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 was good to the Democrats. After a series of favorable polls across battleground states, they now hold the widest lead yet in Silver Bulletin’s forecast:
Adjacent’s indices also put Democrats as slight favorites, though the gap is narrower here:
This is a direct result of the Iran war. Last week I showed you the record diesel crack spread. There’s a catch, though: the premium needs time to flow downstream (to the end customer—you), so these polls reflect sentiment from before the latest price increase. Democrats have more upside coming.
I expect Democrats to continue to outperform in the polls, unless we get a new, real peace narrative. Speaking of, there’s one more person who would love to see one this week.
The Fed
This person is Kevin Warsh. Friday’s CPI print came in hot not cool enough and now traders give an 80% chance of a hike this week. Warsh gave traders little choice—he pressured the market to figure out the interest rate without input from the Fed, and it called his bluff.
Surprisingly, for now the market sees only one hike this year:
This runs against my analysis. If the Fed decided to destroy demand to rein in inflation, it would have to start a hiking cycle. A 25 bps increase is not nearly enough to move the policy into restrictive territory.
Yet, a single hike in September is the base case:
For me the decision is still highly dependent on the course of the Iran war. Taking it into account, along with the market’s assessment of the decision, I need to drop my FV of no hike from 81% to 40%—I see a hike as likely, but far from certain.
For now, I’m keeping my position.
Clarity Act
Lastly, we got an update regarding the Clarity Act. The Trump admin agreed to the ethics provision along with most of the other changes proposed by the Democrats. Now, the ball is in Democrats’ court.
Traders were waiting for that—the market rallied 10 points on the news and stabilized around 30%. Any bullish news from the blue camp is bound to push it towards 50; a successful cloture vote will send it into the 80s.
I remain bullish on the Clarity Act passing and still hold my 7.8k Yes shares.
The Americas
Brazil Presidential Election
Flávio Bolsonaro is now the favorite to win the Brazilian presidential election. A few weeks after I flagged his rise (along with a couple of reasons to be bullish on him), the first polls that put him as the run-off leader dropped:
Depending on the schedule, I might have something interesting for you on the election that I’ve been working on.
Asia
No news from Asia-related prediction markets.
Middle East & Africa
The Iran War
The big news from the Middle East comes from Saudi Arabia. The Houthis and some Iraqi militias hit the East-West pipeline. As a result, it is completely shut and traders see only a 56% chance it restarts by the end of the month:
At the same time, the sentiment on peace is at an all-time low:
The only nugget of hope, the Iran-Oman Hormuz Management Agreement meeting scheduled for today, was postponed indefinitely:
However, there seems to be growing pressure to end the war. The East-West pipeline is down. The tanker war in the Strait of Hormuz continues—both WTI and Brent are now above $100 per barrel while US diesel breached $6.20 per gallon:
And rumor has it that Saudi Arabia pushed to postpone the meeting on Hormuz:
I wouldn’t be surprised if MBS were trying to pressure Trump this way. His risk tolerance might be too low to fight the Houthis again.
On the other side of the region, a diplomatic meeting between Israel and Lebanon in Rome was postponed to October:
The diplomats are still due to meet in New York this month as part of the UN meeting, but it is unlikely they will hold long, focused sessions.
The Houthis
In Yemen, the Houthis advanced and took over the land directly adjacent to the Bab-el-Mandeb Strait. Saudi-backed forces that held it for the last eight years or so completely disintegrated. Traders saw it as a sign that from now on, the Houthis can block the strait more easily, worth a 4-point premium on the market.
Europe
The Ukraine War
The biggest news from the Ukraine war last week comes from just across the Polish border. A Russian drone struck a passenger train near Yahodyn, 2km from Poland, while Boris Johnson and David Petraeus were in the area.
It is the next big provocation from Russia, days after Kushner and Witkoff visited Moscow.
It is clear by now that no peace will happen soon:
In fact, a NATO-Russia military clash is more likely (and I agree with the market):
Sweden
The Swedish Social Democratic Party won an extremely close election. The votes are still being counted, but at this point there’s no chance the overall result changes.
It is the first election first time the far right lost ground since 2010. Sweden, once a country with very lax immigration policies, became one of the hardest European countries to get into after a public backlash over immigration. The new government can relax the rules a bit, but no one expects a full return to the previous regime.
Other
AI
In AI, we saw a lot of trading on the Best AI model market. Initially, traders saw a chance Astra could overtake Fable on the LMArena text leaderboard, but those hopes were quickly dashed.
However, Astra, or rather OpenAI, is pretty good at solving Millennium problems:
Traders expect another one to be solved by the end of the year (Navier-Stokes was solved just last week).
Lastly, I saw a strange move on the “Will OpenAI release a social network in 2026?” market:
I’m not sure there was any news that pushed the price, but sometimes these are insiders getting in early.
Wrap up
That’s all for today! The delayed Forecast Update will come out before the FOMC. Additionally, I might do a post-vote update on the Clarity Act.
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.