May market view: energy shock tests the soft-landing story

Looking back at April’s dataflow and what it may mean for portfolio positioning into mid-2026.

Introduction

April was a month where the macro narrative tightened. U.S. growth rebounded sharply and AI-led investment accelerated, yet inflation re-accelerated in key regions and oil surged to wartime highs. The closure of the Strait of Hormuz shifted the conversation from “when do cuts arrive?” to “how persistent is the energy shock, and what does it do to inflation, liquidity and demand?” Our base case remains constructive, but the path looks more volatile than investors have been used to.

The difference between a wobble and a regime shift is whether high energy prices persist long enough to damage demand.

What moved the dial

Supportive signals

• Australia’s trimmed mean inflation held at 3.3% (year to March), with the quarterly trimmed mean up 0.8%, easing immediate pressure for further tightening.
• U.S. Q1 2026 GDP rebounded to 2.0% annualised (from 0.5% in Q4), with “core GDP” accelerating to 2.5%.
• U.S. business investment rose 8.7% annualised, tied to the AI boom and data centre buildout.
• The four hyperscalers’ $650bn AI infrastructure commitment for 2026 is a genuine capex impulse, not just talk.
• China’s Q1 GDP beat expectations at 5.0% y/y (vs Reuters consensus 4.8%), with industrial value added +6.1% and full-quarter exports +14.7%.
• The ECB held its deposit rate at 2% despite headline inflation at 3% (core 2.2%), preserving optionality.

Watch-outs

• Brent crude surged above US$126. Sustained triple-digit oil compresses real incomes and complicates central bank decisions.
• Australia’s headline CPI jumped to 4.6% (March), driven by fuel (+32.8% m/m), housing (+6.5% y/y) and electricity (+25.4% y/y) as rebates rolled off.
• U.S. inflation re-accelerated: March CPI +0.9% m/m and 3.3% y/y; core PCE 3.2% y/y; headline PCE 3.5% y/y, closing the door on near-term easing.
• Europe’s growth remained soft: Q1 GDP 0.8% y/y with headline inflation at 3%, and staff revisions for 2026 (growth 0.9%, inflation 2.6%) point to a tougher trade-off.
• UK CPI rose to 3.3%, and expectations shifted away from a clean rate-cut cycle.
• China’s external momentum slowed sharply in March (exports 2.5% y/y) and retail sales decelerated to 1.7% y/y, reinforcing the imbalance as energy and logistics costs rose.

Macro overview

April’s macro message is about cross-currents, not a single datapoint. On one side, the U.S. economy showed genuine private-sector momentum: Q1 GDP accelerated to 2.0% annualised and business investment surged 8.7% annualised. The scale of the hyperscalers’ capex plans matters because it is a measurable driver of activity across semiconductors, power, cooling, construction, connectivity and software.

On the other side, inflation reasserted itself. Australia’s headline CPI jumped to 4.6%, largely through fuel and administered price effects (electricity rebates rolling off), while the U.S. saw a sharp month-on-month CPI print and higher core PCE. Europe’s mix looked increasingly stagflationary, with inflation at 3% and growth sub-trend.

Energy is the immediate transmission mechanism. The Strait of Hormuz disruption lifts oil prices, tightens real household incomes, and effectively drains liquidity as a higher share of income is redirected to energy costs. The longer that persists, the greater the risk that “higher inflation” becomes “lower demand”, which is where earnings risk rises.

China sits in the middle. Q1 growth beat expectations and exports were strong across the quarter, but March was a reminder that external demand can fade quickly and domestic consumption remains structurally soft. That balance will matter for commodities, cyclicals and regional risk appetite as Q2 unfolds.

Asset class outlooks

Equities: The equity set-up is a tug-of-war between a genuine growth impulse (AI capex and a U.S. rebound) and a higher discount-rate regime if inflation stays sticky. Where the capex story is real, the earnings runway is longer. That supports selective growth exposure tied to AI infrastructure, data centres and energy buildout.

The risk is that sustained oil and renewed inflation pressure compress multiples, narrow leadership, and pull forward demand destruction. Australia is a clear example of why selectivity matters. Underlying inflation steadied, but headline CPI jumped, and rate-sensitive domestic equities can swing sharply on each inflation or policy surprise.

A practical read-through for portfolios: maintain a quality bias and be clear on what is “structural demand” versus what is “cheap money”. If the market has to price fewer cuts, the second bucket struggles.

Fixed income: Bonds are caught between growth resilience and inflation persistence. The U.S. growth rebound would normally argue for higher yields, but the bigger constraint is inflation, with core PCE and headline PCE well above target. In Australia, headline CPI at 4.6% makes the near-term policy path more sensitive, even if trimmed mean inflation is steadier.

In this environment, the shape of rates exposure matters as much as direction. When the inflation path is uncertain, rate volatility rises, and the market can swing quickly between “growth is fine” and “inflation is the problem” narratives.

Alternatives and real assets: April re-highlighted why real assets matter when energy shocks drive inflation expectations. Sustained triple-digit oil compresses real incomes and sits uncomfortably with central bank objectives. In that setting, inflation hedges and real assets can provide ballast, particularly when the shock is supply-led rather than demand-led.

FX: Currency markets are likely to be dominated by relative policy expectations and energy terms-of-trade impacts. Higher inflation prints can support currencies through rate expectations, but they can also tighten financial conditions and weigh on domestic risk assets. China’s growth and export performance remain an important influence on commodity-linked FX via demand expectations.

Positioning considerations

March reinforced three principles: geopolitical shocks transmit through energy and inflation first – the Iran conflict’s impact is about oil supply, shipping costs, and central bank flexibility, not just sentiment. Second, the starting point matters – the global economy entered this period with solid profits, healthy balance sheets, and supportive fiscal settings, which provides a buffer. Third, cash is a position, not a default – our increased cash holdings reflect the wider range of outcomes, not a bearish view on risk assets over the medium term.

Implications for asset allocation and portfolio positioning

A constructive base case does not imply a smooth ride. In the current set-up, volatility is the price of admission while markets price the duration of the oil shock and the stickiness of inflation. The key is to stay positioned for medium-term growth while keeping enough flexibility to respond if the inflation shock becomes a demand shock.

Practical implications:

• Keep a bias to structural growth exposures that are less reliant on falling rates (AI infrastructure and energy infrastructure are central themes).
• Be wary of broad, rate-sensitive equity exposure where valuations are doing most of the work.
• Treat liquidity as a first-order variable. Higher oil prices pull money out of the system; ongoing support from China and the U.S. Treasury is therefore important for market functioning.
• Expect dispersion. In a world of supply shocks and uneven inflation, index-level positioning matters less than quality and pricing power.

Scenarios and probabilities

Scenario probabilities reflect our current assessment and are reviewed as new data emerges.

Base case — 75%

The Strait of Hormuz disruption lifts energy prices and disrupts the flow of essential goods. If the blockade persists, pressures intensify. We have responded by tilting toward structural growth companies that are less exposed to supply disruptions. Importantly, the global economy entered this period from a position of strength: healthy corporate profits, supportive government spending, relatively easy borrowing conditions, and ample oil supply before the conflict. Inflation had been slowing, but energy has pushed expectations higher, creating a near-term headwind. Liquidity remains crucial, and continued support from China and the U.S. Treasury underpins activity. Over the medium term, AI, domestic manufacturing activity growth and energy infrastructure should broaden profit growth, even within a more volatile environment.

Bear case — 13%

The key downside risk is a meaningful pullback in consumer spending, particularly in the U.S. If demand weakens while inflation stays high, margins and valuations can fall together. The longer the Iran conflict continues, the more likely this becomes. A sustained oil spike of 50% to 100% above recent levels flows directly into consumer prices, squeezes margins and softens demand, creating stagflation. With high government debt, fiscal buffers are limited, and central banks may struggle to cut. China adds another layer of risk if property weakness deepens and stimulus fails to restore confidence, directly impacting Australia via resource demand. A more defensive approach would be warranted: higher cash, lower equity exposure, and tilt to healthcare, staples and utilities.

Bull case — 12%

The most positive scenario is a quicker an end to the Iran conflict followed by economic activity acceleration globally. Falling energy prices and easing supply pressures support stronger growth while keeping inflation in check. If trade disputes also resolve, profits can grow as input costs fall and demand holds up. Productivity-enhancing technology adoption (including AI) supports profitability without widespread job losses. Government spending adds support, and if real rates remain negative (rates below inflation), conditions remain supportive for asset prices. In this setting, a growth-oriented allocation with relatively low cash and more exposure to economically sensitive sectors is well positioned.

Closing perspective

April re-framed markets around one question: does the energy shock fade quickly, or does it persist long enough to change inflation and demand? The U.S. growth rebound and AI capex impulse are real supports, and China’s Q1 beat is constructive. But inflation has re-accelerated across several regions, and that keeps policy, liquidity and volatility front of mind. Staying constructive with discipline, and using pullbacks selectively, remains the most consistent approach with the current balance of risks.

This publication is prepared by Akambo Pty Ltd (ABN 16 123 078 900) AFSL 322056.

The information presented in this publication is general information only, and is not intended to be financial product advice. It has not been prepared taking into account your investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and financial circumstances.

Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo’s Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.

Past performance is not a reliable guide to future returns.