Three markets we’re watching

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Ethan Wu (0:36)

Thank Pushkin, war has erupted in the Middle East. The surprise attack on Israel over the weekend is clearly the main story in markets news and news just about everywhere. And investors like everyone else are trying to figure out what it means. Today on the show, three markets that we're watching that might tell us something about it.

This is Unhedged, the markets and finance show for the Financial Times and Pushkin. I'm reporter Ethan Wu here in the New York studio, joined as ever on Tuesday by FT Markets Editor Katie Martin in London. Hey, Katie.

Katie Martin (1:08)

Hey, Ethan, how are you going?

Ethan Wu (1:10)

Well, I think like everyone else, I was just glued to the news this weekend trying to figure out what was going on, which seems to be what investors are doing too. And we wanna get into three markets that might help us make sense of what we're seeing in the news. And those markets are oil, gold and the Japanese yen.

And I think the broad thing these all share is these are haven trades. These are trades that you fly to when things get scary in the market.

Katie Martin (1:37)

Yeah, markets are kind of funny. They have a certain muscle memory.

And when you get economic shocks or geopolitical shocks, but particularly geopolitical shocks like the one we've seen over the weekend, there are just certain markets that are go to. That they just perform well in moments of geopolitical crisis. And the Japanese yen is definitely one of them. The oil price is one because of where this conflict is taking place in the Middle East.

And there's gold. There are other things as well, but these are some of the really important assets that you look to, to get a sense of just how nervous investors really are.

Ethan Wu (2:15)

So like you said, Katie, any conflict in the Middle East is going to kind of push investors' minds immediately to what's going on with oil. Obviously the Middle East remains kind of a key global supplier of crude.

And we have kind of a recent precedent for a geopolitical conflict causing a big run up in the oil price. And that's the war in Ukraine.

Russia, like the Middle East, is a major exporter of oil as well as natural gas. And in the wake of that war, we did see a pretty significant increase in global energy prices. And so I think like everyone else in markets, after I started reading the news of what was going on in Israel, I took a look at what oil futures were doing. And it's not like they didn't move, but it didn't seem like much.

Katie Martin (2:53)

Yeah, I would not have been at all surprised to have come into work on the Monday and found that oil was trading at over $100 a barrel, frankly. But that's not what's happened at all. And I think it's worth zooming out a little bit and talking about just how weird oil has been recently. So we had a massive rally in oil prices from around late summer. I think prices came up something like 25%.

And all of a sudden, you start hearing analysts talking about, okay, we're gonna get $100 a barrel oil again. We're gonna get $150 again. The reason for that is not that the economy is kind of firing on all cylinders, and you've got this kind of huge run up in demand for oil. It's because Russia and Saudi Arabia, the kind of really big dogs of the oil market, decided to restrict supply.

And the less kind of oil they're providing onto global markets, the higher the price goes. They wanted to support the oil price. And so that's what pushed the oil price up over the summer. You can contrast it with, for example, the copper price to tell you that this isn't a kind of global demand story. This is just about the supply being constrained. So we saw a big run up in the oil price, and then that actually sort of collapsed under its own weight a little bit last week. It just got to the point where the market started to say, okay, we think this is actually gonna become a problem for global growth. And that kicked the oil price a little bit lower last week.