Good morning! It’s been a busy 24 hours for both politics and sports enthusiasts. On the one hand we had a massive escalation in the Middle East. Not only the Strait of Hormuz, but also Lebanon is now the hotspot in the Iran war. On the other hand, we witnessed truly historic moments in the World Cup as we had to bid farewell to the absolute soccer legend.
We also cover the latest on the US midterms, including a mysterious condition of retiring Mitch McConnell. Traders exhibit a curious confidence regarding the chances of him stepping down despite lack of information on his prospects.
Let’s take a look at the markets to make sense out of the news!
The Midterms Tracker
RED
RED is down 0.2 points, but still in 90.5-91.5 range, indicating a stable outlook.
Senate
The move in RED was caused by the sudden drop in the SENR index. It fell 0.5 points overnight. However, with no news in sight, we must attribute the slight change to rebalancing.
House
HOUSER stabilized around 75 points indicating that Democrats are a strong favorite to win the House in the midterms.
Main Events Of The Day
#1 The Strait Of Hormuz
The Strait of Hormuz traffic normalization markets saw a massive downward revision in the last 24 hours. The Yes price on the end of July market fell from 14c down to only 8c. Now the market is in what we consider a bond territory—usually, when the price of either side goes below 10c, traders start to see the forecasted outcome as practically inevitable.
Kpler reports an average of 36 crossings during the weekend, well below the 60 needed to resolve the markets to Yes.
The pattern we see on the end of July market is also visible on the longer strikes. The biggest revision can be seen on the end of year market, which fell from 81c to 61c in a matter of just three days. Traders have realized that what we see now is the new status quo—the traffic is up vs war levels, but still significantly below the normalization threshold.
The main oil benchmarks seem oblivious to this new reality:
#2 That’s Not All!
The new status quo in the Strait of Hormuz is not set by accident. Iran, or the IRGC to be precise, seems to have a very specific number in mind when it comes to daily crossings.
Each time the traffic spikes, the IRGC is there to strike a vessel or two and keep the flow in check. This is what happened overnight after a decent level of traffic we saw during the weekend. The IRGC reportedly struck two vessels trying to exit the Persian Gulf through the Omani route.
A lot of traders bonding July 8th market must have been surprised to see their position evaporate.
#3 Is It Really Diplomacy?
Elsewhere in the region, Israel and Lebanon announced a new round of diplomatic talks. They will be held on July 14-15th in Rome.
The representatives are expected to discuss the Lebanon framework. Both countries are now working together to limit the influence Hezbollah enjoys in Lebanon, which is bound to provoke a response from Iran. Chances are we might see more disruption in the Strait of Hormuz.
#4 Traders See Mitch McConnell Stepping Down
That’s enough of the Middle East for one day. Moving back to the US, traders now expect Mitch McConnell to step down before the end of his term.
The renowned Senator is finally retiring this year, after spending 41 years representing the proud state of Kentucky. However, he’s been hospitalized for three weeks now with no official reason. Traders understand that the shroud of mystery is most likely covering a rather serious condition.
As a result, they see an 84% chance of him stepping down vs only 40% days ago (and 21% before he was hospitalized).
#5 The End of the Glorious Run
Lastly, some news for the fans of the World Cup. After a historic run, the US was eliminated from the tournament by Belgium. Despite being the underdogs, the small European country beat the US 4-1. Many hoped the US could reach at least the quarterfinals, but by all means, getting to the round of 16 is a massive success.
The US fans can join the Portuguese in mourning. After a slow game, Portugal lost to Spain 1-0, after a goal in the 91st minute. Soccer (or should we start calling it football?) fans across the world watched the game with tears in their eyes as this is the last World Cup for the legend, Cristiano Ronaldo.
Now the very tears of the GOAT are a topic of yet another major dispute on Polymarket. Do you think Ronaldo cried? Or was he just sweating? We shall know soon enough:
Wrap up
That’s all for today!
We will continue to monitor the situation on prediction markets.
Make sure to follow prediction markets live to get fresh information on the conflict. Stay strong and see you tomorrow for another Morning Brief!
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.