Asia Green Fund Management Monthly Market Report – Apr 2026 (Vol5)

This energy shock has rapidly transmitted into the broader macroeconomic environment, particularly through inflation expectations. The surge in oil prices introduces a renewed cost-push dynamic, with petrol prices already rising and economists warning of further upward pressure on consumer prices in the coming months[1][7]. Historically, sustained increases in energy prices feed directly into transportation, manufacturing, and food costs, amplifying inflationary pressures across the economy. Importantly, this form of inflation is supply-driven rather than demand-led, making it more persistent and more difficult for policymakers to control using conventional tools^[1][7].

As a result, central banks have been forced into a more cautious and constrained policy stance. The US Federal Reserve, at its March 2026 meeting, held interest rates steady while emphasising the uncertainty surrounding the geopolitical situation and its inflationary implications^[4][5]. Policymakers have increasingly signalled that the anticipated easing cycle may be delayed, with markets now pricing in significantly fewer rate cuts than previously expected^[4][5]. This marks a notable shift from earlier expectations of gradual monetary normalization and reinforces a higher-for-longer interest rate environment. In effect, central banks are now operating under conditions of policy constraint, where their ability to respond is limited by externally driven inflationary forces^[4][5].

Financial markets have responded with increased volatility and a clear rotation across asset classes. Equity markets, particularly in developed economies, have shown signs of weakness as rising yields and inflation concerns compress valuations, especially in long-duration growth assets ^[1][6]. The financial markets have undergone episodic selloffs during periods of intensified geopolitical tension, with uneven impact across sectors. Energy and defence-related industries have outperformed, benefiting directly from higher commodity prices and increased geopolitical demand, while growth-oriented and technology sectors have faced pressure due to valuation compression, higher discount rates, and reduced investor risk appetite ^[1][6][7].

Commodity markets have exhibited pronounced divergence. Oil has emerged as the dominant macro asset, with its price movements increasingly dictating broader market sentiment driven not only by actual or anticipated supply disruptions but also by expectations of prolonged instability and further escalation^[1][2][6]. In contrast, gold has displayed a mixed behaviour. While geopolitical uncertainty would typically support gold prices, the simultaneous rise in yields and the strength of the US dollar have created offsetting pressures, limiting its upside and reinforcing the complexity of cross-asset interactions in the current environment^[1][6].

In fixed income and currency markets, the implications of the energy shock is equally significant. Government bond yields have risen in response to renewed inflation expectations and increased fiscal pressures, while the US dollar has strengthened as investors seek safety and benefit from relatively higher interest rates^[1][6]. This combination has effectively tightened global financial conditions, particularly for emerging markets and energy-importing economies, which face the dual challenge of higher input costs and capital outflow pressures ^[1][8].