Federated Hermes: Weekly Markets Wrap Up - 9 April 2026
In this week’s markets update, our investment experts weigh in on how geopolitics and policy uncertainty are reshaping growth, volatility, and rate expectations.
Kunjal Gala, Head of Global Emerging Markets at Federated Hermes
Emerging Markets: Longer Term Implications
We expect the conflict will prompt many Emerging Market governments to re‑assess their energy security, with the uptake of alternative energy sources – such as nuclear and renewables – likely to accelerate as countries seek to reduce exposure to hydrocarbon flows in the event of future conflicts.
As a net exporter, the US is less impacted by the Middle East crisis. Many Asian countries have borne the brunt of the fallout with about 80% of the oil and gas passing through the Strait of Hormuz going to Asia. This exposure has sent shockwaves across many countries that have limited energy inventory, particularly gas.
In our opinion, the main implications of the conflict include a shake‑up of the geopolitical status quo in the Middle East, changes in global energy security priorities, and a further weakening of industrial competitiveness in regions more exposed to energy shocks.
Louise Dudley, Portfolio Manager for Global Equities at Federated Hermes
Markets Learning to Tolerate Volatility
Volatility continues to dominate the environment, driven by macro factors. One year on from Liberation Day, the risk models have updated, and the rear-view mirror is now more aligned with what we expect for 2026.
When Liberation Day occurred, the market was shocked and responded rapidly. Since then, investors have become more cautious about the potential for sustained positive momentum given the unexpected decision-making. Trump’s numerous statements are fuelling the uncertainty and leading the risk premium higher.
The volatility also needs to be framed in the context of valuations. We have seen compression in the market multiples, which creates opportunities for long term investors willing to look through the noise. Growth is now (versus one year ago) even scarcer than before with fewer fiscal levers available.
Damian McIntyre, Head of Multi-Asset Solutions at Federated Hermes
Will US Growth Prevail
The first quarter of 2026 is now in the books, and it has been a bit of a whipsaw. We came into the year with strong tailwinds for growth assets, particularly in international equities (outside of the US). Last year, we’d seen international equities, led by the emerging markets, outperform the US as investors pressed pause on the American exceptionalism trade. That trend has held up through Q1, with the S&P 500 significantly lagging international and EM.
Recently there have been calls in certain quarters for rate hikes to counter the commodity inflation we’re seeing. That seems misplaced given that this inflation is not coming from excess demand that the Fed could tamp down with a rate hike.
Arguably, given the state of the labor and housing markets in the US, the Fed might continue to be in easing mode if it weren’t for the war. Confirmation hearings are to begin in mid-April on Kevin Warsh, President Trump’s nominee to be the new Fed chairman. Might Warsh call for lower rates in his hearing before the Senate?
If the war comes to an end before too much longer, we could see a continued growth scenario in the US. The US economy’s basic good health might bring risk appetite and “animal spirits” back to the markets, which could prompt equities to perform well.
Gary Skedge, Head of UK Liquidity Strategies at Federated Hermes
Stagflation Fears Resurface in the UK
The UK economy made a lacklustre start to the year even before the Middle East war sparked a global energy shock. The unemployment rate hit a near five-year high of 5.2% in the final quarter of 2025. However, a fall in inflation to 3% underpinned expectations of two rate cuts by the Bank of England this year.
The US-Israeli attacks on Iran in late-February, blew those hopes out of the water.
At its March meeting, the BoE voted unanimously to hold rates at 3.75%, and Governor Andrew Bailey warned about the risk of rising inflation this year. In a significant turnaround, markets are now pricing in at least one 25bps rate rise by the BoE this year, even as the US and Iran had agreed a two-week ceasefire.
The BoE was criticised for being slow to respond to the rise in inflation that began at the end of the Covid-19 pandemic and then accelerated because of the Russia-Ukraine war. Hopes that the rise would be ‘transitory’ turned out to be misguided as UK inflation soared above 10% in the second half of 2022.
Fears are growing that the UK faces a period of stagflation, where high inflation prevents the BoE from cutting rates to support a flat economy.
