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Geopolitical Tensions, Revisited
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Geopolitical Tensions, Revisited

The market reaction to events in the Middle East remains subdued. Are investors underestimating the potential for escalation?

Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Wednesday, Oct. 2. The Bottom Line segment of today’s podcast starts at (3:33) for listeners who want to skip ahead.

State of Play

Geopolitical tensions are arising anew after Iran bombed Israel yesterday and the two sides swapped threats of military escalation. As we eye our board of indicators for signs of direction at 0645, risk-off is creeping in though not as dramatically as you might expect:

  • Stock index futures are down but not by much. Small caps are leading the drop, down 0.7%. S&P 500 and Nasdaq are treading water;

  • Over in commodities land, oil is moving higher, up 3% to trade around $72/barrel. That’s the major move so far in reaction to the Middle East stuff, and it isn’t a very big one. Copper is up 0.6%;

  • Cryptos are dropping with Bitcoin down 4% to trade around $61,000;

  • Bonds aren’t doing anything. The 2–year yields 3.62% whilst the 10-year yields 3.77%.

Today’s Known Events

Iran-Israel is front and center of course. Even if the market reaction has so far been (very) subdued, this is something that is being closely watched for signs of escalation into a broader conflict. How much will the US get involved here? According to the New York Times, the Biden administration has gone from cautioning against a wider war toward managing it. Hold that thought.

When it comes to ‘traditional’ events, we have Tesla (TSLA 0.00%↑) reporting sales at some point today. Deliveries are expected to rise 8%, helped in no small part by incentives supplied by the Chinese Communist Party.

We also have ADP Payrolls at 0815. Economists who were surveyed expect 124,000 new jobs, an improvement over the 99,000 recorded last month. The market doesn’t pay much attention to this number just because it doesn’t track the government’s ‘official’ figure very closely. But it is still an important data point in the labor market.

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The daily podcast discusses the major market activity and economic data release schedule for the day ahead, with a contrarian bent. Also includes regular podcast episodes a day (or more) early and without ads or announcements.