looking for as the potential tipping point? is there any metric, statistic, number that you worry about? >> i wouldn't say that if interest rates go to four percent that is the number, but it is the pace of change rather than the absolute level that will matter. >> make sure you join us. more squawk on the street is next. welcome to squawk on the street. futures are under some pressure this morning on this backup in yields. ten year did hit a seven year high as investors wonder if this is the game changer. it has been a tough overnight in india. oil shot above 76 despite the biggest inventory build in a year and a half. road map will begin with rate shock. stock futures falling as futures

grow jittery. >> pot investments are paying off. more than a billion dollars in gains. this massive china hack reportedly infiltrating apple, amazon and other u.s. companies using spy chips on servers. will it exacerbate already tense relations with china stocks are on track to open lower after the record close of the year. yields rise to multi year highs. fed chair powell did say we are a long way from neutral on rates. speaking about the economy, jobless claims fell by 8,000 to 207,000. stories are really about rates and then plenty of china news which we will get to in a minute. >> i think some comments from chairman powell were taken i won't say out of context but

like we are willing to overshoot. he is also saying we have a strong economy. if you only picked up the willing to overshoot then you sell a lot of stocks. i think that he showed to me some degree of a little rookie aspect. >> it's not artful. he is such a seasoned person in his press conferences. >> name a chair that hasn't gone through this gauntlet. >> small bio tech. >> you are right. she didn't like some of the -- >> bernanke was a little more important when he said subprime was contained. >> he was good on 60 minutes.

i just didn't -- it's time for him to kind of sit back and maybe catch some of the games. >> he should have been watching the yankees. >> last night i felt worried. >> the rising wages is broadly consistent with observed rates and price inflation, higher wage growth alone need not be inflationary. >> i just don't want him to talk about this. i think this whole fixation is a big mistake. let's look at the data. the data dependency -- >> looking at 3.193. >> that is the price. >> thank you very much. by the way, that is the yield.

>> yes. i'm just saying that -- >> my point is other people may start to think bonds are starting to look a bit more attractive. >> i don't know, but so far we are saying not that much inflation, not going to need to raise all kind of perfect. when you see that kind of a move typically you do expect that stocks will start to back off. >> we don't talk enough about who is selling someone was a big seller. was it the chinese >> pence is going to give a speech today at hudson institute outlining all kinds of qualitative measures that they say china is working on against our economy, against our election. >>. >> apparently, we are also going to start to get a little more aggressive in the south china sea. >> this is going to be -- >> then there is this report from bloomberg business week about these chips.

it has been denied by apple and amazon. >> what do we do we slap the wrist. we had every single chinese company list. now it's like we will have a second monitor. i thought about you as jp morgan cuts china to neutral. full blown trade war becomes base case scenario. they say it could knock $8 off consensus. i think this goes in david's column. a w for david. >> why are you sitting here cheer leading like that? >> look what we did with mexico, raised wages in mexico. good solution in mexico. >> it's nafta 2.0. it didn't change that much, did it >> i disagree with that. the currency --

>> why are you cheerleading for a trade war with china >> because we have been in a trade war forever, but now we are fighting. >> some would say the larger issue has been misrepresented and china was never as much a threat to us as a menace. so much of what we have here is so much better than we will ever have. you can't name a corporation that really compares to one of ours. >> this times piece saying how the private market economy is starting to slip a bit. we will issue $3 billion in bonds. >> you can't keep dumping aluminum in china or steel in china to get to us. that old trade is done. >> what now? things continue to get worse. the word war is being used by a

lot of analysts. >> we weren't fighting and now we are. >> no concern, still. we have the conversation every day. >> i look at the stocks. what is boeing telling us? >> i knew you were going to say boeing. >> what am i supposed to say >> nothing. you have been right. >> you have been right. >> i rest. >> it's not over yet. >> it's not over. >> back to yields, though. tomorrow, jobs number, claims at 2:07. are you more worried about a soft number or a good one? >> if i put my hat on that says it is okay for wages to go up ten cents, and chairman powell doesn't freak out, we are fine. if chairman powell decides the american workers should not make ten additional cents, then we are screwed. i think he will watch the show, spend more time at home.

>> okay. >> it could change. >> i did not like last night's speech. that was a terrific quarter. there was a fantastic hp analyst meeting. suddenly they might overshoot. to do what >> a couple of reads was don't freak out. when you say that we might overshoot what that says to me is what are you trying to do are you trying to make it so th that -- the conference call was terrible. they said everything is pausing. autos. the only reason why gm went up is because someone felt bad for him. >> lost the early lead. >> i think that we are looking

at auto slow down, housing slow down. look at the classic example of things shifting. prices are crashing. these are not positive signs. >> if they are not making more money, amazon is the outliar. i have read research about the rest of the retailers. by the way, amazon eliminated the bonuses. how about the bonuses in the stock? >> on that point, that explains a lot about why people are searching for things like cannabis. company raises guidance. posts better than expected quarterly results. in the release rob sands did highlight saying our investment

provides us with a strong foothold in the emarging market which could be one of the most significant growth opportunities of the next decade. >> i'm meeting with bruce lenten and having a teach in october 13th. he is the constuilation president. rob sands put this cannabis idea in my head. you said i am mr. cannabis. what was i earlier mr. trade war? >> mr. marijuana. >> all of these are fitting. he put $5 billion in order to be the king. i am told that the buzz that you get on these new drinks is far superior than the buzz you get on beer. >> have you tried it >> no.

it is illegal. there is tremendous numbers in beer. beer was a re-acceleration. corona and corona premiere. record operating margins. wine has come back. 930 is what we are looking for. this is the only packaged goods company that is inkreescreasing estimates across the board because beer is back. >> they made a gain on their investment. they are not introducing these products yet, are they >> people better start recognizing it. >> are you going to do the show from canada on the 17th? >> can we go with you? >> i will tell you, the big issue right now is law enforcement. law enforcement does not recognize that there are far fewer murders at home which is the single place where we have the most homicides, but you

can't breath aalize. that is a very big issue. >> the federal government is squarely opposed to the legalization of cannabis in the united states despite the fact that -- how many states do we have now >> you go to the storefronts in colorado and they are like people's houses. we are waiting for convenience stores to sell it. that is why rob sands is such a forward thinker. >> he said he had no ideas he wanted to share with us at this time. >> as between doritos and edibles, you are watching the game. which are you going to pick? a dorito or an edible? >> i don't see why you have to pick can't you have both in. >> unless you have the new drug that has obesity issues.

you want the edible. gummies. >> i think the ceo told you on mad that they were going to raise money. >> he sure did. he was just out there. >> take a listen. >> far less cash than canopy. isn't this the time to strike and raise capital? there would be nothing wrong if you said yes. >> we obviously need more capital. the intent is to build a global company. we are in 12 countries today on five continents. it is clear we will add additional countries. that requires us to increase our capacity as we introduce products such as these around the world. >> medical products. this replaces all the lunestias

of the world and xanax and clonpen. this could be revolutionary. >> you are not advising people to buy tilray? >> i have not done that. i was before the big spike. the people think that october 18th in canada you will be able to cruise over the border and knock back a couple, a six. the six is a form. it's for beer. >> whatdo we do? you go and get beer. >> i'm aware of what it comes in. >> todd is our producer here. he is right over there. i think he is listening and decided that you don't drink, don't eat and you don't go out.

what kind of life does he lead you know the chuckles candy? >> no. >> i was going to fill it with cannabis and throw in a little thc for you. >> that sounds horrible. >> i would like you to do that with a couple of gummies. >> david is going to have kindler on today. >> i have chocolate thc for him. >> you are literally the candyman. >> the candyman, mr. trade war. >> and mary jane jim. >> when we put it all together it will blow your mind. >> i can't wait. >> you have to stop talking now so we can go to an ad. >> a tale of two companies, one

being slapped with a sell rating. we keep our eye on yields and china and oil. squawk on the street is back in a moment. it's not what champions do. it's what champions don't do. they don't back down. they don't settle. and they don't quit... except for cable. cable? oh you can quit cable. because we are cougars and we don't quit!! unless what?!?!?! [team in unison] unless it's cable! quit cable and switch to directv and get the most live sports in4k more for your thing. that's our thing. 1-800-directv

amd shares down. ibm with a sell rating saying the recovery remains protracted and uncertain. they say sadly we love this 100-year-old american icon but the company's recovery remains uncertain. >> i was hoping they would be a little more bullish on ibm. as i read through it, what i get the sense is they will be left behind. they talk about aws google, microsoft, public cloud offerings. they have leveraging partnership. i read it and i thought it was a hold. it's nuanced. it really is ibm cloud looking

solid. 20% growth rate is not bad for the cloud. >> the growth rate overall on the component of their businesses are not bad. the question has always been can you outrun the legacy which is still the majority of revenues. we have been talking about this for years. the market is sort of willing to wait. >> i guess so. i feel like at ibm it is like who are those guys. >> i look at this and i say i would not sell it off -- amd has issues. there was a big spike because people felt that intel had really lost its staff. i think amd has choppiness. there is inventory in the

system. when you have inventory in the system you have to cut prices. when you cut prices you cut numbers. when you cut numbers you cut stock prices. >> deutsche cuts numbers. >> they move, the stocks have gravitated to intel. i got to tell you, this is a group that is so in flux. i think you go for micron. >> we will get to cramer's mad dash in a minute and count down to the opening bell. this is huntsville, alabama. aka, rocket city, usa. this is a very difficult job. failure is not an option. more than half of employees across the country bring financial stress to work. if you're stressed out financially at home, you're going to be too worried to be able to do a good job. i want to be able to offer all of the benefits that keep them satisfied. it is the people that is really the only asset that you have.

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about six minutes before we get started with trading to start things off in a few minutes. let's get to a mad dash. >> i have the cramer report. horton and cloudera, these companies getting together will give them critical mass. they didn't have critical mass alone. it will be unifying a very good platform. you know who it is meant to go after? oraca, the killer on premises whale, oracle. it's to take business away from oracle. when you see a deal loved by both what it says is neither has the scale to do it themselves. now they will have some scale.

i think it is a really great deal. >> it is interesting the response so far. we have had a number of deals, the ones we have announced that have not been particularly well received certainly on the buyer's side lately. >> what has happened here is that there is just a lot of companies that are in the cloud, so to speak. they are all just kind of floating out there. i wouldn't be surprised if we didn't see a merger where someone buys the combined company. so i think -- my cramer report is positive. >> good. >> there is nothing -- >> i didn't mention cannabis and i feel a little left out. look at this horton hears a who. this business is smoking.

>> we have the opening bell coming up. i bet we will talk more about cannabis. also campbell's soup -- opening bell a few minutes away.

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you're watching cnbc's squawk on the street. the opening bell set to ring in just about 60 seconds. busy morning where our eyes are on the backup in yields on pretty much all areas of the curve. it was last month two closes on the 30 would be a game changer. we are essentially there. >> he has been making a lot of very big calls. he makes big calls. >> he does. >> i didn't say he makes calls that make money. he makes big calls. i'm watching oil.

oil has to come down. >> you would think a huge inventory build would do it. >> i thought it would. >> let's watch that. we have to watch the cloroxs of the world. that was like the biggest decliner in terms of points. i'm watching that. i'm watching anything that has to do with china and espionage. fire eye is against state sponsored terrorists. >> you may hear more about that. prime minister of poland doing the honors.

you mentioned claims at 207. reuters has a piece about fed ex paying retirement age pilots bonuses up to 100 grand to make sure they keep flying through the holidays. >> this will be a gigantic holiday season for the web, for internet. it just gets bigger and bigger as more companies learn how to handle it by bringing in the sales forces. they get more sophisticated. williams sonoma spends more than 50% of business online. that is a kind of company viewed as the model of what you can get to. if you can get to 50% online that is pretty fabulous. >> i'm worried about costco. >> do they have to talk about wages or margins >> they have always been the highest payer in the business.

jim senegal told me we have almost no turnover. training costs about 30% of the expenses of a retail store. let me go back. i'm not worried about costco in terms of a -- i'm worried about it because of what you have said. they have been willing to eat the inflation because it is a club. a club is not going to pass on big inflation numbers. >> it's a great model. >> it is. >> prime is a club, i guess. >> i love the prime club. >> you can raise the costco thing a little bit more. you can raise spotify a little more and the apple cloud a little more. all of these can be raised a little more. >> i don't know about xm satellite. i didn't like the pandora deal. >> that seemed like it meant your xm is tapped. ten cent, 800 million people. >> they want to come public here at some point.

>> they keep bringing in new stocks because they love us in the stock market and hate us when it comes to trade. >> they don't hate us. they love us. >> there is some -- >> there is some difficulty between our two countries. >> until they capitulate. >> or we can have tariffs. certain things will be sold here and others won't. we won't sell as many cars there. >> vietnam is open for business. vietnam has never been a friend of china, i think it can open a lot of factories faster than people realize. you can move business to vietnam. v vietnam wants the business. >> the goal is not about the trade deficit but getting manufacturers to get out in china. >> i think --

>> you think it has a good view? >> i do. i'm probably his biggest champion. >> i think you are one of the larger champions of the trade war. you want to be his biggest champion. >> since i led a wildcat strike -- >> you talked about your father. >> his business was wiped out by the chinese. he had to go work for the chinese who were nice to him. i know it's anecdotal. >> i worry about unintended consequences over the long term of this deterioration and how it will end up being good for us. >> in 2025 -- >> you are not going to stop a country from wanting to continue to develop. you can't do that. >> i think you have to play it fair.

when american express is allowed without having a partner to open business then i am going to say they are capitulating. america's best has been trying to get in the market for 14 years. >> speaking of which, amex, goldman and jpm are the only names up. >> goldman sells at eight times earnings. it's an amazing situation that the group for goldman sachs is the lowest of any investment bank, bank, whatever. >> david solomon's goldman sachs. they have some work to do. >> the way you do that is to have better earnings. >> price to book is also very low. >> what happened it is like a power company. >> they have better margins. >> that is just an eight times earnings is shocking to me. >> banks are flat for the year

while the s&p is up nine. it is even worse overseas. >> you will like the way you bank. >> the under performance of home builders today continues. i was thinking back to when home depot said don't worry until mortgage rates hit seven. >> she has a lot of -- low's is doing incredibly well. home depot coming back. it was -- i'm starting to think what would happen. >> are you serious >> i think so. >> ask him how the new home selling -- >> usually the first thing we ask. >> the stock is holding up and still up for the year. >> zillow is up two percent for the year.

>> i love spence. spence is kind of co hostable. if i needed a co host on a friday -- >> i'm told he is not. >> he is so fickle. >> that is incredible. here today, gone tomorrow. the stock is going to go down. i'm watching estee lauder go down. that is another company that stock is high. a lot of what i'm hearing is that apple, the new phone, gets rid of blemishes and a lot of what estee lauder did -- if you can get a phone that gets rid of blemishes, why do you need to get rid of a blemish >> the whole thesis you had about looking good for selfies because you are always on camera -- >> it is being challenged by the quality of the camera. >> it is being challenged. it's challenging estee lauder.

i have done work on this. people are worried that this new camera gets rid of the zits. >> nobody cares what they look like in person. >> right. >> nobody hangs out in person. >> and they don't talk. >> nobody talks to anybody. >> alien ates society which is why you have to embrace cannabis. >> i'm glad you brought us back to cannabis because it has been about eight minutes. >> speaking of things to eat, kraft heinz is up. they lowered e.p.s. estimates because of currency. they said the retail tracking indicates flat consumer take away in the third quarter compared to 3.1% decline. lunchables, philadelphia, heinz ketchup and capri sun are doing

well. sliced cheese, frozen potatoes continue to -- >> they really made like five different philadelphia cream cheeses. there are different kinds than there are philadelphiaens. kraft heinz lineup is not natural and organic. >> this has not been a particularly good investment for this year for mr. buffet who is one of the larger investors in the company. just seem to see how their relationship evolves from here. >> i'm worried about kraft heinz because the millennials don't like their section of the supermarket. >> they don't. another company we talk about suffering as a result of taste of millennials is campbell's soup. they come out with their proxy this morning. we know what the dates are now. the record date is october 9. they will hold their annual

meeting for which those holders will have voted on whether they want to replace the entire board, some board members or none of the board members. remember mr. lobe has nominated different candidates for everyone of the board members. the board is up. you can see what campbell's is doing. a couple of quick excerpts from their letter taking a shot at third point but still relatively tame. the campbell board rejects to reject the mice guided efforts. they call it a one point agenda for campbell meaning just sell the company. that is not what he has been saying. for his part, mr. loeb has not made the focus the sale of the company but more about execution

and a potential sale off of well executed strategy. you always get back to kraft heinz. campbell is not a large company. it was interesting in loeb's initial foret he did not go after the family in a strong way. i think there is hope that perhaps he can have dialogue and turn one or more of them and it will significantly change the math in any potential fight for the board seats. if he fails in that, then expect the level of discourse to deteriorate. >> as opposed to when he went to see honeywell he said you have good ideas. united it ecnolotechnology i ths cordial. >> you need to know when you will bring it and when you

don't. this will evolve. the record date is coming up soon. with the meeting on the 29th we'll see. if he still thinks he can somehow hope to have a dialogue that could potentially get him some of the family's votes then he is not going to go after them hard. if he thinks it is a lost cause then it is tougher. we will speak to bob pisani and go to rick in chicago. this might be a chance to -- >> these are not cannabis-infused chuckles. >> they through is no cannabis. >> only 180 calories per package. >> who makes these >> a private company. i don't know the company, but i have to tell you it will take you a while to chew these. >> product of mexico. >> it's not nafta. when these are sir fu--

>> i'm more of a sour guy when it comes to these things. i like the sour patches. >> lemon heads. they make lemon heads, too. >> global economy right here. >> these are made in mexico. this is what the new trade agreement is all about. what are these made of >> corn syrup. >> synthetics. financials that are really keeping the dow from sinking lower were down 75 points. let's get to bob pisani. >> edible chuckles. i am dying to watch you guys on edible chuckles. that will be a day i will watch that. here is the story. we have a news story that has evolved. the strength in the u.s. economy is creating a yield story here. th number one, yesterday the ism services number, caboom from 308 to 3.18.

it is mostly about the strength of the u.s. economy. the fed has been a little less accommodative. powell says very accommodative policy is no longer appropriate in the current environment. finally, we have trade fears subsiding a little bit. you put these together you have an interest rate story, a yield story. the question is how far will this actually go here? we have seen the yield curve steepening, the difference between the two and the ten year. today it is about 31 basis points. it's a one month chart. that was enough to get bank stocks going yesterday and that's enough to get bank stocks going today. banks lead the sectors that are on the upside. they are about the only one. the problem is when rates go up, other things start getting effected. emerging markets got hit yesterday. we saw mexico. we saw south africa. there is our e.e.m. down again

today. other interest rate sensitive groups. home builders got hit yesterday and again today. industrials a little bit weak as the trade war story kind of tops out a little bit. in a sense this has started this interest rate story. look at what is going on. this didn't happen on monday but it accelerated on wednesday. look what has happened. home construction stocks down 9%. reits are down 5 five. th -- five percent. u.s. ten-year yields at the highest since 2011. we are starting to see this around the world. japan's ten year the highest since december 2016. the german and french and spanish ten year are starting to creep up, as well. they look like they definitely want to go higher. this is to a certain extent a

global phenomenon here. remember something, when risk free assets start repricing, that means something. it moves throughout the u.s. economy. here is what you want to watch today. you want to watch bond etfs. we had enormous volume yesterday in some of the big bond etfs. the ie ferkf, we had volume we e not seen, some of the highest on record. what that tells you is a lot of people are just coming in and at some point selling treasuries and one point late in the day they reversed it and started buying treasuries. this is the kind of stuff you want to watch to figure out what kind of appetite there is for whether yields will go higher. suddenly the bond etfs are real important. 77 points to the decline on the dow. >> bob pisani, let's get to the

bond pits. rick santelli in the cme group in chicago. >> good morning, carl. bob was talking about a variety of issues that are all so very important. maybe the most important issue of all, today's stocks are down a bit. obviously, everybody is going to put two and two together and say stock market is just not so enamored with rates moving higher in an aggressive fashion, the most since the big election day in november of 2016. but to them i would say you can have a committee try to decide where rates are or you can have the market joust it out. they will go back and forth and send signals back and forth and hopefully come up with the right blend. that is what the markets are recalibrating to. look at the ten day. yesterday it was moved up and today for a while it was at 34. now it is at 30.

open the chart up to august 1, you can see that this spread is steep and rather dramatic. i can make the chart longer and you will see it will slowly disappear into the history of much steeper. this is quite important especially for jay powell and the fed to be able to normalize without the notion of trying to explain how the market in its managed form may have distorted some of the yield curve signals. another issue we need to pay attention to, junk. corporate securities, investment grade. they have been moving before this big move. look at one month of an investment grade. these are barclay's charts. you see it going down. that means narrowing. that means there is no nervousness there. investors are quite comfortable reaching for yield. the same is true for high yield. the issue is just like stocks, if these higher interest rates cause investors to shift their

thinking a bit, they may be appealing to buyers which could impact the investment grade and high yield. we want to pay attention to those signals. finally the dollar index. when we have big interest rate differentials you will have issues, things like hedging dollar exposure and dollar denominating investments gets a bit costly. that might be like the interest rate equity relationship. it ebbs and flows. it is only down a bit but at lofty levels as you see on that chart. back to you. >> thank you, rick santelli. coming up this morning, m&a in focus. david will talk to morgan stanley vice chairman robert kindler, what to expect as we get to the end of the year. dow down about 76 points. don't go away. think your large cap equity fund

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trading. >> we would be remiss if we didn't talk about social media, particularly snap. we have two firms that cut numbers, ever core takes the price down the daily average users not good citi says listen, this thing is selling premiums it has to go down. by the way, ever core says instagram is irreversibly hurting snap so it's too early to buy snap is my take away. too early. >> so tonight you have constellation and chipotle. >> i am so excited constellation has their conference call so we're not sure how great it is don't don't forget the cannabis angle. chipotle finally talking i think chipotle is coming back big. there's a negative note that i think will be wrong. and tomorrow i have a special cramer report within "mad money. >> you should write a book called "the cramer report. >> i think i should.

you have kindler. >> if it helps sales of the faber report, i booked from i don't remember when, i'm all for it can we twin them together? >> people who bought cramer report bought faber report. >> david, this is the food of the future and this is sufficient fused if you put 50% thc it will be like drinking sist ining sterno >> when we come back, morgan stanley's robert kindler on what's next for m&a. dow is down 110. ten year, 318. ♪ ♪ ♪ ♪ what if we could turn trash into money? plastic bank is doing just that,

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welcome back to "squawk on the street." we have breaking news. factory orders for august up one-tenth. that's extransportation. if we look at headline, it's a powerful up 2.3. the reason i did it, x transportation, you can see why the horsepower is. there were some revisions, s sue from 0.2 history in the rear-view mirror is the mid-month

they get tossed. sow so now let's look at durable goods. we take that out, it really deteriorate sod now that gets benchmarked against a lofty 1.5 for july interest rates, they move stick, move stick, move stick they're basically highly unchanged but at really lofty multiyear levels carl, back to you. >> rick, thank you rick santelli in chicago today good morning, welcome back to "squawk on the street. i'm carl quintinilla with sara eisen and david faber at the new

york stock exchange. market down 136 as these backups in yields continues. >> fears of the fed starting to spook investors. >> plus, amazon and apple denying a report of a chinese hack. and you might not know it, it has been the year of the deal m&a hit its highest level despite a pretty slow third quarter. we'll break down the big deals and talk about whether the rest of this year will be as strong with rob kindler, morgan stanley's global head of m&a. >> first up, ten year does hit its highest level in seven years, stocks set to break a five day win streak for the dow. earlier today, national economic council director larry kudlow talked to the economic club of washington telling the audience, quote, this is not a sugar high.

listen. >> i give you fatter paychecks, better blue-collar jobs, i think we'll go on for quite some time. this is not a sugar high, this is a change in marginal tax rates and regulationings which will keep giving incentives. >> certainly a worth while question as markets stay near record territory let's bring in jeffrey kleintop from charles swab, jim paulson is with us as well good to see you. jim, kudlow is sounding like a lot of supply-siders lately. that all these policy moves will change the needle on productivity and this is not short lived. what do you think? >> i think it's no doubt the economy is good. really good. the problem is we're suffering from too good of an economy. i'm worried carl about the pressure being put on this system now we've got elevated expectations

for earnings here and unlike last quarter earnings, estimate are coming down. a lot of people are reporting warnings you wonder if earnings are goo they will be good enough then you put interest rate pressure on the system. you have to federal reserve chairm chairman you already have signs of some sectors slow iing. you have housing showing that, autos showing it a-10% decline in still with commodity prices i just wonder if we're kind of headed for a slowdown in growth.

>> analysts are trimming their expectations but by a smaller percentage than they usually do. 21% is a high bar. >> absolutely. and earnings expectations are quite high both here in the u.s. and abroad but one of the things that i'm looking at closely is economic data relative to expectations. from a global perspective, we're back to neutral on those economic surprise indices around zer zero ceos blame the weather when they get ready. as the weather cools down, economic data tends to beat expectations in the summer month it misses, in the winter months it tends to be if we're headed into a period as we usually get to, the data starts to beat expectations even if things peak in 2019, perhaps as jim is suggesting there may be still upside here to rates and maybe even the dollar in the

near term. >> the difficulty isn't when yields are rising. often stocks are rising as yields rise. it's after they've risen even if you go back a year ago yields rose from late 17, stocks did wonderful but after they increased stocks started to struggle so stocks are doing well right now even though the ten-year yield has gone up 40 basis points in a little over a month. if it stays up for any length of time, you wonder how the stock market will respond the course is friday tomorrow

if we haven't had a back-to-back hot wage number in i don't know how long outside we've never put them back to back and if we do that you wonder how high yields could go in the short run here 3.75 might not be a stopping point we get a back-to-back hot number tomorrow. >> what would be, jim? >> i don't know. carl, if we get another back-to-back wage number given what's already gone on with core cpi and core ppi -- they can move awful quick and you wonder how stocks will be able to handle that. >> right at the same time, jeff, q2 buybacks up 58%? i mean we haven't had four

consecutive quarters of increasing buybacks since 2013 the bulls' argue system that there's nothing buy. companies have bought so much of it already and there's a paucity of equity in this country. doesn't that make up for some of this >> maybe but from a global perspective we have 20,000 more stocks in the market than we did in 1990, even if there are 2,000 less in the u.s. so a lot of global opportunities. i think the real issue is that corporations are the only ones doing buying it's not hedge funds or pension funds, endowments, it's not individual investors they've been net sellers and that's a big reason why we've seen more volatility this year than last year when they were bayh week after week after week so that volatility is here to stay and that bias supported by corporate share buybacks is unnerving to many investors. >> jeff, i couldn't help but notice your reference to the weather earlier. can you explain logic behind why

expectations suddenly exceed when the weather gets cooler. >> i wish i could explain it better the fact is, economists aren't very good at seasonally adjusting their economic data. i got a chart on a recent publication that shows amazing plot between the economic surprise index and temperatures at jfk airport it just inverted so sure enough data consistently misses expectations and as the mercury cools the economy seems to heat up versus expectations i'm not saying data is better, just versus expectations we may see data surprise to the upside. >> definitely deserves more study. >> maybe there's a mood factor there. jim, i wanted to point out financials, are the only group right now on the s&p 500 that is higher, a more than 1% gain. is that a place where you see catchup to be played with this move in rates? >> i have up until now, sara but this is the first day in a

while where financials have been holding true to the idea when rates go up, they go up. that shows up today. i'm wonder if that's a beat rates are peaking. i'm getting more concerned about them being able to continue to perform if rates continue to climb here i think that you are two of their big businesses, financeable businesses, housing and autos are already weakening, durable goods in general, consumption of that slowed down. those are a lot of areas where they finance a big part of their business, if the financial markets struggle more that's another part we knew at some point yields would reach a level where maybe the financials will quit outperforming. for a while it was expanding their yield curve but now it's depressing their businesses and i think i'd start to sell out of

an overweight in financials. >> finally jeff, the age old question about if you are getting out of the u.s. does that mean you take a flier on em or europe or anywhere else >> japan is looking increasingly interesting. not only profit margins are breaking out to 15 year highs but we're seeing the nikkei 225 which is on the cusp of breaking out to a 27-year high. we have profit margins improving, the economic momentum looks solid and. ar asia might be a place to look. >> q4 will be so interesting good to see you both jeff and jim. we'll see you later. >> earnings mover to tell you about, constellation brands on the move one of the best performers in the s&p. the company raising its full year guidance posting better-than-expected resulted helped by strong demand for

corona beer. ceo rob sands highlighting constellation's foray into cannabis saying, quote, our $4 billion investment in canopy growth provides us with a strong foothold in the emerging global cannabis market which could be one of the most significant growth opportunities of the decade stock reacting to better results on their beer sales and wine sales. beer sales 10.5%, wine and spirit sales growing 9.3%. if you look across consumer beverages that's strong growth and the stock has underperformed it's an attractive setup for the bulls going into this quarter. it's still down this year about 3% despite the excitement around canopy growth and cannabis and jim has been all over it and he will talk to rob sands about his plans in the space but this is the biggest most mainstream way to play it if you're not buying a pot company. >> yeah and it's early days.

the investment was an enormous one. it's in canada for these cannabis-infused beverages that they will introduce at some point into the market there. it still remains illegal in this country and pepsi isn't inter t interested. >> coke is looking at developing cbd. by the way, the conference call kicking off in 15 minutes. when we come back, we'll talk about this big hack tech giants denying a report that china infiltrated their companies. we'll get details on that. riding the wave of megadeals, despite a slow q3, global m&a is at the highest since '07 and david will talk to morgan stanley vice chairman global head of m&a robert kindler dow down 185 that factory orders number best in 11 ntmohs didn't help anything "squawk on the street" is back in a minute. what am i really being charged? and is it eating into my returns? is my advisor a fiduciary? is he always a fiduciary?

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>> the fight we've beening somewhere -- beening somewhere china has been about soybeans and airplanes. we'll broaden that i suspect the president will give a speech about china and i suspect it won't be about trade it will be a great power on the other side of the world coming in increasing tension. there are only two great powers in world, us and them so i suspect it will be a tough time for people in the markets who say, oh, we'll do a deal with them the way we did a deal with mexico this is a very inept comparison. >> former fed governor kevin

warsh on "squawk" addressing the news that is china reportedly behind a massive hack using tiny spy chips on servers to infiltrate apple, amazon and other u.s. companies the tech giants deny the report in "businessweek." apple saying, on this we can be very clear, apple has never found malicious chips, hardware manipulations or vulnerabilities purposely planted in any server." a big question, will the hacking claims exacerbate already tense relations with china joining us javrs who wrote a wrote a book about this. >> it gives you a sense of the chinese government trying to get into hardware. usually we talk about software

but this is about tiny microchips built in china and sent into american firms' products and then went on to high level government and corporate offices around the country so the idea is that because the chinese control so much of the global supply chain for electronic components, the chinese military, the people's liberation army, was able to install tiny, tiny microchips that could open trojan horse style back doors into the hard ware itself in these data centers and that would allow hackers to open the door and get in equally fascinating are the denials. very intense by these companies. biz week which is a good magazine that i happened to work, they say they have 17 different sources. they site sources inside the companies refuting the

companies' denials so it's remarkable piece of journalism here this morning. >> you've covered it closely as we read amazon's statement. i covered ate number of years ago for some period of time closely which is the chinese effort to infiltrate u.s. corporations was done at a high level with tens of thousands of employees. this would seem to fit a pattern, would it not? >> sure, just last week on tuesday the department of justice put out a press release announcing they had arrested a 27-year-old chinese citizen in chicago, the allegation made by the u.s. government was that this chinese citizen was acting at the behest of chinese intelligence trying to recruit engineers and scientists in american companies for chinese intelligence this was last week the allegation was a lot of them were working inside u.s. defense contractors as well as other

companies so this is a very robust effort by the chinese government to get inside access into u.s. government corporations the chinese they allege are trying to catch up to the united states in terms of its torch cal and economic edge around the world by simply stealing stuff they can't innovate as fast as we can, the united states believes but they can steal faster than we can innovate so that is how you catch up if you're the number two global superpower in the economy. >> and next hour, eamon, the vice president will give a speech about some charges about election medding that the president brought up last week is apparently going to talk about efforts the chinese made, for example, denying a license to a major u.s. company if they refused to speak out against white house trade policies sort of the qualitative measures we've talked about being possible for a long time.

>> this bloomberg piece alleges that they have known about this for year back as early as 2014 or earlier it's alleged u.s. intelligence was on to this but it took a long time to trace it back and prove their case that this is what was going on. just last week you heard the president make this allegation that the chinese are currently trying to manipulate the u.s. midterm elections in november. i asked the president last week in new york directly if he had any evidence that he could share of that allegation to back up a dramatic allegation against the chinese government and the president told me no i don't have any evidence i can put out yet so we will be soon maybe there's something we haven't seen and we'll wait for the u.s. government to put out details. >> eamon, thank you. we're watching the shares of super micro down president 39%

this was the company that was reportedly able to be hacked where the chinese reportedly planted these microchips we'll follow this story as we await the vice president when we come back, stocks under pressure should investors and consumers be worried about higher rates? we'll discuss that next.

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time for our etf spotlight mike san tolly is keeping an eye on bond etfs.toli is keeping an on bond etfs >> if you look at these charts, it's dramatic considering we're talking about treasury securities underlying the funds. this is thelt this is not a huge part of the overall treasury market that's down profoundly this year that looks like a vulnerable chart.

you'll see a similar angle held up better here the yields across the curve have been up quite a bit. that's hurt the values here. i wanted to look at a much longer term values of the agg, the overall u.s. bond market inde index. if you look at the ten-year chart, that was the taper tantrum so you've collected the interest payments along the way. on a ten-year basis, 3.5% annual total return it's done its job, the question

is what it does from here. >> the spike is not what we saw in the taper tantrum of '13. >> it's not as steep or sustained. it's looking very extended they probably should calm down just based on the trading mechanics. >> you've this year i think it's fair to say you've been willing to give the market the benefit of the doubt is it different this time? >> not really. i think the market has to make its peace. it's hurting on a sector basis and it's raising concerns about 2019 if you're going to get a squeeze. >> we'll see if it continues how high these rates can go. mike, thank you. let's continue our focus on this big move we're seeing in bonds. let's bring in the head of fixed income at raymond james and the head of short rates strategy at

bank of america. mark how would you contextualize this move as far as how big it is versus other periods we've seen the big backups in yields and what does that tell us about where it goes next >> sure. so it's not like a taper tantrum like the last person you just had on yesterday was quite significant, 12 basis points. yields have been moving up and they seem to be settling into a higher range we see this as a healthy development reflecting underlying strength in the economy and the fact that the fed is gradually normalizing interest rates. >> are consumers going to feel this higher mortgage rates and auto loans? does this filter through to the real economy >> if the trend continues, yes but for the long end of the bond market it's always been about inflation and until last month

wage inflation is particular wasn't showing to ted so we got a big number in the employment report with average hourly earnings tomorrow is more important to the future of the market if this is a trend change on inflation or a one-time event. it doesn't seem to matter. it's almost like the bond market has thrown in the towel as if this is an inflation play. this is more in line with the strength of the economy, the posture of the fed and weakness of the dollar which takes out that good hedge trait and even the stronger ones are starting to give into it so from here consumers will be fine rates are going up in terms of borrowing but on the flip side rates are going up for investors as well. it will find some ground it will be five or six basis points from here but it's not that big of a deal unless we were to shoot up another 60 basis points as we have in the last month or so.

>> do you agree with that mark and is it a big deal for stocks? dow is down 218, got a delayed reaction as well but big deal for stocks and the economy with rates and the levels and marching higher? >> it's a big deal rates have broken out at their year-to-date highs. and they're at their multiyear highs across many as well. we've been expecting this. we just believe that the underlying strength in the economy due to fiscal stimulus would pick up and be supportive for higher rates in general. as a result of that, the fact that higher rates are reflecting a healthier stronger economy, we don't they that should be a material head wind to the stock market stocks have softened in the last couple days, partially reflecting these higher interest rates but we don't believe this should break the equity market or serve as a material head wind because it's predicated on good strong growth and a fed that's normalizing interest rates on the consumers side, it will

raise borrowing cost bus it means investors receive a higher return on safer assets and it should make fixed income more attractive so i don't know that this will cripple the consumer but it will be a slide head winds in the context of a stronger economy. >> very quickly, kevin, i wonder if it increases the likely hoods we could see more pressure from president trump on fed chairman jay powell president trump said he's not a fan of higher interest rates and if we see the market moves, does that open up jay powell to more criticism? >> it could but i think the fed has been really good about messaging the move of a gradual increase in rates. there's still a strong chance that the fed will raise rates in december but the underlying strength of the economy counteracts that i'm sure the president never likes higher rates but i think

against the balance of where you're seeing the economy and what the fed is doing the market will take over and i'm not sure he'll get that much criticism. >> tomorrow's jobs report will be interesting as well as we action, kevin and mark, thanks for joining us dow down 225 let's get a news update with sue herera at hq. here's what's happening at this hour. uk foreign secretary jeremy hunt blasting the russian government hours after the british and dutch governments released a joint statement condemning russia for a series of alleged global cyber attacks. >> there will be consequences. they will be exposed and people will see the russian government for what they are which is an organization that is trying to fester instability throughout the world and that is totally unacceptable >> the death toll from last friday's indonesian earthquake and tsunami has now risen to 1,424.

recovery teams continue to retrieve bodies from beneath collapsed buildings. knees i can't be police say 92 people have been arrested for looting in the devastated areas. and first lady melania trump arriving in malawi her second stop on her solo african tour the focus of her trip is her interest in child welfare. the first lady will then end her trip with two more stops in kenya and then in egypt. you're up to date. that's the news update sarah, back downtown to you. >> sue herera, sue, thank you. when we come back, the year of the megadeal. m&a hitting its highest level since 2007 morgan stanley's vice chairman and global head of m&a robert kindler joins david next "squawk on the street" will be pots46ith the dow down 2 in.

session lows for the market, s&p is down.75%. dow is down more than 50 points. few winners. that would be in the financial space, goldman sachs and j.p. morgan most everyone sells lower on this mood up in treasury yields. >> back in m&a market is a lower sweet market let's talk about m&a the third quarter was a little slower but total volume in 2018 still up 32% compared to last year that's the highest level since 2007 rob kindler is global head of m&a. we're in the fourth quarter, third quarter was slow, some of the people i speak to including you worried are we in a summer

slowdown >> the first nine months were incredible we advised on over a trillion dollars worth of deal. no one has got on the that level. the number of deals are not up that much. the actual number of deals larger deals have been done. as far as the market goes, historically m&a tracks the market if a market is up, m&a is up and the market is up for lots of reasons including trade wars with nafta, it looks more like we won't have huge trade issues but that's part of what is driving the market what does it mean to m&a i think we are going to have a continued pace of m&a certainly for the next three to six months. >> conversations picked up in terms of what -- >> they have. >> from august for example >> well, and because there's a realization by ceos and boards

that a lot of the things that have been done driving stock price aren't repeatable so for example if you look at the s&p, driven a lot by margin improvement. a lot by margin improvement as you and i talked about the last time i was here, the repatriation had nothing to do with m&a it was predictable it would go into buyback bus boards look at what's going on in the world and realize what will we do to get growth >> the same story we have been talking about for a long time. >> even more so now. >> when a market starts going down it introduces price differentials to that make it more difficult to get a deal done when they go up that can be an impact, can't it >> if rates go up it won't affect what people can pay. >> private equity hasn't been a huge part of the m&a landscape

over the last few years. it's been much more driven by strategics but if you're watching the stock go down you're not as likely to do a deal if this were continue. >> well, obviously the year has been great but a declining stock price people are going to get concerned about doing deals. >> regulation is another break this has been more serious because it's been hard to figure out the policy coming out of washington when it comes to antitrust and then we have china. it is a concern in the bard room >> huge. >> what's happened in the last year where more than in the past there's been political underpinnings of getting approvals is absolutely challenging so what happened in the whole qualcomm and xp transaction where the chinese blocked it, predictably because of the -- >> they never approved it, they didn't block it. they just ran the clock out. >> they let it go. that has real implications so people are nervous about doing

deals in the u.s. that have any chinese involvement. this happened before but it's more serious now regulatory environment very unpredictable. >> is united technologies going to get approval? is disney going to get approval for fox in china those are two key deals. you would think one was on the heels of another there's no antitrust in any of these deals and you saw rockwell was approved in the u.s. and cigna got approved so there is rationality as far as things getting approved but there's overall unpredictability which came from the whole blocking of the broadcom deal. >> but that unpredictment is not stopping people from having people do big things including cross border >> the unpredictability may cause people to try things that were viewed as more difficult in the past t-mobile/sprint, no one would

have tried that in the prior administration. >> well, they did and it failed? >> they never got anywhere in it they didn't even get to a signed deal here i think the view is that in this stragsz it's less predictable, maybe more commercially focused so people may be trying things they may have not tried before. >> that sounds hopeful for interesting stuff. that continues to play an important role in potentially bringing deals, campbell 's the latest one dan logue not saying you have to sell the company but many think if he wins that will result in a sale down the road does it continue to fuel in your mind as well activity? >> well, it absolutely fuels activity whether it results in anything happening is a different question so you have campbell's soup, you have nielsen so, yes, they're shaking things up and kach bell's already said they'll certain certain assets

kneel zen announced they're exploring strategic alternatives which is alternative so clearly shaking things up has anything happened at those companies? we'll see. the problem for activists in the u.s. is that a lot of the low-hanging fruit is gone. it's more -- there's more to be done in europe where there's still conglomerates and event investing very, very hard thing to do and take nextel. they go in there, get the price up and -- right, the elliot, getting very smart. >> and xpi. >> exactly xpi. they get the price up and by the way they come out with a presentation from an investment banker that the stock on the stand-alone basis is worth over 135. deal doesn't happen. >> that's ugly. >> so it's tough to bet when you have these regulatory and other

uncertain zblis uncertain. >> but imagine your fee base without activists. everyday you have to be thankfully. >> i have never spoken critically they are a very important part of our economy i have said before that activism on balance is absolutely a good thi thing. we're not creating ges or conglomerates. that's all good. the issue is sometimes they take positions like in the xp at a kind of ridiculous -- but take it for what it is. >> fourth-quarter forecast, though is good that's what i'm hearing. >> i think volumes will be better than people expect. it will be a record year because we're on record pace but it will be good. >> rob, thanks. >> good seeing you, david, rob kindler, sarah, back to you. when we come back, not all good news for those amazon workers getting a wage hike. we'll tell you why and look at the major averages that the hour. multiyear highs for treasury yields sending stocks lower

pretty much across the board check out the nasdaq down 1.4% only the financials within the s&p are higher right now we'll be right back. making my dreams a reality

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so it's not all positive news for amazon workers getting a raise. the company announced a $15 million minimum wage on fuse but confirming it's getting rid of pay incentives for fulfillment center workers that means employees will no longer be able to earn bonuses and stock awards if they meet certain targets which mean there pay could be lower before the minimum wage, though, amazon said these wage hikes will be better, more immediate and predictable for workers. with that, let's go to the bond pit where the action is. >> let's get to the cme group in chicago. rick santelli and the santelli exchange. >> good morning, thank you carl

and air and sara i let's get right into it. all eyes are focused on rates. big data pushes the move through. your thoughts on rates and the move in equities we are seeing today. >> thank you for having me, rick clearly the economy is strong. we're about to put together back-to-back 4% quarters we'll have six quarters of 3% growth over 3% growth and so what you're getting is catchup on rates. i look at yesterday's move and it started with the very, very strong ism print of over 60 and ten-year treasury yields should be closer to 350 given where we are in the fundamentals, sometimes these things happen in terms of catching up in one day as opposed to weeks at a time. >> >> it's always the same categories, turnstiles, treasury rates will pay attention to growth, inflations/wages and

what i call a third new category, making up for lost time after being manipulated has that impacted the self-adjusting mechanism we see rates go up, equities go down are they going to waltz for a while? how do you think that turns out? >> i think over the last ten years people have been conditioned to not believe the growth when it shows up and i think people fundamentally misunderstand how the private economy works and by that i mean economists so private economies work well when ceos are optimistic and they make hiring decisions and investment decisions so we are in a different period right now where ceos are fundamentally in a better environment and we're starting to see the economy expand and the market is catching up to that right now. >> i wanted to talk a bit about '70s and '80s inflation. in november, 2016 we had this big rally long before the president was sworn in january was huge this year and

what i see is that the overwhelming notion of things like repatriation and adding in capital spending, all these are slow so tax reform and regulars only take you so far i think everybody is trying to see too much too fast, even something as simple as regs makes a difference in the minds of businesses. finishing up, the outlook, sugar buzz or long term growth >> this is definitely going to last a little while. ceos i talked to say this is the first time in their life they know all they have to do is live within existing regulations instead of worrying about more and more coming and that that's an environment they can concentrate on running their businesses well, so i think it will last for a little bit. >> marc, always interesting to hear your thoughts thank you for joining me sara, back to you. >> rick, thank you. let's send it out to jon fortt with a look at what's up next on "squawk alley.

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i have never seen such an abrupt turnaround, v shape recovery, almost beginning the day after the election and continuing, continuing right up to the last recorded month and i think that really is a big change in attitude that confidence number is the real poll for the economy. >> that was larry kudlow speaking at the economic club earlier today talking about the economic recovery. deregulation, tax cuts obviously have had an effect on consumer confidence and business confidence too, especially when you highlight the differences between how they feel in this country versus how they feel in areas of europe. >> that is where the market is, grappling with the fact with such a strong economy comes higher interest rates from the

federal reserve. that's what happened there's a sudden move in bond yields higher to 7 year highs, for instance, for benchmark treasury yield, caught stocks off guard. losers in the dow, big consumer names like nike, png, home depot. you wonder if higher treasury yields will step in the way of what's been a strong recovery, double digit earnings growth, and just broad strength both in the markets and in the real data >> we always focus on an employment number for obvious reasons, is there going to be more scrutiny for the wage number tomorrow? >> for the wage number for sure, expectation on jobs is 185,000 or so jobs to be added adp, not the best predictor, but super strong 3.8% unemployment, and any number that suggests momentum in wages could give a green light for federal reserve to keep raising interest rates

>> up 2.9% last month i believe. >> unless larry is right and productivity starts to turn and companies get more out of each worker in which case you could afford to have wages go higher, not guess an inflationary scare, something that powell yesterday said was a possibility >> sure. then you get into debate whether the bond movement reflects inflation expectations or just plain higher interest rate, something that fed powell now expects. the question is 3 or 4 one baked in for december, we'll start to have debate about next year and whether the economy can handle it. so far we swallowed it well. >> "squawk alley" is next on the other side of this break don't go away.

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park, california, 11:00 a.m. on wall street. "squawk alley" is ♪ ♪ ♪ ♪ good thursday morning, welcome to "squawk alley." i am carl quintanilla with julia boorstin and jon fortt at post 9 of the new york stock exchange morgan is off this morning session low is 253 rates put investors on edge. bob pisani is watching where everything is moving >> hello, carl, we have a new story to talk about, always like to talk new stories, a yield