Iran risk premium resurfaces, squeezing risk assets from both sides.

Transcript

Tom Oil's spiking, defense stocks are ripping, and the bond market is screaming inflation — we're diving into all of it right now.

Marie Good morning, it's the London Edition for July thirty-first, twenty twenty-six. I'm Marie.

Tom I'm Tom.

Gerald And I'm Gerald. Let's get to it.

Tom BAE Systems just lifted guidance after a surge in defense orders. Gerald, you're the one watching Europe — is this just getting started?

Gerald Tom, buddy, it's already up fifteen percent this year. The market priced this in months ago. But the order book is stuffed.

Marie Hold on — it's near its fifty-two-week high. How much more geopolitical juice can we squeeze?

Gerald Yeah, fair. Unless we get a major escalation, the easy money is done. But the signal is clear: defense spending isn't slowing.

Tom And that's why I'm looking at the US aerospace and defense ETF — it's global, up seven percent year to date. This is a momentum trade.

Marie Tom, it's at a fifty-two-week high! You're chasing strength in a sector that already ran. What's the margin of safety?

Tom No but that's exactly my point — if budgets keep expanding, these stocks have room to run.

Gerald Defense stocks are like battleships — they move slowly until they don't. Just be careful.

Tom Staying with geopolitics — Shell just posted its second-highest quarterly profits ever. The Iran disruption was a jackpot for their traders.

Gerald Yeah, look, Shell's up over twenty percent year to date. The windfall is partly priced in, but if this conflict drags on, cash keeps printing.

Marie But here's the thing — the US Oil Fund is up eighty-five percent year to date. Are we really saying there's more room when oil is already pricing a hot conflict?

Tom It's still seventeen percent below its fifty-two-week high. If tension persists, that gap closes. I'm buying the energy sector.

Gerald To be fair, the energy sector ETF is up twenty-nine percent year to date — a lot of premium. But earnings are real.

Marie But the bear case is any ceasefire sends oil crashing. This is fragile — everyone's long oil and short bonds. It's crowded.

Tom And refiners like Valero and Phillips are crushing it. Valero's up nearly ninety percent year to date — that's the pure play.

Gerald Valero's already near its fifty-two-week high, mate. The margin wave is fully reflected.

Marie Exactly — the easy money in energy is gone. The hard money needs this conflict to escalate further.

Tom Fair point.

Gerald One hundred percent.

Gerald Let's talk bonds — US borrowing costs hit a nineteen-year high. The selloff extended after Fed Chair Warsh.

Tom Gerald, your short on long-duration Treasuries from yesterday is aging beautifully. The ETF is at its fifty-two-week low.

Gerald Yeah, but here's the thing: it's the consensus trade. Everyone's short. When it gets this crowded, the squeeze risk is enormous.

Marie Wait — are you saying you're cautious on your own trade? Because the leveraged short on Treasuries is a ticking time bomb.

Gerald Honestly, I'm not adding here. Any dovish hint could ignite a violent rally. I'd rather buy gold as a hedge.

Tom Gold? It's down five percent year to date. Higher rates are crushing it.

Gerald It's a war-driven inflation hedge. If inflation fears spike, gold catches a bid. Plus, it's twenty-five percent above its low.

Marie Alright, but I'm more worried about credit markets. High-yield is barely off its highs — if rates keep biting, the next shoe drops there.

Tom Great point. No one's talking about that. But for now, short duration, long energy still works.

Marie Shifting to Big Tech — Amazon staff flagged AI-driven budget overruns that took months to detect. That's a structural problem.

Tom Come on, Amazon was up almost four percent yesterday. The market's not worried yet.

Marie But that's my point — they didn't notice overruns for months. If this is widespread, margins get crushed. Meta's already under pressure.

Gerald The Journal reports Meta's AI spending case is weakening. The stock fell nearly eight percent yesterday. Investors are pushing back.

Tom Okay, but Nvidia is the real story. If capex slows, demand takes a hit. But it's trading at fifteen times forward earnings — cheap for the AI king.

Marie No but that's the trap — value investors see a low P-E, but earnings can fall off a cliff if AI enthusiasm peaks. Nvidia's down eighteen percent from its high for a reason.

Gerald Watching the AI trade unwind is like a slow-motion car crash. Ugly, but you can't look away.

Tom Ha — fair enough. But I'm not counting Nvidia out. They've got pricing power.

Tom But here's the flip side — Samsung posted record profits on memory demand. Micron is riding the wave, up eighteen percent yesterday.

Marie Tom, Samsung's shares didn't rally on the news. The market's worried about cheap Chinese chips and an AI bust. That's a red flag.

Tom But Micron trades at five point seven times forward earnings, and it's thirty percent below its high. That's a steal if memory demand holds.

Gerald The semiconductor ETF recovered nearly seven percent yesterday but it's still twenty percent below its high. It's a tug-of-war.

Marie I'm pushing back — the AI capex jitters are real, and semis are at the heart. I wouldn't be piling in at the top of the cycle.

Tom But the cycle isn't peaking! Data center buildout is still accelerating. Micron is a buy.

Gerald Meanwhile, Chinese stocks are on track for their worst month in a decade. The large-cap ETF is down eight percent year to date.

Marie The internet ETF is down twenty-one percent. This is a structural retreat from AI suppliers.

Tom With that pessimism, a stimulus bounce could be huge. I'm not buying, but I'm watching.

Gerald Sell both. The trend is brutal until it isn't.

Marie My favorite story today — Bitcoin held near sixty-four thousand despite oil spikes and a hawkish Fed. But the real headline: perpetual futures are ruling everything.

Tom Perps? Marie, you love the crypto derivatives.

Marie Hear me out — perps are dominating price discovery, and SpaceX used the same mechanism to price its I P O more accurately than Wall Street. That's huge.

Gerald Alright, but two hundred eighty-six million in leveraged bets got wiped out. Bulls and bears alike. This market is a weapon.

Marie Exactly — which is why VIX futures are a cheap hedge. Crypto volatility spills to equities.

Tom I'm not touching Bitcoin. Too choppy. But watching for a breakout.

Gerald Quick hit: Air France-KLM profits plunged seventy percent last quarter. Iran war and heatwaves sent tourists north.

Marie The stock looks cheap but it's a value trap. Geopolitics keeps pressure on.

Tom I didn't know they were still flying. Pass.

Marie Last one — Congo's cobalt boom has a uranium problem. This could disrupt battery supply chains.

Gerald The rare earth metals ETF is down thirteen percent, forty percent below its high. If supply tightens, that's a sharp recovery.

Tom Uranium-tinged cobalt — now that makes battery metals exciting. High-risk, but it's so beaten up it's almost a lottery ticket.

Marie Exactly — and that's the kind of asymmetric bet I can get behind.

Marie Alright, zooming out — today's signals scream geopolitics driving the macro bus. Oil, defense, bonds — it's a war/reflation playbook.

Tom And the trade is clear: buy energy, short duration.

Gerald The counterargument is positioning is stretched. The long-duration Treasury ETF at its low, oil up eighty-five percent — a ceasefire wrecks these trades.

Marie But what's missing is credit markets. With borrowing costs at nineteen-year highs, high-yield should be panicking. It's not. That's a warning.

Tom So the cleanest expression is a pair trade: long the Energy Select Sector SPDR, short the Nasdaq-100 ETF. Energy has geopolitical tailwind, while the Nasdaq is expensive and exposed to AI doubts.

Gerald That's a trade I can get behind. Rotation out of growth into value and energy makes sense.

Marie Exactly. It's hedged — if rates reverse, the short Nasdaq leg gains. If oil rallies, energy prints. That's smart.

Gerald Nailed it.

Tom That's the trade.

Tom Alright, long energy, short Nasdaq — that's our takeaway.

Gerald And none of this is investment advice, obviously.

Tom As always, just friends talking markets, not advice.

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

Gerald We're back for the New York Edition later today at nine a.m. New York time. See you then.

Tom Stay sharp, everyone.