After the March sell-off triggered by the initial geopolitical shock, April brought a phase of détente and a strong market rebound. Global equities rose 10% in April, bringing year-to-date performance back to +7%, while U.S. indices reached new all-time highs.
Our Base-Case Scenario Update: What Has Changed
Our base case remains a gradual de-escalation by the summer. We expect the energy shock to reduce global GDP growth by 0.2% to 0.3%, bringing it down from 3.3% to around 3.0%–3.1%. This still points to a resilient global economy.
The broader backdrop remains supportive, with pro-growth government policies and continued investment in AI, defense, and strategic resources expected to support earnings through the rest of 2026. Central banks, including the Fed, are now unlikely to deliver further monetary easing in the near term, with the ECB expected to hike rates in the coming months. This is already priced in the markets and has not prevented equity indices from reaching new highs.
How SystematicEdge Manages Portfolios in This Context
As we regularly highlight, history shows that geopolitical sell-offs are usually temporary. In this still constructive global macro environment, staying invested, maintaining diversification, and applying disciplined risk management remain essential to portfolio growth and capital preservation.
Market Movers in 2026 Year-to-Date
Key Market Drivers in 2026
Key Risks
SystematicEdge has developed a series of investment strategies that give investors a diversified, cost-efficient exposure to Equity, Fixed Income, and Commodities. Our strategies are based on three pillars:
The performance of our flagship strategies in 2025 and 2026 year-to-date is shown in the table and chart below. To see the full factsheets for our strategies, please contact insights@systematicedge.com.
The longer the Iran war lasts, the greater the risk of economic disruption. For now, oil inventories, consumer savings, and changing spending patterns are cushioning the impact. Oil prices are likely to remain above pre-crisis levels, but growth should stay solid absent a prolonged energy shock. Our base case remains a diplomatic solution, allowing markets to refocus on earnings, though volatility is likely to persist.
In the U.S.: Macro Resilience Supports a Patient Fed
U.S. macro conditions remain resilient, with lower unemployment and Q1 GDP growth tracking around 2.7%. Loose financial conditions, fiscal support, and strong AI-related investment should offset much of the drag from higher oil prices. The Fed remains in wait-and-see mode as core CPI stands at 2.6% year-over-year, while core PCE is likely closer to 3.2%. Tariffs and higher oil prices should keep inflation elevated, but the impact on core trends is expected to remain contained.
In Europe: Energy Shock Slows Growth, ECB Plans to Act Pre-emptively
Growth is expected to slow in the first half of 2026 due to the energy shock and weaker confidence. However, German fiscal easing, a resilient labor market, strong household savings, and low corporate leverage should support a second-half recovery. We expect 2026 GDP growth of 0.8%, with inflation temporarily rebounding on higher energy prices. In this context, the ECB may raise rates by 25bps in June to 2.25% as a preventive step to contain inflation.
In China: Export Strength Offsets Energy Risks
China’s Q1 2026 real GDP beat expectations at 5% year-over-year, led by a 14.7% surge in exports. Retail sales and fixed asset investments improved modestly, while the Iran conflict’s near-term impact appears limited. Strong growth and reflation reduce the urgency for major stimulus, though easing remains likely if momentum slows in H2. AI, green tech, and renewable energy exports should remain supported, while CPI is expected to average around 1% this year.
Equities have reached new all-time highs as U.S.-Iran de-escalation allowed markets to look past the conflict. Strong underlying fundamentals and a robust earnings season continue to support risk assets. The U.S. dollar’s initial safe-haven bid has faded as investors refocus on growth and earnings. Commodities remain supported by energy, while gold should continue to benefit from geopolitical hedging and central bank demand.
Equity: Global equities have rebounded, largely offsetting last month’s losses and nearing record highs. South Korea’s Kospi 200 (+33.3% MTD; +63.7% YTD) and Japan’s Nikkei 225 (+16.1% MTD; +17.8% YTD) recorded the largest increases, while China’s HSCEI posted a more measured advance (+3.7% MTD; -2.6% YTD). Similarly, U.S. equities delivered solid gains, with the S&P 500 (+10.4% MTD; +5.3% YTD) and Nasdaq 100 (+15.6% MTD; +8.7% YTD) both rising. In Europe, the Euro Stoxx 50 recorded a more modest rise (+5.6% MTD; +1.6% YTD).
Fixed Income: 10-year government bond yields increased slightly, with the U.S. yield up 6bps MTD to 4.38% (+20bps YTD) and the German yield up 3bps MTD to 3.04% (+18bps YTD), while China’s 10-year yield was down 7bps MTD at 1.76% (-10bps YTD).
Currencies: The USD weakened in April as investors shifted their focus back to growth and earnings. As a result, EUR/USD and AUD/USD increased 1.5% MTD to 1.1730 (-0.1% YTD) and 4.3% MTD to 0.7199 (+7.9% YTD), respectively. At the same time, USD/JPY declined by 1.3% MTD to 156.57 (-0.1% YTD), while USD/RMB fell by 0.8% MTD to 6.8311 (-2.1% YTD).
Commodities: Oil and copper prices increased, while gold edged lower. WTI oil and copper rose 3.6% MTD to 105.07/bbl (+83.0% YTD) and 6.1% MTD to 13,065/mt (+5.3% YTD), respectively, while gold declined 0.7% MTD to 4,615/oz (+6.7% YTD).
Crypto: Bitcoin rose 12.1% MTD to 76,463 (-12.8% YTD), while Ether gained 7.5% MTD to 2,264 (-24.0% YTD). Solana was broadly unchanged MTD at 83 (-33.1% YTD).
Global equities are back at or above prewar levels, supported by U.S.-Iran ceasefire negotiations and peace talks. In our base case, further de-escalation should allow markets to remain focused on strong equity fundamentals. We maintain our positive view on equities and recommend a well-diversified approach as gains broaden. While markets are pricing in an optimistic outcome, we expect further medium-term upside, albeit with volatility.
In the U.S.: S&P 500 Up 5.2% YTD, Equities Supported by De-Escalation, AI, and Strong Earnings
Stocks have surged since late March as signs of U.S.-Iran de-escalation improved market sentiment. Assuming energy flows through the Strait of Hormuz gradually resume, the outlook for U.S. equities remains favorable. Supportive Fed policy, resilient consumer spending, improving manufacturing, and strong profit growth continue to underpin markets. Q1 S&P 500 EPS growth is expected at 15%, led by technology, AI capex, and the Magnificent 7.
In Europe: EuroStoxx 50 Down 0.5% YTD, Recovery Remains Intact
Our systematic approach to the geopolitical conflict has been to stay invested in equities. The 12% sell-off from prewar levels created an attractive entry point into a resilient market. We continue to expect economic activity and earnings growth to recover, albeit at a slower pace. The key risk is a delayed recovery, with earnings growth expected at 5% this year.
In China: HSCEI Down 1.6% YTD, China Tech Weakness Creates Medium-Term Opportunity
We maintain a constructive view on China and its technology sector. Year to date, Chinese equities have underperformed broader Asia, mainly due to weakness in tech. We view this as a reflection of cautious sentiment and AI-related margin pressure, not weaker long-term earnings prospects. China’s policy support, diversified energy mix, and stronger utility profits should support equity earnings growth in 2026.
The U.S. dollar remains supported near term as Middle East developments remain uncertain. However, structural headwinds are likely to weigh on the dollar over the medium to long term. With FX volatility elevated, disciplined hedging is essential to protect capital and support growth.
EUR/USD at 1.1691: Energy Risks Reinforce the Need for Hedging
EUR/USD has remained in a 1.15–1.20 range, supported by Middle East ceasefires, ECB rate-hike expectations, and U.S. political uncertainty. Risks are two-sided: prolonged conflict could push EUR/USD below 1.15, while a resolution and reopening of the Strait of Hormuz could lift it above 1.20. The euro remains vulnerable to high energy prices and low gas reserves, leaving Europe more exposed to such shocks. If energy prices stay elevated, EUR/USD could fall toward 1.10, reinforcing the need for active FX risk management and hedging.
USD/RMB at 6.83, Down 2.1% YTD: RMB Strength Continues Amid Geopolitical Uncertainty
The RMB has outperformed most currencies since the Iran war began, as Chinese authorities prioritize exchange rate stability amid geopolitical uncertainty. Discussion of a potential “petroyuan” has intensified, with some drawing parallels to the 1973 Yom Kippur War and the rise of the petrodollar. China is relatively insulated from energy shocks given its diversified energy mix, with impacts mainly indirect via higher logistics and manufacturing costs. Supported by tight PBoC management and stronger fundamentals, the RMB has appreciated sharply and could strengthen further toward 6.20 per dollar.
USD/JPY at 157: Could Revisit 140 by Year End as Energy Risks Ease
Higher global energy prices have supported USD/JPY, as the U.S. is a net energy exporter while Japan is a major net energy importer. A sharp yen recovery below 140 appears constrained by higher oil prices, Japan’s balance-of-payments pressure, and cautious BoJ tightening. However, narrowing U.S.-Japan yield differentials should support a decline in USD/JPY over the next 12 months. As the U.S.-Iran conflict eases and energy flows normalize, we expect USD/JPY to move back toward the 140 support level.
We maintain our positive view on major bank bonds, as bank credit spreads widened by 20bps in April amid higher rates and geopolitical uncertainty. European banks have reported solid Q1 2026 results, showing resilience despite a challenging macro backdrop. Corporate bond risk-adjusted returns remain less appealing given current credit uncertainty.
We view the recent rise in yields as an opportunity to lock in attractive returns in short- and medium-duration bonds.
Commodities continue to offer strong diversification benefits, supported by favorable structural trends. The broader geopolitical and macroeconomic backdrop also remains supportive.
Gold: +5.7% YTD to USD 4,532/oz, despite a 30% decline from its January all-time high of USD 5,600, due to liquidation flows.
Gold reached record average levels in Q1 2026, delivering positive returns despite volatility after the Iran War began. Strong physical demand, Asian flows, bar and coin purchases, and central bank accumulation continue to support prices. Global investors also continue to diversify away from the U.S. dollar, reinforcing demand for gold. We expect gold demand to reach 1,000 metric tons in 2026, with prices potentially moving toward USD 6,000/oz over the next 12 months. In our view, gold remains a key hedge against monetary risks, including currency debasement, fiscal deficits, and economic slowdowns.
Oil: +95% YTD to USD 105.1/bbl, after peaking at USD 120 in March, driven by the extended Strait of Hormuz blockade.
Restricted oil flows through the Strait of Hormuz have tightened supply conditions. Demand remains too strong relative to available supply, leading to higher prices. Refinery demand for non-Gulf crude is rising, with U.S. crude exports now at record highs. We expect Brent at USD 100/bbl by end-June, with upside risks as long as Strait flows remain restricted.
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