11AM Hour: TD Bank's Jeff Solomon, Novartis Shares Plunge & Oil Prices on the Rise 9/8/26

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1:06Good Tuesday morning again. Welcome to Squawk on the Street. I'm Sarah Eisen with Carl Quintanilla, live from Post 9 of the New York Stock Exchange. Today, TD Bank's Jeff Solomon back with us while he says U.S. economic resilience driven by AI investment is the biggest driver of the market right now. Oil prices on the rise after Iran's Houthi allies attacked multiple Saudi energy facilities. V of A's head of commodities research, Francisco Blasch, will join us. Weiss still says the market could see a swift reversal. Plus, sounding the alarm, why OpenAI's chief scientist is warning that no one is prepared for the consequences of AI.

1:40We'll discuss with Citigroup's head of artificial intelligence investment research, Heath Terry. Market continues to bounce around in this, say, 100-point range here on the S &P, just a shade below 7 ,700. Yields backing off a little bit from the morning highs. Sector-wise, you've got some strength in energy, obviously, utilities, and then some weakness today in financials down a full percent. Let's bring some breaking news to you out of the New York Fed. Steve Leisman's got it. Morning, Steve. Good morning, Carl. The New York Fed surveyed consumer expectations for the month of September, saying inflation expectations were largely unchanged but remaining at that elevated level.

2:17Take a look at the numbers. The one-year-ahead expectations, 3.6 percent unchanged. Elevated since the war with Iran, though. Three-year, 3.2 percent. That was down a tick. And the five-year, 3 percent unchanged. That's been unchanged since October, essentially. New York Fed saying inflation expectations rose for gas, they rose for food, medical care, and rent. Now, on the unemployment expectations front, expectations for unemployment were up 1.6 percentage points. That's the highest reading since April 2020, at odds with the strong Friday jobs report we got. The increase was broad based across age, education and income.

2:53The probability of losing a job, however, declined 0.4 percentage points to 13.8. That's the lowest reading since February 2026. Still elevated, though, and has been since 2025 or the beginning of 2025. The probability of finding a job declined 0.8 percentage points to 45.4 percent and a heads up. This time tomorrow, we should have the amount of bonds that Treasury will buy back through the enhanced program announced last month. Treasury saying it would buy at least$4 billion of off-the-run securities, up from$2 billion. But Treasury Secretary Scott Besson saying on our air it could be larger than the minimum.

3:28And CNBC reporting that the government could use the Treasury general account or its checking account to make these purchases. Morgan Stanley saying in a report with a modernization of Treasury's cash balance policy, that is using the TGA, We think it ultimately could provide scope for$80 to$200 billion of cash to fund buybacks over time. Morgan sees as much as$10 billion as the upper end of the operation this week. Others have penciled in$5 to$6 billion. Here's a look at the 10-year real quick. Yields have marched higher since the announcement. You can see there the question is, how big a surprise does Besson have in store for the markets?

4:07Martin Tobias from Morgan tells me he thinks the buyback could be around$8 billion, as large as that, but said the real effect on long-end yields can only happen if Treasury decides to issue fewer long-term securities, paying for them by issuing bills. Guys? Yeah, I guess when the word surprise, Steve, surprise, I guess, if it's bigger than expected or smaller than expected with some of those numbers that you threw out there. But in the scope of things, I think the bigger question is, well, will it ultimately work? Will it put a lid on yields in the in the near term? Yeah, on the one hand, Sarah, you can see that yields are actually higher by, I don't know, 15 or 13 basis points since the announcement.

4:51But you can't know what the counterfactual would be. Would they indeed be higher? And here's a little something to watch out for tomorrow. The Treasury could announce a big number of, say,$8 billion, but it might only take up a smaller amount of that depending upon the offers. Look, I mean, to the Treasury's defense, they're trying to keep the cost of funding the government down to a minimum. On the other side, there's criticism that it's intervening in the market, and we'll see who wins this race beginning this week. Yeah, I mean, that is a good point. It is something that Secretary Besson said to us last week, which is you don't know where it would have been if we hadn't announced that intervention.

5:26intervention, you know, on the point that yields are higher. Steve, we'll see what happens. Thank you, Steve Leisman. For more on the overall market, let's bring in TD Bank U.S. Vice Chair Jeffrey Solomon here with us at Post 9. Jeff, welcome back. It's good to have you. Good to be here. So we're, you know, keeping an eye on yields, of course, keeping an eye on oil prices, which are elevated today. But you say resilience is the name of the game. Yeah. I mean, it's been really impressive. The U.S. economy has been incredibly impressive in terms of its, the ability to continue to power through this, like unemployment is still not an issue.

5:57And I think at the end of the day, consumer confidence is actually pretty good at the middle and the high end. It's still challenging if you're a consumer at the low end of the curve. I just think the higher prices, like spend time in a supermarket, buying food, buying gas, like those are big issues for the vast majority of Americans. But, you know, the economy overall and the average has been pretty strong in the face of some pretty unsettling, you know, stuff around oil and the war and all that stuff. So what could wreck it as far as market performance? I certainly think, you know, if we find ourselves in a situation where this intervention doesn't work and you get a spike in rates despite that, that would be challenging.

6:32Like, I think the thing I struggle with is, you know, I've said this multiple times when we've talked, the supremacy of the U.S. dollar is sort of the thing that underpins everything we have in the U.S. economy. And I struggle sometimes to figure out why the administration would do anything that would undermine the dollar supremacy. And sometimes they do. And it makes me think they're doing something to undermine the dollar supremacy. I think I think policy volatility is not great for dollar supremacy. If you just look at who owns most of our treasuries outside of the United States, it's a lot of our largest trading partners.

7:03And when you're at odds with a lot of our trading partners, like, honestly, I think that that's challenges people's like, well, should I invest in treasuries now? I think we benefit from the moment. And we're going to go instead policy certainty in China. Exactly. Like we benefit from the fact that there is no other alternative. But at the end of the day, like, how long does that last? And so I feel like the administration is sort of saying, well, you have no other choice but to own our treasuries. And so we're going to press our advantage. And at the end of the day, you know, if it ends up, it could end up, you know, with higher rates as a result of that.

7:33We may be in that position if the intervention isn't as successful as the secretary of the Treasury would like it to be. Last week, the headlines were the Norwegian sovereign fund cutting government exposure, including us. The Dutch moving their physical gold to London. and now Japan dumping treasuries in more than the month that they have in years. I mean, these are all like one of these things that happens with rates is like it doesn't all happen at one time. We're now looking for it. Right. So we look at every little increment as another log on the fire of whether or not we're going to be in higher rates.

8:06Let's just take a deep breath for a second, though. If you look at the 1990s as an analog, and I know I sometimes chastise economists for looking at analogs, But there is an analog here for the AI boom and the Internet boom. Right. Those are two giant productivity moves with massive amounts of investment. And so I look at the 90s and I'm like, listen, where were rates in the 90s? Rates were higher in the 90s, especially after 1994, where we had the giant rate, which looked 94 looks eerily like 22, doesn't it? And so you had this half a decade in which you had higher rate environment and the economy expanded.

8:41And this feels a little bit like that to me. The AI investment, and we've moved beyond now hyperscalers and AI infrastructure into other areas. The SaaS apocalypse that was supposed to happen hasn't really happened. People are quickly adopting AI in their own business models, both on the software side as well as in verticalized software. And so, yeah, I actually think there's going to be a tremendous amount of productivity boom on the horizon, which probably means that rates will stay higher. The 90s analog is popular, but people are quick to point out it was an era of globalization, not de-globalization.

9:14And there was a huge peace dividend coming off at the end of the Cold War. We're going the opposite way. We are, but we're still in a place where we're coming off the back of zero interest rates. It just feels different, right? What feels different is that two tens today feels higher than it has been because we've had an entire generation where it's been a lot lower for a lot longer. All I'm saying is in an economic expansion like the one we're seeing, similar to the one we saw in the 90s, rates were higher. Why? Because they could be. Again, I'm not sitting here advocating for it. I'm just saying we can tolerate higher rates for longer.

9:49That's something that we've been talking about for a long time. Our debt wasn't$40 trillion then, and our deficits weren't$2 trillion then. I hear you, but the global economy was a lot smaller then, too. So we've had several decades of giant global trade. And yes, there's a reversal. And yes, we're going in a different direction. But we're going in a different direction from a much higher place in terms of if you look at the size and scope. All I'm saying is these things worry me long term, like dollar supremacy worries me long term. But in the short term, not so much. Like, I think we can continue to power higher here.

10:21And it's, you know, but like I said last time I was here, I think every time I feel like everything's OK, something happens. And so I'm on the I'm on the lookout for it. I'm just not sure I'm smart enough to know what that is. I wanted to ask you about is you now work for Canadian Bank. I do. Calum was bought by TD. So what is the level of angst in Canada right now about this new trade friction war situation? People are upset. People are upset about it. What about banks? Are you guys worried about the economy there? No. I think if you just take a look at the impact. I was out with a CEO friend of mine who was in the steel business for a long time.

10:56He said something to me that was really, I think, prescient. Like tariffs always sound worse than they actually are. Like this is a guy who's been living with tariffs like his whole career, right? In the steel industry. He's like, always sound worse than they are. Like, you know, you think about like 50 percent, but it's 50 percent of like 20 billion dollars worth of goods. OK, guys, that's nothing compared to the size of the U.S. economy. And it's really nothing. Listen, our estimates at TD are like, you know, we could see a rise in inflation in Canada, you know, to the tune of maybe a half a percent.

11:29from U.S. tariffs. And that's not enough to derail that. Now, there are other things happening in Canada that I think are irrelevant, but you have something north of 70 % to 75 % support for Mark Carney's, for the prime minister's position. Okay, like I don't see him changing his tune anytime soon. You rarely get 75 % support on any issue for any politician. And so I think, you know, I think this goes on for a while. Unless you get an inflation spike and an economic downturn. You do, but we'd have to see people are maybe maybe in Canada. People are hunkering down for that. Like I and I think we have to we have to be prepared for that.

12:06Listen, I don't see much changing before the midterms. Right. The states that are most impacted by trade are ones that are on the northern border. Those are ones that are in play. I think that's another thing that's happened. I would say Michigan is probably more in play now. Maine is probably more in play now. Now, like these were things that I would I would have said to you in July would have been solidly red winds. I'm not so sure anymore. And when you just look at Canada, still our largest trading partner outside of China. And there will be people who feel the impact of this, but probably not through the supply chain until after the midterms.

12:45And I said this last time, I think after the midterms, a lot of stuff's going to change. Like health care is going to change. Right. The one big, beautiful bill cuts in Medicare and Medicaid kick in. There's a lot of stuff on the horizon for for American consumers to deal with after the midterms, but not before the midterms. And for now, we're in this good period. It seems like you're not nothing's shaking you. Not right now. But again, I'm always on the lookout for it because you never know where they say, like, you're supposed to buy Rosh Hashanah and sell Yom Kippur. Yeah, that's exactly right.

13:19And that's coming up here for those of you that aren't Jewish. It is coming up. So anyway. All right. Be warned on that. Yeah. Anyway. Jeff, thank you. Good to see you. Happy New Year. It's good to have you. Happy New Year. That is Jeff Solomon from TD. As we're talking, we're getting some Boeing orders and deliveries. Phil Oboza, Post 9. Welcome, Phil. Good to be here. Take a look at shares of Boeing, the company reporting its numbers for the month of August when it comes to orders and deliveries. For the delivery side, that's where we're going to start. 51 planes. Remember, they are increasing production.

13:46And those delivery numbers have been hovering around that 50 mark here for a couple of months now. Year-to-date deliveries, 418 planes. On the order side, 15 planes ordered in the month of August. Net orders for the full year, 453 planes. Brings the backlog now to 6 ,156 planes. I want to quickly transition into what's happening in Miami and the latest in the investigation into the Amazon Prime cargo plane that slid off the runway. five people who were in vehicles, not on the plane, but in vehicles that were hit by the plane. They died in the accident. The NTSB has recovered the cockpit voice recorder, the data recorder.

14:28Those are up in Washington. They'll be analyzed. We expect to hear from the NTSB at some point today. I'm not sure we'll get a whole lot of answers as you take a look at shares of Amazon. We may not get answers right away. I suspect what they will probably do is give a tick-tock of those final moments right before the end of the crash there as it slid off the runway. And then it becomes a question of determining the cause. What happened here? Was it a piece of equipment that malfunctioned? What other factors are at play here? So I suspect that's the beginning of this, and we'll hear from the NTSB at some point today.

15:05What's your take on this crushed materials runway construction that's sort of at the center of this debate? Having an area at the end of a runway that does slow down a plane if it overruns? I've heard about this debate and I've talked to some people about this debate and on paper makes total sense. Keep in mind there are a number of airports where you are space constricted in terms of whether or not you could do it. Could you do that out of LaGuardia? I don't think so. And there are other airports where that's the case. So if this is something that we continue to see happening, and again, we don't know why this plane slid off the end.

15:40It may have been a piece of equipment within the plane that malfunctioned. We don't know. And so that debate is going to be out there for a while. All right. Thank you very much, Phil. Let us know when you learn something. Sad news. Still ahead, Citigroup's global head of tech and communications joins us. The key trends he's watching right now and where he sees opportunity in the tech sector. Fresh warning from OpenAI's chief scientist over the weekend as the company rolls out that new AI model. We'll get you details on what he calls rising risks and how people are not prepared in a minute.

16:56We'll be right back.

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17:58Welcome back. OpenAI's chief scientist just issuing a new warning that says the company just rolled out its GPT-6 Astra model. Kate Rooney with the details. Kate. Hey, Sarah, good morning. So OpenAI's chief scientist arguing for a slowdown in AI research. It comes just as this company is being widely praised for its newest AI model in an essay over the weekend titled An Alien Mind. Jacob Pachocki says and argues that these systems will see jumps in capability with consequences that, quote, no one is prepared for. One of his biggest concerns he talks about, he says that we don't fully understand how these models actually work.

18:37He talks about AI is something that is grown more than something that's designed and then warns that these systems, as they become more capable, their behavior can be a lot harder to interpret. He does expect that the pace here could also ramp up with what's called recursive self-improvement. That's essentially where AI systems play a much bigger role in improving themselves. And then he brings up this risk of alignment. He says, essentially, that is making sure that AI continues to act according to human values, even in new situations. He also says that no AI lab right now has signed as solved rather this alignment issue or monitor.

19:13And he does argue that voluntary slowdowns are going to be important until the industry agrees on safety standards. All of this, though, guys, is striking coming from inside one of the companies at the front of this race right now. And for now, OpenAI and the rest of the industry do not appear to be slowing down, despite talking about things like new safeguards that they've added into this latest AI model. Wall Street, though, applauding the latest rollout of Astra, this newest model from OpenAI. Mellius Research highlighting some of the pace here. She says 20 frontier-level models have been released in just the past few months.

19:45The firm also says the launch of Astra shows that OpenAI is, quote, so back and that its semis and hardware cohort can continue to rally. Finally, guys, NVIDIA CEO Jensen Wong chiming in on this newest model saying AGI, which is Artificial General Intelligence, has arrived. He congratulates OpenAI on that. It's an amazing blog. When he says, I believe, broader interventions are required, I wonder how significant you think that is coming from OpenAI. Significant, Carl, but so hard to nail down. And I think a lot of folks in the industry, we hear this from Anthropic as well, saying calling for the slowdowns, calling for government interventions and international coordination.

20:27But you don't really see real world examples of how that can be done successfully. And the companies, while they're saying, yeah, we've got to slow down and make sure this is this is safe. They are also under the pressure of a lot of these companies, OpenAI and Anthropic in particular, are going public. They need to keep growing revenue. They need to keep expanding access and racing on the enterprise side. So they're really trying to balance it here. And these seem to be broad stroke examples and and suggestions without really being able to say, here's here's exactly what to do. You know, U.S.

20:59government and go out and do it. It's sort of a a call for action without real examples of it. What are we talking about here? Like what what is the actual danger where people would wake up and and be terrified about this? The worst case scenario, Sarah, when you talk to people, it's things like, you know, bioweapons, things on the level of national security that could be catastrophic, really. I mean, the worst case examples, and some call this sort of the doomer side of things, but they are things that people in the industry really do talk about. So cyber weapons, you know, wide scale hacks, attacks on the grid, things that are extremely worrisome.

21:36and also the ability for, when we talk about alignment, the idea that AI could go out and do this or somehow do things that are just not aligned with what humanity wants. So it is sort of the Terminator view of all of this. As we talk about how capable and how great this technology could be, this is sort of the underbelly, the dark side of what is actually possible when we talk about this. Yeah, he does say it's hard to teach a machine to love or know what the right thing to do is. Everybody should take a look at it, Kate. Thank you. A good setup. OK, Rooney. Let's stick with that. Citi's hosting its annual TMT conference here in Manhattan, bringing together some of the biggest names in chips, software and AI.

22:16Our next guest joins us live from the event and says he's watching two key themes, in particular, frontier models and not surprisingly, cybersecurity. Joining us this morning, Citi Research Global Head of Tech and Communications, Heath Terry, is with us. Heath, congratulations on your conference. Good to have you. Great. Thanks, Carl. Happy to be here. I hope you won't mind just sort of bouncing off this blog, which we just discussed, hugging face. Obviously, Bill Gates saying there's not much of a plan here. Can you blame states for arguing for a one-year moratorium on some data centers? Look, I mean, I think the two are sort of separate from each other.

22:52I think the idea that we need some sort of moratorium on data centers ties into the build-out, the capacity, and sort of all the things that impact local communities. This is really more on the application side, the models themselves. Those models are going to advance whether those data centers get built or not. I think the bigger question is how much of this advancement can we actually control? You actually saw attempts by the U.S. government to slow things down here. going back into June when Anthropic was required to hold back the release of their version of Fable. And you saw this sort of period where we didn't really see any meaningful advancement of the frontier models that were available to the public.

23:40And what happened during that time? Chinese open source models caught up significantly because no one on that side of the equation was actually following the same restrictions around slowing things down. So what threads do you really want to pull on at the conference this week? Look, I think the biggest one is going to be the ability of companies to actually leverage these more advanced models. This is the frontier reestablishing itself. These open source models caught up over the course of the last two or three months. And we're now seeing the frontier re-advance in a way where it is encouraging for what it means for U.S.

24:27companies and for the applications that we're going to see here. So that, by far, is the most important. We have not just tech and media and telecom companies here. We also have some of the companies that are most aggressively leading the implementation of it. We've got FedEx here and C.H. Robinson and companies, Wonder, on the private side that are actually leading the implementation of AI and robotics. So that's a big threat that we're pulling on. And then, of course, the cybersecurity stuff ends up being critically important because that is the concern, right? You talk about alignment and what that means.

25:00Alignment going the wrong way means that we end up with agents that aren't bound by the sandboxes that they're put in. And if they don't have the right alignment, there's a lot of negative outcomes that you could see, particularly for financial institutions. But so cybersecurity players should be winners because that I mean, that kind of narrative goes back and forth in the market, whether they're, you know, software losers or cyber winners out of all of this. After we saw the hugging face incident, you know, they weren't called in. It was the open source Chinese model that was called in to fix it.

25:36Yeah, no, I think that's exactly the right question to be asking. I think in the short term, what it means is we are going to need more cybersecurity, full stop. So, whether you're talking about the existing companies that are securing our systems, the Palo Altos, the Z-Scalers, the Octas, the CrowdStrikes, whether you're talking about those companies, those companies are certainly going to be needed more in the immediate term. Longer term, as you start to see it evolve to a more agentic AI defensive posturing system, the question then becomes whether or not those companies are going to be the ones that deliver that or whether it's going to be the same frontier AI models that are potentially causing the issues that are also going to be selling the solutions.

26:23Do we think that the price action in software, Heath, sort of implies that the worst case scenarios are over for SaaS? I think they're at least postponed, right? I think the worst case scenarios that people were worried about at the beginning of the year was this sort of immediate impact. And as you and I talked about in other visits there to the exchange, that was never going to happen as fast as the market was implying that it was going to. And I think that's what we're seeing in the way that software is trading now. It's the companies that are leveraged to the growth in AI, the consumption-based models that are benefiting the most.

27:04But it's also the companies that have real staying power and the potential to cross the chasm into building their own AI tools here as well. Not everybody's going to be a winner in all of that. But in the same way, in that same way, not everybody was going to be a loser, which is the way the market was treating software earlier this year. We were talking earlier about midterms, policy risk, anti-AI sentiment, potential regulation. I mean, is that a risk for these names? Yeah, look, it's a risk for all of this. As I referenced before, the reason the frontier models stopped advancing in June, July, and for most of August was because of that overhang of regulatory concern, and understandable concern, but that overhang of regulatory concern.

27:57And so we could see a real impact from regulation here. The one thing that, you know, the four shoe issue for the entire political spectrum is to agree that for the most part, data centers aren't bad. I think that misses the reality, which is if you look at this on a ground level, the issue is not with all data centers. The issue is with data centers that are built poorly, that are built where they shouldn't be, that are built in ways that don't take into account all of the externalities that go into actually putting a data center in a community. You look at what Google's doing in Huntsville, Alabama.

28:34They're building a data center on the site of an old cold-fired nuclear, or a cold-fired power plant that has connectivity into the grid. It's using solar and nuclear, and that the community knew about and had buy-in with from the beginning. Nobody's protesting those kind of data centers. They're protesting the ones that are being built on farmland with gas powered turbines built on site under NDA with their local communities. That's the stuff that's causing the issue. Heath, congrats on the conference. So we look forward to keeping tabs on you all week long. Come back soon. Heath Terry. Still ahead on the show, Novartis shares pacing for their worst day on record after the company's third trial setback in a week.

29:20More details on that one coming up. Plus, Apple's launch event on deck for tomorrow. We'll talk about what to expect with a foldable iPhone, largely anticipated, and what it might cost in just a minute.

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32:00yields as well, a little elevated. Time now for a news update. Brandon Gomez has it for us. Morning, Brandon. Morning, Sarah. Hurricane Lowell is passing just west of Hawaii, bringing damaging winds and heavy rain across the state. Schools and government offices are closed today in several areas. Forecasters warn of flash flooding, mudslides, dangerous surf, and possible tornadoes with rainfall totals potentially reaching two feet in the hardest hit locations. U.S. Southern Command says it struck and sank an alleged drug trafficking support vessel in the eastern Pacific. Officials say the floating refueling station was supporting illegal drug operations at sea.

32:33An unspecified number of people were removed before the vessel was sunk and will be transferred to Ecuadorian authorities. And police in southeastern France are searching for two thieves who stole four Renoir paintings from the artist's former home. Officials say the burglars cut through a garden fence. They abandoned two works as police arrived, but two paintings remain missing. Carl, send things back to you. Brandon, thanks so much. Still to come this morning, oil prices are higher following those new strikes in the Middle East. We're going to talk to B of A's head of commodities about where prices might go from here.

33:05Plus, Apple's launch event taking place tomorrow. We'll break down what to expect, whether it could be a catalyst for that stock. We're back in just a moment.

33:18Welcome back. Oil prices rising after a new wave of strikes on Saudi energy sites by the Houthis. The U.S. and Iran also trading attacks over the holiday weekend, including U.S. strikes on three Iranian oil tankers in retaliation for two attacks on Navy warships by Iran. Let's bring in Francisco Blanche, BFA Securities Head of Commodities and Derivatives Research. Francisco, the art of forecasting, it's never easy when it comes to the price of oil. But now, I mean, what assumptions do you have to make? I saw you raised your forecast for prices today because the Hormuz isn't open, but still, I think, are betting on some sort of recovery.

33:54Talk us through it. Hey, Sarah, we are still expecting normalization. Frankly, it's a little difficult to say where things are going from here. But the one thing we're saying is, look, if there is normalization, we go back to original terms of the MOU, or there is a new deal between the U.S. and Iran and flows resume through Hormuz, we will likely see lower prices and we'll end up somewhere in the mid-80s range for the balance of the year. But, of course, if that doesn't happen, if we end up with increased tensions, skirmishes will be 95 plus. Plus, if we end up with an outright military confrontation that's more wide in the open, we could be 120 on Brent and potentially 150 if strikes end up targeting large energy infrastructures.

34:52So it's a wide range, I realize, but the range of outcomes is also extremely wide. The impact also on other energy products, right, which has been bigger. Carl mentioned diesel earlier, the refinery outages. Just talk us through where we're seeing the most pain right now. Right. So the biggest source of pain is the diesel market. We've lost refining capacity in Russia as a result of Ukraine strikes on Russian refineries. And we've also lost a large amount of refining capacity in the Persian Gulf, which obviously is being deemphasized because the U.S. Navy has been escorting crude vessels. Placenda is also China, which has been running very little crude in its refineries as a result of the curtailment of crude supplies from the Middle East.

35:50That's the big story. So diesel is at near record levels for the year, even though the price of WTI and the price of Brent are trading$30,$40 under the highs that we saw at the beginning of the war. So that's the big difference. And I think diesel here, here we're going into the winter season, still hot, but it's going to get cool pretty soon. We also have a relatively strong industrial activity backdrop around the world on the back of the AI race. And we have the harvesting season as well, which is kind of kicking in soon, and that's going to lead to a lot of demand for diesel. So you have a lot of reasons to be careful here with inventories completely depleted here for diesel.

36:34Francisco, on China, is it your base case that they do become a more aggressive buyer? And would they do that because they need to or because they want to apply, they want to move the market? I don't know if these, for instance, if his visit to the U.S. doesn't go well. Well, you mean on grains? I'm sorry. China on crude. On crude. Yeah. So on crude specifically, the Chinese have been out of the market, as I pointed out for a bit in terms of crude oil purchases, since President Trump imposed a double blockade. And their inventories domestically are coming down very fast. Today, we saw new reports suggesting that we've seen over 120 million barrels of above ground, crude storage in China dwindling in recent months.

37:21So they are under increasing pressure. Their refineries are running low. Their inventories are coming down quickly. So obviously, the pressure is building up on China. I've always said that if the war lasted for a few weeks, China could handle it, maybe six months. But it's already been six months and inventories are coming down. So the Chinese are going to have to come and buy crude oil in the market. We're seeing big premiums on crudes delivered into the Asia region that can go into China, Japan, Korea, well above Brent and WTI prices. So that is a sign of pressure. It is concerning. And of course, yes, they do have a large strategic reserve.

38:04But we are now seeing Chinese inventories of crude oil specifically below last year's levels, despite the big inventory bill that they went through in the past 12 months. So they have room. They can probably withstand the pressure another three, four months. But at some point, they're going to run out and they're going to have to come back to the market. Part of your thesis, I think, is that, you know, and why oil prices are not higher than where they were, is UAE and Saudi have really ramped up their exports and their alternative routes, which makes me wonder about this Houthi attack, the Iranian-backed Houthis, on Saudi oil infrastructure and just how serious that could get.

38:52Sarah, you make a great point, and that's why we've had prices rallying overnight. Of course, the U.S. struck three uranium vessels during the long weekend as well. So we're starting to see attacks again on energy infrastructure, which is never a good sign. and certainly puts a bit on prices. The Saudis really rely on the Red Sea right now to get a lot of their volumes into the global markets. So stability with Yemen is going to create problems for the world oil markets. Like I said, six months ago, we had high inventory levels and we have a surplus in the oil market. So it was easier to manage the situation.

39:39Right now, we've drawn hundreds of millions of barrels, probably close to a billion barrels around the world in strategic storage all over, in petroleum fuels, in just commercial crude stocks and in petrochemicals. We don't really know how much secondary and tertiary inventories are down and how much people are pulling down their plastics inventories, for instance. So we're just getting close to that point, closer and closer, where things are going to get painful for the economy into the winter if there is no solution to Hormuz. Yeah. And you say you still you still feel good about eighty three dollar Brent in second half.

40:14Twenty six. That's your new forecast. Maybe. Maybe I'm hoping that we're going to get back to some kind of normalcy here. Yeah. I mean, I'm saying it's also likely that we see services continuing. continuing, but certainly I do think there's a window into the winter where, you know, things can get a little better. But of course, it's down to U.S. and Iran is down to President Trump and the Iranian government. Francisco, thank you for joining us. Appreciate it. With the new action on oil prices. Francisco Blanche. Still ahead this morning, shares of Novartis pacing for, yeah, the worst day on record.

40:56do it. He had another drug trial setback. We'll get you to some details when we come right back.

41:08Welcome back. Shares of Novartis pacing for the worst day on record after the company had yet another trial setback. Annika Kim-Constantino has some details. Morning, Annika. Morning, Carl. It's a rough day for Novartis. We now have three trial setbacks in just a week, and two of them were seen as key data readouts for the company this year. Today, Novartis said its drug for a muscle-wasting disorder failed to meet the main goal in a late-stage study. Novartis is discussing a path forward for this treatment with regulators, but the trial failure is notable because the drug was the centerpiece of the company's roughly$12 billion acquisition of Avidity Biosciences last year.

41:43Barclays' analysts today said the trial results raised questions about that deal and the company's ability to use M &A to offset patent expirations for blockbuster drugs. The other key trial setback we saw came on Friday when Novartis said a cholesterol-lowering drug failed to meet the main goal in a phase three trial because it did not significantly improve cardiovascular outcomes. Guggenheim analysts did tell me that this study was incredibly high risk, but the data is dragging down other names developing similar drugs targeting bad cholesterol, such as Amgen, which is down about 9 % today. Last week, we also saw Novartis pause eight clinical trials on an experimental cell therapy after three patients died.

42:22But if you remember, Novartis did have a key trial win for a multiple sclerosis drug last week that could rake in blockbuster sales. And the company today also maintained its revenue outlook of growing 5 percent to 6 percent a year on average until 2030. But after the other trial setbacks, investors will be watching closely to see whether the company pipeline can deliver enough to grow growth to offset losses from upcoming patent expirations. Carl. Annika, is it something do you think you're hearing unique to Novartis or is it just a reminder for the entire industry? Because this is what they do, right?

42:56They place these billion dollar bets all over the place to try to get ahead of their own patent expirations and pinning hopes on new drugs that are early in development. I mean, this is Lily just is doing this, for instance. You've been joining us every time they have a new acquisition, which is like every week. So is it a Novartis thing or is it a broader pharma thing? That's a great question, Sarah. And you're exactly right. You know, when I talk to analysts, they say that this, you know, obviously these trial misses are very disappointing. But at the end of the day, this is quite normal for the pharma industry, especially for large players that are racing to really plug in these revenue holes with whether it's through M &A or, you know, really investing in these really tricky, really sort of risky trials here.

43:41And so, you know, when I talked to Guggenheim analysts, for example, they did say that, you know, it's unfortunate that we saw these sort of back-to-back trial misses, but they said it's overshadowing some of the other wins that we're seeing for Novartis. For example, again, that multiple sclerosis drug that's set to rake in around$10 billion in annual sales at its peak. And so they're saying that these trial misses that we're seeing don't necessarily translate to Novartis having sort of a flawed growth strategy here. Okay, thank you. We're going to talk more about this. Thank Thank you, Annika.

44:09Annika Kim. Tomorrow, live coverage from the Wells Fargo Healthcare Conference in Boston, where we can talk about this issue of M &A and, you know, some of these riskier drugs and developments. We'll have the CEO of Wells Fargo, CEO of Biogen, and more right here on Squawk on the Street. After the break, we'll discuss what to expect from Apple's big launch event tomorrow. We're back in just a moment.

44:39Welcome back. Apple hosting a launch event tomorrow. Mackenzie Sigalich joins us with what to expect. Mackenzie. So, Sarah, Apple is expected to push the iPhone further up market with no regular 18 this fall, steeper pro prices and a new foldable sitting at the very top of the lineup. Now, that folding model said to be called iPhone Ultra would mark the first major design change in nearly a decade. It is expected to start at around twenty four hundred dollars and top three thousand at higher storage levels. Early production is reportedly extremely limited, but that scarcity could actually help drive demand with Morgan Stanley still looking for fourteen billion dollars in December quarter revenue from the foldable.

45:19And then there are the pro phones. They're expected to look largely unchanged aside from new colors, but get meaningful internal upgrades. The street expecting like-for-like price increases of$200 to$500 versus comparable iPhone 17 models, as Apple tries to pass surging memory costs onto consumers instead of absorbing them. So the strategy here is pretty clear. Push the mix toward more expensive devices, lift average selling prices, and protect margins, even if unit growth is more modest. The bet is that consumers will keep paying up, both for the foldable and for pros with better battery life, camera improvements, and the new A20 Pro chip that is also expected tomorrow.

46:00That upgraded silicon should make Siri AI more capable on device. And Apple needs that combination of higher prices and more compelling features as it heads into tougher iPhone 17 comps, rising memory costs and more pressure on services growth. And guys, this is only the beginning of a broader hardware push with touchscreen MacBooks, smart glasses, camera equipped AirPods and new home devices all expected. in this upcoming pipeline. Yeah, although you mentioned the AirPods and with cameras, I mean, Apple's sort of trademark policy has been about privacy and safety as a selling point. And I wonder when that starts to collide with the ability to take pictures of someone without their knowledge, for example.

46:44And that's why some of those larger swings are further out in that production timeline, pushing into potentially 27, 28. And in the meantime, what we're really looking at tomorrow. The star of the show is expected to be this foldable. Of course, China, the second most important market for Apple after the U.S. has seen Huawei and Xiaomi just have these really big wins. Huawei has their trifle. They're out with a new model today, along with Xiaomi, and they're priced in a range that is comparable to Apple's new expected foldable. You have to bet that this category has been around for seven years.

47:17So if they are going into this, they have pressure tested it. They have done focus groups and they're betting that people are willing to pay up for it. Yeah. Mac, it's going to be a big day. Appreciate that. Mackenzie Stagall is watching Apple. Meantime, you'll be in Boston. Yes. For the Wells Fargo Health Care Conference, it's conference season right now. So you're getting a lot of catalysts around some of these stocks around conferences. And beyond that, the big economic reports later in the week, CPI on Friday. Yeah, that's going to be a big one. We'll keep our eye on this level just south of 7700.

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