10AM Hour: China’s Xi Arrives at White House, Why A Diesel Export Ban Could Make Matters Worse, Fed’s Paulson Signals more Rate Hikes 9/24/26

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1:02Good Thursday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Morgan Brennan and David Faber. Live at Post 9 to the New York Stock Exchange, Sarah Eisen's on assignment. Stock's a bit lower this morning as bond yields do climb to multi-decade highs and we get a little bit of bounce on oil. Brent above 105. We'll talk about how this big move in rates is impacting your money. China's president expected to arrive at the White House any moment for meetings and ceremonies with President Trump. We'll get you updates throughout the hour. Also ahead as the administration weighs a diesel export ban to combat soaring prices.

1:33We'll talk with the head of the American Petroleum Institute, who says a ban would make the situation worse. And we'll get to the big moves this morning in Meta and Oracle, of course. First, though, let's get to new home sales just crossing. And Diana Olick is here in person at Post 9 and has that for us. I am here with the numbers 684 ,000. That's a beat that's up 6.4 percent month to month. The street was looking for$618 ,000. The important thing to note about these numbers is that new home sales are based on signed contracts, not closing. So that's people out in August shopping for a home when mortgage rates were actually much better than they are today.

2:10We're around 6.8 percent really for the entire month of August. But now we're, of course, up at around 7.26 percent. The median price, though, was$393 ,000. And when I look at that, it looks like that is below the August price of $417 ,000 down 5.8 % year over year. So that's what the builders are doing, lowering prices, doing incentives, buying down mortgage rates. We heard that from KB Home a couple of days ago in their earnings, where they beat, but they talked about shrinking margins. And that was a real problem. We saw the stock dip on that despite a beat across the board. So again,$684 ,000, much better than expected.

2:48But remember, we had a 10.5 % drop the month before, guys. So it's still rough going for the builders. I mean, we talk about what high mortgage rates do to homebuyer demand, but we've also continued to see these elevated home prices. So if you see prices actually starting to come off here, you can always refi a mortgage when rates go down again, right? So if you see prices come off, does that actually help to counter what we're seeing with the mortgage market? Not exactly. The problem is that, you know, you're seeing these prices come down a little bit, but not from the heights. I mean, we're so much higher than we were even four or five years ago.

3:19And we always say, you know, you buy the house, you date the rate. So as you say, you refinance a mortgage. But we're in a situation now where we don't know a couple of years from now if you're going to be able to refinance into a better rate and whether that house is going to be affordable for you. We're already starting to see delinquencies tick up on people who bought their house, you know, two, three years ago at rates that they thought they'd be able to refi lower when rates are higher. And that's just not the case. We are seeing some price cuts, though, in existing, right? Yes. That's really interesting.

3:47We're seeing some price cuts. But if you look at the national figures, we're still up year over year. So there are certain markets that were the overheated, the southern markets, the pandemic driven markets where prices are now coming down a bit. But nationally, you're still seeing prices higher year over year. And we talk about supply. There's more supply in the existing home market, but it's still not enough. We're still not at the levels to meet demand. And days on market, what are we, 50, something like that? No, no, it's not that bad. We're not. I mean, days on market has still been around 36.

4:16I mean, we're not changing that much. It fluctuates a little bit. We're seeing a drop in the share of first time buyers. you know, of course, they're the ones who struggle the most on affordability. And you mentioned delinquencies. I mean, I guess also adjustments now. You're talking about even adjusting potentially higher than you might have thought even a handful of months ago. Exactly. We're nowhere near the levels of 2010. I'll just put that right now. So we're not that. But seeing those delinquencies, it's really just kind of a read on the economy and the affordability and the struggling buyer.

4:44And interesting, in the mortgage applications data from last week, we saw a nearly 10 percent share of arm applications. Now, if you remember back in 2020, 21, when rates were at 3%, you were seeing arm share maybe 2%. Nobody wanted an arm because you could get a 30-year fix, so cheap. Now, 10 % of people are applying for arms, riskier, but lower rates. Last thing I throw at you is we've been talking to Santoli about Berkshire's apparent interest in not only Taylor Morrison, but now Lenar. Does it feel like a deep value play to you? Well, interesting. I spoke to Stuart Miller yesterday, just had a little phone call with him.

5:23He did not want to go on the record with anything other than to say that Berkshire Hathaway is a wonderful company. You know, he was. But he said that, you know, Berkshire is interested in good, as you say, good value plays. Clearly, they love housing. They bought Taylor Morrison. I asked him point blank, you think they're going to buy Lenar? And he just said, you know, wouldn't touch that with a 10 foot pole. Yeah, really interesting wrinkle in builders, at least. Diana, thank you. Diana Olick. The president welcoming the Chinese president of the White House this hour. Our Megan Casella is on the White House North Lawn with the latest.

5:54Morning, Megan. Carl, good morning. That's right. We're expecting that formal greeting to be taking place on the South Lawn any moment now. Reporters are gathered there awaiting both President Trump and President Xi, surrounded by U.S. and Chinese flags as they're waiting for all of that to happen. We also expect a military review and a formal gift exchange this hour. Now, we're not showing you photos or videos of the arrival ceremony because TV pool coverage of the president has been suspended following the president's decision to ban three national news outlets from the White House. A judge did rule overnight that ban was likely unconstitutional and has ordered the White House to immediately restore press access for the impacted outlets.

6:29But so far, that hasn't happened. So we will see how much we get on camera today. But we are monitoring it all. And this morning's pageantry follows what was literally a red carpet welcome yesterday for President Xi with President Trump and the First Lady greeting him on the tarmac at joint base. Andrews with the U.S. Air Force Band playing both countries national anthems. The policy talk is still to come. The official bilateral meeting is set for 1130 this morning, but expectations are quite low for any real meaningful breakthroughs on deals on policy. And President Trump himself was lowering those expectations further this morning.

7:02He posted on TruthSocial that AI will be a big topic of discussion, but that he wants to leave it exactly where it is and that China feels the same way. So likely no changes to the status quo there. On trade, though, one deliverable is already done. Treasury Secretary Besant announcing late yesterday that the two sides have agreed to extend their tariff truce by another two months through January. So a small dose of stability there heading into today's meeting. Guys.

7:30Megan, yeah, the other thing, some wire stories pointing out maybe hopes for a Boeing deal might be a little bit tamped down. So walk us through the TikTok today. We'll get sort of a tight bilateral in the oval, and then they'll do something broader in the cabinet room? That's exactly right. First on the aircraft purchases, that's true. Aircraft and ag purchases might be some of what we see on the margins here. But the run of show here is this hour, all the formal pomp and circumstance kicks off with welcoming President Xi and his wife to the White House. 1130 is that tight bilateral exactly. They expand it further at noon.

8:05All of that is meant to be closed press. We'll see if they ultimately open any of that to reporters. Whether or not there's cameras in there is a separate question as well. And then there's more meetings throughout the day today. President Trump has other policy meetings and things on his schedule that might not include the Chinese officials or the Chinese president. But tonight, we get a whole lot more pageantry with that official state dinner, really the highest honor that a U.S. president can bestow on a foreign leader. And we know it's going to be CEOs studded as well, a number of U.S. CEOs from the business and tech worlds there, Mark Zuckerberg, Tim Cook, Jamie Dimon, Jensen Huang, just to name a few.

8:37It's a who's who of some of the biggest names in tech and finance. That will be late tonight around 8 p.m. And we could see both presidents speak both then as well as in the next hour. Okay. We know you'll be monitoring for that. What's curious to me, Megan, is that in the midst of all this, we have reports that have surfaced in the last 24 hours that China's holding sensitive F-35 fighter jet parts that were diverted to Hong Kong. I mean, that is a pretty aggressive military-related, national security related action, if in fact it's true, devil's in the details here. Has the administration made any kind of comment or acknowledged this in any way?

9:11I have not seen any acknowledgement of that at all, Morgan. And it really highlights one of the core points of tension going into this meeting is that there are so many areas where there's deep division between the U.S. and China. The military buildup in China being one, the Iran war being another, export controls being a third. There are so many like this. Taiwan, I should add to that list as well. And it's why we've seen even some Republicans criticizing this visit. It's one thing to have the Chinese president here, and it's another thing entirely to be rolling out the red carpet, quite literally, having the state dinner, making this an official state visit.

9:44With all of these tensions simmering just below the surface, no one that I've talked to expects the president or this administration to be raising those issues in a very direct way during this meeting. I'll give you another example. Just in the last few weeks, there have been reports that China was supplying Iran with imagery that allowed Iran to attack American forces. And we publicly saw the president, President Trump, sort of brushing those off. That sort of was an indicator for a lot of the analysts and experts I've been speaking with, that they don't expect that to be raised here, and they don't expect any of these more difficult issues to be really addressed head on.

10:15All right. Megan Casella at the White House. Thank you. Well, joining us now to talk more about the market action is Jim LeCamp, executive director at Morgan Stanley Wealth Management. Jim, it's great to have you on. I guess I'll start right there with you. And that is, What are your expectations? What do you think the market should be bracing for in terms of this U.S.-China meeting here today? I think the market needs to continue to brace for curveballs because that's all we've been getting all year. And this market isn't giving anybody anything they want. It's feeding the bears a little bit, feeding the bulls a little bit.

10:46In terms of Xi, trade is a very big deal and oil prices are a very big deal. Are they going to collaborate with us on getting some sort of order in the Middle Eastern area where all the oil and the Straits of Hormuz are causing problems for this market? And that's a big problem here because oil is one of the three heads, the Cerberus, that's really challenging this bull market. Higher rates, higher oil prices, and a higher dollar. And rates are a real issue right now at 510 on the Treasury. that we haven't seen that in 20 years. But the market's hanging in there, and this is what I mean by markets not really giving us anything that we can hang on to here.

11:31There's a fourth issue, a fourth head on the Cerberus, and that is the seasonality. I mean, if you look at historically this midterm election year, mid-September to mid-October, that's the most treacherous time of the historical cycle on the presidential calendar. And so we've got a lot to deal with here. But the markets are hanging in. Let me interrupt you quickly. Stay with us. We are getting some breaking news from the Fed. For that, we'll go to Steve Leisman. Morning, Steve. Carl, Philly Fed President Anna Paulson becoming another Fed official, suggesting more rate hikes may be coming. She says, quote, in her speech, some modest further tightening may be warranted.

12:08The way she sees it, inflation is running well above target, even after removing the supply shock. She talks about underlying inflation running 2.5 % to 3%. She calls that well above the Fed's 2 % target. The gap between underlying inflation and the target has shown little sign of closing, in her view. The scale of AI investment, she says, shows up in prices, one of the factors, she says, driving inflation. Meanwhile, the economy is showing increased signs of momentum. That's part of the reason why she believes the risk of persistently elevated inflation has increased. Carl, you know when people say when facts change, opinions change here at CNBC, when facts change, our charts change.

12:47We're now looking at the probability of a third, probably consecutive hike here now. These are not huge numbers, but they certainly show them in play for a first hike at 64 percent probability, second hike in January 68, and then a third hike now at 55 percent. And now we have a graphic here showing all of the folks that have now in the last several days said something about hiking more likely than not. And that's John Williams this morning from the New York Fed. Michael Barr, a governor of the board there yesterday, talking about that. Moussalam from St. Louis, Collins from Boston, Paulson from Philly, all around the country.

13:24Hammock from Cleveland and Schmidt from Kansas City. So that's a you want to ask me where the center of the board is. The center of the board, Carl, is for more rate hikes. And do we think, Steve, that Warsh is blessing this kind of communication? Because we've been led to believe by some that it's Warsh against a, quote unquote, hostile board or committee. I don't know that he's blessing it. I think he probably is at a point now where he realizes there's not much he can do about it. He doesn't directly control the communications of the presidents for sure, or even really the board of governors, though.

13:57The board of governors would be more likely to hue to his idea. But you're right. They're out there giving some form of either forward guidance or their reaction function. Just note that everybody says, if the economy develops the way I think it will, So if inflation does what I think it's going to do, then we're going to do this. So it's not a promise without a condition. It's a conditional promise. We can call that the reaction function rather than strict forward guidance. All right. Steve Leisman, thank you. We still have Jim LeCamp with us. Jim, I want to get your reaction to that and the Fed speak we have gotten so far this week.

14:30And also the fact that in the midst of all of this, a lot more attention being paid to some of these auctions, including for seven years today, even as the Treasury is looking to refund$6 billion. What it's all meant for the bond market and thus everything else. Yeah, it's really interesting because there is a real problem for the Fed here. Now, originally it was just oil prices that were driving everything, including the increase in interest rates. But now we are seeing inflation really creep into a more sustainable concern. And in services, inflation is probably the biggest one. And that's going to be an issue for a while.

15:05Now, the other side of this coin, though, and this is not the kind of Fed hike cycle that we've seen for the last 20 years, because the other side of this coin is GDP growth. And that's one of the things that's driving interest rates going higher. We're looking, the Atlanta Fed GDP now has a 5 % target for third quarter GDP. That's really good. And that's why the market's not getting killed here. although the market does have issues and breadth is really weaker than what the averages would imply. But I do think now the Fed is realizing that they are probably dealing with a bigger and more persistent problem with inflation than they thought.

15:47But again, I think the market is handling it OK because earnings are strong, revenues are strong, margins are strong. And we haven't seen this set of circumstances in quite some time. All right. Jim LeCamp, thank you. Thank you. Let's get our roadmap for the rest of the hour. Coming up, a case against a diesel export ban. We'll hear from the head of the American Petroleum Institute, who says the ban would backfire and harm consumers. Plus, the most important theme in today's meetings between Presidents Trump and Xi. We'll talk to one expert who says AI now touches every element of the U.S.-China relationship.

16:24And Meta's charm offensive. We're going to take a look at the company's new AI hardware device and if the Muse momentum can continue. Squawk in the streets. We'll be back after this. With the Discover Cashback card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to discover. Terms apply. See discover.com slash 5 for details. This holiday, all plans, even unlimited, are just$15 a month.

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18:20Here with us at Post 9 is Joshua Cuperamo. He's former co-CEO and vice chairman at Kissinger Associates, chairman and CEO now at Soornay. Should add also new book from Joshua titled Darwin's Lock, America, China and the Shared Future of Nations. It examines the U.S. and China's complex relationship. Nice to have you here. Thanks. Pleasure to be here. Let's start on AI. You know, we describe it as a race. I'm curious from your perspective, certainly being that you live in Shanghai as well, what you're seeing there and how you view whether there can be a race. And at the same time, we can keep safeguards around that race from both countries.

19:00Yeah, I mean, I think the metaphor matters a lot. I mean, first, I'll give you a sense of like what it's like on the ground there. The intensity of innovation in China is just something you almost can't understand unless you're there. who's lived and worked in China now for 25 years. And you would think at some point that pressure would sort of relax itself. Defining experience of contemporary China obviously was the opium wars 150 years ago when they were technologically backwards and got defeated by the British, invaded by nine nations in 30 years. They said, we will never be behind technologically again.

19:32Chip deals in the early 2000s in China, everybody, Intel thought we could sell them all the old chips. They weren't interested. They only wanted to buy the cutting edge chips. So the reaction to the CHIPS Act, the reaction to the U.S. attempts to slow them down, has been this intense drive for innovation that's almost palpable when you meet with CEOs in China, and the speed of it. Today we've got 11 frontier model labs in the world. Seven of them are in China. And they're open source as well. And they are. And that open model thing is one of the things I talk about a lot in the book, just having had this experience of knowing a lot of these founders, frankly, when they were university students and seeing the way they developed this, they immediately look for what is the most advantageous, effective way they can bring these things to market.

20:09market, because that domestic market is so brutally competitive. And so they have great price performance. The nature of the AI they're developing is world class. And that's just in the LLM space. I think the most interesting stuff that's going on in China today is these non-LLM models were starting to emerge. And then the other thing which I think is relevant to this issue of this weekend, which is the safety culture. Safety culture is completely different. If you're building an AI system in China because of the nature of the way the government functions, you think about safety first. So the hugging face thing was fascinating in the sense that you had a U.S.

20:41company that was attacked by a closed-weight U.S. system that saved itself with an open-weight Chinese system. And I think that logic is what I try to tease out in the book. Given the differences in approach, particularly, as you say, on safety, is it your opinion, though, that the two leaders are going to be able to come to some sort of broad agreement, let's say, on guardrails, given, obviously, what are great concerns about what this technology could mean to humanity? I think it's very difficult at this point. I think structurally the challenge is you have this race condition in place and both sides are sprinting as fast as they can.

21:17That will have to change at some point. You know, the summit reminds me of, there was this famous summit in 1968 during the Johnson administration, where Johnson met with Kosygin and said, look, the path we're on is insane. We're going to blow each other up. And that's what led to detente. And so this may be the kind of summit where the two sides look at each other across this table and say, this is a little too dangerous. We need to figure out what to do. The most important thing is to get out of this race mentality and think about it and said maybe as kind of each country has these gardens they're trying to cultivate.

21:43And if you can slow down a little bit and understand it's a shared ecosystem, you can maybe learn from the other. And that's the thing about the safety thing. But I'm curious, Joshua, do you, you know, you said you know some of these developers from when they were university students. Are any of them sharing or can they even share if they have actual concerns about the continued development of the technology the same way we've had researchers here, whether at OpenAI or Anthropic, do so? Yeah. So I think one of the differences of the Chinese system is even though that's not open, there's a couple of things that are going on.

22:11So first of all, you have absolutely world-class figures inside the Chinese government who are world-class experts, PhD-level experts on the technology itself. So their ability to watch this thing from day zero and think about the implications for the society are pretty significant. And it's relevant, I think, also in the following sense. There's another point I make in the book. It may turn out that the power of the models is not the important issue here. It's how is the ability of the society to absorb the shock of the models. And that's one the Chinese are thinking very comprehensively about.

22:40And so the nature of the race they're running is different than the race we're running. The U.S. and this administration in particular has been very vocal about this notion that the Chinese frontier labs have been distilling and that it's been an egregious situation. And that's part of the reason that they're able to offer onto the global stage, global marketplace, offer these LLMs at pennies on a dollar, tokens at pennies on a dollar. What is the reaction to that in China right now? So I think there's a couple of things. So in terms of the LLM space, there's no question distilling goes on, and I think also goes on, honestly, in the American labs as well.

23:14The point is they're going to do whatever it takes to be competitive and stay on the leading edge. The interesting thing that's happening in China at the moment is they're developing kind of an entirely alternative topology for AI that's very different than what we see in the U.S. So our system is very much based on these LLMs. It's based on these closed models, as you were saying earlier. Imagine a system that is based more on edge compute, very low latency, things that move very quickly, that depend on huge sensor networks. So you think about China. This is physical AI that you're talking about.

23:41Exactly. And so you think about, you go to Shenzhen. If you want to go to Shenzhen, one of the amazing things to do in Shenzhen now is you can get a coffee delivered by drone. It's an amazing thing you stand there. I was on the board of Starbucks, actually, when they first prototyped this thing, and it's still hot. If you want to deliver a coffee by drone, you have to have your entire neighborhood wired up with sensors. You've got to know what the weather is doing. You got to know what the traffic is doing. That's an information ecosystem that is so rich, it produces a totally different pathway to an AGI system.

24:08So I think the distilling is going on, but I'm worried in the U.S. that's a little bit of a distraction from the underlying innovation that's really occurring in China. More broadly on trade, there's an argument that they're crushing it on exports ex-U.S. Supply chains are moving back into China. The Germans are spending money there. The Indians are spending money there. I mean, have any of our restrictions worked at all? No, I think the challenge at the moment is exactly what you identified. I think that's kind of one of the core issues for the administration as they head into this weekend, which is you've tried so many different policies which have all backfired.

24:40There's a deep idea in Chinese philosophy and strategic philosophy, one of the things I talk about in the book, which is the best way to defend yourself is make it so if somebody attacks you, they hurt themselves more. And what the Trump administration figured out in the early days when they put these 150 % tariffs on and Trump had to go on TV and say, well, American kids are going to have to live with one, you know, toy this Christmas, is that the Chinese had built an ecosystem in which that is the case, a trade ecosystem. And so it all has to be rethought. I think Xi Jinping is very open and the Chinese are very open to a restabilized relationship.

25:10But I don't know yet that we're at the point where that can emerge. There's been a lot of... I'm sorry. I was going to say there's been a lot of reporting about the state of the Chinese domestic economy right now, the state of consumption, et cetera. What are your reactions to that, even as we talk about it on The World Series? Yeah, I mean, Greg, if today I was going to say the same thing, comes out with a story that says the economy is failing China's people, citing lack of consumption, retail sales down. Yeah. That is the narrative here. Obviously, you're on the ground there. Yeah. So I think it's a couple things.

25:38So certainly the economy is weak. It's weaker. You know, I lived in Beijing for a long time. We're now living in Shanghai. You definitely have a feeling, the sense of this slow consumption. The government is doing everything they can to try to manage it. But I think from their perspective, you don't run into anybody in Beijing who says we've got 500 million people in the middle class. We need to get that back down to 300 million. They want to get a billion people in the middle class. And so the question is, what is the right combination of policies that will get them there? What we've learned so far is they don't like these.

26:05Everybody kept saying about the real estate market. When are they going to do a TARP-like one-off thing and just solve it? It's not the way this particular government functions. They like to tinker and see where they can make small innovations. They're focused on exports as opposed to conceivably trying to create some domestic consumption. Well, I think they are trying. So it's very interesting. On the policy side, just in the last few weeks, there have been a couple of adjustments both on consumption and on capital markets that do suggest things are starting to shift. So one of the conversations you hear a lot among Chinese entrepreneurs, people who are sitting around talking to China, is four or five years ago, post-COVID, all everybody was doing was saying it's terrible to be an entrepreneur in China.

26:42They were disappearing. They were disappearing. Exactly. Exactly. Nobody's saying that today, right? The entrepreneurs are, whether it's an AI or clean tech or whatever, they feel safe, they feel secure, and they're prospering. So people say, is it possible we're going to be sitting here in two or three years and there's been a government change and everybody will say, oh, remember three years ago we were talking about no consumption? Look at what's going on now. So the question is, can they engineer the right set of policies that will get them? And finally, you talk about the ability to adjust.

27:07I am just curious. I brought this up as well. Leader in robotics, obviously in EVs, batteries, solar. But on robotics especially, given the prevalence of it and the youth unemployment rate and what it means to jobs, how are they adjusting for that? It's very interesting. So this is exactly this point about how do you both move as fast as you can and protect your society from the shocks of this. David, the robotics developed in China, it's unlike anything I've ever seen. You now see robotic systems in China that are engineered. Most robotics, you think they're just doing human jobs. Imagine you could build a factory entirely from scratch, not trying to replace humans, but that it should just be robots.

27:45So as you travel around China today, that's what you see. The challenge is how they manage that on an employment site. And they're looking at a number of innovative policies. The way the Chinese do this is they experiment. They create these special zones where they see if they can build the service industries or some of these other sorts of things. So they're trying to find a way forward. You know, there's a friend of mine who was a government official in Shenzhen said about losing a bunch of jobs to robotics in the auto sector. He said, if you came here 20 years ago, we had a million and a half people making shoes.

28:11Today we have zero people making shoes. And we found our way through that, and we'll have to find our way through this. I think the difference is they're thinking about it, and they're worrying about it. Anything you're watching between Xi and Trump? Any key things you've seen? I think the essential thing is sort of whether or not this basic truce holds in the trade space. I think that's the most fundamental issue for both countries right now. Joshua, thank you. Thanks for having me.

29:01to that data center project in New Mexico. Don't go anywhere. With the Discover Cashback Card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover. Terms apply. See discover.com slash 5 for details. This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song, like All I Want. Right.

29:42Okay, we can afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for a 12-month plan required. $15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. Still waiting in line? Again? That's time you will never get back. Save time and money with Stamps.com. Over 4 million businesses have skipped the line with Stamps.com. Join them to save up to 90 % off carrier rates from your computer or phone right now.

30:18Print postage for certified mail, registered mail, and packages in seconds. Get$20 in free postage when you sign up for the pro plan at Stamps.com slash Black Friday 2026. Terms and conditions apply. Adding to its big September rally today after debuting several new physical AI products at MetaConnect. Our Julia Boorstin got a hands-on look and can share maybe things we should know about this stuff. Morning, Julia. Well, Karl-Marc Zuckerberg unveiling a range of devices to support his vision of owning the consumer AI experience. He also revealed his monetization plan for his Muse AI agent is taking a cut of purchases from new retail partners, including Walmart, Wayfair and Sephora.

31:04Muse also has a novel business model. We believe that Muse will make you money. And we're standing behind this by making Muse free for a huge number of tokens with the expectation that over time we will profit by taking a small fee from transactions. Zuckerberg announcing a new keychain-sized device called Muse Charm. He didn't announce pricing but said it would launch by the holidays. This is front-running OpenAI's anticipated AI device. Zuckerberg also unveiled more AI-powered glasses, building to a portfolio of over 100 models by year end, with cheaper, lighter options, including camera-free models.

31:46Now, all of these are designed to enable consumers to constantly communicate with their AI agent. We will be rolling out Muse on all of our devices, all of our glasses, very soon. We're extremely excited about it. What we believe is going to be true is these agencies, assistants, like Muse, will become way more capable. Zuckerberg also unveiled a virtual reality headset. You see me trying it out here. It's smaller and more expensive than Meta's current VR. It's about the shape of glasses. It's going to cost$1 ,300. Zuckerberg says it's a cinema, computer, and console all in one. I got to play around with it.

32:27I was particularly impressed by the virtual keyboard. Now, analysts reacting this morning are largely bullish on Zuckerberg's plan, but mass adoption of Muse, really owning the consumer AI experience, does hinge on Meta's ability to build trust with its consumers. They have to want to give it access to their emails, calendars, and credit cards for these Muse apps to really work best. Guys? You have a question? Okay. Julia, I am curious. Did you get to interact with this Tamagotchi-like product as well? And I'm curious about that because it seems we're going to see a number of these types of products come to market.

33:06I know there's been reports about OpenAI, for example, et cetera, and that this is really where all of this is headed. I did not get to interact with it. No one did because Zuckerberg held it up on stage and he said it's still in development. He said they're still working on the specs. So it seems like they're really rushing to get this out by the holidays to to not even have all the physical development components of it figured out yet or the production specs of it figured out yet. When you're this close to the holidays, it really feels like they're racing to get this out before perhaps OpenAI does, because there's been so much speculation about OpenAI having one of these devices.

33:47It looks like a key chain, like a little dongle you'd attach to your key chain. And you can imagine having people attached to their keys or wear it around their neck if they want to be in constant communication with their Muse AI agent. All right. Julia Borsten, super fascinating. Thank you. Let's time out for a CNBC News update. Contessa Brewer has that for us. Hi, Contessa. Hi, Morgan. Mahmoud Abbas is addressing the U.N. this morning via video just hours before Israeli Prime Minister Benjamin Netanyahu is scheduled to address the General Assembly. Netanyahu is expected to use his speech to appeal to voters in Israel ahead of next month's critical elections.

34:24Netanyahu has said he will defend Israel and IDF soldiers in his speech as his country faces mounting criticism over its war with Gaza. President Trump's pick to lead the Food and Drug Administration is facing a crucial Senate committee this morning. Dr. Heidi Overton is expected to face questions about vaccines, the abortion pill, and other products that have come under FDA scrutiny. Overton currently serves as a domestic policy advisor. She's worked on several White House initiatives, including efforts to overhaul the childhood vaccine schedule. And Google said today it will send an experimental satellite into orbit to test whether space could potentially hold AI infrastructure.

35:05Project Suncatcher will assess how Google's AI hardware withstands launch forces and radiation, extreme temperatures, to see whether its chips can operate reliably in space. This is, of course, David, the first step it needs before data centers can be built in the great beyond. Yes, Morgan Brennan was talking about that not too long ago. If you tune in to Morning Call, you would know we've been reporting on all of this for many months, including with Planet Labs, their partner to do it. Got it. One to watch. SpaceX is putting it up there, right? Yes. Okay. Up next, the Trump administration weighing a diesel export ban.

35:41We're going to talk to the head of the American Petroleum Institute about why he says that would make the situation worse. Plus, we're going to get the latest rogue AI agent hack. We'll get to it, we should say. This time, it's the Australian government that was the victim. Stay with us. Diesel prices hover near some record highs. The Trump administration reportedly weighing this ban on diesel exports. Our next guest's organization co-signing a letter to the president, along with a number of other businesses and industry groups, writing in part, export bans would lead to less fuel production, tighter supplies, and rising costs for American families, farmers, and truckers.

36:17Joining us this morning is American Petroleum Institute president and CEO, Mike Summers. Mike, always appreciate the time. Good to talk to you. Great to be with you, Carl. I want to get to the argument in the letter, But first up, I just wonder how likely you think this is, because the energy secretary was on the tape yesterday saying a ban wouldn't work. Absolutely. And I do think the energy secretary, Chris Wright, our interior secretary, Doug Burgum, and others within the administration realize how damaging this would be. In fact, what we've shown in this letter is that an export ban would actually potentially raise fuel prices for American farmers and American consumers.

36:56And that's the exact opposite thing we should be doing right now. Is that a function of what would happen to refinery rates? And is there any sort of reassurance the administration could theoretically give on the duration of a ban that would keep rates from coming too low? No, unfortunately, the duration really does not matter. What would happen is you would actually have our tanks start filling up almost immediately. We simply don't have the storage in the Gulf Coast to store this much diesel that would get backed up because we're not exporting it. So you have to remember that one barrel of oil, you produce gasoline, you produce diesel, you produce jet fuel.

37:37You can't stop producing one of those. So as a consequence, if you put an export in place, you simply don't have anywhere to store it. The pipelines are currently full. So if you don't run out of storage, and that would happen very, very quickly in the Gulf Coast, that would mean that refineries would actually have to shut down. So the consequence of this is you would see a short-term, very temporary lowering of the price of diesel fuel, but an almost simultaneous and quick increase in the price of gasoline. So you're really trading one problem for another. And the other big consequence is you would see a very large increase in the price of diesel internationally.

38:17And that would be a disaster given the situation that we currently see in these diesel markets. Mike, it would seem the policy is materializing in the gray area here, meaning it might not actually be an export ban outright. It might be voluntary restrictions. What does that do to this entire conversation? Well, I'm not sure what a voluntary restriction would mean. The truth of the matter is that our refineries right now are completely running at full out. In fact, some refineries in the Midwest are running at over what they thought was 100 % capacity. So on average, they're running at about 98%.

38:51So we've never seen that kind of utilization. In fact, many refineries are now stopping their planned turnarounds that occur this time of year. So we're seeing a response from the industry in response to these increased prices. and they're very concerned about what this means for farm income and for consumers. The industry really is doing everything it can to produce more diesel, more gasoline, given the crisis throughout the world. But remember, the United States oil and gas industry has really been the buffer for the world. When you see what's going on in the strait, when you see what's going on in Russia and Ukraine, that's really the big issue that we're dealing with.

39:26About 10 percent of global refineries are shut down right now because of the wars going on in these two zones. Yeah, Mike, I've spent a bit of time, quite a bit of time over the past week with folks in the administration having conversations about this, including just in the last couple of days with Jared Agin, who's the executive director of the National Energy Dominance Council. One of the other things that seems to be on the table here in terms of being able to bring prices down is an invocation of the Defense Production Act. If a ban or restrictions aren't going to bring prices down, at least in a meaningful way for a long enough period of time, what else will?

40:02Well, look, we want to work with the administration on getting fuel prices down. We know how critical this is for American consumers and particularly American farmers and truckers because of the price of diesel. So we've put forward a couple of different ideas. You know, one of them, you have the federal gas tax and the federal diesel tax. One's 19 cents. The other one's 22 cents. You could take immediate action there if Congress would get to work on that. That is one key option that they could pursue. Another thing, we have a giant Chinese delegation here in town, and we estimate that they have about 1.5 to 2 million barrel a day refining capacity that is currently offline.

40:40So we should work with our allies, not just in China, but in Europe as well, to get more product online as quickly as possible. So that's another option that they should pursue. And we can work with other countries to do scheduled releases of strategic petroleum reserves and strategic reserves that they have in refined products as well. There are a couple of other options that we've put forward also. But we want to work with this administration on getting these prices down to help out consumers during what is going to be a peak demand period. Because we have harvest going on in farm country. We have people refueling their heating oil tanks as well in the Northeast.

41:17So this is a critical issue that we have to deal with and fast. Yeah, now that's getting reflected in some of the Iowa Senate races. We've had our correspondents on the ground out there as well. Really interesting, Mike, to get this, your letter, Chamber of Commerce, NAM, all at once, a coordinated effort here. We'll see what happens. Thanks. Good to see you. I'd also say that we also see ag groups coming out against this, too. The National Corn Growers have also come out against this. They know that the implications would be bad for American farmers. Mike Summers, appreciate it very much of API.

41:49Great to be with you. Up next, we're going to look at what's behind the move in Oracle and news related to its New Mexico data center project. Plus, we're going to be joined by the CEO of Coldwell Banker Realty with mortgage rates marching higher. We are back in two. Welcome back. Shares of Oracle down 5 % this morning. This is after it was reported to have sent a force majeure notice. This is about its New Mexico data center project, an enormous project with tenants, potentially, I guess, such as OpenAI. Well, let's bring in Seema Modi to the conversation to, of course, cover Oracle. What do we know about the significance of this, as first reported by Bloomberg?

42:26We can confirm, David, that Oracle did send that force majeure letter to Blue Owl this morning in regards to that New Mexico data center, which is facing increasing pushback on the local and political front. And I've been told by a source that this notice is by no means a cancellation, but a way for Oracle to sort of reiterate its contractual rights should the pushback it's facing on the ground continue to extend. But Oracle saying on record to CNBC that there is no intention to delay the project. In fact, it is still on schedule at this point. Again, the source that I spoke to said that there is no intention to cancel this project.

43:00It's not an act of God, but really to understand the obligations, the financial obligations tied to this$165 billion campus. This specific project, David, as you know, is a high-profile one because it's part of Stargate, this mega data center campus that's being built across Texas, New Mexico, and Ohio. And it's facing issues on three fronts, water, power, and air. There's a permit that it's looking to receive from New Mexico that is still currently underway. And I think that's one reason this specific project is getting so much attention, because there's a lot of money at stake. There's a big financier, Blue Owl.

43:36And the president himself has talked about Stargate being such a big part of the AI race and the U.S. winning it, especially at a time where we look for more details on the U.S.-China race. It's become sort of a test case for the AI infrastructure build-out and just sort of exposes, right, the physical and political constraints that data centers are facing. Right. And we pointed out this is around, again, permits for things like power and other things, as you say. Is this going to become a common use of force majeure not to actually get out of a deal? But what are they trying to do? Just make sure they're not paying until it's actually completed?

44:10I think they're trying to understand the obligations that they are up for in the coming months should the pushback they're receiving on the ground continue to manifest more than just six to nine months. So it's just sort of a way for them to test the limits of this contract. They have a blue owl. What's up for stake? I mean, if we when I started a data center, we would also want to know, all right, we're now facing some external pressures on the ground. How much do we really have to pay if these pressures continue to to grow? That's what there's that's what I think is what's happening right now.

44:39To your point, if we see more than this site, that will be that'd be a pretty significant. Yeah. Yeah. If they were to actually pull out or cancel or somehow really have it delayed. Yes. To the point where it wasn't useful. Right. Right. Seema, thanks. Seema Modi, big story today. When we come back with the options market is signaling about some of these big swings for bonds with the 10 years still stubborn today at almost 513. Driver's seat, as we like to say, of course, global yields hit multi-decade highs. Let's get over to Oliver Renick at Seabow in Chicago. He's got a look at what the options market is saying about all this.

45:14hey david with the tlt etf threatening all-time lows options trading and bonds is lighting up with volume still above the month-long average in tlt what's interesting here is that we see more calls selling than put buying which is still not a bullish position but it does lean more neutral than outright bearish on long-term treasuries that said we did see a lot of tlt dip buying with calls on the way down that did not work. But the most popular bond trade in options isn't on Treasury products. It's actually turning the options market into your own private bank and getting better loans and rates than what's on offer in the Treasury market.

45:54You do that using S &P 500 options in a trade called a box spread that uses one bullish call spread and one bearish put spread whose market risk cancels out and creates a fixed return that functions like a loan to the seller of the spread who gets cash up front and currently offers 4.6 % to the buyer of the trade who lends the money. The strategy has grown double the past year and hit a record$150 billion in open interest value as of last Friday in S &P 500 index options. CBO trades about$2 billion of these daily now in terms of low notional value as financial advisors and portfolio managers look to non-treasury diversifiers.

46:38The popularity just keeps going up, guys. Oliver, appreciate that. Oliver Rennick over at SIBO. Morgan, always good to have you in. We'll be watching you in the mornings every single day. Bright and early with your coffee. Yes, out of doubt. Morgan Brennan, when we come back, longtime chip industry executive T.J. Rogers on what's at stake from this meeting between Trump and she, the memory ETF this morning, down about 2%. More Squawk on the Street in a minute.

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