Trade wars, hawkish Fed — only the dollar works.

Transcript

Tom Trade wars are heating up, the Fed just flexed its hawkish muscle, and only the dollar seems to be working — we've got tariffs in pharma, beef, and a wild AI capex twist, plus a full-on currency pile-on. I'm Tom.

Marie And this is Investment Flash, New York Edition, Friday, June nineteenth. With me as always, Gerald and Tom. Let's get into it.

Tom Gerald, remember yesterday I was pounding the table on Intel's foundry win? Today the market's in full risk-off, so maybe my semis are getting tested already.

Gerald Ha — fair enough. But look mate, your buy call might be safe. My sell on Germany equities, though? That tariff probe on pharma just gave it a fresh tailwind. I look prescient.

Marie Oh, you two — let's not get too smug. The day's still young and the signals are piling up.

Marie Alright, the big story: hedge funds are piling into dollar call options after the Fed's hawkish decision. Bloomberg and FT both flag it. UUP is up nearly four percent year to date, at its fifty-two-week high.

Tom For real? The dollar index at its high too — this trend has legs. Buy the dollar ETF, sell euro-dollar, it's a pretty clean macro trade, buddy.

Gerald Right — history says when the trade gets this obvious, the reversal can be brutal. Are we chasing here?

Marie Hold on — I'm going to push back. The FT notes the hawkish shift upended EM currencies, but EEM just surged over three percent last session and hit its own fifty-two-week high. The equity market doesn't seem to care.

Tom No but that's exactly my point, Marie — that disconnect is an opportunity. Buy dollar, short EM currencies, but hedge with long EM equities for now. It's a pair trade.

Gerald A pair trade — listen to you, buddy. Next you'll be quoting delta-neutral gamma scalping.

Tom Ha — I mean, one day. But seriously, the trend is strong.

Marie See, THIS is what I mean — the dollar's up, but if the Fed's already fully priced, further gains may be limited. The crowded long could unwind fast. So sure, buy UUP, but I'd keep a tight leash.

Gerald Yeah, tight leash, fair.

Tom Exactly.

Marie Right.

Gerald Alright, so into the tariffs. The US launched a Section 301 probe into Germany over drug pricing. Bloomberg and FT both report it. Bayer and Merck are in the crosshairs, and the DAX sits within two percent of all-time highs. Complacency much?

Marie Honestly, the market hasn't priced in any tariff probability. The DAX barely budged last session. If this probe escalates, a sharp correction could hit. Short DAX seems timely.

Tom Yeah buddy, and Gerald's sell Germany call from yesterday just got a fresh tailwind. Bayer at eight times forward earnings might already be cheap, but that tariff overhang is new information.

Gerald To be fair, I said sell Germany equities, and now I look like a genius. But honestly, these pharma giants have enough global revenue that tariffs could really sting.

Marie Right, and Merck is near its fifty-two-week high with a price-to-earnings ratio of about fifteen — no margin for a trade shock. I'm shorting the DAX for sure.

Tom Okay, another one: China slapped a fifty-five percent tariff on Australian beef after the quota was hit. Bloomberg and Nikkei Asia confirm it.

Gerald So sell Aussie dollar, I suppose. But the currency hasn't moved much yet. Maybe the market anticipated the quota trigger.

Marie Possibly. But the selloff is mechanical, and it might shift Chinese demand to Brazil. That's a buy for Brazil equities — EWZ is cheap at under one times book value.

Tom For real? EWZ down one point one percent last session, but if the supply chain rotates, that's a great entry. I'd buy that.

Gerald Of course you would, Tom. Anything that's down you call a buy.

Tom Ha — fair enough. But buddy, the value is there.

Marie From beef to bytes: Indian software stocks tanked after Accenture warned on growth. TCS and Infosys are down over thirty percent year to date, near their fifty-two-week lows.

Gerald The pain's not over. Accenture's warning suggests the demand slowdown is global, not just India. Selling TCS and Infosys might still have legs, even if the stocks look cheap.

Tom No but think about it — TCS is down thirty-four percent, near its low. That bad news is largely in the price. Maybe a contrarian buy?

Marie Tom — Tom, you calling a bottom in Indian IT? What is that, the sixth bottom this cycle?

Gerald Ouch.

Tom Alright, selling it is. But I'm watching for a reversal.

Gerald Now, the most original take of the day comes from CNBC: AI capex is shifting back to chips, away from data centers. They say Nvidia will benefit.

Tom Yes! I've been saying this! Nvidia's forward P-E of sixteen-point-six, eleven percent below its high — that's a gift. The capex rotation back to compute is the real story.

Gerald Honestly, one CNBC article doesn't make a trend. And I'm sure the analysts will be revising their price targets by Monday — that's basically a free retirement plan for them.

Tom Ha — fair enough.

Marie Hold on — no but that's exactly my point. The infrastructure spend has been all about building data centers. Shifting back to chips is a contrarian call. If it happens, Nvidia regains its throne. I think it's a plausible buy.

Tom Exactly! You get it, Marie. It's a re-entry opportunity.

Gerald Alright, I'll need more evidence than one piece. For now, I'll just watch.

Marie Switching to Japan: Nikkei Asia reports the ruling party might end mechanical primary balance targets, loosening fiscal policy. This could weaken the yen further.

Gerald Sell dollar-yen then? But with the dollar ripping, it's tricky. And TLT, the long-term Treasury ETF, is near its fifty-two-week low — maybe the bond market already prices in global hawkishness.

Tom Yeah, I'd hold TLT. The yen trade is uncertain until we see concrete policy moves. Conviction is low.

Marie Right, and the yen's already been under pressure. If the BoJ keeps rates low, this could be a second wave of weakness. But we need more data.

Gerald Bloomberg quotes Thailand's finance chief saying the country is pulling inflows from Indonesia. THD is up nearly twenty percent year to date at a fifty-two-week high, while EIDO has cratered thirty-four percent.

Tom Momentum trade: buy Thailand, sell Indonesia. That rotation is clear and it's working.

Marie Sure, but Thailand's outperformance may be stretched. Buying at all-time highs when the world is turning defensive? I'd be cautious.

Gerald Marie, you're sounding like me now. But to be fair, the outflow from Indonesia might continue until fundamentals improve. So sell EIDO still makes sense.

Marie Fair enough. I'll take the short Indonesia but not chase Thailand.

Marie FT has a fascinating piece: AI is turning Nintendo and Sony consoles into accidental luxury goods. Component makers are too busy supplying data centers, driving up console costs.

Tom Wow, that's a wild consequence. So sell Nintendo and Sony, but buy semiconductors? SMH is near all-time highs, but it's up five point eight percent last session.

Gerald Shorting Mario and Sonic — what a time to be alive.

Marie Ha, yeah.

Tom But the supply squeeze benefits semis, so buy SMH.

Gerald SMH's valuation at forty-four times trailing earnings is rich, though. That's a lot of AI premium. But the supply squeeze is real, so semis benefit.

Marie Not so fast — the console shortage is a margin squeezer for Nintendo and Sony. Shorting them is a thematic play I can get behind. But SMH might be toppish.

Gerald I'd still hold semis, but maybe trim if you're already in.

Tom And a wildcard: WSJ reports US and Venezuela teaming up against armed gangs in a mining region. It could boost gold mining output, so buy gold miners ETF GDX.

Marie One article, very thin. GDX is down over two percent last session, and the security situation is far from stable. Low conviction for me.

Gerald Venezuela and US teaming up — that's a buddy comedy I'd watch. But increased gold supply might cap gold prices, so hold GLD. This is a watch-and-wait.

Tom Ha — true.

Marie So pulling it together: trade wars and a hawkish Fed are the backdrop. The dollar is the cleanest trade.

Tom Exactly. Long UUP, short euro-dollar, and hedge with EM equities — that pair trade captures the disconnect.

Gerald Look mate, the missing piece is the G7 response. No one's talking about coordinated pushback on these trade probes. That could escalate fast. And rising rates on corporate credit? Also absent.

Marie See, THIS is what I mean — the market is focused on currency and tariffs, but the credit angle could bite later. We're flying blind on that.

Tom Alright, so defensiveness is key. But also fading the DAX's complacency: a short or put feels right given the pharma tariff risk.

Gerald That's the call.

Marie Right.

Tom Spot on.

Gerald As always, none of this is investment advice. Just our take on the signals.

Tom We're back tomorrow morning at ten a.m. London time for the Weekend Edition — should be a packed show. Until then, hit follow on Spotify if you're just finding us, or check investmentflash.com for all the charts and sources.

Marie See you tomorrow.

Gerald Cheers, everyone.