Q1 2026 Quarterly Economic Update
Quarterly Market Update – Q1 2026
The first quarter of 2026 will be remembered as one of the most consequential in decades. War broke out in the Middle East, the Strait of Hormuz was closed, oil prices surged past US$100 per barrel, and inflation re‑ignited. Central banks pivoted abruptly from easing to tightening, with Australian households already feeling the impact through two consecutive interest‑rate hikes.
Geopolitical Risk and the Oil Shock
On 28 February 2026, the US and Israel launched coordinated strikes on Iran in Operation Epic Fury, killing Supreme Leader Ali Khamenei. Iran retaliated with missile attacks on Israel and US bases, escalating into full‑scale conflict. The most significant economic consequence followed swiftly: Iran closed the Strait of Hormuz, through which about 20% of global oil supply normally passes.
Oil prices surged from around US$60 to a peak of US$126 per barrel in mid‑March – the fastest spike since the 1970s. Diesel prices surged globally, driving a renewed inflation shock. Governments responded with coordinated strategic petroleum releases, Australia halved fuel excise for three months, and US sanctions on Russian and Iranian oil were temporarily eased. Despite this, analysts warn that a prolonged closure could become the largest oil disruption in history.
Interest Rates & Inflation
The Reserve Bank of Australia raised the cash rate twice from 3.60% to 3.85% in February and then to 4.10% in March, reversing expectations of rate cuts. Markets are pricing in at least one more hike in May, potentially taking rates back to the previous peak of 4.35%.
Inflation remains stubborn. Headline inflation eased marginally to 3.7% in February, while trimmed mean inflation held at 3.3%, above the RBA’s target. Housing costs rose 7.2% annually, electricity prices jumped 37% as rebates expired, and food inflation remained elevated. Fuel prices, which had been falling earlier in the quarter, reversed sharply after the oil shock.
Cost of Living: Pressures Mount
The combination of higher interest rates, elevated inflation, and surging energy costs created a perfect storm for household budgets. The February rate hike alone added $75 monthly to a typical $500,000 mortgage, with March’s increase adding another $75 on top.
Electricity costs continued climbing as rebates expired, while food prices remained stubbornly high. The brief reprieve from falling fuel prices early in the quarter quickly evaporated. Consumer confidence, which had surged in late 2025, began softening as households absorbed the reality of a higher-for-longer interest rate environment.
Equity Market Performance
The ASX 200 started the year at 8,714 points and traded in a relatively narrow range through the quarter despite global volatility. The index benefited from strong materials sector performance as commodity prices held firm, with gold remaining near US$5,300 per ounce. However, the financials sector – which represents one-third of the index – faced headwinds as investors worried about higher rates impacting mortgage arrears.
Healthcare and information technology sectors struggled, as fears of an AI-stock bubble caused a sell off across the IT sector – causing both indexes to trade lower for the quarter. Overall, the ASX 200 remained range-bound between 8,400 and 9,200 points, reflecting investor caution about the unfolding geopolitical crisis and domestic inflation outlook.
Looking Ahead
The second quarter begins with extraordinary uncertainty. The duration and ultimate resolution of the Iran conflict will largely determine whether oil prices stabilise or spike higher. If the Strait of Hormuz remains closed past mid-April, energy analysts warn of potential diesel shortages and prices reaching US$170-200 per barrel – a scenario that would trigger a global stagflationary.
For Australia, the near-term path is challenging. Another rate rise at the May RBA meeting appears likely unless inflation data shows a dramatic improvement. Household budgets will remain stretched as energy and food costs stay elevated. The labour market remains relatively resilient, but cracks are emerging.
For investors, the takeaway remains unchanged: maintain diversification, focus on quality assets with pricing power, and avoid panic-driven decisions. While the first quarter of 2026 brought significant challenges, economies have weathered similar shocks before. The path forward requires patience, prudent risk management, and an eye toward long-term fundamentals rather than short-term headlines.
Important Updates
| Baby News |
Exciting news – Jayden has given birth to a beautiful baby boy – Levi! He is officially on parental leave until 2nd June and during his time away, our team will keep an eye on his emails and look after any of his clients queries. If you need assistance, just call the office on 08 9250 5599.
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| Staff movement |
Kathy will be on leave from 24th April – 8th May.
Lucy has made the exciting move to become an advisor again, whilst we will miss her dearly we know that she’ll do an amazing job in her new role.
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| New Advice Document Look |
We are close to finalising a new and improved advice document format.
We’ve been trialling this on a few clients and hoping to roll this out in the next few months.
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