Transcripts For CNBC Squawk 20240703 : vimarsana.com

CNBC Squawk July 3, 2024

Ivy zelman is here to talk about that. Instacart raising its price after the successful arm ipo. On stocks, we are weaker and the losses are accelerating in the last few moments. Were down a percent on the s p, putting in jeopardy the gains for the week. The nasdaqs down about 1. 4 . Whats working today is a little more defensive. Its the health care and Utilities Group which is bucking the overall trend, higher stocks, on the back of a little better Economic Data. What we got this morning, Industrial Production was better, but we did have Lower Consumer confidence from university of michigan. Interesting to see us lose some ground even as yields are coming down as well. Lets begin in michigan as the uaw goes on strike. Our phil lebeau is on the ground with the latest. Good morning again, phil. Good morning, carl. I have a lot of people asking me just how much of an impact this strike is having on production and the availability of vehicles. Think about this. 15 of the u. S. Production for the big three is now shut down. 15 of what they build in the united states, not canada, is not happening because of the strike. That means certain models at these plants not operating for final assembly, theres limited supply out there. The chevy colorado build in missouri, 35 days. Ford bronco, build at the Michigan Assembly plant, 37day supply, according to cox automotive. Jeep wrangler, 82 days. For a point of reference, normal supply for a vehicle is about 65, maybe 70 days. Earlier today we talked with gm Ceo Mary Barra about the state of negotiations or lack of negotiations and heres what she had to say. I think the key in any of this is to get to the table, talk through the issues. Thats what weve been working to do since this began. We are have over 1,000 demands. You have to work through each of those. Thats part of the process. Mary barra expressing frustration. Shares of general motors, keep in mind, it has offered a 20 wage hike over the life of this next contract, which is going to stretch out for 4 1 2 years. Thats the story this morning, carl. And the feeling is, because we dont have negotiations taking place today, were going to see this strike go for at least a little while here. Whether its a couple of days, couple of weeks remains to be seen. Were also going to hear from the president. President biden expected to address the strike this hour. Well take you there live. What is the white houses involvement been thus far and potentially in these negotiations . I thought it was interesting when mark field said, are we going to have a biden that supports unions or a biden worried about american inflation and wants to get this fixed . Thats a great question. Gene sperling was appointed by the white house to be a leeiais between the big three and uaw. Hes been in contact with the united autoworkers leadership as well as the leadership for ford, gm and stellantis. Other than that, guys, we have no indication just how much pressure the white house is putting on the uaw as well as the automakers to get this resolved. There have been conversations this week by the president with the uaw president as well as executives from the automakers, but beyond that, its hard to gauge how much pressure the white house is actually putting on both sides to get this resolved. Phil, well wait for the president. When he does, well bring to you live. The strike includes about 13,000 autoworkers. More lines could be on the line. 106,000 total Union Workers who could be affected, but the suppliers will also be under pressure. The American Automotive policy council estimates each automaker Assembly Plant job supports about seven other supplier jobs. Thats almost 900,000 workers. Our next guest is keeping an eye on that and facing the biggest impact, including dana, magna and lear. Joining us is dan levy. Thanks for the time. On the big three and those shares, were they primed for todays news . Hi, thank you, carl and sara, for hosting me. Yes. You know, i would say in the last month, what weve seen is a steady rise in the rhetoric and tension. People in the automotive world have known there was this type of setup but it entered the broader public. Weve seen stocks sort of holding in, theyve been beaten up in the last month already. This was already somewhat being priced in. So, what happens from here . Whats priced in as far as how long it will last, how widespread it might get . Yeah. I would say the feedback that we get from investors is look, it remains to be seen how long this strike will last. Generally the feedback we get is that this will ultimately be a transitory impact. The units that are lost will eventually be rebuilt. Really the key question is the amount of cost that the automakers are going to take on as a result of the new contract. Thats really what people are looking at. Generally for ford and gm, theyre looking at call it at least a couple billion dollars of incremental cost for contacts for this year, going to do 11 to 12 billion of pretax profit. Gm will be something in the 13 to 14 billion range. So, people are generally looking at it in terms of the amount of incremental costs that will be absorbed annually. Im not asking you to mediate here, but i am curious to know where you think the point of maximum pain would be, at least on wages. Would 40 over the term of the contract be crippling . We dont think it will go that high. We think more realistic scenario is we end up at 25 to 30 . Its hard to say where this ultimately goes. Theres ultimate theres various negotiation points. You know, what weve published in the past is something in the 25 range would be similar to other labor negotiations that weve seen. Thats the basis for roughly 2 billion of at least incremental costs being absorbed. Again, hard to say. This is in the context of multiple negotiation points in terms of inflation adjustments, in terms of product allocations, et cetera. But wages are likely to be higher than whats offered by the oems, at least what were assuming in our research. Have you changed already the models for margins and profitability . You know, were assuming some of these costs in our numbers already. We assume that if its just a couple billion dollars, that there are offsets. Gm earlier this year has talked about a couple billion dollars of cost saves that theyve generated. We assume part of this is a proactive measure to address some of the higher labor costs theyre going to be taking on. Anything more than that would be an incremental headwind to our numbers. So, i was going to ask, can they offset it with higher prices that consumers pay for autos or are we seeing enough weakness in Consumer Spending where they dont have that kind of lever to pull . We think prices are unlikely to go up. Theres probably go to be some price declines. Really, prices have not cracked from, you know, the highs weve seen. When you layer on inflation interest costs, the monthly cost to the consumer is quite high. Youre dealing with Monthly Payments in excess of 700 a month to the consumer. So, you are going to see some price normalization. The automakers will try to hold on to as much of the price. We dont think this goes back anywhere near precovid levels but there will be some price normalization to unlock more volume once we clear out of the pentup demand weve had from the last few years. Dan, just to consider some of the more extreme scenarios, for example, moving production out of the country to mexico, lets say, if, in fact, negotiations dont go anywhere, i just wonder, american manufacturers are in a period where theyre bringing back production because theyve been burned by unreliable supply chains. Does that mean the bar is higher to go to that extreme . The bar is going to be higher. This is a key point weve raised in our research. The question actually is going to be around the ev transition. We know evs are far less labor intense than combustion vehicles. Youre looking at roughly 30 to 40 less labor content in an ev versus an i. C. E. Vehicle. As it is, the legacy automakers are struggling with the transition. Theres a significant cost disadvantage versus tesla. When you factor in they now have to transition to evs, this is another consideration that needs to be managed. Thats why theres another tension point in these negotiations. I imagine thats something that has to be addressed here. Definitely explains not just the action in tesla this week and this year, but the market cap overall. Dan, appreciate the help. Great to have you. Dan levy at barclays. We are waiting for the president to speak about the strike this hour. When he does speak, well bring it to you live. Why yesterdays Market Reaction to the European Central Bank Interest Rate Decision is a prelude to what could be ahead here at home for the fed. Plus, oil, highest since november this morning. The impact for consumers at the pump and the feds inflation fight. The great unbundling of disney. Is bob iger getting ready to sell abc and is it the right move . All that and more when squawk on the street comes right back. Down almost 200 points now on the dow. Active investing and disciplined Risk Management are needed most. Drawing on deep expertise across the worlds public and private markets in pursuit of longterm returns. Pgim. Our investments shape tomorrow today. birds chirping go. And go and go and go. but what if you. Stop . You work hard, its time for a bank thatll work hard for you. Everbank brings security and a guarantee that youll earn a yield in the top 5 of competitive accounts. Going, thats what got you where you want to be. Were the partners for your next move. Everbank. Advantage, you. Welcome back. What should you expect when the fed signals its done raising rates . Thats the subject of a new note by our next guest predicting when that day comes, well see longterm yields fall and 30year Mortgage Rates decline by 150 basis points or more. Joining us now is fund struck managing partner tom lee. Tom, doesnt feel like thats where were headed. Even if theyre done raising rates, theyre not going to signal that next week, are they . Sara, next week would be a tall order. I do think by november theyll have enough datapoints to feel that way. It is what we saw with the ecb and how markets reacted, a pretty big deal that once a central bank feels that theyve reached a point where the data is sufficient for them to reach their last hike, its going to take a lot of uncertainty out of the bond market. We saw that yesterday across all the regions in europe and all the term structures of europe. That would trigger a risk rally. Its akin to 1992. I think theres a lot of folks here who think once the fed says theyre done, they think the stock market continues to go down. I think its the opposite reaction will take place. But a lot of people that i talked to think thats the wrong reaction because its not as if when the fed stops raising rates, theyll cut rates. Theyll still trim the Balance Sheet and plan to keep rates at this high, restrictive level for a long time. Yes, but i think investors who have that view are anchoring around a Business Cycle concept of fed cycles. We know the fed is fighting a very different war today. Theyre fighting a war on inflation and the restrictive rate theyre targeting is a real rate that helps contain and prevent inflation from flaring up. If they keep rates here, at 5. 5 and year over year inflation next year drops to 6. 5, which one can model pretty easily, thats a huge restriction. I think they want to keep higher for longer real rates. The effect on the Mortgage Market would be pretty dramatic as well. You referenced it earlier. The excess spread today on a 30year mortgage to the tenyear is close to 300 basis points. Historically that number is somewhere somewhere between 1. 5 to 1. 7 percentage points. Even if the tenyear stays flat, Mortgage Rates could drop 1. 5 . There have been some joke this is week about what would happen if Mortgage Rates got above high yield. Thats never happened. It would be amazing if it did. I do wonder, tom, price action wise on a. I. Names. Nvidias quarter was stellar. Same with oracle. Adobe is down four today. Is that a function of being tired about the story . Carl, it could be. Were seeing a sizeable correction in a. I. Names because that was the only game in town for most of the year, but we are also in a period of rough markets. Since august its been a game of inches. I dont know if people want to have that much risk in august and september i think once the market reattains its uptrend and riskon mode, i think a. I. Will be places people come back to because theres real growth there. Im not surprised. This is a riskoff environment at the moment. You dont buy the argument that the fiscal picture is becoming increasingly important for investors, the fact that we have a deficit that was double where it was supposed to be, especially during this growth period, where unemployment is low and theres so much supply and issuance that has to take place and thats keeping upward pressure on yields as well . Sara, it is pretty puzzling that were in an expansion with high nominal gdp. Those should actually cause a deficit to shrink. That would be what economic history says. Youre right, its puzzling the deficits double this year. The bond market complaining about it . I would say i would feel more convinced about that if the dollar was coincidentally weakening. The dollar has actually been pretty strong. So, it doesnt feel to me like theres someone saying they dont want to fund the deficit here. I guess. But Dollar Strength follows yield strength often. Well, if youre worried about fiscal deficits and the funding you know, the ability for the government to fund, i would associate that with a weaker currency. All right. Thats fair. Were also getting weaker Economic Data overseas. Tom, its a good discussion. Thank you for joining with us some of your calls and your predictions, especially on Mortgage Rates. That stood out. Thank you. Still to come, upside surprises out of china overnight have crude touching the highest levels of the year. Back above 90 today. Thats up next. Plus, watch schwab falling after they said asset earnings in august were down 23 from a year ago. The stock is down 4 . Stay with us. Every day, businesses everywhere are asking is it possible . With comcast business. It is. Is it possible to use predictive monitoring to address operations issues . We can help with that. Can we provide health care virtually anywhere . We can help with that, too. Is it possible to survey foot traffic across all of our locations . Yeah absolutely. With the advanced connectivity and intelligence of global secure networking from comcast business. Its not just possible. Its happening. Welcome back. Tensions between the u. S. And china have Companies Looking elsewhere for production facilities. Whos benefiting the most . Our seema mody at post 9 with a look at that. Good morning. Good morning. The ongoing issues in china leading to this reshoring boom were seeing in mexico. Its finally showing up in the data. Its being led by the automotive industry. Tesla setting up a 15 billion giga attacker to. General motors, ford. Comments with heavyduty trucks. More capital flowing into mexico is fueling crossborder shipments, Freight Transportation Company rxo says volumes have grown about 30 year over year. One of the benefits of doing business there is lower costs. Manufacturing labor is cheaper in china and its been that way for more than eight years. Mexicos government has also been pitching companies on a new corridor that would rival the panama canal, seen asone way to accelerate trade with the u. S. And bring more business to southern states. Crime, specifically cargo theft, remains a key risk for foreign companies. Experts also point to the countrys political back drop with a president ial election coming up next year. So far thats not impacting market sentiment. The etf outperforming other emerging markets, up 21 this year. The currency, the peso, has been strong as well. Youve been wondering about this theme and asking the analysts about whether the production shifts. I mean, its just if youre going to do it at home, right, its going to cost you, but are you going to pay up for what youre getting in return, that is reliability, american workers, more control. Right. The geographical proximity to the u. S. Cannot be overstated when it comes to a country like mexico. Its not just the automotive industry. Weve seen a number of industrials, including john deere earlier this summer, moving a specific plant from iowa to mexico because of a tight u. S. Labor market. Were watching this uaw strike. Well see if that how that plays into the reshoring efforts for that industry as well. By the way, private equity and venture capital, weve seen a surge in investment in mexico as they try to play a bigger role in logistics and infrastructure. It would be a political problem, though, if these Union Strikes lead to workers leaving the u. S. On that note, three weeks ago the uaw president said that stellantis is threatening to move production to mexico. Well see how this story plays out. Thank you, seema. Staying overseas, new data from that china contributing to the move from china moving to the mood higher in crude. Pippa stevens is looking at that for us. As we reach some key levels. Yeah, thats right. Wti is off the highs of the day after earlier topping 91 for the First Time Since last november. And it is still here on track for a third positive week. Now, that data out of china showing better than expected retail sales and Industrial Production numbers certainly helping things because china is the Worlds Largest crude importer. Worries around their slowing economy have been an overhang for oil. But whats really stoking the recent optimism is growing calls that there will be supply deficits for the rest of the year. We heard from opec and the iea this week, both of which are expecting shortfalls. After months on the sidelines, weve seen heavy hedge fund buying, which is also pushing shorts to the

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