STRAITJACKET

Why the war with Iran won’t end until after the midterms

The war is driving up the price of oil. The price of oil is driving up inflation. Inflation is driving up yields in the bond market. And higher bond yields are frightening stock investors, who have pulled the S&P 500 down from its all-time high in August.

So Wall Street is trying to figure out when the war will end.

It turns out that both Iran and President Donald Trump are probably locked in until after the midterm elections in November, according to analysts at Macquarie and Deutsche Bank, and Fortune’s Jordan Blum.

Tehran knows the war and high gas prices are unpopular with Americans, which is why they’re incentivized to keep the Strait of Hormuz closed. “The prospect that the conflict may endure unresolved until the U.S. midterm elections is becoming increasingly palpable,” Macquarie’s Thierry Wizman and Gareth Berry said in a note.

“As such, until then, Iran can present conditions that they believe the U.S. won't accept. Correspondingly, the U.S. can't accept tough conditions from Iran because anything that evokes a surrender by the U.S. would be politically even worse for Trump than restarting the kinetic war. Hence, Trump opts to maintain the status quo—no peace, and no war—for now, as a compromise with himself and Republicans.”

A straw poll of investors conducted by Deutsche Bank shows that 83% believe Trump is incentivized to end the war before the elections due to domestic considerations, whereas the Iranians have no such incentive. 

Here is where the 4D chess comes in. What if now is in fact the best time for Iran to seek peace?

“One point worth considering is that once the midterms have passed, the U.S. administration may have less incentive to pursue a favorable agreement. Iran may therefore view the current period as the best opportunity to secure a deal it can live with. The fact that negotiations remain ongoing may be a reflection of this,” Deutsche’s Jim Reid said in an email.

• ‘Groundhog Day’: Iran is unlikely to let the war end until after the midterms—and may even escalate soon - Jordan Blum

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THE MARKETS

Bonds and oil give stocks some room to breathe

The price of oil declined sharply overnight, and the yield on the benchmark 10-year U.S. Treasury (which often moves in parallel with oil) ticked down to 5.2% this morning. That’s an indication that debt traders decided to buy the dip (as bond prices rise, the yield on them declines). This was all good news for stocks: Markets in Asia and Europe largely ticked up this morning, setting the stage for an increase in U.S. S&P 500 futures prior to the open in New York. 

Fun fact: The krazy KOSPI, South Korea’s infamously erratic stock index, was “the world’s worst-performing stock market in the third quarter,” losing 18.8% in the period, according to the FT. The index is highly volatile because it is dominated by just two stocks (Samsung and SK Hynix), and Korean retail traders love to trade with leverage. Despite its dismal Q3, the index is still up a staggering 60% for the year. 

• S&P 500 futures were up 0.24% this morning. The index fell 0.17% yesterday. 
• In Europe, the Stoxx 600 was up 0.6% in early trading, and the U.K.’s FTSE 100 was up 0.62% before lunch.
• Asia: South Korea’s KOSPI was down 0.48%. Japan’s Nikkei 225 was up 1.94%. India’s Nifty 50 was down 0.42%. China’s CSI 300 was up 0.29%. 
• Brent crude fell to $96 per barrel this morning from $105 yesterday.
• Bitcoin was at $83,163.

American unhappiness in three charts

The U.S. economy continues to create new jobs, but—counterintuitively—fewer new job opportunities are being advertised each month, according to the Bureau of Labor Statistics. Job openings fell to 7,079,000 in August, down from 7,335,000 the month before. That was below the consensus guess, which was 7,228,000. This chart from Pantheon Macroeconomics shows the long-term decline in “help wanted”:

In reality, there are lots of jobs being advertised in retail and manufacturing but there have been significant declines in the leisure, professional, and health care sectors, Pantheon’s Samuel Tombs and Oliver Allen said in a note. That explains why more Americans believe jobs are hard to find than those that believe jobs are plentiful:

That's why all the major consumer confidence indexes are declining. The Conference Board’s measure is at the lowest in 10 years, Pantheon says:

NUMBER OF THE DAY

80%

The amount of energy on Europe's power grid coming from zero-carbon power generation by 2030, according to an estimate by Wood Mackenzie, the energy consultancy.

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CHART OF THE DAY

The higher the price of oil goes, the more likely it is that the Democrats will sweep Congress in the midterms

This extraordinary chart from Wells Fargo shows the odds given on the Kalshi prediction market for the Democrats taking both the House and the Senate in the upcoming midterm elections, plotted against the price of West Texas Intermediate crude oil. Clearly, as long as the price of gas and diesel stays high, Americans trend toward the Dems. The Democrats currently have a 62% chance of taking both chambers. The previous most likely scenario—that the Dems would take the House but Republicans would keep the Senate—collapsed in March after the war started.

ONE MORE THING

All of a sudden, don’t learn to code

For decades, the sarcastic retort of conservatives and tech bros to liberals who worked in the arts was “learn to code!” But that may no longer be a good idea, as AI increasingly makes coding a skill that fewer people will need, in much the same way that you don’t need to know how to build a laptop in order to use a laptop.

Instead, Elon Musk said recently, humans will need a broad-based schooling. “My recommendation for education would be to get as broad-based education as possible, that includes arts and sciences, engineering—wide-general knowledge.”

“In order to know what to ask the robots for, you need to be able to formulate the question,” Musk said. “And with the broadest possible general knowledge, you’ll be better able to formulate the questions or what they call prompt engineering.”

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