US Economy: Weekly Commentary – April 27, 2026

US Market Review

Treasury yields rose as leveraged repo-driven positioning increased. US equities hit record highs on strong earnings and optimism over US-Iran talks. Oil surged on geopolitical tensions. Gold fell. Bitcoin rose.

Treasury yields rose over the week. Hedge funds continued to expand exposure to U.S. fixed income through highly leveraged positions funded via short-term repo markets. This dynamic has supported liquidity and deepened participation in U.S. Treasury markets, but it also increases structural fragility. A tightening in funding conditions, rising repo haircuts, or shifts in collateral availability could force rapid position unwinds, amplifying yield volatility and potentially transmitting stress into broader U.S. credit and equity markets.

U.S. equity indices reached fresh record highs over the week, supported by stronger-than-expected corporate earnings and renewed geopolitical optimism, particularly around potential diplomatic engagement between the United States and Iran. Intel was a standout performer, surging 20% on earnings strength and forward guidance, contributing meaningfully to index gains and helping extend the S&P 500’s winning streak to four consecutive weeks, its longest since September 2014. Market breadth was mixed: large caps rose 0.55%, small caps gained 0.30%, while micro caps declined 0.68%. The “Magnificent Seven” advanced a modest 0.18%, indicating relatively narrow leadership. Sector performance diverged, with healthcare down 3.10% and communications services falling 3.0%, while technology (+3.80%) and energy (+3.35%) led gains.

In foreign exchange and commodities, the U.S. dollar appreciated 0.39% against the euro. WTI crude oil surged 10.88% amid escalating geopolitical tensions between the United States and Iran. Reports of renewed military activity, heightened risks around critical infrastructure, and concerns over potential disruptions in the Strait of Hormuz, a key global shipping chokepoint, contributed to rising supply risk premiums. Gold declined 2.56%, while Bitcoin rose 0.18%.

US Market Views Synopsis

U.S. growth remains fragile. Retail gains reflect energy prices. Business activity is uneven. Sentiment weakens amid rising inflation expectations. Stagflationary conditions persist with limited momentum and elevated downside risks.

U.S. economic data point to a fragile and uneven expansion shaped by energy-driven inflation and soft underlying demand. Retail sales rose strongly in March, but gains were largely fuelled by surging gasoline prices, masking weaker discretionary spending as consumers became more price-sensitive despite support from tax refunds. Business activity rebounded modestly in April, with manufacturing outperforming on inventory building and stockpiling, while services remained subdued amid weak demand, affordability constraints, and geopolitical uncertainty. At the same time, supply disruptions and rising input costs intensified inflationary pressures across sectors, with firms increasingly passing these costs onto consumers. Labour market conditions were broadly stagnant, reflecting caution among firms. Consumer sentiment deteriorated to near 2022 lows, with sharply higher inflation expectations driven by energy shocks further weighing on confidence. Overall, the data suggest a stagflationary backdrop, with subdued growth, persistent inflation, and rising downside risks to the outlook.

Retail Sales

U.S. retail sales rose 1.7% in March, driven by record gasoline spending. Underlying demand softened as higher fuel prices and inflationary pressures weighed on consumers.

U.S. retail sales rose 1.7% in March, exceeding expectations of a 1.4% increase, as higher gasoline prices linked to the Middle East conflict drove a record surge in service station receipts and masked emerging weakness in underlying consumer demand. Sales at gasoline stations jumped 15.5%, the largest increase since the series began in 1992, reflecting a 24.1% rise in fuel prices during the month as global oil markets reacted to escalating geopolitical tensions. While tax refunds provided additional support to household spending, higher fuel costs effectively acted as a drag on discretionary consumption, offsetting part of that boost. The overall gain marked the strongest monthly increase since March 2025, following a revised 0.7% rise in February, and pushed year-on-year retail sales up 4.0%, though inflation-adjusted growth was far more modest at around 0.7%. Excluding autos, gasoline, building materials and food services, core retail sales rose 0.7%, a key input for GDP calculations, suggesting some resilience in underlying activity. However, spending patterns showed growing strain, with consumers increasingly price-sensitive and cutting back in areas such as dining out, which rose just 0.1%, while categories like clothing and sporting goods were flat. The strength in headline figures is largely price-driven and unlikely to persist, as fading tax refund support, higher energy costs, and slowing wage growth point toward a more selective and potentially weaker consumer outlook in the months ahead.

We expect future retail sales growth to remain uneven, with headline figures supported by prices rather than volumes. Higher energy costs and fading temporary support should weigh on discretionary spending, leading to a more cautious and selective consumer environment ahead.

Business Activity

US growth rebounded modestly to 52.0. Manufacturing strengthened to 54.0. Services remained weak at 51.3. Inventory building and supply disruptions lifted output. Inflation pressures accelerated sharply.

US business activity rebounded modestly in April 2026 after near-stagnation in March following the outbreak of war in the Middle East, though overall momentum remained subdued. The composite output index rose to 52.0 from 50.3, a three-month high, signalling only limited expansion and growth still running well below typical levels seen last year. The improvement masked a clear divergence across sectors: services remained under pressure, with the Services PMI at 51.3 versus 49.8, as demand softened further and new business growth slowed to a two-year low amid weak exports, affordability constraints, war-related uncertainty, and a broader slump in services activity. In contrast, manufacturing strengthened more decisively, with the Manufacturing PMI rising to 54.0 from 52.3 and output reaching a 48-month high, supported by the fastest rise in new orders since mid-2022. However, much of the industrial strength appears driven by inventory accumulation and precautionary stockpiling as firms sought to secure inputs amid fears of supply disruptions and higher prices rather than genuine end-demand momentum.

Supply-side pressures intensified further, with supplier delivery times lengthening at the fastest pace since August 2022, reflecting shipping disruptions linked to the war alongside broader input shortages. Firms increased purchasing activity at one of the fastest rates in nearly four years, reinforcing bottlenecks as “safety stock” building became widespread. At the same time, inflationary pressures accelerated sharply across the economy. Input costs rose at the fastest pace in nearly a year, while output prices recorded their largest monthly increase since July 2022. Services inflation climbed to a 45-month high, while manufacturing prices also accelerated, signalling broad-based pass-through from higher energy costs, commodity inflation, and persistent supply constraints.

Labour market conditions were broadly stagnant, with employment flat overall as modest services hiring was offset by job losses in manufacturing. Firms cited rising cost pressures, weak demand visibility, and heightened uncertainty as key constraints on hiring decisions. Overall, the data points to a fragile expansion marked by weak underlying services activity, uneven industrial strength, and accelerating inflation pressures, reinforcing a stagflationary backdrop in which subdued growth coexists with rising prices, complicating the outlook for monetary policy.

We expect that growth will remain uneven, with manufacturing temporarily supported by inventory building, while weak services demand and persistent inflation pressures weigh on momentum, keeping downside risks elevated and limiting policy flexibility as stagflationary conditions become more entrenched.

Consumer Sentiment

Consumer sentiment fell to near 2022 lows across groups. Inflation expectations jumped sharply, driven by energy shocks, with limited improvement despite easing gasoline prices and ceasefire news.

Consumer sentiment fell by 3.5 index points this month to levels comparable with the June 2022 trough, with declines evident across political affiliation, income, age, and education groups, while expectations for business conditions weakened over both short- and long-term horizons, nearing the subdued readings seen a year ago during the rollout of the reciprocal tariff regime; although sentiment regained some ground following the announcement of a two-week ceasefire and a modest easing in gasoline prices, the Iran conflict continues to weigh primarily through energy price shocks, with limited support from geopolitical developments that do not ease supply constraints or lower costs. At the same time, inflation expectations have shifted sharply higher, with year-ahead projections rising from 3.8% in March to 4.7% this month, the largest monthly increase since April 2025 and above all 2024 readings as well as the pre-pandemic range of 2.3% to 3.0%, while long-run expectations climbed to 3.5% in April after holding between 3.2% and 3.3% in recent months, marking the highest level since October 2025 and a clear step above the 2.8% to 3.2% range seen in 2024 and the sub-2.8% levels typical of 2019 to 2020.

We expect that consumer sentiment will remain subdued in the near term as elevated inflation expectations and sensitivity to energy price volatility continue to weigh on households, limiting any sustained improvement unless there is a clearer easing in fuel costs and broader price pressures.