AI, rates and global growth shape the market outlook 10/6/26

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1:16Good Tuesday morning. Let's get a check on U.S. stock futures, which are in the green after a banner day for the major averages yesterday, led by the Nasdaq. You could see we're poised for gains again this morning with the S &P indicated to open up 14 points, the Dow 201 points, and the Nasdaq basically just above the flatline, 32 points. Keep in mind, though, for the Nasdaq and the Nasdaq 100 were back at an all-time high, closed at a new record yesterday. The Nasdaq's big move higher was driven by the big cap, the big tech trade, she says, as AI and the Mag 7 rallies back to record highs. Mag7 stocks are now pacing the S &P 500 year to date.

1:55That's as of trading yesterday. And if we check some of those names this morning, you could see in the green again right now, pre-market with Meta and Alphabet leading the charge, each up about six tenths of one percent. Big tech's big move coming even as yields remain elevated with the 10 and 30-year treasuries sitting at their highest levels since 2002, taking a bit of a breather here this morning. And by the way, that is the story for global bond yields overall. We'll get to that in just a moment. But if we check the levels right now on the screen, U.S. 10-year Treasury yielding 5.27 percent, Fed-sensitive two-year Treasury 4.81 percent, and the third-year Treasury 5.63 percent.

2:34Let's also get a check on the dollar index, which is sitting at its highest levels in about 17 months since April, May of last year. You could see slightly lower this morning, but trading right around 102 is the level there. And we've seen that given the significant weakness in recent trading days in the euro. Let's also check on energy with gasoline setting at multi-week lows. And you can see in general the crude complex is in the red this morning. WTI is down 1.6%, trading right around$88 a barrel. Brent's also down more than 1 % right now, trading just below$100 a barrel, around$99 right now.

3:12Arbob gasoline, as I mentioned, also lower. And the diesel contract, the heating oil contract, is down another 2 % this morning. We'll have more on that as well momentarily. But let's first see how Europe and Asia are shaping up. Steve Sedgwick is here. He's in London, and he has the trade for us. Steve. Hey, Morgan. Well, the equities are doing fine at the moment. Asian equities following Wall Street into the green overnight. Japan's Nikkei once again leading the way as crude prices declined. This has an auction on Japanese debt to its highest demand in around five months, trimming some of the outsized gains we've seen in bond yields.

3:47Here in Europe, very similar picture. A pullback in bond yields acting as a bullish signal once again for equity investors. Stock 600 in line for its third straight day of gains. Despite that pullback, yields are still holding at elevated levels, with the French debt, of course, particularly in focus. So let's talk a little bit about that, because it is particularly in focus. You've been covering markets across Europe for decades now. The fact that that's in focus now and the fact that everybody's talking about fears of contagion regarding France as they deliver a budget today. Now, your thoughts.

4:21Morgan, I love France. I want it on the record before I go off on one that I'm a Francophile, right? But they frustrate me like nobody else on this planet because the debt crisis that France may well be facing up to now has been around for absolutely ever. Let me tell you a quick story, Morgan. I went on a world debt tour in 2010 to 2012, the European debt crisis. I went to Reykjavik. I went to Spain. I went to Lisbon. I went to all these countries. I never went to Paris. But why didn't I go to Paris? Because it seemed too core, too important to the stability of Europe for us to admit that we had problems there.

4:55Let me give you a very quick example. When I went down to Madrid, they had a debt to GDP in 2011 of 69 percent. But I didn't go up to Paris, despite the fact that their debt to GDP was 20 percentage points higher than the Spanish. than the Spanish. So I guess this sort of brings us back to the question now, especially with Marine Le Pen starting to talk about budget cuts as she campaigns to where are we at in Europe? I mean, we know the political dynamics, the fiscal dynamics here in the U.S. have been covering them extensively here domestically. But but how would you assess the situation currently in Europe then?

5:32I would say that it's farcical in terms of our political classes, whether it's Marine Le Pen, Monsieur Macron or Le Conneau, whoever it may well be, because they are not owning up to the problems. Look, the French debt to GDP, that 20 percentage points higher in 2011 I talked about, was at 88 percent. It is now up to circa 119 percent debt to GDP. Do you know, they haven't balanced the books in France since 1974. They've been running a deficit since 2002 and they won't address the key issues. France won't let them. The people are out on the streets at the moment. And yet, for instance, I'll give you an example.

6:08They retire between 62 going up to 64 years of age by 2030. And that was so contentious. The rest of Europe can't afford to retire until 67, 68. What is it about French exceptionalism that allows them to retire three to four to five years less than other people? And yet the French still have enormous issues. The amount of money they're going to spend in 2027 on interest payments is going to be 3 percent of GDP. These are enormous numbers that it's all very well for Marina Penn say, oh, we're going to get it down. But she hasn't told us how she's going to do it. All right. Devil's going to be in the details here.

6:44Steve Sedgwick, it's great to have you on to break all of this down. Nobody better. We're just four weeks away from the U.S. midterm elections. Exactly today, with a balance of power very much in play since World War Two, the president's party has lost House seats in roughly 90 percent of midterms and Senate seats in about 70 percent. Traders on Calci are leaning towards the Democrats controlling Congress with 64 percent predicting a sweep of the House and the Senate. Historically, the markets perform well no matter what the outcome. Since 1946, the S &P 500 has seen a positive return every time over the year or the following 12 months following a midterm election.

7:23So President Trump is pulling out all the stops, trying to blunt the potential Democrat blue wave at the polls. and affordability is the top of voters' minds. The president signed an executive order last night at a rally in Nebraska to expand access to diesel fuel, tax-exempt diesel fuel. And this, as he's also promised to give one-time payouts of as much as$5 ,000 to Americans if Republicans win them in terms. Well, let's talk more about all of the potential market implications, what CEOs need to understand, what investors need to understand. And joining me now is Sarah Bianchi, Chief Strategist of International Political Affairs and Public Policy at Evercore ISI.

8:01Also, former Deputy U.S. Trade Rep. Sarah, it's great to have you back on the show. Let's start right there. What what do you see as front and center as we do go into the election here? Well, like you said, President Trump is trying to pull out all the stops, talking about new steel plants or new LNG facilities, trying to get some relief on these diesel and gas prices that Americans are acutely feeling. But they're going to have to target him carefully. There are some Republicans, like in Maine and other places, where it's not clear that it is an advantage to have him. So I think the party is, you know, really taking a close look at its resources.

8:46or where do they need to be for this final stretch to see if they can. I don't think anyone thinks that the Republicans can hold the House at this point, but they do have a shot at holding the Senate. So that's what the president's looking for. Yeah. And certainly a release of red dye diesel with an executive order last night is a shift away from a possible export ban on diesel. We'll see how this plays out over the next couple of weeks. But whether the House is captured and the Senate or not, what does that mean in terms of January with the new composition of Congress? I find myself having a lot of conversations both on and off camera about the possibility of ramped up oversight, more investigations and perhaps less actually getting done in Congress.

9:32I think that's right. There is going to be a whole slew of investigations and some of them will matter for the markets. For example, if some of the AI companies or chip companies are called to testify about what's going on there. But a lot of it will just be noise. And then I do think there will be some leverage. You were talking about debt crises earlier. When spending deadlines come, I think it will, the Democrats will have some more leverage to add some spending back in health care and other areas. And then, of course, don't forget, Donald Trump, most of what he has done in the first two years here of his second term is through the power of the executive branch.

10:16And I don't expect that he will slow in that regard until the day he walks out the door. I do want to get into that a little bit more, too. In the meantime, you just mentioned spending. We're obviously operating. The U.S. budget is operating on a continuing resolution. Is is it safe to say we could see in the lame duck an actual appropriations bill and budget that's passed and perhaps even a reconciliation package, too? Well, I think they will try at least to extend spending into the new Congress to give it some time. I am less optimistic that we're going to see a reconciliation bill. Some people even talk about addressing next year's debt ceiling crisis.

10:59We'll have to see what happens. Remember, the House is in very narrow Republican majority. And if some of these members lose, they may not be in the mood to cut a final deal. So I'm a little bit less optimistic about how much serious public policy fiscally we get done in the lame duck. But there are always moments for fiscal and that that will give Democrats some leverage if they take one of these bodies. I want to go back to executive orders for a moment. What does that mean in terms of power of the executive branch and what we see come out of there versus a new Congress, whether it's trade where we see where we know there's a lot of power dedicated to the executive branch on this, whether it's health care, defense, A.I., which is obviously in focus going into the elections as well.

11:49Sure. Well, like you said, the president loves trade and he has continued with his tariff agenda despite legal setbacks. even in the midst of all of this cry about affordability. So I don't think there's any reason to expect that he will retreat on that. He's still trying to get China back to where they were before the Supreme Court ruled and other things. And then, as you mentioned, on AI, even though both Republicans and Democrats outside the White House are calling for much more regulation, the president continues to have a very light touch. And we expect to see that continue again unless, you know, there is some unforeseen events, which in this space there certainly could be.

12:37So there's just so much Iran defense, as you mentioned. There's just so much you can do with the executive powers here. I think that's still where a lot of the action is going to be. OK, Sarah Bianchi, great to have you on and get your insights. Thanks for having me. Lots of topics to talk about. and we'll continue to dig into them over the coming weeks as well. Well, a few more other stories and stocks that we're watching this morning, too. Alphabet is reportedly closing in on a multi-year deal to buy nuclear energy from Constellation Energy for$1 billion or more. According to reports, a deal could be announced as soon as this week.

13:13Google already has energy partnerships with NextEra and Southern Company. You can see shares of both are higher this morning, Constellation up 3 percent. Health care giant McKesson and private equity group Clayton Dubuye and Rice are nearing a deal to buy Option Care Health at more than$5 billion, including debt. Option Care Health is the largest independent provider of medical infusion services in the U.S. The Financial Times says a deal could be announced as soon as today. You can see Option is up almost 24 percent this morning pre-market. And AMD CEO Lisa Su says her company plans to substantially increase chip supply next year.

13:52Speaking with reporters in Taiwan this morning, Su saying she's looking three to five years ahead as she meets with officials from Foxconn, Taiwan Semi and SK Hynix. Those shares are also up about six tenths of one percent. Well, we have a lot more to come here on Morning Call, including SpaceX doing something for the first time since June, putting Elon Musk in a very exclusive club yet again. and the next big market risk on the Federal Reserve's radar, why the central bank is taking action now. And later, the U.S. versus China once again in the AI arms race, now battling it out with big backers with deep pockets.

14:28We've got a very busy hour still ahead when Morning Call returns.

14:36Oh, look, you just got added to a meeting about coordinating another meeting to prepare for the pre-meeting ahead of the follow-up meeting, which will, of course, require a recap meeting. And then another meeting. Hit your booking point, book with Southwest, and enter airplane mode. Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much. Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished.

15:20No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song, like all I want. Right. Okay, we can afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for a 12-month plan required.

15:54$15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. We've got a market flash for you. You're watching Shares of SpaceX after jumping over 7.5 % yesterday, up another 1%. again this morning. That builds on Friday's gains as well. So it's up some 16 percent in two trading sessions. That's before this morning. And the stock is back at its highest level since mid-June, so right after the IPO. And it pushes CEO Elon Musk's wealth back to trillionaire status, at least on paper. That jump coming on the back of bullish notes, including one from Morgan Stanley's Adam Jonas, calling the stock cheap at current levels.

16:32Something else to watch, SpaceX also yesterday proposing a 32-mile Florida natural gas pipeline for Starship refueling as they continue to invest in and build out Starship operations along the southern coasts of the U.S. Well, Google, meantime, is taking its AI ambitions to the heavens, recently sending a satellite prototype equipped with its specialized AI chips into low-Earth orbit. This was part of an experiment called Project Suncatcher. They did that with Planet Labs. The satellite launched aboard SpaceX's Transporter 18 mission, as I mentioned, was developed in collaboration with Planet.

17:05It is part of Google's push to determine whether AI chips can operate stably in space. They're making a big bet on it, just like SpaceX. Google's not alone. SpaceX is not alone. Redwire recently signing a memorandum of understanding with Sophia Space to explore development of scalable computing infrastructure in orbit. And the company's plan to combine Sophia's modular orbital computing architecture with Redwire's space infrastructure technology. So for more, I am joined by Peter Canedo, the chairman and CEO of Redwire Space. Pete, it's great to have you back on the show. Welcome to you. There's a lot to talk about.

17:38You've been very busy. You've made a bunch of deals in the last couple of days. But I do want to start with this Orbital Data Center space race. Is it upon us? Yeah, well, first of all, thanks for having me. It's great to be here. Yeah, I think it is. I think what you're starting to see is in early days of a new infrastructure capability that is going to be global. So what does that mean for Redwire and the type of technology that you're now going to develop? Yeah, well, so Redwire is a space infrastructure company. So whether you're talking about commercial space stations, whether you're talking about our recent deal with SpaceX on Starfall for developing pharmaceuticals, or whether you're talking about data centers in space or ultimately a permanent human presence on the lunar surface, these are all infrastructure projects at their core.

18:35And that's what RedWire does. And I think we're excited about Sophia Space because they recognize our positioning and providing that orbital infrastructure that they can run their compute on. Yeah, I mean, we're seeing potentially trillions of dollars go into AI compute infrastructure terrestrially on Earth. What do you think that market could look like and how quickly can it materialize in space? Yeah, well, I think it could be very big. A lot of people are starting to reference when TV, satellite TV broadcasts first came online. Obviously, when that first came online, there were a number of naysayers who talked about the challenges.

19:23There isn't enough launch. We don't know the geospatial orbital mechanics, but it came and it grew into a really big market. We're probably broadcasting. I think the vast majority of TV broadcasts happens in space right now. So there it's early days and there's a lot of challenges to overcome. But it's not like there isn't precedence for growing this kind of infrastructure over time. I do. I do love that comparison, I have to say. You've also announced a deal with Axiom Space for solar wings. You're teaming up with Honda on space robotics on space stations as well. And then you also just mentioned this partnership with SpaceX on Starfall.

20:03So what does this all mean for Redwire in the space portfolio? Yeah, well, like I said, I believe that we're just at the beginning of a massive set of growth in space infrastructure. We are now extending infrastructure into low Earth orbit and beyond, ultimately to the moon. And probably, if you ask Elon Musk, ultimately to Mars. So we're an infrastructure company. So there's lots of great uses of space that are coming online now, and that presents a lot of opportunities for us. And whether it's robotics or the pharmaceutical development on these new exciting platforms like Starfall or providing power in space or orbital data centers, Redwire is going to be a part of all of that.

20:50Yeah. Sounds like maybe you're a little more hesitant about Mars and what that looks like. I'm going to shift gears. I'm happy to have you comment on that. But I also want to shift gears because you also have a drone business, too. And defense tech and the future of warfighting is very much in focus, in part because President Trump is going to be visiting with Andrell today. Get ready for Thanksgiving with great deals and crowd-pleasing flavors from Whole Foods Market. Stock your pantry with 365 brand holiday must-haves like turkey gravy, organic green beans, crispy onions, organic stuffing, instant mashed potatoes, and more.

21:23Plus, find deals on frozen turkey, appetizers, and produce to check everything off your list early. Save on chef-inspired holiday favorites now at Whole Foods Market. Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much. Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud.

22:00Check response, subscription required. This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song, like all I want. Right. Okay, we can afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for a 12-month plan required. $15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy.

22:31See terms. Yeah, right. Well, also a very important trend happening out there in the evolution of modern warfare. Drones are becoming pervasive. So it's a critical technology. And and that's where Redwire likes to focus is on these high tech challenges that have critical missions. So much like space, drones are another area of of capability that are really important right now. All right. Peter Canito of Redwire. It's great to have you on. Appreciate it. Yeah, thanks for having me. All right. with shares of Redwire at more than 1 % right now. Pre-market in the midst of that conversation. We'll straight ahead.

23:15Affordability on the ballot just four weeks out from the midterm elections. We are live in one battleground state where housing is taking a center stage. Morning call. We'll be right back.

23:28Well, we're turning back to the midterm elections. We're just one month out, and housing affordability is the number one issue for voters, 18 to 34. That's according to CNBC's All-America survey. And that issue, well, it's only getting worse. Diana Olek joins us from Allentown in the swing state of Pennsylvania with more. Hi, Diana. Good morning, Morgan. Yeah, mortgage rates are over 7.5 percent. Home prices are still rising. And guess what? Rent is heating up again. One in five Americans who rent or have a mortgage spend half or more of their pre-tax income on housing. Half spend between 25 and 49 percent.

24:07And that's according to the CNBC and SurveyMonkey quarterly money survey released in October. Now, the standard guideline from banks and lenders is about 30 percent. Here in Allentown, 54 percent of renters are spending more than 30 percent of their income on rent. And that's according to the U.S. Census. And home prices are up 4 percent compared with a year ago. That's from Zillow. Now, this district ranks eighth nationally among House races where young voters could most influence the midterms. That's according to Tufts Index. 33-year-old Jessica Heller is a newlywed renting from a friend at a reduced rate.

24:48Going into a mortgage right now for someone like me, like unless I'm putting$50 ,000 down, but like where do you get that money? Your mortgage is still going to be like$2 ,000,$3 ,000,$4 ,000 a month. And like in Allentown, some of the most run down homes are still selling for four hundred thousand dollars. It's like we're not able to get like a starter home and invest into it. Now, this district is in a toss up between incumbent Republican Ryan McKenzie and Democrat Bob Brooks. McKenzie touts his support for the affordable housing tax credits passed in the 2025 budget bill. He also co-sponsored legislation in January to establish a homebuyer tax credit early, but it has yet to see a vote.

25:29Now, Brooks is pushing for more starter homes and a crackdown on corporate landlords and rent gouging. Over in Pennsylvania's 10th, west of here, it's another toss-up. But the Republican incumbent was the only member of the state's delegation to vote against the recently passed Rose to Housing Act. And we'll tell you why coming up on Squawk Box. Morgan. All right. We're looking forward to that. In the meantime, Diana, I'm going to ask her what maybe is a really basic question. How much can policy, whatever the policy, actually tackle what we're seeing in the housing market right now when there's so many unique pieces to it?

26:04I mean, there are so many pieces to it, and that's a really tough question. Look, can they work on some federal legislation to help? Locally is what you really need. You need some zoning issues redone. You need to have local officials look at what's really stalling home construction. So on a state and local level, yes, they can have an impact. Federally, it's much harder. We did see the Road to Housing Act pass, though. That had a lot to do with investors and single-family rentals. So, you know, there are so many pieces to this housing puzzle to get, you know, housing more affordable again. But really, it's mortgage rates.

26:36And what do you do about that, right? Talk to the Fed. Yeah. Yeah, maybe take a look at the federal budget, something we've been talking about quite a bit here on CNBC. Diana Olick, it's great to see you. It's great to have your reporting. Folks, tune in throughout the day to hear more of it from Diana Olick from Allentown, Pennsylvania. Well, join CBC's Trading the Midterms Forum as well in Washington, D.C. on October 14th. We're going to convene leading macro minds to examine why political risk remains one of the market's biggest blind spots and how tools like prediction markets are changing the way investors interpret uncertainty.

27:11To sign up, scan the QR code on your screen or go to cnbcevents.com slash trading the midterms. Well, still on deck, what's old is new again as President Trump heads to the ports of Baltimore today, ushering in the next chapter of U.S. defense manufacturing. We've got the full story when Morning Call returns. I'm Morgan Brennan. Welcome back to Morning Call. Let's get a check on U.S. stock futures, which are in the green, with the Nasdaq back at a record high. That's where it closed yesterday. You can see S &P is poised to open up 16 points, Dow 202, and the Nasdaq 50 points. Yields are in focus, too, with the 10 - and 30-year Treasury sitting at their highest levels since 2002.

27:56Taking a little bit of a breather this morning here across the curve. By the way, not just a U.S. bond story, but a global bond yield story right now. The 10-year Treasury yielding 5.27 percent. Fed-sensitive two-year, 4.81 percent. 30-year Treasury, 5.63 percent. Keep in mind, we're also seeing crude under a bit of pressure again this morning as well. So that, in turn, is propelling what we're seeing in equities and bonds. We're checking some of the morning's latest headlines, too. Private equity concerns are apparently—private credit, excuse me—apparently catching the attention of the Fed. Semaphore reports the New York Fed has been visiting with big banks, including J.P.

28:30Morgan, Wells Fargo, Barclays and Morgan Stanley since the spring, asking questions about exposure, risk management and more. The review, according to the report, was triggered by J.P. Morgan's decision back in March to mark down huge tranches of loans and private credit portfolios, mainly exposed to software. And OpenAI is reportedly in talks with multiple investment funds from the UAE and BlackRock to help raise$30 billion in a new capital round at a$1.4 trillion valuation. The move coming as the company continues to push back IPO plans. But from one AI to another, China's DeepSeek is close to securing a more than$11 billion funding round of its own, backed by Chinese battery maker CATL and Tencent.

29:12And the move coming as the company prepares for a reported IPO next year, what could be the biggest Chinese market debut in years. Well, President Trump is heading to Maryland today to speak at an Andruil manufacturing facility at 4 p.m. Eastern, unveiling what the company describes as, quote, the next chapter of our work to rebuild American defense manufacturing. The Andruil Maryland plant sits on a 3 ,300 acre logistics and industrial center near the port of Baltimore that used to be owned by Bethlehem Steel. We're expecting some news from there today. But if we turn back to the tech trade, NVIDIA backed company Reflection AI unveiling a new open-weight model last night that could bring new and cheaper competition to OpenAI, Anthropic, DeepSeek, and others.

29:55It's doing the same level of work with less computing power. And Reflection says it plans to release more technical details about the model later this month. The release coming as the AI arms race continues to drive equity markets to record highs, despite surging yields, two wars on two continents, and BlackRock's rigged reader on closing bell yesterday weighed in on all of it. You think about what's driving the equity market, immense spend on AI, immense spend on technology. You've got an economy that's growing. Our now cast on current growth is over 7%. Our sense is that you're peaking now in terms of that growth.

30:32Can you still grow? You're growing 20%, 25 % earnings growth. I still think you can grow at 10 to 15 percent. All right. Well, let's talk about all of this and more with Jordi Visser, the head of AI macro nexus research at 22V here on set. It's great to have you. It's always good to be here, Morgan. I mean, you're the best when it comes to AI, when it comes to crypto, when it comes to the macro. And so I guess just a general question for you. How do you see this market right now? We have the Mag 7 trading at a record high. We're talking about weak breadth and AI is front and center. I think everything is good.

31:06There's a lot going on in the world. And I think you can follow the news and go through everything that may have an impact on the economy, may have an impact on things going forward. But it takes you away from the progress that's happening in AI. You have one force that is moving at an exponential pace. The progress keeps getting better and better. We keep getting new tools almost every single day now. And unfortunately for people in paying attention to things like rates, like oil, they get distracted from the reality. And the reality is that AI is the most important factor. It's been that way for three years and it continues to be that way.

31:40That said, have you been surprised to see Treasury yields march to multi-decade highs here and that rotation continue into AI and growth related stocks? That shouldn't be a surprise to anyone. Nominal GDP right now, year over year, is 6.3 percent. The last time we had nominal GDP that high year over year was back in 2006 and 2005, which is when rates were up at these levels. There's always been a relationship between how fast the economy is moving on a nominal basis, which includes inflation and where nominal yields should be. And the fact that this is the fastest growth and it's not just showing up at the national level.

32:19If you take the Johnson Redbook numbers that are coming out every week to get a sense on consumer spending and whether oil and rates are having an impact there, those are also at the highest nominal level since the 2005-2006 period. So I don't think people should be surprised by yields. I think the reason the market has had a hard time is because it didn't expect yields to go higher. We expected the Fed to possibly be cutting rates. That changed in February. And since that time, we've seen an impact to the market. So I think this has been more about the change on what was expected coming into the year rather than the level of yields themselves.

32:52So we're seeing the bond market. Does it feel like normalization? And I ask that knowing we had, what, 15, 20 years of, you know, ultra low interest rates and an entire generation that's grown up knowing nothing different. I think the bigger surprise is the fact that when you look at charts of yields, the 2009 to 2020 period was the anomaly. Not now. We're just back. You can call it normalization or you can call it the fact that when you look at 2009 to 2020, you get caught in this thing. But the bigger surprise is not that yields are up the levels they are. It's that they actually went negative in many places around the globe during the 2010s.

33:29So what are you most excited about when you look at the AI landscape, the picture right now? We've got in video trading at record highs, speaking to so-called picks and shovels in the public markets. And in the private markets, we just talked about it with reflection. dropping an open-weight model that's going to apparently aggressively compete with Chinese competitors, too. A lot of focus on what happens with Frontier LLMs and the commodification of them. Yeah, I think too many people, again, are focused on how the price competition. Here are the facts. What should we be focused on? Let's start there.

34:00The agentic. So we're beginning the next stage of the agentic part of AI. So beginning in the fourth quarter of last year, we entered the coding agent world, which was going to help enterprises. Now in the last month between GrokBot, Instinct AI and Metamuse and now Dots, we've steamrolled into the consumer agentic side, which means we're also going to go into the payment side that brings us into crypto and the crypto guardrails. There's a lot of places for investors to look for growth. I think focused on things that are impacted by rates is really looking at a world that doesn't exist the way that it should.

34:36You should be focused on the places where there are growth. Growth investing has made people the most money over the course of the last 16, 17 years since the launch of the iPhone. So if you break it all down and you go through it, we're in the exponential age. And if you focus on linear investments and things that had an impact in the 1970s and 80s, you're missing a lot of upside for worrying about the downside. Let's talk a little bit more about that convergence between AI and crypto and what that means in the age of agents. Agents can't handle living on a world where it's T plus one settlement, which as I listened to a podcast on the way in to see you early this morning, someone said we got back to T plus one in 2024 for settlement of stocks.

35:17Tokenization is a big trend right now. Well, T plus one is where we were in the 1920s. So somehow or another, we slowed down the settling of instruments. Agents aren't going to handle that. Agents depend on speed. They depend on settlement that can't be disrupted by hackings. And the only way to really protect against that, aside from cryptography, is instant settlement. So I think where people are making a mistake on crypto, and I've written about this recently, we built the infrastructure over the course of the last 15 years. Now we're ready for the users. The users were never going to be humans.

35:51They didn't depend on things that were that fast that needed to avoid hackings, but AI agents do. So when we talk about cybersecurity concerns in the midst of the rollout of all of these AI agents, does this just propel that relationship and that rollout of tokenization more quickly? I think there's going to be a lot more hackings than we all believe. Hopefully we avoid major ones, but I'm sure there will be hackings that continue to be major stories. it will drive us faster and faster to cryptography and faster and faster to instant settlement. I think one of the things that people have to realize, if you leave your home for a day, there's a higher risk of having a robbery than if you leave for two seconds.

36:31Well, that's the same way the settlement issue on the crypto guardrails is going to become important for both the hacking side and the offensive side of getting payments done quickly, but also more efficiently. All right. Jody Visser, it's great to have you here on set. Always wonderful to get your insights. Same here, Morgan, like being here. Morning Call. We'll be right back. We've got a market flash for you, a check on shares of AMD, Dell, SanDisk and Intel all getting price target hikes from Mizuho this morning. You can see for the most part trading higher. The exception is SanDisk down fractionally and AMD going from five hundred and eighty to seven hundred and five dollars a share.

37:07Mizuho citing accelerating adoption of agentic AI for those moves. We are back with a morning call right after this. It's time for your call sheet where we look at the topics driving the trading day ahead. Crew members today, Peter Scheer, Joanna Gallegos, and Claire Pleidel-Bouvier. It's great to have all of you here. I am going to start where we just left off with Jordi Visser. And Peter, I'm going to put this to you. What we're seeing in the market right now with the Nasdaq at a record high, with the MAG7 stocks actually as of yesterday now outperforming the S &P and just this ongoing rotation despite higher rates into AI and growth.

37:42Your thoughts? You know, it makes some degree of sense. Again, to me, right now, the economy is tooth of holes, right? There's the AI compute build economy and the rest of the economy. And I don't think the AI and compute is really going to be slowed down at all by higher yields. I'm a little bit nervous still about China and flooding the market with cheap Chinese compute. We're not there yet, but I keep looking at that. You're seeing, you know, potential IPOs from Chinese companies. That, to me, is really going to be the competition. I think independently, AI is growing. The threat is that China just dump cheap compute on us and drive our own pricing down.

38:12Yeah. Claire, I want to get your thoughts on this, too, since I know you're invested in and you cover tech so closely. Yeah. On the point on compute pricing, tomorrow we've actually got AWS repricing its new H100 block contracts 15 percent higher. And I think this really just speaks to the demand supply imbalance that we're seeing right now. compute is the ultimate scarcity so whilst chinese chips compute sure demand is increasing there it is no way going to replace any of these u.s counterparts just given the scale and breadth of this balance so we do see significant momentum um for the you know the ai infrastructure names into year end we would caution the pockets of the market have rebounded stronger than others since July.

39:05So it's definitely a stockpicker's market. We're expecting volatility to really pick up a little bit. But the key is that actually for those hyperscalers, the installed base of compute, the asset productivity uplift there is what we think is underappreciated heading into earnings season. And why are we expecting cloud revenues to beat across the board, which would really give the market greater clarity over that ROI on AI compute that we started CNQ2. Interesting. We've been having this conversation, Joanna, for really it feels like weeks on CNBC as we see a run up in yields in U.S. treasuries and globally, really, in bond.

39:47We can get to that in a second. But this idea that there's more competition in terms of those investor dollars in the debt markets right now as we do see this AI infrastructure build out continue. Yeah, I think there's more competition there. I mean, it's the biggest market in the world, fixed income. But we have to remember fixed income is very varied. And what's happening in these markets is it's really starting to show the differentiation in your choices, I think, to your point. And while yields are higher, it may give existing bondholders a little bit of clutch or pearl moment because they're seeing their prices go down.

40:20It really can make sense to enter these markets if you're really deliberate about the risk you're taking. And so finally, because income's back in fixed income after we've had the great rate hike and we've gone through this volatility, you can start seeing where you want to put your money to work. And we just see a ton of opportunity right now. Yeah. What do you think about how the market's reacting to economic data here in the U.S., Joanna? And what's been a repricing of expectations around a cut until December? So it's repricing expectations around rates, but not credit. I mean, you've had a few guests this morning talk about how credit spreads have been relatively stable.

40:55So it really shows you the strength of the underlying economy and American debt. And there's a way to lower your interest rate risk, reduce duration in your choices, but still be able to take advantage either for the long term or even tactical in credit. Peter, I know you have thoughts on this. You've been writing about all of it. So, you know, I still like if I'm going to own U.S. bonds, I either want to own compute bonds. I like the long duration. I like the extra spread. I think right now, if you're a small investor, closed-end municipal bond funds, I think they offer really good value. You're getting a very nice yield.

41:29You're getting a discount. We might not be at peak yields, but looking there. And I am keeping a close eye on Europe. It's a little bit scary how quickly Europe fell apart. And I am looking at credit. I'm not at all worried. Some of the signs that I look at in credit aren't showing any alarm. but it is all of a sudden seeing that widening. And we saw how quickly U.S. yields went higher. We saw how quickly Europe went higher. The one problem with the credit markets are they are so, so big. If you see some outflows, it can have very rapid consequences. So keep a close eye on credit. I think it's very stable right now.

41:59It looks good. If that starts to break, then that would hit equities, I think. Claire, what do you think? I mean, is there a risk there if you start to see a slowdown and you start to see cracks in credit in some way? What does it do to the rest the conversation we're having? Sure. I mean, as it pertains to the equity trade, I think the key for us would be if we see the 10-year go of the 5.5 percent, and then it could be a pretty quick journey up to 6 percent. But on the flip hand, if we do start to see financial conditions improve whilst employment holds up, a number of selective buying opportunities are emerging in those cash-generative businesses that do not hold a lot of debt.

42:45Think of the NBRs, the Home Depot's of these worlds. Some of these companies that have really, really lagged in terms of stock performance, given the pressure that we're seeing on real years. So we're starting to tentatively deploy some capital into these types of names that we think really could be coil springs if we do see some rate. Joanna, France, is it giving you pause? Cause for concern? I would say that, you know, global markets are something everyone needs to be paying attention to right now. There's strength in the U.S. American debt. And really, we need to be focusing on where portfolios are rebalancing.

43:24Big, broad, global issues is something that is a daily news headline. So I think we just, you know, hold on, expect more volatility. Yeah, we had Steve Sedgwick from our London bureau on earlier today. And he was like, OK, you know, everybody's focused on France right now. This has been an issue actually for a long time, a long time. Red dye diesel here in the U.S. as we shift our sights to midterm elections four weeks out. You know, I don't think it's going to make a big deal either way. I think we have to get through this war. Again, I'm fairly optimistic that either come to the midterms or post midterms, we'll be able to exert enough pressure on Iran coupled with the economic pressure that's been on that we come to some sort of resolution.

44:02So that's not really big on my fear. And the other side of this is I think we don't talk enough about the global investment opportunities. You saw Brazil, right? All of a sudden, their leadership's potentially changing. I think, you know, Trump has kicked the hornet's nest globally, making everyone aware that they have to do more on their own. I think we're at the early stages of a really big global growth stage where every country sees their own opportunities better than they have in a while. So, yes, I like the U.S. and I agree that some of these underperformers could do really well. But I think that applies quite the same globally.

44:32So I really want to be invested globally. And I like emerging markets, particularly Latin America here. Yeah, we talk so much about or I talk so much about reindustrialization. But that is a phenomenon that's happening in other parts of the world like Europe right now as well. You and I have had the conversation on and off camera about things like defense tech. So where do you see those opportunities and those dollars flowing, whether it is in the U.S., depending on what we get with budgets or elsewhere? I still think it's going to be infrastructure and energy buildup for every country. I think they have to make sure that electricity needs for their people, for the data centers, for the compute they're going to build out.

45:03That's just huge. They want to source their energy from safer places and all the infrastructure that goes in and around that. So I think you're going to see massive build out in ports, railways, everything across Europe, highways. That to me is exciting. I think it's happening globally and here. And those are the stocks I think that can pick up as we move past some of the just compute story and yield story. Claire, I see you nodding your head. Your thoughts? I could completely agree that the opportunity is much larger than just in the US. In particular, to cycling back to what you mentioned at the beginning, Morgan, we see significant opportunity in China itself, as well as parts of the Asian supply chain, because we're seeing two technology stacks being built.

45:46But broadening both geographically and across sectors, companies, is a theme that we expect to continue into year-end. OK, we've got about 20 seconds left. Joanna, final thoughts. I think you're watching. We're looking at the way you can really take advantage of these yields versus any kind of component of risk. We really like the idea of private credit, things that can really diversify and give you some alternative income streams and fixed income and emerging market debt. Just to echo on the points about looking outside the U.S. Yeah. I mean, the moves we saw in Brazilian assets, to your point yesterday, was pretty incredible.

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