Oil's bleeding on peace talks. Supply won't stay quiet.

Transcript

Tom Peace talks progressing, oil down eight percent on the week — but the bond market isn't buying it. And a giant warning sign from corporate AI spending. It's Monday, June twenty-second, and we've got a lot to unpack.

Marie I'm Marie, with Tom and Gerald. This is the London Edition. The takeaway today: oil is bleeding on peace talks, but supply risks haven't gone quiet. The Hormuz story is far from over.

Gerald Yeah, and my US Oil Fund short from yesterday is feeling pretty good. Down another eight percent this week — I'll take that victory lap.

Tom Alright, let's get into it. First up, China tech. Chinese AI stocks rallied last session on policy support — Alibaba, Baidu, the China internet ETF all up. These names are still down around thirty percent year to date, so the value is staring us in the face.

Tom Yeah, I know — calling the bottom on Chinese tech again. That's six bottoms this cycle. But this time it's different, I swear.

Marie Ha — that's what you said about semis last quarter.

Tom Hey, semis recovered! But look, two sources — Bloomberg and SCMP both flag that Beijing is backing AI, and mainland firms are using Hong Kong as a strategic launchpad. That's a concrete strategy, not a vague stimulus tweet. Alibaba at one point six times book, Baidu below book value — it's a cheap entry with a real catalyst.

Marie Not so fast. The regulatory whiplash is real. I'm going to push back — what if the government changes its mind again? We've been burned before.

Tom But that's exactly my point — Hong Kong is being positioned as the gateway. SCMP quotes Paul Chan directly. This isn't a central planning document; it's a structural shift.

Gerald Fair enough. If you're buying Alibaba at one point six book, you're getting a lot of optionality. But I'd keep a tight leash. The China large-cap ETF we bought yesterday — that's already up, but I'm not adding here. I'd wait for a pullback.

Marie Alright, let's move to Japan banks. Tom, you've been on this train.

Tom Japan banks are on fire. The three megabanks are paying out two trillion yen in dividends for the first time — MUFG up thirty-two percent year to date, Sumitomo Mitsui up nearly thirty percent. The BOJ rate hikes are finally working.

Gerald And they still trade below two times book. I mean, one point seven times book for MUFG isn't expensive. But the question is how much of that is already priced in after such a rally.

Marie The payout is the signal. Record dividends show they're not just benefiting from rates — they're confident enough to return capital. That's management conviction.

Tom Exactly. Income investors haven't looked at Japanese banks in decades. Now they're lining up.

Gerald Income investors lining up for Japanese banks? That's a sentence I never thought I'd say. Alright, I'll give you that one.

Tom Ha — I know, right?

Marie Alright, now the AI bubble warning that's making rounds.

Marie Okay, I need to push back on this Journal piece by James Mackintosh. He says all this corporate AI spending is a classic late-cycle top signal. He might be right, but Nvidia at sixteen point six times forward earnings doesn't scream bubble to me.

Tom Buddy, did you just use 'Nvidia' and 'cheap' in the same sentence? I love it. But the behavioural point is real — when companies as a group ramp up spending aggressively, it often marks peaks.

Marie Ha — coming from the guy who said software was dead in twenty-two. I'll take that under advisement.

Tom Hey, fair enough.

Gerald The thing is, macro-wise, we're not late-cycle. Inflation's cooling, rate cuts on the table — that's mid-cycle. So the historical parallel might be off.

Marie Exactly! And that's my point: this isn't 2000. AI capex is infrastructure with actual revenue. Microsoft down twenty percent year to date already, so some hype has been priced out.

Tom But the AI ETF is still up thirty percent year to date. There's froth left. I'd take profits on the pure AI plays, keep the mega-caps.

Gerald Alright, so we're hedging, not panicking. That's fair.

Tom Hedge, don't panic.

Marie Exactly.

Gerald One hundred percent.

Marie Now the oil story. The US Oil Fund slumped eight point four percent this week as US-Iran talks showed progress, tankers are moving, and Kuwait is offering product pickups inside the Gulf. Peace dividend getting priced hard.

Tom And yet — and yet — a Qatar gas plant blast left eighteen missing, and Iran is still making closure threats. The supply risk hasn't evaporated.

Gerald Yeah look, the market's doing that thing where it rushes to price the best-case scenario. Eight percent in a week on talks that haven't actually signed a deal? That's a lot of hope in one basket.

Marie Not so fast. The tanker traffic data is real. Three Indian tankers reemerged. That's physical, not just hopium.

Tom But the Qatar blast is new, and it's LNG. That tightens global gas markets. The natural gas fund is down two point seven percent year to date, so a supply shock isn't in the price at all.

Gerald So we've got oil down on peace hopes, gas up on a blast risk. The energy complex is a mess.

Marie Exactly. Our view: fade the oil peace dividend. The US Oil Fund's drop is mostly sentiment, not supply. If talks stumble, it reverses fast.

Tom Fade the peace dividend.

Gerald That's the call.

Marie Yep.

Tom India's asset-backed securities sales hit a record last session. Global banks are piling in, but the banks themselves haven't rallied. ICICI down seven percent year to date, HDFC down thirty-one percent. Massive disconnect.

Gerald Record ABS sales means credit demand is hot, but if global banks are chasing yield in Indian consumer loans, that's exactly the kind of thing that blows up when rates turn.

Marie Gerald, you're missing the point. The credit boom is a leading indicator for equities. India ETF down nine percent year to date, near its fifty-two-week low. This is an underappreciated tailwind.

Tom Right, and HDFC at thirty-one percent down — that's not pricing growth at all. Classic EM reversion: cheap when everyone's ignoring it.

Gerald EM reversion trades — always the bridesmaid, never the bride. But I'll play along. I'd rather buy the bank stocks directly than the ETF. ICICI at two point six book is better than broad exposure.

Tom Ha — fair enough.

Marie Deal. Now rare earths — China retaliated.

Tom China imposed export controls on two US rare earth producers. Retaliation for the Pentagon's supply list. The rare earth ETF up twenty-four percent year to date, MP Materials up eleven percent. The supply squeeze is on.

Gerald MP is still thirty-nine percent below its high. So the market's not convinced this escalation sticks. And rare earths are a small market — these controls might just shuffle supply around.

Marie But it's a clear escalation. China is targeting specific US firms. That tightens non-Chinese supply. MP and the rare earth ETF could rally another leg if fears mount.

Tom I'll take the rare earth ETF. Global electrification needs these metals, and the geopolitics are only getting worse.

Marie And quietly, Kevin Warsh is remaking the Fed. CNBC calls it 'regime change in a velvet glove.' No policy shifts yet, but the direction is hawkish.

Gerald This is huge. The long-duration Treasury ETF at its fifty-two-week low already, dollar index up two point five percent year to date. If Warsh pushes for tighter inflation control, the long-end sell-off could extend. Watch Treasuries and the dollar.

Tom Buddy, you're always watching bonds. But the equity market doesn't seem to care. SPY near all-time highs. Maybe the Fed remake is already priced?

Marie It's not priced if it accelerates rate hikes. The market is betting on cuts. A hawkish Fed would be a rude awakening.

Gerald Alright, add it to the watchlist. I'm just saying, don't ignore the bond market's message.

Tom Back to the Qatar blast — the natural gas fund is down two point seven percent year to date, but this disruption risks LNG supply. That's a new risk. I'd take a long position here.

Marie It's a single plant malfunction, though. The bigger picture is still oversupply from US LNG. I'm not sure this moves the needle.

Gerald Short-term spike is possible. But I'll watch rather than trade. Energy is too volatile right now.

Marie Look, the real story today is the fragile setup. Oil down eight percent on peace hopes, bonds at lows warning, and AI spending worries — all while EM credit booms. The second-order trade: fade the oil peace dividend and buy cheap EM.

Tom Exactly. The China internet ETF down twenty-nine percent year to date with policy support, Indian banks down while credit booms, rare earths tightening. That's where the asymmetry lives.

Gerald The problem is, if the Fed gets hawkish, EM gets hit. So you're betting on a soft landing and peace. That's a lot of ifs.

Marie But that's exactly why it's asymmetric — if peace holds, oil stays low and EM rallies. If it doesn't, you're hedged by the oil spike. The one thing you can't hedge is a hawkish Fed, but Warsh hasn't acted yet.

Tom So watch the dollar, watch bonds. But the trade is on.

Marie That's the trade.

Tom Exactly.

Gerald Yep.

Gerald As always, none of this is investment advice. Just three friends talking markets.

Tom Three friends who've been doing this too long. Gerald, remember when you said Japan banks were a value trap? That call aged well.

Gerald Ha — fair enough. I'll take the ribbing. But I'm still watching those bond yields.

Marie And we'll be back with the New York Edition later today at nine a.m. New York time. If you're just finding us, hit follow on Spotify or check investmentflash.com for the full digest with charts and sources.

Tom Until then, stay sharp, and maybe don't fade the peace dividend just yet.