Good morning! Yesterday, just after our release, Trump posted a Truth Social post in which he was very bullish about a potential ceasefire:
The message initially heavily impacted both traditional and prediction markets. However, shortly after Iran denied any negotiations taking place and the truth started to come out.
Ultimately we learned that some effort to negotiate is being made, but the key to Trump's message was to fold on his previous bluff. Additionally, the proposed 5-day window ends just as traditional markets close and first Marines unit arrives at the theater.
The markets quickly retraced the initial move, but we are left with an entirely new situation. Let's see how the markets settled after a volatile Monday.
Iran Tracker
#1 The Ceasefire
The ceasefire market spiked on the Trump announcement, but shortly after it retraced majority of the move, ending up only 4c higher than before.
Traders were quick to realize that the message is mostly hopium directed at traditional markets. The reality is that both sides are even further apart than before the war. Iran delivered on its deterrence threat and enjoys a better negotiating position than before.
At the same time Trump famously hates negotiating from a position of weakness. In our opinion traders were wise to discount the ceasefire talk as a mostly fabricated narrative to manage the markets.
#2 The Strait Of Hormuz
The Strait of Hormuz continues to be effectively closed, even as some ships decided to pay the ransom fee to Iran to traverse the strait.
Ceasefire hopium only pushed the market marginally higher as traders understand that only a meaningful pause in kinetic action will encourage ships to try and cross the strait.
Ultimately chances of a single US escort operation dropped slightly on the news as in case of a ceasefire no escort would be needed and in case of no ceasefire the new reality is that the Strait of Hormuz issue is more difficult than the US is letting us believe:
In the meantime, the price of oil dropped sharply on the ceasefire hopium, but quickly retraced most of the move. Seems like traditional and prediction markets follow each other closely:
#3 Boots On The Ground
The whole ceasefire situation had impact on all Iran-related markets. And the one that took the biggest hit is US boots on the ground.
It may be a bit counter-intuitive as Marines are still on the way with the first unit arriving by the end of the week. But when we see such a lack of consensus in Washington (on the one hand ceasefire, on the other hand additional $200 billion for the war and Marines + 82nd Airborne Division mobilized), we can expect further disagreements even if ceasefire effort fails.
Thus also a slight drop in Yes price on the Kharg Island market:
#4 Iranian Regime Fall
Iran regime fall market is an interesting study after the Trump announcement.
The US willingness to open official negotiations indicates that the regime is strong. It's an official confirmation that the US doesn't expect it to implode anytime soon. Thus the Yes price dropped significantly, and contrary to other markets, stayed lower even after bearish developments on ceasefire.
#5 Next Supreme Leader
Iran's leader by the end of the year market is closely aligned with regime fall market.
Here as well Mojtaba Khamenei's chances of staying as the Supreme Leader increased and sustained the move. The reason is similar. Ceasefire effort, successful or not, suggests that the current leadership is well-entrenched and considered strong enough to negotiate with.
Wrap up
Despite the recent developments the markets tell us that chances for the war to end are still slim in the short-term. Both sides are even further apart than before and Trump's message is calibrated for the markets, not resolution of the conflict.
There is no consensus building in the Washington at the moment, as indicated by conflicting moves - on the one hand we have Trump with his ceasefire narrative while on the other we have continually increasing deployments to the Middle East.
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. This are only my opinions and I encourage anyone to do their own research before putting any money anywhere.