Tech earnings, AI spending and Fed risks drive the market outlook 7/27/26

AI Summary

Transcript

 Oil down futures up. I'm Morgan Brennan and this is your morning call.
 Good Monday morning and good start to the final week of July. Can you believe it?
 Well, let's get a check on U.S. stock futures with the Dow coming off a three week losing streak.
 The S&P a two week losing streak and as you can see right now everything is poised for
 sizable gains here this morning. S&P is poised to open up 54 points. The Dow 429 and the
 NASDAQ is the big mover to the upside this morning. Poised for a 355 point gain similar situation
 for the Russell 2000 small caps as well, which are moving higher this morning. You can see right
 there 1.2% gain here pre market. Busiest week of earnings season on tap though nearly
 a third of the S&P 500 is expected to report including hyperscalers like Microsoft meta Amazon
 also Boeing in terms of those blue chip names Fed decision coming this week on Wednesday as well
 and if we get a check on the few the bond market here you could see treasure yields taking a
 breather here this morning amid this we'll call it a pause in the escalation we've seen in the
 Middle East at least between the U.S. and Iran more on that in just a moment but the U.S. 10 year
 treasury yielding 4.63% Fed sensitive to your treasury yielding 4.3% Dollar index as well if we just
 get a check on the levels there weakening slightly pulling back from what was three week highs late
 last week. You could see dollar index trading around 101 2 4 right now. Let's get to the energy
 markets and the Middle East price accrued natural gas heating oil our Bob Gasoline all of those
 are facing a steep pullback this morning after this two day pause in strikes against Iran that was
 after 13 straight days of strikes but also taking a look at what could be happening in the Caspian
 Sea with Ukraine firing on Iranian flagged ships there over the weekend we continue to watch what's
 going on between the Houthis in Yemen and Saudi Arabia as well but if we just go back to the crude
 prices we take a look at where Brent and WTI are trading this morning WTI is down 7% right now
 trading around $83 a barrel Brent down 8% below $90 a barrel trading rate around $89 a barrel our
 Bob Gasoline is down sharply here this morning as well and as I mentioned other energy futures are
 two similar situation for those energy stocks that we just showed you on the screen all lower here
 pre-market well let's get to Dan Murphy in Abu Dhabi with the latest Dan.
 Morgan good morning well the big story for oil this morning and for the region today
 is what is not happening there have been no US strikes on Iran since Thursday night and
 the oil market sinking now as you just flagged Brent below 90 USD and crude also snapping a three
 week rally here that took Brent above 100 USD just last week analysts at ING calling it the first
 tangible signal of de-escalation but they are a little cautious this morning they point out that
 there has been little explanation from the US about why exactly President Trump paused and say
 we're also unlikely to see any recovery in shipping through Hormuz until there's clarity on whether
 this pause is permanent and that caution is really the regional story today because on the
 ground here Morgan nothing has actually changed at least for now fewer than 10 commercial vessels a
 day went through the straight of Hormuz over the weekend according to Kepler data and shippers
 are not coming back until they know that this could potentially hold and at the same time as well
 we're tracking what is a worsening situation in the Babel Mandev Yemen's Houthis claim they
 struck Saudi oil installations on the Red Sea coast over the weekend we've reached out to Aramco
 and the Saudi energy ministry for clarity but both the government and the company are staying silent
 for now on how they could potentially respond traffic through the Babel Mandev fell again on Sunday
 and Saudi Arabia is now reportedly routing its crude the long way through the Suez Canal
 and then as you mentioned there's also a third supply story opening up Ukraine saying it hit
 several Russian oil sites over the weekend and it also struck an Iranian merchant vessel in the
 Caspian Sea around saying one sailor was killed and it's now demanding a UN response so Morgan
 the signal to watch this week is in Washington, Israel's Prime Minister Benjamin Netanyahu
 and Ukraine's president Vladimir Zelensky will meet President Trump in Washington tomorrow
 we're watching for any signals that the wars may be converging or if this pause may escalate
 from here it's back over to you yeah it's poised to be a very jam-packed week from a geopolitical
 standpoint as well Dan Murphy thank you let's get to the action in Asia a blockbuster IPO there
 that's making history in China this morning it's all about the AI trade let's get to our unissue
 invaging with the latest units hey Morgan it's absolutely about the AI trade and all about
 DRAM chips today the company is called CXMT this is not necessarily a household name but in China
 this is the largest memory chip maker it's now the world's or at least the countries that most
 valuable listed company this company has raised $8.6 billion dollars they say to mass produce
 memory wafers for the most part they have about an 8% share globally of the DRAM market and they're
 taking aim at some of the more familiar names micron for example SK Heinix and Samsung right now
 CXMT for the most part plays in the low power DRAM space but it does have ambitions to move
 even further into DDR as well as the high bandwidth memory chips those are the ones that are used
 in AI data centers so there has been some concern that if you see Chinese production increase
 that eventually that could lead to a glut in the market and then hurt prices people were also
 concerned about that this might be a one-time pop when it comes to the IPO but there is an argument
 here as to why it would be a better long-term play one of them is that a lot of the investors are
 government related so government related entities these are local government entities and other
 funds including the national chip fund and then the private sector is also in this particular stock
 Alibaba Xiaomi as well as a deep seek founder himself the government here has also been signaling
 that the market is going to remain stable and we saw a little bit of a sell-off Morgan last week
 in the stock price in the stock market and so the CSRC had come out and said that they want to
 make sure that these market that the market stays stable especially for tech stocks
 yeah I mean it's it's pretty incredible to watch this one especially when I was reading what
 212 times oversubscribed among retail investors you just mentioned deep seek so I'm going to pivot
 a little bit here with you Eunice and get the latest on what we're hearing from deep seek ahead of
 what was expected to potentially be at some point an IPO with the founder telling backers that
 there's going to be a funding pause now after what we're seen as viral posts from the founder
 regarding Chinese AI and the geopolitical landscape yeah that's right a lot of people have been
 talking about deep seeks possible IPO maybe as early as the end of this year the founder has been
 according to various reports talking to a new a number of of funds trying to make sure that
 he's able to raise enough funds but as you had pointed out there was a viral report that has
 been going around that he was saying that the company is still very reliant on Nvidia chips
 in order to be able to make its its progress so so because of that suddenly we're hearing reports
 that those fund raising efforts have been suspended for now but because there is so much interest
 in deep seek as a company the expectation is that this IPO is at some point going to go ahead
 all right Eunice Yoon great to have you on thank you well it's not just Chinese chip stocks that
 are making news let's get a check on the broader action across Asia our JP Young is standing by
 in Singapore with more and JP it's not even just chip stocks it's also memory stocks in parts
 of Asia as we get SK Heinix and Samsung earnings on deck this week too that's right Morgan and
 good morning to all of you guys out there in New York a lot of that has to do with these with the
 renewed interest in chip stocks but keep in mind that sentiment here improved just a little bit with
 the site of oil prices retreating a little bit with the US and Iran on that momentary pause with
 regards to the strikes of ease of each other and wild Brent crude is that $90 barrel gives them
 just a little bit amount of breathing room to move higher cautiously we talked about memory chip
 stocks earlier on today and you're right one of the big drivers with regards to South Korean bounce
 back today were again the memory chip giant Samsung and SK Heinix and a slew of massive
 announcements on their part in Samsung's case they did announce a $200 billion effort to tag
 team with Broadcom with regards to developing next generation memory and foundry technologies
 in video also a central player with regards to the rally especially we comes to SK Heinix
 they've announced about half a trillion dollars in investments with alongside SK Heinix develop
 next generation AI data centers it also secure long term memory chip supplies from SK Heinix
 especially the hbm model the biggest pop though today happened to be from neighbor with news that
 Nvidia is going to acquire a spend about a billion dollars on their newly issued shares to help
 neighbor develop their own AI data centers it can see gains for neighbor the tech company in South
 Korea really rallying today session finally we do have the reference that CXMT pop that Eunice
 talked about today on their first day in the public markets in Shanghai they searched almost
 500 percent higher and there is also a case we made that if China continues to try to become more
 self-sufficient in securing chips they're going to need self homemade memory chips as well and that
 will put CXMT front and center in pole position to take on a lot of shares or a lot of market share
 from the likes of deep seek for this for the likes of Alibaba and servicing some of these very ambitious
 tech firms out in China back to you for now Morgan and so far so good at least in the first
 trading day out here in Asia all right we'll take it JP on thank you let's get to the early trade
 in Europe as well and our Steve Sedgwick hi Steve hey Morgan well look I'm brilliant correspondence
 Dan and Eunice and JP they've kind of summed up three quarters of one one I say but I've got
 another quarter to add as well because let's be honest about it talking about earnings and crazy
 IPOs and earnings valuations in AI that is a key part of what we're all looking at at the moment
 looking at the all markets and looking at the earnings factors are the other two parts but you
 and I know as well that this market also this week is about some of that key data whether it's PCE
 whether it's GDP numbers or whether it's what comes out of the FOMC you put all of those four
 factors together and you've got this European equity markets they are risk on this morning risk
 off on mode this morning temporary reprieve in hostilities from the Middle East sending equities
 high although the all stocks as you mentioned going easier investors also bracing for a busy week
 of corporate earnings on both sides of the pond now one of the biggest farmer companies on the
 planet AstraZeneca has reported a second quarter revenue of 15.4 billion dollars broadly in line
 with estimates the UK farmer giant also backed its full year forecast back to you Morgan all right
 Steve Sedgwick thank you I would have been disappointed if you didn't have more to add you always have
 more to add and it's always great a lot more to come here I'm warning call including AI saw over
 done Dan ives is here on the state of the tech trade ahead of a crucial week for the sector and
 the broader markets plus lucky number 13 for SpaceX and that latest test of its starship
 fuels future and later why wild weather in Chile is raising AI supply concerns a very busy hour
 still ahead one morning call returns welcome back to morning call investors preparing for the
 busiest week of this earnings season which is under a third of both the S&P 500 and down
 tostral's reporting this includes four mag seven members Microsoft and meta results Wednesday apple
 and amazon are out on Thursday and the earnings are coming after the S&P and Nas Agnatch their
 second straight weeks of losses with a Dow posting its third straight negative week in a row so
 for more let's bring in Dan ives partner and senior managing director at yorkville ives and
 company i love saying that by the way thank you um you're doing double duty for us today and there
 is a lot to get to so we're going to see what we can cover now and then we'll get to more later but
 i actually want to start with more general question for you um goldman note over the weekends
 ndx nasak 100 now sits eight percent below June highs trades at 21.8 times forward pe that's a
 nearly 10 percent discount to its 10-year average forward pe multiple loans valuations traded at
 since the beginning of the ai cycle in early 2023 that got my attention here because we obviously
 have seen this big drop down draft but that's also after a huge run this year for tech stocks
 how would you categorize how investors are digesting everything we're getting and why they're
 taking money off the table whatever the alphabet really being i think a good proxy in terms of the
 catbacks build out versus phenomenal numbers in terms of what you saw in cloud and just across the
 board okay i think right now the streets almost going through a digestion period i mean this is
 going to be a key week in terms of that narrative relative to catbacks use cases building out
 you saw the intel as well versus just want to see free cash or monetization book i just continue to
 view it's a digestion period but it's still worth third inning of the ai revolution and it's just
 further validation from earnings so what do we need to be watching what investors need to be watching
 when we get these mag seven numbers and specifically on the hyperscaler side this week coming off
 of alphabet with negative free cash flow for the first time in what 22 years but it's an arms race
 so for them i mean it goes back to like they don't if they pull back they'd be at the end of
 the line or even off the line relative to the hyperscaler build out you're gonna see the same narrative
 i mean just massive catbacks numbers doubling down in the arms race from migrosoft amazon
 met in others but i think what's important for investors is what does cloud growth look like
 from migrosoft where does it look like for amazon are you seeing enterprises just double down on
 the ultimate use cases because that that's the key because as that plays out the multiplier
 we're going to continue to see that for every dollar spent on catbacks is five six dollar multiplier
 across the rest attack yeah i mean what has been out performing in particular this month has been
 in video we got a lot of news from them over the weekend too over the weekend too both in terms of
 this deal with sk high next to secure memory and then also report surfacing that they're going
 to backstop open a i in this Ohio data center that soft bank is involved in okay i think it's
 all at the epicenter is jensen in the video because i think jensen has just such an understanding
 of open a i's the center of it it's going to be a catbacks arms race and right now like they're
 they're essentially planning steaks if you think about sk to what you see on compute to what you
 going to see across the board in terms of memory in the whole build out because the reality is
 that there's one chip in the world fuel and air revolution and that's in video and i think the
 one thing that's really been you know very important is that if you look at some of the memory stocks
 that have sort of gone up and maybe obviously taking a little bit of a breather in video and just
 the rest of the semi-food chain that's where you want to see demand i think you saw it in tell
 to some extent but the hyperscours that's the validation for investors going into the second half
 of the year you continue to see the use cases you see the spending that's really ultimately front
 and center okay um in video i mean that the other piece of this within video is um and i'm starting
 to hear the steady drum beat of uh narrative emerge that it is becoming the central bank of AI
 and when you talk about circular spending they're kind of the apex of it how do you respond to that
 i mean i would just view it that when you think about what Nvidia is seeing demand to supply today's
 12 to 1 for their chips physical AI hasn't even started to play out so yeah you call them
 in central bank you know some of the words about circular financing the reality is more
 in only only 15% through what the broader spending is going to be in terms of AI
 15% 15% and i think in video look jensen the reason he's got father of AI because the reality is
 he sees what's around the corner you see what's happening as you you see what's happening globally
 and i think they'll make those bets now even though investors might fret about it relative to
 the spending that speaks to our view you just see more and more validation from those that
 are seeing the enterprise demand whether it's in video whether it's pound here whether it's
 out that what we'll see this week that's what investors should be focused on all right i know i
 got to wrap this up i just got to go back to this 15% number i mean our markets going to be able
 to support this we see what's happening with cds and everything else on the credit side right now i
 think it's still the these are called small white knuckle moments but markets going to digest it
 because the reality is that this but it's a true fourth industrial revolution and the enterprise
 use cases further validated that's the key especially when it comes even the consumer side and
 without without about what they're seeing as well as apple okay dan ives thank you stay close we're
 gonna see you later this hour appreciate it all right straight ahead more merger talks at 30,000
 feet we've got those details in a moment but first we're checking shares of robinhood reports
 the company is in talks with crypto dot com to expand its prediction market operations currently
 robinhood has relied only on calcium for those prediction market contracts you can see
 shares of robinhood of 3% this morning pre-market morning call be right back
 welcome back watching shares of space x this morning which are basically flat
 the company successfully launching its massive starship rocket and the thirteenth test flight
 on friday night this was the first for starships and space x's IPO last month and it's the second
 for this latest iteration this version of the launch system which is known as v3 get it version
 flight 13 lasted about an hour hitting several key milestones before ending with a controlled splash
 down the most controlled we've ever seen for starship in the indian ocean the super heavy rocket booster
 meantime detached about two minutes into the flight also making a controlled splash down in the
 Gulf of mexico and the vehicle successfully deploying 20 of its new starlink v3 satellites
 into orbit which are built to be larger and more powerful than the earlier versions
 starship is crucial for space x's future growth forecasts it's poised exponentially drive the
 cost of launch down bring much more mass orbit makes new business models like a idea to centers
 in space economically possible when i visited star based texas where starship is made and launched
 in early june coming into that of IPO i had asked space x president and co one shot well about
 the timing for starship and at that time she said a lot of this is going to depend on the fAA
 but after this flight flight test 13 she was expecting uh that they would be start flying starship
 every month uh and that starship could be in operation and doing orbital flights before
 the end of this year that could in fact happen uh with the next test flight flight 14 so after
 friday's success ilan musk on x reiterating that plan and writing quote unless we discover
 problems after mission data review space x will attempt to catch the ship with the tower
 on the next flight because remember this is being designed to be a fully reusable launch vehicle
 something that has always been considered the holy grail when it comes to rocketry
 well turning from one ilan musk comfy to another the wall street journals reporting that musk's
 tunneling start up the boring company is in talks to raise four billion dollars in a funding round at
 evaluation of twenty billion dollars that apparent valuation would be a big jump from the
 companies more than five and a half billion dollar valuation back in 2022 boring already has a
 transportation system running in Las Vegas uh plans to tunnel networks under nashville and do
 buy and reportedly other projects pitched for Baltimore Chicago and loss angeles and still on deck
 we've got new details in the open ai hugging face attack hack we should call it and how long
 that was going on and what all of that means with sam ultman on deck in washington uh regarding the
 release of that new ai model this week as well we'll be back after this
 i'm working brown and welcome back to morning call this monday morning let's get
 check on you a stock futures the doubt coming off a three week losing streak um
 the smp and nasdaq two week losing streaks and as you can see right there on your screen
 we are risk on this morning we got some big moves here pre market the smp is poised to open up 54
 points the doubt four hundred forty six points nasdaq is the big outperformer of the morning so far
 poised to open up three hundred and fifty one points or we'll say more than one percent here
 small cap futures are also popping this morning um if we pull up that chart uh about one point two
 percent right now pre market we're watching energy too um because as we've seen crude prices come
 off and bond yields come off that is part of what it's fueling this move higher inequities so
 following a two day pause on it for us strikes against a run and around um basically making
 comments that they would continue to do the same as well if you take a look at the energy complex
 wti is down about seven and a half percent right now trading below eighty three dollars barrel
 Brent's crude also well below ninety dollars a barrel too quite a few headlines were also
 watching situation between Saudi Arabia and the Houthis and Yemen and the red sea region and Ukraine
 making some moves on Iranian flagships as well in the caspian sea but if you take a look at key
 names in the energy space this week you see a many of those stocks and oil majors oil producers are
 lower pre market here too uh if we move on here to with the prompter to the treasury market the
 Fed is set to hand down its latest rate decision this week as well and you could see bond yields
 are taken a breather here this morning US ten year treasury yielding four point six three percent
 Fed sensitive two year treasury yielding four point two nine percent we've just broken back below
 four point three the look global markets two Asia kicking off the week in the green those gains
 carrying over to Europe and early trading to higher across the board there as well you can see
 on the screen here we're also checking shares of cxmt corp in china specifically skyrocketing more than
 500 percent in its trading debut in Shanghai ending the day at more than four hundred sixty five
 percent and making cxmt is just biggest IPO of the year the most valuable China listed company
 with a market cap of five hundred thirty nine billion dollars that's compared to the eighty five
 billion dollars during the IPO process that is one to watch within the memory making semi conductor
 space we've also got a news alert on Nvidia video shares are up one percent right now the company
 are willing to blog post this morning that it is heading up a new alliance of tech industry giants
 that are focused on keeping open source AI models secure Nvidia saying that a range of tech and
 cyber security companies are joining this effort including Palantir perhaps not surprisingly given
 their partnership and SpaceX and others the development comes as lawmakers in Washington debate
 how and whether to restrict open source models something we'll continue to hear about this week
 out of Washington I suspect and we're checking some of the morning's latest headlines sticking
 with Nvidia it is reportedly talks with open AI to provide the chat GPT maker two hundred fifty
 billion dollars in financing guarantees very critical data center project and according to reports
 the backstop would help open AI lease a ten gigawatt project currently being developed by soft bank
 in Ohio and help transition it away from amazon microsoft and oracle cloud services there's also
 some guarantees or some funding involved in buying those Nvidia chips to operate in that data center
 which would be the largest as well we're also speaking of open AI Reuters reporting that it's
 agent that spend days hacking hugging face when about its illicit business unnoticed for at least a
 week so according to that report sources say the AI agent began attempting its escape from its
 training environment around July 9 before breaking into hugging face two days later now wasn't
 until open AI staffers noticed odd behavior from some of its models around July 20th that it realized
 the cause and search of the source excuse me of the breach this comes as CEO Sam Waltman is in
 Washington this week to brief wall outmakers about his firms next gen AI models including
 apparently reportedly this one in China the country's moon shot AI is on the verge of releasing
 its next breakthrough AI model for public download this after white house official last week
 multiple white house officials accused of the Chinese AI company of illegally accessing
 Nvidia's advanced chips also a lot of talk about massive distillation efforts something that has
 been a theme this year in U.S. commentary versus some of these Chinese companies and how they've
 been able to create some of these models at lower costs outside of AI united airlines last year
 reportedly approached Delta Airlines about a potential merger including a CEO to CEO pitch between
 United Scott Kirby and Delta said bastion this of course follows reports from earlier this year
 about a possible united american air tie up that never came to pass so seems united as
 interested potentially in some sort of mega merger here you could see shares of all those
 companies are up more than 3% right now pre-market crude oil coming under pressure might also have
 something to do with that well former main state lawmaker and logger Troy Jackson securing the
 Democratic nomination for U.S. Senate to face longtime Republican senators Susan Collins in November
 in a race that could help determine control of the Senate and at France fire fighters continued to
 battle massive wildfires which are now threatening the French city of Hordeaux so far about 200,000
 people have been evacuated with more than 100,000 in Spain being ordered to also evacuate or shelter
 in place officials fear rising temperatures again this week could make those situations even worse
 well if we turn back to a key week for stocks with the major averages between two and eight percent
 off from their most recent highs taking us through the charts and what's next for your money
 Jessica in skip is director and investor of research at stockbrokers.com also doing a double
 duty for us and it's great to go through the charts with you and have you here in front of the wall
 welcome happy to be here thank you Morgan all right so you so you come loaded with some technicals
 for us and if we could pull up the first chart you're basically taking a look at the S&P 500 versus
 what we've seen in the bond market but not the 10 year treasury the two year treasury yield the two
 year treasury and the reason why I want to look at the two year treasury yield is because this
 is continued to hit higher highs even throughout the 10 year coming down so we've talked about the
 two year last time I was on it tries to front run the fed it is our short term inflation expectations
 and so it has a lot to do with oil so instead of charting oil I thought I chart the impact that oil
 has on the market so what is really interesting about this I moved us to a daily chart which isn't
 my normal but the S&P 500 is having a very difficult time hitting a higher high whenever the two year
 note consistently hits those higher highs so see how it creates this area of resistance the reasoning
 is a lot to do with just oil and the shorter term inflation expectations bleeding into markets so
 regardless of good earnings it's impossible to go higher when this starts reaching higher highs but
 what's important to note here it's elevated that is okay it's just the continuation of higher and
 it's a like clockwork it's 10 basis points we find some consolidation and then the market resumes
 it's rally but this is telling me that we're going to be sideways until the two year note is
 tamed this is the most important chart to watch going forward okay so we will continue to keep an
 eye on that we're going to get that more of the call crew to because I think there's a lot of
 so many questions about this you're also looking at the equal weight S&P which is how to break out
 it it perhaps it has a better go of it absolutely well what's important to look at the equal weight
 index if we were to plot the market cap index with the same 13 week moving average which is one quarter
 worth of prices so I like to look at them this was actually breached on the market weight but the
 equal weight it's still acting as an area of support which is very good so it tells me that we're
 set for trading range bound market and unless we have oil retreat which we've had so it's very
 important to watch weekly closes above this but it's just a test to the broadening that's happening
 within the market which is still healthy so it doesn't mean because the market cap weighted has
 breached that first line of defense at the 13 week moving average that we're going to go down
 drastically it just means we're stuck in a trading range because the equal weight is showing that
 broad based leadership which is good now if we were to look at the socks index yeah let's pull that
 chart up so this looks actually identical to the S&P 500 market cap so again a weekly chart with the
 13 week moving average this is now a important area of resistance if we do not go above that that's
 going to attribute to the trading range because the socks index if you see this huge increase this
 was actually up over 70% for the first half of the year that has lots of room to come down if I
 were to I can't draw Fibonacci off the top of my head because those are ratios but I do know the 61.2
 level here is around 520 that's where we're finding support and that's where I believe we'll
 keep some support I love Fibonacci for just longer term trends and shorter term trends so what's
 important with the socks index here we cannot go higher unless this goes above the 13 weekly moving
 average so in short to what to watch we need the two year to retreat that looks like it's
 happening due to what's oil is happening today subsequently you need the socks index to go above
 the 13 week moving average if that happens and the S&P 500 will the equal weight is already there
 and then we could perhaps look at higher highs but that has to happen first that is such a great set
 up for a call crew which is going to come up in just a few minutes we're going to see you in it
 Jessica appreciate it sounds good thank you all right a lot more to come here on warning call
 including potential new risk to the a trade natural disaster in one South American country
 that is posing its threat to the check to the tech supply chain story and as we head to break
 let's get a check on shares of Blackstone Brookfield asset and KKR all three of those signing a
 $16 billion deal with Kuwait petroleum to lease and lease back its crude oil pipeline network
 according to the state owned company also adding the deal is for just over 20 years also includes
 a volume-based tariff you can see Blackstone Brookfield both up pre-market KKR unchanged morning
 call direct back welcome back major storms and flash flooding and Chile over the weekend
 the past week has disrupted operations at several copper mines operated by some of the world's
 biggest producers including BHP and Barrack Chile accounts for roughly a quarter of global
 production and is essential for the build out of AI data centers and electric grids and experts
 are forecasting a widening shortage of copper over the next several years let's talk more about
 this now with Natalie Scott Gray senior metals demand strategist at at Stone X Natalie let's
 start right there weather disruptions in Chile what that means for production there when Chile
 has an outsized impact what does it mean for the copper market here in the supply chains
 of course so the initial impact of the storms has been more to central Chile than northern Chile
 which is where our biggest copper mines are however we have heard major producers talking about
 disruption including Cadalco the largest producer in the world tech resources Anglo-America
 and to the gaster as well now what we do know is that the impact so far has been temporary and limited
 contingency plans are still in place so we don't think the risk to outright production at the
 moment is too significant but it certainly will impact those smaller miners overall we've seen a
 reigniting of the copper trade what is driving it here especially since folks look at it so
 closely as so-called dr copper and the read on the global economy of course so these mine supply
 issues obviously do support the price because we think my production is going to be flat this year
 in Chile actually downgraded supply by 2% this year to 5.3 million tons however we do think the
 market is actually in a relative surplus but what is driving prices is the focus on stocks so
 the end of q1 across komex shifi and the elemy we had all-time high global stocks however 64%
 of them are based in the us and if we look at where we are now stocks have actually been pulled
 down to their lowest level since January and there's really two main drivers so one is anticipation
 for section 232 tariffs in the us received about 1.2 million tons of copper stocks go into the us
 meanwhile at the moment a crackdown since april in china on circular invoicing has created
 tinous in the scrap market we're seeing a substitution towards copper cathode and the import
 window has opened into china so now the elemy our market of last results stocks about 103 000 tons
 lowest level since january material going to the us going into china and it is pushed
 off forward curve into back quadrations when we talk about regionalization supply chains and
 copper it sounds like it's sort of on the forefront of that well given what we're seeing in the
 market why you just laid it laid out in light of all of that what does it actually take to bring
 more supply online it's very tricky to do this it's not just a question about the fact we've had
 under investment for decades but really you know we're looking at Chile the biggest producer in
 the world there are shortages of water we have declining all grades so it's becoming more
 difficult to actually get the material out of the ground and then on top of that the material
 that's coming out we've got this desire for strategic stockpiling so it's actually being taken
 out of the market once it even is in that above ground form all right Natalie Scott Gray great
 to have you on thanks for joining me come back pleasure straight ahead morning call crew
 have been teasing it all hour tan up the trading day ahead why pause maybe word of the week
 for markets in more ways than one we're back in a moment
 it's time for your call sheet crew members today Dan ives and Jessica in skip back with me and Amy
 with silverman of rbc capital markets it's also joining us you know pause I think that's the word
 of the day um whether we're talking about what we're seeing in the middle east right now whether
 we're talking about the fed whether we're also just talking about what we've seen with the markets
 going back to your comments Jessica about you know some consolidation key levels we're watching
 here for the s and p so let's start with and Dan i'm going to kick this one off with you let's start
 with what we are seeing coming out of the middle east which is pushing crude prices lower
 pushing yields lower and pushing stocks higher here pre market look it's more that risk on and I
 think it all sort of good adult dovetails into text going to lead this market higher lower
 and earnings is really the key and i think you get these validation moments really four times a
 year and i think it's just an important week that you're seeing but geopolitical oil it doesn't
 ultimately change the demand trends that we're seeing in tech across the board yeah and of course
 tech has become its own geopolitical dynamic as well Jessica want to get your thoughts on all
 of this and how important what we're seeing in the middle east and other parts of the world is to
 the market it's extremely important yeah extremely important because last week we saw even with
 record earnings i mean we have the s and p 500 coming in with 34% eps growth if you take out google
 it's still 24% because of the investment that's there and a very high guidance ratio that's
 1.9% the three month guidance ratio the highest it's been since 2021 so that's really positive
 earnings however it's had a difficult time going higher because of the geopolitical risk
 and liquidity seem to be leading the markets rather than the fundamentals so that headline risk
 still exists like i said earlier on with the technical levels it's important to see that two-year note
 come down and that comes in harmony with what we've seen this morning so i'd like to see a continuation
 of that otherwise we are still going to pause and i think it's difficult for tech to lead us higher
 even though which should i agree with you there there's sensational demand but it's difficult
 with this liquidity leading the market rather than record earnings yeah Amy want to get your thoughts on
 all of this yeah one thing we're looking at is obviously this is going to be a tumultuous week just
 simply because of the concentration of market cap that's reporting and one aspect that i think
 is very interesting is if you simply look at the implied moves for the big four that are
 approving this week in mag seven they're actually fair to cheap when you look at kind of what
 google did last week and you look at the historical earnings realize moves of something like a meta
 you know we're pricing about a six to seven percent implied move this week and we've seen these
 things move more than ten percent and we certainly saw a massive realize move from google last week
 so i'd be watching kind of how volatile he behaves in such a critical week Amy i mean just to dig
 a little more deeply into that why why do you think that is is that because we've already seen a
 down draft in some of these well maybe not in the hyperscalers but more broadly in the tech complex
 yeah i think that's the key observation which is there has been some in sympathy move already
 from some of these names post google so the argument i think from some investors is well we've
 sort of preceded it i don't necessarily think that's going to be the case i think a lot of new
 information tends to come out and people tend to still be reactive idiosyncratically so you
 know what surprised me is equity puts q so that demand for hedges it's fairly sanguine across all
 four big companies that are reporting this week from the mag seven and that still surprises me
 because i do think that you're going to get some more idiosyncratic capex guidance and you know
 that tends to move things even if we've had some moves in sympathy which is true did happen with
 google last week yeah i see a nodding your head Dan yeah i think he she brings up just a phenomenal
 point in terms like the move on alphabet there's a view i look at what's going to actually microsoft
 the amazon you go you when you piece it all to get it's like a it's a puzzle you put all together
 it just shows the spending idiosyncratic but combine on catback that's what's driving tech and you
 stand you ultimately see in the chip players i think as you piece it all together that's bullish for
 tech stocks yeah i mean meantime we get an inflation report this week pce jesica we get some other
 data as well and then of course this fed decision it's been interesting to see how much fed funds
 futures and even prediction markets have started to price in more of and i think it's price
 still a long shop but more more of the possibility that you that you were to get hike here this week
 what are you watching with all this especially as fed share wars just pulled back on communication
 you could also make the argument that the market is doing its job for him tightening already it is
 we certainly see that across all yields on the yield curve what is interesting i i feel like he's
 in a bit of a conundrum he either can if he was going to hike the a based on the market action
 that's happening within the yield curve with the thirty year going as high as it is we put in a
 hike that will tame the bond market that i think would be him listening to the market and perhaps
 we don't want to hear that we want him to react to data and stay true to credibility that's
 what i'm watching with him is credibility on the other hand he has this oil shock but he wants to
 look at the underlying issues of inflation and has built of course a task force naturally around
 that so if he were to hike based on oil then that would go against the framework that he's already
 put in place so i think that's a bit of a conundrum but what's important to watch and it's going
 to be very difficult is how he feels about oil is there a continuation of that is it transitory
 and then that would give us some credibility from him if you were to act but i don't think a
 rate hike is on the table i actually disagree with what the bond market and prediction markets are
 are saying but nonetheless it's his words as little as they are yeah that are going to be exceedingly
 yeah i'm just to put that in perspective i think we went from like a zero percent chance of
 to like 30 something percent chance there's still a big move but still minority um Amy it's
 interesting because we did get this pause in actions at least between the US and Iran directly
 over the weekend ahead of a fed decision and now sub 100 days to the midterm elections we also
 know markets behave a certain way in midterm election years from August on yeah i will tell you
 we've been client marketing the past two weeks and one issue that keeps coming up around midterms
 is look what if this doesn't become an issue that's about inflation that's about the cost of living
 what if it becomes an anti-AI issue we're seeing elements of that you know i remember when a
 hole cult did the announcement of the data center moratorium clients really had that on their mind
 that if this starts to shift into midterm sentiment this really becomes a market story if it becomes
 an anti-AI story so watching that aspect of midterms very closely and then Israeli elections
 are also October 27th so we would expect kind of a volatile few weeks in and around late October
 early november yeah and of course you heard from israel's prime minister over the weekend and he's
 in washington so is ukraine's leader this week two plus a usuk meeting potentially this week
 about the straight-of-war moves can be a lot to watch so guys thank you so much for tannis up
 to our call crew thank you