This has been one of the most consequential weeks of the year so far in financial markets, and the conclusions are not as comfortable as equity index levels alone might suggest. Three major central banks sat on their hands, four of the world’s largest technology companies reported stunning earnings, a royal visit delivered an unexpected trade gift, and yet the shadow of a partially closed waterway continues to threaten everything.
An unusually divided Federal Reserve held its key interest rate steady, with the FOMC voting to keep the benchmark funds rate in a range between 3.5% and 3.75%. The headline decision was expected, but the manner in which it was reached was not. It is the first time since October 1992 that there have been four dissents of any kind. The decision to hold steady was nearly unanimous, with only Fed Governor Stephen Miran casting a dissenting vote in favour of lower rates. But Fed presidents Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas did not support inclusion of an easing bias in the statement. This is expected to be Jerome Powell’s final meeting as chair before his term ends on 15 May. Kevin Warsh, President Trump’s pick to succeed Powell, has cleared a key hurdle and his nomination now advances to the full Senate. The incoming chair may well want to cut rates, but the dissents underscore how difficult it will be to persuade the majority of the Fed’s rate-setting committee to go along.
The Bank of England voted 8-1 to keep Bank Rate unchanged at 3.75%, with one member preferring an increase to 4% and several policymakers indicating they could consider additional rate increases in the future. Prior to the outbreak of the Iran war, rate cuts had been expected to begin this month. That prospect has now evaporated. CPI inflation has risen to 3.3% and is expected to move higher later in the year as energy costs pass through. Oxford Economics believes the Bank of England will hold interest rates at their current level for the rest of 2026 and well into 2027.
The ECB also kept rates unchanged on 30 April, noting that upside risks to inflation and downside risks to growth have both intensified. Markets are fully pricing in three ECB rate hikes in 2026, with the first potentially arriving as early as June. Eurozone inflation rose to 3.0% in April from 2.6% in March and 1.9% in February, driven by surging energy prices. Energy price inflation jumped to 10.9% in April, with very real consequences for European households already struggling with energy bills.
Against that backdrop, equity markets had a remarkable month. The S&P 500 gained 10.4% in April, its best month since November 2020, while the Nasdaq rose 15.3%. The catalyst was an extraordinary week of corporate results. Alphabet, Amazon, Meta and Microsoft all surpassed earnings expectations for the first quarter. Alphabet’s net income rose 81% year on year, while Meta delivered its fastest quarter of revenue growth since 2021. However, markets were not uniformly enthusiastic. Meta tumbled 9% after hiking its full-year capital expenditure guidance to between $125 billion and $145 billion. Microsoft expects to spend $190 billion in calendar 2026. The overarching concern is whether the extraordinary capital being deployed will ultimately generate proportionate returns.
Perhaps the week’s most charming headline came from a state dinner. President Trump announced he would remove tariffs on Scottish whisky as a gesture of respect toward King Charles III, who concluded a four-day state visit to the United States. The changes will apply to all whisky tariffs, including those on Irish whiskey, a tangible economic win for Scotland’s distilling industry.
Behind every central bank decision and every earnings forecast lies the same unresolved question: when does the Strait of Hormuz reopen? The waterway remains effectively closed, oil prices have surged, and Americans are now paying $4.30 per gallon, some $1.12 higher than a year ago. The personal savings rate fell to 3.6% in March, its lowest since October 2022, a cushion that cannot absorb higher costs indefinitely. The scoreboard looks impressive although the underlying conditions do not.
Disclaimer: The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Capital Strategies Limited or its related companies. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.
