¶ Market Disconnect and Energy Outlook
Markets move fast. Get the insights you need in 10 minutes with Barclays Brief, a podcast from Barclays Investment Bank. Each week our experts analyze market themes, helping you anticipate what's next. Listen to Barclays Brief wherever you get your podcasts.
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Money is a tough old game. Markets don't care about your feelings. They don't care about what's right and wrong and what is pure in the world. Stocks in particular care about how much money companies are making, how much money is flowing into the market, and that's about it. So it's actually not that weird that markets are doing fine even though we're now entering month three of the US Israeli war on Iran.
The problem though is it's becoming increasingly clear that energy prices are gonna be much higher for much longer. Is this really okay, like in death? This week we got a bunch of central banks and really big company earnings reports to help us understand what it all means.
Today on the show
Is Donald Trump actually a master of getting?
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Unhedged your friendly markets and finance
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Where it's warm, it's cold, it's warm again. No one knows what to wear. It's chaos. And I'm joined through the miracle of technology by the larger than life, Mr. Robert Armstrong, all the way over there in New York City. Rob, how is the big apple?
Katie, it is a beautiful, sunny, cool day here in New York, a perfect spring day. And I know markets don't care about our listeners' feelings, but I do. We here at the Unhedged podcast, we really care.
We're we're here for you, listeners. So look it's it's maybe it's maybe like a riddle and it's maybe not, but it's definitely a thing that like the cuffs and collars in markets just don't match. at the moment. Right. You were out in Switzerland talking to energy people the other week and I was writing about this yesterday. All the sort of energy analysts are saying
I don't like this much. I think the Strait of Hormuz is gonna be basically impassable for much longer than I previously thought. I think oil prices are gonna be much higher than we previously thought. I think this is gonna go on for longer. I think it's gonna be economically more painful than we Perhaps thought at the start of this crisis And yet like markets are still like did die die di
I think we can make sense of this, not perfect sense, but maybe as good sense as we can ever make of the wild squiggling that characterizes all markets everywhere always. I mean I th you know I thought your column on this was excellent, Katie, but the numbers they are talking about
That's nice, Rob. You're never nice again.
I'm never nice. There's something I've taken some kind of a new pill this morning and they they're working. I don't know
Yeah.
Uh anyway, the numbers they are talking about there. are higher higher than we are now and well higher than we were before the war. However
What the oil prices you mean?
So Brent is what, at one hundred and ten or something now? Do you have that number in front of you?
Something like that.
I feel like from the work Hack Young has done and that I've done, you know, if we can keep it under a hundred and fifty for the American economy at least, that's bearable. Maybe a different story for Europe, certainly a different story for Asia. But like the danger zone I think is still above what most analysts are talking about. I of course allow for the unpleasant possibility that the analysts are not pessimistic enough, which
Yes.
You know what I mean? But you know, I think the central hypothesis remains sometime in the next couple of months. They manage to get the straight open, oil never touches one fifty, and we all breathe a big sigh of relief. There is a right tail that is awful, and we should talk about that. But the central hypothesis The most likely outcome I think is markets friendly, given everything else we know about the economy and what the market is doing now and so forth.
¶ UAE Exits OPEC, Geopolitical Shifts
Let me throw you a curveball, Rob Armstrong, because just before we came to record this show, a headline broke. saying that. The United Arab Emirates said on Tuesday it was leaving OPEC, the organization that effectively controls oil prices. A bunch of big oil producing countries They get together and talk about how much oil they're gonna produce, how much they're not gonna produce, and and roughly what they think that's gonna do to to oil prices. It's been around for like
ever, it's a really important part of the fabric of global finance. And the UAE is saying, right, after sixty years, we're off and everybody I've mentioned this to has gone, Huh? What? Like, what what's that mean?
It is a very unpleasant sensation for a pundit. to see a headline and have absolutely no idea what it means. And I had that unpleasant uh sensation this morning on looking on that. And all I can you know, until I have more time to process this news All I can do is fall back on that old description of OPEC as the world's dumbest cartel. Like their ability to organize themselves to effectively control prices.
to execute a long-term strategy is notoriously a bit ragged. So my first guess, and it's just a guess. is that this is just another wheel coming off a car that is famous for throwing off wheels.
The other car that this wheel is coming off is like multilateralism writ large, right? Y you know, the World Trade Organization, the United Nations, NATO, OPEC. All these things are just kind of unraveling for reasons that I'm largely gonna blame on the US. I mean whether that's fair or not, I don't know. But like you know, th just a lot of these a lot of these sort of things that tie the room together are are falling apart.
And another interesting thing from the Reuter story about the UAE um leaving uh OPEC. Sezir. It's a big win for US President Donald Trump, who has accused the organization of, quotes, ripping off the rest of the world by inflating oil prices. And it's like Dude, you inflated the oil price. Like what? Did I miss did I miss something? Like I don't get this.
Yeah. I don't get it either. But clearly, you know, and this when you talk to regional experts, this is the the larger context is this kind of doom loop hypothesis. that all the global structures are breaking down a little bit and the local story is that it's not a simple situation, a simple two sided war. Like all the parties to this war are pointed in slightly different directions.
The Gulf States uh Israel, the United States, Europe, everybody uh there's not it's it's not uh there's nothing simple about it. This is just more evidence of that. That what the Saudis like, the smaller Gulf states don't like, which is different from what the Iranians are hoping for, which is different from et cetera, et cetera.
Yeah, there's there's like the simmering tension between the UAE and Saudi over the years. Saudi is kind of the biggest beast in in OPEC. So this this almost certainly has something to do with that. But yeah, it just feels a bit like every man for himself, which doesn't feel like a a a a great place to be. So it you know
¶ US Market Resilience and Strong Economy
In moments where you have these big stories like this breaking, people people look to podcasts like this to say, What does it all mean? And our answer is we don't know.
And then you look at how US markets in particular are doing well right now. bonds steady and stocks rising. Maybe there's not a contradiction there after all. Maybe in a fracturing world You want your money to be near the biggest thing that it can be near, and that is America. You want to cozy up, not to the nicest. But to the biggest Now this is kind of bar stool psychology on a global scale by me, but uh you know, it I think that thesis kind of makes sense.
that uh you know you might there is a flight to safety trade in the US right now, even when and we've talked about this a lot. Even when the US has its role to play in creating the instability, a flight to safety still points to the United States.
Yeah, maybe US stocks of the new safe haven pass it on. Like I have heard this idea expressed like completely sincerely that there has been like a reordering of where safety is in market. And maybe it's here. And like an additional interesting thing that's going on here is I've read quite a bit of analysis.
fr from like a couple of different places recently that have both pointed out that where you see US stocks rising, it's not rising because of the usual reasons why it's US stocks rise, which is just like hope and expectation and hype and effectively investors paying more and more money for the same things. Actually what's rising here and what's doing the hard work in pulling markets up is earnings.
Now i on paper, of course it's healthy that stocks respond properly to earnings, but I haven't seen stocks respond properly to earnings for like the past fifteen years. 'Cause normally it is that kind of hope and expectation and hype that's doing the hard work. So if we're trading on fundamentals, something has gone wrong here.
Yeah. It's like when your your crazy uncle starts acting normal. You're like, What's going on here?
Yeah.
Something's wrong with old Joe.
The kids start like loading the dishwasher and like, you know, d doing the laundry and you're like, What have you done? What have you done? You're obviously hiding something.
It's not just earnings expectations. So earnings expec so earnings for next year, the year after that, they're high and even unreasonably high. But I'm just looking as of last F Friday, according to fact set, the companies in the SCP five hundred that have reported so far
Uh which is not the majority of the index, but it's a lot of it. Their earnings are up like fifteen percent on average. Very good. Revenue is beating expectations and you could be worried If earnings were doing one thing and revenue was doing another thing, but revenue's okay too. And look, I'll b I can pitch you a story about the underlying US economy, which I happen to believe, which is it's not as good a ye as it was a year ago, but it's still damn good. I mean you look uh you at home
Can all go look at a chart of U.S. initial jobless claims, like how many people are f filing for unemployment insurance for the first time? That line is historically low and staying historically. If you look at indicators, uh my favorite indicator of corporate sentiment, ISM indices of m indices of manufacturing and services, especially on the services side. It's still well in positive territory, you know. So stuff like this, you know, and I I could realize like
It's okay. I mean you know, we we've just come through a period where the US economy was downright hot and it's cooling, but it looks good and stable. So you have US corporations expanding earnings and revenue and you have a good and stable US economy. Everybody wishes the job market was more dynamic. In other words, more people were switching jobs, more people were quitting jobs, etcetera. But
Everybody who wants a job basically has one. They may not love that job, but they've got one. And so, you know, and and the rest of the market responds to that. Industrials industrial stocks doing well, financial stocks are doing well, et cetera, et cetera.
¶ Central Banks and Powell's Departure
Now the other big thing going on this week is Central Bancarama. Loads of central banks this week. We've got the Fed in the States, we've got Bank of England in the UK, we have got the European Central Bank. Now, on paper, SnoozeFest, they're all likely to be on hold and not move rates. But there's exciting stuff going on here on a macro level about how are they thinking about this rise in energy prices
how inflationary do they think this is gonna be, how much is this gonna push them off the courses that they all previously thought they were on. But also it looks like this is the last meeting where Jay Powell is in charge of the Fed and that
have the following policy proposal for the Fed that at any chair's last meeting They should play kind of sappy end of the mov movie love and reconciliation music in the background. Do you know what I mean? So it's like the it's all okay after all montage at the end of a movie.
Yeah.
This is one of those rare meetings on a more serious note where we know what the first question for Chair Powell is gonna be. Are you gonna leave the Fed altogether when your term is up? Because he was saying I'm gonna stay Uh I will no longer be chair, but I will remain a member of the committee until this investigation uh at least until this investigation of the Fed for fiddling around with its building budget or whatever nonsense justification there was for this investigation is resolved.
Well, it looks like that's resolved now. The Department of Justice has dropped the investigation. The Trump administration has offered some fairly non believable talk about how the investigation will continue in some other amorphous way. But it looks like the investigation. And so so will Powell go now? Because that changes the outlook if he stays. Right. And so that is gonna be the first question. I don't know what he's gonna answer, but that bit will be exciting of the of the meeting.
Look, if it was me and I'm clearly not the Fed chair, I would think, sod this for a game of soldiers. It's been a right old couple of years. I'm knackered. I just wanna like go home, put my feet up, go on a cruise, do some gardening, you know. what but but he's like a proper public servant, right? So he might stay on at the Fed in another capacity. But this does open the door to
¶ Kevin Walsh: Next Fed Chair?
Kevin Walsh, the Trump nominee, taking on this this job that he so dearly wants. We had a hearing in the Senate from Walsh the other day talking about so what are you gonna do with this job if you get it kind of thing? And I feel like we kind of learnt a lot and kind of didn't. Like on the one hand he was like, Listen, I haven't made any promises to cut rates. That's not the basis on which I've got this job, you know, or been nominated by Trump. I would I would do no such
Such thing. But on the other hand, when he's asked l simple questions like, So Kevin, who won the twenty twenty presidential election? He kind of goes no there's a kind of there's a bit of a duck and a dive. So is he his own man? I don't know, but he has got a real headache coming into this job in the sense that
the inflation profile is higher than it was when when he asked for the job and got nominated for the job because of the war in Iran. So he can't necessarily cut rates in the way that he previously anticipated. He thinks that AI enables him to do this, but I don't know about that one.
I strongly agree with you that we do not know what he is gonna do when he gets the job. gotten and kept Trump's nomination had to say a bunch of nonsense about interest rates to keep the president sweet. That's just the price of i of admission to being in position to get the job.
Yes, to get to get the job you must be this tall and have these opinions or be willing to say the following things in public.
And so we don't know whether he believes all the things he said or not. And I think we should accept that fact, not as s you know, a criticism of him. He made the decision He's gonna be nominated by the he wants to be nominated by the president. That comes with certain things you have to do. Fine. But that does mean now we are going to find out. The real Kevin Walsh is now gonna show up.
What does he really think about cutting rates into an expanding economy where inflation is a percentage point above target? We're about to find out. I offer to you that we have no idea what he really thinks about that. And we have to hope that it is a sensible and moderate I mean, you know, my I personally think rates where they are fine, stay the course, be boring would work just fine here. Let's hope he's that guy.
Yeah. But w one one quick observation I would make about this idea that he has that AI enables him to cut rates because it's so good for productivity and will bring bring bring down inflation. is uh if that is really a thing and it's untested at this point, then that will be a global phenomenon and I would note that other central banks are not prominently having this conversation out loud. And it strikes me as odd that this would only work
in the States. And the other is central banks are often accused of like fighting the last battle. So for example, they were really slow to raise interest rates when COVID hit and inflation kicked up because they were they'd spent years trying to get inflation higher. cutting because of a potential thing that might happen with AI in future while you're still dealing with an inflation problem today because of high levels of capital expenditure and because of the war in Iran.
Seems like dumb. Like fighting the next battle before the current battle is over. Strikes me as silly. I'm not a I'm not a central banker, but this feels like you're getting ahead of yourself.
I think you are exactly right. And that was actually what's so radical about what Walsh said about AI. It wasn't that higher productivity is going to come through and when it comes through, we will have more leeway to cut rates into growth. His point was if you wait for the productivity to come through, it's too late. Right? That you have to do it before you see it happen. And that seems to me
to be a completely bonkers view, I wouldn't uh I wouldn't touch with your monetary system. But again, I don't know if he believes that or not. He has to have some story to tell. That will satisfy Trump that he's a rate cutting guy. And that was the story he had. And I sympathize with the guy. Does he believe it? I surely hope he doesn't.
Well we'll get this. Probably Swan Song from J Pal this week. We're gonna get all these heavy hitting earnings. By the time we come back on Thursday, we're gonna know a lot more about the world. In the meantime, we're gonna come back in just one sec with long short.
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Markets move fast. Get the insights you need in ten minutes with Barclays Brief, a podcast from Barclays Investment Bank. Each week our experts analyze.
Helping you and you're not going to be able to
To Barclays Brief wherever you get your podcast.
¶ Personal Longs and Shorts
Alrighty, it is time for long short that part of the show where we go long a thing we love or short a thing we hate. Rob, what you saying?
I am short exercise technology, Katie. I made a terrible mistake last week and I bought one of these smart watches that monitors
Um
performance and I'm training for, you know, a couple of triathlons this summer and so I ran a ten K in the park and all this was captured by my new technology on my wrist and I you know, I say, Okay, now I'm done Then it was like, uh, very good. Your runtime was this. Estimated recovery time, sixty seven hours. And like th this phone basically concluded that I'm an eighty five year old man after monitoring my
Monitoring my vitals for uh you know, a one hour run or whatever. It was like you are about to die.
Well yeah, you're lucky it didn't call you an ambulance, like just as a prevent those watches are bad.
What about you, Katie? What's your long and short?
I am long. The glorious victory of Iran over Trump. I am of course referring to Iran's Hossein Vafay, who defeated Jod Trump in the World Snooker Championship last night going to the quarterfinals. So like Snooker is famous as like a sport in the UK. But as far as I'm aware, listeners correct me if I'm wrong.
Hossein Vafai is the only Iranian player of any sort of stature in in this game. It's amazing. How did this Iranian guy get so good at snooker? And he's like a really unassuming guy and I'm and I'm
And he beat someone called Trump?
Yeah, Jod Trump. He's a famous like I say famous, if you like Snooker, he's a famous snooker player of Brit. Um and it was a really, really close match and there were like errors on both sides and just the whole like Iran beats Trump headline is just too good to resist. So I'm So listeners, like I say, we're all going to be much wiser about the world. We might know some things by Thursday, so listen up then. Unhedged is produced by Jake.
by Brian Erstadt. Our executive producer is Jacob Goldstein. Brumley is the FT's global head of audio. Special thanks to Laura Clark, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free, and a 30-day free trial is available to everyone else. Just go to FT. Dot com slash unhead. I'm Katie Martin. Thanks for listening.
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