Trump Eyes Iran Economic Squeeze — Radio Balance of Power: Early Edition 8/13/2026

[00:00:00] Speaker 1: I'm Joe Matthew in New York. Live from Washington, D.C., this is Balance of Power with Joe Matthew and Kaylee Lines. President Trump puts the economic squeeze on Iran even as a new aircraft carrier steams toward the region. Welcome to the Thursday edition. As the White House faces dwindling options militarily to reopen the strait beyond simply waiting. I'm Joe Matthew in New York. [00:00:29] Speaker 2: Alongside Kaylee Lines in Washington, Kaylee oil prices are actually lower today, even as the administration appears to be making plans for the long haul. Yep, that's why the Lincoln is heading home after being deployed since November. It doesn't seem they're going to keep it in theater any longer as they send in reinforcements. But to your point, Joe, that means that it does look like our force position is going to maintain for some time to come. All that said, oil prices are lower and you're seeing the effects of the easing we saw in energy prices in July in inflation data. Once again today after the cooler CPI of yesterday, once again, cooler PPI data flat month on month in the month of July. That's, of course, the fueling bets that the Fed or I guess defueling bets perhaps that the Fed is going to hike this year as the market is now pricing out that scenario. [00:01:15] Speaker 1: I guess unfortunately they could come back. I mean, we have seen quite an increase in oil prices since the resumption of some kinetic action since that last report was taken, Kaylee. And then there's lettuce. We saw this massive decline in lettuce prices because of the outbreak. And those are eventually going to come back, too. So the question, I guess, is how long the relief can last for Kevin Warsh. [00:01:35] Speaker 2: Yeah. And ultimately what that means for the bond market, we, of course, saw a 10 year auction yesterday that had the highest yield going back to 2007. And at this hour right now, there's a 30 year auction going on, $25 billion of new issuance. And we'll be looking to see what the takedown of that is and what yield it ultimately draws with the higher borrowing costs we have been seeing overall. And we'll be keeping on top of that, discussing it perhaps with the former chair of the House Financial Services Committee, Patrick McHenry, when he joins us shortly. [00:02:02] Speaker 1: That's right. We'll check in with Tyler Kendall as well at the White House. Kaylee, as we try to connect the dots on all of these stories and we'll have our panel with us, Rick Davis and Jeannie Shanzano for the hour. [00:02:12] Speaker 2: And, of course, we also have Charlie Pellett, although I don't have Charlie, you have Charlie with you in New York. I feel like you should be doing this toss. Charlie, how are the markets? [00:02:21] Charlie Pellett: Right now, looking at a mixed market with the Dow lower. And, by the way, great having Joe here in New York. We have got the Dow Industrials down now by just about 35 points dropped there. A little change down under one-tenth of one percent. S&P looking at a record right now, 77.92, where we stand on the S&P 500 index, up 43, up by about six-tenths of one percent. The number to beat today will be 77.57. So, again, a record now on the S&P. We've got NASDAQ up 191 points, up seven-tenths of one percent. The NASDAQ 100 index outperforming up by 1.2 percent, even with some weakness and a couple of prominent tech names. Cisco after earnings down almost nine percent. And Cerebris Systems also after earnings down almost 13 percent. The two-year on this PPI Thursday, 4.14 percent. The 10-year, 4.63 percent, your 30-year, 5.21 percent. Gold right now at 43.68 the ounce, down nine-tenths of one percent. Crude, a lot of people talking about what's going on with oil today. Energy falling, WTI down 1.6 percent, 81.91 a barrel, barrel of Brent, 87.70, down by 1.4 percent. Joe and Kayleigh, that is a Bloomberg Business Flash. [00:03:33] Speaker 1: All right, Charlie Pellett, at my side here, Kayleigh. I'm spoiled at World Headquarters in New York. We'll have more on the markets with the voice of Wall Street and the New York subway. I can actually go listen to Charlie Underground while I'm here. Coming up in just about, what, 15 minutes' time, Kayleigh, it's been interesting watching the rhetoric around Iran develop or, I guess, devolve over the last couple of days with the president opening this week, talking about a low-key approach. Now we're sending another, reportedly another aircraft carrier to relieve the Lincoln, suggesting that the U.S. is, in fact, girding for a longer commitment. And, of course, the president has been talking as if the strait was under our control for weeks now. Listen. [00:04:18] Speaker 4: They want to make a deal with us very badly, and we probably will. I think we will. But the strait is open. [00:04:26] Speaker 5: We're taking out all of their capability for anything having to do with the strait, with the Hormone Strait. And I think, in the end, we will end up just controlling the whole thing. [00:04:37] Speaker 4: We don't need the Hormone Strait, but we do it because we have to do it, because we cannot let Iran have a nuclear weapon. We control the strait 100 percent. Now, can they make trouble? Yeah, they can make trouble. [00:04:51] Speaker 2: And before we get to that trouble, potentially, in the Middle East with Tyler Kendall at the White House, I do want to briefly mention that we do have the results of that Treasury auction in. I remember $25 billion in 30-year bonds auctioned off, drawing the highest yield going back to 2001, 5.216 percent. That is higher than the pre-sale when issued yield of 5.212 percent. So we'll look for the finer details on what the actual drawdown was like in the overall demand picture here. But highest yield since 2001, after, again, the 10-year auction yesterday, saw the highest yield since 2007. We'll get more into what that means for the financial sustainability of the United States with our current debt and deficit in just a moment. But let's get to Tyler at the White House first and foremost. Tyler, obviously, as we consider what the United States is having to fund with all this issue, it's in large part its defense, as that's one of the biggest outlays for the U.S. government. And it seems that despite what we just heard from the president repeatedly over the course of the months that the U.S. is in control of the Strait of Hormuz, that that control does come at the cost of having to have a military presence there maintaining this blockade. The Wall Street Journal obviously reporting now that we're sending in a new aircraft carrier to relieve the Lincoln. What does this signal? [00:06:11] Speaker 6: Well, Kayleigh, just on the heels of that reporting, that, of course, comes amid lawmakers here in Washington demanding answers about the viability and the sustainability of keeping crews deployed that long. Senator Richard Blumenthal sent this letter to the U.S. military saying that the Lincoln has been deployed for more than 250 days and has not made a port call in 200 days, setting a record for consecutive days at sea. We should mention that this switch in aircraft carriers that you both outlined at the top of the program was planned, according to the Wall Street Journal's reporting. So it didn't necessarily come on the heels of other reporting about what those conditions really do look like. It is something that we will keep our eyes closely on. Our own analysts at Bloomberg Economics have gone through their own projections about exactly where our stockpiles at the moment stand. And I would pair that with new reporting today out from the Washington Post that so far the U.S. has used up about 25 percent of its Reaper drones. These are those smaller scale weapons that are used in targeted strikes and also to conduct surveillance. And, Joe and Kayleigh, I spoke to the Army Secretary Dan Driscoll the other week who says that the U.S. is trying to supercharge production of these lower-cost weapons in part because we know that it would be easier to get those out the door and in terms of the timeline compared to some of those more expensive weapons that it takes longer to produce. [00:07:33] Speaker 1: Tyler, it was only hours ago we learned about the press secretary's departure. You're not going to have Caroline Levitt in the briefing room there for a lot longer. And I'm wondering if you're hearing anything about a process that the White House will be following to replace her. [00:07:48] Speaker 6: Well, Joe, if we look at what happened when Caroline Levitt was on maternity leave earlier this year, for example, the White House didn't necessarily put out an interim press secretary to conduct briefings. Instead, using basically a rotating cast of the high-level cabinet officials like the secretary of state and the secretary of the treasury to give the press updates. It definitely comes at an interesting time. As I know that you have pointed out, we are, you know, about three months away from the midterm elections, and Caroline Levitt has been such a close ally and advisor for this president. We'll have to see where it ultimately evolves. Also, considering the fact that President Trump himself often briefs the press directly, not yet today. He has a few different closed events on his schedule, including another one that starts at the top of the hour. We'll have to see if any of them open up amid what has been this standstill and very little public progress when it comes to any sort of movement in the conflict with Iran. [00:08:41] Speaker 1: All right, Tyler, thank you so much. She's live on the North Lawn of the White House. Bloomberg Washington correspondent Tyler Kendall. 82 days to the election, not that we're counting, as we add the voice of Patrick McHenry, Bloomberg Politics contributor, former Republican congressman, former chairman of the House Financial Services Committee, and, of course, former Speaker Pro Tem. It's great to see you back. Mr. Chairman, welcome. With 82 days to the election, we return to our breaking news that Kaylee mentioned just a couple of moments ago, a 30-year bond auction. Mr. Chairman, just pulled the highest yield since 2001, 5.216 on this PPI day when some folks are celebrating lower prices. I'm just wondering what you think that means for prices and our economy as we head for the midterms 82 days from now. [00:09:32] Speaker 7: Well, there's politics and there's Mr. Market. And to quote James Carville from the 1990s, when he dies, he wants to come back as the bond market because it's all powerful. I think we're getting back to those days where the bond market can speak and speak quite loudly to Washington about its overspending and the prognosis on the economy. I think this goes right back to Chairman Warsh's stated goal for the Fed to step back from being an active participant and manipulating the market and letting the market speak. And it's speaking in a very loud way today. [00:10:17] Speaker 2: Well, so is that spoken word from the market, one that's going to be heated by your former colleagues in Congress? It's one thing for Kevin Warsh to say, look, the Fed is going to stop being such a player in here as we take a look at our balance sheet. We're going to let the market do as it will. It's another to actually see the fiscal policy response from Congress. Is this actually what brings everyone to Jesus on the dead? [00:10:44] Speaker 7: No, and I've been a long-time fiscal hawk, and my constituents stopped asking questions about it a few years into my service. It has not been a serious issue for the political class. It's not been raised by the public, this question of debt and deficits, because they haven't felt the effect of it. I think of it as, for the body politic, much like heart disease. It doesn't matter, and it's not evident until it strikes, and it strikes in a brutal way. And this is the wake-up sign where we need to start taking statins, review our diet, and actually slim down on our overspending. This also comes at a time where the federal government's on course to have the largest structural deficit it's had outside of wartime as a percentage of the GDP and in total terms. This is a major issue that needs to be wrestled with by elected officials, but it begins with the populace saying something about it. [00:11:53] Speaker 1: Well, Mr. Chairman, when's the come to Jesus on the Clarity Act? This is something we were looking forward to talking to you about today, because all the tip sheets addressed it this morning. We know it didn't get taken care of by the Senate before lawmakers left town, and now everybody's home, and they're hearing from their community bankers. They're also hearing from banking lobbyists in Washington, D.C., hoping to use this period of time to try to address stablecoin yield in a way that will not result in deposit flight. What's going on here? Does this last-ditch effort work? [00:12:26] Speaker 7: There are making a last-ditch effort. That's what all the banking industry can do at this point, is to try to bring this up at town hall meetings and when people are at home and out of Washington. It's falling on debt figures, though. This major piece of the bank's lobbying effort against the Clarity Act is that by allowing yields on stablecoin products, you're going to have massive deposit flight. The truth is the banking industry and the banking lobbyists in Washington have not stopped the death of small banks in America. We have 2,000 fewer banks than we did pre-financial crisis. A lot of that has to do with the cost of being a bank in the United States. The banking lobby hasn't addressed that in any substantive way. So they're turning their ire to crypto in order to stay together for the banking associations and their political power, point one. One point, too, I would say is that on deposit flight, these stablecoin yields products have been out in the marketplace for four and five years. You've not seen deposit flight. There are numerous studies from universities, from the Federal Reserve, from other entities across our government. They've shown this fight against deposit flight is just a fiction of the banking industry. But they've got to shoot their shot. Otherwise, Clarity Act will be passed later this year. And they've got to do everything they can to maintain their political power, the banking industry does. The establishment is the establishment for a reason. Once they get in power, they get entrenched in power. And that's what we've seen from traditional financial products. And this is what we're seeing in the lobbying effort, especially they're tooting their own horn in Washington very loudly this August, that they are showing their political power. We'll see in the fall if that, in fact, matters to the votes of the Clarity Act. I don't think it will, though. [00:14:27] Speaker 2: Well, Mr. Chairman, to your point about these yield rewards programs have already existed and you haven't seen that deposit flight, is the argument not that you finally give this industry the market structure and regulatory regime it's been asking for? You legitimize it in that way, allow it to continue to grow and develop. And ultimately, down the road, it is a legitimate competitor with or major disruptor to the traditional financial system. It's not supposed to be immediate, is it? [00:14:54] Speaker 7: No, but that's not the argument they're making. They're saying that you've seen deposit flight and you'll see more deposit flight. There's not been evidence of deposit flight. So on their first point, it's not true. The second point is, I think we think of our money market funds and savings accounts differently than we do our transaction accounts. If people have PayPal, short value on PayPal today, they think of that as different than their long-term savings with a money market mutual fund. The truth is, the banking industry is still fighting the fight over money market mutual funds from the early 80s. Fidelity invented the product. They fought like mad against the product. They lost that war. Money markets are now offered by banks. I think likewise, you're going to see yields on these stablecoin products or some return of value to the users of stablecoin products. And banks will be offering it. And I think you're going to see that in very short order post-passage of the Clarity Act. So you're going to see a changed universe for banks. And that is just what the marketplace is demanding, what consumers are demanding, even though the banking lobbyists are raising their ugly heads this summer trying to say it differently. [00:16:10] Speaker 1: Well, I don't know if this is enough of a household issue that lawmakers running for re-election or for election can seize on the Clarity Act if they get this thing passed. But I'm curious about midterm messaging more broadly when it comes to the economy. Congressman, we heard from the president yesterday, well, by way of Kevin Hassett, who was talking to Larry Kudlow, this is far from a baked, fully baked proposal, but they're talking about capital gains once again, indexing capital gains. You've heard this, you've seen this movie before, taxes applied on gains adjusted for inflation. They're also talking about exempting taxes on sales of homes worth $2 million or less. Could they get that done in time to promote it on the trail, or this is for another day? [00:16:53] Speaker 7: No, I think it's a popular issue, and I think it would be a reassuring push to the market. It would be a psychological improvement rather than a very quick economic improvement. But psychology is the big driver of inflation and affordability, which is a major issue for the voters right now. So anything the administration can do to shift the narrative is going to be a political improvement for Republicans at the midterm. Anything at all would be an improvement over what is currently the case across the country. [00:17:28] Speaker 2: But what about the conversation we were just having around the debt and fiscal sustainability? Why look at something that could be revenue reducing? [00:17:37] Speaker 7: Well, the marginal impact of these tax reductions, it's very small compared to the amount of overspending we have. We're paying now more on interest payments than we are on national security as a federal government. So these things are small things around the edges. They're not going to have a major fiscal impact over the medium term or long term. That's why they could be passed relatively easily on Capitol Hill, even with the fractious nature of the two parties and between and within those two parties on Capitol Hill. [00:18:18] Speaker 2: Relatively easy. Everything is relative in Congress, as you know well. Mr. Chairman, thank you so much, as always, for joining us. The former chair of the House Financial Services Committee, former congressman from North Carolina, now Bloomberg politics contributor Patrick McHenry. Of course, Congress is not here in Washington right now. They're all on August recess. Joe Matthews is not here in Washington either. He's up in New York. I'm all alone in the studio. [00:18:42] Speaker 1: You should have come up. You used to work here. [00:18:44] Speaker 2: You at least have Charlie Pellett up there. I should have. I know. We're having a good time. Maybe next time. [00:18:47] Speaker 1: You know, I'll tell you what, if you want to work the weekend, I'll meet you Saturday morning. You can make it. [00:18:54] Speaker 2: I'll leave that to Carol Masser. [00:18:55] Speaker 1: Only on Bloomberg. [00:18:56] Speaker 2: This is Bloomberg TV and radio. [00:19:03] Charlie Pellett: It's 121 on Wall Street. [00:19:04] Speaker ?: It's 121 on Wall Street. [00:19:04] Charlie Pellett: We do check markets all day long here at Bloomberg. Dow Industrials lower, but now a little change. Down under one-tenth of one percent. S&P pushing higher, close to a record, close once again to 7,800, up 47 now. That is a gain of six-tenths of one percent. We've got NASDAQ up 213 points, up eight-tenths of one percent. The NASDAQ 100 index doing a little bit better, up by 1.3 percent. Again, the S&P at 77.96 right now. The old record, 77.57. The 10-year right now, 4.64 percent, with the two-year currently yielding 4.14 percent. With the 30-year, 5.21 percent. Traders driving stocks and bond yields falling as more evidence of moderating inflation reinforces bets that the Fed is going to hold off on raising rates next month. We've got spot gold trading lower by $39 the ounce to 43.68, down nine-tenths of one percent. West Texas, intermediate crude down one and a half percent, just above 82 a barrel. Brent, the global benchmark, 87.84, down by 1.3 percent. But, again, the 10-year on this PPI Thursday, 4.64 percent. S&P up by six-tenths of one percent at a record. SpaceX shares, yes, they are lower today, down by 3 percent, now at 1.4177. But, SpaceX continues to hold above last month's IPO price. It went public, you recall, last month at $135. SpaceX today at 1.4181. Recapping, S&P trading at a record, up six-tenths of one percent. Joe and Kayleigh, that is a Bloomberg Business Flash. [00:20:38] Speaker 1: All right, Charlie Pellett, live in New York. Great to be in the same room as Charlie as we hold forth from world headquarters. Kayleigh Lines is live in Washington. And you remember the old line, it's the economy, stupid. That was what James Carville said, Kayleigh, so many years ago. But I'm starting to wonder if it's been refined to, it's the data center, stupid. Because you're right, Kayleigh, this has become one of the only bipartisan issues out there. Certainly the populist movement from both the Democratic and Republican sides of the aisle are seizing on the nimbyism and the impact on energy prices, water resources that come with data centers that are, of course, exploding around the country. Fascinating. First reported by Punchbowl, Kayleigh, did you see this? Ad impact reports candidates for House, Senate, and governor's races have aired nearly four dozen broadcast TV ads mentioning data centers this cycle. And the partisan split is pretty even here. The ads ran in 21 different races across 18 different states. One of them, Michigan, where you might remember the name William Lawrence. This is the co-founder of the Sunrise Movement. Progressive Democrat managed to win the race. This was, what, two weeks ago now, against Representative Tom Barrett, a first-term Republican, by seizing on the issue of, yes, the data center, which he calls an existential threat. Here's a piece of his ad. [00:22:05] Speaker 8: Congressman Tom Barrett wants to turn this field into a data center. [00:22:10] Speaker 9: It's an existential threat. [00:22:12] Speaker 8: He laughed when voting to give big tech billionaires the massive tax breaks to build it while raising taxes for the rest of us. Nobody's laughing now. [00:22:24] Speaker 2: Let's see if our panel is laughing at all at this issue and how prevalent it has become in this midterm cycle. As we bring in now Rick Davis and Jeannie Shanzano, both of them Bloomberg Politics contributors. Jeannie, our Democratic analyst and democracy visiting fellow at Harvard Kennedy Center's Ash Center, as well as Rick Davis, partner at Stonecourt Capital and Republican strategist. Rick, as we listen to the words in that ad and the way in which Joe described this, as it used to be the economy stupid, maybe now it's the data center stupid, is this not actually an economic issue ultimately? People are concerned that this is going to bring about higher utility costs and they're concerned that it's big corporations and big infrastructure developers and AI developers that are reaping the economic reward. [00:23:07] Speaker 9: Yeah, I don't think there's been an issue that has had the roller coaster effect that data centers have had. I mean, if you just go back a couple of three years, people were wildly in support of the data centers. One, they had the expectation of the great IT revolution that was going on with AI going to make life different for them, better. And they saw the enormous amounts of tax revenue. Certainly, I live in the state of Virginia. Virginia really was the leader of this movement in the entire country. And Glenn Youngkin, the governor at the time, said, hey, we're going to charge these guys to do this and you're going to be able to have lower taxes because data centers are going to pay bigger taxes. And at the time, wildly popular. Over 60% of the people of Virginia supported that. Now, it's in reverse. Now, it's only 30% of the people in Virginia support it because they're worried about the water. They're worried about the power bills going up. They're worried about other issues that are sort of NIMBY-associated. Do you really want one of these things in your own backyard? And those are Republicans, Democrats, and independents. It's really not a hard partisan issue, but it is definitely a political issue. [00:24:19] Speaker 1: It's a big one in some important states. Look at Sherrod Brown's ad. I'll require the data centers to pay the full cost of their electricity, not you, the Ohio former senator who wants to come back to the Senate. Jeannie, what do you think about this? How did it happen so quickly? Because Rick is right. Two years ago, even one year ago, this was a pretty different conversation. Now that we're getting into this cycle, it has emerged as a preeminent issue here. Is that because people are actually seeing the impact in their bills or they are afraid of what the impact could be? [00:24:52] Speaker 10: You know, I think there's a lot of different factors. Data centers have become sort of a proxy for widespread anger about billionaires, particularly tech titans, telling us how we need to live our lives and what's going to happen in the future in issues as personal as our jobs and our employment to how much we pay for water and electricity. There's also the fact that if you look at the five biggest hyperscalers, that includes Amazon, that includes Google and Microsoft, they're on track to spend over $1 trillion on AI infrastructure from last year to this year. That's an astonishing increase. And of course, there's also other realities. One of the big reports, one of the big early reports that came out in the New York Times was about the fact that in a lot of these buildings, and this one they focused on had to do in Louisiana for these data centers, have been done sort of in the middle of the night with NDAs signed, with local officials, without transparency that we're all due. And, you know, that case, that was, I think, a Meta's $50 billion data center project in Louisiana. But there's been more of that around the country, robbing Americans of what we expect in a democracy, which is that our public officials are going to be transparent with us. They're going to tell us what deals they are striking and how these things will impact us. And, you know, we're talking a lot about how this is bipartisan. The concern is bipartisan. But what has not been is the response. Governor Hochul in New York led the way with this moratorium to widespread criticism. She was right on that. At the same time, Donald Trump signing an EO to build these things faster and the Commerce, the Energy Department rather, taking federal lands to build these things. So, you know, we've seen Governor Abbott try to square this circle by moving in the other direction in Texas. But this has become something more of a partisan issue. On the ground, it's widely unpopular. And yet the Republicans have found themselves with the support of tech on the wrong end of this issue. And that is a big problem for them that they're trying to unwind now. [00:27:07] Speaker 2: Well, as Jeannie talks about Governor Hochul's implementation of a moratorium, Siena College put out just this week a poll about that. Overall, 52 percent of those surveyed agree with the moratorium. 61 percent of Democrats do, 51 percent of independents, 40 percent of Republicans. So this speaks to the bipartisan nature, by and large, of what you both have alluded to. So, Rick, it does raise the question, as Jeannie points out that Kathy Hochul did this. You're seeing Greg Abbott with this pause until an audit is conducted in Texas. Those are current governors up for re-election, yes. So they're having to make that calculus with that in mind. For anyone else in a gubernatorial race, they're all being asked to take positions on this. So if you were running those campaigns, what's the smart one? [00:27:56] Speaker 9: Yeah, look, I don't think there's any question that the country's in a phase where you're going to tighten regulations around. The new term that everyone's using is BYOP, bring your own power, right? That's the party I want to go to. So at the end of the day, there's going to be a change in how government regulation is applied to these, both at the local level, as Jeannie pointed out, at the state level, which we've been talking about, but also at the federal level. And because our grid is a national grid, our power generation is at state level. I mean, like, if you decide at a local level to give a permit to build a data center, where are you going to get the power from? You're going to get it from the state. So all these things are interrelated, and when you have a trillion dollars coming through a capital expenditure pipe that's wide open, it's going to land someplace. And so you're going to have some good actors and bad actors in this. But at the end of the day, regulation is catching up to industry, which is usually the way this works. And I would say we're better off as a country if we don't try to polarize this in the form of Republicans and Democrats. We want to be leaders in AI around the world. It is AI, an existential effort. I don't want to have to be getting on a Chinese AI model in order to learn about what I need to know to get through the day. And so at the end of the day, I think it's a matter of education and regulation right now. And I think that's a lot of state governors are doing that. [00:29:31] Speaker 1: Well, it's interesting to see some of the legislation. We talked to Byron Donalds, for instance, the Republican congressman from Florida who's running for governor and has made this a big part of his campaign to create essentially a closed circuit, Jeannie. If you want to build a new data center, and by the way, this is why Elon's talking about putting them in space, because this is complicated. How do you cool them? How do you power them? And how do you keep them away from people's houses? Is the beginning of this closed circuit, like Rick said, bring your own power. You also need to have a cooling system that does not draw from municipal water that might include a different type of technology. Does that create a more palatable scenario for voters from both parties? [00:30:13] Speaker 10: It does to a certain extent, but it also raises enormous additional challenges. You know, the closed circuit is an interesting one because there are many scientists who say that, in fact, to get that to operate and the chemicals that it uses requires even more energy and more water and more electricity. There are challenges, as Elon Musk thinks, about putting these data centers in space. You know, and so this is where I think we come down to the crux of this, is that we do need a pause. We do need some kind of timeout where we think about what the impact of all of this is on our lives and our communities. You know, somebody talked about the fact that our infrastructure as it exists now is so antiquated. We are right now, as I mentioned, over a trillion dollars building an entire infrastructure for one industry. What happens when Elon Musk innovates, puts these things in space, and we are left with trillions of dollars worth of this infrastructure on Earth? Who pays for that, right? These are all these questions that need to be asked. And you know what? When we say no to these big corporations, they will innovate and find another way. And that's why I think even with the tax incentives and bring your own water and all of these things, you have a lot of people out there who are wary and saying, no, we need a pause on this one. And we need the federal government because, to Rick's point, these are in many cases federal and local state issues to step in. And there are a lot of states, but we need the federal government to step in as well. [00:31:54] Speaker 1: Boy, just imagine if this has become the issue it has now, what this is going to be in 2028 with that many more billions of dollars invested into all of this. This is a great conversation and one you're not going to hear or see anywhere else. And big thanks to Rick Davis and Jeannie Shanzano for helping us explore this. Bloomberg Politics contributors. I'm Joe Matthew in New York at World Headquarters alongside Kayleigh Lyons in Washington. We'll get an update for you on the markets coming up. We'll spend some time with Christina Aquino, our managing editor for Markets Live, as we see a new record high for the S&P 500. We'll look under the hood right here on Bloomberg. [00:32:37] Charlie Pellett: It's 140 on Wall Street. We do check markets all day long here at Bloomberg. the U.S. government has sold 30-year bonds at the highest rate in a quarter of a century, reflecting a relentless sell-off that has stirred speculation. The nation will tilt borrowing further towards short-dated maturities. The yield at the $25 billion sale came in at 5.216%. That is the most since 2001. Traders driving stocks higher. Bond yields fell as more evidence of moderating inflation in the form of the PPI report this morning. Reinforced bets that the Fed is going to hold off on raising rates next month. Right now, we've got stocks pushing higher. In fact, the S&P 500 index is at a record. 77.91 was trading above 7800, up 42 now up by about 5 tenths of 1%. Any close above 77.57 will be another record on the S&P. The Dow, as I mentioned, lower now by 1 tenth of 1%. NASDAQ up 205. That is a gain of 8 tenths of 1%. NASDAQ 100 index doing a little bit better up by 1.3%. All of this with the stocks, the Philadelphia Stock Exchange Semiconductor Index surging by another 2.2%. The two-year, 4.14%. The 10-year, 4.64%. And the 30-year, 5.21%. Gold down 1.1%. 43.61 the ounce. And West Texas intermediate crude down 1.6%. 81.97 a barrel. Oil shares, meanwhile, trading mixed, Exxon Mobil among the supermajors, down 5 tenths of 1%. Chevron, though, up 5 tenths of 1%. ConocoPhillips, down by 2%. I'm Charlie Pellett. Joe and Kayleigh, that is a Bloomberg Business Flash. [00:34:19] Speaker 1: All right, Charlie, thank you so much. It's been fun to do this today in the same room as Charlie Pellett, and he will continue with another update in just about 20 minutes' time, 2 p.m. Eastern, as we kick off Bloomberg Business Week daily. It's an opportunity, though, to not only check the headlines, but look under the hood a bit in this market and get a sense of what is driving decisions right now. I'm happy to say Christine Aquino is with me at World Headquarters in New York. We'll note that Kayleigh Lyons is in Washington, D.C., holding forth, as always. Christine, our managing editor for the Markets Live blog, it's wonderful to see you, as always. We're at another record high. We could be at 8,000, depending on how the next couple days go imminently here, despite the incredible uncertainty geopolitically and what was a Bafo earnings reporting season. We're being pulled in multiple directions here, Christine. How does it shake out for the next couple weeks? [00:35:12] Speaker 11: I mean, honestly, Joe, at the moment, it's making for an everything rally. Everything's rallying. I mean, primarily stocks and bonds, as you mentioned, you know, S&P 500, another intraday record high, set for another record close. But at the same time, we're seeing the bond market rallying as well, even though, you know, we did just get that auction result in the 30-year yield, its highest yield since 2001. But investors tend to like that when a borrower is paying up for the debt, and that includes the U.S. government. So, you know, seems like everything's fine if you're just looking at the markets. [00:35:45] Speaker 1: Okay, we'll take it in a vacuum, Kayleigh. [00:35:48] Speaker 2: Well, is everything fine because we also had cooler inflation data and the market is thinking that maybe borrowing costs aren't going to be moving higher this year, Christine? [00:35:58] Speaker 11: Yeah, that's definitely part of the story, Kayleigh. I mean, the pair of CPI, PPI reports that we got over the last couple of days really goes a long way in easing some of those inflation concerns that have been plaguing the markets for some time now, and especially since the Federal Reserve itself called attention to the pressure from inflation since Chairman Kevin Warsh took the helm at the Fed. But, you know, these pairs of reports that we've seen alleviate some of those concerns. We have definitely seen some of those expectations for rate hikes, particularly in September, fade away. And now it looks like traders aren't looking at a possibility of rate hike up until December when, you know, just last week they were saying that, hey, the September Fed meeting could be live, but that doesn't seem to be the case now. [00:36:42] Speaker 1: Are we in a world then, we could throw any number of headlines at you, Christine, where the stock market is essentially dependent upon the bond market for day-to-day direction? [00:36:51] Speaker 11: I mean, it's interesting though, Joe, because in some ways, yes, and in some ways, no. You know, the stock market, of course, has its own very compelling catalyst, which is the AI trade that seems to keep on going. I mean, we heard from companies at the most recent earnings season, everyone's upgrading their forecasts, everyone is upgrading their guidance. Seems like that trade is still roaring on. And so that's an independent catalyst for equities. And then, of course, you add in the fact that inflation pressures are easing, you know, the job market is holding on. I mean, that's basically a goalie-locked environment that stocks, it's another reason for stocks to rally on top of what we're seeing on the AI side of things. [00:37:32] Speaker 2: Well, inflation is easing because energy prices fell in the month of July for the most part, and then they rose again, as we saw an escalation and conflict in the Middle East. Christine, when we consider how the Middle East and how the trajectory of oil prices is factoring in to this market as a whole, what's the correlation? [00:37:52] Speaker 11: I mean, very good question, Kayleigh. The correlation has actually been fading a little bit over the last few months. I mean, we saw that kind of peaking around May of this year. That was really when oil prices was the main catalyst that's driving stocks, driving bonds, driving the dollar. And since then, we've really seen that correlation weaken. And, you know, that speaks to a lot of things. Primarily, I think the sense of fatigue that traders feel when they're grappling day in, day out with so many headlines, a lot of them very confusing, very contradictory, and not necessarily giving a clear, longer-term picture of what's going on in the Strait of Hormuz, what's going on in U.S.-Iran tensions, or their relations actually easing a little bit. I mean, it seems like the story's changing day to day. And so if you're a trader worth your salt, you're probably not necessarily going to be changing your positions just because we got one headline saying, because it could be saying another just hours later. [00:38:46] Speaker 2: All right. Christina Kino, Managing Editor for the Markets Live blog here at Bloomberg. Thank you so much, as always, for joining us. And as we consider the trajectory of oil prices, specifically, we want to bring in now Rebecca Babin, CIBC Private Wealth Senior Energy Trader, who's back with us on Balance of Power. Rebecca, always good to have you on the program. It's interesting to look at a chart of oil right now, because with the exception of that spike we saw once again in mid-late July with the escalation of attacks, the U.S. resuming strikes against Iran, we've been pretty range-bound in this $80 to $90 range. Is there anything that materially can break us out of that, or is this the new status quo for the foreseeable future? [00:39:29] Speaker 12: So I think there's a couple of things that break us out of that. I think the first is, if we see the flows that have been transiting Hormuz, and that number is widely debated, but significantly higher than what analysts originally penciled in. So if we're looking at 7 million barrels flowing through the strait, which is kind of between the low and the high end of, you know, 5 million barrels on the low end, and Chris Wright's 9 million barrels, if we start to see that number materially decline below 5 million barrels a day due to increased kinetic military action, that will break us out of the range. The second thing that will break us out of the range is if the Red Sea becomes more of a target by the Houthis. Right now, Saudi Arabia is avoiding the Bab al-Mandeb, transiting north through the Suez. If we start to see the workaround to the workaround be impacted, that will break us out of the range. And the last thing is if we see China materially increase their imports from around 7 million barrels a day back up to 11 million barrels a day in coming months, that will break us out of the range, assuming that flows have not fully resumed. So I think those are the keys that break us out to the upside. To the downside, what breaks us out of the range is clearly normalization of flows through Hormuz at the same time that we have non-OPEC supplies increasing. [00:40:54] Speaker 1: Okay, Rebecca, so that's what we should be looking out for. But what's driving decisions today? You've got WTI and Brent both down about 1.5%. Who's selling oil today and why? [00:41:07] Speaker 12: So I see this as maybe a little bit of profit-taking. If you look on the week, we're up 4%. And what I see more than the selling is just a lack of conviction of buying. It's a buyer's strike. There is just no threshold for pain to own crude into a weekend where you could get rhetoric around a peace deal or that more flows that we thought were going through the straight are moving through. So I actually think the threshold for where buyers step in is just so much lower than where we're at right now. It's kind of in that low 70s range where there's some conviction. And for now, the traders are really letting the profit-taking and the downside expressions through puts kind of drive the trade action. So I don't see this as panic selling or aggressively putting on short positions. I see this as more I'm not willing to step in at this point. I want to see more concrete information. I want to see the China data really, if I'm looking at fundamentals, improve before I start getting really comfortable buying crude at these prices. [00:42:16] Speaker 2: Well, so you're looking at China data, I'm assuming, in terms of demand, Rebecca. You also raised China in terms of one of those potential breakout scenarios. If you start to see them coming back as a material buyer in a limited supply scenario, is the entire trajectory of the oil market, by and large, now dependent on China? [00:42:35] Speaker 12: It's not entirely dependent on China, but they are the largest importer of crude. And they have been one of the most significant buffers to this event over the past months. So are they the key to this puzzle? They kind of are in the short term. Now, over the long term, there's so many more factors that we need to look at. But over the very near term, what China does really does tip this supply and demand kind of scarcity surplus story on its face. So that, for me, that really is the key over the coming months, in addition to, obviously, flows moving through the straight. But they have really, China has really been incremental in keeping prices from moving above this $100 a barrel range. They've drawn stockpiles. They've shifted away from crude, gone to coal. They've reduced their exports of products. They did reverse that. And we are starting to see China export some products now, which, when we look at how tight the product market is, is really critical. So, yes, to give you a short answer, I think in the short term, China is the most important factor. [00:43:46] Speaker 1: Interesting. When we consider the refining bottleneck, we add another layer here, Rebecca. We're at $4.07 nationally for gasoline today. It's $5.40 for diesel. And you have pointed out that refiners have been pushing back maintenance for some time now. And at a certain point, they won't be able to do that anymore. When you consider crack spreads and where gas and other distillates are going, how worried are you about refinery outages? [00:44:16] Speaker 12: I'm pretty worried. I mean, we're running at 96% refinery utilization at this point. Almost every refiner has pushed back maintenance to capture the crack spreads that are extremely elevated. You can't do that continually. There will be something that breaks. And that will cause an outage that lasts longer than potentially maintenance would. So that, to me, is a huge risk. We've already lost 20% plus of refining capacity through the Middle East and Russia and China reducing their runs, right? We don't have anything left in the system if something surprise happens. We saw Libya lose a little refining capacity earlier this week. There's no buffer here. So I do worry about this maintenance season. If refiners do go in maintenance, keep in mind, that keeps the product market tight, right? We're losing that ability to bring product to market and actually weighs on crude. But that's a better solution than creating a system law or a fire that keeps things offline for longer than the maintenance period. We tend to think we have to start to see maintenance now. Did I lose you? [00:45:32] Speaker 1: God forbid we have a hurricane. I mean, that would be a game changer, no? [00:45:37] Speaker 12: That would be a game changer. I mean, it is an El Nino year, and it's predicted to be less of a factor this year. But listen, you just never know. So, yes, another huge risk on the horizon. [00:45:51] Speaker 2: Okay, so can we look out 82 days on the horizon specifically as we approach Election Day? Do you have a best guess of where retail gasoline and diesel prices will be early November? [00:46:04] Speaker 12: I don't have a best guess, but I don't think it's going to be as low as the administration would want it to be. So I guess I would say it's going to be higher than the pain threshold for many in the administration and probably not as high as the extreme scenarios that people are talking about. So if I had to put a range on it, I would kind of put it in the 4 to 4.25, 4.30 range of where we see gasoline prices. And I think diesel, a little bit more of a wild card, remains above 5. Maybe we see 5.56 in a bad scenario. So I think that's what the range is. It's not significantly lower than where we are today. [00:46:44] Speaker 1: Interesting. Just lastly, Rebecca, we're back to this reluctance to go long into the weekend. That continues until there's a breakthrough. We've got about 30 seconds. [00:46:53] Speaker 12: So I think it does continue. I mean, if you just look at how traders have been nicked up this year with headline risk, and it's the middle of August, the threshold for pain is low. And I think that buyers are going to say, you know what? I'm willing to miss this 5% move higher because I do not want to lose 10% of the downside. [00:47:12] Speaker 1: Yeah. It's great to have you back with us, Rebecca Babbin, CIBC, private wealth, senior energy trader, taking us right into the pits for a trader's view. Kaylee, this is something that's not likely to change anytime soon. We've got a report today that another aircraft carrier is still on the way to the region to relieve the Lincoln, and we're girding for the long term. [00:47:33] Speaker 2: Yep, and we're going to talk about that story and others when the former defense secretary in the first Trump administration, Mark Esper, joins us in the late edition of Balance of Power. We'll have more important conversations that hour as well, including with the congresswoman, or the would-be congresswoman running against Mike Lawler in New York. Kate Conley will join us. So I'll see you then, Joe, at 5 p.m. Eastern, right here on Bloomberg TV and Radio.