Why are markets listening to Trump?

Katie Martin (0:06)

Pushkin. Markets are getting more than a little seasick. Every time the war in Iran goes from bad to worse, oil prices jump and stocks tumble. Then along comes an announcement from Donald Trump about talks with Iran, pointing to a resolution. Oil drops, stocks jump, and then Iran says essentially, what talks? And back we head again. We're in, we're out, we're shaking all about on seemingly every headline and honestly, still, no one knows what will happen next. Although some very lucky traders in the oil market with some really exquisite timing do seem to have made some extremely good guesses and made a load of money. Today on the show, seriously, how long can we keep doing this? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at FT Towers in old London town, just about holding on to my sanity and sense of humour. Joining me down the line from New York City is Rob Armstrong from the Unhedged newsletter. Listeners, please be nice to him because he has a cold. In fact, please be nice to both of us. I also have a bit of a cold. Heaven knows we are not the hardest working people at the FT. We have colleagues putting in some superhuman efforts, but I do feel like the constant barrage of headlines is starting to grind everyone down.

Rob Armstrong (1:35)

Don't sell yourself short, Katie. We are complete heroes.

Katie Martin (1:39)

We definitely have colleagues who work harder than us.

Rob Armstrong (1:41)

Loads.

Katie Martin (1:41)

Rob, are you dosed up and ready?

Rob Armstrong (1:44)

Yeah, I'm ready to rock.

Katie Martin (1:45)

For podcasting action.

Rob Armstrong (1:46)

I'm ready to rock. Let's do it.

Katie Martin (1:48)

So much going on. Too much going on. That's part of the problem. So look, if you needed proof that we are just living from one headline to the next, and investors are in exactly the same boat, right? So let's do a little postmortem of Monday. So we walked in, oil was going up, up, up, up, up, about $114 a barrel, stocks were sinking. European stocks at one point entered correction territory, which means they're down 10% from their peak. And then enter stage left, a post on Truth Social from your president, saying he had held in all caps, very good and productive conversations regarding a complete and total resolution of our hostilities with Iran. And markets went, wahey, did a total 180, didn't they?

Rob Armstrong (2:38)

It was wild and it was instant. And the question you have to ask about this is, why are we still doing this? Because exactly two Mondays before that, Trump had said the war was absolutely over pretty much or whatever his precise words were. And the market did the same thing, only to have to embarrassingly reverse itself in the two weeks that followed. So he spoke back then, oil down, stocks up, yields down, and then we reverse that over two weeks. And then he says it again.

And to the casual observer, it might feel like markets fell for the same trick again, that the boy who called peace had tricked us again. And at some point, you're like, when do the villagers stop responding when this guy says anything?

Katie Martin (3:37)

Right?

Rob Armstrong (3:37)

It's a bit of a mystery.

Katie Martin (3:39)

I mean, he is the president, but yeah, like a colleague was asking me earlier, what is going on here? Are markets stupid?

Rob Armstrong (3:52)

I think they are not stupid. And I think there is an interpretation of the market response to the president's comments that make the market look perfectly rational. So here goes. The first thing you have to note is that the market is probably, to use the hackneyed phrase, taking the president seriously, not literally. So when the president says, we are having prolonged talks, very constructive talks with the Iranians, no one trading in the market is foolish enough to really take seriously the possibility that talks are happening. What they are hearing is an emotional message from the president about his frame of mind. And that frame of mind is, I, friends, am looking for an exit. I do not like this war and I want to be out of it. And the fact that his actual claims about talks could be either a motivated belief or an untruth, well, that's neither here nor there. What the market needed to hear from the president was, where's the door? And that's what he said.

Katie Martin (5:07)

Because Iran denied holding direct talks to...

Rob Armstrong (5:11)