Inflation, AI and trade tensions test the market outlook 9/8/26

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1:16Good Tuesday morning. Let's get a check on U.S. stock futures for this holiday shortened trading week here in the U.S. It was a mixed week for the markets last week. Saw the Dow close lower for its third week in four, but gains for the S &P and Nasdaq. And as As you can see right there, here this morning, pre-market, we are firmly lower for all of the major averages to kick off this trading week. S &P is poised to open lower to the tune of 40 points. Dow down 506 points. The Nasdaq, 110 points. Dow set to lose nearly 1 % at the open, just to put that in context here. Here are your biggest pre-market Dow laggards as well, as you can see right there on your screen.

1:54And Amgen, some spillover there as we see some weakness across the pharma sector with some failed studies, medicine studies here. Goldman Sachs is lower as well. Salesforce, J.P. Morgan and IBM all down about 1 percent or more. Treasuries in focus here. Yields are elevated. We've got the 10-year Treasury yields back above 4.8 percent this morning, as you can see right there on your screen. U.S. 30-year Treasury yielding 5.27 percent. Fed said to your Treasury, 4.38 percent. We're also watching iShares Canada ETF as new counter tariffs of up to 50 percent on $20 billion worth of U.S. goods takes effect here now, today.

2:34You can see that is unchanged, but we're going to be digging into that trade war, if you want to call it that, trade tensions, a little bit later this hour. And finally, take a look at energy here because that is higher following strikes by the U.S. and Iran over the weekend. And as you can see right there, WTI is up another 3 percent right now, trading around$94.50 a barrel. Brent is trading with a 99 handle here, flirting with$100 a barrel as well. We are watching Houthi rebels as well, launching a wave of attacks on Saudi Arabia this morning. So that is the latest headline just pushing through a few moments ago.

3:13Wounding more than 70 people, sparking fires at several oil facilities in the kingdom's southern region. That's according to local authorities. This after Iran threatened to strike energy infrastructure across the Gulf, including U.S. oil and gas interests, if the U.S. military continues its military campaign in the region. And we will continue to monitor that situation. Meantime, as we just mentioned, WTI and Brent are both jumping this morning. Brent is trading around$99 a barrel. Our Bob Gasoline higher. Nat Gas is trading about flat right now. Let's see how Europe and Asia are shaping up. Steve Sedgwick is in London with that trade.

3:49Steve.

3:53Hey, Morgan, lovely to see you. Let's start off with the yen, because Japan's currency is trading around a six-month high this morning. Traders now seeing the chance of a Bank of Japan rate hike pretty much confirmed. Question is, are they going to go for 50 basis points, which will be a bit of a bazooka. Now, it comes after the country revised its growth figure for the second quarter higher on the back of improved CapEx data. GDP growth came in at 1.4 % on the year. That is up from the initial estimate of 1.1%, but still below the 1.6 % analysts had penciled in. Here in Europe, we're moving to the downside on equities this morning.

4:25Oil prices moving to the upside, as you just mentioned, spurring more inflation fears. We're going to get a rate decision out of the European Central Bank on Thursday. Money markets pricing in a 99.7 % probability. We get a hike. On the corporate front, again, you mentioned the story. Novartis announced a further trial disappointment, sending the stock on course for its worst day ever. And the politics, absolutely fascinating over in Germany. The alternative for Deutschland, alternative for Germany, came first in Sunday's Saxony-Anhalt state, not federal, but state election, claiming almost 44 % of the vote but falling short of an outright majority.

5:04The vote puts the AFD in position to become the first far-right party to hold power at a state level since World War II. The Chancellor Friedrich Merz's CDU came a distant second claiming just 17 % of the vote. Huge turnout, Morgan. 75%. Wow. I just want to stick with you for a moment, Steve, because we're very focused on midterm elections here in the U.S. and the impact that has on the markets. But when you see an outcome like this in Germany, what are the ripple effects across the continent?

5:35everybody is paying attention because everybody's looking at the right, quite frankly, and dare I say, the extreme left as well. And the comfortable middle that has been ruling in Germany for my entire life, which goes back a few decades, you've always had the CDU stroke CSU, which is the centre right. That's Frau Merkel's party, you know, the woman who controlled lots of European policy for over a decade. Then you've had the SDU, which is the SDP, the Social Democrats to the centre left. It's always been a combination of these two which have governed Germany. If you've now got a right-wing party, the AfD, which has been knocking at the door for a long time, potentially looking like it's gaining traction, albeit Sassan-Anhalt is tiny.

6:17It's a couple of million people. It's in the old east of the country. And there's a lot of demographic issues, a lot of social issues as well. But if it is an outlier for broader German politics, then the comfortable middle is going to be very, very concerned. Plus, Morgan, don't look at it in isolation. Look at what we're seeing elsewhere, because President Macron, he's been in power for two turns. He cannot run again. And who do we think at the moment is number one, certainly favorite, potentially with the pollsters to become the next president of France? Well, Marine Le Pen of the national rally, another far right party, could potentially be the winner.

6:51It's a long way off, by the way, in 2027. So if you've got a drift to the right, what does that mean about European cohesion and other huge issues, such as its attitude to Russia as well? So at the moment, it's a small election in a small state, but it could be a big outlier. All right. Steve Sedgwick, breaking it down for us. Appreciate it. Always great to see you and hear from you. We've got bond yields remaining elevated, as we just touched on. Oil prices closing back in$100 a barrel. The market's a bit on edge here. There are a few key events this week that investors will be watching closely.

7:23Tomorrow, U.S. Treasury will conduct its first enhanced debt buyback operation. That could be$4 billion worth or more. Thursday, the ECB holds its latest policy meeting, expected to raise rates by a quarter point for a second time this year. And then on Friday, we get the August CPI report that could help determine whether the Fed raises rates or stays on hold when it meets next week. Keep in mind, we get PPI the day before as well. Well, joining me now is Joe Mazzola, head trading and derivative strategist at Charles Schwab. Joe, it's great to have you on. Let's start right there, sort of the key things that could move markets here this week and beyond.

7:59Yeah, investors are going to be really paying attention to the inflation data. And then, as you mentioned at the beginning, I think oil and rates, they're all tied to a certain extent. And I think it's really having an effect on how they're approaching the market right now. I think they're becoming a little bit more cautious as they see yields push above 4.8 in the 10-year. You mentioned WTI up around 94.95 right now, 3 % overnight. and then the hostilities that we're seeing in the Middle East, all of those together, it's causing a little bit of a headwind for this market. You know, we got real favorable jobs data on Friday, which I think we're in one of those situations right now where, you know, be careful what you ask for, right?

8:44Because the favorable jobs data, it points to an economy, you know, that's holding together. It's still doing fairly well. But at the same time, it's having a bit of an overhang on the equity markets because we're waiting for that catalyst to kind of push through to new highs. And right now, as we're seeing some of that leadership from technology that gave us that nice little bounce that we saw at the end of July, that's really starting to fade. And it's really been, you know, things like financials, health care, energy. You know, those have been the three sectors that have taken the lead right now.

9:19Yeah. I mean, Oracle results are going to be in focus to that point then in light of what we have seen under the hood in the market here. One of the things you've been diving into is this growing gap between traders and investors and the sentiment there and how they're positioning themselves. Let's break that down. Yeah, I think a lot of it started, as I mentioned, kind of at the end of July when you saw the markets kind of rip back to the upside. A lot of buying within tech. And so some of that started to kind of fade in August, especially with what we saw with our Stacks Report. That's our Schwab Trading Activity Index.

9:56You know, the software trade had become in vogue a little bit towards the end of July. But as you saw big gains in stocks like Palantir, Microsoft ServiceNow, you mentioned Oracle and then Salesforce, a lot of those stocks were up 20%, 25 % in the month of August. Those were ones that we saw a lot of trimming from clients. I think you can call it profit-taking, if you will, just because of the rapid ascent that you saw in those share prices. But I think there's a little bit more caution as we're heading into what tends to be a little bit more volatile season in September, where you're seeing some of those winners trim.

10:34You're seeing some of the higher beta names get trimmed a little bit. And then there's been a rotation, Morgan, which I think is interesting. You know, normally when we talk about our Stacks report, we like to highlight the key equities that were bought and sold. And we've done that again this month. But when I look at the top 10 purchases in terms of net buys, four of them were ETS, which is something we normally don't see. Normally, a lot of our clients are kind of equity driven that they're looking for to be stock pickers. But we're seeing a lot more kind of diversification in how they're allocating those funds right now.

11:09So that kind of points to an investor that wants to remain bullish, but maybe isn't as confident right now with the stock picking just because of all the rotation that we've seen of late. All right, Joe Mazzola, great to get your insights to kick off the hour. Appreciate it. We've got a lot more to come here on Morning Call, including foldable phone wars as Apple's China rivals beat Cupertino to market with their latest and greatest. We've got a live report from Beijing ahead. Plus, tariff tit-for-tat, why one company is pushing back on claims by President Trump as he threatens U.S. sales boycott.

11:43And later, ahead of Wednesday's NFL kickoff, the other turf war brewing in the online betting space. We have a very busy hour to bring you when Morning Call returns.

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13:27Let's get a check on a number of AI-focused names in Asia. mostly pulling back in today's trading session after massive rallies yesterday. The reason behind those gains? Astra, the newest and most powerful model from OpenAI, which has received plenty of praise since its release, including from NVIDIA's Jensen Wong. Wong taking to post on X to congratulate OpenAI's team on the release over the weekend, noting that AGI, or Artificial General Intelligence, has arrived, saying that Astra was trained on NVIDIA chips. Well, for more, let's bring in XIE, partner at Offline Research and a former engineering leader at Google and Microsoft X.

14:01It's great to have you back on the show. Let's start right there, because this seems to be the big headline of the last couple of days, that OpenAI's new model is ushering in the age of AGI. Your thoughts? First and foremost, the industry is celebrating human-level intelligence with a definition that leaves most of humanity out. Artificial general intelligence, as defined by open AI, is the kind that can replace human work that is considered economically valuable. Now, that captures one dimension of intelligence, but other definitions also examine how efficiently a system learns something unfamiliar, which is where, you know, Astra really becomes impressive, is that it's able to be able to learn from these new unfamiliar environments and have a massive advance while stopping short of what most consumers might consider to be human-level intelligence.

14:51So know your AI isn't going to become your chef immediately just because Astra is able to use Blender, the 3D modeling program, the same way a human would. What we're going to see is a lot of the high-level repetitive tasks that require a lot of repetitive work from humans being replaced by this. So it may feel like AGI to the developers, but may not feel like AGI to the consumers. OK, so in a week last week where you had a flurry of model releases, does this one Astra specifically stand out from the pack then? And how does it tee up against what we know is coming? I feel like number one Astra blew everyone out of the water when it came to model releases last week.

15:30It's jumps in coding capabilities. It's jumps in reasoning capabilities, move the industry far beyond what we've seen. The ARC Prize, which is one of the institutions out there that gives a lot of sort of feedback and guidance on where AGI is and hosts a number of benchmarks, also gave Astra that praise. I myself have spent way too much time with it. Now, the reason why Astra feels so significantly different is because it's able to handle longer tasks with even smarter models that came out, as we saw with Gemini last week. You know, we saw Muse drop a new model as well. their long horizon or their ability to do complex tasks over longer periods of time isn't as good as Astra.

16:09Astra is the first model that's able to do things for hours and hours and days on end in unfamiliar environments, which is unlocking new scientific research, which is unlocking the ability to offload workloads that we maybe have held off on to AI before this because it is able to retain accuracy across those tasks over time. So it'll be interesting to see as Astra is actually turned on within different enterprise environments, what new use cases we're able to see come out of it and how other models are able to respond as well. Were you surprised to see Jensen Wong weighing in on this? I realize I realize NVIDIA has hundreds of billions of dollars worth of exposure to open AI, but they're also working with everybody else in this marketplace, too.

16:52I think that if I went to a shoemaker and asked them what I needed to cure my foot pain, they'd tell me new shoes. And if I went to a chip maker and told them, you know, what does the industry need? They're going to say bigger models because they benefit. So I do believe that there are genuine advancements inside of Astra that do mark us being on the path towards OpenAI's definition of AGI, which is, again, replacing valuable economic work. I think the more commonly held understanding or the concept that Dario has painted for us so vividly of this data center full of geniuses, a country full of geniuses living in a data center, we're still very far off from.

17:32So seeing Jensen Huang way in, I think, is very not too surprising. I think beyond just the money Astra really, the money he has invested in OpenAI, Astra actually has made very significant technical leaps and have demonstrated, especially in the 3D spatial modeling space inside of the natural sciences space, has demonstrated capabilities that are akin to our Will Smith eating spaghetti moment, where we're starting to see these glimpses of intelligence beyond what we've seen before. It still doesn't fully look human, but it's getting more and more intelligent in a way where in a few years we're going to have very serious conversations about what AGI is and how we roll it out into our society.

18:12I mean, speaking of serious conversations, I mean, obviously we've been talking about all the cybersecurity stuff and what, you know, bots worms have been doing. I mean, just on Friday you had a Reuters report, and I realize there's some question marks about this report and the details and the veracity, et cetera. But that, you know, OpenAI, according to Nightingale Collective, hacked a German company back in May and that the bots had their own message board, were sharing tips on how to avoid being detected, made 15 ,000 edits to this particular website as well. I mean, if they were a publicly traded company and something like that had happened, the SEC and regulators would be all over it.

18:45But in general, just the fact that we are seeing these types of sophisticated cybersecurity breaches, are the companies doing enough to put the guardrails in place as we do talk about AGI? Companies are struggling to balance with the need between being first in market, appeasing shareholders, and also this new role they're playing of sort of the U.S.'s first line of defense as it comes to national security, as it relates to cybersecurity, and also needing to build things that don't harm people. And sometimes those mechanisms are not compatible. And so these issues that we're seeing now in production environments have been very loudly announced inside of these AI models.

19:23Companies reports as they release these models. In fact, when I was on, I believe it was last October or November, we were talking about how Claude, when it had released one of its models and was doing testing, was talking about how on its own it was hacking into other environments, breaking out of containment environments. So these behaviors are not new in terms of the companies being aware of them. They're just new in production environments because from them announcing it in those papers to the time that they turned it on in the real world, there wasn't much different done in terms of safety or in terms of regulation or in terms of assignment intentionally of responsibility of what happens when those systems go rogue.

20:00So now we're at a moment in time where we have to make that decision together. Who is responsible? If I make an AI agent swarm and it goes and hacks your company, who goes to jail? That's a felony if I do it as an individual. What happens when it's a group of rogue swarms, agent swarms doing it? We haven't made those decisions collectively yet. This is the moment where we're going to start to see those discussions unfold more seriously, especially as we're ahead of the CBCF week coming up here in D.C. And so it'll be interesting to see what those guardrails actually end up looking like inside of the models as we end up deciding who's at fault when they make decisions that humans don't agree with.

20:38OK, XIE, always great to have you on. Appreciate it. Funding news from the space and defense world. Meantime, Stoke Space announcing that it has raised about a billion dollars in an initial Series E round that's led by COLA. That's led by point 72 ventures and Spark Capital. Stoke is developing fully and rapidly reusable rockets. This is the feat only one other launch provider is close to realizing, and that is SpaceX with Starship. Stoke has not yet launched a rocket to orbit, but CEO and co-founder Andy Lapsis says its medium-lift Nova Pathfinder is preparing for a first flight early next year.

21:12The company is also working on a larger 15-ton class Nova rocket as well. What we've seen is that for companies that are not SpaceX, the launch supply picture has really not changed much in the last few years. but the ambition has increased, right? So, you know, for third-party launch supply, that's relatively stagnant, but the ambition and the demand signal has gone very, very high. And that's true commercially, that's true on the government side. And so it's really, really important that there is a few other launch providers who can step up and fill that demand in order to create the healthy, competitive economy with multiple players and multiple verticals in space.

22:02And we're pretty committed to delivering on that promise. LAPSA, whether space has entered a new chapter as an investable sector. The last big domino to fall before this industry really explodes is the ability to get to space and back with aircraft-like regularity. And we're right there. We are so close. See the full interview with Stokes Space's CEO. Just head over to CNBC dot com.

22:35And. Looks like we have some stuff in the prompter that I'm not supposed to read. But anyway, speaking of launch dynamics and what we're seeing in terms of the demand versus capacity situation that we've been covering so closely on this show, We did have more news over the weekend from the space sector. German startup E-Star Aerospace's uncrewed Spectrum rocket became the first commercial rocket to reach orbit from continental Europe, marking a breakthrough for a region where several countries are seeking a foothold in the fast-growing market for satellite launches. The company's chief commercial officer telling our colleagues in Europe that the company is now focused on scaling production, saying the space industry was, quote, desperate for additional launch capacity.

23:16Also warning that Europe's launch infrastructure would need to expand to support the industry's growth. Now, the scale of ISAR's operations is currently dwarfed by those of U.S. competitors, including SpaceX. Straight ahead, though, Chinese rivals ramp up the pressure on Apple CEO John Ternus and his first iPhone unveil as chief executive. First, though, let's get a check on Bitcoin after hackers took$320 million worth of BTC from Liquid Network. This is a blockchain used by several crypto exchanges. The firm says about 4 ,000 of the 4 ,200 Bitcoin held in its wallet were taken by so-called white hat hackers.

23:52In a post on X, Liquid Network says wallets will be impacted. It's halted new transactions and is sorry for any inconvenience. Morning Call is back after this. If you like YouTube, you'll love YouTube Premium. It's destroying athlete, creator and YouTube Maxer. YouTube Premium enhances how I use YouTube with awesome features like offline downloads so I can download my favorite training videos before I hit the gym. So no Wi-Fi doesn't turn leg day into loading day. Plus, I get ad-free videos, background play, and so much more. YouTube Premium is like YouTube got some extra gains. Try YouTube Premium for two months free at youtube.com slash premium.

24:30Trial eligibility varies. Terms apply. Cancel any time. 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. Check response, subscription required. At Jared Jewelers, we know it's about more than fine jewelry.

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25:34Welcome back. We're watching Apple shares ahead of the highly anticipated hardware event that kicks off tomorrow. largely expected to unveil its iPhone 18 as well as the long-rumored first foldable phone. But a pair of Chinese competitors are looking to get a jump on Cupertino. Eunice Yun joins us from Beijing with more. Hi, Eunice. Hey, Morgan. Well, both Huawei and Xiaomi held two separate events to launch their own new foldable phones. Huawei, which competes with Apple on the high end, unveiled the Mate XT2. This is a new tri-fold phone that, when completely unfolded, is about the size of a tablet.

26:11The company has been very excited about the fact that they're using their new in-house Kirin 9050 Pro chip. The company says that this squeezes out more computing power because of layered circuits. And the price is steep. It ranges from about$3 ,000 per phone to$3 ,700. It's going to be available from September 12th. As for Xiaomi's new phone, it's called the 18-fold. It's about a passport-sized phone once you fold it. And then it uses also an in-house chip, which the founder claims outperforms the chip that's used in the iPhone 17. The price range is less than Huawei, but still pretty steep,$1 ,500 to$2 ,100 per phone.

26:57And it's going to be available from September 10th, which is only one day after iPhone's new product launch. Huawei leads in the China market with a market share of 22.6 percent in the second quarter, according to IDC. Xiaomi has been hanging on with 12.4 percent. But Apple has been making ground and gaining ground because of the iPhone 17 series. There's also been a lot of anticipation about this particular phone. The idea that there potentially could be a foldable iPhone is exciting to a lot of people. In fact, the term foldable iPhone is trending right now on Chinese social media. And the joke online, Morgan, is that maybe Huawei and Xiaomi are going to make it easier for people to buy the new iPhone that's foldable because the foldable iPhone is supposed to be only$2 ,000.

27:51That's exactly where I was going to go with you, Eunice. And that is, what does that marketplace actually look like for these very high-priced phones in China? Are these more like bragging right trophy type pieces or is this actually a meaningful market potentially? I think it's a meaningful market. I mean, a lot of people do like to brag about being the first one to get some of these phones. But there is a sizable market of people who actually can afford them. But, of course, when you want to try to target a broader market, the affordability issue does come into play. In fact, the founder had been asked about the price and he said, well, the founder of Xiaomi had been asked about the price and he said, oh, I'd love to actually bring the prices down.

28:32But the memory chips, the DDR, are so expensive. So it's because of all these supply chain issues that the cost of these of these phones have been pushed up. Yeah, we've heard that before. Eunice Yoon, great to see you. Still on deck, a new tariff hit rocking sectors from steel and aluminum to clothing, dairy, motorcycles. We speak with a former White House trade advisor about what's at stake next. And as we head to break, let's get a check on shares of Jeffries. The FT reporting a fund run by one of the bank's units has nearly$500 million of exposure to iron ore trader Radiant World and another entity found.

29:10And Reuters had previously reported that Jeffries had about$300 million in exposure to the firm through its Point Bonita fund, which drew attention last year following the implosion of auto parts maker First Brands. You can see shares of Jeffries are actually fractionally higher this morning, but the scrutiny of private credit continues. Morning Call will be right back.

29:33I'm Morgan Brennan. Welcome back to Morning Call. Let's get a check on U.S. stock futures, which are firmly in the red this morning. That's after a mixed week for the markets. That saw the Dow close lower for its third week in four. We did see gains for the S &P and Nasdaq last week. Of course, this is a holiday-shortened trading week here in the U.S., but as you can see, we're starting off with some weakness here. S &P is poised to open down about 2728 points. The Dow down 448 points. The Nasdaq down 39 points. We're repairing some of the losses here pre-market over the past 30 minutes or so.

30:01Big drag on the Dow this morning has been Amgen. That's accounting for roughly 120 negative Dow points here at the open. This after overseas rival Novartis late Friday said that late-stage trials of two experimental drugs failed to meet their targets. and U.S.-based Ionis caught up in the selling as well as a key Novartis partner in one of those trials. You can see a lot of big moves on the screen. Amgen's down 5 percent pre-market. Novartis and Ionis are both down about 12 percent right now. If we check on some of the morning's latest headlines, though, oil spiking after Houthi rebels launched a wave of attacks on Saudi Arabia this morning, wounding more than 70 people, sparking fires at several oil facilities in the kingdom's southern region.

30:40This is according to local authorities. This after Iran threatened to strike energy infrastructure across the Gulf, including U.S. oil and gas interests, if the U.S. military continues its campaign in the region. There was a lot of back and forth over the weekend, including ships. U.S. envoys Steve Witkoff and Jared Kushner, meantime, spending the weekend overseas conducting their first official visit to Kiev Sunday after meeting with Russian President Vladimir Putin in Moscow a day earlier. Kushner and Witkoff describing the talks in Ukraine as, quote, encouraging. And NTSB officials giving an update on the deadly Amazon cargo plane crash at Miami International Airport over the weekend, revealing the fatalities all came from the vehicles that were hit by the plane and not on the Boeing 767 cargo jet itself.

31:29Now, the NTSB says that it has recovered the flight data recorder and cockpit voice recorder. Both are going to regulators where they will be evaluated. and downloaded. And shares of Amazon, last I checked, and Boeing were under pressure this morning in the midst of all of this. Back on Wall Street, though, S &P Dow Jones says Bloom Energy, Illumina, and Everpure will join the S &P 500 as part of its quarterly rebalance before the start of trading on September 21st. You can see shares of all those companies are jumping on that news, and they will replace Molson Core's trade desk and builder's first source.

32:06And investors are gearing up for Anthropics IPO and an expected S1 drop any time now here this month. The company's S1, though, is reportedly not going to be released until late September. That's according to Reuters, with IPO marketing likely set for the middle of October and listing just days before the midterm elections. Now, this following NFT report that the company is close to naming Morgan Stanley to take first position for the listing. And if that weren't enough, it's also reportedly secured nearly$520 billion in compute deals amid surging clawed demand. Well, Canada is raising the stakes in its trade war with the U.S., boosting tariffs on$20 billion worth of U.S.

32:48exports to Canada by as much as 50 percent, hitting products from steel, aluminum and plywood to clothing, cosmetics, motorcycles and cheese. That move coming in response to U.S. tariffs of a similar dollar amount of goods announced late last month when trade talks between Ottawa and Washington fell apart. More U.S. tariffs are set to take effect in the new year and no new talks have been scheduled, at least not yet, according to reports. One company that's caught in the middle of all this, though, is Montreal-based aerospace giant Bombardier. The president threatening to boycott the company's jets from sale in the U.S., saying on social media, quote, if they want our markets, they must build here and stop treating America like a piggy bank.

33:31Now, in a statement to CNBC, and Bombardier says its workers are based all over the U.S. with direct employment in more than 20 states and sites in 10 states, including California, Texas and Arizona. Also adding that aircraft are built with American made components like engines, avionics, all provided by nearly 2 ,800 U.S.-based suppliers across 47 states. So joining me now is Kellyanne Shaw, former White House trade advisor during the first Trump administration and currently a partner at Aiken and senior advisor at the Center for Strategic and International Studies. Kelly, it's great to have you on.

34:05Kellyanne, do we risk a wider trade war here between the U.S. and Canada? Yeah, good morning. And I would classify this more as a trade row rather than a full-blown trade war. And what I mean by that is even with the U.S. retaliatory tariffs from a few weeks ago and Canada's tariffs that just went into effect this morning, we're still talking about less than 5 % of U.S.-Canada trade being impacted by any of this, which means most of the trade going back and forth continues to flow duty-free. This isn't the same thing we saw with China, where we had tariffs of up to 100 and plus percent. This is a very small percentage of trade.

34:44There's still an off-ramp here, but I do think tensions are pretty hot at the moment. You know, when I see things like dairy on this list, I mean, this was already a sticking point in terms of the U.S. being able to send more of its dairy products, its cheese products into Canada. So I do wonder how much of this really has an economic bite to it versus being about the political optics in a place like Canada, where it has made a lot of sense for politicians, Mark Carney included, to really fuel the fire here. Yeah, exactly. There's a lot of symbolism. There's a lot of political messaging attached to the specific sectors and products that Canada targeted in its latest round of tariffs.

35:25But to your point, none of this really makes any sense from the U.S. negotiating perspective. And I understand that Canadians have a very different view of what happened. Both sides seem to be living in two alternative realities about the facts on the ground. But the deal was effectively Canada, remove your retaliation on dairy and autos and comply with your USMCA dairy commitments that you made six years ago in exchange for 232, the sexual tariff relief. And that's the deal that was on the table. That will likely be the deal several months from now if the parties do get back together. So from the U.S.

36:01perspective, this is mostly about politics. It's about political messaging. And to your point, the economic impact of this is relatively muted. What is the read through to other parts of the world, especially economies that maybe aren't aren't, you know, the U.S. and China, we'll say, as we do see the U.N. General Assembly kick off here. And there has been this framing that Canada is in a tentpole position to potentially create a blueprint for other countries in similar positions to move forward when it comes to trade. Yeah, I think that's what the Canadians are trying to do. They're trying to show that they're tough in standing up to the United States and having other countries follow.

36:41But if you look at all of the other major trading partners of the United States, every single one has struck some sort of deal with the administration. They've tried to work it out. They've taken a different approach. And those relationships are relatively stable. But again, we're talking about less than 5 percent of trade between the United States and Canada here. This is not a full-blown trade war. This is not impacting our entire respective economies. I don't know that it's really going to be a path forward for other countries to follow here. I think this is really just specific between the United States and Canada.

37:15OK. Kellyanne Shaw, great to have you on and get the context. Appreciate it. Thanks so much. A lot more to come here on Morning Call, including the kickoff to a new NFL season. We got big money flowing into betting and Contessa Brewer is here to break down this sizable shift that is happening in real time. Morning call. We'll be right back.

37:37Welcome back. We're just over 24 hours from the kickoff of the new NFL season with a Super Bowl rematch of the Patriots versus the Seahawks. The new season also means a big bump for betting, but a major shift is already underway in that arena. Contessa Brewer joins us now with more. Contessa. Hi there, Morgan. Yeah, you know, look, this is typically the biggest season for betting, for acquiring customers, for increasing engagement, and depending on how the teams do, making money. But this season, there is a stark trend emerging. Prediction platforms are soaring and sports books are stagnating.

38:10Consider Kalshi, for instance, the prediction powerhouse with whom CNBC has a commercial relationship, tells me it is seeing 15 times more trading volume on the NFL leading up to kickoff than the same time last year. U.S. sportsbooks, meantime, are expected to see$29.5 billion in wagers this NFL season, about the same as last year, according to the American Gaming Association. Growth has slowed in terms of new states legalizing sports betting. Only Missouri has been added to the list over the past year. And investors are showing their skepticism. DraftKings stock is down 50 percent from this time last year.

38:45FanDuel parent Flutter is down 67 percent. The sportsbooks have all said, look, we're launching these new products. They're going to try to win new customers or keep the ones they already have this NFL season, Morgan. So about a decade ago, I was sent to a big press conference with Roger Goodell, and I asked him what the NFL stance could potentially evolve to be regarding sports betting. At the time, he was like, we're not for it. We're completely against it. It's never going to happen. Flash forward to today. Not only have they embraced sports betting, but now we're talking about prediction markets.

39:17So where does the NFL fall in all this? How do they feel about this? Not only embrace it, they have official betting partners. So FanDuel and DraftKings have re-signed with the NFL as official gambling partners, and they've added Fanatic. Caesars is out. And in the meantime, NFL has sent letters warning the prediction platforms that they're offering markets that are ripe for manipulation. Anything they say where, for instance, a kicker, if you make a bet on whether a kicker is going to make going to make a field goal, that is ripe for manipulation, whether a ref makes a call a certain way or not.

39:52And they want those markets, those event contracts to come off so that they're not manipulated and that they can protect the integrity of the game. I asked Kalshi about it and they said, yeah, we're not commenting on that. All right. Katessa Brewer, great to see you. Thank you. Well, straight ahead, the morning call crew team up the trading day ahead. And the data one member says will be critical to the Fed's upcoming rate decision. We're back in a moment.

40:18It's time for your call sheet. Crew members today, Ryan Dietrich, Jimmy Pethokoukas and Amy Wu Silverman. Great to have you here. There's actually a lot to focus on here this week. Jimmy, I'm going to kick this off with you because it would seem inflation is really going to be the key focus for investors, whether it's PPI on Thursday or CPI on Friday. We got diesel at a record gasoline, a gallon of regular gasoline at a record high for this time of year. How to think about it? Yeah, I think inflation is top of mind. And the problem has been top of mind and front of mind for five years. You know, Chairman Moore said we have work to do.

40:52They do have work to do. It seems like a lot of what we're hearing this week already with oil prices say that work may be just increased. I don't think that these inflation reports ultimately will allow the Fed to not act. It may confirm that action is needed. But I think the chairman's a little bit locked in. I think based on that speech, based on the fact that this is now a long-term problem, I think inflation will drive Fed rate hikes. And my gosh, people are also worried now, seem to be finally worried about debt and deficit. So I think all the arrows are pointing in one direction here. Yeah.

41:34I mean, we've got more headlines, Ryan, out of the Middle East right now, which is sending crude prices higher, treasury yields are higher, futures are lower here. But yet you look under the hood in terms of some of the economic data we've gotten recently here in the U.S., including a jobs report that was much stronger than expected on Friday. And how is it also contributing to this discussion? Yeah, first off, Morgan, good morning. Sorry. First off, this is interesting. The Tuesday after Labor Day, so today, is down nine years in a row for the S &P 500, for the Dow, for the Nasdaq. So listen, some little weakness today is not too abnormal.

42:10But getting to it, building what Jimmy just said, I mean, we think the Fed's going to run it hot. We've been saying that for a while. Yes, the labor market, in our opinion, looks like it's coming back a little bit. We have some good services data. We've got copper near all-time highs. We know what yields are doing. Yet you look at Fed fund futures right now, about a 60 percent chance of a hike to us at saying, you know, they're probably a little bit behind the curve. But I think they want to run it hot. And that's something we've seen all year. And I think that probably means this bull market is going to continue here, Morgan.

42:36Yeah. Amy, I want to get your thoughts on all of this, what you're seeing in the data and the positioning that you track in the market, especially when it comes to something like volatility in the VIX. you know look we think about positioning especially coming into september you typically get vix up around nine percent on average this is looking over the past 20 years you've had a lot of good news with earnings but we're sort of in an idiosyncratic vacuum right now it's going to be all macro for a little while something we've recommended to investors with volatility this low with options so cheap is simply to look at some short-term put spreads right around the fomc meeting because we, you know, we have important catalysts coming up.

43:15And I think we also have a lot of macro news on top of it that's going to lift our correlations and probably pick up our volatility. Of course, we've got an ECV decision expectations. They're going to raise rates, Jimmy, this week. Yen continues to be in focus here as it strengthens against the dollar expectations that you see a BOJ that's going to be pretty aggressive in terms of tightening here too. And yet we're seeing ahead of midterm elections the rhetoric ramp up again about the possibility of a rate cut when it comes to President Trump or the vice president or others here as we are in this political and election cycle?

43:49Yeah, no, I'm not sure what the president's expectations are of Kevin Warsh. I expect that he will continue to jawbone. He will, if, listen, if we see rate hikes and people are, I think will be sensitive to this issue. They're certainly sensitive to mortgage rates, and we've been talking about gas prices, the president will continue to say, I want lower rates. Do I think with this chairman, especially after that Jackson Hole meeting, is going to be receptive to those pleas? No. I realize there's a midterm. We have a history of Federal Reserve chairman and the Federal Reserve doing things before elections that presidents have not liked, and this will maybe another historical example of that about to happen.

44:35I mean, the other thing that we've been talking quite a bit about is debt tied to the AI infrastructure build out, which brings us, Ryan, to Oracle, which is going to have earnings after the bell on Thursday, too. How critical is that report going to be to the entire tech trade? Well, it's going to be important. Oracle's down about 19 percent year to date. We know they've been lagging. We know the issues that are there when you look at credit default swaps. And we've seen credit default swaps kind of trickle higher, really, across the board in a lot of these AI names. One more thing on this, though.

45:02Software in the last five weeks is up over 25 percent. Go back in history, Morgan. That happened to lows in 2002, lows in 2009, lows in 2020. So that software trade we talked last week about the baton being passed around, we could see some continuation of that software trade, which is overall, I think, still a positive for a diversified portfolio. Yeah. And along those lines, I'm going to get Adobe results this week, too. So, Amy, we'd love to get your thoughts on all of this, especially as OpenAI says that it's brought us into this AGI era. Yeah, I don't know if we should be terrified or not about that.

45:33But look, specifically as it relates to software, you know, one thing that's happened in this market is you've had a lot of zigging and zagging. So, you know, you have had semis go up while softwares go down. As Ryan said, that baton is being passed on. So that's creating what we call this paddling duck market, meaning there's these violent rotations underneath, but you don't tend to see them on the surface. We see that right now in IGV. So the ETF for software, when you look down at the constituents, you actually see a good deal of positive momentum. You could see a good deal of call buying. And if we see that baton being passed, that's going to be another violent rotation momentum that you're not necessarily going to see bleed into VIX, but it does not mean there's not volatility under the surface there.

46:13OK, we've got about 30 seconds left. Jimmy, I have to get your thoughts on all the AGI stuff, because we know this is a big part of the midterm election narrative as well. Yeah, it seems to me that the level of concern in Washington so far has not been reflected in markets, in the prices of semiconductor makers. And I wonder, as we sort of come back from the summer break with the election, if that rhetoric is going to get ramped up and if at some point investors begin to take seriously that people in Washington are growing more concerned and we may actually get action. So far, they haven't been paying attention.

46:53Okay. We'll continue to talk about all of it. Thank you to our call crew. Great to have you here to kick off the holiday shortened trading week.

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