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Mixed Signals, the Rate Hike Case, and Airlines Navigate Oil 3/23/26
00:44:12
President Trump postponed strikes on Iranian power plants after saying negotiations were underway, but Iranian state media refuted those claims, triggering wild swings across asset classes. Markets now expect the Fed to hold rates steady, but HFE's Carl Weinberg makes the case for a hike. Plus, the airline bracing for oil prices to top $100 through 2027.
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- [00:00]
Schwab Representative
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before. Like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading before we had ATT
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AT&T Business Wireless Representative
business wireless coverage, our delivery GPS wasn't the most reliable. Once our driver had to do a 14 point turn to get back on route. A 14 point turn. An influencer even live streamed the whole thing. Not good for business. Now with AT&T business Wireless routes are updating on the fly and deliveries are on time. And the influencer did get us 53 new followers though.
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Kelly Evans
AT&T business Wireless Connecting changes everything. You're listening to the Exchange. Here's today's show. Thank you very much Scott. And we are well off session highs but still up considerably this hour. Welcome to the Exchange. I'm Kelly Evans. Some euphoric action this morning after President Trump signaled tensions with Iran are easing. The Dow is up as much as a thousand points. We're now up about 654. And keep in mind both the Dow and the small caps had entered correction territory after last week's sell off the Fed. A big problem for the small cap Russell 2000. We'll get to that later on. But look, right now they are leading the way, regaining their mojo with about a 2.4% pop. The S&P and Nasdaq both up 1.2 to 1.3%. And after briefly spiking to 100 bucks earlier, WTI crude is now down sharply after the President's five day postponement of strikes on Iranian energy sites. You can see Brent is at 100 well off its session highs from earlier on as well. But remember, Brent will continue to influence our gasoline prices which continue to rise even while crude is falling. Similar story in yields. Just want to briefly show you the 10 year going from a high of 444 today all the way back down to 4.3% before settling in the middle. And the two year, talk about volatility here. It briefly touched 4% earlier on. That was the highest level since last June. That also has to do with shifting odds of a Fed hike. Yes, a hike. It's down at about 386 right now. But let's begin with the latest developments on the Iran war which has contributed to all of this gyrating market action. Eamonn Javors is live in Washington. Amen. With what we know at this hour.
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Eamonn Javors
Kelly.
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AT&T Business Wireless Representative
That's right. President Trump told reporters today that his administration is in contact with Iranians who he said are very representative of the country in talks that went late into Sunday evening, he said, and as a result, he is suspending his own deadline of today for the bombing of Iranian power plants, offering a five day extension on that deadline. And he said he's considering a post war power sharing arrangement of some kind with the new Iranian government for sea traffic through the Strait of Hormuz. Here's what he said.
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Commercial/Advertisement Voice
That'll be opened very soon if this works.
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Mackenzie Seagallos
How soon and who's in control of it?
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Kelly Evans
Will Iran still be able to control the flow of oil, be jointly controlled by who? Maybe me. Maybe me and the ayatollah. Whoever the ayatollah is, whoever the next ayatollah.
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Commercial/Advertisement Voice
Look, and it'll also be a form of a very serious form of a regime change. Now, in all fairness, everybody has been killed from the regime. They're really there's automatically a regime change.
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AT&T Business Wireless Representative
But in response to the president's early morning post on social media, Iranian state media put out a statement saying that there have been no negotiations in describing President Trump's extension of that bombing deadline as President Trump simply backing down. Now, the president again in his comments today cited the Venezuela model for post war governance of Iran, saying he's dealing with people that he finds to be very reasonable and very solid. And he said the US May be able to find a leadership figure there to deal with. And he again predicted that when the conflict ends, the price of oil will drop like a rock, but cautioned that he couldn't guarantee anything. Kelly, back over to you.
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Kelly Evans
All right. Amen. Appreciate it very much. For now, Amen Jabbers. Let's talk more about this reversal by the president and how likely it is that talks are in fact happening, which was something Iran was reportedly calling fake news. Joining us now is Jonathan Panikoff. He's director of the Snowcroft Middle East Security Initiative at the Atlantic Council. Jonathan, good to see you again. Just jump in here and what do you think is the state of affairs diplomatically between the US And Iran?
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Jonathan Panikoff
Yeah, thanks for having me. Look, I think clearly there's been some movement. We saw this behind the scenes. This rumor now that the Pakistanis are offering to host an engagement negotiation puts a new player in the mix Here the reality is the Omanis are not going to be a trusted mediator anymore. The Qataris are taking direct hits, and so it makes it awkward. And so the Pakistanis, maybe the Turks are slightly stepping up here, but we're still a long way from this crisis being resolved. President Trump's decision is a five day extension on some of the infrastructure. It's not a permanent one that we're not going to hit the infrastructure or that the Israelis may not. So we've got some time to go, but clearly there's been some progress and that's obviously helping, especially on the markets in the energy sector.
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Kelly Evans
Do you think the US And Israel are on the same page with all of this?
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Jonathan Panikoff
The US and the Israelis both still have target list that they really want to complete. You're talking about another two to three weeks, really worth of targets that they want to hit. So if we got through
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Oscar Munoz
it, do
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Jonathan Panikoff
I think the Israelis would sign off? I think they probably don't have a choice. At the end of the day, US Is going to make a decision to end this conflict either through a negotiated settlement or unilaterally. I think the Israelis maybe can strike for 24 hours after that, but they're going to probably go along with it. The question really is on the other side, do the Iranians go along? We've seen significant challenges about what political figures in Iran are saying may not always match what the guards want, those that are actually controlling the war.
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Kelly Evans
You know, there was an interesting note from Ed Yardeni, you know, a longtime markets observer here, and he said the odds of a longer war are increasing even as Trump is set to declare victory, which I thought was an interesting point. I think we all sense this as well. That. And to quote him, he said, you know, is the fog of war thinning or thickening? The President says he's ready to declare victory, but the Iranians have been at war with the US and Israel for 47 years and are showing no signs of ending it. He adds, the President seems to prefer a unilateral conclusion where the US Stops because it has, quote, unquote, won rather than a negotiated truce.
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Jonathan Panikoff
I think that's absolutely right. Look, the 47 year point is very, very important. And now you've got a 47 year history with a regime that's frankly more hardline than what preceded it before the war began. And so I think that's going to cause a lot of questions about you have a meaningful truce. You just have the President having to unilaterally declare victory. Even if the on the ground facts don't reflect it, at the end of the day, I think the real concern and why you're seeing even a lot of Gulf states saying, no, no, no, US and Israel continue and finish the target list is because they don't want to be in a position where the Iranians have so much leverage, frankly, and have actually increased their deterrence cap beyond what it was when the war started. And right now, if you look at the strait that does seem to be where it's heading, doesn't mean it's going to have to stay in that trajectory. But that is the current one.
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Kelly Evans
Yeah. And over at the Wall Street Journal, Shelby Holiday had reported that it was actually significant that the Iranians launched those missile strikes at Diego Garcia. They missed. But the point was, I guess in the past they had said, you know, our missiles are only really capable of reaching Israel. And now they've shown not only can they go, I guess, twice as far, but that puts Europe in play, that puts Africa in. And so the threat all of a sudden to those regions is larger than it was before. Do you think this is all just show, or is there some truth to that?
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Jonathan Panikoff
No, I think there's some truth to that because, again, you're going into a regime that's fundamentally different. One thing that probably hasn't gotten enough attention is actually it wasn't that the Iranians couldn't hit that far. It was that there was a fatwa by the Ayatollah Ali Khamenei that was taken off probably after the June war in terms of what the distance would be and how far they would fire. Now, clearly they have shown that they can' fire much further. They can hit the 4,000 kilometer range, maybe more. That's putting all of Europe at risk. And I think that the Iranians want that because again, anything that increases their power projections and their deterrence, even if at the end of the day they're significantly diminished in their ballistic missiles and their nuclear capabilities and their proxies, the knowledge doesn't go away. And so they're going to be hopeful that they can eventually rebuild. That's going to be buttressed against almost an Israeli guarantee, frankly, that they're going to go to a mow the grass strategy long term. And so then it's this question of even if you get to an off ramp now in the next month here, do you have cycles of violence every six months to a year? What does that look like? It's going to keep the Gulf energy markets, frankly, all of the global supply chain on edge in a way that we really haven't seen. It's going to be a new goal, frankly, going forward.
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Kelly Evans
And finally, if you could just kind of elaborate on that because from the market's point of view, the only thing it can really discount is maybe a little bit higher oil premium, maybe, you know, the defense trade. It's going to look for vectors of immediate impact as opposed to what you've said, which while important, is almost impossible for it to kind of bring into consideration. So what might that permanent change look like? And is there any other place where you'd see, quote, unquote, the rubber hitting the road?
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Jonathan Panikoff
Yeah, I mean, look, I think you're going to see it across sectors, frankly. You'll see it across, obviously the energy sector. You're going to see it across the petrochemical sector. I think one of the questions that's really going to be interesting going forward is whether or not some alternative routes start to happen. In other words, there's been this long idea that started in the Biden administration of imac to have a basically what amounts to a north, south corridor, something to be able to avoid the Strait, for instance. Do those types of efforts actually get sped up in a way that really was not going to be on the front burner? And now you have Gulf states, the Europeans and the US all saying we have to look for other avenues for the supply chains to be able to demonstrate resiliency in a way that right now they're going to be under threat. So I think, yes, there's going to be huge hits, frankly, across sectors, possibly long term. But there are also silver linings and opportunities that may come out of this and different avenues for global supply chains may be one of them.
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Kelly Evans
I've been wondering about that. You know, how much can literally just be shifted away from the region if it remains problematic. Jonathan, thanks for now. We appreciate it.
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Jonathan Panikoff
Thank you.
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Kelly Evans
Jonathan Panicoff from the Atlantic Council. As you mentioned, stocks are off session highs but up nicely across the board, up a cent and a half for the Dow. Our next guest says the bull market remains intact and interestingly says US Stocks will be the place to be. Joining us is Katerina7 Eddie, Executive Director at Morgan Stanley Private Wealth Management. Catarina, I only say that because others like Yardening, not to cite them again, say their preference for going international will resume once the conflict ends. But you're saying that you think U.S. stocks will still be the most attractive.
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Katerina Simonetti
Well, Kelly, thank you for having me on the show. Of course, in any type of situation like this, you know, when we look the military conflict, the, it is difficult to make any kind of calls because this is one of the most, the highest of the systemic risks, this unpredictable risk that we have seen. But our call absolutely is on the US Large caps. Because in the time of this uncertainty, two things have to happen. One is we have to focus on quality. We have to stay with quality companies that have predictable cash flows and are able to up absorb the higher costs that might hike, might come with higher oil prices. And then the second part of of course is the fact that we've seen valuations come down significantly. In fact, since last October, the stocks of S&P, 40% of S&P stocks are down more than 20%. So this presents buying opportunity in high quality companies here in the U.S. okay,
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Kelly Evans
so while that's taking place, Katerina, more generally, you know, we just had this conversation about what might be going on for months really in this conflict. As much as the President might say, and perhaps the acute phase of it is winding down, there's going to be these longer standing reverberations, I guess you could say, in energy markets. Does that have a bigger impact here on either the odds of a recession or inflation, on what the Fed will do? And you know, you say the bull market remains intact.
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Katerina Simonetti
Well, market of course does what it does. The, the markets tend to price in the end of the military conflict significantly before they happen. War in Ukraine, for example, is still going on. And yet four years later in the market is significantly higher than it has been because of the AI expansion, because of the earnings momentum, because of the low inflation. So we have to look at it as a whole. And the risk of the recession still remains significantly high. So as tempting as it might be to see this current correction situation in a very similar light as what we've seen a year ago in the liberation date is very much a very difficult different situation. And we do see the oil price as a big component there, but we also expect it not to be quite at $100 and if it gets there, not to stay there for long.
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Kelly Evans
Yeah, I thought it was interesting that we've seen earnings estimates not just for the full year, but even for the quarter, those have been on the rise even as the war broke out out. I mean that's, that's, that tells you that as much as we might be seeing a little bit higher odds of recession, little bit higher odds of Fed rate hikes, the earnings power that we've seen, I guess, would you say that's what kind of gives you comfort, do you see any deterioration further down in the year because of what's happened or.
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Katerina Simonetti
No, Kelly, that's, that's exactly it. The strength of the momentum and the expansion of earnings specifically here in the US is, is, cannot be disregarded despite, despite of what' happening in the world. With that, we must proceed cautiously. This is where quality might be considered. Sector, sector exposure must be considered in the concentration has to be on areas like industrials where there is still that buildup and expansion. Health care, for example, is another area where we see tremendous buying opportunities, materials and of course, energy. When we are talking about energy, we must be buying energy and we must be doing it careful and positioning the portfolios to take advantage of the move that is happening in the sector because of what's happening in the world.
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Kelly Evans
I mean it's pretty interesting. You have the broad markets down 7% from the highs, but energy's up 32% this year. And we could all wake up tomorrow and to a totally different set of circumstances until this feels like it's really winding down. So would you tell people there's a big debate. I mean a lot of people would say book your gains in the energy space and walk away, but you sound like you're saying no, you need to have maybe more exposure here.
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Katerina Simonetti
There is time in the play for a place for booking the gains. For example, our whole last year was small caps. We, we increased the exposure. We made significant progress there and now we're scaling back, we're scaling into the large caps. Same goes for energy. Energy is here to stay. It's, it's essential, it's important for profitability for the companies. We are not going to get away from it now of course the price of energy, it matters. And can we expect a pullback in some of the earnings and some of the gains that we're seeing right now? Absolutely. And that's why we need to diversify into the other areas, areas that have declined because of the current situation where we see the buying opportunities without abandoning energy.
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Kelly Evans
Right. All right, Katerina, thanks. Appreciate it for now. Good to see you. Katerina Simonetti of Morgan Stanley. Coming up are rate hikes now on the table. Carl Weinberg from High Frequency Economics thought the Fed hike last week. He'll be joining us to discuss what markets should be prepared for. But first, a first on CNBC interview with energy's chair and CEO live from Sarah Week down in Houston. After a massive run up in the past year, the shares are actually having their worst month in more than three years. We'll talk about why they're down 15% since the Iran war began. Next,
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Commercial/Advertisement Voice
this is the exchange on cnbc.
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Schwab Representative
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before, like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading before we had AT&T
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AT&T Business Wireless Representative
business Wireless coverage, our delivery GPS wasn't the most reliable. Once our driver had to do a 14 point turn to get back on route. A 14 point turn. An influencer even livestreamed the whole thing. Not good for business. Now with AT&T business Wireless routes are updating on the fly and deliveries are on time. And the influencer did get us 53 new followers though.
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Kelly Evans
AT&T business Wireless Connecting changes everything. Oh no, my coffee. Bronnie here.
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Commercial/Advertisement Voice
New brawny 3 ply is now more absorbent.
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Kelly Evans
Wow. Got a clean shirt.
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Commercial/Advertisement Voice
Do you wear plaid?
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Kelly Evans
Some of the strongest. Welcome back and take a look across markets. Dow's up 617 at the session highs we are up 1000. Small caps are leading the way but they've had a tough recent time since the war. Not just the war broke out really, but we started seeing more odds of a Fed rate hike. We'll talk more about that a little later on. Norwegian is leading the S and P as oil prices retreat today which is helping the cruise lines across the board. Norwegians up 7 and a half percent. But despite these gains, a lot of these stocks are still down between 10 and 20% this month. Carnival today up 6. Royal Caribbean up about 4%. And CF Industries which we've talked about a number of times here today, is giving back some of its gains and one of the worst performers down 4% on the S&P after it and the other fertilizer stocks have seen a huge run up this month. Are still waiting to see what the pass through effect of that will be for crop and food prices. And synopsis shares are higher on news that activist investor Elliott Management has built a multibillion dollar stake in the chip design company. Elliott's managing partner telling cnbc quote quote as AI drives a step change in chip complexity and capital investment, Synopsys is uniquely positioned to benefit from this growth and the shares are down about 7% to start the year. I understand they may want them to do price hikes, for instance, given their strong market power. Coming up, the next leg of the AI race is here and it's a bidding war for private equity. OpenAI and Anthropic are competing to push their AI tools into hundreds of companies all at the same time. We'll look at who's winning and who their partners might be next.
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Schwab Representative
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before, like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading not every sale happens at the register.
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Kelly Evans
Before AT&T business Wireless, checking out customers on our mobile POS systems took too long.
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Emily Wilkins
Basically a staring contest where everyone loses.
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Kelly Evans
It's crazy what people will say during an awkward silence. Now transactions are done before the silence takes hold. That means I can focus on the task at hand and make an extra sale or two. Sometimes I do miss the bonding time. Sometimes. AT&T business Wireless Connecting changes everything. Try angel stuff for your touchy. It's made by Angels Soft and strong.
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Schwab Representative
Budget friendly.
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Kelly Evans
The choice is simple, a role that
- [20:42]
Emily Wilkins
feels like paradise and always at a heavenly prize.
- [20:47]
Kelly Evans
Angel Soft, Angel Soft. Pick up a pack today. Angel Soft and strong. Welcome back to the Exchange. You can see energy prices down sharply today. Not just oil, but also nat gas here and in Europe by about 5%. Amidst all of this, our Brian Sullivan finds himself at one of the biggest energy gatherings of the year, the saraweek Conference down in Houston, Texas. He joins us now along with the CEO of nrg, which is a major US Player in electricity and NAT Gas. US Great to get their perspective on all the goings on. Brian, it's good to see you. Take it away.
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Brian Sullivan
Thank you very much, Kelly. Good to be seen. Yes, NRG is one of the largest independent power producers in the United States. And we're here now with Larry Coban. He is the CEO for NOW of Energy. He's going to be vacating at the end of April.
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Commercial/Advertisement Voice
Correct.
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Brian Sullivan
All right, so we got you here
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Commercial/Advertisement Voice
though now I am here.
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Brian Sullivan
So you're still running the company. How hard is it right now to manage a company or run a company when you've got energy prices not gas, not as much. But energy prices have been as volatile as they are. How difficult is that?
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Commercial/Advertisement Voice
Look, it's always difficult as energy prices are always volatile. This is obviously a very special time. We are less impacted by oil prices which is where the real volatility has been taking place. Then we, you know, we're more affected by natural gas prices which have risen, but it would take a far more protracted war I think to impact them dramatically. But obviously our customers are greatly impacted and if our customers are impacted, that reflects back on us. Some of the things we do with chips are obviously going to be impacted if oil prices continue to stay up as they're manufactured in areas that are very oil dependent. So those are probably the two greatest impacts. But in the short term I think for us compared to others, not that great.
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Brian Sullivan
This may be a stupid question, I apologize. Do you see changes in electricity use based on maybe your customers view of the economy? What I'm trying to get at is have you seen any declination of energy or power use as maybe people are cutting back or worried the last few weeks?
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Commercial/Advertisement Voice
Not yet, but we haven't seen a great change in power prices either. And I think it's too early for people to be changing their business models based on a world that's going on for one month. Other than, you know, perhaps the airline industry where your jet fuel prices have increased dramatically. So to date we haven't seen any much difference at all in consumption and I don't really think that we will for quite some time unless this really sticks as an economic downturn.
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Brian Sullivan
Thank you for not saying it was a dumb question. How long would it take to. To know when would. If. If things keep going up? Let's hope they don't. They're down today. But if things go back up and stay up, how long would it take to see to gauge?
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Commercial/Advertisement Voice
My guess would be not. We wouldn't see much in electricity until Q4 because electricity prices are going to move with natural gas prices. And so the only reason you would have less consumption is if people's overall businesses slowed down. I think that's going to take a while to iterate into people's thinking and making those kinds of changes.
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Brian Sullivan
Let's switch gears to. I want to talk about data centers. Last earnings call, I think you said six gigawatts of power translates to two and a billion of free cash flow. Something like that.
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Commercial/Advertisement Voice
And a billion of ebitda. Yes, ebitda.
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Brian Sullivan
Okay, so how much then does the growth path of data centers and I mean to energy investors.
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Commercial/Advertisement Voice
Well, obviously that's an enormous amount of money. But I should point out that without any data centers at all and without any price increases at all, we're projecting a 14% increase in EBITDA and EPS. So we are very well positioned position even if there's never another data center in the world. But having said that, I do think that it will be a significant driver. We're seeing substantial amounts of interest from the people who are hyperscalers and others who are building data centers and need to use them. The amount of compute that people need is extraordinary and going up every day. So my prediction is that we will see at least that six and maybe more.
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Brian Sullivan
Okay, Sam Altman, you might have heard of this guy OpenAI. Obviously I've heard of him speaking. Speaking at a Blackrock conference I don't know two weeks ago. Didn't say he was concerned about spending, but there were some comments that you could imply weren't as confident. Is there anything on your planning that says, well, what if AI isn't what we think it is? What would that mean for you guys if we don't get the growth projections that are currently out?
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Commercial/Advertisement Voice
We have said very, very clearly that we are not going to build any of that new six gigs without a contract with a credit worthy hyperscaler. So if nothing happens and it all goes away, we still have a 14 plus percent growth rate that we're very happy to fall back on and we think we can even do better than that. But that's what we've now said to the street is our growth rate. We are not seeing from the big five companies any change at all in their capital expenditures. They're all still spending, you know, nine figures, hundreds of billions of dollars a year. And the only way they can find out if that is a real business is if they build the data centers, buy the power and run it as a business to see what the ROI is and that's going to take at least five years for them to figure out.
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Brian Sullivan
All right, well we're glad you're here to figure it out in five minutes. Larry Copen, CEO of nrg. Really appreciate the conversation, thank you very much.
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Commercial/Advertisement Voice
Thank you.
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Brian Sullivan
And Kelly, I will see you in about 10 minutes. 20 minutes. Whatever it is, is for power lunch. Perfect time, perfect name, perfect place.
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Kelly Evans
I thought I saw people maybe grabbing a bite behind you as well. Brian. Thanks. We really appreciate it.
- [26:16]
Brian Sullivan
Literally the guy walked like right in. I was like, we're on live tv. Oh, sorry about that. People are on their phones, they're not paying attention.
- [26:24]
Kelly Evans
Look up. No, I do it all the time.
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Commercial/Advertisement Voice
I was like, wow, these kind of clothes.
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Kelly Evans
Thanks Kelly. And our thanks to Larry Coburn as well. Sticking with AI, it's actually the perfect, perfect segue to Anthropic and OpenAI, which are in the middle of a high stakes bidding war with like alongside an involvement with private equity. The winner could end up deciding the future of enterprise software. MacKenzie Seagallows has more in today's Tech Check. Interesting way to try to get their technology in a bunch of hands at the same time. Mac.
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Mackenzie Seagallos
Yeah, something that we haven't seen before. And the news today really builds on what we heard last week, that OpenAI and Anthropic are both courting private equity firms and as distribution partners trying to get their AI tools embedded across portfolio companies. But according to a new Reuters report out this morning, it's OpenAI that's offering the more favorable terms. They're dangling early access to new models, along with a guaranteed 17.5% minimum return for P E firms that join its proposed enterprise jv. That is well above a typical preferred return. Reuters reporting the company is in advanced talks with TPG, Bain Capital, Brookfield and Advent on a $10 billion with the firms expected to contribute about $4 billion.
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Kelly Evans
Now.
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Mackenzie Seagallos
OpenAI's Fiji Semo last week called it a deployment arm for their tech anthropics, running its own parallel effort, talking to Blackstone and others, but without the same financial sweeteners. And the play here? You said it, Kelly, it's distribution. PE firms sit on trillions of dollars in portfolio company revenue. And once your model is customized and embedded across hundreds of those businesses, it becomes a lot harder to rip it out out. That creates the kind of sticky recurring revenue that public market investors like to see. And the JV structure helps to deploying AI into enterprises is expensive upfront, requiring lots of engineering and customization work. By housing that in a separate entity, those costs sit on the JV's books instead of OpenAI. So the parent company's margins look better heading into an ipo. That said, not everyone is sold. Thoma Bravo, for example, passed.
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Kelly Evans
Thoma Bravo passed. But they're the ones who have all the software companies.
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Mackenzie Seagallos
Exactly. And so the value proposition here for the firms, they're not just writing a check. They're co owning an entity that absorbs the messiest, most capital intensive parts of enterprise sales. Then that's why they're getting that guaranteed return. But you had Orlando Bravo weighing in saying that, you know, portfolio companies are already deploying AI without needing to commit capital through jv.
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Kelly Evans
Right.
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Mackenzie Seagallos
Broader pushback, Kelly, unless you're the lead partner with the board seat economics hard to justify.
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Kelly Evans
And they're not to say they're under pressure. But of course, they have these questions already about their exposure, you know, software and could be disrupted. So it's a messy time for sure with this innovative solution. Mackenzie, thanks very much. Appreciate it, Mackenzie. Seagallos Coming up, we'll talk about yields, treasury yields, the twos and tens hitting their highest level since last summer. At the same time, inflation is climbing and consumers are dealing with higher gasoline prices. What does it all mean for Kevin Warsh and the rate cuts he promised to deliver? We'll ask high frequency economics Carl Weinberg about that next.
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Emily Wilkins
Welcome back to the Exchange. Here is your CNBC News update. Officials in Hawaii are assessing the damage today after the state suffered its worst flooding in more than 20 years. Heavy rain fell over the weekend on ground already saturated by last week's winter storm, forcing thousands to evacuate. More than 200 people were rescued, but no deaths have been reported. Governor Josh Green said the cost of the storm could top $1 billion. Cuba has restored power to nearly half of the capital city, Havana, after its power grid collapsed for the second time in a week on Saturday. Nearly 500,000 homes and businesses were back online by Sunday afternoon, according to Cuba's grid operator. This is the third blackout this month as a U.S. fuel blockade cuts off foreign oil imports. And DoorDash is offering temporary extra compensation to drivers in the U.S. and Canada to help us offset rising gas prices from the Iran war. In the US drivers with the DoorDash debit card will earn 10% cash back on gas. And in Canada, drivers can receive up to 36 Canadian dollars per week. The national average gas price jumped 34% in the past month to $3.95. Kelly, back over to you.
- [30:57]
Kelly Evans
Within a hair of $4 even as oil prices drop. Angelica Banks. And that decline in oil today is also changing the market. Markets fed calculus because this morning before the president struck a more constructive tone on Iran, markets had been pricing in a hike by year end. But that's now changed. Now we're looking at a pause for the full year. The president's statements moving yields around as those odds shift. The 10 year and the 2 year posting their biggest intraday spreads or swings really since August of 2025. 21 and a half basis points for the two years, 14 for the 10 year, which was down at 430 from a high of 444. But my next guest says a hike is still the right call and even expected one last week or said it was possible. Let's bring in Carl Weinberg. He's the chief economist at High Frequency Economics along with CNBC senior economics reporter Steve Liesman. A lot of my macro crowd, Carl, is already jumping to hear you say this. They say you're going to repeat the error of the ECB in 2008 if we do anything like this and so on. Why do you think a hike might take place here year?
- [31:57]
Carl Weinberg
Well, you know, oil prices are up substantially year over year. We all know the numbers there, and they vary hour by hour. We saw an $18 spread on oil prices so far today, so I'm not going to pick a point out there, but we're up 30, 40, 50, 60% since the beginning of the year. We're up about 38%, 40% compared to a year ago. These are the kinds of things that generate a 9 or 10, 10 of a percent increase in CPI rate of growth or inflation. And with inflation already above target for years now and with little sign of underlying inflation really slowing down, the Fed had caused the contemplate hiking rates even before all of this. The higher oil prices make it even more interesting. But before Steve jumps in and asks me a hard question, I'll also add that it's more than just oil that we're talking about here because fertilizer, one third of the world's supply of urea, comes out of the Gulf, and that's not coming out of the Gulf anymore. Helium to make chips, all kinds of inputs.
- [33:00]
Katerina Simonetti
Yep, yep.
- [33:01]
Kelly Evans
Go ahead, Steve, jump in and ask him a hard question.
- [33:05]
Steve Liesman
Well, I want to make an observation first, which is we did have Austan Goolsbee on exclusively this morning, the Chicago Fed president, he talked about this idea of a hike being on the table. So not necessarily disagreeing with Carl, I look at that more, Kelly, as probability guidance rather than forward guidance. In other words, I don't think he's trying to prepare the market for the possibility of a hike. His bus is saying, look, this is in the realm of possibility. And I think the reason is because, well, they've looked through the tariff inflation. They're running hotter than they want to be running and the question becomes the extent to which it could spread. And Carl, the question I have for you is talking this morning with oil expert John Kildoff, and I know you know about commodity markets globally. And so my question becomes this. We keep hearing this thing about April 1st when there could be actual supply shortages. And right now perceived supply shortages are different from actual ones. How much does it important to you, you think for oil prices and the outlook in general that something be resolved in the next couple of weeks.
- [34:07]
Carl Weinberg
So having never seen anything like this before, but trying to apply what I know about the US Oil situation, we have a lot of oil in the United States. We have a lot of oil on reserve in the United States. The world has a lot of oil on reserve. Remember going into this, the IEA was telling us that supply was exceeding demand, that reserves inventories were higher than they'd ever been before. So we probably have a period of months before we get into physical shortages in most places, but not necessarily in all places. So I think we have to be concerned about physical supply. Not quite yet, but we still want to keep an eye on it.
- [34:47]
Kelly Evans
Yeah. Carl, the question I would ask is, is inflation not always? Use the double negative. Say what I'm saying is, isn't inflation always and everywhere a monetary phenomenon? In other words, in 2022, when we had fiscal and monetary stimulus, we could have high inflation. And 2026, when we have price spikes, which we certainly haven't had before the Iran war, aren't they more likely to act as a tax on the consumer? This is the argument a lot of people would make make is that the error would be hiking rates in response to what already amounts to a negative shock on the economy.
- [35:19]
Carl Weinberg
Hmm. Well, there we are. We have a supply shock and the Fed, and nobody really knows what to do about it because we're seeing an increase in prices and we're seeing a drag on growth happen at the same time. And some people remember how Arthur Burns dealt with this back in the 1970s. And he said his declaration, his, his management of the Fed at the time was that that the price shock was something that monetary policy couldn't influence. So therefore the Fed should do nothing about it and focus all of its attention on protecting employment and the growth rate of the economy. And we know how that worked out. I think everybody on the Federal Reserve is aware of the Arthur Burns story, and everyone on the Federal Reserve is committed to not making the same mistakes today that we made in the 70s. Now it's not the 70s. All right? We don't have have cost of living adjustments to wages that are in excess of 100%. That's a big one. That makes it different from then. And to be fair, background inflation was higher going into the oil shock in the 1970s than it is today, and prices were more unstable Oil just gave
- [36:21]
Kelly Evans
it a little push. We have to go. Steve and I are both like going crazy because we could need 10 more minutes. But I'll just end with this via Mike Darda, who said the Bernanke Gertler Watson research of the late 1990s. 90s. Bernanke. Okay. Showed that the depth and duration of recessions associated with the 1973 and 1979 oil price spikes was mainly due to contractionary monetary policy. The Fed spiked short real rates as the oil shock unfolded. Steve, quick last comment on that.
- [36:46]
Steve Liesman
I would say, well, that 1996 paper which I read not, not too long. Sorry, Carl, I'll just say real quickly, read not too long ago that 96 paper again. And it does, it doesn't say the Fed shouldn't hike. It said the extent of the hiking is what made it worse. So the Fed needs to respond, needs to keep inflation expectations under control. Watch the job market. What Goolsbee said this morning was the idea that, that he's less concerned about the job market than he is about inflation. And that's a, that's a important change in the stance of policy.
- [37:17]
Kelly Evans
Carl, what were you going to say very quickly?
- [37:19]
Carl Weinberg
I was just going to say we are at full employment. So right now you know, to worry about the labor market. Yes, job creation has slowed, but we don't have any workers to hire. And since we are at full employment employment, it's a good time to worry about prices at the Fed.
- [37:33]
Kelly Evans
All right, so both of you bringing it back to the labor market as it makes sense, that's what we should be watching. Really appreciate it. Thank you for the great discussion. Carl Weinberg and Steve Liesman. Coming up, it's not just energy. Low lower today. Gold is tanking again. Paring those losses is down as much as 8%, down 3% now. But it's having its worst month since 2011 as the Iran conflict continues. Bank of America says while the recent sell off makes some sense given its negative correlation to the dollar and rates, they expect a rebound in the near future even in a, quote, protracted war scenario. We're going to dig more into this next. Gold continuing its slide after its worst week in 15 years last week. Copper reversing course today now positive. While silver and palladium prices, prices had briefly jumped, but those are now trading somewhat lower. So where is this whole complex headed next? Let's ask Bill Baruch. He's president of Blue Line Capital and a CNBC contributor. First of all, Bill, welcome. Would you paint them with a broad brush or you know we saw them all rise together to kick off the year. How would you describe their pattern now?
- [38:39]
Eamonn Javors
I think in times like this where the volatility picks up you start to see more correlation and that's what it's bad. I mean you look at gold hit the 200 day moving average overnight. Copper hit the 200 day moving average for the first time late last week. Platinum as well today. So silver has a bit of ways to go. I think right now this, this run up that we saw gold, this explosive move earlier this year, silver, gold, copper, a lot of it was pricing in some geopolitical uncertainties. And now we've had this geopolitical event and what it's created too is some selling from central bank price of gold because of the oil shock. And it's really going to see how long this oil shock plays out. Though I think there is some tradable lows here that potentially have happened here overnight. It still volatility remain very high.
- [39:27]
Kelly Evans
Where do you expect it to kind of find a resting point? So and I've heard other theories that you know again going back to kind of foreign markets and they have to sell gold in order to raise currency to pay for defense in some cases or oil as you say as that continues. Where would you expect gold in particular to find a resting point?
- [39:46]
Eamonn Javors
You're right. A lot of that trade flow that you settle in US dollar has also been pushed into gold. Some some of that dollarization trade. So you can't have both ways. If we're seeing dollarization towards gold and you get trade locked up the way it is because it's straight, it's going to create some selling pressures in gold. I like this area we saw get the 200 moving average this, this test overnight and now when we broke in the selling pressure really kicked in. It was under 4800. So I think a rebound of 4800, a minimum something you want to see 5000 would be, would be great. Now if we start to see the strait clear up and we start to see ships passing and oil comes down, you get the two year yield coming off which hit 5%. Especially right now you're seeing the CME Fed watch tool price in a 22% chance that we get 25 basis points higher hike later by the end of the year compared to only about a 10% chance of another 25 basis point cut. So you know if we start to see some relief on those, I think higher is in the cards maybe 5,400 and it's easy to forget that right before the weekend before this Iran conflict began, we had a new high weekly closing gold. So it was knocked off pretty sharply. And it's been, it's been some heavy selling in its worst week since I think 1983. Agree.
- [41:02]
Kelly Evans
Right. But you say, you know, if that starts to change, this passes, oil settles down, maybe the Fed odds change, maybe it can find its footing once again. We'll look for that bill for now. Thanks. Appreciate it. Bill Baruch of Blue Line capital watching that 200 day in gold coming up, airlines are surging today as they ride this decline in oil prices. But between oil's recent surge and the ongoing government shutdown, some CEO commentary suggests more problems ahead. We're going to talk about that next on the exchange. Dow's up 750. Now we have a news alert from Capitol Hill. Emily Wilkins with the details. Emily Kelly, Hey, Kelly.
- [41:55]
Emily Wilkins
Well, the White House turned down a request from Democrats to meet on funding the Department of Homeland Security, according to a source familiar with those conversations. This all comes as Democrats are continuing to hold out push for ICE and Customs and Border Patrol to have the same standards as local law enforcement. Pressure's really ramping up on lawmakers to get to an agreement given those longer backups at TSA and airports. And look, they are making progress on areas including limits on where ICE agents can go, identifying officers, among other things. President Trump did seem to throw some cold water on further talks this morning, posting on Truth Social that negotiations with Democrats should stop until they vote on the election reform bill known as the Save America Act.
- [42:36]
Kelly Evans
Kelly, all right. Some positive headway in talks and the shutdown. Emily, thanks. The Trump administration is sending ICE officers to major airports like Newark, jfk, Atlanta and Chicago to help mitigate hours long wait times after hundreds of TSA agents have now quit. At the same time, jet fuel prices have soared to three year highs here in the US and to record levels in Europe, spurring United to cut 5% of its flights. Those from less popular routes, CEO Scott Kirby saying the company is prepared for oil to hit 175 a barrel and to remain above 100 through next year. Let's bring in Oscar Munoz, the former chair and CEO of United Airlines. He's also a CNBC contributor. Oscar, welcome to you. Tough time to have to deal with both of these issues. Which one do you think is more difficult? COLD
- [43:23]
Oscar Munoz
Well, I don't know that you can actually prioritize one versus the other because they all have significant impact not only on the business part of it, but Also to customers and consumers.
- [43:32]
Kelly Evans
I'm struck by the fact that airlines, you know, they're up today, they were down a little as they navigate this, but we hear a lot of constructive commentary. Delta, American, they're still talking about, you know, consumer demand is healthy. Their guidance was still pretty good. So why do you think they're able to handle something that is pretty disruptive and, and not and do so with, you know, like they have planning contingencies like they're talking about, but they're able to kind of take this in stride.
- [43:57]
Carl Weinberg
Yeah.
- [43:58]
Oscar Munoz
You know, airlines don't really absorb fuel shocks in particular.
- [44:01]
Eamonn Javors
Right.
- [44:01]
Oscar Munoz
We just repriced them over time and we've had so much practice over the years. And you see the equities rising today on a minimal drop in oil and that's how sensitive they are to this business business. And so it's a constant aspect. I mean, I think the comfort that we all have, at least from my United sort of lens is we're sort of always planning for these things and know how to get about it. And I think the, the real benefit that some of the big airlines have done since COVID is understand these big external shocks can come to you. So how do you get your battle, your balance sheet in a better place?
- [44:34]
Jonathan Panikoff
Right.
- [44:34]
Oscar Munoz
How do you make sure that you keep growing and avoid the big, you know, immediate knee jerk reactions that we've had in the past? Much, much more resilient airlines. But of course these shocks just keep coming.
- [44:50]
Kelly Evans
I look at shares of United for instance, which were up, you know, 26. They're up 40% basically. Then they sell off 15% into the year. And investor, it's the old Buffett thing. Right. Every time you turn around there's something else to deal with. That said, what do you make of this idea to send DHS or ICE agents into airports to help with the TSA say look, it seems like some creative solutions are needed. Travelers are certainly a little frustrated and stressed out. And I can. The TSA agents probably feel like, you know, ping pong balls and they're like they've got food banks going at some airports to try and support them. They're going to miss, you know, go another month without pay at this point.
- [45:24]
Oscar Munoz
No, I think the general American public doesn't quite sometimes, at least people that listen to this understand the level of wages that these folks have. Right. A check, one check is a very meaningful thing. Missing one or two, three, it gets increasingly and it forces them to do other things. So again, that's the first and Foremost understanding. You know, this ice thing, boy, it's, it's, it's politically as everything else in our country has become, is just fraught with all of that. Is it a creative solution or is it just going to make things worse? I think we're about to see. I think what's important to know that this is a kind of an all hands on deck approach to keep the economy going would be the strategy of the administration. And these folks are not going to do the critical trained sort of screening aspect of tsa, but they're going to manage the perimeter, they're going to check credentials and see again, be on the, on the perimeter looking in and that could be helpful. I don't know what managing lines and flow is going to mean given their training with regards to what we've seen in past months. So, you know, it's a one that is in a lot of airports and has run an airline. People are in a hurry. They need to get to where they are. And it gets very sensitive when the lines get that long. The level of tension goes up and maybe this calms it makes me, this fuels it. But again, we need something creatively because as in your previous segment, it sounds like there was making some progress. I heard earlier this morning that there was conversations that were happening that might indeed be making some progress towards ending sort of the government dysfunction that we have. But at the same time that is not likely to happen that quickly. So this might be a creative solution and we'll, we'll wait and see and
- [47:07]
Kelly Evans
to the kind of concerns people then they have the issue at LaGuardia this morning and again you just, you want to make sure that all of these systems are operating smoothly and with the best resources and not, you know, and that there's, and maybe it's just our fear covering these issues in the media and it's all fine in the grand scheme of things but you know, it's certainly contrary to contributes to a sense of concern. Oscar, thanks. I know we have to leave it there, but it's been great to have you. Come back any time. Oscar Munoz. Don't miss United CEO Scott Kirby tomorrow squawk on the street that set 10:10am Eastern time to continue that conversation. And that's it for us. Thanks for watching the exchange. Power lunch picks up after the break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, day, same time, same place.
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Oscar Munoz
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