, which in turn of course are most sensitive to changes in expectations about inflation. So that was really the theme in bond markets. Inflation expectations rose on the back of higher oil prices, and that led to aggressively higher, shorter-term interest rates.

But that also permeated out along the length of the yield curve, and we saw longer term rates higher as well, but generally not, they didn’t rise as much as rates of the shorter end. Looking around at commodities oil, clearly much, much, much higher over the month. Whereas measures that, I guess we use as a proxy for growth, so things like copper, the copper price was weaker over the course of the month. Gold, interestingly enough was weaker as well. And that might reflect the fact that as I’m sure most of you are very well aware, the gold price had an incredible run through calendar 2025 and into early 2026 and made us reflect the fact that it had already had an enormously strong run.

Interestingly, the US dollar rose a little over the course of the month. And I say interestingly because it, it has almost, well for many years been the case that the US dollar is a currency to which investors flee at and in, in terms of being a safe haven. But that has not been the case up until March.

So, during the course of the Trump presidency, we’ve seen the US dollar weaken even at times of turmoil in markets. So, April last year, for example, with the Liberation Day tariffs and all of the policy uncertainty emanating from the US, that seems to have contributed to what had been a weakening trend in the US almost regardless of how well or poorly the economy and markets were traveling.

But March, as I say the US dollar regained its safe haven and that saw the US dollar a little bit weaker. Measures of market volatility that we look at is another way of thinking about investor behaviour. So, things like the VIX index, that’s a reasonably well known, so that measures volatility in equity markets, but there’s also a measure that measures volatility in bond markets, and that’s the MOVE index. They both rose to levels that we haven’t seen since the liberation day tariffs in April last year. So that is another way of thinking about how volatile markets were and how uncertain markets were.

Broadly speaking, equity markets down, market interest rates up. Measures of growth like copper, weaker; oil, much, much higher. Inflation expectations up. So, the type of reaction that you generally expect to see in in reaction to what we’ve seen in the Middle East over the month.

As Steve mentioned, just as we are recording on Wednesday morning there’s been news that that President Trump said he will suspend the bombing and attack of Iran for a period of two weeks subject to Iran reopening the strait of Hormuz and that has just initially seen crude oil, brent crude in particular, falling around 5% whilst WTI, which is the US Benchmark Oil, that fell almost 10%. So what’s happened here is that Pakistan acting as a mediator, Pakistan has requested that Trump extend what was his 8:00 PM New York time deadline for bombing civilian infrastructure in Iran.

And it seems the agreement is that the Islamic republic’s been asked to reopen the strait of Hormuz so that’s just fresh off the press this morning. And of course, these things, as we know, can change very quickly and very significantly.

Steve Hiscock:

Rob, obviously there’s a lot more to come in the next few days on that.

So, we are speaking at a point in time, obviously. But generally, if I summarize what you’re saying we are looking at pretty much higher interest rates across the globe, higher inflation expectations, expectation that central banks are gonna raise rates potentially more than they were or not lower rates as much.

And I guess as part of that, a lower growth outlook. But something you’ve been talking about a lot in the last couple of weeks is just how important. The oil price is to this whole thing and how influential it will be in a recession. Can you talk a little bit about that?

Rob Hogg:

Yeah, so look in, in the key here is not so much the oil price, the level, but it’s actually the rate of change.

And what I mean by that is, and this is referencing some really interesting research that that the global investment bank UBS have done. They’ve looked at the rate, the six-month rate of change in Brent oil prices. So, Brent is one of the two key benchmark indices for oil in the world.

They’ve looked at the pace of acceleration in previous episodes, so where we’ve seen oil prices rise. Now, key here is that recessions don’t always follow increases in the oil price. But there have been a number of occasions when we have seen recessions follow an increase in the oil price.

And what seems to be key is this rate of acceleration at the moment. So, we’re talking today where the oil price is around, around a hundred dollars or thereabouts. The increase that we’ve seen from say, roughly 60. Or closer to 70 to around a hundred. Although it did spike, we know to more than a hundred.

Almost 120, in fact. But anyway, that pace of acceleration is not as large as we’ve seen in previous occasions when the increase in the oil price has then been followed by a recession. So bottom line, we won’t necessarily see a recession if the rate of increase in the oil price is the only thing that we reference that the increase has just not been large enough.

But as you noted, Steve, there’s been a big change in monetary policy expectations. So places like the US, for example, where rate cuts had been expected later this year. Today, there’s no change in US rates expected before the end of the year, so basically flat. Here in Australia, there’s been an increase in expectations, around 65 basis points in rate hikes are now expected. So that’s what two and a bit, two and a half rate hikes here in Australia, in the UK. Very similar. 60 basis points expected by the end of the year in the Eurozone, almost 80. So why is the Eurozone greater? That’s because. They have a much higher dependency on imported oil, and the inflationary impact is likely to be greater there than other places.

Hence the policy reaction. So, it’s not so much the oil price increase, but it’s this change in rate expectations that has been very significant and very important. So, if central banks were to follow through with these rate hikes. In the presence of an ongoing elevated oil price that is the kind of thing that could increase the probability of a recession, but it’s more likely than not that if this cease fire that’s been announced today does then lead to a lessening in hostility, that these rate hike expectations will probably fall a little bit and that we won’t see central banks raise rates.

By anywhere near what’s currently feared in by markets.

Steve Hiscock:

And one, one of the measures you’ve been looking at is not only the spot rate, which can be very volatile, obviously the spot rate of oil price, but it’s also the December price, the December futures contract which really gives perhaps in some cases a more balanced view of what’s going to happen over the next say, six months.

Rob Hogg:

Yeah, and so the whole idea here is to look at really the longevity of the expected oil price shock. So, we look at the near futures, which is the May futures, that’s the most liquid contract, and that’s the one that’s most often quoted in the press and in amongst market participants.

So that’s the one that’s trading around a hundred dollars. But if we look at the December future, so the same contract but further out we see that’s trading at around $70. So that’s a guide to what investors expect. The oil price will be around, around the end of the year, so not a hundred but lower than that, it’s 70, but 70 is a good deal higher than where we started the year, which was that December futures contract was something closer to $60.

So one way of thinking about it is that the war in the Middle East has led to a $10 increase in the risk premium in expected oil prices. So that’s the 10 the December futures to today the expectation today, the 70 bucks compared to $60 a month or so ago.

Steve Hiscock:

The oil prices you’ve said many times is pivotal and the Strait of Hormuz is also critical in this.

Can you talk a little bit about what’s happened to growth expectations perhaps the proxy you’ve talked a bit about in the past about copper prices, using copper prices as a proxy for growth.

Rob Hogg:

Yeah, one of the reasons that we look to copper prices is that as I’m sure everyone’s very well aware, that a copper’s got a pivotal role in the economy with a whole range of industrial applications.

So just trying to find something that’s readily observable and liquid to use as a proxy for growth. And that’s why copper. Is one of the, one of the variables that we look at. It’s not necessarily the most perfect thing, but it is, it does give us a clear idea. And what we’ve seen there is that the copper price, and this is again using the futures contract so the May futures contract.

We can see that the copper price has fallen from look around 600 cents to around 550 cents. So that, that’s an indication of the downgrading to global growth expectations, and as we were talking earlier about the progressive nature of market moves through March and that was definitely the case with copper.

Initially, copper prices not overly impacted, but as the month wore on, so the copper price weakened and weakened to end out end out the month lower than where it started the month.

Steve Hiscock:

Okay. So, can we talk a little bit about short term inflation expectations then? In the US, despite all this issue and despite the concerns we’ve got it, it actually looks like inflation expectations might’ve reached their peak. Is that a fair comment?

Rob Hogg:

Yeah, no, that, that is absolutely correct. So again, similar sort of pattern to these other indices, but exactly as you point out, around two thirds of the way through the month, we saw what’s called this break-even inflation expectation peak and then ebb away a little bit towards the end of the month. So, what we’re talking about here is the difference in the yield between the conventional two-year bond and the yield on what’s called the treasury inflation protected security or TIPS, and the difference between those two yields. The nominal yield as it’s described, and the real yield is in, in effect, the market’s expectation for inflation over that period.

So, in this particular case over the next two years, so ahead of ahead of March, expectations for inflation over the two-year period would were around, they were in the sort of the high twos, 2.85 two 80, or thereabouts. They peaked around two thirds of the way through March at around 3 30, 3 35.

So, 3.35% over the next two years, but by the end of the month they’d ebbed a little bit closer back down to, towards, around 3 20, 3 0.2% over the next two years. So absolutely higher than the start of the month, but as I say, ebbing away a little towards the end of the month. So, what is this sort of telling us?

With the higher oil price and higher interest rate expectations, at some point in time. A higher interest rates and higher oil are going to act in a sense, a tax on commerce and attacks on households. And that will have a slowing effect on the economy. So, in a sense, what we’re seeing here is that inflation will spike higher, it already has.

But then as the economy weakens either from higher oil price and or higher interest rates. Then eventually, and not that far away, the market will be talking about rate cuts in support of what would likely be a weakening economy, and maybe that’s what we’re starting to see with these expected inflation break evens.

Steve Hiscock:

And look, one of the talking about slowing economies, one of the things you’ve mentioned in the past and you’ve got it in the monthly report, is that this time round the, in the amount of oil we use per capita, if you like, per unit of GDP or whatever measure you look at is less than in the past.

And therefore, an oil spike is likely to have less impact.

Rob Hogg:

Yeah, that’s a very important point. And that’s right across the globe. And referencing here some work from the World Bank and Goldman Sachs looking at global energy intensity per unit of GDP as you said. And we look, if we look across the globe.

Just back to say, the year 2000, there’s a very clear downward trend in energy, intensity per unit of GDP globally, but also in, in in East Asia. And the Pacific, the European Union and we also see the trend in the us. So as you point out even if we’d had a greater acceleration in the oil price, the fact that the global economy is less energy intensive suggests that the impact today would be less than say 10 years ago, certainly less than 25 years ago, and way less than we saw all the way back in the eighties when we had the first very significant accelerations in the oil price.

Steve Hiscock:

So just on the economy, economic impact so far. What signs have we seen? Have we seen any signs at the moment?

It’s hard obviously because it’s such a short period of time, but are there any measures that we’ve seen?

Rob Hogg:

Look the only things that really have come out that relate directly to March are some of these confidence and sentiment indices. So, these are things like the, the PMI, purchasing managers, indices of both manufacturing and services.

And look, the trend globally, including here in Australia, has been that these measures have moved very sharply lower. In March, particularly services services business activity, that’s a global trend. We’ve seen the household sentiment, particularly here in Australia, but also elsewhere, has also fallen away very sharply.

As you would, you would generally expect. There’s nothing really clearer in the household’s mind than driving past a petrol station and seeing the petrol price per litre, that’s a very clear indicator of what’s going on. But look, we’ve also learned that we have to be very wary of the forecasting credibility of these indices.

Sentiment can bounce around very sharply, but sentiment and what people say they might do. They don’t always lead to what people actually do. And we’ve been confounded several times in the very, very recent past. In fact, at the start of last year, there was a falling away in corporate and household confidence, and that was not at all followed by a falling away in, in economic growth. Indeed, if anything, economic growth last year surprised on the ops the upside in complete contrast to the weakening in expectations. So, we need to be very wary, but these are the only measures, these sentiment measures that we’ve got. They are universally lower globally and particularly for the services side of the economy, so far. We don’t really have any measures of real activity apart from, say something like mortgage applications in the US So they’re very sensitive to what happened with market interest rates. 30-year yields in particular with 30-year yields higher with the 30-year bond yield higher. So, mortgage applications in the US have fallen away a little, but that’s the only really one of the only measures we can see so far.

Steve Hiscock:

It is interesting though, Rob the Roy Morgan, Australia consumer confident index is at the lowest it’s ever been equal to the COVID low. If this persists, it’s difficult to see the Australian economy, for example, not going into recession.

Rob Hogg:

Perhaps the probability here is greater than other countries.

And that’s, so it’s also worth bearing in mind where economies were before this started. So here in Australia we had we already had inflation as an issue. The bank had already raised, the central bank, had already raised rates a couple of times. So that was already causing sentiment to weaken.

In fact, household sentiment. Here in Australia’s been weakening for several months. But that weakening accelerated unfortunately to the downside through March. As you say, Steve, the lowest since Roy Morgan Research has been conducting their survey. So that began in 1973. So, it seems to be a product of several things.

The Middle East conflict, the, and its impact on oil prices but also the RBAs two rate increases and talk about the likelihood of more from the RBA and market analysts. I think it’s just like a perfect storm. Unfortunately, here for Australia, but what we’ll have to see is what people actually do.

Just because they are saying they’re not feeling all that great doesn’t necessarily mean that will be followed. So, it’s an interesting phenomenon. As I say, people don’t always do what they say they might.

Steve Hiscock:

And it’s difficult to really make any confident predictions because it’s not so much it is obviously the shock that’s happened.

But it’s also the duration. If the duration is short short-ish, as the market is probably still assuming, then the shock to the economy, the world economy, the Australian economy is not that great, really. It’ll be short and sharp, but then there will be some inflation embedded into the system.

But the downturn won’t be that great, but anecdotal evidence that I’ve been hearing is that retail sales have fallen off a cliff in the last few weeks. And that’s, obviously that’s poor for retailers, but it’s not necessarily signalling a recession unless it extends. And so, it’s the duration that’s the issue, isn’t it?

Rob Hogg:

Yes. Yeah, that’s exactly right. If you, if this conflict goes on and the oil price stays high, it will act as a tax. It in the sense that it will it’ll take a bigger share of people’s spending leaving less spending for other things. So, one of the things we’ll be looking at is spending on discretionary items. So, for example, rather than non-discretionary cause that’s, that is an indicator of what people are starting to do. So, look it is likely that we’ll start to see some profit warnings and that will be from companies that have now got higher costs as a consequence of the oil price.

Things like what’s going on right now, can; to be frank, they’re often mentioned as factors in profit downgrades. So sometimes companies will look to phenomena with that people are very well aware of and they’ll blame that for what in fact might be some other related an unrelated factor in the right, in the corporate structure.

So, we’ve seen this..

Steve Hiscock:

Cleaning of their cupboards

Rob Hogg:

…Indeed. So, we’ve seen this, cause I’m very old and have seen a few cycles, around the time of the implementation of the GST around the time of the Sydney Olympics. These have been occasions where corporates that have needed to make a profit downgrade have mentioned factors that may not have actually had that much to do with the cause of the downgrade.

So, suffice to say it’s quite likely we’ll see profit downgrades with the oil price higher oil price mentioned as the cause, which may or may not be the case. Clearly companies that are significant users of oil will be facing higher costs. And we’re already cautious about that. So, we’ve been looking, look; to be frank, we haven’t done a huge amount of trading at all in the volatility.

What we’ve been doing is looking at companies who we think may have been unfairly, whose share prices have been unfairly impacted by the change in sentiment in the market. But the song remains the same. We are looking for opportunities to invest in high quality companies. Regardless and if they’ve been unfairly treated by the market during this current period of volatility on balance, they look a little more attractive than they were before. We’re also examining current holdings for companies that could be at risk of earnings downgrade. So that’s the companies that have higher costs, for example. So that’s the way we’re thinking about it.

But we’re not doing, we’re doing less trading, if anything than usual given the uncertainty and the volatility.

Steve Hiscock:

And look the reason it’s difficult is because of the uncertainty of the duration, obviously. But let’s look at some of the potential winners and from an asset class perspective, what about bonds?

Like bonds are now offering 5%. Is that something that’s attractive in a historic sense?

Rob Hogg:

Yes. Yes. It is. So, the 10-year yield here in Australia is now around 5%. That’s the highest in many years. So, on the face of it, a 5% yield on a 10-year bond does look attractive.

As well, some of the yields on shorter term maturity. So, the two year where we’ve seen a very significant sell off, they seem reasonably attractive as well. So, bond markets have become relatively more attractive as a consequence in the sell off that has occurred as yields as yields have risen.

Steve Hiscock:

Okay. So, bonds in isolation looks increasingly attractive, and even equities, like equities are down 10%. And if we go into a sort of a traditional recession, it would be. I guess reasonable to expect another 10% in the market. Yeah. So, we’re halfway there. Yeah. Un Unless obviously, and this is the great unknown, we just don’t know how long this thing will last, but what are we doing with the portfolios at the moment?

So, I know we’ve been mildly underweight, as in slightly cautious on Australian equities. Yeah. What’s that position Now you, you’ve mentioned you’re looking for bargains in the higher quality stocks.

Rob Hogg:

Yeah, so look, we started the year some of the listeners might remember. We started the year cautiously with a cautious outlook, but that was in large part because as best we could judge, global investors were incredibly optimistic.

They were incredibly optimistic about equity market prospects globally. They were very optimistic about growth, and they were also very optimistic about rate cuts globally, particularly in the States. And just seemed to us that you really can’t be optimistic about all of these three things at the same time because they’re unlikely to all coexist.

And our sense was that of those three elements, probably the upside to growth. The growth optimism was probably the one that had the highest likelihood of occurring. And the optimism about rate cuts was probably the one that had the least likelihood of occurring. Because as you can imagine, if you’ve got upside in growth, it’s unlikely central banks will continue cutting rates in that sort of environment.

So anyway, we started the year cautiously. Mainly because investors started the year incredibly optimistically, and that’s almost always a bit of a bit of a cautionary, a background. Anyway, fast forward to the end of March. We know most equity markets are lower. We know interest rates have risen very significantly they haven’t gone down at all. So hence the bonds look a little more attractive. Equities have corrected a bit. Growth prospects do look a little bit lower, but as you say, Steve, even in times of recession, a draw down, although it sounds big to say 20% we’re Yeah we’ve done half of that already-more so amongst small caps they’re the area of the market that gets most sees most volatility as a rule greater optimism, greater pessimism. That’s certainly what we saw during March where it was small caps that fell by around 10% or thereabouts. The broader market, I think was around 7% or thereabouts.

It’s, yeah, some of that. Some of that downside is already priced. We’re not at all significantly underweight in equities, as we’ve been saying. We’re looking for opportunities where we think companies have been, unfairly treated, also weary of the possibility of earning down grades’ cause there will be some in all likelihood. But we’re not significantly pessimistic. But you keep coming back to the duration of the war and that’s absolutely right. If it were to go on and on and we have this significant risk premium. In the oil price. Yeah. That will act as a tax cut.

So, then it’ll be key what central banks do in that context.

Steve Hiscock:

And it’s fair to say, and you said this a couple of times, that the market is not building in a stagflation scenario yet. Is that right? Or,

Rob Hogg:

Yeah, that’s true. Most of the inflation upside is seen over the next year or two, certainly not over the longer term.

There’s been, in fact, at the very long end of the curve, if anything, inflation expectations have actually slipped. Only a tiny bit to be fair. But it is a very short-term phenomenon. We’re certainly not talking about a change in the macroeconomic makeup over the medium to longer term of a stagflationary environment.

It’s only a very short term and that seems not unreasonable. Growth does seem likely to slow somewhat. That’s, but that’s already priced. Inflation does seem to be, will be higher. That’s already priced. So, we need to be wary about what investors have already built into their expectations as well.

Steve Hiscock:

Yeah, and I guess as a final closing comment, the two-week peace that Pakistan has asked for will only succeed if the strait of Hormuz is opened. So, if Iran refuses to reopen the strait or allow full traffic through. Yeah, we still really haven’t got what we need to see – a resumption of growth.

Rob Hogg:

No, that, that’s right.

We will have this this ongoing risk premium in oil. So clearly, we don’t dunno how this is going to turn out. It, it seems very clear it’ll continue to be volatile driven by announcements from the US announce announcements from Iran. So, we, we remain in these very volatile times.

Steve Hiscock:

Rob, thank you. Thank you so much for your time. That brings us to the end of today’s podcast. We looked at what happened over March and 2026 and obviously related to the war and the oil price, what it means for investors going forward. As we’ve said a number of times, we are in a, we are in an era of heightened unpredictability and volatility, and it’s difficult to see that disappearing in the short term.

And it’s important in very volatile times not to make sudden changes because you could just be completely wrong. So, it’s a time, it’s a time to be cautious, but it’s also a time to have a look at those really great companies and markets out there that are mispriced. We might be able to buy those things and set ourselves up for the next, say, 10 years of solid returns.

So that’s what the team’s looking for. Rob, thank you for your time.

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