April 2026
Events in the Middle East have materially changed the near-term economic and financial outlook. Economies’ sensitivities to the conflict and its knock-on effects differ. Many of the largest economies in Asia-Pacific are heavily reliant on energy supplies from the Middle East. The impact on an economy will also be determined by a range of factors, including its energy mix, strategic reserves, policy responses, and whether it is a net energy importer or exporter. As the U.S. and Canada are energy exporters, this mitigates the impact on their projected growth rates over the next twelve months. In April we maintained our twelve-month forward outlook of three months of Stagnation (U.S. Real GDP growth less than 2.5%) followed by nine months of Recession (negative GDP growth) over the next twelve- month period.
China’s economy expanded 5.0% in Q1 2026. The economy has managed to absorb the shock of the Iran conflict with limited disruption, supported by ample oil reserves, a diversified energy mix, and state controls that help contain price volatility.1 China’s annual inflation eased to 1.0% in March,2 while surveyed urban unemployment rate to 5.4% in March.3 China’s trade surplus narrowed to $51.13 billion in March 2026. Export growth slowed sharply to 2.5% while imports soared 27.8% year-on-year.4 The Euro Area’s annual inflation rate was revised higher to 2.6% in March. The increase was largely driven by energy, with prices rising 5.1%, as the conflict with Iran pushed oil prices sharply higher. Considering the bloc’s largest economies, inflation rose in Germany, France, Italy, Spain, and the Netherlands (2.6% vs 2.3%).5 Unemployment in the Euro Area increased to 6.20% in February.6
The U.S. economy expanded at an annualized rate of 0.5% in Q4 2025, revised down further from 0.7% in the second estimate and 1.4% in the preliminary reading.7 The annual inflation rate in the U.S. jumped to 3.3% in March, driven by higher energy costs (12.5%), due to the war with Iran.8 The U.S. unemployment rate fell to 4.3% in March.9 The trade deficit in the U.S. widened to $57.3 billion in February 2026 as exports increased 4.2%, led by nonmonetary gold and natural gas. Imports went up 4.3%. The largest deficits were recorded with Taiwan, followed by Mexico, Vietnam, and China. The gap with the EU decreased to $5.1 billion from $6.1 billion and the shortfall with Canada also narrowed to $0.74 billion from $2.7 billion.10 Headline inflation in Canada surged to 2.4% in March. The surge reflected the initial impact of war, as the disruption of tankers from the Persian Gulf triggered energy shortages worldwide.11 The unemployment rate in Canada stood at 6.7% in March.12 Canada’s trade deficit rose to C$5.7 billion in February 2026, as total imports surged 8.4% to a record high of C$72.1 billion, led by a 45.6% jump in purchases of metal and non-metallic mineral products, particularly gold in the United States. Exports rose 6.4% to C$66.3 billion. Canada’s trade surplus with the U.S. shrank to C$1.7B, as imports surged 13.6% and exports rose 4.4%.13
Global financial conditions have tightened since late February, with equity prices declining and bond yields and spreads increasing. U.S. equities navigated a turbulent first quarter, buffeted by a trifecta of tariff -related anxiety, renewed AI concerns, and private credit worries. Jitters escalated in March as the conflict in the Middle East reignited stagflation fears, and hopes for Fed rate cuts dissipated. The S&P 500 closed March down 5.0%. The S&P Mid Cap 400 and S&P SmallCap 600 were down by 5.4% and 4.1%, respectively. The S&P/TSX Composite was down 4.3% in March. The S&P Europe 350® was heavily impacted by the war with Iran, plunging 7.5% in March. Asia Pacific equities initially rose but reversed course in March, leaving the S&P Pan Asia BMI (USD) down 12.7% in March.
In April we maintained exposure to U.S. and Canadian Equities. We continue to believe that Canada is managing the U.S. tariff uncertainty relatively well, replacing some U.S. exports with contracts in Europe and abroad. Gold is held across all models as a long-term strategic asset, playing a role as an effective hedge against the heightened geopolitical uncertainty and market volatility. Gold has become more tightly linked to reserve accumulation by central banks while volatility has been triggered by liquidity-driven deleveraging, not by a change in fundamentals.
How the conflict and related disruptions evolve in the outlook period will determine the effects on commodity and financial markets and the economic implications. The global system is moving deeper into a regime defined by rising volatility across asset classes, energy scarcity, fiscal strain, and elevated inflation risk. For the U.S. economy, stagflation risk is higher because of limited policy flexibility from the Federal Reserve. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.
Deborah Frame, President and CIO
Drew Millard, Portfolio Manager
1 Trading Economics. China GDP. April 16, 2026.
2 Trading Economics. China Inflation. April 10, 2026.
3 Trading Economics. China Unemployment. April 16, 2026.
4 Trading Economics. China Trade. April 14, 2026.
5 Trading Economics. Europe Inflation. April 16, 2026.
6 Trading Economics. Europe Unemployment. April 1, 2026.
7 Trading Economics. U.S. GDP. April 9, 2026.
8 Trading Economics. U.S. Inflation. April 10, 2026.
9 Trading Economics. U.S. Unemployment. April 3, 2026.
10 Trading Economics. U.S. Trade. April 2, 2026.
11 Trading Economics. Canada Inflation. April 20, 2026.
12 Trading Economics. Canada Unemployment. April 10, 2026.
13 Trading Economics. Canada Trade. April 2, 2026.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. March 31, 2026. Index performance is based on total returns and expressed in the local currency of the index.
