The First Quarter 2026

January to March 2026

The first quarter of 2026 was dominated by the outbreak of war in the Middle East when the US and Israel attacked Iran on February 28^th.  While that was the key determinant of asset price outcomes and portfolio performance in the first quarter of 2026, there were other factors that unnerved markets in January and February.   Otherwise, major economies were weak or weaker and inflation continued to trend lower in those countries/regions.

In January:

• The value of all the world’s above-ground gold rose to USD39trln on Thursday, January 29^th. But then fell USD3.4trln on the final business day of January, roughly the market capitalisation of Microsoft.
• Donald Trump has continued to dominate both financial market headlines and the broader news through domestic and foreign policy initiatives. International stakes have been raised by the extraction of Venezuelan President Nicolas Maduro and his wife and by threats to Iran and Cuba.  This geopolitical tension lifted gold to new highs before a price reversal.

In February:

• The share prices of US software companies took a hit on fears that artificial intelligence (AI) will render them obsolete. Their price declines were triggered by the release of Anthropic’s Claude Opus 4.6.   This came on top of disquiet about the huge amounts being spent by those companies on capital expenditure.
• US Supreme Court ruled Trump’s tariffs to be an illegal use of emergency law powers.
• Private credit market funds aimed at US retail investors were unnerved by Blue Owl permanently halting redemptions at one of its funds. Other private credit funds followed suit.
• Japanese Prime Minister, Sanae Takaichi, gambled to build on her popularity and gain a decisive majority for her Liberal Democratic Party (LDP) in a snap election on February 8^th. It paid off.  She now has a sizeable majority.

In March:

• Due to the conflict in the Middle East, financial markets suffered much turbulence with bond and equity indices falling. Gold, an expected beneficiary in such situations, continued to fall from its lofty heights at the start of 2026.
• The closure of the Strait of Hormuz, restricting the flow of oil by some 20 million barrels per day, has seen fuel prices rise precipitously across the world’s economies leading to fears of a substantial increase in inflation.
• Already stretched consumers are now faced with paying much more for their fuel as well as food – fertiliser supplies have also been disrupted by the Strait of Hormuz’s closure.
• Central Banks like the Bank of England, who were looking to lower interest rates further in response to declining inflation, have now gone on hold, with futures markets suggesting a potential rise. Comparisons to 2022 are flawed for the following reasons:
  • Interest rates are substantially higher now than they were in 2022, when the Bank of England and other central banks were scrambling to raise rates as inflation soared post Covid.
  • Economic activity is either weak or weakening in the major economies.
  • Raising official interest rates would act as a further burden for consumers already grappling with a rising cost of living which has just been made worse.
  • Supplies of essentials including labour were in short supply, so workers had significant leverage to raise wages in 2022, whereas now labour markets are struggling to deal with rising unemployment and hence little bargaining power exists.

As we enter the second quarter of 2026, hopes rest on a ceasefire or some other means of effecting a cessation to hostilities in the Middle East and importantly, a reopening of the Strait of Hormuz.

It is important to remember that a year ago on April 2^nd 2025, financial markets were reeling from President Trump’s ‘Liberation Day’ only to rally a week later when Trump soften his stance on tariffs.