11AM Hour: September Jobs Below Expectations, Mortgage Rates on the Rise & Domyn CEO on AI 10/2/26

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1:01Good Friday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Morgan Brennan here at Post 9 of the New York Stock Exchange. Sarah Eisen's off today. NASDAQ and NVIDIA back near record levels, part of a broader rally today. We're joined by one top technical strategist, though, who says it's not yet time to give the all clear signal for investors. Plus, the September jobs report, surprise, coming in weaker than expected, unemployment ticking up. We're going to ask former Minneapolis Fed President Gary Stern just what it could mean for the Fed's rate policy path. And with AI anxieties rising globally, we're joined by the CEO of European AI firm Doman, recently named at the Time 100 AI list.

1:39Here is case for why there is no need to slow down the innovation. Equities definitely riding high on the back of that softer jobs number and the prospect of the Fed possibly taking a pause in October. Although, nice little round trip here on the 10-year, which got down to 5.17 after the print. Now back to 5.24. We'll see if it does affect stocks as we work our way through the session. Yeah. I mean, to that point, we're basically where we were at 5 a.m. this morning, and I know because I was keeping a close eye on that. The other thing to watch is the dollar index because we've seen that week and a bit today, but we're still trading right near levels that we haven't been in, I'll call it 17 months or so as well.

2:17We're going to start on this morning's jobs number, though, coming in below expectations. Steve Leisman joins us now with more. Steve. Morning, Morgan. Yeah, a miss on jobs expectations, changing expectations for the Fed, though not eliminating the betting on another hike, at least one more hike this year. Non-farm payrolls are 29. Let's get to an estimate of 84 ,000. Revision shaving 60 ,000 combined off July and August. Unemployment rate ticking up by a tenth to 4.2. That was a tenth more than expectations. And average hourly wages, that was the disappointment, up just 0.1 % for a year-over-year rate of 3%.

2:48That was down from 3.1 % in the prior report. Modest job gains, that was on the one hand. Downward revisions and weak wage increases lowers the risk that the job market will be a source of inflation for the Fed. That lowered the odds the Fed will be hiking this month. And even in December, here's what happened. The probability of Fed red-eye in October plummeting to around 20 % from 70 earlier this week. and probability for one in December now, 83 from 95. Odds of that October hike also down because of Fed speak from top officials who made clear they were in no particular hurry to hike. John Williams from the New York Fed saying on Tuesday there's no need for urgency.

3:24Vice Chair Jefferson yesterday saying, well, we need to come to our own judgment, which may take more time. And Kashkari telling me on Wednesday, I don't have a strong view on October versus December, but he did want one hike this year. Economists divided. Is this an orchestrated message from the Fed or Fed speakers acting independently? Whatever the answer, there's still a general belief out there in markets it could be one more hike this year. Now, changes to immigration and deportation policy means labor forces growing more slowly than it did before. That reduces the number of job gains needed to lower the unemployment rate, the three-month moving average of payroll growth at 51 ,000, right around the center of estimates of the break-even unemployment rate.

4:01So this number today is kind of in line with that. The key questions for the economy, whether productivity growth can fill the void of labor force growth and whether wage gains running below inflation mean some potential cooling in consumer spending coming up, guys. That's exactly where I wanted to go with you, Steve. What is your insight? What is your read through in terms of the wage data that we got today? Well, you start with the most important thing, Morgan, is people have jobs. OK, so that means that there's some kind of downside limit here to what we're talking about. At the margin, gas prices remain high.

4:35You start to get some filtering in of those high energy prices into other goods. You still have the high prices from tariffs. You could see some cooling off at the lower end when it comes to consumer spending. And then just watch the stock market because the wealth effect has been a major driver of spending and thereby the economy. But right now, also what we're looking at for the overall economy and economic growth is what's happening with AI. And I'm not hearing a whole lot of declines in intentions. But I do think at the margin, some of these data centers, some of these projects may be affected by higher rates over time.

5:09Steve, thanks. Important day, Steve Leisman, for more on the markets and what the technicals are telling us right now. Let's bring in Renaissance Macro Research Chair Jeff DeGraff. Jeff, happy Friday. Thanks for being with us. Thanks, Carl. Good to see you. So we teed you up with not necessarily an all clear. What does that mean? Well, look, I think there are definitely parts of the market that are in a good spot. I think health care is one of them. They are certainly leadership here. The tech rally has been strong in hardware, but I think it's more selective in semis. It's more selective in software.

5:44Those names are fine. We're looking for relative strength highs here because they'll carry the narrative forward. But just keep in mind, as of two days ago, only 40 percent of the S &P was above its own 200-day moving average. those constituents. So, you know, we have seen the effects of these higher rates starting to hit stocks. The good news is financials were oversold here most recently. So they're getting a little bit of a relief rally from what we saw to the jobs market today. But the overall trends, if you think about big trends being, you know, a 200-day moving average, you've got less than half of the S &P above their own 200-day moving average.

6:17And that's pretty endemic of a later stage market. And that's what we want to be careful with as these rates start to hit and these real rates start to climb, we want to be really careful about not being too enthusiastic about what maybe the surface is saying, but really looking underneath that and seeing what's happening. Yeah. I mean, to your point, I'm looking at, this isn't like that broad, but Lennar's down, Horton's down, Depot's down, B of A, American Express, J.P. Morgan. Would you have expected more of an explosive reaction to the prospect of the Fed taking a pause? I would have. I mean, right now, the Russell 1000 has 685 advancers to 332 decliners.

6:58So that's still a positive day. But it's not overwhelming by any means. And even the leadership, you know, I would have expected that the leadership would have been more in those oversold names like the home builders, like the financials. So I think this is decent. I mean, you know, frankly, I thought the SpaceX, where it is today, looks like it's almost a one month or sorry, a three month breakout. So that's kind of interesting. But it is still selective. This is not, you know, the I don't think this is the fuel that is a new leg of the bull market. I think it's just, you know, a good data point that's that's helping to reinforce the bulls, which I would also just caution are fairly numerous at this point with most of the data that we go through to look at where the sentiments are in the in the market.

7:40Yeah. To your point, names like SpaceX, I mean, three launches in 13 hours. I think that's also fueling some of the momentum rally we're seeing, at least in that name, and some of the rest of the space sector here this morning. Is high yield giving you pause for concern here, reason for concern? Yes and no. The broader index is certainly a cause for concern. And the triple Cs, which is the junkiest of the junk, if you look at those spreads versus double Bs, they're wide. About 25 percent of that spread is being driven by four issuers. So underneath the surface, it's not quite as bad. But I don't want to gloss that over because it still is deteriorating.

8:20And that's really, Morgan, what I would say is the primary driver for us to believe that this is a laterating type of setup. Because usually credit starts to deteriorate. And we've started to see that. It started with private credit. Now we're seeing it in triple Cs. And we're also seeing it move up the stack to double Bs, single B versus double B spreads, et cetera. So it's not panic time yet, but you are starting to see the impact of these higher real rates hit the marginal lenders or borrowers, I should say. And that's pretty typical of where we are in the cycle. I realize crude and energy products right now are trading lower today because of the news we're getting about strategic releases here.

9:03But we are off session lows. Brent's back above 100 bucks a barrel. I mean, you could argue that we're starting to see a decoupling between Treasury yields and oil. Are you watching that? Is that something that you're sussing out here in this market? And if so, what does it mean for crude prices versus everything else? Yeah, people have been too optimistic on where six month crude is going to be. And I think that's proven to be a mistake. And I suspect that's probably true still here. I mean, technically, crude still looks good. Actually, the refined products look better. So I think we still have some of that in the pipeline that we have to prepare ourselves for.

9:39Look, the good news is where we are with the short rates, we should expect some flattening of the curve. I don't think it's going to be dramatic, but that's obviously more hopeful than not. But that's a sign that you're starting to cool that inflation side. So I think you really have to watch for that before you can start calling the bear market in oil, because it's just not showing itself at this point. You guys have done some good work looking at labor. You did a nice chart looking at NFIB, labor quality, big issue, which obviously it's important to small business. And yet the job finding rate jolts isn't really connecting with that.

10:16What are what are employers thinking right now? And why wouldn't they be trying harder to find people? That's a good question. It's a much better question for Neil than me, Carl. So I'll stick to the charts if you don't mind. You can give him a call. I'm sure he'll be happy to discuss it with you. Yeah, yeah. Interesting divergence between the two. No doubt about it. Do you when it comes to seasonality, we've gotten some pretty constructive desk notes in the past 24 hours looking at the buyback window opening again. Once you move past the midterms, retail's cooled off, got some leverage out. Does that mean that the Q4 is a kind of a reset?

10:52Well, you know, look, it's hard to bet against Q4, but we would put that icing on the cake. I wouldn't make my primary call based on that. But it is hard to fight a Q4 rally. So I totally agree with that. I think what's interesting about October, if you break October down, the month of October gets saved by the last seven trading days. So it's easy to look at the month of October and say, hey, this is a great month and we want to be aggressive. The reality is you really don't want to be aggressive until about the 22nd, 23rd of the month. And then it starts to kick in. And that goes all the way back almost 100 years.

11:26That's not just a crash of 87 or a Lehman Brothers, you know, implosion event that goes up. It goes back further than that. Oh, interesting. We'll have to be patient then as we work our way through the month. Jeff, appreciate it as always. And we'll get we'll get Neil on eventually again. Talk about some jobs. Good to see you. Sounds good. Jeff DeGrasse. Thanks, guys. Real quick, going back to the labor piece of this. I mean, I just find myself having increasingly more conversations both on and off camera with CEOs about what they're seeing. But there is this bifurcation in labor market. Skilled workers, tradespeople, harder and harder to come by, especially if you're building something like a data center when it comes to finding enough electricians, she said.

12:00Yeah. Meantime, tech payrolls have fallen to the lowest level since December of 2020. So they are not participating in whatever job creation we're putting together. Yeah. It's very different labor markets. When we come back this morning, it'll get to Nike sinking today as we get a closer look at some of the weak spots in that quarter. Plus, is the AI industry overselling its capabilities? We're going to ask the CEO of European AI company, Doman, who was recently named to the Time 100 AI list. Hear how he is thinking about AI safety fears and the importance of global competition and what's already been a really big week debating all of this with policy catching up as well.

12:38We're back in a moment. 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. 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.

13:20You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading.

13:55Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. Welcome back to Squawk on the Street. Let's take a look at shares of Nike. Those are tumbling this morning after earnings last night. You can see down about six and a half percent right now, Now fresh 52-week low. Brandon Gomez joins us now with more. Hi, Brandon. Morgan, you hit the stock move. Nike top profit expectations but missed on revenue. More importantly, though, issued a full-year outlook that signals a longer turnaround. Sales expected to decline at a high single-digit rate this year.

14:30North America did improve, but China remains the challenge. Now, management on the call focused on real progress in the performance business. CEO Elliott Hill pointed to growth across running, football, training, and basketball, helping North American return to growth. Nike's seeing early momentum in women's basketball as well, including strong sell-through for its new Caitlin Clark shoe from yesterday. But that progress is being more than offset by much deeper resets in sportswear, Jordan, and China. Now, those are three of Nike's most important growth engines. So, Nike is now effectively telling investors the pain will last well beyond this year as it clears aged inventory, resets its China wholesale and digital marketplace.

15:09Well, analysts are not giving the quarter much credit. Morgan Stanley called the profit beat low quality, while Wells Fargo said it is hard to find good news as estimates come down again. Citi says Nike is increasingly becoming a cost-cutting story. And that's becoming the case here. Nike announcing a restructuring plan called PACE, including supply chain changes, a geographic reorg,$2.5 billion in expected savings, including cutting some jobs in 2027. The company's CFO is saying the largest savings aren't expected to be realized until 2029 and 2030. So for now, the street sees November's investor day as the next real test of Nike's credibility.

15:47Guys, again, you can see shares down today 6.5%. Talking to Kramer about it this morning, Brandon, it did sound like at the very least you got inventories down a little bit. And then the management tried to steer people away from worrying about the dividend, for example. Yeah, exactly. I mean, there were a lot of points on the call in terms of like how they're trying to reorganize this company. There was the China strategy and there was so much focus on what exactly is happening in China. But then you also have the U.S. market. I mean, there's a lot of opportunity in the women's category. They are, according to some data from Consumer Edge, under indexing in that demographic.

16:20And so perhaps the Caitlin Clark shoe will help push them further in that direction and speed up the recovery. Yeah, some of the price target cuts are aggressive. B of A going to 24, BMO at 25. We'll see what we get at that investor day in November, Brandon. Thank you. Brandon Gomez on Nike. When we come back, mortgage rates with the largest weekly gain in four years. We're going to talk to a Morgan Stanley housing strategist about the impact of the market. Plus, oil and diesel prices are falling as the G7 agrees to release diesel stockpiles. We're going to discuss those implications. We are back in a moment.

16:54With 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. 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.

17:34You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading.

18:08Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. Welcome back. Let's take a look at the 30-year mortgage rate, posting its biggest weekly gain in four years amid the bond market route, with implications for both homebuyers and sellers alike. Our next guest says affordability is at its most challenged levels of the year. He joins us now with his outlook. Let's bring in Jim Egan, Morgan Stanley, U.S. housing strategist, co-head of Securitized Products Strategy. Great to have you here. How meaningful is this, the spike we've seen in mortgage rates?

18:46Look, thank you very much for having me. As you said, incredible increase in mortgage rates. When we think about what this has done to the monthly payment on the median priced home, we're up$300 from local lows in mortgage rates back in February. That's a 15 percent increase. So headline affordability, the most challenge it's been since the middle of last year at this point. And as you mentioned, that has implications for both listing volumes, sales, home prices. It's going to ripple through the housing economy. So in light of that, I realize that housing is very local here, and different markets have different dynamics at play as well.

19:17But what does this mean for home prices, which are coming down? Yes. So home prices, the rate of growth holistically has slowed from where it's been over the past two to three years. But what we're really seeing here, when we say headline affordability has deteriorated, that doesn't mean that all homeowners' affordability is deteriorating, right? Over 90 percent of the mortgage market, whether we're talking balance or count, are fixed-rate mortgages. Most of those 30-year fixed-rate mortgages. So let's just say you bought a home in 2016, right? You probably refinanced in 2020 or 2021 at record low mortgage rates.

19:47So your monthly payment today is lower than it was when you first bought your house, despite what's happened to mortgage rates, despite what's happened to home prices, right? Now, if we just assume that your income's growing along the lines of median household income, that borrower's monthly payment is 7 % to 8 % of their monthly income. You're buying today, you're talking about 23 % to 25 % of your monthly income. So affordability is deteriorating, not for everybody. And if you're the homeowner who's benefiting from those lower rates, that's the lock-in effect that's so prevalent, right? They're not incentivized to list their homes.

20:17The rate at which existing inventory is growing has slowed. Aggregate listing volumes, 20 % below where they were in 2019. Past four months, we've actually seen the pace of home price growth nationally start to re-accelerate. We got as low as about 75 bps a year-over-year growth. The print we got earlier this week, we're at almost 2%, 1.9 % year-over-year growth now. So even with all those pockets of selling and price cuts and in Texas and Boulder and Denver and. I think the price cut thing is an important thing to mention there because the existing housing market, which is about 85 percent of sales.

20:47Case Shiller's what's reaccelerating. That's a repeat sales index. It uses existing transactions. The new housing market is in a very, very different place. Right. With affordability challenges, single unit housing starts are down roughly five percent year to date. They're down 20 percent from local highs back in roughly 2022. 2022, but new homes available for sale, listing volumes there, they're at the highest level since 2008, 2009. I don't want to compare anything in the housing market to 2008, 2009, right? You're talking about eight and a half, nine months of supply. That's weighing on new home prices.

21:20In fact, we see new home prices below existing home prices, looking at median prices really for the first time in decades right now. And that explains your note where you initiated or reinstated coverage on home builders? Yes. So Adam Kramer, equity research at Morgan Stanley launched on home builders yesterday morning as the housing strategist, incredibly excited to have home builder coverage for out of our equity research. But with a lot of equal weights and underweights and only one overweight and toll, I think, right? Toll is the overweight. And look, that reflects this challenging backdrop.

21:51You mentioned buy downs, right? There's a backlog of new homes available for sale. Builders are incentivizing those purchases. We do work on trying to identify permanent write-downs. Jay Bacow, my co-head of Securitized Products Research on the agency side, we look through mortgage databases. We can see where those purchase mortgages are coming in 100, 150, 200 basis points below prevailing mortgage rates at the time. If we assume from an affordability perspective that you're trying to solve for that monthly payment, and we back into what that payment would imply from the prevailing mortgage rates as opposed to where they bought it down, you're talking about like 10 to 15 percent difference in home prices.

22:25So those homes are clearing higher than they otherwise would from a price perspective. And despite those rate incentives and despite those higher clearing levels, we still see those new home prices softer than existed. So what does all this do to the inventory picture? I guess I feel like I've been asking this question for so many years now. What actually breaks the logjam and actually enables more people to buy more homes and at younger ages than what we currently see with a median, you know, age of 40 for a first-time homebuyer. I like the way that you refer to that as a logjam at this point in time, right?

22:55Like, we've got existing inventories. It's going to be really difficult. Over half of borrowers still have mortgage rates below 4.5%, right? Yeah. I'm trying to think, what's the percent outstanding below 4? It's roughly half of the outstanding mortgage market. We're at 7.5 % today. We're very far away from those levels. And it's not as if we're evenly distributed, right? Mortgage rates went from 3 % to 7.5 % so quickly that 4 % to 5.5 % on mortgage rates is effectively an air pocket. There isn't a lot there. So we think you need affordability to improve, to incentivize more demand. We don't think it's going to come from lower home prices, right?

23:28Homeownership rate, 65 % below where we've been in prior cycles, especially in the early 2000s. When we look at lending standards, lending standards are still pretty conservative. We're not going to see, in our view, a significant increase in delinquencies or defaults in the motivated selling needed to really bring home prices down. So we don't think it's going to come from home prices. So then it kind of has to be a mortgage rate driven thing. But as we mentioned to start the segment, they're going in the wrong direction. Two things. Yesterday, the Times writes up arms. And I wonder what that wrinkle means.

23:57And then to those who are locked out, do they, I assume they rent if they have to move, right? And what that does to shelter CPI on the rental from a rental standpoint. So on the arm side of the equation, look, that is a way when we talk about over 90 % of mortgages being fixed rate. That's outstanding. I believe the New York Times notes that arm originations were eclipsing 10 % of total mortgage originations right now. We wrote a report, myself and Jay Bacow, recently about giving the housing market an arm, right, where that could help, especially if the curve steepens. Adjustable rate mortgages could help with affordability.

24:30It's important from our perspective that not all arms are created equal when we think about default risk, right? And there's a tendency to compare arm origination today to things we've seen in prior cycles. There is a real difference between an arm that resets after 24 or 36 months short reset arms versus 5-1s or 7-1s or 10-1s. When we control for borrower characteristics, those longer reset arms perform much better and largely in line with fixed-rate mortgages as opposed to the short reset arms. So we do think that arms could help with affordability. And there is a way to originate more arms and still have lending standards be responsible.

25:06responsible. And then on the rental piece, really quick. So it's incredibly difficult to move from rent to ownership right now. The affordability differences, the lack of inventory. One of the things we look at there is the difference between new lease growth and renewal rent growth. Renewal rent growth, people who continue to resign 12 and 24 month leases, that's been very elevated relative to new lease growth for exactly the dynamics that you're talking about. We still have an elevated amount of supply in the five plus unit housing start piece. We're past peak, but that supply has has helped in terms of the rental growth rate not accelerating the way that home prices are right now.

25:38All right. Jim Hegan, it's great to have you here on set. Appreciate it. Thank you so much for having me. Let's get a news update this morning with Dom Chu. Hey, Dom. Good morning, Carl. Good morning, Morgan. So the judge who oversaw the Lindsey Clancy murder trial is rejecting a request by her lawyers to declare her not guilty. The judge ruled prosecutors presented sufficient evidence for a jury to find her responsible for the murder of her three young children. The judge declared a mistrial after the jury did deadlock. Both sides are due back in court early next month to discuss dates for a retrial.

26:10The state of New Mexico is asking a judge to order Meta platforms to pay between 35 and 40 billion dollars in penalties over a data privacy case. Last month, the jury found that the company had misled consumers about the privacy of their data on Facebook in a case that came out of the Cambridge Analytica scandal. Meta has asked the judge to cap the penalties at about$3.5 billion. A ruling is expected later on this month. And NASA and SpaceX just set a brand new record for travel time. Four astronauts arrived at the International Space Station yesterday to replace the current crew. They made the trip in just eight hours.

26:49That is the fastest trip ever for a U.S. mission. NASA says the space station's location at the time of launch made the trip faster. So, Morgan, it's not hyperspace or warp speed, but maybe a step in the right direction. I'll send things back over to you guys. Yeah, it was the first of a record-breaking three launches over the course of 13 hours. I mean, even just a couple of years ago, if you had said that we'd see a launch cadence like this for any company, would have been completely unheard of, made up, sci-fi. Don't you? Thank you. Coming up, oil and diesel prices are pulling back as the G7 agrees to release diesel stockpiles.

27:27We're going to discuss the impact with heating oil contracts down 4 % right now. Plus, former Minneapolis Fed President Gary Stern will join us on the jobs number today, what it means for the Fed. Trying to hang on to this bounce here. Dow's up 140. Welcome back. Oil and diesel prices are down today after the G7 agreed to release some stockpiles. Our Pippa Stevens is here to talk about whether or not, after all of these reserve releases, Pippa, this can still move the needle. Well, Carl, we're seeing diesel futures extending those losses after the G7 said it will release 100 million barrels beginning immediately and spanning four months, which includes a, quote, front-loaded substantial diesel release within the first 20 days.

28:06The statement said they will convene in the coming days to discuss the possibility of additional diesel releases as necessary. Now, this comes after the U.S. increased pressure on the bloc to take action, with Secretary Besant, saying last night that European allies should make additional supplies immediately available and to match their commitments with action. Now, the release did not specify the mix of oil versus diesel, which is important because, as Sparta Commodities notes, only the diesel share moves diesel prices. Now, if the release follows previous reports of half diesel and half oil, that's about 400 ,000 barrels per day of diesel, which is between a quarter and a third of U.S.

28:43exports, note Sparta. So ultimately, they said it buys time and probably averts a U.S. diesel ban, but it doesn't add a barrel of refining capacity. Meantime, Lippow Oil Associates' Andy Lippow said it could cut U.S. diesel prices by about 25 cents per gallon, but it won't incentivize refiners to produce more, and refining margins will likely come under pressure. Now, European diesel is deeper in the red this morning than U.S. prices, as traders appear to be unwinding that export ban premium. Guys? I'm curious how closely you're watching rig count here in the U.S. We're going to get that report from Baker Hughes later this afternoon, PIPA.

29:19And one of the things we are seeing is that even with prices coming down a bit here today at these elevated levels, we are seeing the acceleration in the growth of rig counts for oil here in the U.S. That's right. So U.S. production is about to head 14 million barrels per day. That would be a record. And we have seen an uptick in the recount. And what's interesting is that it had fallen to a three-year low in the week prior to the war breaking out. But what I think is really notable here is that the vast majority of that increased drilling is being led by the private players as opposed to the publicly traded guys.

29:53The public E &Ps have really heard loud and clear from investors that they don't want to see an increase in production, especially in response to fluctuations in oil prices. We've heard from the majors that they're going to be drilling for replacement capacity, but not really increasing output by a large share. And so a lot of that is the private guys who are much more price sensitive. And they sometimes been called, you know, cash cash flow drillers because when things are looking good, they do increase their output. But I think that is an important thing to watch because we've also seen increased output in places like Brazil, who's had a huge surge in their production this year.

30:26And so that is certainly offsetting some of the weakness that, sorry, offsetting some of the losses that we continue to see from the Middle East. But what's notable is that we're not seeing parallels in the refining side of things. We do have Dengote, of course, and then some increased capacity in Kenya as well. But those are much longer term investments and certainly not going to be made on a whim given the current political environment. So that's really where the shortage continues to be here. Yeah. Key point on the independent players. Same thing's happening in Venezuela, too. So to your point, now we need some refining capacity.

30:58That's going to take a little longer. Pippa Stevens, great to have you on. Thank you. Coming up, former Minneapolis Fed President Gary Stern will join us. We're going to get his reaction to this morning's jobs report and what it means for the Fed. We are back in a moment. Welcome back. Following the weaker than expected September jobs report this morning, CalG traders are betting the Federal Reserve will maintain interest rates at the current levels at this month's meeting. I can't believe it's already October. But our next guest disagrees, forecasting a hike in October. Joining us here at Post 9, former Minneapolis Fed President Gary Stern.

31:30Gary, it's great to have you here. You think the Fed's going to hike potentially here? Yes, I do. And there are several reasons underpinning that conclusion on my part. Starting with Chairman Morris, who's been very clear about his and the institution's commitment to achieving the 2 % inflation target. And he's said, again, clearly, there's work to be done. And I think the increase at the last meeting isn't doing all that much work. So there's more to come. And so those are a couple of things underpinning that. Also, today's labor market report, to me, didn't seem to be all that decisive or significant.

32:16And we should bear in mind that a couple of meetings ago, three members of the Open Market Committee of the Fed dissented because they wanted tighter policy. I doubt they were satisfied just by one quarter percentage point increase. So I think there is work to be done. I think Chair Walsh and his colleagues understand that. And I think we'll see that later this month. So then what do you make of what we saw with a weaker than expected wage number in the report? Because if that's not keeping pace with inflation, does that then in turn put more onus on tackling inflation? Well, it clearly makes it harder for households to keep up with inflation.

32:58And, of course, that's been a challenge for some time now and exacerbates that challenge. As far as the Fed is concerned, I guess, if anything, it makes life a little easier for the Fed. if household spending is under a little bit more pressure. But again, the increase in compensation wasn't so soft that it's likely to have a major impact in my view. We should also bear in mind that these monthly data, it's not that they can be revised, although these certainly can be, but there's a lot of noise in them, and that's why you don't want to put too much emphasis, whether you're in the Fed or outside the Fed, you don't want to put too much emphasis on any one reading, because it'll lead you off course as frequently as it'll keep you on course.

33:51You're right about that. You can spin all kinds of tales. One tale is saving rate has come down to 4-1, and participation's back a little bit, highest since May. You think people are getting a little bit nervous? You know, I don't know. It's about being nervous. I think we have had for some time a kind of a mixed blessing economy, by which I mean that, you know, employment has been steady to increasing, but not dramatically so. Consumer spending, I'd say the same thing in the aggregate, steady to increasing, but not a bullion. And clearly, some of it is a consequence of the run-up in equity prices that's been underway for quite some time now.

34:38I'm not talking about what's happened in the last month or two, but it's been underway for quite some time. That has a very positive wealth effect for, you know, people who are in the market. Now, that's not everybody, but it's not an inconsequential effect either. Even if you don't go out and spend your gains, it puts you in a better position when you look at your retirement situation. So, you know, and the other thing I would add, and I've made this point before, the U.S. economy is very flexible, very resilient, very sophisticated. Its ability to weather shocks is really remarkable. And it keeps advancing irrespective of those kinds of things.

35:26So in light of that, what do you think of the recent run-up we have seen in rates and what the bond market is signaling about the state of the economy? Well, I think the bond market is reacting to a variety of things. Probably not so much the state of the economy, except perhaps associated with the financing that's required by the AI build-out, etc. etc. But I think the bond market's also reacting to the expectation of higher short-term policy rates, probably to the ongoing persistence of inflation, also to the fiscal policy, the budget situation here and abroad. Carry trade? Which is really troubling, and the diminution of the carry trade, a good point.

36:11You add all those things up, it's hard to see why bond rates wouldn't be as great. You see how you would be remarkable if they weren't. Let me put it that way. All right, Gary Stern, it's great to have you here. Post nine. Good to see you, Gary. Good to see you. When we come back, the CEO of European AI company, Doman, will join us. Recently added to the Time 100 AI list, we'll discuss the company's partnership with NVIDIA, how he's looking at AI safety right now, when we're back in a minute. Welcome back to Squawk on the Street. Great. Anthropic could go public as soon as the middle of November.

36:45That's according to a new report. Ashley Kapu joins us to discuss and share the details. Ashley. Hi, good morning. Yes, from the experts and IPO advisors that I'm speaking to, Anthropic still has a lot of shots on goal if they want to get out this year. Now, of course, the company is weighing a number of different factors. So that includes calendar items like the midterms and the holidays. And, of course, the explosive debates over AI safety, as well as the broader macroeconomic environment. But the company still really wants to be its chief rival in OpenAI out to the punch and really set the tone for what a public company in an AI pure play would look like.

37:26So I think the key question here is what are some of the risks for investors? Because Anthropic is certainly, from everything we've been gathering up until this point, laying out risks, including risks to humanity. But given the week that we've just had in terms of AI and AI policy, what does that look like now? Yes. So the important thing for investors to keep in mind here is that Anthropic is balancing mounting safety concerns with intense commercial pressures. So we expect the S1 risk factor section of the prospectus to be pretty extensive. As we've previously reported, you know, Anthropic is pretty much expected to list that AI pushback and public sentiment around the technology is a risk.

38:05And Reuters has reported that other factors like customer concentration, its tumultuous relationship with the Trump administration, and as well as you mentioned, the technology's potential to cause potentially catastrophic harm are likely to appear as well. Speaking of the Trump administration, Ashley, this time interview with the president, he gets asked about Amodei and actually says, smart guy, maybe smarter than I gave him credit for. I wonder how you think that relationship with the administration has been evolving lately. Yes, the two leaders had their first one-on-one meeting on Sunday, which was a big deal.

38:36The important thing to keep in mind, though, is that Trump was bashing Amodei on social media just days previously. So the relationship with Anthropic and the Trump administration is still very up and down. It's still declared a supply chain risk by the Department of Defense. So investors should remember that there's still a lot of tension baked into this relationship, even though it might look better on the surface for the moment. Ashley Kapu, interesting times as we move maybe possibly closer to that magic IPO date. Appreciate it very much. Let's stick with AI today. We got this report from Egan Jones.

39:09It's titled It's Over. Got some buzz this week, saying in part that AI, in their words, has advanced so far that the complete disruption of the economy is all but certain, and firms that sell expertise by the hour, senior talent included, are first in line. You can see the graphic there depicting KPMG as the next victim of Claude. Let's bring in an AI veteran, one of Time 100's most influential people in AI, and Doman founder and CEO Uli Ansharka. Doman specializes in developing sovereign AI models for enterprises and is one of Europe's most valuable AI companies. Thanks so much for joining us, Julian.

39:43Good to see you. Good morning. Thank you for having me. Talk about, I guess, getting added to this Time 100 list. What about the company do you think got you there? So we're watching enterprises confuse access with ownership. Branding a model is not using AI. It's subscribing to an external brain. So that brain learns from your data, your workflows, and eventually competes with you. So we are providing a solution to that. We're training frontier models and AI agents that are honest and that customers can control, own, and turn themselves into frontier AI companies in their space. Is there a tradeoff between being efficient and filling projects and being manageable as a model, being safe?

40:27Absolutely, yes. So I think that when it comes to safety, you know, Frontier Labs have built an education system for machines. Training AI models is going from a K-12 process to university while absorbing a lot of data. So if an AI model delivers criminal behavior or deception, that's not a bug. That's actually a curriculum. So it depends a lot from who is building these models more than what the models are actually able to do. So in light of that, Jensen Wong from NVIDIA has said this multiple times this week, that there's no reason that the two shouldn't coexist and evolve together. Innovation and continued evolution, if you will, of frontier models and superintelligence, AI capabilities and safety alongside it, too, is used the example of cars, for example.

41:14How do you see it? I fully agree with that. I think the biggest risk we have in the Western economy is AI concentration. We need thousands of specialized sovereign models, each owned by the enterprise nation or sectors that depend on it. So this means health care models owned by hospitals, financial models owned by banks, manufacturing models owned by factories. is, that's the resilience and the competition that we need for the West to win. So we need to centralize this. Because in a scenario of competitiveness, it's better to have thousands of companies with superpowers instead of having four or five of them that design the way for AI.

41:53Uyen, you're headquartered in Milan, Italy. What does this build-out look like in Europe in real time right now? So much of the narrative here in the U.S. is that Europe is behind. I don't agree with that statement. I think Europe is playing a different game, which we call a third mover advantage. So we're looking at this in very concrete terms. So we believe the West does not have an AI strategy. It has an AI subscription. And this subscription gets canceled. We need a strategy that can get executed. And this happened, you know, in the 90s with let China make it. And then, you know, we lost manufacturing sovereignty.

42:27Then Europe did it with Russia, let Russia power it, and then we lost energy sovereignty. So now we don't want to let, you know, one or two or four labs to actually control cognitive sovereignty, but actually build an AI around trust, first to serve the European market in a completely different way, and then, of course, to open it to the world. But we're showing this with, you know, training frontier models from scratch. We recently won a competition at the European Commission. We're training a frontier model with three different parameters in 24 languages. So I think Europe has been closing the gap a lot over the past two years, and people are not seeing that.

43:02Is there as much societal pushback or worry about existential risks through AI as there is here, maybe one would argue, in the States? Yes, it is. And I think this is mostly because of the sci-fi reports. You mentioned one of them. I believe jobs are not being disrupted because software is replacing them, but because it doesn't work. So one thing we're trying to do to demystify and eliminate the noise is, you know, making people understand that software is the operating system of the world and it doesn't work. And this is where AI can do a lot. I mean, think of how many flights, you know, people have missed this week or how many hours have gone into manual work and so on and so forth.

43:40Market Insights suggests that Europe and the U.S. are losing five trillion productivity every year because software is broken. So senior talent is not being detracted, it's being digitized. The question is, who owns the digital twin and how can we democratize it so that everyone can participate instead of, you know, fear mongering and centralization? A16Z put out a pretty fascinating report with quite a few charts in it this week. And one of them was showing the fact that token usage is going absolutely parabolic right now. But it's not humans. It's actually the bots, the agents that we're starting to see roll out on the market.

44:15Your thoughts? I think that this token maxing is absurd. So, you know, knowledge has always been a superpower, but it's always about the right knowledge, not about the quantity of it. So I think that we will see agents, of course, burn more tokens to deliver more meaningful work and more intelligent workloads. But this is just, I think, a temporary inefficiency as we're building this system. We're understanding them, how to effectively apply them in the real world. Let's measure this in real world terms. So if you call 10 CEOs today, they are not happy about AI implementation. And my message to them, you know, is, and heads of state, it's own or be owned, because this noise is going to kill businesses if they do not actually see this in practical terms of value.

45:06What does this mean to them? What does it mean to the AI industry and economics? That's a good point. We've had some executives here in the States just this week argue that when citizens hear AI, they generally hear it through an enterprise framework. It's about something that's going to happen at a company that's going to take away their job or somehow negatively impact them. We need more tools that sort of show that it's empowering. And maybe, who knows, maybe this new product out of Meta is a step in that direction. I wonder if you agree with that. I don't agree with that. I think that the software 3.0 enabled by AI changes the concept of data ownership.

45:48So when you put data into a model, it's a bit like putting sugar into a cake. When you want to bake it, you cannot separate it. So there is no such scenario in the world where we can have models outsourced for whatever, I would say, task, whether that is personal or professional. We need everyone to own a copy of the model because the model is the data. And if we give that data to a third party, then we're just exporting ourselves to them. William Sharca, appreciate it. Obviously, early days in this really global discussion about AI and what it means for all of us and companies too. Thanks for the time.

46:26Thank you. Meantime, this market here holding 7 ,700 on the wake of that weaker jobs number. And we'll see what yields do here. Ten-year this morning, 526. Yeah, I mean, we got a NASDAQ that hit a new record high earlier in trading today. It's actually turned positive on the week as well. But we do seem to be fading the gains a little bit. Dow's now up only about 163 points. And, of course, we keep our eye on the energy markets and what we're seeing with crude and diesel prices right now, too. VIX below 16 as well. Thanks, MB. Good to see you. Let's get to Frank Holland in for the judge. All opinions expressed by Squawk on the Street participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet, or another medium.

47:09You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Such opinions are based upon information Squawk on the Street participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Squawk on the Street disclaimer, please visit cnbc.com forward slash Squawk on the Street disclaimer.

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