Morning Call 8/19/26

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 Good Wednesday morning, let's get a check on U.S. stock futures, which are attempting a
 little bit of a rally here this morning.
 Well, at least say there's some stabilization after the selling we saw to start the week.
 S&P is poised to open up fractionally higher to the tune of four points, Dow, fractionally
 lower, 17 points, and the Nasdaq is poised to open up 55 points here.
 Just of course, after we saw another down day yesterday for the major averages led lower
 by tech stocks and other momentum, high-flying names that we've seen gain big so far this
 year.
 And it's come in the midst of this big bond sell-off we're going to get to that a little
 bit more in just a moment.
 So if we just take a look right now at what we did see yesterday, a number of the chip
 and memory names hit the hardest in video, Broadcom, Micron, Sandisk, Western Digital, they
 are all down between two and nine percent, but if we take a look at those shares pre-market
 here, you could see attempting rebound and Sandisk in particular, up 2 percent pre-market,
 Western Digital, up more than 1 percent as well in Micron, up 1.5 percent, but a big factor
 in those pullbacks, as I just mentioned, has been the action that we have seen in the
 bond market.
 Thirty-year U.S. Treasury topping 5.33 percent in yesterday's session.
 That was a new, nearly 20-year high.
 You could see we're taking a bit of a breather here this morning, we're also watching the
 20-year Treasury auction later today, but we're taking a bit of a breather here in the
 bond market with what we've seen, the recent run-up in yields.
 You could see a bit lower across the curve, the U.S.-10-year Treasury yielding 4.69 percent
 after that two touched levels we hadn't seen since, call it January of 2025, yesterday
 Fed-sensitive two-year Treasury yielding 4.16 percent this morning.
 Higher energy prices are continuing to be in focus here, that's on fading hopes for
 a Middle East peace deal in the moves, and that is factor in what we've seen in the moves
 in bonds.
 Iran's foreign minister is rejecting the idea of a temporary truce in the ongoing conflict
 stating that Tehran is seeking a permanent resolution, meanwhile, new data from Kepler
 showing that straight-up removes traffic slowed further yesterday as well, so if you take
 a look at what we're seeing in energy right now, WTI is that more than 1 percent trading
 just below $86 a barrel, Brent of 1 percent trading just below $92 a barrel, our Bob Gasoline
 futures are higher, and that gas is also fractionally higher this morning, it tends to trade
 a little differently.
 And another busy day of retail earnings on tap today, we've got Target, Lowe's, TGX reporting
 results, we're also going to get analog devices, earnings here this morning, S.A.
 Lotter 2 on the consumer side, but let's see how Europe and Asia are faring.
 J.P. Young is in Singapore, Karen Cho is in London, and J.P. let's start with you, especially
 since as we've been talking about this bond sell off here in the U.S., it's been a global
 phenomenon, not just a domestic one.
 Indeed, Morgan, a good morning to you guys out there, and it keeps markets here risk off
 for the most part because of those rising bond yields, not just in the U.S., but also
 when you look at these, some of these major Asian markets from Korea, to even mainly
 try to 10-year bond yields all rising, although we're starting to see this surge, up to
 good bond yields, just showing signs of losing a little bit of steam.
 J.P. is 10-year JGB yields still close to 3 percent, and to put into context, the last
 time we saw it 3 percent, I was a junior in high school, actually, back in 1996.
 So again, you're seeing these elevated bond yields really pressuring some of these equity
 valuations, especially in the NK225, and more outsides with regards to tech offers,
 which is that of softback, and also Kyosuya, softback, actually, according to NK, announcing
 that they're going to raise over $6 billion by a retail bond offer, the biggest in Japan,
 but that won't be tested actually by the current uncertainty with regards to bond market
 conditions out in Tokyo.
 It's a similar story, we take a look at South Korea, and the tech shares, like Samsung
 and SK Hynex.
 In fact, today, we saw the sell-off trigger another side-car in South Korea, once again,
 because of the return volatility pulling the South Korean benchmark down.
 SK Hynex in today's session also promising that they're going to use up to 50 percent,
 their half, their free cash flow to try and support the return it back to shareholders,
 and embarking on a 40 trillion Korean one bond share buy-back, to try and prop up the
 stock that fell precipitously in today's session.
 Finally, we take a look at Chinese markets.
 It's the same story also, the Hanseing barely staying afloat.
 It also robotics offers out in mainland China, also suffering from extreme sell-off, and
 I bring that back up because we have to talk about the big IPO with Unitry.
 The humanoid robot maker, out in Shanghai, that actually debuted with a 460 percent surge
 from its IPO price of just over 150 yuan.
 There are over 140 robotics makers, it seems, out in China, and it seems that interest
 in China, with regards to robots, is starting to ramp up market.
 But the big question for Unitry is really whether they can convert this frenzy and some
 of these flashy robots into something that's more commercial and actually profitable.
 That is the $66 billion question, which, by the way, is the valuation of Unitry after
 its first day in the public markets.
 It's back to you guys for now, and hopefully the midwigs session is going to be better
 for you guys in New York.
 Good morning, Morgan.
 Good afternoon, JP, and I will say the video.
 We're going to be talking a little bit more about Unitry a little bit later this hour
 and the video is wild, so we'll get into that.
 I'd also just say, JP, that I like the 1990s high school reference, they call us elder
 millennials.
 That's the term for us, so for what that's worth.
 JP Young, it's the term.
 That's what we're doing.
 Yes.
 All right, let's turn to the early trade in Europe.
 Karen Cho is in London, and she has more on that for us.
 Hi, Karen.
 Morgan, good morning to you.
 I'm just going to steer away from misspent youth and take you to markets directly.
 I'm mixed bag here for European equities and the Wednesday trade with that global bond
 route and hire oil prices weighing on investors, sentiment, attention to on the Fed minutes
 when he clues around the central bank's rate path ahead.
 You can see French stocks trying to snap a losing streak, but really tend to do to the upside
 elsewhere red for the major markets.
 If you're looking for the green, it's really concentrated around some big defense names,
 like some rank staff run, some of the AI trades, Nokia and oil and gas stocks.
 Now, on bond markets, yields may be starting to pull back slightly, but the impact of the
 past week's sell-off is still being felt with attention, turning to a highly anticipated
 20-year treasury auction later today.
 You're slightly more stable following that sell-off, which saw yields in Germany and France
 at over decade highs.
 And another big story we're tracking here in Europe this morning.
 UK inflation has hit its highest level since March as a rose to 2.9 percent in July.
 The ONS said the rise was due to the largest rise in gas prices in four years, pushing household
 energy bills higher.
 Morgan, back to you.
 All right.
 Karen Cho, thank you.
 Let's turn to the U.S. housing market, because that is certainly in focus this week.
 Told brothers reporting at lower third quarter profit and revenue, but those still be
 at estimates that luxury home builder delivering fewer homes, but sold them at higher prices.
 Told saying the housing market remains challenging, but results were solid, given the resilience
 of its wealthier customer base.
 You can see those shares are fractionally here pre-market.
 This comes in the back of data showing single family housing starts, falling to the lowest
 level in more than three-and-a-half years in July.
 We got that data point yesterday.
 Later signed that the market is being pressured by higher mortgage rates and bond yields.
 And the yields on the long bond steadying today below 5.27 percent that's after hitting
 its highest in nearly 20 years yesterday at 5.33 percent, 10-year, which is used as
 the benchmark for mortgage rates is just below 4.7 percent right now.
 Average rate on a 30-year fixed mortgage rising to 6.75 percent yesterday.
 It's up from just under 6.7 percent on Friday.
 And just to put all of this together, because we heard this from Home Depot yesterday as
 well.
 So telling CNBC, they continue to operate in a, quote, frozen housing market conditions,
 even as they do continue to take market share.
 So joining me now is Logan Matashami.
 He is lead analyst at Housing Wire.
 Logan, it's great to have you on the show.
 We just sort of laid it all out.
 We talk about easy financial conditions in other parts of the economy or other parts of
 the market, but not in housing.
 But this year compared to other years, a mortgage spreads, the difference between the
 30-year and 10-year yield are close to normal.
 So as even though rates are at yearly highs almost, they're not as bad as they used to
 be.
 So the existing home sales market still year to date is up about 2.4 percent.
 But the conflict has complicated things, right?
 The 10-year yield does not like any negative news on the clock.
 So the longer this goes, the 10-year yield has gone up higher.
 And growth is slowing down definitely in the last five to six weeks with our data lines
 that we track.
 So I want to go back to the spread between a mortgage and 10-year here, because that had
 widened to a record in the last couple of years.
 Why is it narrowing now?
 Traditionally, when the Fed starts cutting rates and when you've come off of a cycle where
 rates have been elevated, spreads do come down over time.
 So that's been a positive.
 If it was 2023 or 2025, mortgage rates would have been above 7 percent most of the year.
 So housing tends to operate better when rates are below 6.64 and heads towards 6.
 But every single year or something happens where rates start shooting up higher and that
 growth slows down.
 So even though growth is still positive, if rates stay at this level or keep on going
 higher, that growth will decelerate like it's done in the last few years and we go
 nowhere.
 Okay.
 What is inventory factor into all of this then?
 Inventory has been actually one of the positive stories in the housing market the last
 two years.
 We're back to somewhat normal.
 So that's keep price growth and check that is something everybody's wanted.
 So the inventory store, even though we're only up 1.28 percent year over year, it is still
 a positive story.
 Wages are outpacing home price growth that is good for affordability over time.
 It's really a rate store.
 You just get rates near 6 percent.
 You could have growth in sales in the existing home sales market.
 I mean we just touched on home deep but we got those results yesterday they were better
 than expected.
 We're going to get lows results this morning as well.
 I mean on the one hand, you don't necessarily have folks transacting as much, moving as
 much because rates are high here right now and they have a lot of equity in their homes.
 On the other hand, they do have a lot of equity in their homes and perhaps they're going
 to spend more here to continue to update and improve their homes.
 So how to think about that dynamic as well?
 You know, housing tenure in America has doubled in some states that it's tripled so people
 are staying in their homes longer and longer.
 We have a very age stock of housing.
 There's a lot of homes that were built in the 40s and 70s that do need repair.
 So that is positive for the remodeling market.
 The very low percentage of homes are underwater.
 There's a lot of nested equity out there.
 The lot of homeowners are doing well financially.
 So the remodeling business oddly enough has held up very well in this cycle and that's
 kept residential employment elevated compared to other cycles.
 Housing starts and permits are another thing we're not going to be building homes with
 the builder supply where it is right now.
 But the remodeling business has been a highlight for the housing market the last few years.
 Okay.
 Logan, Mata Shami, great to have you on to start the hour.
 Appreciate it.
 Pleasure.
 We got a lot more to come here on morning call.
 We really do.
 Including the new growing threats to the global economy.
 We've got a closer look at how weather around the world is disrupting everything from energy
 to trade, farming, what it all means for your money.
 Plus more on Unitry's big trading debut in China as that company looks to get a leg up
 on the humanoid robot race versus Elon Musk and others.
 And later in an in-depth conversation with the under secretary for acquisition and
 sustainment at the Pentagon, Michael Duffy on that massive contract for RTX for Tomahawk
 missiles, just the latest in a series of these agreements.
 But of course, seeing that as questions continue to swirl about the state of the U.S.
 missile and munitions supply and whether we have enough stockpiles, very busy hours still
 ahead when morning call return.
 AI is here, transforming how we work, live and lead.
 The women I talk to aren't waiting for the future, they're shaping it.
 I'm Julia Borstin, senior media and tech correspondent at CNBC.
 This is CNBC Changemakers, where I talk with the female leaders transforming business
 as AI reshapes the world.
 Follow and listen to CNBC Changemakers, Women Leading in the Age of AI, wherever you get
 your podcasts.
 Welcome back to Morning Call.
 It's been a one-two punch for the global economy, first war now weather.
 Thanks to drought in many parts of the world right now, water levels are extremely low,
 disrupting energy generation trade flows and farming.
 Take the rine at the major bottleneck call levels dropped to six centimeters on Saturday.
 It's far below the 25 centimeter record that was set back in 2018.
 The river carries Germany's commodities, including steel, chemicals and petroleum products.
 It's already affecting companies like BASF and Lansix and could threaten Germany's economy.
 The German Economic Institute estimates a repeat of 2018 conditions could shave 0.4 percent
 off of GDP, erasing this year's projected growth for Germany.
 Water levels on the Danube River, that's the second longest in Europe, have dropped so
 low that Sunken World War II German warships are now becoming visible.
 It's pushing power plants to the brink of shutting down with governments across Central
 and Eastern Europe taking steps to conserve electricity.
 Norway is deliberately sinking barges this week in an effort to raise river levels to keep
 the Pax nuclear power plant operating.
 Then here in the western hemisphere there's a Panama Canal.
 Weight times and daily auction prices have soared low water levels in the locks that feed
 into the canal have even caused the Panama Canal Authority to implement a schedule of restrictions
 on the draft of vessels that it can actually accept.
 And this just as tankers are looking to bypass Middle Eastern waterways.
 So here in the US it's a crisis for the Colorado River and its reservoirs as well, which
 supply water to 40 million people and five and a half million acres of farmland.
 Lake Powell, this is the second largest US reservoir, it's now less than 30 feet from
 the level at which its Glen Canyon hydroelectric dam would stop generating power.
 So if you put all of it together it's a recipe for more bottlenecks and potentially higher
 costs.
 And at a time where inflation, not just here in the US but around the world is already sticky.
 So let's talk more about the market and economic impact of all of this.
 Let's bring in Dan Leonard, director of forecasting for the US A at Met Desk, it's specialized
 commercial weather and data analytics firm.
 As we like to call you here, you're the Wall Street Weatherman, Dan.
 It's great to have you back and I think just laying out what I did, your response.
 We're kind of in trouble right now because that's the overall idea.
 You know, I get asked a lot as an energy meteorologist, what do you think of nuclear power?
 It's such a stable source, the alternative source of energy, it's cleaner than burning
 fossil fuels, it's way more reliable than solar and why don't you ease more of it.
 And I think Europe right now is proof positive of things that can go wrong when you have nuclear
 power.
 You have a really hot summer.
 And remember, the nuclear generators need cooling to continue to operate.
 And when your river levels are too low or when the water is too warm or in some cases
 you have jellyfish infestations, that can cause major problems and then the nukes have
 to either curtail or shut down completely.
 And I think we've lost like over 20 gigawatts of power because of this right now in Europe.
 And that's a massive amount of generation that is completely offline.
 So when I hear this argument that nuclear is so stable, like actually no, you can have
 these situations that cause it, weather situations, you know, beyond Fukushima that
 cause it to go offline.
 And then it can take weeks or even months to come back online.
 We've got to replenish those river levels and that can take a while.
 So yeah, we're in trouble in Europe right now.
 And then the US, this could be something that easily happens in the future.
 We have a lot of nuclear reactors that are on lakes, rivers and on the ocean that are
 impacted by something like this.
 Yeah, we just mentioned it.
 I mean, hydroelectric power too and the potential impacts if you see reservoirs continue
 to pull down, draw down here as well.
 I mean, jellyfish infestations.
 I feel like this is probably a whole separate conversation.
 We could have none the less, what does all of this mean for power prices?
 What does it mean for the companies that provide the power, the companies that provide the
 inputs that go into the power?
 Yeah, well, I mean, obviously power prices are up in Europe.
 They're going to be up over parts of the western US because of the severe drought here.
 We have a lot of hydroelectric in the west, especially the northwest where it's been
 obviously very dry.
 And now we're moving into the fall and winter.
 We didn't really get the monsoon in the western US that it was hoping for.
 It's been okay, but really coming off such a warm and dry winter, we needed a lot of rain
 this summer.
 We didn't get it.
 Fortunately, it looks like at least for the southwestern US, that is we move into the
 fall and early winter.
 We will have a more active pattern, which should replenish a lot of the rivers and reservoirs
 out there to help with hydrogen.
 But the northwestern US, on the other hand, tends to be warmer and drier during Elmenio
 winter.
 So, that could be an ongoing problem there as well.
 Okay.
 So, how to think about all of this, not only going into the winter, but coming out the other
 side of it, especially, well, I guess I'll say coming into the winter because hurricane
 season is upon us, too.
 Is that at least a bright spot here that maybe we don't see hurricanes that are severe?
 Yeah, at least not in the Atlantic.
 We tend to have suppressed activity in the Atlantic, and we've seen that all season long.
 It's been very enemic in the Atlantic basin.
 The Pacific, on the other hand, has been very active, and our model suggests it will continue
 to be very active across the Pacific.
 And you might think, oh, okay, that's fine.
 Asia gets their storms with the North America is safe.
 But actually, on the other hand, it can actually have big implications on the larger scale
 pattern if you get a lot of typhoons in the West Pacific.
 So, that's something that as meteorologists were following closely as well.
 Okay.
 Dan Leonard, it's great to have you back on.
 Appreciate it, and all of your insights, as always.
 Thanks more.
 Of course, all of this has been contributing to what's been a ferocious wildfire season
 so far, both here in the US and in other parts of the world, including Europe as well.
 Well, straight ahead, we've got new details on Chinese tech giants, apparently gaining
 access to one of Nvidia's most powerful chips, and as we go to break, let's get a check
 on several energy names, shares hitting new highs.
 That includes Marathon Petroleum, Phillips, Target Resources, and Valero refiners.
 They have been on fire, those stocks, and in just a few moments we're going to explain
 a little bit more about that, all up between 10 and 15% in just this month alone, the names
 that are on your screen, one call is back after this.
 AI is here, transforming how we work, live, and lead, and the women I talked to aren't
 waiting for the future, they're shaping it.
 I'm Julia Borsten, senior media and tech correspondent at CNBC.
 This is CNBC Changemakers, where I talk with the female leaders, transforming business,
 as AI reshapes the world.
 Follow and listen to CNBC Changemakers, women leading in the age of AI, wherever you get
 your podcasts.
 Welcome back, let's get a check on Nvidia.
 The Financial Times is reporting that small batches of the companies, each 200 chips, its
 most powerful AI chips have been allowed to enter
 mainland China.
 The FT says that bite-dance and tenscent have each received about 10,000 of the processors
 in recent weeks, and that other Chinese tech firms could get similar shipments.
 The apartment development comes as Beijing, continues to support its domestic semiconductor
 industry as well, and it's pushed to become self-sufficient, given these Western export
 controls.
 You can see shares of Nvidia are up fractionally this morning.
 We'll see what kind of commentary we get when we get Nvidia earnings next week.
 Deep in mind, the company and Jensen Wong have been very clear in saying that they've
 de-risked in terms of their exposure to China, and that it does not factor in to their guidance.
 We will see.
 Sticking with China and humanoid robot maker Unitry, that surges in its public debut in
 that country today.
 The company is seen as one of the biggest rivals to Elon Musk's own robot ambitions over
 at Tesla.
 Units Units joins us now from Beijing with more on that, and Units, I mean, we're showing
 it already, but the video here is wild.
 I'd also just note the float was very small.
 Yes, yes, it was, but at the same time, it did have a stunning debut.
 This company now has $900 million more money to be able to compete with the likes of Tesla.
 The stock soared by 630% at one point, so that valued Unitry at $59 billion, or $161
 per share versus the IPO price, which was $22.
 The stock ended up only 460%, so a very good debut for Unitry.
 A little bit about this company, it's seen here as the leader of humanoid robots competing
 with the likes of Tesla.
 In fact, in 2025, it shipped 5,500 of its humanoid robots versus Tesla's zero.
 In terms of the other numbers that are important to this company, that is one of the few that's
 profitable in its industry, so it was able to earn $41 million in 2025 on $250 million
 of revenue.
 The strategic investors are also big tech names, deep-seek, 10 cent, as well as the state's
 energy companies, the state grid, as well, 20% of the allocation of the IPO went to
 some of those firms.
 Now, the profit and the key partners aren't the only reason why the retail portion was
 subscribed by 5,500 times.
 The company is in a strategic sector that Beijing wants to be able to promote.
 So the founder, we see him at meetings with President Xi Jinping, retail investors also
 know that this is a company that we're the robots are heavily promoted at big events
 and are important for industrial policy.
 In fact, Morgan, this week, they unveiled one called Superman, and it could jump two meters
 high just while standing.
 So they have a lot of interesting robots that people are pretty proud of.
 Yeah, I mean, we just showed a video of robots doing the robot, which just tickles me here.
 So in light of that, especially as we do see the supply chains between the US and China
 continue to disentangle where humanoid robots and physical AI is concerned here, how to
 think about where China is in this, for lack of a better term, geopolitical or global
 race to bring this technology to maturation.
 And I asked that because I've had so many conversations about the technological innovation
 and engineering feats that go into these things.
 I mean, from a connectivity standpoint, a power generation standpoint, even being
 able to have them grasp properly, very, very hard.
 And yet everything we're showing on the screen looks very sophisticated.
 And then I hear you say that the company's profitable.
 Yeah, this one is profitable.
 But what has been interesting is that the net profit for the first half of the year, which
 came out just this week, showed that their profits had dropped by 19%.
 So they say that a lot of that is going to R&D.
 To your point, they want to be able to invest more in what they say embodied AI.
 They think that a key differentiator is going to be going into the models, like the brains
 of these humanoid robots, because the challenge for them is to be able to get these humanoid
 robots to just not only be like dancing around, but also to be in people's homes doing certain
 jobs.
 And so I think from there, you know, Unitry wants to be dominating this, but also China
 wants to dominate it.
 So, you know, when you're talking about the geopolitics, we see that this company is viewed
 as an important one to kind of build the momentum over the money that goes into the
 IPO's.
 So there are like robotic IPOs, AI deep-seek, moonshot, all these companies are supposed
 to be IPO-ing in the coming year or so.
 All right.
 Unisune.
 Great reporting.
 As always, wonderful to have you on the show.
 Well, as we had to break, let's get a check on lazy boy shares.
 Those are plunging on the back of Q1 results, swinging to a loss due to declining sales,
 revenue guidance for the current quarter missing the streets estimates.
 Today it was really touting the strength of their retail business, but Wall Street's
 not buying it.
 Shares are down 19% morning call is back in a moment.
 Welcome back.
 I am Morgan Brennan, and this is morning call.
 Let's get a check on the U.S. stock futures this morning.
 As we see, we'll call it a little bit of stabilization here, pre-market, mixed picture,
 but very minimal moves.
 The S&P is poised to open up two points, so basically flat, down 10 points, and the
 Nasdaq is poised for gains of 29 points.
 This is after a sell-off in the major averages to start the week.
 Something we've seen in the wake of a big sell-off, and not just here in the U.S., but globally,
 in the bond market.
 So let's get a check on what we're seeing with Treasury yields here.
 This morning, you could see the U.S. 10-year Treasury yielding 4.69%.
 So we're still elevated, we'll say, versus a week ago, but taking a bit of a breather
 versus some of the moves we've seen here to start this trading week.
 Let's go look at the 30-year Treasury as well, 5.28%, that's after that top 5.33% in yesterday's
 trading session, touching a new nearly two-decade high this morning, though, as I mentioned, it's
 not just bonds here in the U.S., it is what we're seeing in bond markets across the world.
 So we'll just get a check on Germany's 30-year bonds that touched 15-year highs yesterday,
 for instance, 30-year.
 It's trading right near an 18-year high, Britain's 30-year guilt is at a nearly 30-year high,
 and in Japan, you had 30-year JGBs with yields now at a record crossing above 4%, which
 is where we are this morning.
 Let's turn to energy prices as well, Iran's foreign minister rejecting the idea of
 a temporary truce in the ongoing conflict, stating that Tehran is seeking a permanent
 resolution.
 The comments coming after President Trump yesterday said that there is no ongoing dialogue
 with Iran to end the war, and no discussions are scheduled.
 You could see energy prices continue to climb higher this morning, WTI is up about 8-10-1%,
 trading around $85.70 a barrel.
 Brent is also up 8-10-1%, trading just below $92 a barrel.
 The President recently denying reports that the U.S. military is facing severe munitions,
 shortages, as the war in Iran drags on as well, and amid those questions about stockpiles,
 Pentagon this week announcing a nearly $23 billion contract with RTX to accelerate production
 of the company's Tomahawk missiles, basically going up to a thousand missiles in production
 per year over the coming years.
 So let's bring in Michael Duffy, the honorable Michael Duffy, under Secretary of Acquisition
 and Sustainment at the Department of War, and Secretary Duffy, it is great to have you
 on the show a lot to get to here, but I am going to start right now with you with the state
 of missiles and munitions stockpiles here in the U.S.
 Do we have enough?
 Good morning, good morning, it's great to be with you, thank you so much for having me
 on.
 Listen, I think President Trump, Secretary Hegseth, Chairman Kane, they've repeatedly
 said the U.S. military is prepared to defeat any threat at any time, at any place of our
 choosing, and I think that continues to be true today.
 So in light of that, I mean, we've had a flurry of headlines just in the last couple
 of weeks, suggesting that our numbers and our levels are dangerously depleted, do we
 have the ability to have maximum flexibility if this war in Iran continues, especially
 if the need to escalate arises?
 Well, listen, I think President Trump, Secretary Hegseth, are leading when it comes to ensuring
 that we're rebuilding the military and revitalizing the defense industrial base.
 Having a healthy defense industrial base can only help us when it comes to ensuring
 that we are prepared to defeat any adversary that's true in today's fight and tomorrow's
 fight.
 And so this deal that we've rolled out is a great deal for America.
 It's an opportunity for us to rebuild the military and create multiples of production
 on a combat-proven missile, the Tomahawk missile, that is sought after worldwide.
 We've created 3,000 jobs in Tucson just for the Raytheon factory alone, let alone the
 entire supply chain, and we're building the workforce.
 We're building the supply chain, and we're building the factories that we need to ensure
 that we will have a military that's prepared to fight any enemy for the next generation.
 Okay, I want to get into all of these deals in more detail here in just a moment, but
 I just have one other question, given some of the media coverage we have seen about the
 state of the U.S. military, because there does appear to be this narrative, or we'll say
 the optics appear to be that the U.S. military and perhaps any defense industrial base is perhaps
 a little more fragile, or not modern enough to meet the demands that we're seeing of modern
 day warfare, including drone warfare on the battlefield case in point, we're talking about
 missiles and munitions, but then even just conditions of the U.S.S. Lincoln, the fact that
 the Lincoln needs to return to be serviced and another aircraft carrier is going to have
 to replace it in the middle east, your response.
 Well, I mean, there's no question that the Biden administration neglected not only rebuilding
 our military, but our defense industrial base, but we've been focused since the President
 Trump entered into office on engaging our industry, ensuring that we have, I mean, the defense
 industrial base is a key strategic asset to the country to ensure that we can provide
 what we need for our war fighter, for the security of the American people.
 And so our focus has been on how do we engage industry, which we've done very aggressively
 since we came into office, and lay down the expectations of what we need from industry
 in order to deliver for the war fighter, Secretary Hague Seth, President Trump, have been
 doing that since we arrived in office.
 All right, so let's go back to some of these big framework agreements that are now converting
 to contracts, whether it's RTX with the Tomahawk missiles this week, we could talk about
 PAC-3, THAAD, SMR-3 could go down the list here, a number of companies that are involved
 in this, whether it is RTX, Lockheed Martin, Northrop Grumman, Boeing, L3 Harris, et cetera.
 I want to talk about the conversion to contracts, because we're talking about seven-year contracts,
 multi-billion-dollar deals, the difference between undefinitized and definitized contracts
 and the role that Congress is going to play in appropriating all of this.
 Well, first of all, these deals really are unprecedented.
 I mean, thanks to the cooperation of Congress, we have gotten this multi-year procurement
 authority, which is not a new authority, but I think we've used it in new ways.
 For example, this deal we rolled out with Raytheon and the deal we, you mentioned that we rolled
 out with Lockheed on the Patriot missiles from two weeks ago, are seven-year deals.
 This is a duration and a volume of production that incentivizes business to invest their own
 capital.
 Well, unprecedented.
 Billions of dollars of capital coming from Raytheon, Lockheed, and their supply chain in
 order to build these factories, these workforces, these supply chains to supply the military
 for the next generation.
 Second, we've been able to hold unit cost steady.
 That's unprecedented.
 When, you know, typically we have year-over-year appropriations, as you'd mentioned, by leveraging
 the multi-year contract and taking it from the framework agreement to the undefinitized
 contract, we've locked in a unit price that will hold steady for the next seven years.
 And finally, we've been able to introduce profit sharing, also unprecedented in terms
 of a deal of this size.
 That means as Raytheon and Lockheed and these other companies are investing heavily in
 order to improve and modernize their manufacturing, a portion of their savings will return to
 the federal government.
 So I actually believe, when everything is said and done, we'll have a cheaper missile
 than we did when we started.
 Yeah.
 So just to be clear on this, a change in composition in Congress wouldn't necessarily change this
 dynamic or create a risk to this seven-year timeline that you're engaging in with industry.
 What about continuing resolutions?
 Well listen, I think absolutely funding is required in order for us to fulfill this contract,
 a multi-year procurement, still requires the funding to be made available by Congress.
 We have been engaging with Congress and we have widespread support.
 There's a recognition of the need for us to grow our munitions magazine, and I think that
 we will be successful in the end in getting that funding and delivering these missiles
 for the warfire.
 Yeah.
 The U.S. Army just announced a contract with Hanwa last night, too, that's getting some
 attention.
 Korean, you know, aerospace and defense contractor that operates here in the U.S. as well.
 Whether it's that, whether it's defense tech and some of the new startups that we talked
 on the show on a daily basis, how is the aperture opening in terms of how you're engaging
 with industry?
 What does it mean for competition?
 And what does it mean for that defense industrial base and how you're thinking about bottlenecks
 in the midst of all of this?
 Well, Morgan, I'm glad you brought that up.
 In our direction from President Trump is to expand the defense industrial base across
 the board.
 So, yes, we're working with Lockheed and Raytheon.
 They have very combat-proven missiles in the Tomahawk and the Patriot, but we're also
 negotiating deals with Andral and Co-Espire and Zone 5 and Castilian, new entrants across
 the board.
 You mentioned Hanwa, the significant investment from the Korean company in a Philly shipyard
 and down at Pine Bluff Arsenal to expand operations here.
 We are all about growth in the industrial base so that we can create not only the military
 that we need, but a defense industrial base that's resilient to continue to protect
 the American people for the next generation.
 All right, Secretary Duffy, appreciate it.
 Thank you for the time today.
 It's great to be with you.
 Thank you so much, Morgan.
 We'll be back after this.
 Welcome back to Morgan.
 Let's turn to energy and a key metric that means more to the economy, arguably, than crude
 oil prices.
 The diesel crack spread is a key measure of refining profitability.
 It's steadily climbed to new records.
 Crossing above $100 a barrel earlier this week, the diesel crack spread, it normally runs
 somewhere between 15 and 25.
 The calculation is based on a formula that tracks the direct premium of ultra low sulfur
 diesel over crude, be it WTI or Brent, refined product prices, overall, they've seen much
 bigger gains since the start of the Iran War than crude.
 They have not come down in the same way from the highs either.
 So why?
 Well, with all the attacks on refiners in the Middle East, that continue and attacks in
 this Russia-Ukraine war, including some of those attacks by Ukraine on Russia's refining
 capacity, these are the two regions that make most of the diesel for the world.
 And you've seen that capacity come offline.
 So now you take that, you factor in delayed refining maintenance in places like the US,
 because the spreads have been so good, and because there's been such need for supply,
 and it's been so tight, at some point that, too, will come offline temporarily.
 So who gets hit first when you see diesel prices shoot higher?
 First, farmers, truckers, this is all going to ricochet from there.
 Remember, freight companies don't eat higher fuel costs, ship or zoo, which means companies
 and potentially consumers will continue to see the impacts of those higher costs.
 Now, can the crack spread go higher?
 Yes, potentially.
 At some point, though, and this is a debate, you could start to see demand destruction.
 This is a supply shock that will affect inflation.
 The Fed and other central banks can arguably do very much about it.
 And it is part of the reason that we're seeing longer-dated debt, which we just touched
 on in the last block, selling off.
 And it's not the biggest contributor, but it is a big contributor to the move that we've
 seen higher in yields overall.
 Well, straight ahead, the morning call crew team up the trading day ahead, and the Keith
 Resholtz for bonds that one member says could trigger greater pain for stocks.
 Time for your call sheet where we look at the topics driving the trading day ahead.
 Crew members today, blah, blah, blah, blah.
 Victoria Green and Ed Mills, all right, it's great to have you all here.
 We got a lot to get through.
 Not a lot of time to do it, but it seems to me we've got three sort of tent pole topics
 that are going to take us until everything is driving the markets in economy right now.
 Whether, war, and a weary consumer.
 So if we start there, blah, blah, I want to get your thoughts on all of this, especially
 as we've been talking about a bond market sell off, and we've been talking even as we
 have softer economic data as of late.
 You know what we're going to look?
 I think the story really quickly is simple.
 One, equities are telling a different story, fixed income is telling a completely different
 story.
 One is a little more bullish, and I think here's a story that underlines that, the weak
 consumer.
 If you look at what's happening with jobs, I think an average person that's out here,
 I'm in New York City.
 These people are struggling to find jobs.
 You think about people 34 to 16 to 34.
 There's not a lot of opportunities that were summer on record for someone that's coming
 out of college to try to find a job.
 So I think the weaker consumer is a very telling sign, but for the most part, the Fed has been
 really lucky because they got bailed out by obviously the yield market.
 Okay.
 Victoria, you want to get your thoughts on that?
 The weak consumer piece of this specifically is we do look to more retail earnings here,
 and just honestly just a few moments, whether it's Target, which is a stock that's been on
 fire this year, or TJX or some of the others.
 Absolutely.
 And when do you think consumers continue to trade down?
 I do unfortunately think that the economy is alive and well.
 I know Bessett said, hey, that's well, that's over with now, but I think that's continuing
 to happen.
 And consumers are continuing to look for value, especially as fuel prices are coming up
 here.
 We're having gasoline sticky, oil sticky, housing is still a little bit expensive.
 Rates are relatively high, mortgage rates are higher.
 And so I think you are still seeing that my lays across the economy.
 That's difficult.
 And that's pushing bond yield tire.
 I think Walmart's going to do pretty well, but a little worried they're going to warn
 again on what the consumer is doing, but they continue to pick up more and more shoppers
 that are trading down the same with TJ Maxx, people that are going for a little bit
 of a discount.
 And Target, obviously we're looking at, it's the turnaround story really intact or not.
 But I am worried on the consumer.
 If we're seeing wage growth slow, what is that going to do down the road, especially if inflation
 stays sticky?
 Okay.
 Ed would love to have you weigh in on all of this, especially if inflation stays sticky
 part, because whether it's on the weather side, which we talked about earlier in the show,
 or whether it's on the war side, and we are seeing trade bottlenecks.
 We are seeing supply, you know, supply shocks.
 Case in point, I just talked about we're seeing in the diesel cracks, but a few moments
 ago.
 How is all of this factoring in?
 Yeah.
 So when you look at this, this is a big weight as we go into the midterm elections, something
 that Republicans are in president Trump, we're going to have a lot of headwinds for.
 What I'm ultimately looking for is does this allow for the Fed to cut?
 Does this force a Fed Treasury accord to try to tamp down those yields?
 Is Treasury going to get more aggressive in buybacks of certain Treasury issuance of data?
 This is not what's got best and promised in its confirmation hearing.
 And so pressure on yields coming from Treasury working with the Fed, I think is the next
 policy move we need to pay attention to.
 Okay.
 We've got 90 seconds here.
 Let's lightening around this.
 Well, your thoughts on what is contributing here to this bond market sell off?
 I mean, is the fiscal piece something that investors are waking up to in a bigger way?
 100 percent, $40 trillion is a sticker price.
 Let's be honest here, that the market has to get comfortable with.
 The second thing, and let me just land this for you, Morgan.
 We have to figure out, are we re-pricing growth and or risk, and that's what the bond market
 is going to tell people, and I think all investors right now should be paying attention to
 that.
 All right.
 We've seen this hit momentum, you know, stocks and tech stocks, especially hard Victoria.
 Do you steer clear of that right now?
 Yeah.
 Well, look, I think long duration is really tough, the long end, I think could go higher.
 So we're around six years of a trillion plus deficits, and it's starting to kind of wear
 in the bond market.
 So you've got to be a little wear in a long duration of heel spike.
 Okay.
 And Ed, I'll give you final thoughts here, especially as we do look to Fed minutes later today.
 Yeah.
 Well, if we're at 40 trillion, the debt limit is 41.1 trillion.
 The debt limit comes back next year.
 That's going to be the big fight.
 The only must pass thing.
 That's going to be the next bond market story for 2027.
 Okay.
 I mean, we got 15 seconds left, Ed.
 Can the Fed actually fix some of this issue or is the bond market doing it for them?
 No, I think they will.
 You look at these task force.
 This is all setting up for this cut next year.
 This is a coordinated effort, as I mentioned, to make sure that these yields stay where
 they need to be.
 All right.
 That does it for us here.
 Thank you to our call crew, Rockstars.
 AI is here, transforming how we work, live, and lead.
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 I'm Julia Borsten, senior media and tech correspondent at CNBC.
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