Welcome to another week! For the new readers: every week I comment on the top prediction markets—selected by volume, volatility and surprising resolutions—across (geo)politics, elections, macro, tech and science. Markets first, news through their lens, not the other way around.
Let’s see what changed in the world!
Weekly Outlook
US Inc.
Midterms
The midterms got boring stable. We’ve been at 62-63% chance Democrats sweep for almost two weeks. New polls across districts and states show little difference vs old ones.
I believe the market is not bullish enough on the sweep at this point. My model gives a 66% chance of a D House + D Senate and a 21% chance for a split Congress. The interesting part here is how the model approaches the joint probabilities. Both House and Senate depend a lot on the final generic ballot, meaning they move in tandem—that’s why the chance Democrats sweep is barely lower than the chance they get the Senate.
When it comes to toss-up races, Texas is leading the pack in terms of volume and general interest:
After the disappearance drama, the market settled on a 63% chance Talarico wins the seat. I don’t agree here. Despite being bullish on Democrats this cycle, I see only a 59% chance Texas goes blue.
Sure, Paxton is a terrible candidate—but Texas is still a deeply red state. The fact that Talarico breaches 50% in some polls is reassuring, but not enough to put his chance above 60%.
I’m diving deeper into individual races in my upcoming midterms article. I’m planning to publish it tomorrow.
The Fed
Last week we had a hot CPI print. Both headline and core came in above consensus, driven mostly by energy prices (headline) and a broad-based rise (core). For a moment, the market got chaotic, as if afraid that a hot CPI print might change the Fed’s decision. The subsequent hot PPI print added fuel to it.
Hike bets faded just a couple of days later after Kevin Warsh said that he didn’t prejudge meetings and that the data had broadly matched the Fed’s expectations since the September hike. Now traders see an 88% chance of no change in interest rates, above 84% pre-CPI.
The Americas
Brazil Presidential Election
In Brazil, the Lula vs Flávio runoff is getting more interesting by the day. Initially, riding Flávio’s first-round win, traders gave him an 89% chance to win the election. Since then, several polls have shown a race that is closer than expected:
Flávio still holds a slight advantage, but Lula cut some distance—R1 results suggested a 52/48 split in favor of Flávio. The runoff is this Sunday. After R1 I thought that nothing interesting could happen in this race, but now I guess I have to publish a small forecast update. Expect it towards the end of the week.
Asia
No interesting markets in Asia last week.
Middle East & Africa
The Iran War
The Middle East is still embroiled in a war with no end in sight. There’s been no real progress since the UNGA. The two sides have narrowed some gaps, but they still disagree on the key issue—who moves first.
As a result, all dovish markets are down.
Additionally, there’s been a sharp uptick in the number of attacks on shipping in the Strait of Hormuz. Iran is trying to increase pressure on Trump ahead of the midterms:
For now, Trump is holding off on resuming hostilities, but some reports suggest a new kinetic round might happen just after the Israeli and US elections.
What we generally see are stale markets with theta decay. The news is only producing small moves that never break the overall trend line. With just over two weeks until the midterms, little can change.
The Houthis
The Saudi-Houthi war is where all the action is. The Houthis have hit King Khalid airport in Riyadh at least 20 times since Oct 1. Saudi Arabia is coordinating a ground offensive against the Houthis (through the Yemeni government forces).
Pakistan has its troops in Saudi Arabia, while Egypt is joining the war defensively. GCC foreign ministers now want the Iran peace deal to include proxies, missiles and drones. And Trump is mulling over joining the war.
If anything, it further decreases the chances for a peace deal in the Iran war. At least the Bab-el-Mandeb Strait looks safe…
Israel
While the war goes on, Israelis go to vote in just eight days. Current forecast puts Likud behind Yashar, but the truth is that neither is likely to get enough votes to form a majority:
Traders are looking towards long negotiations (or possibly even another election), but see Gadi Eisenkot as the favorite:
Europe
The Ukraine War
Washington moved toward Moscow this week. Trump eased sanctions on Russian diesel, waived key parts of the Graham sanctions law, announced an “energy ceasefire” Russia never accepted, and paused intelligence sharing with Kyiv for three days. Kyiv’s answer: restarted refinery strikes and the largest drone attack of the war, ca. 1,000 drones aimed mostly at St Petersburg.
The front barely moved. Poland, Lithuania, Latvia and Estonia experienced another airspace incursion, and similarly to the Iran war, we are nowhere near peace:
France
Protests in France fueled a spike in Marine Le Pen’s chances to win the presidency next year. On Saturday, Oct 17, a student-led protest over the cost of living turned violent, making it one of France’s most violent weekends in years. More than 1,800 people were arrested, and a town hall was burned.
This is far from over. Protests started among students last month, then quickly spread across France. They are now out of control. Macron held an emergency meeting on Sunday, then spoke to the nation. He blamed “insurrectionist elements from radical far-left groups” and “numerous criminals,” and said looters would pay.
Romania
It looks like Romania is coming out of its government crisis. After months of negotiations, Luca Niculescu secured enough support to win the confidence vote.
The vote is still due to happen, but traders have little doubt it will go through. It’s a big win for the president, who was desperately looking to avoid a snap election. We will see, though, for how long—chances are the new government will be unstable.
Wrap up
That’s all for today! The midterms article is going slower than expected, but I hope to publish it tomorrow.
In the meantime, stay strong and see you soon!
This is not official investment or life advice. Do your own research. These are only my opinions and I encourage anyone to do their own research before putting any money anywhere.