Copper demand, defense AI and consumer strength shape the market outlook 8/18/26

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 A key September jobs report after the Fed's first rate hike in three years will the labor
 market show signs of cooling, the new numbers, and what they could mean for the economy.
 Friday, 8.30 a.m. Eastern and streaming on CNBC Plus.
 Bonself continues, I'm Morgan Brennan, and this is your morning call.
 Let's get a check on U.S. stock futures, which are turning negative here decidedly so when
 it comes to the NASDAQ here, pre-market.
 NASDAQ is poised to open down more than 1% right now, down 285 points, down down 35 points,
 but basically around the flatline, S&P down at 36 points this after a down day for the
 major averages yesterday, as well as Friday, and the S&P, as I mentioned, and NASDAQ coming
 off of two straights, negative three straight, two straight negative sessions.
 What's causing this?
 Let's take a look at the bond market right now and what we're seeing in Treasuries as
 those continue to sell off here and as yields continue to move higher across the curve.
 So U.S. tenure treasury yielding 4.73% now, we've seen a big move up just since Friday.
 The 30-year treasury yielding 5.32% now, that continues its move higher.
 We're trading at fresh 19-year highs there.
 For the 10-year treasury, the yields right now are at the highest levels we've seen since
 January of 2025, and if we get a check on the Fed-sensitive 2-year treasury, 4.19%.
 We'll get a quick check on the dollar index as well here.
 The dollar is higher, and well, it's unchanged right now, actually.
 99.63 is the level there.
 And finally, let's get a check on energy prices as crude continues its climb, which in turn
 is contributing to what we're seeing in Treasuries, WTI is up about half a percent trading
 just below $85 a barrel.
 Brent, basically flat here, trading just below $91 a barrel.
 Energy prices, as I mentioned, moving higher as we saw another ship struck, attacked that
 was traveling through the Strait of Hormuz by Iran.
 So for more on that and everything else we're seeing in the Middle East, let's get to Dan
 Murphy in Abu Dhabi with the latest.
 Dan.
 Morgan, good morning to you.
 Well, President Trump is threatening Oman, a longstanding U.S. security partner, as
 diplomacy with Iran seemingly breaks down.
 I spoke with the former U.S. ambassador to Oman, Mark Severs this morning.
 He told me he sees Trump's threat to bomb Oman as more of an attempt to get Moscow's attention
 than a practical military threat.
 But interestingly, Morgan, he also said the language really reflects a real frustration
 in Washington.
 He says Oman has shifted from being a neutral mediator to working with Iran on a plan
 for the Strait of Hormuz, and in the process may have lost the support of the United States.
 Of course, Washington not willing to accept any Hormuz deal that leaves Iran in charge.
 And the other Gulf states, including the UAE here and Saudi Arabia, also see that as
 unacceptable.
 So, the President in the last 24 hours has effectively killed the talks between Oman and
 Oman by firing this warning shot at the Omanis.
 As for what happens next year, well, Iran, for its part, is threatening to move now to
 a fully offensive military posture.
 That's according to Reuters.
 Some of that is of course bluster Iran's conventional military capabilities have been badly degraded,
 but Tehran can still cause real damage through proxies in Yemen and Iraq and elsewhere across
 the region.
 So, for markets this morning, the focus really back on energy supply, the Strait of Hormuz,
 and just how long the U.S. can keep up the pressure on Iran in Hormuz and elsewhere
 without triggering another sharp move in oil.
 Morgan.
 All right, Dan Murphy.
 Thank you.
 Let's see how markets in Europe and Asia are reacting to all of this.
 J.P. Young is in Singapore, Karen Cho is in London.
 J.P., let's kick this off with you and what we saw in Asia overnight.
 Yeah, Morgan, good morning to you guys.
 And the terrible, a tough Tuesday that is, once again, for markets out here in Asia.
 That's what you get when you have Brent Crude, once again, rising above $90 a barrel.
 And also those climbing bond yields that really sapped sentiment, especially for equities
 from Tokyo to Taipei.
 In fact, we saw gains in the Hongstank, practically flat and muted, for the most part, despite
 closing marginally in the green.
 Now, South Korean markets were coming back from a three-day weekend, and we saw once
 again that the cost per day, resumed trading, albeit in the red.
 A lot of this also depends also on how the memory king makers, Samsung and SK Heinix
 do.
 And it was a fairly mixed today, a little volatile.
 In fact, we saw Samsung open in the green today, and probably wipe out all those gains,
 especially because those bond yields, again, weighing are a lot of these tech-related stocks,
 especially in the AI space, and again, making for a bit of a muddled and downtrodden session
 for the sole benchmark.
 In Tokyo, it was similar, it was similar when you take a look at some of the AI-related
 stocks, particularly on the hardware side.
 J.P. in these JGB tenure yields, also hitting their highest levels since 1996, not making
 things easy, especially for equipment makers like Adventist and Tokyo Electron.
 Interestingly enough, shippers based in Tokyo, the likes of NYK and Mitsui, actually doing
 quite well because of what's happening in the straight-of-our-mouse, because there
 are expectations now that shipping rates actually might start to rise up, and customers
 will actually be able to absorb these costs, and thus also helping support margins for
 these companies.
 Finally, just a quick look, airlines, nothing to write home about, also you can see airlines
 from China, all the way to Japan and South Korea, all selling off a day session because
 of the prospect of search and jet fuel, and I shuddered to think about what this will mean
 also for airlines out in the US when trading resumes.
 Morgan, it's back to you guys, and hopefully you have a better Tuesday than we did out
 here.
 All right.
 Yeah, we sure hope so.
 We'll see.
 The day is obviously very young, J.P. Young.
 Thank you.
 Let's turn to European markets and Karen Show and London, Karen.
 Morgan, good morning to you.
 Well, J.P.'s commentary on technology and the impact of bond yields being reflected
 over here, as well this morning, as the losing streak continues, we're now looking
 about the fifth day in the red so far.
 European equities really underpressionally trade investors, focusing on those tensions
 in the Middle East as the US around ceasefire expires without a new deal or any sign of
 official negotiations, tension to on the bond market with many longer maturity yields
 globally, hovering around multi-decade highs.
 As a result, we're seeing modest declines across the board and in fact some of the steeper
 selling that hit really around the first hour of trade here, slightly minimized at this
 stage, but you can see it's still a downbeat session, six tenths of plus down for the
 Italian market.
 Breaking all down for the sector names, though retail is outperforming today, H&M, among
 the top performers on the Pan European Stock 600 index, following price target changes by
 city group and Jeffries, that is also propelling some of the other retail names, North
 likes of next, for instance, and the owner of Zara Intertext.
 Now, high crude prices are also seeing oil and gas names, eak out early gains, and to
 the downside, is those technology stocks that leading losses here in Europe back to you, Morgan.
 All right, Karen Cho, thank you for a closer look at the markets.
 Let's bring in Aaron Gibbs, chief equity strategist at Sleets Stone, it's great to have you
 back here on set. Welcome to you. A lot to talk about here. I mean, I realize from a volume
 standpoint, things are kind of quiet here, we're going into summer slowdown.
 From a volatility standpoint, at least in terms of the VIX and what we're seeing on the equity side,
 pretty subdued as well, but it's a totally different story when we talk about bonds, so that's
 really where I want to start with you. Sure. So yeah, I think, I mean, it's just been
 continuation, and we know that they're just so sensitive to any of the geopolitical risks
 that I think as long as that's still in the headlines, that's where we're going to
 concede. Equity markets have been pretty good about shrugging it off so far, and most days,
 you know, we've seen them. Has that surprised you? Yeah, actually it has, because oil is,
 you know, higher elevated oil prices is a big negative for the US economy, so it has been
 a little surprising that the US markets have been so, I guess, a clandestine or just very
 being able to handle it, you know, normally we like to panic. Yeah, I mean, along those lines,
 what's fascinating to me, and I know you've been focused on this as well, has been the top performing
 major averages this year, has not been the NASA, has not been the Dow, it has not been the S&P,
 it's been the Russell 2000, it's been the small caps, even as we're talking about elevated energy
 prices, we've seen a run up in rates, and yet this is, you know, the standout. Well, that actually
 makes sense to me, and that there's a lot of reasons why the small caps are outperforming,
 but this has to do with even going back to COVID when the feds rates rates by 5% and 9 months,
 when you're a small company, you're really exposed to those increases in rates because obviously
 you're turning over your loans every year, six months, two years, so when those rates go up,
 you get hit really fast. So rates came back down in 24, early 25, that helps them with their
 balance sheet, they also reduce their levels of debt. So this is really very much a fed story,
 a debt story, and so these companies got so depreciated, I mean, they were trading it about a 30%
 discount to the S&P 500, compared to they normally traded a 30% premium because they're
 higher growth companies, and this is all just because of fed rates and interest rates and how
 their debt structure was organized. And so because we finally have those cuts, early 25,
 that finally set them up to say, hey, I've got my debt under Pinscroll, it's a little cheaper,
 I can finally get better margins and better growth, but they're still trading at a discount of
 like about 20% when you look at valuations, but they have 30% higher growth for the next two years.
 So this is a long overdue story, they should have been outperforming in early 25,
 it just took it to the end of 25 in this year, and I think we can easily still see another 20%
 of outperformance, just on valuations, as long as the Fed doesn't do anything drastic,
 like they did in 22, but as long as we're just talking about one hike, two hikes,
 and that's what we're looking at, these companies are perfectly placed to outperform.
 Interesting, so is this where an investor should be putting their money to work versus maybe
 trying to chase the AI trade? I believe so, I think you've got a much better risk reward
 across the board, whether it's mid cap, small caps, or even in your Russell, basically anything,
 but the S&B 500, I think if you're not allocated out there, maybe take some of the money off the S&B 500
 and put some because you really do have much lower prices and much higher growth,
 and they have much better balance sheets than they did from three years ago.
 All right, Aaron Gibbs, it's great to have you on, appreciate it, from Slate Stone.
 We got a lot more to come here, I'm warning call, including the CEO, the new CEO of BHP,
 the world's largest miner, standing by to talk to companies latest results, the big boon
 giant giant is seeing from one red hot commodity, plus shares of Nike, hitting a big milestone,
 but for all the wrong reasons, we've got those details ahead and later, the US and Canada racing
 against the clock to strike a deal, a trade deal, where the two countries may be finding some common
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 A key September jobs report, after the Fed's first rate hike in three years,
 will the labor market show signs of cooling, the new numbers, and what they could mean for the economy,
 swap box, Friday 8.30 AM Eastern, and streaming on CNBC Plus.
 Welcome back to morning call, shares of BHP closing up more than 2% in Australia today,
 also moving higher in London after the mining giant reported better than expected
 for your earnings, driven by record copper prices. Copper is now the biggest earnings driver
 for the company, surpassing iron ore, BHP also declaring its largest annual dividend in four years,
 basically beat across the board in terms of expectations here. So joining me on a first on CNBC
 interview is BHP CEO Brandon Craig, who took over the top job at the company last month,
 actually I think about six weeks ago, first conversation broadcast interview in the role
 stateside for US media as well, so it's great to have you on Brandon, welcome.
 Thank you very much looking forward to talking to you this morning.
 All right, so let's talk about, let's talk about the results you just posted,
 because quite frankly, going into the print, Wall Street was pretty downbeat on BHP,
 and you reported underlying profit that surged 30%, you paid out a much bigger, much greater
 than expected dividend as well. How does it speak to what we're seeing in the copper market?
 Well, I think it's a standout performance for BHP across the two biggest divisions in our business,
 which is obviously our copper businesses in Chile and also in Australia, together with our
 iron ore business in Western Australia. Now across the board, we delivered records,
 and what's important is the iron ore price was really resilient over the last 12 months,
 but importantly, in terms of copper, there's really strong demand for this commodity right now.
 It's really pricing higher month on month, and on the back of that, we delivered a stellar
 set of results. So you put all of that together, BHP is a company that's been trying
 to reposition itself to be more focused on what we describe as future facing commodities.
 And we can see the results of that playing out, and the results we just shared with the market today.
 Yeah, and I want to get into iron ore and just steel making in general here in just a moment,
 but first, in terms of copper, I mean, in the near term here, you see a supply squeeze that's
 playing out in the futures market. We see what we call to get a little bit wonky here.
 You know, backwardation within trading here, a spot prices are higher than the contracts that
 in the months that come behind them. Over the longer term, though, what is the supply-demand
 dynamic look like? What is driving demand? We talk about AI infrastructure build out. We also
 talk about re-industrialization. Both of those are US stories, but quite frankly, they're global stories, too.
 Listen, I think the current backwardation is probably a signal of the short term demand,
 but that definitely does play out into the medium term and longer term.
 And though, the really fascinating thing with copper is it's so ubiquitous.
 If you have a look at an economy like India, that's in the process of urbanizing and industrialising
 that produces significant demand for copper. If you have a look at the US, the investment that's
 going into artificial intelligence and data centers with the Harper scalers, that produces
 demand for copper. And what you can also see in the market is just the supply really struggling
 to keep up with the demand drivers. To put some numbers to that, we believe that 2050,
 that the world is going to need a significant amount of more copper, around 50 million tonnes
 from 34 million tonnes today. That's a significant increase, bringing that more to the near term
 from today through to 2035. We expect the mining side of copper is going to have to bring 10 million
 tonnes of additional production into the market. And when you consider the mine we have in Eskondida,
 which is the single largest copper mine in the world, produces only a million tonnes,
 you'll have to produce a new Eskondida. You would have to produce a new Eskondida every year for
 10 years to be able to keep up with the demand for copper. So the long term prospects are really
 strong and I think that's really behind why we are so committed to investing into this commodity.
 Wow. So let's talk a little bit about steel making, whether it's iron ore prices, whether it's
 metallurgical coal and your outlook there as well. Well I think what we've seen steel has been
 really resilient and is holding up much better than some forecasters would often predict.
 For the last seven years, China has produced about a billion tonnes of steel. When we look forward
 over the coming years, we expect that trend of a billion tonnes of steel production to hold.
 And then when you look at the GDP growth playing out in India, they're running at GDP levels
 of around 7% per annum. And on the back of that, we expect steel to continue to grow in those
 markets as well. So I think the headline there is steel production is resilient. But you can see
 some shifts playing out. Steel production used to be driven by infrastructure investment and
 residential construction investment in China. That's actually switching out now to more manufactured
 goods. And a lot of those goods are being exported to the global south. So China's been very
 effective at switching out of what was predominantly infrastructure investment into more higher-end
 manufactured goods and exports. All right. Now I know you have to run in a moment for a meeting,
 but I just think it's like a lightning round. I want to get your thoughts on pod ash. I know you
 took a big write down on your Canada project earlier this summer. But obviously globally,
 a fertilizer has been continued to be in focus, given what we're seeing in the
 Strait of Hormuz. And I also want to talk to you about uranium. Since we've had some reports
 that potentially you could step into that marketplace in a more meaningful way.
 So just some comments on pod ash. We see pod ash as a genuinely what we would describe
 in BHP as a tier one business, which is a large, long-life, low-cost, expandable business.
 When we look at the long-term drivers of pod ash, it's really driven by food security. And as
 nations get wealthy as the population grows, that drives the demand for pod ash. If you look
 forward, the market today is about 75 million tons. But 2050, that market is going to grow
 significantly to about 100 million tons. Our investments in Canada are going to produce about
 8.5 million tons. So we will grow into this market over time. And we think the long-term prospects
 are promising. I mean, trade tariffs. How are you navigating all of that? I mean, there's talk
 about more tariffs going on to Canada goods as soon as tomorrow, potentially for the US,
 also focus on the possibility of refined copper tariffs here in the US.
 So tariffs do impact on trade. We don't see tariffs and copper in particular impacting the
 flows of our products. Most of our copper production is concentrated and that tends to be treated
 either in China and in India. And then tariffs on pod ash. That's something we're going to monitor
 very closely. And we'll have to see where the administration lands on that particular front.
 Okay, Brandon Craig of BHP, it's great to have you on. Thank you for joining us.
 Thank you very much. The shares of BHP and both of the markets that it trades higher.
 Well, straight ahead, a landmark trial for Meta, set to get underway in California courtroom.
 We're going to look at what's at stake for the tech giant and its future. But first,
 let's get a check on shares of Paramount Skydance, a new court filing.
 Showing companies seeking to force the states holding up the merger with Warner Brothers
 Discovery to pay for fees and costs related to that delay. Paramount is asking for a nearly
 $2 billion bond from a group of a dozen states that are challenging the proposed deal on anti-trust
 grounds. We'll see. Traders on Calci are still expecting a Paramount to succeed and it's
 bid to buy Warner Brothers with a nearly 75% chance that you'll go through by next July.
 Morning call. We'll be right back. 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 to morning call. Let's get a marketplace show on Nike. Those shares are
 edging higher today at about seven tenths of 1%, but they closed at the lowest level.
 Since September of 2014 yesterday, Nike is now the worst performing stock in the Dow this year.
 It's down 38%. The stock is down nearly 80% from its all-time high back in November of 2021.
 While we're checking some of the morning's latest headlines, US and Canadian trade negotiators
 are trying to bridge the gap over potential reduction in President Trump's tariffs on Canadian
 autos to 15%. Reuters reporting that the US is demanding only the value of US content and vehicles
 can be deducted, Canada is pushing for all North American content. The country's face a deadline
 tomorrow to reach a deal or face 25% US tariffs on auto imports. And the Justice Department is
 investigating injuries in Horowitz over concerns that the firm's partners may be improperly sitting
 on the boards of competing AI companies. Bloomberg reports those include Databricks,
 where co-founder Mark Horowitz, Ben Horowitz, is a director. And the DOJ has declined comment while
 in Dreson, so Mark in Dreson is while in Dreson hasn't responded. Well, Senator Bernie Sanders
 proposing a bill to stop Social Security from withholding money from checks due to unpaid
 federal student loan debt. About nine and a half million borrowers are in default on their
 student loans. And according to a recent analysis by the Associated Press, spokesperson for Sanders
 says he will formally introduce the bill next month. And Jeanne Bus is opposing the potential sale
 of her family stake in the Los Angeles Lakers to a new team owner's Josh Kushner and Bob Eiger
 in a letter obtained by CNBC, addressed to lawyers representing Bus siblings. Her attorney says
 that she has not agreed to sell the team and any vote suggesting the family a selling quote
 would be and is void. The letter argues that Bus remains the Lakers controlling shareholder and no
 sale can take place without her consent. And to Mark Walter, who struck a separate deal to sell
 his majority stake in the Lakers to Kushner and Eiger, is also potentially looking to sell his
 stake in Premier League giant Chelsea. Reports say Walter, the CEO of Guggenheim Partners and
 head of TWG Global, has discussed a deal with Clear Lake Capital, Clear Lake Capital's Chelsea
 majority owner. And the move comes as federal prosecutors investigating Walter's business empire
 for alleged fraud. And certainly some concerns here in the marketplace on whether you could see
 just greater regulatory scrutiny around the relationship between private markets and insurers
 that help to create the flywheel there overall. As we had to break, a check on Meta Shares,
 the tech giant is heading to court today in California as high stakes legal showdown begins.
 The company facing a coalition of more than two dozen states claiming that Meta deliberately
 designed Facebook and Instagram to be addictive to young users in turn negatively impacting
 their mental health. The states are seeking $1.4 trillion in damages as well as court orders
 that could force Meta to change how it operates its platforms. It's going to be a high stakes
 fight for investors to watch at a high stakes moment for a company like Meta.
 Morning Call continues next.
 I'm Morgan Brennan. Welcome back to Morning Call. Let's get a check on U.S. stock futures,
 which are in the red. The S&P and Nasdaq coming off their second straight's negative sessions.
 And you can see the S&P is poised to open lower to the tune of 40 points right now. So sizeable
 move down fractionally lower 28 points. And the Nasdaq is indicated to open down 332 points
 a more than 1% drop as it stands right now and being led lower by sharp moves to the downside
 within semiconductors and other AI-related names. Well, let's get a check on treasuries as well
 because we continue to see bonds sell off. The 30-year topping 5.31% in trading yesterday hitting
 its highest level since 2007. And we continue the climb higher this morning. Take a look 5.32%.
 Now, you've seen the 10-year treasury moving to multi-year highs to 4.73%. I think
 highest level since January of 2025. And let's get a check on the Fed sensitive two-year treasury
 4.18%. We're going to turn to commodities as well because as we've seen yields move higher,
 we've seen energy move higher. And check to look at some other soft commodities too. We'll get a
 check on corn and soy prices, which are climbing again pre-market. USDA crop progress report highlighting
 overly hot crop conditions nonetheless a pretty solid output for both corn and soybeans. We're
 going to get some other data points when it comes to US agriculture a bit later this week.
 In the meantime, I just mentioned energy. So let's get a check on those oil prices as we do see
 green across the screen here. WTI is about 7.10 to 1% trading around $85 a barrel. Brent crude
 up for actually as well, $91 a barrel. Our above gasoline is on the move higher to this
 morning. We're seeing these moves afterward that a ship, a container ship, was struck while
 traveling through the strait of poor moose. And the development coming with the US and Iran still
 at a standoff over potential negotiations. That's after the official expiration of the 60-day
 ceasefire yesterday. President Trump also yesterday talking about the prospects of a potential
 deal, or maybe no deal with Tehran. They want to make a deal, but they're not going to make the
 kind of a deal that I feel is necessary. Look, we're in there for one reason. Iran cannot have
 a nuclear weapon. You understand that? Iran cannot have a nuclear weapon, and they won't have
 a nuclear weapon. And right now, then building one after what we did previously with the B2
 bombers, it's going to be a long time behind.
 Well, turning out to anthropic sources telling CNBC the AI, if we could get the prompter to move,
 the AI startups annualized revenue run rate hit $65 billion at the end of last month. That
 marks a sevenfold increase from a year ago and comes ahead of its highly anticipated IPO.
 The development also comes despite the company's ongoing supply chain risk dispute with the Pentagon.
 John, that's a fight that sent the military looking elsewhere to diversify. It's AI ventures,
 it's AI supply chain, including potentially tour next guest. Andy Markoff is the co-founder and CEO
 of SMAC technologies. Andy, it's great to have you here. Still a lot to talk about when we start
 diving into the world of AI, but first, just quickly, what SMAC does?
 So, we build small, domain-specific models specifically for the Department of War to
 fundamentally work on the full range of military decision-making. That's our one customer
 department of war partners and allies. Okay, and you're already working with the Department of
 War. When we talk about the latest in Iran, I mean, case in point, this is a conflict where in real
 time we're seeing what AI means on the battlefield. Absolutely. So, we're already working with
 the Marine Corps, with the Air Force and Navy, expect to be working with two additional services
 imminently, so almost fully deployed across the joint force. Yeah, and you're announcing more
 funding, as well, to build out your models. So, today, announcing our $61 million series,
 B, led by Kosovo, and first-end, really excited. Fundamentally, this is just going to help us
 quickly expand the scope of our models across different workflows. So, we've really primarily
 focused on fires and intelligence moving into now, you know, force protection and logistics as well,
 and then to build the hardware to deploy those models to the tactical edge. Yeah, you know,
 it's interesting. I just, to go back to my topic for a moment, on the one hand, you hear about
 concern supply chain risk, the back and forth around the regulatory environment, with the Pentagon
 specifically, on the other hand, also reports, even one from New York Times, just I think two days
 ago, suggesting that national security entities basically have to work with Anthropic, because the
 models are so good and you need to be able to, you know, assess for cybersecurity risks. So, how
 does it speak to government's ability to keep pace with the rate of innovation on the commercial
 side? I think, I mean, fundamentally, I think that, you know, these, like, large language models,
 frontier models are moving really quickly. I think the government's going to a good job of thinking
 through how to integrate those into the defense ecosystem. I think where we really come in is that
 there's, and where we can augment those models, is there's a gap in what those models can actually
 provide from a, from a military decision-making perspective. Basically, if you think about language,
 a language models training of the semantics of text, a lot of military decisions are actually
 about understanding the relationships of different platforms and entities in space and time, and you
 can't learn that from text. And so, where we come into augment those models is for that subset,
 which is really a large part of military decision-making. Yeah, I mean, how does it speak to the
 community, to your point, to the communication or the technology that has already exist, when you
 talk about some of these platforms that have been around and have been deployed for 50 years,
 60 years, even 70 years? So, I mean, I think we, we basically understand the capabilities of
 those platforms, we're also able to help decision-makers integrate those capabilities with the newer
 capabilities that are now on the battlefield and think about how do those things work together,
 and how do those platforms work together at a campaign? And I think really one of the biggest gaps
 for a decision-maker in the military is like, how do I campaign, how do I arrange
 entire strategic objectives to near-term tactical actions across all these new platforms,
 all these old platforms, not just US platforms, but our coalition and partner platforms,
 and how do we make those decisions now in a way that helps us actually link up to strategic
 goals and not run out of munitions? We'll do it. All right, so we have this whole conversation.
 I've had this conversation with Alex Carbitt Palantir and others over the years now at this point,
 and that is, the bottom line here is that AI, artificial intelligence, is a dual-use technology.
 It'll never not be a dual-use technology. So, what does that mean moving forward when you see
 Western companies, corporate America adopting lower-cost Chinese AI models for their operations?
 For example, what are the risks that are associated with that? What do people and companies and entities
 need to understand about this technology in that environment? I mean, I think that sovereign AI
 is important. I think there's obviously risks in AI that you're not building and controlling
 in-house, and I think for national security, it is really important. I mean, fully understand and
 believe that AI is a dual-use technology, but I think it's important to have some models that
 are specifically built for national security purposes that are fully available and you can't
 distill. And I think that's, again, how we think about our approach is you can't distill our models
 because it's not available in the dual-use community. It's only available in the security sense,
 and I think that is really important. Additionally, one of the things that protects
 this model is from being distilled is what they're trained on as a human domain expertise of war
 fighters, of which there's none better than in the U.S. And I think that's something that
 our adversaries can't actually distill that we use to train our models.
 Okay, Andy Markov of Smack Technologies. It's great to have you on.
 Thanks for having me.
 Thanks for having me.
 Okay, watching shares if we stick with Aerospace and Defense. We're watching shares of
 L3 Harris this morning. That's after they fell over 4.5% yesterday, bouncing back a little bit here
 up fractionally this morning, pre-market. This after the company revealed it has ousted Chris
 Kubasik as CEO and chairman, the company making that move after learning that he engaged in what
 it calls a certain conduct that was not consistent with the values of the company. L3 Harris Board
 has appointed Sam Mehta as CEO and president. They also reaffirmed their guidance for the year.
 A lot more to come here on morning call, including a fresh read on the health of the consumer.
 Busy week of retail earnings that kicks off in less than 30 minutes.
 Why are next guests says the sector may be able to keep growing headwinds at bay.
 And as we head to break, let's get a check on Tesla shares. The information reporting
 at the company has told employees it is gearing up for a public launch of its cyber cab.
 The report says the rollout will start in Austin as soon as the as soon as this month
 by first offering rides to employees before adding vehicles to its robot taxi service shortly
 thereafter. Nonetheless, shares of Tesla are down almost 2% right now. We'll be right back.
 Welcome back. We're just minutes away from the release of Home Depot's latest quarterly results.
 Those are due at the top of the hour. And the big box retailers earnings are kicking off a busy
 week of results from the retail sector overall. You can see just some of those names, some of the
 biggest names that we expect this week for more on what to expect. Let's bring in Jerry storage,
 CEO of storage advisors, also the former CEO of Hudson's Bay, former Toys Russ chairman and former
 target vice chairman. Jerry, it's great to have you back on the show. What are you watching for?
 Whether it's Home Depot today, lows tomorrow, I realize there's a housing dynamic with both of those
 names or some of the other retailers like Target and Walmart later this week.
 Well, Morgan, the consumer has been very resilient during this entire period.
 I know a lot was made out of retail sales last month, being down month over month.
 But when you look at a more important number which is year over year, retail sales were still
 up a very healthy 5%. So there's definitely some slowing because inflation, concern over the war,
 you know, all kinds of issues are weighing on the consumer, no doubt, but they're continuing to spend.
 So I expect that the numbers from retailers today to be very good. The real question is going to be
 who does better than what's expected. That's what earnings days are all about. With Home Depot,
 they report today and lows, they've been in a big holding pattern, they haven't gone anywhere,
 and that's because nobody knows what's going to happen with housing. There's no magic out,
 eight ball that says, not yet. You know, maybe the housing will shift soon. You know, that kind of a
 thing. So people are watching to see if there's any sign at all of hope there. I actually do see
 some signs of hope. When you take a look at those same retail sales numbers, the building materials
 category was up pretty healthy the entire quarter. So maybe they'll translate into results for those
 retailers. Well, just have to wait and see. Yeah. Listen, I love hope. I'm here for hope. I'm also
 curious speaking of hope that maybe is materializing into something more meaningful target. Turn around
 strategy there. When you see what's happening with the stock, your thoughts. Well, look, I mean,
 they've done a fantastic job this year and the stock has soared. They've been executing far better
 than they have for years, but they still face some very important strategic headwinds,
 not the least of which is that they never really developed their grocery business,
 the way that Walmart did, which is what's been carrying Walmart for a long time.
 Their internet at Target, they've under invested in it since they started it back 20 years ago.
 So they still have a lot of work to do at Target to justify the kind of improvement we see in the stock.
 You know, it's up 40, 50% this year. That's just massive, but it's still $100 below its peak.
 So there's still room to grow, but at some point, they're going to have to start copying
 these better numbers. This is not that quarter. So they're up against easy numbers.
 Maybe they can surprise here on the positive side, but they're very high expectations,
 and that's what earnings day is all about. Meanwhile, when you look at Walmart, their stock has not
 gone anywhere at all, even though there's no doubt they're the star performer in the class.
 This is principally evaluation issue as they carry out price earnings ratio that's double targets
 right now. That's because Walmart has consistently been executing. Their earnings have consistently
 also beat expectations. So we'll see what happens today. Their guidance, though, will, as they always
 do, be very conservative looking for it because no one knows what's going to happen in the back of the
 year. So we'll have to see what happens to Walmart. I think that they are by far the better performer
 and the better retailer, along with Costco, the two best retailers on the planet, in my opinion,
 but, you know, a very high valuation. All right. Jerry storage is great to have you on to set up
 the week. Appreciate it. We'll straight ahead. We got the morning call crew here to tee up the
 trading ahead. And why one member isn't buying the markets renewed momentum this month.
 Welcome back. It's time for your call sheet where we look at the topics driving the trading day ahead.
 Call crew members today, Frank Keppel area of cap thesis. He's also CMBC pro contributor Steve
 Grasov. Grasov global. He's also a CMBC contributor and Veronica Clark from Citigroup.
 Great to have you all here. Frank, I'm going to kick this one off with you,
 and I'm going to start with consumer because we just heard from Jerry storage about how to think
 about big box retailers this week. What are you watching? Walmart has to look at Walmart, right?
 And I think it's an interesting spot because it just dropped out 20% from its recent high. If you
 go back over the last number of years, it hasn't happened a few times. Only a handful of times
 the needless to say is bounced back. And the biggest drop from a high over that time frame is
 there's 26% say just because it was in 1022 bear market. So I think they've got the right
 the results by I think this is going to set up for a good long term buy for investors.
 Okay. What do you think, Steve, especially as we await Home Depot here any moment?
 Yeah. So Home Depot gives a good read because Home Depot has about 55% with the pros as their
 revenue mix. So I'd like to hear what the do-it-yourselfers are doing because that's going to give you a
 better read on the consumer. I agree on Walmart, but Walmart's interesting because
 ads and now ads are pushing a third of the operating margin, ads and membership.
 So if their product mix can continue down that path, we move away from groceries.
 Why is that important? Because groceries are about 60% and they drag revenue and they drag down
 those gross margins. Okay. Veronica, want to get your thoughts on the state of the consumer here,
 especially as we do look through the lens of retailer results on the one hand on the other.
 We know housing has continued to be subdued. We're going to get some data here this week,
 but also a lot of homeowners are sitting on a lot of equity.
 Yeah, no, absolutely. I'll be interested to hear the anecdotes from the reporting this week because
 we did have that very soft retail sales unexpectedly, soft retail sales number last week.
 It is just one month. It's just the month of July and it came after a pretty strong Q2 for
 spending, but I do worry that consumers had those larger tax refunds in Q2. Maybe that was
 helping to support spending. We have seen real income growth in the last few months with gas prices
 remaining high that has slowed a lot. Of course, we've seen some slowing in the labor market also,
 and all of that is going to add up to maybe a less comfortable place for consumers this year.
 All right. We're seeing momentum names under quite a bit of pressure here this morning pre-market,
 Frank. We'll continue to see the run-up and rates pretty dramatic actually when you look at
 longer ends of the curve here. Do you want to get your thoughts on that, especially as we go
 into a seasonally weaker time of year? Right. So I think it's interesting to look at the S&P 500
 and 10-year yield over the last few years. Very good moves, right? The last three,
 double digit gains potentially again now. What's happened over that time frame? 10-year yield
 basically is flatlined. This year, not, but I think investors are seeing that really topping at about 480
 or so over the last few years and because of that, we have the town one for S&P 500.
 Now, at the same time, there's some expectations changing for what the Fed is going to do. So
 S&P is looking at that closely. Obviously, get some good news. We're going to continue higher.
 Yeah. I mean, we're having this conversation yesterday, Steve right here with the crew.
 Lee Baker said he was, you know, talked about the fact that stocks are basically ignoring
 the bond market right now. Maybe not so much today. I guess, how do you see this continuing
 to evolve or percolate? Yeah, that relationship is on again, off again. I think that with Worsh
 heading the Fed now for obvious reasons, there's going to be less communication.
 He's got a bunch of task force buying himself some time. So you know me. I've been on record
 as saying, I think we're going to get a cut this year, but if we don't get a cut, we're not getting a
 hike. I think we'll either sit on our hands at the Fed. That'll leave it all clear for stocks.
 You're going to, you know, the big thing with Worsh is that he wants to not get painted into a corner
 the way Powell was. There was too much communication. The market pre-read him. The bond market got
 ahead of him. I think you're going to see this react with lower rates going forward. I don't
 know if we're going to get a cut, but I'm still planning on one by a year ahead. Veronica,
 want to get your thoughts on what we're seeing in the bond market right now, especially as we do
 seem to be at a logger heads here, even potentially poised for a re-escalation. And by the way,
 ahead of midterms, when it comes to the straight-of-form moves and what we're seeing with Iran, I mean,
 state of the straight, especially with not as much other news for the markets this week seems to be
 taking on more attention. Yeah, absolutely. When there's no data to fill that void,
 you know, rates markets are still very sensitive to, you know, oil-related headlines.
 But I do think that importance, you know, over time could be diminishing somewhat. You know, we've
 had a number of months of data now for inflation, labor market spending, after the increase in gas
 prices and oil prices. And the first thing we're looking for every month is to see, you know, how
 higher energy costs are passing through to other, you know, consumer goods and whatnot. And we
 really don't see any evidence of that. So as long as that is the case, then rates markets will
 over time, I think, be less sensitive to these oil-related headlines. But that is still absolutely
 a driver for this week, but there's just not a whole lot of other things going on.
 Yeah, and of course, higher gas prices receive what kind of commentary we do get around that with
 some of these retail results on conference calls today. Okay, I mentioned it. I want to go back
 to it, Frank, and that is seasonality. So, BTIG and other part over the weekend, but I thought
 this was pretty interesting. And they talked about we're entering the worst part of the calendar year
 during midterm election years. And that basically every year with the exception of one, we've seen a
 7% or greater pullback over this time period from, call it mid-August until mid-October here. The
 one exception, you saw a pullback that it happened earlier in the calendar year. So I'm going to
 bump it up against the end here, but just what investors need to think about this time of year?
 It's very important. I think the one thing we have to focus on is market breath. That's
 been extremely helpful, especially over the last few months, with analogies come in.
 The advanced clients are making new all-time highs with the S&B 500. If we see that less than a
 bit, that's obviously good meaning that we have a correction upon us over the next few months.
 Okay, we're going to leave the conversation there. Thank you to our call crew.
 Great to have you all here with futures under pressure again this morning.
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