What has changed?

0:00Katie Martin: Bull or bear, trade or tariff, future or fad, there's more than one side to every story. With the Flipside podcast from Barclays Investment Bank, you'll hear two research analysts having a provocative debate on hot topics in business and markets. Listen to the Flipside on your favorite platform.

0:25Pushkin.

0:29Rob Armstrong: Investors want to believe so bad. They want this war in Iran to be over so they can get back to the happy, shiny world they had imagined at the start of the year. More than anything, they want to buy the dip. This week, they once again grabbed the apparent opportunity to do just that. Donald Trump, for it is he, declared he had reached a ceasefire with Iran. Pete Hegseth, Defence Secretary, that Iran had in fact begged for one. Rob, I can hear you slurping your coffee. Sorry. Oil prices dropped, stock prices jumped, happiness and joy across the world for like a day. Today on the show, the ceasefire seems to be shaky, but markets are trying to cling on to it.

1:14Rob Armstrong: Why? What is that about? This is Unhedged, the markets and finance podcast from the Financial Times. I'm Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in an unseasonably warm London. It is no-coat weather, people. Joining me down the line from New York City is the coffee slurper who spawned a million memes, Mr. Robert Armstrong.

1:37Katie Martin: Good morning.

1:38Rob Armstrong: Have you finished your breakfast now?

1:40Katie Martin: No, I'm right in the middle. By this time of the week, I'm a little tired and I need a pretty continuous drip feed of caffeine to keep the machine going, you know. So more slurping incoming, Katie Martin.

1:56Rob Armstrong: You've been warned, listeners. So we need to talk about this bounce of peace, this peace bounce and what it tells us about the broader world. But first of all, for listeners who have happily been trapped under a rock for the past few days, let's just have a bit of a recap of what has happened. It's a lot, right? So first of all, Trump was saying he was going to end civilization in Iran unless it did a deal. And then he says he had a deal.

2:27Katie Martin: And it's deal question mark. I think that's right. There was still drones smashing into things. Israel was still bombing Lebanon. The strait was still closed. So it's not at all clear. The deal got off to a shaky start. I think that's a fair way to...

2:45Rob Armstrong: Yeah, and crucially, there are basically no ships heading through the Strait of Hormuz. It's supposed to be open, according to Trump and his people, but the satellite imagery doesn't lie. There are no ships.

2:58Katie Martin: Right. And this, I think, is what we were warned about. It's not like turning a tap on and off. No. There is quite a lot of things that have to be lined up to get traffic going. Insurance has to be dealt with, crews, equipment. Where is the oil going to go once it leaves, et cetera, et cetera? So I don't think that's so much of a surprise as it is just a reality. And this, I think, was probably going to be a theme of all our comments. You can't snap your fingers and get back to where we were in February.

3:36Rob Armstrong: no which is why i find it odd that in a way that markets are so keen to jump on signs that this is all going to be over like in real life this is not going to be over overnight but but markets are kind of trying to make that happen like we saw some pretty big jumps in asian and european and u.s stocks yeah yesterday which which was wednesday and and already that's kind of slightly falling apart because we've got the oil price heading up back close to$100 a barrel. I think last time we checked, it was about 98 on Brent, which is the big European benchmark. Well, I will. I feel like a bit of a yo-yo here.

4:18Katie Martin: Yeah, it's true. Zoom out a tiny bit and let's look at the very big numbers. Big number number one. Number one number. S &P 500 stock index. that is within a percent or two of where it was before the war began. So it's had in the last week or so, it's had a decent bounce. And U.S. equities are saying we're just about back. Big number, number two, number two number is the 10-year yield. That's not back to where it was when the missile started to fly. but the 10-year yield is back to where it was in February. Yeah.

5:02Rob Armstrong: So bonds and borrowing costs are pretty steady, really.

5:06Katie Martin: Pretty steady. And there's exceptions to that we should talk about. But the market is not only saying, you know, we want to come back. There is, at the very top line, a sense that the market is saying, we are roughly where we were before we went on this terrible excursion in Iran.

5:27Rob Armstrong: Yes. I mean, a couple of points that I think are interesting there. Like, if you look at what stocks are doing, like, so far this year, most European markets are doing all right, actually. 5 ,100 is up nearly 7%. Let's not talk about Germany. That's a bad one. But the French stocks are doing pretty well, yada, yada. However, U.S. stocks, the S &P 500 that you just mentioned is still down by about a percent so far this year. So it is lagging.

6:00Katie Martin: That is true.

6:01Rob Armstrong: I don't think that will last, but we can come back to that.

6:03Katie Martin: S &P 500, I would describe it as follows. Trending sideways since September. And part of that has to do is, you know, when it hit the highs of last fall, it was like the hottest stock market that there had ever been. Right. So some of that is just there's no room, you know, there wasn't much room for that to go any higher. What I would mention about the U.S. stock market, though, is that what has not happened is analysts are not pricing in damage to company earnings from the war. This is true. In fact, the opposite has happened where analysts' estimates for earnings in the first quarter, which is about to report, and for this year and for next year, are just basically going up, up, and up.

6:50Katie Martin: So every analyst who covers the car companies and the retail companies and the software companies and everybody else has just been merrily upping their view of how much money these companies are going to make. The analysts have basically decided the war is not their business, and they're just going to look at the fundamentals of these companies, and the fundamentals are pretty good.

7:11Rob Armstrong: In the States.

7:12Katie Martin: In the States.

7:13Rob Armstrong: The same, alas, is not true of Europe. So one thing that people keep saying to me about big investors, where they're putting money to work for the rest of this year, a lot of them had gone into this year. Let's not forget, we opened up 2026 on a really high note. People thought this was going to be a really good year for markets globally and for markets outside the US. Everyone was kind of rah-rah emerging markets, rah-rah Europe. That has really not worked out very well. And now there's a bunch of people I've spoken to in the past few days who are saying, yeah, we're taking off that overweight for Europe.

7:45Rob Armstrong: We're taking off that. We're no longer going to have more in Europe than our benchmarks would suggest. and instead we're rotating that back into the states because sure the u.s is subject to the same global energy prices as as everybody else but the u.s is a net exporter of of oil and gas and so it's in a much better position than you know the uk or europe or large parts of asia or

8:11Katie Martin: whatever so it's not just it's not just our energy i say our that's the royal our coming from america over here. It's not just our energy position. I think our economy is less inflation sensitive than Europe's and certainly less inflation sensitive than emerging market economies. It's less energy sensitive. I mean, you talked about how Germany has struggled. Germany is a very energy intensive industrial economy. That's why it's hurting. So it is another example of are warrior problem for U.S. and the rest of the world because of these great intrinsic advantages that the U.S. economy has over global economies.

8:57Rob Armstrong: Yeah, the big win here in financial markets over the course of this year is going to be the U.S., which I'm going to say is highly irritating. But nonetheless, it is a fact. But it is true.

9:11Katie Martin: Yeah, I think that's right. Let me say something else about American markets that helps. you were puzzled about their resilience. They came down a little bit. Analyst estimates went up. And the result of a slight decline in prices and a big increase in analyst earnings estimates for companies is that the market starts looking less expensive. So you have, especially like the big tech companies, look a lot cheaper than they did a month or two ago because the analysts have marked up their profit estimates, their prices have come down a little bit. And I was talking about this with somebody else yesterday.

9:47Katie Martin: Microsoft, just to pick one example, which has had a terrible year as a stock, is now trading at 20 times earnings. And, you know, history teaches you that when Microsoft is trading at 20 times earnings, you buy it.

10:01Rob Armstrong: Yeah. Because normally it's trading a lot more than that. Yeah.

10:05Katie Martin: Yeah. It's usually it's trading a lot more than that. It's a very resilient company. It grows well. Microsoft is the America of companies in that whatever happens in the world, it turns out to work out well for Microsoft. Yeah. Fairly or unfairly.

10:19Rob Armstrong: Yeah. Yeah, exactly. But one thing that sticks out to me here is stock markets really want to recover. And bond markets are saying something slightly different, though, which is, look, all of those interest rate cuts that you were all kind of banking on over the course of this year, they're not going to happen. The market doesn't necessarily think that central banks are going to raise interest rates, but I think a lot of the cuts have simply got to go. And that sort of keys into my key, like my main assumption about how this crisis pans out long term, which is, yes, everybody wants this whole thing to blow over really, really quickly.

10:55Rob Armstrong: But there is no path back to February the 27th before the bombs started falling on Iran. Like oil has reset at least sort of$20 higher on the benchmark price. There's an inflation thing that is like baked into bond markets that wasn't really there before. The rate cut expectations are in serious trouble. There isn't a way back, is there?

11:21Katie Martin: I think that's right. And I think, you know, we went through a couple of prices earlier saying this price is back, that price is back. A price that isn't back is the short end of the interest rate curve. So looking at two-year treasuries, and for our non-nerd listeners, the two-year treasury yield basically moves with expectations for what the Federal Reserve is going to do with rates. Before this war began, that yield was at under, you know, quite a bit under at times, under three and a half percent. And now it's like 3.8. And interestingly, yesterday, when everything was going up, two-year bonds did not go up.

12:05Katie Martin: And I thought that was kind of the most interesting event of yesterday, actually. And what that tells you is...

12:11Rob Armstrong: Yesterday being Wednesday.

12:12Katie Martin: Yesterday being Wednesday. Thank you for catching me there. And I think before the war, we were in this dreamy state where the economies of the world were going to grow and the central banks of the world were going to cut rates, which is a kind of Christmas, Easter, Halloween, and the 4th of July all combined for equity markets. And even oil aside, I think the shock of the war has made people look at that expectation and say, actually, the world is not such a perfect place. Look, before this war began, inflation in the United States was a full percentage point above the Fed's 2 % target. And yet we were all living in la-la land, like somehow the Fed was going to look past that and cut rates anyway.

13:01Katie Martin: That was a dumb thing for us to think. And even, you know, whatever the war has done, it's like injected this measure of realism into people's expectations about what kind of place the world is, right? Yeah, yeah. And so -

13:18Rob Armstrong: Actually, yeah.

13:18Katie Martin: Yeah. So I think that is the most important sense where we're not going back. We know that even if oil stays here, doesn't go up, the war doesn't continue, the balance of risks for the world central banks and therefore investors are much more in balance than we thought a month and a half ago or whatever it is.

13:38Rob Armstrong: Yeah, yeah, there is no way of going back. Now, just one little additional wrinkle to the rapid news flow that we've had over the past few days is the FT was reporting that Iran wants paying for its toll to use the Strait of Hormuz in Bitcoin, which is interesting.

14:01Katie Martin: Yes. Well, this is bad news for Bitcoin haters like you, Katie, because the world has finally found a use for Bitcoin, which is setting up a huge waterborne toll booth in the Strait of Hormuz where you have to throw a Bitcoin into the little basket as you go by. I'm old enough to remember that when you used a toll booth, you took your 35 cents and threw it into this thing where the change would go down. That's what it's going to be like in the Strait of Hormuz where you're going to throw your Bitcoin in the little basket as you drive by in your huge oil tanker. I mean, we should say we don't know if this is going to happen.

14:40Katie Martin: This is like some Iranian official saying, we're going to have untraceable funds paid to us every time your ship goes by. We're going to take them in Bitcoin.

14:48Rob Armstrong: I mean, two things here. First of all, the price of Bitcoin hasn't responded that much to it, which suggests that even the crypto bros are a bit skeptical. Not the most skeptical crowd in the world, but even they are potentially a bit skeptical this is going to happen. Although, you know, I kind of buy the argument that Iran would be collecting Bitcoin and then transferring it into something they can actually spend rather than hoarding it. So maybe that's not positive for the price of the thing.

15:15Katie Martin: So 20 million barrels a day under normal conditions flow through the strait. They're talking about something like a dollar a barrel. So now you've got 20 million dollars worth of tolls that you got to do. I mean, that money's got to go somewhere and that's real money. Right. That doesn't fit in a briefcase, basically.

15:34Rob Armstrong: No, or a crypto wallet for that matter.

15:36Katie Martin: It's a very large amount of money that Iran stands to collect. And they don't want this money tracked and sanctioned by the United States. And they would prefer it did not touch the dollar-based international system at all. The problem is, and I found this out when I talked to a lot of Bitcoin market experts yesterday, is if you want to buy stuff at the scale Iran wants to buy stuff with the proceeds from this toll, you do have to flip the stuff into fiat at some point. Into proper currencies. And so it helps you to start in Bitcoin, but you still have to find an off-ramp when you want to buy the stuff that you want to buy from crypto world into real money world.

16:21Rob Armstrong: I mean, one thing that is kind of fun here is, you know, we've all spent the past few years kind of wringing our hands about like, you know, de-dollarization and does the dollar stop being the kind of glue that holds the financial system together and the global trade system together. This is like speed running the hell out of that. It's like we've skipped the bit where the petroyuan is a thing and oil, you know, flips to being priced in the Chinese currency and gone straight to saying sod it, do it in crypto. What's the worst that can happen?

16:51Katie Martin: I was actually surprised that they didn't say, and we will take our tolls in Remembi. I would have expected that is what they would say. And I asked people that question yesterday, and they told me, actually, Remembi isn't all that useful to do the kind of large transactions Iran is going to be able to do. So I think you're exactly right. All crises accelerate changes that were going slowly anyway.

17:19Rob Armstrong: I mean maybe I don't know we live in the world's most ridiculous timeline maybe they'll start doing it in like Melania coin or something and then at this stage you have to open your mind to some pretty blue sky thinking about how this might pan out

17:35Katie Martin: no it's gonna be it's like chocolate bars you know yeah diamonds

17:39Rob Armstrong: all bets are off but heed our words boys and girls listening we are not going back to February the 27th a lot of stuff has changed. And this is one of them. So we will come back to you in just one second with Long Short.

17:56Katie Martin: 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.

18:12Rob Armstrong: Okie doke, it's 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 got?

18:20Katie Martin: I'm going to go ahead and get long bank earnings. Goldman Sachs reports on Monday, all the other biggies follow merrily after and say what you will about war and chaos. It's great for the trading desk. So I see some really nice numbers out of the Wall Street bond and equity desks. So that will give us something to be cheerful about in that our friends will get big bonuses and take us out to dinner.

18:48Rob Armstrong: Oh, wouldn't that be beautiful? I'm sure that will really raise global spirits. Everybody loves it when the bankers do well. Hooray! I am short. Friction maxing. The Washington Post writes to inform us that we should introduce minor inconveniences into our daily lives to improve our cognitive function. because apparently getting AIs to do everything for you makes your brains go all smooth and bad and instead you should do things to challenge yourself to which I say, get stuffed.

19:22Katie Martin: Well, you know, it's like turning off the GPS would be an example. Like apparently that is making us all dumber. It's like we used to remember how to get places and now if you turn off the GPS, we just like sit in the driveway staring at the tree in front of our house until something happens.

19:39Rob Armstrong: But like some of these things that the Washington Post says we should do to keep our brains alive include making dinner like two or three times a week rather than ordering in like that's just called like being alive like there's no need for this

19:51Katie Martin: maxing business like it's just yes all right but you should do puzzles yeah cook learn some menus

19:59Rob Armstrong: see a friend in person and don't look up the answers to things human maxing person human And maxing. I kind of don't object as such, but this whole maxing thing really grinds my gears. It's highly irritating. And also, life is already highly annoying. Thank you very much, Washington Post. So we don't need any more things to make our lives worse. Speaking of making your lives worse, we will be back in your ears on Tuesday. So listen up then. Unhedged is produced by Jake Harper and edited by Brian Erstat. Our executive producer is Jacob Goldstein. Cheryl Brumley is the FT's global head of audio.

20:38Rob Armstrong: Special thanks to Laura Clark, Alistair Mackey, 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.com slash unhedged offer. I'm Katie Martin. Thanks for listening.

21:15Rob Armstrong: I got an email the other day saying that at the start of Long Short, I didn't say okey-doke. It's time for Long Short. Someone said, oh, you didn't say okey-doke. So I'll have to go back to okey-doke. Maybe I'll go okey-dokey.