🔮The Oracle: Shapiro Slipping? • All Eyes on Pennsylvania • Macro Tremors • Middle East War Risk

What Polymarket Odds Say about the Week Ahead …

Will the Last-Minute Shapiro Takedown Succeed?

Pennsylvania Governor Josh Shapiro has a 64% chance of being tapped as Kamala Harris’ running mate, down from a peak of 77% on July 31. There is a 43% chance that the Harris campaign will announce their VP pick today.

Both Shapiro’s odds and chances for a Monday VP announcement fell over the weekend amid a last-minute anti-Shapiro effort involving Barack Obama, Nancy Pelosi, and other senior Democrats. 

Shapiro remains the favorite for Dem VP despite the recent dip. A look at the major events that shaped his rise:

July 10: Biden Fate Sealed - Markets began to price in possible non-Harris VPs as coordinated attacks on Biden’s candidacy emerged from the Senate, House, and donors. This took the form of a triple-whammy of Pelosi’s appearance on Morning Joe, the Clooney Op-ed, and Patrick Welch of Vermont becoming the first Democratic senator calling for Biden to go. 

July 13: Trump Assassination - Shapiro’s VP odds took off following positive press coverage of his response to the Trump assassination attempt in Pennsylvania. 

July 29-30: Shapiro Rising, Kelly Stumbles - Shapiro’s star continued to rise as he appeared alongside Gretchen Whitmer at Harris rallies. Meanwhile, oppo research stories dropped on Arizona governor Mark Kelly -  another favorite for the VP slot - on Kelly’s involvement in a spy balloon company funded by China.

July 30-31: Peak Shapiro Mania - Three developments within 24 hours drove Shapiro to his all time high of 77%. First was a story that Shapiro was meeting that day with the Harris vetting team. Next, Axios reported that top Wall Street donors were seeing a governor being picked due to fundraising requests from the Harris Campaign. And the evening before, Politico reported that Harris was set to begin her swing state rally in Philadelphia accompanied by her running mate.

August 2-3 Backlash Begins: Over the weekend, a serious, if indirect, threat to Shapiro emerged in the form of multiple reports that senior Dems, including Barack Obama, Nancy Pelosi, Pennsylvania senator John Fetterman, and labor leaders were privately expressing doubts about Shapiro. Bernie Sanders endorsed Minnesota governor Tim Walz for VP. 

Pennsylvania, Pennsylvania, Pennsylvania  

The biggest selling point for Shapiro as the VP candidate is that he is a popular governor of Pennsylvania, which Polymarket odds show as the favorite to be the 2024 tipping point state. The tipping point state combines a close margin of victory and enough electoral votes to give the winner the 270 needed to win, and is thus an ideal place for a campaign to focus its energy. Pennsylvania was also forecast to be the tipping point in the 2020 presidential race, however Wisconsin ended up closer in the end.

Both parties are betting big on Pennsylvania ad buys, with Republicans on track to spend three times more in Pennsylvania than in Georgia, their second heaviest ad-buying state.

In the Pennsylvania single-state presidential market, Harris recently took the lead over Trump after Biden had been trailing for much of the summer. 

In the state’s senate race, Polymarket odds heavily favor incumbent Democratic Senator Bob Casey who is running for reelection against republican David McCormick.

Markets: Here Comes the Hard Landing?

The Fed’s rapid raising of interest rates from near zero to over 5% starting in 2022 was meant to fight inflation by cooling the economy. Yet asset and labor markets have remained strong, puzzling many economists and traders. That may be changing now, after an unexpectedly soft US jobs report rattled markets on Friday: 

July Payrolls: Gain of 114,000 vs. 175,000 expected

Payroll Revisions: June revised lower to 179,000 from 206,000 expected; May revised lower to 216,000 from 218,000.

Unemployment: 4.3%, up from 4.1% last month.

Market reaction: 

• S&P 500 down 1.8%

• Nasdaq down 2.4%

• Treasury yields fell sharply

El-Erian’s tweet reflects a growing chorus of market participants arguing that it’s time for the Fed to start cutting rates to head off a potential recession. 

Polymarket’s rate cut markets trade in-line with the rates implied by the Fed funds futures market. After the market tremors on Friday, an emergency rate cut market was launched on Polymarket to track the odds that the FOMC will meet outside its next scheduled meetings, set for September, November, and December of this year. 

The last emergency meeting of the FOMC took place in March, 2020 at the height of the Covid-19 pandemic. The current reading of 39% implies that there is a low but serious chance of a major financial crisis developing by year’s end. Polymarket also maintains US bank failure markets, which are currently forecasting a greater than one-in-three chance for another US bank failure by October. 

77% Chance of Direct Iranian Retaliation against Israel by August 12

Last week’s assassination of Hamas leader Ismail Haniyeh in Tehran, which came hours after the killing of Hezbollah military commander Fuad Shukr in Beirut, has raised the possibility of a direct Iranian attack on Israeli territory by August 12 to 77%. 

As the US rushes additional anti-ballistic missile forces to the region, the market seems to be anticipating a similar scenario to April’s volley of missiles and drones fired from Iran into Israel, most of which were intercepted. It’s crucial to note that the market cited above is for direct Iranian action, and does not include the actions of a proxy force such as Lebanon’s Hezbollah or the Houthis in Yemen.

The Oracle’s Thursday issue will assess the current situation in the Middle East through the lens of Polymarket’s multiple prediction markets on flashpoints in the region.

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Disclaimer

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