Micron saved AI. Now watch bonds and oil.

Transcript

Tom Micron didn't just beat estimates—it crushed them, and suddenly AI's got fresh legs. But under the surface, the bond market's sniffing out something. We're breaking it all down.

Marie Good morning, it's the London edition for Friday, June 26th. I'm Marie, with Tom and Gerald. We're picking up where New York left off—Micron's blowout quarter, a major biotech deal, and a bond market that's quietly getting nervous.

Tom Micron earned twenty-five bucks a share against expectations of twenty-one. That's a monster beat, and the semiconductor ETF, SMH, jumped nearly three percent last session. This AI demand is real, buddy.

Gerald Forward P-E ratio of eight point two, sure. But it's priced like a cyclical at peak. Any demand hiccup and that resets fast.

Marie But Tom, Qualcomm nearly doubling its non-handset revenue target to forty billion by 2029? That's a structural shift, not a trade.

Tom Exactly! And SMH is still five percent below its high. There's room to run.

Gerald Qualcomm shares fell nine percent this week though—skepticism's already priced in. Low conviction there.

Marie See, this is what I mean. The AI story has legs beyond just chips—it's infrastructure, data centers, edge computing.

Tom A hundred percent.

Gerald Alright, alright. But let's not get carried away—Micron's beat doesn't mean every semi is a buy.

Marie Speaking of biotech, Gerald, your Buy Bio-Techne call from yesterday just got acquired by Merck KGaA at a premium. Shares up twenty percent last session.

Gerald Timing, I suppose. But the spread's essentially closed—I'm not chasing that.

Tom Gerald being modest. But yeah, Bio-Techne surging to near the offer price—the deal looks solid.

Marie It does, and it signals life sciences tools are in demand. The mergers and acquisitions machine is humming—which brings us to Germany.

Gerald Germany's having its busiest deal year in decades—over a hundred forty billion dollars. Engines, elevators, pharma—corporate confidence despite macro headwinds.

Tom But the DAX is up only two percent year to date? How does that optimism not hit equities?

Gerald Exactly. The German ETF, EWG, is down three and a half percent year to date. That's either a disconnect or an opportunity.

Marie I'd lean opportunity. mergers and acquisitions tailwinds often lift valuations with a lag. If corporates are confident enough to do deals, equity markets should catch up.

Tom Only in Germany could a record deal boom not move the needle.

Gerald Efficiency, Tom. We're efficient.

Gerald Alright, let's talk about what's really moving: bond ETF flows. Investors are fleeing aggregate benchmarks. BlackRock says the market is 'sniffing out something'. And Fannie and Freddie are ramping up interest-rate risk to pre-2008 levels.

Marie That's a systemic red flag. Regulators asleep at the wheel again?

Tom But the stock market doesn't care. The long-duration Treasury ETF, TLT, at its fifty-two-week low, barely positive year to date, yet the Nasdaq 100 ETF is within four percent of highs. Bond jitters might just be noise.

Gerald Or it's a coiled spring. Long duration is a trap right now. High yield, though—the high-yield corporate bond ETF, HYG, offers carry and is stable. That's where the flows are going.

Marie Fair. But if credit cracks, high yield goes too. Diversification matters. Investment grade, LQD, is also seeing inflows—safer carry.

Gerald Fannie and Freddie levering up again—what could go wrong?

Marie ha, that's dark

Tom I mean… he's not wrong

Gerald With oil sliding, ECB rate-hike forecasts are being pared back. That's dovish—Eurozone equities like the iShares Europe ETF, EZU, up five percent year to date could benefit, while the euro weakens.

Marie But a weaker euro tightens financial conditions for dollar debtors globally. That's a risk for emerging markets—something to watch.

Tom Wait, wait—oil down, rates down, stocks up. That's a Goldilocks scenario for European equities. I'm warming to EZU.

Gerald Tom getting bullish on Europe? Someone mark the calendar.

Tom Ha—only because the macro lines up. But seriously, intermediate Treasuries like the seven-to-ten year ETF, IEF, could also gain if the ECB turns dovish.

Marie It's a repricing of rate expectations that lifts bonds and equities together. That's constructive.

Gerald Exactly.

Tom Yeah, agreed.

Tom And on oil, yesterday we said sell the United States Oil Fund, and it's down nearly five percent in a week. Gerald, your short is paying off.

Gerald Saudis restarting Ras Tanura, supply normalization. Yes, the call's working. But the energy sector ETF, XLE, is flat—energy stocks haven't cracked yet.

Marie Energy stocks are pricing in some stickiness. But if crude breaks lower, XLE will follow. I'd still be cautious on energy.

Tom So still a sell on USO, and maybe short XLE on any bounce?

Gerald That's the trade.

Marie BofA's Raedler says defensives will roar if AI falters. Utilities and healthcare—the utilities ETF XLU up six percent year to date, healthcare XLV flat. That's a cheap hedge against the AI trade.

Tom But AI isn't faltering! Micron just proved demand. Why rotate now?

Marie Because the trade is crowded, and the Nasdaq 100 is four percent off highs. A small allocation to utilities at point seven times book is insurance.

Gerald Healthcare too—XLV hasn't moved. If growth scares creep in, it catches a bid. Low opportunity cost.

Tom Okay, as a hedge, not a core call. I'll give you that. But if AI keeps running, you're just drag.

Marie That's what insurance is for, Tom.

Gerald He'll learn.

Marie Quick hits: NLB bidding for Addiko with a forty percent premium. Addiko's still seven percent below its high—clear catalyst.

Gerald But UBS faces higher capital requirements from the IMF. That's a headwind—I'd be cautious on UBS.

Tom And Aussie canola: China sniffing around again. Agriculture ETF, DBA, up five percent year to date, low vol. Nice diversifier.

Marie And EM convergence: Hungary's bond yields approaching UK gilts. Emerging market bond ETF, EMB, for carry, and the equity ETF, EEM, already up twenty percent year to date—priced in.

Gerald Brazil probe into Americanas is company-specific but could weigh on the Brazil ETF, EWZ. Down nineteen percent from its high—watch, don't buy.

Tom So here's the clean expression of this moment: long SMH, short TLT. AI chips are delivering earnings; long duration is delivering anxiety. Seventy percent year to date versus basically flat.

Gerald The pair trade makes sense on paper, but TLT is at its low—the short could be crowded. If the economy slows, bonds rally, and that trade gets crushed.

Marie Right, so hedge the hedge. Add XLU as insurance. Utilities are cheap, uncorrelated. That's the most elegant trade—long AI, short rates, with a cheap defensive sleeve.

Tom I love it. Long the semiconductors, short duration, and a utilities kickstand. It's a risk-on view with protection.

Gerald Yeah, that works.

Marie It does.

Tom Alright, we've got a trade.

Gerald As always, none of this is investment advice. Do your own research.

Tom And if you're just finding us, hit follow on Spotify or check investmentflash.com for the full digest with charts and sources.

Marie We're back at nine a.m. New York time. Until then, watch those bonds.