Markets enter May with the federal funds target range at 3.50% to 3.75%, the Fed having concluded its 28-29 April meeting, and the next decision not due until 16-17 June. Brent crude is trading near US$108 per barrel, with the IEA describing the ongoing Iran conflict as the largest energy supply shock on record as the Strait of Hormuz remains effectively closed.

The macro tension this month is straightforward but uncomfortable: an oil-driven inflation impulse landing into a labour market that surprised to the upside in March, while Q1 growth came in soft.

The Federal Reserve has revised its 2026 PCE inflation projection to 2.7% and continues to signal one cut this year, though the timing remains contested. With no FOMC scheduled in May, every high-impact release may carry more weight than usual into the June meeting.

Growth: business activity and demand

The growth picture entering May is mixed. The Q1 GDP advance estimate landed on 30 April, while softer retail sales and inventory data have made the demand picture harder to read.

ISM manufacturing has been a quieter source of optimism, with recent prints holding in expansionary territory. Energy costs and tariff effects are now the variables most likely to shape the next move in business activity.

Labour: payrolls and employment data

The April Employment Situation is one of the most concentrated risk events of the month. March payrolls came in stronger than expected, while earlier data revisions left the trend less clear. April will help show whether the labour market is genuinely re-accelerating or simply absorbing seasonal noise.

Inflation: CPI, PPI and PCE

April inflation lands as the most market-relevant data block of the month. The March consumer price index (CPI) rose 3.3% over the prior 12 months, with energy up 10.9% on the month and gasoline up 21.2%, accounting for almost three quarters of the headline increase. With Brent holding near US$105 to US$108 through the latter half of April, a further passthrough into the April CPI energy component looks plausible.

Core CPI and core personal consumption expenditures (PCE) remain the better read on underlying trend.

Policy, trade and earnings

May has no FOMC meeting, so policy attention shifts to Fed speakers, the path of any leadership transition, and the dominant geopolitical backdrop. Chair Jerome Powell's term concludes around the middle of the month. President Donald Trump has nominated Kevin Warsh as the next Fed chair, with the Senate Banking Committee having held a confirmation hearing.

The Iran conflict, now in its ninth week, remains the single largest source of macro tail risk, with the Strait of Hormuz blockade and stalled US-Iran talks setting the tone for energy markets and broader risk appetite. Q1 earnings season is in its peak weeks, with peak weeks expected between 27 April and 15 May, and 7 May the most active reporting day.

What to monitor this month

• Iran-US negotiations and the operational status of the Strait of Hormuz
• Fed speakers and any change in tone between meetings
• Q1 earnings, especially from retail, energy and cyclical names
• Weekly EIA crude inventories
• Any tariff-related announcements that may affect inflation expectations

Bottom line

May is not a quiet month just because there is no FOMC meeting. Payrolls, CPI, PPI, retail sales and PCE all land before the June policy decision, while oil remains the dominant external shock.

For markets, the key question is whether the data points to a temporary energy-driven inflation lift, or a broader inflation problem arriving at the same time as softer growth. That distinction may shape the next major move in bonds, the US dollar, gold and equity indices.

Here is the situation as April begins. A war is affecting one of the world's most important oil chokepoints. Brent crude is trading above US$100. And the Federal Reserve (Fed), which spent much of 2025 engineering a soft landing, is now facing an inflation threat driven less by wages, services or the domestic economy, and more by energy. It is watching an oil shock.

The Fed funds rate sits at 3.50% to 3.75%. The next Federal Open Market Committee (FOMC) meeting is on 28 and 29 April and the key question for markets is not whether the Fed will cut, it is whether the Fed can cut, or whether the energy shock may have shut that door for much of 2026.

A heavy run of major data releases lands in April. The March consumer price index (CPI), non-farm payrolls (NFP) and the advance estimate of Q1 gross domestic product (GDP) are the three that matter most. But the FOMC statement on 29 April may be the release that sets the tone for the rest of the year.

Growth: Business activity and demand

Think about what the US economy looked like coming into this year: AI-driven capital expenditure (capex) was a major part of the growth narrative, corporate investment intentions looked firm and the One, Big, Beautiful Bill Act was already in the mix. On paper, the growth story looked solid.

Then the Strait of Hormuz situation changed the calculus. Not because the US is a net energy importer, it is not, and that structural insulation matters. But what is good for US energy producers can still squeeze margins elsewhere and weigh on global demand. The 30 April advance Q1 gross domestic product (GDP) estimate is now likely to be read through two lenses: how strong was the economy before the shock, and what it may signal about the quarters ahead.

Labour: Payrolls and employment

February's jobs report was, depending on how you read it, either a blip or a warning sign. Non-farm payrolls (NFP) fell by 92,000, unemployment edged up to 4.4% and the official line was that weather played a role. That may be true but here is what also happened. The labour market suddenly looked a little less convincing as the main argument for keeping rates elevated.

The 3 April employment report for March is now genuinely consequential. A bounce back to positive payroll growth would probably steady nerves and a second consecutive soft print, particularly against a backdrop of higher energy prices, would start to build a very uncomfortable narrative for the Fed. It would be looking at slower jobs growth and an inflation threat at the same time. That is not a comfortable place to be.

Inflation: CPI, PPI and PCE

Here is the uncomfortable truth about where inflation sits right now. Core personal consumption expenditures (PCE), the Fed's preferred gauge, was already running at 3.1% year on year in January, before any oil shock had fed through. The Fed had not fully solved its inflation problem, rather, it had slowed it down. That is a different thing.

And now, on top of a not-quite-solved inflation problem, oil prices have moved sharply higher. Energy prices can feed into the consumer price index (CPI) relatively quickly, through petrol, transport and logistics costs that can eventually show up in the price of nearly everything. The 10 April CPI print for March is probably the most important single data release of the month, it is the one that may tell us whether the energy shock is already showing up in the numbers the Fed watches.

Policy, trade and earnings

April is also the start of US earnings season, and this quarter's results carry an unusual amount of weight. Investors have been pouring capital into AI infrastructure on the basis that returns are coming. The question is when. With geopolitical volatility driving a rotation away from growth-oriented technology and towards energy and defence, JPMorgan Chase's 14 April earnings will be read as much for what management says about the macro environment as for the numbers themselves.

Then there is the FOMC meeting on 28 and 29 April. After the early-April run of data, including NFP, CPI and producer price index (PPI), the Fed will have more than enough information to update its language. Whether it signals that rate cuts could remain on hold through 2026, or whether it leaves the door slightly ajar, may be the most consequential communication of the quarter.

Geopolitical volatility has already pushed investors to reassess growth-heavy positioning. The estimated US$650 billion AI infrastructure buildout is also coming under heavier scrutiny on return on investment. If earnings season disappoints on that front, and if the FOMC signals a prolonged hold, the combination could test risk appetite heading into May.

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Asia-Pacific markets start April with a focus on how prolonged disruption in the Strait of Hormuz feeds through to inflation, trade flows, and policy expectations. China's 15th Five-Year Plan shifts attention toward artificial intelligence and technological self-reliance, with knock-on effects for supply chains and regional growth. Japan and Australia both face the challenge of managing imported energy inflation while gauging how far they can normalise policy without derailing domestic demand.

For traders, the mix of elevated energy prices and policy divergence may keep volatility elevated across regional indices and currencies.

China

Lawmakers in Beijing have approved the 15th Five-Year Plan (2026-2030), placing artificial intelligence (AI) and technological self-reliance at the centre of the national agenda. The government has set a growth target of 4.5% to 5.0% for 2026, the lowest in decades, as it prioritises quality of growth over speed.

Japan

The Bank of Japan (BOJ) faces increasing pressure to normalise policy as energy-driven inflation risks a resurgence. While consumer prices excluding fresh food slowed to 1.6% in February, the recent oil price spike may push the consumer price index (CPI) back toward the 2% target in coming months.

Australia

The Australian economy remains in a state of two-speed divergence, with older households increasing spending while younger cohorts face significant affordability pressures. Following the Reserve Bank of Australia's (RBA) rate increase to 4.10% in March, markets are highly focused on upcoming inflation data to assess whether additional tightening may be required.

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