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
Last week brought some stabilization to the midterms forecast. The Democratic sweep chances peaked at 66% before falling back to the current 61%. Adjacent’s SENR Index indicates this is a story of two races at the moment:
On the one hand, we have Michigan, where Abdul El-Sayed extended his lead in the polls:
He now has a 71% chance to win the election, up from 67% a week ago. If this week’s polling sees the trend continue, we should see the market go into the high 70s.
On the other hand, we have Maine, where last week’s NYT/Siena poll showed Collins in the lead:
It’s the first time since June polling indicates Maine will be a close race, pushing the forecast towards 50/50.
Chances are, this week the overall Senate market will be flat, with Republican losses in Michigan offset by Maine gains. But then, we have Texas and Kansas that can push the Democrats higher.
The Fed
With Republicans losing across the board, a hike in October would be politically awkward for Warsh. The FOMC meeting is scheduled just a week before the election, making the decision a political one—not directly, since the hike would take time to impact the economy, but as a narrative.
The market seems to be pushing the Fed to hike, as visible on the long-term yields market:
However, TIPS analysis suggests it’s not inflation the market is worried about:
The more appropriate interpretation is that the market expects to see a higher neutral rate in the future. A combination of global supply chains breaking down and uncertainty around AI’s future impact on the labor market must play a key role here.
LA Mayoral Election
We had a surprise flippening on the LA Mayoral Election market. Nithya Raman is now a 58% favorite to win, after a new poll put her 11 points ahead of the incumbent, Karen Bass.
Both, however, are members of the Democratic Party, making it an internal race, rather than a Red vs Blue clash in LA.
The Americas
Brazil Presidential Election
This week, we have the first round of the Brazilian presidential election. Currently, Flávio Bolsonaro is a 58% favorite to win, despite losing in the first round polls:
Traders also have little doubt about the first round alone, where Lula is a 75% favorite:
It’s the runoff polls that drive the market:
Flávio Bolsonaro is expected to get most of the transfer voters, putting him ahead in most of the polls.
I also have a small Yes position on Bolsonaro to win with my current FV at 64%. I might write a deep dive on the election this week depending on the schedule.
Asia
No interesting markets in Asia last week.
Middle East & Africa
The Iran War
The UNGA in New York brought a new peace effort. Iranian officials used their visit to appear in American media and propose a new deal, aiming to open the Strait of Hormuz in 7 days on condition that the US lifts its blockade:
Trump, initially receptive to the idea, rejected it on Saturday, pushing the peace, blockade and Strait of Hormuz traffic normalization markets down:
However, Axios reports that new talks are scheduled for today on top of repeated reports of Gulf officials passing messages between America and Iran.
Iran denies any talks are happening.
Either way, the market doesn’t expect an imminent return to hostilities:
Trump himself doesn’t expect to order strikes before the midterms, in an effort to avoid further disruptions before the election.
We come into the week with a peace narrative. The next few days will show us whether it yields any results. If not, Trump has few options:
Traders see very little risk of an export ban, mainly due to its detrimental consequences to the American economy. Regionally, the Northeast would be hit hardest (it depends on imported fuel), and jet fuel and gasoline prices would spike.
The Houthis
The fighting in Yemen continues. The ongoing hostilities are what keeps the market flat against theta decay. Soon, this market will be an interesting bond again (I already hold a No position on the year-end market).
In the meantime, the East-West pipeline is still not operational:
There were some rumors early last week that the pipeline had restarted, but the Saudis have yet to confirm it. There are also fresh rumors from today, this time in Bloomberg (last time Reuters broke the story).
Even if the pipeline restarts soon, Saudi Aramco has already invoked force majeure on October deliveries to Europe.
As a result, the market is slowly decaying towards zero.
Israel
Little has changed in the Knesset election forecast. Neither bloc can get a clear majority in the polls, but traders still see Netanyahu as less likely than Eizenkot to be the next prime minister:
Europe
The Ukraine War
Russian provocations have decreased recently, after weeks of almost daily incidents around Europe. The Duma election is over, and now it is time to look for new signals on Russia’s strategy:
The markets are flat despite the lack of news, anticipating new escalations soon. The same can be said about the Ukraine war ceasefire market, which didn’t even budge on the Witkoff-Kushner visit:
It’s been a long time since my last article on the war. High time I revisited the topic in the next couple of weeks.
Germany
After a series of elections in Germany, the CDU is in a tough spot. They lost ground in every September election, while AfD is leading in national polls.
However, German politics has no tradition of calling snap elections, unlike British politics. The markets, initially fueled by post-Berlin election speculation, look like a safe bond now.
Romania
In Romania, the government crisis continues. This week, a third prime minister nominee faces a confidence vote that is likely to fail. PSD refused to back the PNL nominee just today, after a week of speculation.
The failure would enable Nicușor Dan, the liberal president, to call a new election. Analysts, however, don’t see it as likely—AUR, a right-wing, EU-skeptic party, leads the polls.
Other
Nobel Peace Prize
Lastly, we have a new Nobel Peace Prize market. Last year’s market got famous due to some trader finding the winner early by reviewing the sitemap. Will this year’s market be as interesting? I hope so, but for now I don’t see any edge here.
Wrap up
That’s all for today! Coming up: either a Brazil deep dive or a Ukraine focus piece.
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.