AI Summary
5 min readOn Tuesday, U.S. Defense Secretary Pete Hegseth told reporters that Iran was "badly losing" and that the day ahead would be "our most intense day of strikes inside Iran." Hours earlier, President Trump suggested the war would end "very soon" but also warned he would hit Iran "twenty times harder" if Tehran blocked the Strait of Hormuz. An Iranian official said the country is "absolutely not seeking a ceasefire." At least 20 countries are now militarily involved, making it one of the biggest conflicts since the Cold War. The Strait of Hormuz remains effectively closed, and a major Abu Dhabi refinery halted operations after a nearby drone strike. Brent crude spiked to $119 a barrel on Monday before falling back to $85 by Tuesday. This is the landscape the markets are trying to price.
The confusing market signal
The initial market reaction to the escalation was not what a classic geopolitical shock would predict. Oil prices shot higher, which made instinctive sense. But the usual flight-to-safety trades did not materialize. Gold did not rally. The Swiss franc and yen weakened. Government bonds fell, pushing borrowing costs up. Stocks in Asia and Europe sold off hardest, while U.S. indices were relatively calm.
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What you'll learn
- 1 (00:00) **Show Intro & Market Vitals** - Ed Elson introduces the episode and recaps the previous day's market data: indices closed flat, crude oil fell, the dollar weakened, and Bitcoin jumped above $70,000.
- 2 (02:42) **Conflict Escalation: The War with Iran** - Ed outlines the latest developments: Defense Secretary Hegseth calls it the "most intense day of strikes," while Trump suggests the war will end "very soon" but warns of hitting Iran "twenty times harder" if oil flow is blocked.
- 3 (04:07) **Panel Introduction: Katie Martin & Justin Wolfers** - Ed brings in FT's Katie Martin and University of Michigan's Justin Wolfers to analyze the market's confusing reaction to the Iran conflict.
- 4 (04:56) **Katie: The Confusing Market Reaction** - Katie describes the initial market response as "weird": oil spiked, but gold, the Swiss franc, and bonds all weakened instead of rallying as safe havens.
- 5 (06:57) **Justin: Why Markets Are the Best (Flawed) Source of Truth** - Justin explains that with broken news sources, financial markets serve as a forward-looking indicator where participants have "skin in the game."
- 6 (12:25) **Katie: The "Avoid America" Trade** - Katie reframes the "sell America" narrative as "avoid America," where global investors are diversifying new capital away from the U.S. rather than selling existing holdings.
- 7 (17:13) **Justin: The President's Misleading Market Focus** - Justin connects Katie's points, noting that Trump is focused on the U.S. stock market, which is the least affected index globally because the U.S. is oil independent.
+ Full timestamped outline available in the app
Guests on this episode
Show Notes
Ed Elson is joined by Katie Martin and Justin Wolfers to break down how the war with Iran is moving markets, what signals the bond market is sending, and where the economy could go from here.
Katie Martin is a markets columnist and editorial board member at the Financial Times. Justin Wolfers is a Professor of Economics and Public Policy at the University of Michigan.
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