thanks for joining us. >> a pleasure, becky. >> we'll talk to you oon. >> big new orleans saints fan or something? >> that's the symbol for his company. >> are you sure? >> jeff, are you still there >> i'm here. >> i think the saints are great. >> fleur-de-lis. >> i'm rooting for the rays, the rays won two in a row. >> bye, jeff bye, everybody else. join us tomorrow right now time for "squawk on the street." ♪ i get knocked down i get up again ♪ ♪ ain't never going to keep me down ♪ ♪ i get knocked down i get up again ♪ good wednesday morning welcome to "squawk on the street." i'm carl quintanilla with melissa lee, mike santoli at the new york stock exchange. cramer and faber have the morning off. features rally on optimism over u.s. china trade talks this time the ft saying china is ready to boost their purchases of u.s. ag chair powell speaks at 11:00 a.m. eastern time. europe up, and benchmark yield back to 155. road map, china surge. stocks set for a rally at the open amid the optimism that they

are open to a partial trade deal >> plus the $8 billion surprise johnson & johnson slapped with a massive jury award over an antipsychotic drug. >> apple is facing criticism from china at issue, a third party smartphone app that allows hong kong activists to track the movement of police first up, stocks looking to recoup losses from the sell-off yesterday. u.s. china trade talks one day away wall street is also waiting the afternoon release of the minutes from last month's fed meeting where we'll look for clarity or any kind of color on discussions about balance sheet or where rates may go from here. >> terrible close. >> it was. it was ugly. a give up type move. interesting actually daily path that the market took selling off in the morning and right ahead of the jay powell speech, the european markets closed, starts to trend upward, seems like it is going to find its footing, and then the kind of announcement of u.s. visa restrictions on certain chinese nationals that basically people said, okay this is poisoning the

talks. that being said, so we lose like 250 dow points in the last hour or so. getting back the majority, but not all of that. what is interesting about it is none of it back and forth has changed the overall setup. still it this kind of uptrend preserves, barely, we're still knocking around the same range, we have been in august, still trying to sort out the same issues so it is -- it is interesting that you have the one day air pockets, or these real quick silver rallies that don't really change the overall setup i do think what it is doing is wearing on people's sentiment. traders are very kind of fatigued with the whole action and that on balance, if things don't turn out as bad as feared, is probably okay. >> i think what was notable is that yesterday's remarks from chair powell were pretty much in line with what the market had expected got your back, we're data dependent, we'll do whatever it takes and at the same time, once we got a china headline, it was all about china. if there was a tug of war in your mind, between powell and china trade, and there was any doubt in your mind as to who

would win, it was settled yesterday. it is china trade. the fed right now is going to do what the market thinks it is going to do. that's good enough for the markets. it is all about these tape bombs coming out of china. >> it feeds the narrative that fed policy is not the right medicine for trade disputes. the other thing is, though, people are looking at whether or not there was some pivot in his level of worry about inflation running too hot versus too cold after we got that ppi print at a three-year low. >> right if you think back to the very beginning of this year, he was saying, the low inflation numbers are transient, one off factors, so i do think that it could build the case for that camp that says there is kind of a slow moving inflation emergency. and the short fall will be a problem. not sure that's going to hold -- maybe the minutes today will tell you whether that kind of an argument will hold traction. but over -- it goes right up against the fact that we did actually see upside surprises to consumer inflation in recent report >> you don't seem too thrown by

narrowing breadth, number of s&p components above their 150 day moving average. >> definitely gotten -- there is a lot of wear and tear on the market you're looking at -- the big losers yesterday were, like, the one-time favorite medical instrument companies so one by one, these groups are coming in and getting cold in the market i don't think it is a very impressive performance by the market, but it is holding itself together, seeing if it can slide through this phase when growth isn is in so much doubt and we want the trade issue wiped away. >> in terms of what the fed announced it will do in terms of expanding the balance sheet and buying bills, at first thought i thought this would steepen the yield curve in theory. we didn't necessarily see that play out in the bank trade banks were -- regionals were still one of the hardest hit there is still some doubt here as to what the effect will be, and whether or not banks -- this trade is really on that whole swing to value, i

think that's in question still. >> also levels i think matter a lot. level of yield >> between banks and the transports, a lot to get to this morning with our opening guest chief investment officer jim lowell and managing director berns mckinney good it see you both do you think we're tired here and what constitutes success in getting out of this week >> well, i would argue that the markets have probably gotten a little bit ahead of themselves this morning on word that there might be, you know, some sort of agreement with the trade talks tomorrow i think that there was probably far more likely as a truce rather than a resolution and i think as -- ron burgundy in anchorman who once said, agree to disagree. that's probably the best we can hope for they agree to not put on more tariffs and not escalate further. that's a long way from resolution as the markets have moved upward this morning, they're probably

getting a little bit out in front of their skis. >> so the scenario of, all right, we're going to agree to disagree, as you said, we're going to turn around this narrative on trade, and then what then q1, we worry about primary season and elizabeth warren? >> i think in the near term, we're focussing more than anything on earnings a little bit of a disappointing earnings season, earnings should be down. they tend to get ratcheted upwards a little bit as you go through earnings season. but right now with earnings expected to be down about 4% this quarter, even with the upgrades, they'll probably still end up down a little bit i think that the -- this may be a period where the markets do still to look a little bit at the fundamentals. >> i don't know what you want to call a modified trade agreement, a slim deal, smaller deal, modified -- whatever you want to call it. is it for the market standpoint one of the most important things to accomplish is no more tariffs? if we're to put a frieze on tariffs, wouldn't that really help the markets a lot in terms of what we can expect, how we

model that into earnings, you know, the outlook for capital spending >> all of those things absolutely would be the case not just a question of putting a freeze on tariffs, but hopefully winnowing down the existing tariffs and continuing to at least present the optical hope of some sort of trade talk negotiation that does even more than that. we sit in a moment in the market where the surface is very rough, whether it is recession on recession off, trade talks on, trade talks off, impeachment inquiry, on and on and on, this is a market where traders on the surface clearly get beaten up back and forth on a day to day basis. for long-term investors, we go way below the surface, where at least we can still be sort of calm, collected, cool headed in terms of what we're looking at to add to the portfolio and also what we're looking to jetson. >> in terms of how to think about potential returns, i think you can certainly say don't be all in, don't be all out, but

there say general sense out there that, you know, we're later days, for this economic expansion, perhaps for this bull market, and therefore even if things turn out okay for a while, that might be sort of a last hoorah type move. where do you think we are in terms of the potential for this thing just being okay for a while, or do you have to essentially lower expectations and say we have the most of what the cycle will give us >> you have to lower expectations i don't know how close we are to the actual last hoorah, feels like there is not a lot of chuckles left. we think asset allocation is going to play a key role in terms of even for growth investors, being able to buffer some of the expected increase in volatility over the next 18 months or so and, of course, for investors closer to retirement now would be an excellent moment to review your portfolio and make sure that you're close to investing your agent bonds and cash so you

can weather what i think will likely be a pretty -- for the foreseeable future. >> burns, you like industrials, technology and healthcare. does your view on healthcare change if elizabeth warren looks more likely to be the candidate? >> well, i think that one of the things interesting about healthcare today is it is trading the healthcare equities are trading at a discount to the broader market for one of three times in the last 30 weiryears,a way of saying where as i'm not sure the overall u.s. stock market is pricing in the prospect of a warrensector is, healthcare it is pricing in the scenario. investors do have a lot of positives to look at there you have stability of earnings, you have a lot of innovation, and certainly you have a lot of very attractive dividends there. investors do are to be choosy. they have to focus on stock selection there. and likewise more than anything,

because this is the type of thing -- the healthcare stocks are probably going to be in the bull's eye for the next -- well, until the next election, then it is something that really is for investors who have long-term time horizons. >> yeah, we have been asking for a couple of weeks now, once her poll numbers started to jump, jim, whether it was healthcare, financials, oil and gas, or big tech, that faced the most policy risk got a thought on that? >> i think it is healthcare, front and center, it is certainly a long-standing overweight in our portfolios, we are watching the political landscape. i never thought i would need to do that as an investor we understand that socialized approaches to medicine would likely put an intermediate term damper on stock prices the long-term necessary demographic, the emerging market growth story, the innovation, all bode well for that sector for long-term investors. so we'll be buying on severe dips. >> all right good way to start the hour

jim, burns, thank you. we'll see you soon. >> thank you >> johnson & johnson shares falling premarket. a jury in philadelphia ordered the company to pay $8 billion in damages to a man who claims his use of the antipsychotic drug risperdal as a child caused breast enlarge he accuses j & j for failing to warn of this risk properly the stock is down 1.4% when this news crossed yesterday, and it said jury award, i didn't know what it was going to be opioids or baby powder or, you know, then risperdal. >> and that's exactly the point about the overhangs on j&jach you think this is the type of market trending toward j&j, triple rated, stability, 100 something years old and i think it is exactly that issue though even if the magnitude of the $8 billion market is not viewing that as likely to be the ultimate cost.

>> yeah. whether it is policy risk or litigation risk, having to avoid multiple land mines on the tape these days when we come back, we'll get china's run state newspaper slams apple in an article asking the question is apple helping hong kong rioters engage in more violence we'll explain that a lot of research to get to including apple, fedex, disney, roku, peloton, when "squawk on the street" comes back futures up 178 man: can i find an investment firm that has a truly long-term view? it begins by being privately owned. with more than 85 years of experience over multiple market cycles. with portfolio managers who are encouraged to do what's right over what's popular. focused on helping me achieve my investors' unique goals. can i find an investment firm that gets long term the way i do? with capital group, i can. talk to your advisor or consultant for investment risks and information.

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a bunch of stories involving apple this morning canaccord moves the limit. china state run newspaper calling apple unwise and reckless the people's daily claims a map app that the company made available on its store allows protesters in hong kong to track police movements and go on to violent acts and then there is tf securities, an ar headset and q2 of next year being made with a third party. we'll have to wait and see. >> also said there would be another phone, right, in the q1 of 2020.

so this is a prime example of positioning in apple got so negative in terms of the launch of the iphone 11. and when it looks like things were moderately better, everybody just started getting super positive on the stock. look where it is now, in terms of the price. >> it has been -- it has been making this kind of slow motion run back to the highs above 230. i do think it gets in that status as a little underowned, when you're right, when people are coming off negative sentiment. you look at the street consensus, the price target is sitting right at where the stock is now not as if there is really this huge bold case driving it. much more by default, people saying at least purportedly less regulatory and tariff risk than we had thought before. >> canaccord's point is maintaining leading market share and gaining decent share in september. so their thesis is september results will be at the high end of guidance. >> right it feeds the idea that the upgrade cycle from here on out is going to be less suspenseful.

is this go to be a huge hit, more the regular run of improvement, and people just -- as a matter of routine, upgrade to the to new phone when there is time. >> there was a lot of concern that q4 forapple would be a repeat of q4 for apple last year and this map app sort of brings to fore the concern about china and the china story, if the chinese decide to start boycotting the phone and this may be -- this software was called toxic software, it depicted police -- it allows protesters to track police movement on this app it depicts the police as a dog emoji. so this is really something that could potentially spark some outrage over there and what do we see last year, china was a weak spot in the fourth quarter of last year. they had to cut prices in china to get those sales back. i don't know >> and the bear case has been

fed by evidence this week that china will use their resources to target individual brands and in this case, it was the nba but they'll take it off the air. they'll encourage people not to take part in its consumption. >> the case with apple has always been that the stakes are very high for china. and for the economy to do that not just taking the product away, but made that -- little bit of a different equation versus the nba >> 229.93, we're a stone's throw away. >> when we come back, we'll get all of this into a discussion with art cashin, his perspective. futures do look good though as we get these reports that the chinese are coming to play we'll have to wait and find out. "squawk on the street" continues in a moment. ♪ ♪ ♪

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about nine minutes before the opening bell on wall street. let's bring in art cashin, with ubs. nice to see you. >> good to be here. >> we had a tough day yesterday. looks look a bounce today. what do you make of the action >> it is a little bizarre. let's not forget that when the market closed yesterday, the u.s. and china were about to engage in some visa wars and very serious stuff there they were basically running the nba out of china so -- here we find overnight that a mysterious but informed participant said that they're

willing to come back now, they're willing to come back on some very simple conditions, this and is that all imminent tariffs will be waived. and the other point is that it is going to be very heavily involved in food and agriculture products now, that tells me if we're still in the visa war, and whatever going on, then either those imminent tariffs were so ownerous, that despite all that stuff they were willing to come back to the table to get them, or if he's concentrating so heavily on food and agriculture, does xi fear domestic unrest because of food shortages, particularly pork and other things there may be a couple of things working here you still have the harsh words on one side, let's negotiate on the other. >> china has the weaker hand at this point that's what these tea leaves are telling you?

>> i would think that may be the case because they, again, are pursuing the fact. and, you know, they started out and if you would a slightly weaker condition, they depend far more on exports than we do christmas season is coming up. a lot of people have bought ahead and shipped ahead and whatever the retailers, that is. so we'll see where it is going but for china to keep pursuing, this has got to be -- i don't know whether it is the imminent tariffs, or the potential food shortage, but i think the thought of the story we're not seeing it. >> and, you know, we were talking earlier about powell yesterday, the markets seemed like it wanted to look on the bright side while powell was speaking, even if it was mostly confirming what the market had in mind. you think the market is comfortable at this point, fine, fed will go again in october and then we're going to roll ahead and then anticipate december again. >> yeah, no. i think pretty certain about first cut, the second cut is the

kind of leaning that way i thought the thing in the powell presentation that was somewhat unsettling was asking him about the repo, disruptive pop a month ago. he said there could have been several reasons for that a month later. you don't know what happened that gets a little scary they're still out there. and it also put him in the position of saying we're going to be sure to have a big supply of money available and then seven times go back and say, but that's not qe, pay attention, that's not qe i don't think they fully have it resolved and therefore they're going to have the money in, and they heard from people like me earlier saying, this to some degree might affect monetary policy because you are expanding the balance sheet so much. and that was part of your

program. so it is going to be tough to watch. so on the two fronts, little mystery about why china is back at the table, and on the other part, where the fed will go, you'll hear from powell briefly, today, and you'll be hearing other fed speakers, so -- you'll get the minutes later in the day. >> art, good it see you, thank you. opening bell minutes away. stay with us "squawk on the street" will be back in just cplof nus. aoue the biggest challenge of...

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you're watching cnbc's "squawk on the street. live from the financial capital of the word. the opening bell in two minutes on this busy wednesday we await more details about what the chinese may or may not have in mind for trade talks this week in the meantime, a lot of analyst research on some big names. the fedex downgrade over at bernstein probably the one making the most notice down to market perform they say we upgraded this because we thought tax reform would help cash flow, in their words that bull thesis has shredded as spending remains unchecked. >> right spending remains unchecked running into this massive slowdown in global trade and the emerging markets and air freight

in particular, they're kind of in the toughest parts of this entire business. what is dwoeg to going to be in is one of the throw in the towel move and the market says yes that's what we have been pricing in all this time watch it throughout the day to see if you get that response. >> the fact it is up .4 premarket, that's a good sign that everything is factored in this is the kind of stock that had trouble prior to the global slowdown prior to the trade fears this had its idiosyncratic problems before they specifically said it is the trade war that is hurting us at this point so people's patience wearing thin. >> one year target for bernst n bernstein, 153 by the way, transports second -- as the 50 day crosses below the 200. not some don't believe.

>> it has been wearing out the lower part of this range for a while. looks very much like the russell 2000 just really stuck in the lower end of the term. >> let's get the opening bell. the s&p 500, at the cnbc real time exchange, at the big board, it is mavericks metal, celebrating its listing. and the food network and cooking channel, new york city wine and food festival. so we'll keep our eye on fedex we talked about the apple call earlier. one thing that caught my eye, jpmorgan cutting numbers on disney for q4 and next year. they're talking about the investment in direct to consumer, choppy integration of the fox assets, their december 2020 price target is 150 as we know some have been trying to decide whether disney is in a head and shoulders pattern now. >> i think netflix got a couple of target cuts today too the netflix target oz on

consensus was really way out of whack. it was implying 50% upside because they hadn't revised them down disney, you get this impression, we see the players, we see the entire industry is in this massive investment phase disney got a ton of credit in terms of the ramp in its stock for success in this streaming world. and then the valuation becomes very fall with disney. it will be flat earnings into next year. >> the valuation after the launch of disney plus and the pricing plan and the question at this point is with all the competitors now really going head to head, really competing, there will be no room for any price increases and only downward priessure on prices stock is going to spend a lot to ramp up the service, a stock that will be boxed in by a limit to how much it could increase prices over time because of all of the competition do you pay this amount that's the question. >> that's the question i think from disney's perspective, a lot of that is

additive we already have the factory that is churning this stuff out not necessarily incremental. but it is not a big revenue bonanza, even if you have great, you know, subscriberships from the outset. >> how about sherwin williams, a name we don't cover a lot. citi takes the target up more than 100 bucks stock have already done fantastically. mortgage refis today, up 98. total apps up 52 30-year fixed lowest since august we know housing has been working in this environment. >> right housing working, housing related is working also i view it as a very well managed company and pretty good participant in this whole world. the home builders, as well as they have done, it is a small sliver of market cap not a big industry in terms of public markets

you have to get to home depot and sherwin williams and the carpetmakers and everybody else. >> levi's, should we mention, obviously challenged in the wholesale area, wholesale up only 1%, gross margin down 20 basis points, thank you, 4x. >> international is great, but it is the wholesale channel, wholesale meaning, they sell through other stores, not direct to consumer, direct to consumer the area they want to beef up. the question is wholesale. and they cited this time and time again, they have challenges this shouldn't be a surprise to anybody who is watching the department store trade any of the related retailers like that. we see the pain there. we got levi strauss down by 3.25% at this point. you have to wonder or not you pay a premium for a company in this economic environment that is having trouble through one of its major channels of sales. >> it was always a weird fit in

terms of new ipo , a lot of attention on the ipo, just because of the brand really being relatively small growth business and the public competitors have not necessarily been consistently great. >> how many times do you buy a new pair of jeans? >> exactly, yes. not often enough. >> carl probably buys one every other week. >> right. >> fashionable. >> i think the big question is the pendulum, is it going to swing in general back to denim as opposed to -- >> yeah, yeah. >> speaking of pendulum swinging, roku up 4% as mcquarry takes it to outperform up 130 they say the shift is really going to start to be international. smart tv operating system, they see the user base growing 2 to 3 x by 2022. we know there has been a lot of doubts about roku. in the wake of what we have known about streaming these

days >> huge debate over whether it is a transitional technology, and really a feature as opposed to a company, and pretty good points on both sides it is built up such a tremendous kind of cushion of performance in there too i think the trading dynamic has got wild because if you had a huge momentum run and -- i was going to mention semiconductor up today it has been one of the points that semis maintained their leadership profile, even though there is tons of doubt, the tariff stuff so being up 1.2%, being the zone of the highs, that's been one of the things, if you pick your bellwether, for the overall market, it would be semis, i think, more so than looking to transports and banks right now that's the glass half full interpretation. >> this is the group that sold off very, very hard in yesterday's session on that china headline it is a group that really gets whipped around the most when we see market volatility.

to that point, yes, absolutely, we are still -- we still have not recouped yet here on semis yesterday's losses same with the broader markets. >> peloton has not been working. today, baird calls it broken ipo, not a broken company. they initiate outperform price target 28. they say achieving gap profitability may prove difficult over the next say five years. but they doargue given survey work that churn is low, fans like it, big addressable market, not as big as peloton says. >> five years is a long time a lot can happen in the next year or two. let alone the next five years. >> five years is a long time i think this entire generation of silicon valley venture capitalists turned ipo sales people, they all just ingested jeff ezos' original shareholde

ledder, we won't mackke a profi and it is fine because we're attacking the huge opportunity five years for peloton, it all comes down to what the addressable market is. >> we'll continue to watch powell speaks at 11:00 a.m after seeing yesterday that the economy is neither too hot, nor too cold, inflation is under control, productivity is increasing and that the fed is not doing qe, his quote was in no sense is this qe. i wanted to ask carbshcashin ifd a opinion. >> i think it matters if you call it qe or identify what made it qe. the idea being it is not easy. it is quantitative because they're going to slightly add to the balance sheet to accommodate the kind of reserved needs of the system to keep the target fed funds rate in the stated range, right, they're keeping it from going above where policy would otherwise want it to be.

and the thing with qe, we already got to zero on rates only way to ease was it buy long-term assets what they're doing here is very short-term, rolls off frequently, so it is not a permanent addition to the balance sheet. and also, in magnitude, probably not going to be that huge. >> it is luke a third of the -- i believe it is a third of the size of the smallest qe that the fed has ever marked on. >> close to rebuilding it back to peak balance sheet. and in normal times before the financial crisis, the fed expanded the balance sheet to accommodate the reserve needs of the economy and the banking system that's going back to that type of process. >> you spent a lot of time on twitter yesterday going back and forth with the qe might shadow qe people. mo home el-erian tweeted that, he thought it was shadow qe, some sorm of qe. >> it can serve the same -- similar purposes, q ex-was

psychological wall operation psychological operations i'm not sure this has the same message. but if people take it that way, psychology can work, you know, just because >> yeah. >> really quick. oil is up, obviously, almost a buck here, erdogan says the offensive into syria has begun i'm seeing something on the wires that the kurdish-led sdf has asked the u.s. and its allies for a no fly zone to protect it from turkish attacks in northeast syria but you can see oil's effect inconvenient toirz ventories at0 to bob pisani. >> all 11 sectors in the s&p were up at least at the open take a look at the preopen here, the futures here here is your -- about 510. we moved up 12, 14 points here that's where the point we got word that china might be open to a partial deal we have no idea what that

entirely means but moved the markets a little bit. predictably cyclical sectors, semiconductors, melissa talking about that earlier on the upside, you can see here, the china etf, mchi, the broadest china etf, industrials up, materials, utilities lagging a little bit you see cyclicals up, defensive up, but lagging the overall market here. so the question is, everybody kept asking me this morning, i don't know the answers, is this a truce or trade deal. what are we getting here word that china might be open to a partial deal it means upping some agricultural purchases in exchange for no additional tariffs. so what is this? is this a truce or trade deal? the problem, the market has with this overall, is that the perception could be this is a truce, which means that the terms could change at any time in the near future that's not what the market wants. it wants more certainty. in absence of this, assuming

that this is essentially a truce kind of thing, this is a good case scenario, the market narrative here with that in place was a truce is that growth in 2020 will be lowered. this is not the recession crowd. this is the people who will be 1% to 2% gdp, rates flat to lower. leaders remain largely defensive sectors and earnings guidance will tend to trend lower the question is does it get significantly lower or not we have been using the word flattish all year. this is the market narrative i'm not sure a truce will change the market narrative just in the last week and a half for october, in terms of what has been moving the markets, the laggards are all the deep cyclicals, drillers, automobiles, electronics manufacturers, industrial conglomerates, agricultural products, this is in the last week and a half. this is essentially global cyclical names the stuff that has been holding up better, of course, tend to be those defensive names. so home buildings doing well this is the month, last week and a half reits tend to be flat.

pharmaceuticals flat the s&p was down almost 3% for the month going into the open today. you see very clearly how the market is reacting in the defensive manner not sure a truce will change that overall tone, that market narrative. as for the fed minutes, a lot of comments there, mike was talking about earlier, i'm not sure it will change anything this is a long time ago, the fed minutes. weaker ism surveys, weaker consumer confidence, whole repo market story, everyone was talking about. i think the tone might sound hawkish for the minutes compared to the reality that we have got today. i'm not sure how much value we get out of the fed minutes today. we talk about how tough the ipo market is, we have been talking about how tough it is to do work in china, for them to work here, us to work there chinesism p oe ispos, we don't e terms yet, faang network group, a chinese company, an online real estate trading platform,

they filed to go public and they're going to list on the nasdaq that's the plan. we do not have any terms at all. but the point is, even in this kind of environment there are still companies that are seeking to move forward on the ipo we'll keep an eye on that. right at the highs today, up 193 points >> bob, thank you. to the bond pits, rick santelli at the cme group in chicago. hey, rick. >> good morning. we're seeing a little bit of a lift in rates, especially if you consider the lower end of the range yesterday. or go to the lower end of the range last week. one week of two year note yields we are just hovering above cycle lows and cycle lows take us back on the two year to september of 2017 if we look at 10s, same scenario, but their cycle low in the 146 area, we're currently about 10 basis points of cushion in the all time double bottom lows in the high 130s from 2012 and 2016 i guess the point is that we are

holding but we're certainly not having any sizable bounces in yield. if we think of 10s minus 2s, 156, 143, we're hovering around 13 basis points and should it close here, a fresh gain with regard to where that spread has been and how much it has steepened in the last several months. a lot of psychological issues there to steepening. we all know that the fed is going to be providing the liquidity by buying short end and mini qe, i don't care what the chairman says. and finally, if we look at what is going on in bunds overseas, minus 56 looks like a high yield because we're at minus 60. minus 71 a month ago look at that pattern it is definitely firm, which brings me to the point that we are narrowest, the tightest, the closest to bund yields as we have been in 20 months finally, the dollar index, even though it is backing away a bit, between a third and half a cent away from 29 month high close,

you can see that chart going to may of 2017. the dollar is firm mike, back to you. >> sure is, rick thank you very much. and upbeat warning for the chip stocks, it bertha coombs at the nasdaq >> chips continue to be the barometer on the hopes of china when it comes to tech. today the hopes that things might move forward with at least a truce, we are seeing chips bounce chips have been fairly resilient as you mentioned 118 level on the vanex semiconductor etf, one level they keep coming back to they are among the biggest advancers this morning one stock that has been under a little pressure, bounced here at the open, activision blizzard, the other side of the china story. activision blizzard having suspended a chinese player for having expounded on his support for hong kong. they said that it violated the rules. activision at the moment is trying to get chinese officials

hoping to get clearance for its call of duty game, new game to be launched in china meantime, fire eye, one of the big gainers this morning after preannouncing stronger than expected revenues for its third quarter during its analyst day fire eye says it doesn't do business in china. among a number of the breaches it sees, they come out of china and russia roku upgraded this morning over at mcquarry to an outperform and peloton initiated at an outperform at rw baird with a $28 price target, $1 below where it actually priced the ipo, but still getting a lift this morning. >> bertha, thank you very much. turning to the nba and the continuing fallout following that weekend tweet from daryl morey in support for the anti-government demonstrations in hong kong, the league postponing a press event for the brooklyn nets and los angeles lakers in shanghai today

that's amid reports that all of the nba's official chinese partners have now suspended ties with the league. it is worth noting the chinese market makes up at least 10% of the league's current revenue, so the situation has only escalated since that initial tweet >> and imagine if that 10% goes to zero? where does the nba go for growth >> here is the thing by what law does a sports league need to grow not that they don't want to, of course, you have to expand your audience if you want to grow, but it is not like a public company with fiduciary duties, we have to find the next market. it is 30 billionaires on the teams. >> let's say the nba says forget it, forget china, we'll let the 10% revenue go to zero, what should the american companies do >> that's a great question yes. >> publicly traded companies are we going to face a situation where american companies who get entangled somehow with maybe an employee, backing the hong kong process, faces not only protests in china, but also protests here for not standing up for the

freedom of speech? it is really literally a double-edged sword for lite of companies trying to wade through this political -- >> if it is not the hong kong protesters, maybe one china policy is taiwan considered part of china and does your marketing material reflect that? we saw tiffany earlier in the week, this is not the last time we're going to see companies have to make tough calls >> no. >> i agree obviously been all about compromise to do business in china for 20 or 30 years this is a new level, i guess, of sensitivity and scrutiny on every move. >> people are making analogs to south africa apartheid, people had to make similar stands, draw employees, stop expansion. we'll see where it all goes. for now, short-term optimism on the trade walks this week, dow up 180 "squawk on the street" is back in a mut ine.

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a lot has happened since with lawmakers calling for tighter regulation in the wake of vaping related deaths >> good morning, that's right. juul has faced a lot of head winds of late, but it's still a fast growing company $ $38 billion is the latest valuation. at investment for a 35% stake and private shares at $250 as the regulatory scrutiny increases following the deaths of at least 25 people that are linked to vaping, it's not clear if that sky high valuation can holdup hedge fund arsena is the latest writing down the value closer to $24 billion. the value on the secondary market could be as much as 20% lower now. pricing shares at 225 or $230. still a tremendous growth story. juul launched in july of 2017 as a spinoff. it has roughly 22% of the e-cigarette maker selling

directly to consumers. a bloomberg report citing a person briefed on the numbers said juul expects revenue of nearly 3.5nd billi$3.5 billion however, 80% of sales come from flavored vaping products state bans and health concerns could hit those revenue numbers. unlike uni-youcorn, juul does n have many investors. tiger global also investors you can see that have also invested in some other unicorns back over to you. >> that's quite a story, frank thank you. when we come back, we'll get more reaction to the bounce. dow is still up at 123 back in a moment through the at&t network, edge-to-edge intelligence gives you the power to see every corner of your growing business. from managing inventory... to detecting and preventing threats...

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the♪lexus es... ...every curve, every innovation, every feeling... a product of mastery. lease the 2019 es 350 for $379/month for 36 months. experience amazing at your lexus dealer. good wednesday morning welcome back to "squawk on the street." i'm carl with morgan and john. sara and david have the morning off. markets enjoying a little bounce here on optimism over u.s./china

trade. a little off session highs we'll watch it closely a fresh three year low for fedex. >> every sector is in the graen and that is where the road map starting china is open to a, quote, partial trade deal. >> china continuing to call fouls on the nba official partners spenuspending ties to the league. however, neither trade wars nor other tensions weighing on the consumer the ceo of the conference board expands on the latest data. if you're watching the jobs market, let's get to rick santelli. >> well, we don't have juul yet, but we have wholesale trade and sales. we'll start with that. wholesale trade for the month of august, the sales number was unchanged. last month up .3 was revised to only up .2 and on the inventory side, we were expecting up .4 remember, inventory is up or down, always figure into adjustments of gdp, up .2. half expectations, but the tense

in the rearview miff rror was unchanged. our august read was out -- that is just a bit over 7 million this is the 17th number in a row with a seven handle. the series started in 2000 and it is unbelievable the all time high was $7.6 million this is definitely on the light side it is the lightest number going back to march of last year but it still has a seven handle. mike, back to you. >> still a strong spot in all this data, rick. thank you very much. stocks rising this morning surrounding some optimism around trade talks between the u.s. and china. joining us now, wells fargo asset management, asset str strategist brian jacobson.

your strategy market saying this is not old but -- maybe modest returns through next year. how are we to discern the difference or the line we have to look at between old and about to end when it comes to a bull market >> thank you for having me yes, that's a very fair question of course, as you see, the choppiness of the market in the recent days, there's going to be volatility along the way, but we have a framework in place to help us distinguish between volatility, another correction and the actual beginning of the bear market. we call it bear market checklist. it contains 18 indicators. out of these indicators, there are only four that are sending red signs that we should be a little bit more worried. so to us basically it's telling

us to buy the next -- >> does it makes sense to you that we've seen a slowing down in the economy it's not necessarily going to tip in a bad direction or do you think that we have a rising risk of some kind of recession? >> there are multi asset solutions team we just had the discussion about this earlier, about the higher likelihood of this tipping into something a little bit more dramatic it seems like the central banks are trying their best to extend the economic expansion, but the fact is what ails the economy both in the u.s. and globally to the extent you can say something is ailing the u.s. economy, it is pretty healthy, is really outside of the control of the central banker it's really a political decision on the trade talks is it going to extend the economic expansion or is it going to twiextinguish it? i think investors have gotten exhausted from all of the back and forth and just want some

resolution there is's likelihood that if things have a hint of falling apart after, say, thursday's discussion between the u.s. and china, that could signal a further leg down with u.s. equity markets we're positioned in our portfolios quite a bit more defensively. >> what's a leg down it seems like the disappointment would have to be pretty extreme to get you down more than 5% >> well, right now we're about what like 3.5, 4% off of the previous high if we break through the 200 day moving average we think it could push us into what could be considered more of a correction territory. if it's 5% lower, it can snowball because of the adverse effects it has on sentiment. >> did you agree with that are you taking more or recommending more defensive posture with this market right now, or do you see it differently? >> well, coming back to the

growth problems, we think that in the late cycle, where we are right now, is absolutely natural that the growth is getting closer and the market is starting to chase and beat up for the places in the market that are still providing growth. so for us that means quality remains high but also it means we have to prepare for growth over value in terms of physicality and defensiveness, we are in more of a neutral stance. >> you said i think four of your checklists on your dashboard are suggesting an end to the global bull market. you said you'd need to see the red flag count go to double digits before thinking that the next dip should not be bought. which flag do you think is going to -- is poised to flip next >> well, out of the 18 factors

that we have in the checklist, there are only four that are flashing red but in the previous cycles, we had 13 1/2 and 17 1/2 in 2001. probably we won't get to us high numbers in the previous cycles, but we will be looking more into 7, 8 red flags before we start getting really worried but of course some of the price of the checklists are -- the one that we'll flag in the inversion of the u.s. yield curve. so that all told is quite worrying it tells us to be worried about the prospect for growth over the next 12 to 18 months, but it doesn't tell us to panic straightaway. >> coming into this earning season, we've already soon a number of companies come out and guide lower and focus on the strong dollar. where does the dollar go from

here >> well, our team has a view that on the u.s. dollar we actually think that we could see a little bit of weakening for the dollar it really depends on relative to what as far as relative to the euro, relative to the yen. our view is that we'd actually rather overrate the yen thinking if we do get a selloff it tends to have nice risk off properties one of the more interesting trades is the short euro, that we could have a stronger dollar relative to the euro and a lot of that does hinge on the outcome of the brexit negotiations and any pivot by the european central bank. it is already pretty well priced in that the ecb is going to continue the easing program. it's a question of where is it on the margin that they're going to shift their rhetoric. is it going to be about -- if they get the all clear signal with brexit that they might actually pull back on some of the easing our guess is that they're not going to give the all clear signal, that it's more likely they're going to signal the need

for additional easing which then should in principle lower the euro relative to the dollar. it really depends upon which currency pair you're looking at. >> i guess big companies would welcome a weaker dollar, but if it's because of a stronger yen, that tends to mean stress in the system thank you very much for your time this morning. >> thank you up next, all chinese partners severing ties with the nba. how much further could the second dispute with the country go former u.s. ambassador to china joins us as we head to break, a look at the top performing stocks on the s&p which is in rally mode today. ghbaawk on the street" will be rit ck - [spokesman] if you've tried college but never finished,

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welcome back to "squawk on the street." fa fallout continues between china and the nba from a tweet in support of protesters in hong kong the latest on the reaction in china. eunice. >> nba boss adam silver is in china today, but he's not getting the usual warm welcome that commissioners have received in the past. as of tonight, nearly all of the nba's china partners have cut ties with the league this comes after the nba said

that it's backing the houston rockets general manager's ability to tweet and right to tweet his support for anti-government protesters in hong kong. adam silver himself had said that the nba wouldn't regulate what players, employees, and team owners have to say. the state media has been in full tirade mode comparing what they described as the so-called hong kong riots to the 9/11 terrorist attacks. in fact, the china daily penned an open letter directly addressingdre wrong side of the divide when it comes to hong kong protesters and beijing. it reads the so-called defense of certain figures that committed anti-human deeds in history might all lead to trouble even criminal charges. we respect these as the bottom lines of freedom of speech in western societies and we hope that the west can also respect our bottom lines

so the nba appears to be standing its ground. an event tonight for fans was canceled however, it looks as though the exhibition games that are scheduled in shanghai for tomorrow between the lakers and the nets is going to go ahead. that has not yet been canceled silver is scheduled to attend the pre-game press briefing and i'm sure he's going to get peppered with a whole lot of questions. >> quite a story thanks for that. eunice obviously in beijing. for challenges the big business faces in china, we welcome former u.s. ambassador to china max baucao it's great to talk to you again. welcome. >> thank you very much thank you. >> not many people were counting on basketball being a wild card in this relationship this late into trade talks do you think it has complicated overall trade negotiations and what is the nba's smartest play

from here? >> well, i am reminded of the fact that we go back to ping pong that got our two countries working together no it's a big problem here and frankly i think the nba, that the manager of the rockets did not understand just how they are to china it's taiwan, hong kong, tibet, those are their core issues. whenever anybody starts to question those core issues, it very much upsets beijing that was not understood by the rocket manager >> so ambassador, is the way to think about it, if you're a u.s. company trying to expand in this key market in china right now, is the way to think about it that you have these issues whether it's hong kong, whether it's taiwan, some of the other issues just laid out, that these are essentially third rails and you need to go nowhere near it

otherwise potentially sacrifice future profits or in doing that, are you sacrificing values as an american company it seems like there's this crucial intersection right now, how do companies navigate that >> yeah. well, it very much depends the u.s. industry and on the company. for example, the more u.s. companies high tech, the more it raises red flags in china. or raises red flags for the company trying to do business in china, because china will look for a technology transfer and be pretty tough on the u.s. high tech company on the other hand, if it's not a high tech company, if it sells lots of other products, then it's a lot easier to do business in china in fact, chinese want a business in china i've talked to many americans in china, chinese in china who tell me that the government, the chinese government is trying to help american companies get more foreign investment into china.

it very much depends upon the nature of the business >> senator, "the washington post" has a piece out today about hong kong. this one quote, hong kong is asia's world city is finished. there's no way they can recapture its reputation as an efficient, safe, well-governed orderly place to live and work and do business. some of the stuff you can't put back together. that's a big deal. i wonder if you agree with that assessment is there any way it can be a capital of capital again >> well, clearly hong kong has lost its innocence four months ago when this began, it was a very peaceful 1 million person march in hong kong against the extradition treaty that unfortunately has morphed into violence and vandalism four months later, so hong kong has lost its innocence hong kong will never get back what it was again. however, i think that basically the people in hong kong, the shop keepers, businesses, tycoons, too, they want a good

life in hong kong. they want to do business they'll try to find a way to accommodate mainland china in a way that helps them prosper. mainland china wants hong kong to prosper too this problem is the protesters and the violence of the protesters and the fact that they somehow managed consistent with a modicum of civil liberties, i think that will be the solution. >> when you talk about the various issues that are unmentionable, whether it's hong kong or tibet or anything else and trael poliindustrial policy don't want to talk about changes zrks , does it leave enough ground for the talks on how they're structured right now. >> the talks are not structured in a way that will reduce very significant results. the big problem here is that

china is rising. china knows the gdp will exceed that of the united states in 15 years. china is focusing on their core technologies to help them rise, to be a major economic power they're not going to sacrifice those core policies like ai, machine learning, nanotechnology, et cetera. the big problem here is china is starting to think that the united states is trying to stop china's rise there's no way in the world we're going to stop china's rise if china thinks the u.s. is trying to stop their rise, that will make it much more difficult, not just in trade talks, but the general relationship the big answer here frankly is for the united states to first get its own act together at home, develop its own economy, the usual suspects, education, get our budget in order, but secondly to work with our allies china will divide and conquer anytime they can sending ally against ally, country against

country, company against company to try to gain their advantage, so we americans have to work with the europeans, with japanese and south koreans in a much more concerted way, then we can start to get a handle on china in a way that the playing field is level so that we can compete with china. >> it sounds like you're saying maybe this all should have been done through a tpp framework >> man, oh man, it was so important on my own dime i flew back to the u.s. and lobbied 43 separate members of congress on tpp. it was so important. i got nowhere. it was toxic it was a very, very big loss when we dropped out of tpp. >> senator, thanks for your time it's such an important week to hear from someone like you. >> you bet >> talk to you soon. >> thank you bye-bye. coming up next, what recession fear, global consumer

confidence remains close to record highs that's according to a new report from the conference board. the ceo of that board will join us to break down the results as the w dois hanging on to gains up 151 t with opportunity comes . and to manage this risk, the world turns to cme group. we help farmers lock in future prices, banks manage interest rate changes and airlines hedge fuel costs. all so they can manage their risks and move forward. it's simply a matter of following the signs. they all lead here. cme group - how the world advances.

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i do a little bit balk at the idea we're running the economy high this feels very sustainable. there's no aspect of the economy that is just booming you've got a solid consumer sector where people are -- wages are going up, but they're going up right about at the level of productivity plus inflation. job creation is healthy. there's no one sector that is, you know, that like a housing bubble there's nothing like that. >> that's fed chair jay powell reiterating the economy is not running hot. meanwhile, global consumer confidence still close to record highs. that's according to the conference boards just released confidence index with us this morning is the ceo of the conference board and form former office depot ceo. good to see you again. >> high, carl. >> are we going to look at the fact that this is close to record highs and north america is one of the best markets, or the fact that more markets are

seeing a decline >> well, this is the record high level. it's consistent with the second quarter level as well. but we're sitting here and the consumers around the world are really pulling the economies and the impacting the gdp. the highest level in the world is in india. china is very high the u.s. is very high. in europe you see germany and the netherlands also very high the lowest in theworld is sout korea and of course hong kong has taken a big hit because of the happenings there the issue here, carl, is that we're starting to see a little nervousness, a little anxiety around job security. that's of course a major impact on this. the other thing is ceo confidence is dropping like a rock this has been the biggest gap between the consumer confidence and ceo confidence that ceo confidence impacts -- it keeps going down and it impacts investment the question is are the consumers going to continue to pull the economy along or are

the ceos going to drag it down by their lack of investment? >> when you see a drop in ceo confidence is there a pattern whn wh between when that starts to show up in consumer confidence? >> it's hard to say. they're not always related in our economy, for instance, the consumer is 70%. this global consumer confidence says for the next six months this is great. our holiday season should be pretty well cemented here. that's great for, you know, the next couple of quarters. and so therefore, i think at some point either the ceos need to come along with the consumers, or the alternate can happen which is that psychology might come into play here and if it gets this constant drum beat of recession, recession, which we don't forecast, but it can -- we can create one. the media and so forth can create one psychologically >> i think in looking at historical cycles, at least with the u.s. numbers, consumer

confidence tend to be a little bit of a lagger when it comes to the end of the cycle you only know in retrospect when you are at the end of the a cycle. but the results of the survey are a pretty good reminder that globally speaking living conditions are getting better. consumer conditions generally as a long term trend are getting better i wonder if there's a lot to be said and drawing from the global data in terms of figuring out where we are do you have a similar question that says what's the outlook and how do we put that in context? >> it's so much focused on jobs. that's why this little anxiety that we're starting to see about jobs is important. now, from the ceo perspective, this trade situation is impacting them that's what's driving it so if you can see any kind of resolution, and tomorrow they're meeting again. we don't have any hopes for a big deal, but as long as we don't go backwards on this and we can hopefully get to something that's -- you know, that at least is predictable, then the ceo confidence ought to

come back up but the consumers are spending, because the jobs are there, we've got unemployment at 50 year lows here, so it looks like we're pretty well baked here for the next six months. >> steve, we've been asking people why there seems to be a difference we know corporate confidence has been weak, and we know capex has been weak, but hiring has you think in there what is different about hiring workers than launching into an expenditure plan >> part of is what's going to happen, because you're making 20, 30 year decisions. where do you put manufacturing plants should i be in china and manufacturing there? should i be out of china everything is sort of frozen because of this trade situation. it's not just trade. it's the capital implications of where people should deploy i think that has been what's frozen in the meantime, demand is very high it's a tight labor market, so everybody's holding on to their

people interestingly, though, wages, even though they're rising, are still below 3% inflation, so it's not like it's driving huge inflation and we have an accommodating fed. it all comes together almost like a goldie locks economy, but it's sitting on this precipice of the trade, the outcome of the trade situation, isn't it? >> that said, steve, i wonder how much of these results ties back in or hinges on stimulus, whether it's monetary or, for example, china fiscal? >> well, certainly china has seen a slowdown too. so the fiscal policy there, they also have monetary, you know, the devaluation there has helped them, so i think that's helping a lot. here in the u.s. when you have an accommodating fed, when they're willing to use their balance sheet, when we still have some room on the interest rate, you know, people are talking about negative interest rates, we don't see that happening, but that shows you how accommodating things are and we're going into an election

year you never see the recession start in an election year. people are very confident about their jobs and about where they're going. so they continue to spend and that's going to continue to drag -- drive the economy. we'd like to all see a little higher growth. it's not quite where we want it, but it's in the good spot here for at least the next six months >> good numbers, steve everybody should look at this report it's got a ton of information. thanks for coming on we'll see you soon. >> thank you, carl. now for our etf spotlight, taking a look at financials, the spid spider s&p bank rebounding a bit from its worst day since august 23rd and its second negative session in a row today up about .4. gaining back maybe a quarter of yesterday's losses today's gainers among the group's holdings include citi, jp morgan, chase and bank of america. so far the kbe is underperforming the s&p 500.

>> we've got lots more still to come china says it's open to a partial trade deal progress or more posturing our panel of expertsil wl weigh in dow is up 166. don't go anywhere. ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪

welcome back to "squawk on the street." markets in rally mode today. stocks opened broadly higher gains have strtrimmed somewhat a bit. dow is up about 2 points currently at 157 every sector in the s&p is in the green. let's send it over to sue herera near a news update. >> here's what's happening at this hour. turkey has begun a military invasion into syria where they are expected to target areas held by turkish forces who are long-time u.s. allies. the development follows

president trump's decision to pull u.s. forces from that region a move that sparked criticism from both democrats and republicans. more cancellations for beau's troubled 737 max jet. american airlines announcing it will further postpone using that aircraft until january the plane has been grounded since march after two crashes killed 346 people. banners promoting an upcoming nba preseason game are being removed from buildings in shanghai the u.s. coast guard came to the rescue of three drivers stranded 30 miles off the coast of hawaii. the group lost contact with their boat after an extended dive they are lucky that is the news update this hour guys, i'll send it back downtown to you, carl. >> sue, thanks very much. china is reportedly open to

a partial trade deal with the u.s. and will offer to buy extra u.s. goods as an olive branch. it doesn't mean they'll budge on major differences. >> carl, that's been the view that china has been telegraphing for months it's something the u.s. has been keen to say they will not accept and set the agenda for principles that are meeting tomorrow there is reporting about what may be on the table when the vice premier heats his u.s. counterparts in this 13th round of talks bloomberg is reporting that china is it still open to the partial deal even after significantly more hawkish measures from the u.s. op-ed pieces from former officials on both sides say those meshes are make a deal less likely. the financial times reports china is preparing to offer an increase to soy bean purchases by more than a third of what it's currently buying.

that would be $30 million of soybeans up from 20 million tons that report moved commodities this morning i've not cop firmed the reports but sources say while -- both sides want to find a way to deescalate new visa restrictions by both sides announced yesterday. china threatening more retaliation for the u.s. banning business with eight tech giants and china's high profile dispute with the nba perhaps they are setting the table for another tense couple of days. we'll see what, if anything, gets decided by friday afternoon. guys >> kayla, you've been following these talks so closely for the better part of a year, year and a half i wonder if a playbook is emerging here in which the u.s. tends to up the ante ahead of talks, pen there's posturing

back and forth, discussions back and forth, possibility of more commodity purchases. it almost seems like this is becoming a familiar situation. >> certainly the chinese has domestic political considerations they want to look as if they are retaining that hard line the president wants to be able to say that he has remained tough on china so essentially both sides are building these defenses. they've been doing that each round. but it is interesting and perhaps auspicious that some of these measures that were announced this week, for instance, the state department visa ban, the commerce business black list, those are things that have been in the works for several months, if not close to a year these policies being carefully crafted behind the scenes and being rumored to be teed up in may or june and then being shelled for other reasons. it's not insignificant that those policies are coming out now. and you're right, perhaps there is a playbook that we'll see in business schools in the years to come >> kayla, always great

reporting. thank you. for more on this and what it means for the market, we're joined by former dep nec director cleat williams. also with us michael zizas, morgan stanley head of public policy good morning to you both cleat, as someone who has been involved in these talks in the past, what do you think? is a so-called partial deal from china going to cut it? >> i don't think the administration should be afraid of a partial deal. it needs to be the right deal. it needs to include structural components, things like forced technology transfer or intellectual property. larry was talking late last week about looking at changes in china's investment caps and maybe you can get instruct radicular stuff on agriculture th it needs to include those components in exchange all the u.s. has to do is i'm not going to escalate tariffs further and maybe over

time if you implement some of this stuff, i'm going to roll back tariffs to $250 million i think that's a good deal i'm not afraid to say that i think it's a way that the president is essentially have his cake and eat it too. he can say look, i made progress on some real significant things, but i'm still tougher than anyone else has ever been with $250 billion in tariffs in place and i'm going to keep those in place until china comes around on the rest of the issues. so i think that is something they should take seriously >> michael, should markets bank on this idea that china could come around on the rest of the issues longer term and if so, if we do see some sort of at least pause in tariff increases right now, is that a realistic expectation? >> we've been telling investors they should be skeptical i think if you cut through the noise over the last couple of days, what we've learned is that china is effectively coming to the table. they're coming to the table with more of the same than it's been

coming with over the last year and a half, more agricultural purposes, formal recognition of regulatory changes its made over intellectual property. then the question is if they're offering more of the same, what incentives does the u.s. have to go ahead and accept that or sort of phrase that as a concession perhaps if the economic data were worse or economic performance were worse, the payoff to sort of taking a partial deal that looks like what china is offering might be greater, but to us neither of those factors is meaningfully different. so we're pretty skeptical that you're going to get a pause this week it's possible that in the intervening period between now and december 15th tariffs that something could be arranged just because the data could worsen or the market could get weaker, but even so, unless one side or the other really starts blurring the red lines around the core issues, then we think that we're faded for more escalation. >> the way you set it up as the

administration having the ability to essentially portray this partial deal that you mentioned, just simply don't initiate the next round of tariffs in exchange for some promises and soybean purchase, eg ect, does that stand up as status quo is that a suitable goal for the administration to have these promises on some of the core issues but not really change anything on the ground that's even going to touch the trade balance? >> well, you know, it's difficult. it depends what's in it. and i want to be clear that if it's just soy beans, i don't think it's a worthy deal but on the other hand, if it includes some of these structural things and then the u.s. takes a pause and actually gives china a chance to prove that they're going to stick to their word on this, that isn't a bad thing for the united states. i think if the u.s. keeps tariffs at about $250 billion, that's the sweet-spot. that's where china is clearly

hurting more than the u.s. and so the u.s. has a chance to sort of allow china to try to implement these things, to take a pause, to provide a little more certainty in its markets while maintaining the pressure on china and so again, i go back to i think that if the u.s. could do that, it could be a sustainable position and the u.s. at the same time doesn't need to stop doing the other things that it's doing the u.s. has legitimate concerns about what china is doing with its we its population and the surveillance state and china can keep doing -- i'm sorry, the u.s. can keep addressing those kinds of things. a pause on the tariff hikes isn't a bad thing from the u.s. perspective. >> if that's all true, and by the way, your freudian slip was right, the choin niece will contin -- chinese will do those things, i'm not sure how a pause does anything other than elongate what we've already been in. >> i think we need to be

realistic about the fact that we're not going to get the big deal this week, this month, or probably this year and so if the u.s. can bank progress and then stay aggressive on china in a whole bunch of other ways, i think that's a viable position i'm not saying the u.s. should back down. i'm just saying the u.s. does need to be realistic that at some point continuing to escalate the tariffs does have an economic toll and if they can get a little bit of certainty to the marketplace and stay tough in china on a whole bunch of different other ways, work on this issue, work with senator rubio on some of his ideas on how to deal with problems in china, i think that's a good place to be. >> michael, i think back to an interview i did with a ceo of harley-davidson last year and one of the things he said to me is that the company faced tariffs in different markets for decades now. one of the things he said is tariffs are durable. once they're put in place in a certain market, it's hard to see them removed even if we were to see a pause

in teariffs, the tariffs on existing products, if they were to stay in place in longer term what does it do to supply chains and manufacturing and how goods are flowing in the u.s. longer term >> there's obviously an economic cost i think it's important for investors to realize that and everyone to be honest about that so over the long term, those costs include adjusting to a new reality where it just costs more to do business in china. so once that's baked in with regard to investing in new diversified supply chains, that's the type of thing that isn't necessarily disastrous over the long term but in this economic vicycle and investment cycle, it eats away at earnings and more down side it's something that has corporate conference and makes recession probabilities higher

it's not morgan stanley base case, but you need to understand how those flow through the cycle in order to understand why we're still relatively cautious on risk assets. >> we've got to leave the conversation there thank you both for joining us. >> thank you. coming up later on squawk alley, christopher wylie, the man who blew the whistle on cambridge analytical is going to join us here at post nine. he has a book and interview you do not want to miss. dow up 168 s&p 2,915. we're back in a minute i can't believe it. what? that our new house is haunted by casper the friendly ghost? hey jill! hey kurt! movies? i'll get snacks! no, i can't believe how easy it was to save hundreds of dollars on our car insurance with geico. i got snacks! ohhh, i got popcorn, i got caramel corn, i got kettle corn. am i chewing too loud? believe it! geico could save you fifteen percent

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welcome back to "squawk on the street." i'm seema mody stocks rebounding today but we're keeping a close eye on tensions in the middle east with oil moving to its highs of the session shortly after turkey announced that it has begun a military operation into syria. traders know that the move will increase geopolitical risk in the region that's why we're seeing oil prices higher and some of that uncertainty lending support to the energy sector, which is among today's best performers, up around 1%, let by valero, hess and phillips 66, up nearly 2.5% mike, i'll send it back down to you at the new york stock exchange. >> seema, thank you very much. now let's get out to the cme group and rick santelli with the santelli exchange. >> hi, mike, thank you i'd like to welcome my guest,

mark summerlan i know that you recently interviewed with cnbc and my buddy, larry kudlow, about an advisory role in the administration on the economic side, so i think you're just the person with china's talks coming around tomorrow, one question nobody asks, if you look at the talks as circular, when do we start moving now to a place where china becomes less important and we recalibrate around china? it's been 19 months now. >> right you know the tariffs when they go in have a negative reeseffect right at the beginning so if we can get to the point where we have a time-out, then the economy can start to get better. i think actually the other important thing going on in china has been their tightening of shadow financing which has obliterated their car market which started the whole global manufacturing slump in the first place. >> now, yesterday jay powell,

and i like jay powell. i think he has an impossible job. but he definitely protested a bit too much this is not qe, in no sense qe i tdon't know, a rose by any other name would still smell as sweet. my problem with qe wasn't the stimulative effect it was the distortion effect. we know we have invert at 3-month bills. why don't you weigh in >> chairman powell talked about two things yesterday one is not qe and one is he talked about letting the balance sheet grow naturally with currency in circulation that's pretty normal for a central bank he also talked about recalibrating the level of reserves a little bit higher estimates are probably $250 billion higher, and that is undoing part of the qt so that is qe, just qe on a small scale. it just shows to me that a lot of the reserves in the system

have been frozen by regulation and aren't really there and so they were not really on top of the level that they needed under their current system to keep control of overnight rates >> listen, i understand from a marketing standpoint qe has a negative connotation and it's getting so more and more because it's manipulating rates. you know, the bank for international settlements has done research, a lot of groups have in q3, almost 60% of central banks cut rates and they found in the research that the unprecedented growth in balance sheets with low rates has caused markets to function wrong. the plumbing isn't working your final thought on how this all fits together. >> no, i mean central banks have done a lot of damage on negative interest rates, on holding inverted yield curves. they should concentrate their actions on the short end of the curve to me so the markets could do their job and be more of the transmission mechanism so the economy can grow better. >> and my final question is, as

i embark on what jay powell is going to give us soon about the balance sheet, i guess my final comment is now that the plumbing is smaller and the markets have grown bigger, i think we'll be forced to see all central banks have bigger balance sheets to adjust toward their target rate. is that not correct? >> no, i think that's absolutely correct. i don't think they're going to be getting smaller any time soon. >> marc, thank you for your thoughts always insightful. carl, back to you. >> rick, thank you very much rick santelli. we are trying to hold on to gains here, 2913, as we await the china trade talks. roku up 6% to 8% on this upgrade. we've seen a couple of powerful analyst calls this morning "squawk alley" starts in a few moments. don't go anywhere. what do you look for when you trade?

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good morning it is 8:00 a.m. at facebook headquarters in menlo park, it's 11:00 a.m. on wall street, and "squawk alley" is live good wednesday morning, welcome to "squawk alley." stocks doing pretty well this morning. >> the dow is up 155 points, the s&p is up 0.7 of a percent and the stocks are higher on renewed trade optimism it's tech stocks leading the rebound. every sector in the s&p is in the green right now. joining us is timothy moran and paul