Oil spikes, tech tensions flare, and bonds puzzle over the Fed.

Transcript

Tom Oil just surged seven percent in a single session, tech names are getting hammered again, and the bond market is screaming—but screaming what, exactly? It’s Fed day, and absolutely nothing is clear. I’m Tom.

Marie And I’m Marie. London Edition, July thirtieth. Gerald’s here too. Markets are all over the place—let’s get into it.

Gerald Yeah, look, I’ve been saying for months this tech trade was running on fumes. Yesterday we said sell semiconductors—Korea’s plunge was a margin call on AI. Today it’s spreading to robotics and China. But Tom, your buy China equities call from yesterday—it might get tested today with all this retaliation talk.

Tom Gerald, let’s start with the one thing actually working: oil. The Strait of Hormuz is closed, LNG costs are spiking a billion dollars extra for Pakistan and Bangladesh, and Aramco is rethinking Asia pricing. The US Oil Fund—ticker USO—up seven point three percent last session. Buddy, this is a supply shock.

Gerald Right, but it’s not demand, is it? It’s a temporary bottleneck. I mean, USO’s still sixteen percent below its fifty-two-week high. You’re chasing a geopolitical headline, not a structural move.

Marie Hold on—both of you. Bloomberg’s reporting two separate stories: the LNG pain and Aramco’s pricing shift. This isn’t one cargo ship; it’s a sustained closure. Energy markets are tightening, and that feeds into every other signal group today: inflation, bonds, dollar. This is the thread.

Tom Exactly! Natural gas is still forty-two percent below its high. The US Natural Gas ETF—UNG—could get a serious bid if LNG keeps jumping. Catch-up trade.

Gerald Alright, but then look at who gets hurt. Pakistan’s economy is getting hammered—a billion dollars in extra LNG costs. The PAK ETF might be near its fifty-two-week high, but it’s walking on thin ice. If you’re bullish energy, you’re bearish net importers like Pakistan.

Marie That’s the nuance. But the energy story feeds the anti-tech rotation too. The FT says an ‘anti‑tech’ index of banks and oil companies is lifting UK stocks. The US energy sector ETF, XLE, up nearly two percent, still eight percent below its high. Oil and banks—sounds like a portfolio from 1995.

Tom Hey, 1995 had some good returns, Marie. And XLE is up twenty-eight and a half percent year to date! That’s a monster move. Value is back, buddy—banks, energy, all of it. KBE, the bank ETF, up over one percent this week, near its fifty-two-week high. This is the rotation we’ve been waiting for.

Gerald Twenty-eight percent, sure, but it’s still eight percent below its high. And UK stocks—I mean, the data is thin, but if tech keeps selling off, the FTSE’s heavy weight in oil and banks could keep outperforming. Honestly, Tom, your enthusiasm is always priced for perfection.

Tom Oh come on—you’ve been telling me about value since 2022. I finally get on board and you’re still poking holes?

Gerald Ha—fair enough. But the rotation is fragile—built on oil supply fears and trade tensions. One ceasefire or Fed pivot, and growth stocks rip back.

Marie Not so fast, Gerald. If the Fed hikes and sounds hawkish, inflation expectations could anchor, and that might actually support value over growth. High energy costs feed inflation, so a determined Fed keeps value in favor. The anti-tech trade isn’t just a geopolitical fluke.

Marie Speaking of tech tensions—China is threatening retaliation over the US humanoid robot ban. That’s a direct hit to robotics and AI. The robotics ETF, BOTZ, down over eight percent year to date, another two percent this week. And FXI, China large-caps, down nine. This could escalate fast.

Tom Yeah but didn’t we just see Samsung’s profit surge two-hundred-and-fifty-fold? That’s insane. The chip stocks are trying to stabilize. Samsung might be down fourteen percent in a week, but it’s still up seventy-four percent year to date. AI demand isn’t going away.

Gerald Tom, buddy, Samsung trades at fifty-nine times forward earnings. That’s pricing in a full recovery and then some. A profit surge is great, but if the cycle turns, those multiples get crushed. Two-hundred-and-fifty-fold profit surge—that’s not a surge, that’s a resurrection.

Marie Ha—I’ll give you that, Gerald. And with China undercutting US AI on price—CNBC says they dominate cheaper models—how long before margin pressure hits? The AI cost war benefits Chinese tech. KBA, China A-shares, up nearly six percent year to date. The tables are turning.

Tom Hold on, Marie—Chinese AI winning on price is one thing, but the US still controls the high-end chip supply. The robot ban is because of national security. BOTZ might be down, but the real AI money is in Nvidia, not some generic China ETF.

Marie But Tom, that’s the point—the retaliatory risk isn’t just robots; it’s a broader tech cold war. FXI down nearly ten percent year to date. If they escalate, it hurts all Chinese equities. And the AI price war is happening right now.

Gerald Exactly. And don’t forget private credit stress—Ares Management’s twenty-nine billion dollar flagship fund is seeing more non-accruals. ARES down twenty-five percent year to date. That’s a warning for over-exposed sectors like tech.

Marie Right. And the business development company ETF, BIZD, down over twelve percent year to date. If credit tightens, the rotation out of growth could accelerate.

Tom Alright, fair points. But then look at BNY Mellon going blockchain. The FT says it’s a new era for Wall Street. The blockchain ETF, BLOK, is down nine percent this week, twenty-six percent below its high. That’s a buy if you ask me. Institutional adoption.

Gerald A buy? It’s down because the underlying names are risky. Blockchain’s exciting until it hits real regulation. Marie, you cover this stuff—probably have a stack of papers on it.

Marie Honestly, the blockchain move is real, but adoption cycles are slow. BNY is doing it for records, not retail. It’s a five-year story. For today, I’m more focused on the Fed—because everything—oil, tech, credit—pivots on whether Warsh hikes and what he says.

Marie So let’s talk Fed. Options flow shows massive call buying in the long-bond ETF, TLT, and gold, GLD. Seventy-two percent of TLT premium was in calls yesterday. Bullish, but Jeffrey Gundlach says the curve is signaling the Fed has to act on inflation, which would crush long bonds. Total clash.

Gerald Gundlach is right. The curve is screaming. If the Fed hikes, long bonds get hammered. That’s why I’d rather be in the short end—SHY, one-to-three-year Treasuries, flat year to date. Safer. The TLT call buying feels like a lottery ticket.

Tom But Gerald, TLT is at its fifty-two-week low! It’s pricing in every bearish scenario. If the Fed hikes but sounds hawkish and credible, the back end could actually rally as inflation expectations drop. That’s the snapback trade—exactly what the option buyers are betting.

Marie I’m going to push back here—Gundlach’s logic is solid, but the dispersion is wild: TLT at its low with bullish flow; gold twenty-seven percent below its high with call buyers. The market is split. And the dollar? DBS Group says the dollar could weaken on forward-guidance divergence between the Fed and other central banks, like the ECB or BOE.

Gerald Yeah, the dollar index ETF, UUP, fell half a percent yesterday, still near its high. If the Fed is dovish, the dollar slides. But if other central banks are hawkish, the dollar could weaken even if the Fed hikes. That’s the divergence play.

Tom Right, and if the dollar slides, gold catches a bid. GLD is still twenty-seven percent below its high, and with all this central bank uncertainty, it’s a safe haven. Marie, doesn’t a weaker dollar lift everything?

Marie Not everything. A weaker dollar helps commodities and emerging markets, but it also means inflation pressure. And if the Fed can’t control inflation, we’re back to stagflation. The one thing no one is talking about: Asian central banks. They meet next week. A hawkish Fed could force them to react, and no one’s pricing that in.

Gerald Spot on. The dollar divergence story has an EM tail that could amplify or reverse today’s moves. If the People’s Bank of China tightens, for example, that hits Chinese equities even harder.

Tom Exactly. And that’s why I’m watching Hong Kong. The SCMP says eighty percent of mainland firms plan to use HK as a launch pad into ASEAN. EWH, the Hong Kong ETF, up two percent this week, only seven percent below its high. That’s a structural tailwind.

Marie I like that story, Tom. But with China retaliation risks, it’s a double-edged sword. Hong Kong is a gateway, but if the tech cold war escalates, capital flows could reverse. Still, the survey is a positive signal.

Gerald One more Japan angle—Nikkei Asia reports SoftBank and NTT are talking about a cross-industry AI platform. That’s a potential game-changer for Japan’s corporate landscape. Network effects across SoftBank’s portfolio and NTT’s infrastructure.

Tom Oh, for real? That’s huge. SoftBank has exposure to everything—robotics, chips, AI. If they pull this off, it’s a platform play. But Gerry, you’ll probably say it’s twenty years out and overvalued.

Gerald Ha—well, SoftBank’s track record isn’t exactly stellar. But the idea is interesting. It could give Japan a leg up in data sharing. The question is execution.

Marie Execution and regulation. Japan’s corporate culture doesn’t do platforms easily. But if they succeed, it might offset some of the anti-tech rotation. Worth watching.

Marie And Gerald, you mentioned private credit stress—Ares and BDCs. That’s a slow-burning fuse. If non-accruals keep rising, it feeds tighter credit, hurting growth sectors. Another reason the anti-tech rotation might have legs.

Tom Yeah, but private credit is tiny compared to public markets. ARES is a specific fund. I’d watch it, but I wouldn’t trade off it. The broader market is ignoring it.

Gerald Maybe ignoring it, but BDCs are near their fifty-two-week low. That’s a warning. If this spills into the leveraged loan market, it gets ugly fast. Just saying.

Marie So here’s our view: today’s coverage is schizophrenic. Options flow versus Gundlach, oil supply shock versus tech retaliation, dollar divergence. The market is pricing a world of higher energy costs, sticky inflation, and uncertain Fed credibility. Tough equilibrium.

Tom But maybe the bond market is overthinking it. If the Fed hikes and says it’ll keep at it, long bonds could rally as inflation fears ease. TLT at its fifty-two-week low has a lot of pessimism baked in. A clear hawkish signal might actually be a relief.

Gerald I’m not so sure. The front end is already tight—SHY is flat year to date. If the Fed sounds uncertain, we get a messy sell-off in everything except maybe gold and short-term bills. The safe trade is short duration.

Marie The cleanest expression: long energy, long banks, short tech—but only until the Fed speaks. Then reverse depending on the tone. The dispersion between value and growth is wide enough to play both sides, but you’ve got to be nimble.

Tom And don’t forget the Asia angle—Hong Kong as a gateway, Samsung’s profit boom, Chinese cheap AI. There are pockets of opportunity. But Gerald’s right, the EM central bank reaction function is being ignored. Next week could be wild.

Gerald Yeah, look, I’m keeping an eye on the dollar. If it breaks lower, everything changes. But for today, I’m sitting on my hands until Warsh speaks.

Tom Only Gerald could turn an oil spike and a bank rally into a reason to sit in cash. Buddy, you’re worse than my grandpa.

Gerald Your grandpa probably bought IBM at the top. I’m just being prudent.

Marie Alright, let’s wrap. We’ve covered a lot—energy, tech, bonds, dollar. The Fed is the pivot. As always, none of this is investment advice.

Tom We’re back at nine a.m. New York time with the next edition. If you’re just finding us, hit follow on Spotify—or check investmentflash.com for the full digest with charts and sources. Until then, stay sharp.