Morning Call 9/25/26

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0:38At Acura, that means looking closely at how every detail could make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision-crafted performance. That's Acura.

0:55Morgan Brennan: It's Friday. I'm Morgan Brennan, and this is your morning call.

1:13Morgan Brennan: Good morning. Let's get a check on U.S. stock futures with the Dow and the S &P 500 riding a three-day losing streaks. Very minuscule moves for the major averages. Mixed picture with the Nasdaq actually eking out gains yesterday. You can see on your screen right now, though, we are poised for more green this morning, pre-market, with the S &P poised to open up about 22 points right now. The Dow, 131, and the Nasdaq, 176 points. Mixed picture so far for the major averages on the week, with the S &P and the Nasdaq in the green and the Dow lower as of right now. If we head into today's trading session, though, major averages, as I mentioned, essentially flat on the week aside from the Nasdaq, holding on to a near one and a half percent gain.

1:57Morgan Brennan: The S &P is also poised for a seven tenths of one percent gain. Continue to watch the AI trade. Two names that are caught in the center in yesterday's trade, Oracle and Blue Owl, both closing sharply lower on reports that Oracle's Project Jupiter data center, this is the one in New Mexico that there's been reports on for a couple of weeks now, developed with equity from Blue Owl, is facing significant delays. The news is sending red flags across the AI sector and companies backing the global AI build out. And if we check Oracle, Blue Owl and others this morning after a down day for them, you could see Oracle is actually up fractionally.

2:32Morgan Brennan: So is Blue Owl. And other names are also attempting some gains here pre-market. We're keeping a close eye on yields today as well ahead of more Fed speak, consumer sentiment, durable goods data. Also fallout from yesterday's seven-year auction, which was weak, second week auction in two days and a Treasury buyback result yesterday that fell short of the$6 billion quota that had been anticipated. You see 10-year remains at its highest since 2007. And right now we're trading around the 10-year yield is trading right around 5.15 percent. Fed-sensitive U.S. two-year Treasury yielding 4.88 percent.

3:08Morgan Brennan: And the third year continues to trade right around its highest since 2004 at 5.45%. Let's also get a check on energy with WTI actually pacing for its first down week in four. You can see we're down about 2.5 % right now, trading right around$92 a barrel. Brent crude is also down about 1.8%, trading just below$105 a barrel. Let's see how Europe and Asia are wrapping up their weeks. Karen Cho is in London with all the trades around the world. Karen, good to see you. Well, happy Friday and good morning from London. Asian equity markets have closed, mixed amid the relentless bond sell-off. Japanese investors seeing some gains today, but Hong Kong closing weaker.

3:50Investors also digesting the Trump and Xi summit with little evidence of breakthroughs on some thorny issues such as AI, trade and crucially Taiwan. Markets in South Korea and China were closed today. Meanwhile, we continue to watch the bond markets today as US Treasury yields remain elevated with the 30-year yield climbing to its highest level since June 2004, raising borrowing costs worldwide. Also a big focus on JGBs with evidence that domestic investors have been pouring into the local bond market even as foreigners are net sellers. Meantime, in Europe, the Stock 600 is heading for a positive week amid the wider retreat in oil prices as hopes of progress between the US and Iran to end the war in the Middle East boost sentiment.

4:32There's been buying and some Some of the banks today, some selling in those oil and gas stocks. And you can see the Zetra DAX racing ahead to the tune of almost 1 % along with Italian stocks and European bond yields as we take stock in the Friday session. A lot of concerns too that we'll be dragged higher with US Treasuries. Fears around what bonds could look like too as we see that race into higher yield territory. But we are in retreat this morning. You can see 3.59 % on German bonds. A lot of focus on whether 4 % is the threshold here for the pain trade on German paper. But as you can see, a big pullback on OATs as well, 1.4 % down in that morning session.

5:10So some of the heat coming out of the bond markets.

5:12Morgan Brennan: Back to you, Morgan. All right, Karen Cho, thank you. Have a great weekend. Let's get to China and let's get to Washington, she said, and China's Xi Jinping continuing his state visit with President Trump today following a CEO studded state dinner at the Capitol last night. Ahead of today's events, both men yesterday addressing the intense competition over AI, as well as other key issues like trade. And just as we did yesterday, given that the White House is continuing to deny access to reporters from MSNOW, CNN and Politico, despite the court order restoring access, we are currently unable to show images or a video from inside the event.

5:47Morgan Brennan: But we do have reaction and we have takeaways from around the world for you. Plus, what to expect today? Megan Casella is in Washington. Eunice Yoon is standing by in Beijing. But Megan, let's kick it off with you. what's been a busy couple of days in the nation's capital. A jam-packed week, Morgan. That's right. Last night, it was a black-tie state dinner at the White House honoring Chinese President Xi, more than 130 guests, and at least 27 CEOs, according to the guest list provided by the White House. Now, many of them familiar names to CNBC, besides the tech and finance heavyweights, that we knew about going into this, some new names on the list, including the leaders of Paramount, Skydance, Pfizer, LVMH, Exxon, and Micron.

6:29I could go on. Two notes on the guest list, though. Amid all the tech CEOs, there was no one from Anthropic invited, despite all the focus on AI. There were also no Chinese CEOs in attendance. That was something that had initially been expected after President Trump, of course, brought a business delegation with him to Beijing in May. But both Presidents Trump and Xi delivered remarks at the dinner. President Trump spoke of U.S.-China relations that he said had never been better before he then gifted Xi a statue of a bald eagle. Xi then called the friendship between the U.S. and China, quote, a worthy cause that holds great promise and said China and the United States must act as responsible major countries, meet expectations of our peoples, keep pace with the trend of our times and explore a new approach for major countries to get along with each other.

7:17Now, Morgan, the formal programming is not yet done. The presidents will have a private tea at the White House later this morning, followed then by a tour of the National Archives before President Xi and his wife depart. Morgan.

7:28Morgan Brennan: All right, Megan, stay right there, because we do want to get the reaction in real time here from Beijing, and our Eunice Yun is standing by with that. Eunice, what are you hearing from the ground in China right now as this visit continues to play out? Well, Morgan, as Megan said, the two leaders are going to be visiting the U.S. National Archives today. And there's been speculation among China analysts that President Xi may request to look at records that are related to the moment that the U.S. switched its diplomatic recognition from Taiwan to communist China back in 1979. And this is seen as part of the Chinese effort to try to persuade President Trump to weaken the longstanding position that the U.S.

8:12has on Taiwan. Chinese state media today was very fixated on President Xi's remarks to President Trump, really pressing him on Taiwan, saying President Xi expressed hope that the U.S. would adhere to the correct stance against Taiwan independence. Now, the U.S. has yet to release their own readout. But the Chinese statement comes after President Trump back in May had said that he was going to hold off on granting an arms sales, quite a sizable package to the island, and also made the comment that raised some eyebrows in Taiwan, as well as among a lot of China analysts, when he described that package as a very good negotiating chip, so suggesting that that could be negotiable.

8:59Now, the expectation is that President Xi is going to continue to press for a delay in the arms sales. Now, as Megan had mentioned, of course, U.S. CEOs very much in focus. President Xi had a couple of highlights in his speech about the investor community, saying that the U.S. companies should invest in China. Of course, this is something that we continue to hear repeatedly from Chinese officials. He also mentioned that the two sides should increase direct flights. And he repeated his recent change in language around AI. Since this summer, President Xi has been flagging some of the risks related to AI.

9:41And he said, again, that AI should remain in human control. Of course, that's something that President Trump doesn't necessarily believe in, or at least it seems as though that is the case. All right.

9:55Morgan Brennan: Megan, you know, it's interesting because Taiwan does seem to have been a very big focal point of all of this. And then there's, of course, this notion of panda diplomacy with two pandas now headed to Atlanta as well. Also, some reports suggesting that China has indirectly confirmed this new U.S.-China trade agreement extension, this truce, if you will. But what seems to be notably absent, at least right now, are any kind of actual tangible deals, whether it's Boeing, where I think there have been hopes and some of that optimism is now fading or even around other types of exchanges of goods or work with U.S.

10:34Morgan Brennan: companies as well. What can you share about that? Yeah, Morgan, you're absolutely right. We had spoken about how expectations were fairly low going into this of any concrete deals or deliverables. But I was hearing from analysts yesterday who felt that this summit, at least so far, hasn't even met the low expectations that they had. On trade, for example, we were expecting to hear something about this 30 by 30 trade deal, cutting tariffs on about 30 billion good, 30 billion dollars worth of goods in both directions. We haven't heard anything about that yet. The trade extension has only been for two months.

11:05That puts a lot of pressure on the next rounds of meetings for these presidents. It's not nearly the amount or length of stability that folks wanted. We haven't heard anything on Iran except for Chinese state media saying that she hoped that the two sides, U.S. and Iran, that is, could get back to the negotiating table soon. Nothing on ag or aircraft purchases and that sort of thing. So we are still waiting for more of a formal readout from the White House. We haven't heard much from them except for President Trump describing things as a great meeting. Maybe we'll get that today or maybe the pandas are really the highlight here.

11:36and we're not going to get much more until they meet again in November.

11:38Morgan Brennan: Yeah. Eunice, is that the way you should be interpreting this, that when China President Xi says that the new U.S.-China trade agreement was good news for the global economy, that this is really an acknowledgment of an extension of that truce? And I guess also I'm asking you a twofer here, because I just want to go back to Taiwan for a moment, because we also have reports that Beijing is shifting tactics on Taiwan, dialing down displays of military aggression and ramping up diplomatic isolation as well. So I guess just as we finish up this summit here, is that really the main focus, the main area, the main, I guess, sort of win, if you will, for China from when they went into this?

12:19Well, it definitely would be a win for President Xi if the U.S. decided to in any way weaken language towards Taiwan. There's been a lot of speculation that Xi Jinping would want President Trump to directly say that the U.S. opposes Taiwan independence as opposed to doesn't support Taiwan independence. So that would definitely be a win if, of course, if the U.S. did make that change, which so far we haven't seen any sign that it has. But in terms of other takeaways, I think one important one is that we did see that both sides said that they were going to be supportive of meetings in November as well as in December.

13:02So at APEC and then G20. And I think from the Chinese perspective, this is one thing that the Chinese are really, really good at. And that is continuing to talk, but not necessarily taking action. And that's one thing that a lot of companies, U.S. companies, lots of different international companies say that a lot of times the Chinese will talk you to death and not actually take any action. And this is a stalling tactic so that they could get what they want, which is to pursue their own economic and technological agenda.

13:32Morgan Brennan: Yeah. You could probably make an argument that there's some interest in stalling on both sides right now, at least in the near term. One more question for you, Megan, because you did mention at the top of this conversation that there were no Chinese CEOs or businesses in attendance. We actually had a conflicting report from Nikkei overnight suggesting that there were. I just want to confirm that because there's been so much back and forth on this debate about this for the last couple days. Yes, understandable. Looking for clarity here. And there's probably more to find out later today. But according to the guest list released by the White House late last night, no Chinese CEOs were on that list.

14:08Plenty of government officials from the Chinese side, of course, but no Chinese CEOs. I had seen reports about Chinese CEOs being in Washington, being in the United States, trying to make themselves available. And it seems like there was a lot of negotiating behind the scenes about just how many tickets were available to this dinner, how many seats there were. We heard President Trump speaking many times this week about how he wishes the ballroom were finished because then he could have invited many more people. But again, that's sort of the nitty gritty that was being negotiated down to the last few minutes of this state visit was how many seats would go to the Chinese side and the U.S.

14:41side. And as far as we can tell, based on that formal guest list released by the White House, no Chinese CEOs on there.

14:46Morgan Brennan: Got it. OK, so maybe we need to keep an eye out there for any news that comes from sidebar meetings. They get reported here, too. Guys, it's so great to start the hour with you. I hope you both have a wonderful, wonderful weekend. Eunice Yoon, Megan Casella, thank you for joining us to start the hour. We've got a lot more to come here on Morning Call, including the yield shock and why my next guest says the market's unusual resilience may only be short-lived. Plus, shifting fortunes for Barry Diller people and that pulled bid for MGM Resorts. We've got new developments this morning to tell you about.

15:17Morgan Brennan: And later, why shares of this cloud computing stock are soaring this morning. Here's a hint. It has to do with AI. Did you think it was going to be anything else? We've got a very busy hour still ahead when Morning Call returns.

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16:17At Acura, that means looking closely at how every detail could make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision-crafted performance. That's Acura. 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.

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17:03Morgan Brennan: Welcome back to Morning Call. We're watching U.S. stock futures as major averages hold strong in the face of a week of surging yields. Let's bring in Matt Maley, chief market strategist at Miller Tabak, to break it all down. Matt, it's great to have you on the show. I got to start right there. The S &P, as of right now, and we got green on the screen, so it might add to that today, is poised for a gain of about three quarters of one percent. And that is despite what has been a little bit of a rip your face off run in Treasury yields really across durations this week. Are you surprised by this?

17:38Morgan Brennan: How to think about this? Well, Morgan, the thing is that we've seen this so many times in the past where interest rates, long-term interest rates move higher in a significant way, and the stock market just shakes it off. But the problem is that it can do that for several months, but eventually it does have an impact. I mean, you go all the way back to 1987, 2000, 2007, 2020, 2022, oh, and I forgot 2018, where interest rates moved up in a significant way over several months. The stock market just yawned, didn't care, kept rising. You know, as they say, it didn't have an impact until it did. And when it did, you know, some of them were bad bear markets, but others were just deep corrections.

18:23But either way, it did have an impact eventually.

18:25Morgan Brennan: So is the read through there then that the bond market is usually right? And at some point, equities usually take their cue from the bond market if you see rates that are elevated. That's exactly right, Morgan. And it's especially true in all those years that I just mentioned also included significant rises in crude oil. And the thing is, if it was just one or two things that were happening right now that we're that we do tend to see at tops in the market, Although, again, it's not a good timing tool, but we have several other instances as well. For instance, we've had the underperformance of the chip stocks.

19:01Of course, we have valuation issues that are a lousy timing tool. We have a narrow rally. But you also have the underperformance of the high yield market. Big, big divergence between the S &P and the high yield market. When you have all these things happening at once, it puts up a bigger warning flag than a lot of people, I think, are taking right now.

19:20Morgan Brennan: You just took the next question out of my mouth, and that was going to be, what is the high-yield market signaling to us? I think if we can pull up a chart here while you're talking, too, year-to-date, S &P versus HYG kind of tells the story here. We talked a little bit about on the 9 o 'clock hour of Squawk on the Street as well. But to get the words from the man's mouth, why are you watching this so closely? Well, again, this is something that has happened in the past. A lot of people are talking about the fact that high-yield spreads have not widened out, and that is true. The problem is that the high yield spreads don't widen out until the stock market has already been hit in a significant way.

19:57And we see the HYG has been falling dramatically this year. As the S &P has been making higher highs, the HYG, high yield ETF, has been making lower highs. That's been going on for many months now. And now it's going in the opposite direction. Again, this is something that usually takes place shortly before the stock market takes a hit. And like I said, it doesn't matter until it does. And it's just something that with this acceleration lower in the high yield market, it's something people should be paying attention to, I think, a little bit more than they are right now.

20:33Morgan Brennan: All right. So in light of all of that, how should an investor be positioned for the uncertainty that all of this brings? You know, Morgan, I just think they just need to be a little bit more defensive. I mean, now you're getting 5 % or almost 5 % on two-year treasuries. And, you know, the stock market or the S &P 500 in the last three to four years has doubled. And the NDX, the NASDAQ 100, has gone up 180%. And so, you know, it's just with interest rates higher and what history tells us about this, you know, getting a little bit more defensive, maybe even raising a little bit of cash or buying some bonds is a good idea.

21:08This doesn't mean, you know, go 100 percent cash or, you know, crawl up in a ball and hide in the basement. But it does say I think people should be a little bit more cautious here.

21:18Morgan Brennan: All right. Matt Maley of Miller Tabak. Great to have you on. Appreciate it. Thanks, Morgan. Straight ahead. An unusual September nor 'easter is heading this way as millions braced for hurricane force winds flooding. Power outages tracking the storm's next move. That's ahead. But first, with yields at multi-decade highs, the housing sector continues to get hit. We're watching the 30-year fixed rate mortgage. It's now closing in on 7.5%. That's according to Mortgage News Daily. You can see right there on your screen, 745 right now. Morning call. We'll be right back.

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22:39Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision-crafted performance. That's Acura. 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.

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23:20Morgan Brennan: Welcome back. We've got a market flash and an update to a story we brought you yesterday. in a wild reversal after Barry Diller pulled his offer for MGM Resorts yesterday or earlier this week. Reuters is reporting that MGM is now exploring making an offer for Diller's People, Inc., with a deal possibly coming within days. People owns titles like Food and Wine and Southern Living and Daily Beast and People magazine has a market value of about$2.7 billion. You could see People Incorporated is up about 8.5 % right now pre-market on this. Well, let's get to a developing story and a rare September nor 'easter that is set to slam the East Coast this weekend.

23:58Morgan Brennan: Millions of with millions from Maryland to New England bracing for coastal flooding, power outages and hurricane force winds. AccuWeather's Bernie Raynaud is here. He's tracking the storm and he's bringing us the latest. Bernie, it's great to see you. It's good to see you. I wish it was under better circumstances, though. We've already had damage along the mid-Atlantic coast, along the outer banks of North Carolina and southeastern Virginia over the last day or so. Now that storm has really taken shape. It's going to intensify today. And then here's the problem. It's not going to rapidly move away.

24:33It drifts north and then stalls as we head into the weekend. And it doesn't really weaken until Monday. Now, there's already strong winds occurring here. These are the sustained winds from eastern Massachusetts toward the Jersey Shore. And these winds, by the way, will be causing flight delays at Newark, LaGuardia, JFK, Philadelphia International, and Boston's Logan International Airport today. But things worsen tonight, Saturday, and into Sunday. These red areas, eastern Massachusetts, eastern parts of Long Island, will have major flooding damage from coastal winds out of the north-northeast with gusts 40 to 60 miles per hour.

25:14And there will be damage along the coast. There will be a risk to coastal property as well. And during times of high tide, and remember, we're in a full moon right now, so that's going to enhance the inundation. We'll see three to four feet of inundation. That's going to cause some major problems here. Take a look at the wind gusts here, 40 to 60 miles per hour in that light purple from coastal Maine all the way down toward the Jersey Shore. But the Cape Islands, eastern Long Islands, we're going to be looking at gusts at the 60 to 80 miles per hour. regional power outages. You have to have a plan for that as we head towards Saturday and Sunday, Eastern Massachusetts, Eastern Long Island.

25:53Now, curiously, not a drop of rain right now as the storm's offshore, but watch the rain area start to wrap in from the southeast as we head toward tonight. And then you're talking about bands of rain, windswept rain, Friday night, Saturday and this Sunday. Boston, New York City, down toward the Jersey Shore. And while you're going to get coastal flooding, and that's going to be a huge problem, there will be freshwater flooding as well, especially across eastern parts of Massachusetts, including Boston, where there's going to be a few inches of rain. We've been actually storm backs. Morgan, of 13 inches, quite a storm this weekend.

26:36Morgan Brennan: Okay. Bernie Rayno, thank you. Folks, stay safe. Sounds like some Some of those kids' soccer games might be canceled if you live in the area, too, says the parent. The suburban soccer mom here on set. Bernie, thank you. Still on deck, the latest U.S. company putting its tariff return to work. But first, the biotech IPO pipeline back in focus as yet another name files to go public. This time, it's City Therapeutics joining the rush of names getting ready to list and raise capital. And this follows NVIDIA-backed Iambic Therapeutics, Retention Pharma, T-Rex Bio, all unveiling their S1s in recent days.

27:11Morgan Brennan: Plus, you have an RNA drug specialist, ADA-Rx Pharma, that starts to trade today in the latest market debut. According to Renaissance Capital, all five of the year's best-performing IPOs of$50 million or higher, that's what's been raised. They're all biotech. So keep a focus there, even as we've seen some AI-related IPO offerings get pulled from the markets. Morning Call continues.

27:42Morgan Brennan: I'm Morgan Brennan. Welcome back to Morning Call. Let's get a check on U.S. stock futures this Friday morning. All poised for gains here. Pre-market S &P is indicated to open higher by 22 points. The Dow 116 points and Nasdaq 179 points. That was after a largely flat session yesterday with a mixed picture in terms of the weekly gains as we go into this final day of trading with gains for the Nasdaq and the S &P so far on the week. But the Dow lower as of right now. That's despite all of the volatility that we have seen in the bond market this week with treasuries across the curve trading right near multi-decade highs.

28:20Morgan Brennan: You can see that right there on your screen. U.S. 10-year Treasury yielding 5.16 percent. U.S. 30-year Treasury, 5.46 percent, trading right near its highest level since 2004. And the Fed-sensitive two-year Treasury, 4.88 percent here. Let's get a check on the dollar index as well. In a week where the dollar has strengthened against other major currencies, you can see the level there this morning is 101.10. And let's also get a check on energy as crude takes a bit of a breather here this morning. We're actually on pace for losses for the week for WTI, but still at elevated level. So we're down about 1.8 percent right now,$92.84 a barrel for WTI.

28:59Morgan Brennan: Brent is also down 1.3 percent, trading right around$105 a barrel. If you take a look at global markets as well, it's a lot of green on the screen, seeing gains in most parts of Asia and in early trading in Europe as well. the loan exception here is the Hang Seng, which closed down 1%. Let's get a check of some of the morning's latest headlines as well. Shares of Akamai Technologies surging in the pre-market. The company announcing it just signed a seven-year,$11.6 billion cloud services deal with Anthropic. It is the largest in its history. It's also issued a warrant that could give the AI leader up to a 5 % stake in Akamai.

29:41Morgan Brennan: And you can see shares of Akamai are up about 22, almost 23 % on this, sort of the latest entrance into the neocloud business. Speaking of Anthropic, breaking out the Palantir playbook, Fortune is reporting that the company is asking shareholders to approve a new corporate structure that would give CEO Dario Amadei and his six co-founders a special class of shares to give them supreme voting control over most corporate matters. The company also reportedly planning to give employees a special class of stock that could serve as tiebreaker votes for certain issues. Let's turn to Tesla now. Almost nine years after its unveil at an event last night, the company saying that it's ready to deliver its first electric semi-trucks to customers this week.

30:24Morgan Brennan: No word yet on pricing or production volumes, but executives are saying that the company plans to build 50 ,000 semis a year at its Nevada plant. Keep in mind, Elon Musk was at this U.S.-China state dinner, So he was not at this event, although I believe there was a taped intro from him to kick things off. Key initial customers appear to include Pepsi, DHL and U.S. Foods. Those shares are up about one percent pre-market. We're also watching shares of Costco. It was a double beat for its latest quarter, thanks to strong sales growth, despite inflationary pressures and high gas prices. And actually membership revenue was a little bit better than expected.

31:02Morgan Brennan: Sales rose about 11 percent year on year, and the company also noting a 15 cent per share gain from tariff refunds. This has been the theme for retailers and others this earnings season, putting some of that towards, quote, increased member values. We've heard some similar commentary like that from others, including Walmart as well, with the reinvestment of those tariff refunds. And in Washington, those shares are fractionally lower. In Washington, top advisors to the president say that his team is seriously considering the impact and fallout of a potential short-term ban on diesel exports. Among them, National Economic Council Director Kevin Hassett, Treasury Secretary Scott Besant, and U.S.

31:41Morgan Brennan: Trade Representative Jameson Greer. This coming is Airlines for America, representing major U.S. air carriers, says that it opposes any export ban, saying it would lead to higher prices and have a, quote, drastic impact on carriers. carriers. We have heard that from many, many of the trade groups in recent days. Despite a slight dip in recent days, though, the national average for a gallon of diesel, it's still up 12 cents from a week ago, according to AAA. And you can see right there on your screen, just above$6.50 a gallon. Let's turn, I guess we'll continue to stay talking about Washington.

32:18Morgan Brennan: China's Xi Jinping continuing his state visit with President Trump today following a CEO-studded state dinner at the Capitol last night. That featured Tim Cook, Jensen Wong, Elon Musk, Lisa Su at the main table with the president. But ahead of today's events, both men are addressing the intense competition over AI, with Xi saying, quote, both sides can continue AI dialogue, exchange views on risks and benefits, and together guard against the misuse or malicious use of AI. Trump on social media adding that he wants to leave super intelligent regulation where it is, in the hands of the Justice Department.

32:53Morgan Brennan: So joining me now is Jason Rathje, co-founder and former director of the Department of Defense's Office of Strategic Capital, now the public sector president at Web AI. Jason, it's great to have you on. There's a lot to talk about here. But first, your takeaways thus far from what we've heard in this global debate this week around AI. Well, first, thanks for having me on. We know AI is a central part of the strategic dialogue between China and the United States. And I think what we're hearing is this really dichotomy between the U.S. pushing the scientific frontier, where China is really pushing this kind of a more open source approach where they're pushing AI into the hands of people and organizations.

33:39But it is encouraging to hear the U.S. is continuing to push from a position of strength to drive the technological frontier forward to ensure that the U.S. can maintain a position of strength in the negotiations that are happening and are certainly going to continue to happen. Yeah. How to think about the differences between those development models and economic models between the U.S.

34:03Morgan Brennan: and China? I ask that because I was speaking to an investor on our air yesterday who said maybe perhaps what's getting missed here in the U.S. discussion around all of this is the deployment and the focus that China has on physical AI and equipping its cities and, you know, its production lines to be able to envision that future, enable that future. You can think of AI as kind of two different verticals. A lot of the conversation has been around these closed frontier models, again, pushing more of the benchmarking or accuracy-based approaches, where when you look at the open source community, which is becoming more and more widely adopted both domestically and globally, that's an area where we need to make sure that there's continued U.S.

34:52investment, because right now China is leading in that space. It's cheaper. It's almost as effective as frontier models. And it provides a wholly different way to assess the effectiveness of AI. It's effective not just by its benchmarking accuracy, but the ability for users to adopt and use it. And certainly at WebAI, one of the major focuses of our company is to produce models, open source models that provide an American alternative. But it's not just providing an American versus Chinese model. It's providing a highly effective model that we want to see user adoption of because it's better at the things that it needs to do.

35:29Morgan Brennan: Yeah. I mean, we talk so much about the geoeconomic implications of this AI arms race, if you will. But there are military ones as well, which you know better than most. So how does that fit into this entire discussion right now? Well, from a military perspective, you know, the close frontier data center approach is one that provides acute vulnerabilities to national security. You know, we call this a center of gravity. If our AI, our intelligence is located in one geographical place, now you provide a target. And you see this in the conflict in Iran with Iran bombing data centers. An alternative approach, one that's distributed, one that uses open models and lightweight models that provide value to the individual soldiers, sailors, airmen, guardians, and Marines that are in the fight.

36:22Now, you don't centralize intelligence, you distribute it to the edge. And that's the power of these smaller models and what they can do. And they're becoming more and more effective. We think the U.S. needs a strategy that truly democratizes intelligence, that pushes it down to the individual, whether that's the individual warfighter or the everyday American. And that approach provides an alternative infrastructure that is less vulnerable to these centralized attacks.

36:47Morgan Brennan: I have to ask, because you and I have gotten to know each other over the years because you stood up the Office of Strategic Capital in the Pentagon, which has really become a mighty funding mechanism for many of these types of deals that we're seeing, not only in the defense industrial base, but even on the energy side. Even this deal with Venezuela is running through OSC as well. So I would love to get your thoughts about what we've seen in terms of how that office has changed and grown and what it means for this idea of supply chain resilience here in the U.S. You know, Morgan, we've been talking about this for a few years now, that the critical nature of our supply chain is one that impacts not only our commercial or consumer needs, but underlying our military are our supply chains.

37:37And there are the conversations that are happening still today around critical minerals, rare earths, semiconductors, the ability to produce and manufacture things at bulk and scale. And it's exciting to see continued push and investment into these fundamental areas. And they're just as important now in emerging technology sectors like AI. AI just doesn't exist as code. You know, you need to have the entire supply chain available from the chips to the underlying rare earths and critical minerals that go into those chips. And it's an area where if we don't drive forward the supply chain in a way that provides American resilience, we're going to find ourselves in AI like we are in electric vehicles.

38:21We pushed the scientific frontier. We created an industry. And now there's a broad production and scale that exists in China that doesn't exist in the United States because they have a fully integrated vertical supply chain. And I hope in AI we don't make that same mistake.

38:38Morgan Brennan: OK, Jason Rathje, great to have you on. Appreciate it. Great to see you again. And of course, we know rare earths are part of these discussions and in focus with this Trump sheet summit that continues. A lot more to come here on Morning Call, including an income investor's dream come true. Why surging bond yields are only half the story when it comes to the fixed income seeking crowd. But first, also keeping our eye on a Wall Street Journal report on Jeff Bezos' Blue Origin. The journal says he has invested$30 billion in the company since its founding in 2000. And that includes$2 billion that Bezos is putting into the company currently as part of this first ever capital raise with outside investors.

39:18Morgan Brennan: One that has raised$10 billion at$140 billion reported valuation, according to those documents that have been reviewed by the journal. Really marketing itself, Blue Origin, as the direct competitor to SpaceX. Morning call. We'll be right back.

39:51Morgan Brennan: Wow, what a week we have seen for bonds and for Treasury yields specifically. Double-digit yield moves for key U.S. bonds in the last month. The 10-year, the 2-year, the 3-month, those are all seeing yields up. double digits, hitting multi-year highs. And here's what you should keep an eye on, the big dividend ETFs falling as those bond yields in the Treasury market have risen. So why take risks in dividend-paying stocks if you can buy bonds with less risk? We use the CNBC Stock Screener, available where else, on CNBC.com to check the biggest dividend payers in the S &P 500. Vici Properties, UPS, General Mills, Kraft Heinz, Edison International.

40:31Morgan Brennan: Those are all down big recently, as you can see right there on the screen. And speaking of dividends, T-Mobile boosting its dividend by 15 percent after the bell last night. It will pay$1.17 a share. In percentage terms, it's still below 3 percent. Based on this morning's open price, AT &T pays 4.4 percent and Verizon pays 6 percent. So in terms of the dividend lagging its direct competitors. But here's where traders stand on prediction market calci when it comes to the Fed's October meeting, which has been part of what has repriced into the market and what we have seen in Treasuries. 68 % back the notion that the Fed will hike 25 basis points.

41:09Morgan Brennan: 32 % say the Fed will stick to its current plan. Well, we're going to talk more about that with our morning call crew as we break down the day's drivers, including why one crew member likes this market's fundamentals more than the macro environment. We've got a call sheet next.

41:30Morgan Brennan: It's time for your call sheet where we look at the topics driving the trading day ahead. Crew members today, Matt Power, managing partner at Power's Advisory Group. Stephen Miro, managing partner at Beacon Policy Advisors. And joining me right here on set, Bilal Little, global ETF strategist at Direxion. Bilal, I'm going to kick this off with you. The week that was, the bond market in particular, your reaction. Look, I think this is a generational opportunity for investors. Let's be honest here. At this point, there's so much volatility. The market's very narrow. Only a handful of names are doing exceptionally.

41:57well, if I'm thinking about where I'm going to put some capital right now, I would actually park some money at the front end of the curve. Obviously, why not? Right. You got risk-free rate right there. But then just start to think about how you want to actually expand your equity risk premium and thinking about where opportunities are.

42:11Morgan Brennan: Yeah. Matt, we just talked about it right before the commercial break, and that is what you've seen in terms of that rotation, perhaps, into treasuries and out of dividend paying stocks. Your thoughts. Yeah, thanks for having me. I do a lot with dividend paying stocks, so it's right in my wheelhouse, but 10 years is the biggest thing to watch right now. North of 5%, you hit those levels, you have to pay attention. And the math for stocks just changed. So we have this conversation with clients all the time. If you can earn more than 5 % in treasuries, especially on a 10-year, suddenly you have a very legitimate alternative to equity.

42:44And if you're going to take that additional risk of owning stocks right now, you're going to demand more return for doing it, especially after the multi-year run-up we had. So for me, I think the 10-year is the most important thing to watch right now. And the hurdle for stocks is just simply getting higher.

42:57Morgan Brennan: Yeah, Stephen, I mean, it's been interesting. We've had two back to back week auctions as the U.S. looks to raise more debt here. You also have reports that that Treasury was not able to raise the six billion dollar quota that it had set for itself earlier in this week, too. And in the midst of all of this, quite a bit of Fed speak that has tilted hawkish, perhaps not surprisingly. What are you watching in the midst of all of this? I think one of the key things to watch is Bassett's credibility here, because the bigger game he talks, the more he boxes himself in. And mainly the drivers here are what's going on with oil and, as you said, with the Fed.

43:40Morgan Brennan: Stephen, what do you think about all of this export ban chatter around diesel? It doesn't really amount to much. If anything happens, it will be more about the politics than the economics. And it will be such so short term and be so full of holes to be Swiss cheese that I think the market should just ignore it. Yeah. And we talk so much about the secular story in the market, Bilal, that is AI. And I do want to get to that in a second. But I mean, energy has obviously been an outperformer in terms of S &P sectors here, too, for obvious reasons. I think lean into that conversation. Most investors do not have access, as I would say exposure to energy from an investment perspective.

44:22But they are going to have a what I call the kitchen table conversation as a family right now going into the fourth quarter. They're going to say, you know what, our costs are going up. What should we be thinking about as far as tightening our belt? And they're going to feel the cost of inflation at some point here very soon. And if I'm thinking about what I'm doing and how we're communicating to people right now, it's slow down, recognize that you still want to stay invested in equities, but volatility will start to persist and pop.

44:47Morgan Brennan: Yeah, it's interesting. Michael Rourke talked about this in his note, friend of the show, last night, Matt. But if you actually look at the S &P over the past month, it's actually fractionally higher, despite some of the volatility we've seen in other markets. But for every one stock that's higher, there's four stocks that are lower. So how does that speak to what's under the hood here from an economic standpoint, when we are talking about something like the AI build-out right now and how outsized that impact has been? Yeah, Morgan, we actually just had more stocks hit 52-week lows than 52-week highs, which is telling you something.

45:21But I think at the end of the day, stocks follow earnings over time, and they've been incredibly strong. We're still looking at mid-20 % earnings growth for the S &P heading into Q3, heading into Q4. So until we actually start seeing those earnings roll over, it's hard for me to get bearish. And that backdrop is still the biggest reason I'm not getting overly negative heading into Q4. So I view what we've seen as the past few weeks as maybe you could say it's like volatility with a strong earnings environment instead of something fundamental that shifted.

45:52Morgan Brennan: Yeah, I'm certainly keeping an eye on Oracle right now, potentially a leading indicator there. We see the force majeure and just in terms of this AI build out quickly. Finally, Stephen, Trump, she meeting your takeaway. The key thing here is we're getting the lowest common denominator. there. Both sides think they have a lot of leverage, but each side isn't willing to give a lot. So while there's a lot of stability on the top, there's a lot of kicking still going over the shins under the table. So we're going to continue to get the truce, but it's going to be short term. Okay. We're going to leave it there.

46:30Morgan Brennan: Have a happy weekend. Happy Friday. Thank you to our call crew. Squawk Box starts now.

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