Good morning,
The idea that financial markets are cold and unfeeling in the face of major geopolitical events is getting some support from this morning’s price action. While the weekend airstrikes haven’t yet prompted a direct response from Iran, most asset prices have already unwound the risk premium that was priced in on Sunday night’s open.
As a lifelong student of markets, I’m still surprised by how quickly the impact of the weekend bombings seems to be fading. As of 7:30 am EDT, futures are hovering just below unchanged, and bond yields are flat. The VIX is up a touch to 21.77—just over the “elevated” threshold of 20—but nothing dramatic. For now, traders appear cautiously optimistic that Iran won’t be able to seriously threaten the Strait of Hormuz, and there’s been no real urgency in classic “flight to safety” trades.
This week, all eyes will stay on Retaliation Watch. There’s not much in the way of key macro data, but Fed Chair Powell is scheduled to testify before Congress on Tuesday and Wednesday, and investors will pay close attention there mid-week.
Otherwise—see you Friday. Have a great week.
Be well,
Mike