WeekWatch

Markets rise spurred by ceasefire

A strong performance by the S&P 500 meant by the end of the week it had retraced almost all its losses since the start of the Iran war. Other markets also rose. Sentiment was helped by news of a two-week truce in hostilities against Iran and hopes for progress in the peace talks that took place over the weekend in Pakistan. The closure of the Strait of Hormuz, Israel’s continuing action in Lebanon, as well as the future of Iran’s nuclear ambitions are key areas of contention between the parties. 

Energy was the only sector delivering negative returns, reacting to the 14% decline in the price of Brent oil during the week. Despite this correction, the oil price remains more than 30% higher than on the eve of war. The tech-focused Nasdaq Composite rose by nearly 5%. European markets rebounded, while Japan’s Nikkei 225 ended the period 7.2% higher. 

Bonds were volatile, with yields rising on Friday

Bond yields rebounded on Friday. The main cause was the release of US March inflation data, reflecting the effects of higher energy prices. This showed that consumer prices rose by 3.3% compared to the same month in 2025, the highest reading in two years. It marked an acceleration compared to February’s 2.4% on the same basis. Core inflation, which strips out the more volatile energy and food component, rose by 2.6%. With energy prices jumping more than 10% compared with a year ago, analysts had expected the uptick in inflation. Given the situation, the latest US inflation figures were slightly better than expected. Hetal Mehta, SJP’s chief economist, noted that “the impact of the energy price shock is still going to take several months to feed through, even if there is a rapid de-escalation and a resumption of supply.”

In contrast, US consumer sentiment data for April was worse than expected. It fell to a record low as the public expect a large jump in inflation during 2027. This uncertainty could cause consumers to cut back on spending just when companies are dealing with higher energy costs. Will this cause an increase in unemployment? Many investors believe elevated levels of inflation will make it difficult for the US central bank (the Fed) to cut interest rates if the job market weakens. 

Deflation in China – it’s finally over

Many economists think that deflation, when prices constantly weaken, is a greater problem for governments and central banks than inflation. When the prices for goods spiral downwards, it can lead to consumers putting off purchases. Why bother spending on a new car or household goods if they are likely to be cheaper next month? As demand eases, manufacturers will react by cutting production. Their debt burden will remain unchanged, while they will also have less incentive to hire new workers. 

Central banks’ ability to help in a deflationary environment is limited. Usually, they can only cut interest rates to zero. (On rare occasions they have dipped into negative territory. The European Central Bank cut interest rates to -0.5% in 2019 to stimulate spending). 

China has just announced that after three years, producer price deflation ended in March 2026. Since 2022, competition in the country’s manufacturing sector has been intense. Combined with a slump in the property sector and low consumer confidence post-pandemic, prices were driven lower. 

The catalyst for the recovery has been the sharp rise in energy and commodity prices since the start of the Iran war. As a result, the producer price index rose by 0.5% in March compared to the same month in 2025. The equivalent figure in February 2026 was -0.9%. While the March recovery was expected, the hope is that this momentum will continue. Energy prices have eased from their highs during the war’s first month, and the government and businesses will hope this feeds through to an awaited shift in consumer behaviour. Instead of delaying purchases in the belief that prices will continue to fall, the best case is that they will be spurred to make purchases before the war pushes the cost of goods higher.  

HMRC urges caution over pension tax avoidance schemes 

HM Revenue & Customs (HMRC) is urging workers to “check before you dip” into a private pension pot, as schemes promising greater tax efficiency could in fact be pension tax avoidance schemes.  

HMRC has warned that participation could result in higher-than-expected costs and tax bills for pension savers. 

The new focus on pensions is part of a longer running campaign, launched by HMRC, to raise awareness of fraudulent tax avoidance schemes. 

Those who fall victim, or who participate in such schemes, will be left with losses due to fines and interest on unpaid tax. This is on top of any fees paid to those running the tax avoidance scheme. 

HMRC’s campaign has also targeted contractors and agency workers, following concerns that a growing number of people are falling victim to tax avoidance schemes advertising complex pay structures.  

These arrangements are often run through umbrella companies or agencies, for example. But many such schemes are not UK tax compliant. It means workers end up paying far more due to charges and interest on their unpaid tax. 

HMRC’s tips for identifying bad tax advice: 

• If it sounds too good to be true, it probably is. 
• Checking your payslips and contractual arrangements will help you confirm you are paying the right amount of income tax and national insurance contributions. 
• Research the tax refund company or tax agent before engaging with them. 

FCA urged to review rules on risk warnings  

The Financial Conduct Authority (FCA) has been urged to amend the rules governing how investment risk warnings are presented to retail investors. 

A government-commissioned review led by the Investment Association (IA), and backed by St. James's Place, found that current risk warnings, including the prominent “capital at risk”, can discourage long-term investing. 

The review also noted that the routine use of these types of warning has deterred investor engagement, particularly among those seeking clarity and reassurance about investing. 

St. James's Place played a central part in developing the guidance set out in the IA’s report as part of the technical expert group.  

The recommendations include using risk warnings that offer greater context and balance around the risks and rewards. Firms should also have more flexibility to decide on the best timing and prominence of risk warnings, based on the stage of the consumer journey. 

¹Bank of England - April 2026