Crude gains as Trump rejects Iran plan

The CNBC app, global market [music] news in one place. Customizable sections and personalized alerts, stocks tracking, [music] interactive charts, and market insights, all in your hands. Stay connected. Stay informed. [music] Download the CNBC app today. >> [music] >> Welcome to Squawk Box Europe. I'm Karen Tso [music] with Ian King and Ben Burrows rejoining us in the Labour Party conference in Liverpool today. These are your headlines. Crude prices gain after President Trump [music] rejects an Iranian proposal aimed at ending the Middle East conflict and reopening the Strait of Hormuz. >> Open AI AI pauses trading on its most advanced models after [music] yet another agent escapes from an internet-free environment with the AI giant saying it will only resume once it fixes a gap in its sandbox. And in Liverpool, UK Chancellor [music] John Healey preparing to unveil a new age of industrialization later today [music] when he addresses delegates at the Labour Party conference. >> [music] >> Oil prices are higher again this morning after President Trump rejected an Iranian proposal to end the Middle East conflict and reopened the Strait of Hormuz. He told Axios the US may have agreed to Tehran's condition a year ago, but that Iran had overplayed its hand, adding that he expects negotiations to resume this week. Well, let's go out to Dan for more. Dan, as we rolled into the back end of last week, it looked as though the Iranians may have been holding up a faint white handkerchief talking about reopening the Strait of Hormuz in a phased manner. But now roll into the weekend, negotiations that Trump potentially wants some sort of nuclear signals that there can be some sort of negotiation on that front. So, do just tell us how difficult it's going to be to get some progress here. >> Karen, good morning to you. Well, today actually marks 8 months to the day since the US-Iran war started. And as you've been explaining, both sides remain dug into this conflict that continues to shape and influence the outlook for markets. Interesting to see this morning oil moving higher today as Iranian officials essentially hardened their message on Hormuz. Iran's foreign minister, Abbas Araqchi, telling NBC News that Tehran is ready for talks, but is also prepared for what he called a doomsday war if the US launches fresh attacks. Here's more, take a listen. >> We are fully prepared for the time for the war to be resumed. And I repeat, we stand firm in the face of any new aggression, even if comes to a doomsday war. But at the same time, we are ready, we stand ready for diplomacy. It is up to the up to President Trump to choose. He wanted unconditional surrender in the previous war in 2 days, and now it's 8 months that they are fighting with no result. A new aggression would would be certainly the same. We are fully prepared to that. >> Abbas Araqchi there speaking to NBC's Meet the Press. And also out of this interview, Araqchi said it's now up to President Trump to decide how to end this conflict. Tehran saying it will only reopen Hormuz if the US halts what Iran calls aggression, ends its naval blockade and its economic pressure campaign, and unfreezes or releases Iranian assets. Now, we know President Trump has already rejected an earlier Iranian proposal that would have linked a reopening of the strait to the resumption of those nuclear talks. The Wall Street Journal also reported at the weekend that the president now expects to be bombing Iran again. That is the military campaign to resume after the midterm elections. Interestingly, the US ambassador to the UN, Mike Waltz, also called this latest Iranian offer a cynical attempt to put forward terms that Washington obviously was not going to accept here. And then on the ground, we're also monitoring fresh reports that the IRGC is claiming that it has captured a US Remus 600 underwater drone in the Strait of Hormuz. It says that Hormuz remains closed to unauthorized traffic. CENTCOM has not commented on that claim. So, all of this really just a reminder of the risk premium that's still embedded in the oil market as a result of this ongoing back-and-forth between the United States and Iran. We saw WTI falling about 8% last week on hopes of a diplomatic off-ramp. Brent was uh up basically unchanged last week, but you know, both benchmarks remain sharply higher this year as energy flows out of the Gulf stay constrained. We have had some fresh numbers from Kepler suggesting that flows through the course of September have been higher. However, of course, still well off those pre-war levels. So, we have disruptions in Hormuz, disruptions in the Bab el Mandeb, of course, uh keeping oil at uh term premium here. But at the same time as well, signals that the diplomacy could be moving in the right direction despite this narrative war unfolding on both sides, perhaps helping to add some downside pressure to what would ultimately be higher highs as a result of everything that's unfolding in the region right now. So, that's where we stand this morning. Brent likely once again back uh above uh 100 USD for some time to come, maybe even testing uh 110 with the momentum that we see right now. It's back over to you. >> Dan, we do appreciate the coverage. Uh those moves higher we're seeing in the oil price having some bearing, of course, across on markets. And let's take a look at US futures. Early on as we count down to the US session, we parked out the week on a brighter note, particularly around those tech stocks. But now with this negative news flow around the oil price, you can see we are reversing. And the tech heavy index, the Nasdaq, expected to give back some of that territory, more than eight tenths in the red. To Asia, we're already seeing a play out in real time across on Japanese stocks and South Korea. Some of these are tech exposed areas of the market down heavily. In particular, the South Korean market, you can see sliding 2 and 1/2%. Uh European markets as we gear up for the trading session. We closed out the trading week slightly firmer on the stock 600, up about a third of a percent, up about half of a percent for the trading week. Uh a pop of about a half of a percent, too, for the German market into the Friday finish. So, we are still looking as they will hold on to some of the green, but let's just see how that uh holds up as we approach the session given the the heightened levels we're now looking at on the oil price. To what we're seeing on yields, and there's no doubt we've again marched higher on the yields this morning. Very much in focus as the oil market seem to be in the driver's seat when it comes to bond markets. That's the short end of the curve and now the long end, too. The 10-year US uh Treasury yield, as you can see, we've marched up to the 5.21% with fairly aggressive moves we saw over the course of the last month. And again, at that level now, we're up another six tenths morning session, and we've marched higher on gilts, as you can see. A big Labour Party conference today as we also take focus on the direction for the UK. Uh let's get into a conversation with Didier Borowski, who is head of macro policy research at Amundi Investment Institute. Didier, thank you so much for joining us today. And let me ask you how you're thinking about markets given we've got this higher oil price and no sign again of any breakthrough in the Middle East conflict. >> So, there is no surprise. We knew that we had to navigate in this environment where oil prices would stay quite volatile, to say the least. So, I think we need to to understand that the coming months are going to be still volatile, and that you'll get some upward pressure on final prices. And it justifies, I would say, the hawkish stance that has been adopted by central banks, in particular the Federal Reserve and the ECB. That said, I believe that you know, you have this this pressure coming from oil prices, this pressure coming from on the economy coming from higher bond yields. And I think we should not forget that global demand at some point will be quite sensitive to the tightening in financing conditions. I believe that the you know, the biggest part of the normalization on on the bond market has already occurred. >> Didier, were you taken aback at the speed with which US 10-years, in particular, yields vaulted above 5% last week? That was a very, very dramatic 48 hours or so. And also, there was a lot of commentary around how crucial 5% is for US 10-years. Has that been overdone? >> Not necessarily in the United States. My point is that you have an AI boom in the United States, which is still there. And you can justify in the United States, when you look at nominal GDP growth, well, come on, 5%, 5.2%, that's not completely abnormal. I mean, given the the strength of the US economy as of today. While in Europe, I would say the picture is quite different because potential growth is much lower than in the United States, around 1%. And the move in bond yields has been driven by a rise in real rates. My point is that when you compare real rates in the United States with potential growth, well, it's probably too high, but it's it's okay. While in Europe, I would say that the gap is quite high and not sustainable in the medium run. So, we are certainly not in a steady state. You have had some over reaction, more I would say in Europe than in the United States. 5% you know, it's a symbolic in symbolic number. I mean, it does not mean anything from a macro standpoint. You can still navigate in these in these waters in the United States as long as the growth remains strong. >> I saw some interesting research last week data suggesting that Chinese holdings of US Treasuries are now at their lowest level since August 2008. Clearly, there's been a slowdown in the extent to which overseas investors more broadly are buying Treasuries. I wonder who just who you think are going are going to be the marginal buyers of these assets in coming months. >> That's the key questions indeed. I believe the Japanese investors will continue to invest in you know, Japanese in Japan is the biggest holder of US Treasuries. That said, given the US governance and you know, that that we know, there is less appetite coming from foreign investors and you have also to look at public debt in the United States that in the medium run is truly unsustainable. So, basically, you have many investors at the global level who have you know, growing doubts about the sustainability of of of of US debt and and you have had this normalization that we've seen in markets. So, it's perhaps not over. The marginal buyer, it's it's a good question. It might be you know, it might come from the United States. I mean, you you'll get probably incentives within the United States to buy the long end of the curve. >> And I did want to ask you about how unsettling the Japanese market could still be from here because you're just talking about what's been playing out in terms of domestic Japanese buyers that have pivoted their attention now to JGBs. The messaging today from the Bank of Japan is look, investors may be a little bit too slow here, not hawkish enough about BOJ policy that they're expecting that the pace of hikes could be intervals of about 6 months. One of the BOJ members saying, "Well, it could be much faster than that to tackle inflation." If that were to be the case, do you think we could see more international money going into JGBs? >> Well, I think it's too soon to say that because I believe that at a global level, you have you have many markets that can be very very attractive for global fixed-income investors, in particular in in emerging markets. That said, the key question looking ahead will be, you know, the behavior of Japanese investors. If they want to continue to invest outside Japan or repatriate some of their funds within Japan. And the key priority for the Japanese on the one hand, it's clearly to hike rates in order to anchor, you know, inflation expectations because in the in Japan, you have second I will second-round effects. Wages are are changing, you know, are rising fast. So, they need to hike rates, but at the end of the day, they need also their their currency to appreciate versus the US dollar. That's a key element behind also their their their strategy. So, so I I I don't believe that foreign investors will be interested in Japanese bonds anytime soon. That said, you'll get a lot of interest from from Japanese investors to to buy less, you know, foreign bonds. And that's a key element to consider and to watch, I would say, in the coming months. >> Didier, can I ask you about the sticking point on US markets because we're talking about the negotiating points that President Trump has here with the Iranians, whether he's holding out for a big grand deal of sorts around the Middle East conflict, not simply open to the Strait of Hormuz having free-flowing fuel and oil, but actually wanting to tackle the nuclear story as well. Does he have that sort of leverage when you look at the the long end of the US Treasury curve? Now you've got the 10-year and the 30-year marching higher. What sort of pressure does that put the US under to solve the Middle East situation? >> So that's a That's a good question. It's It's very difficult to understand the strategy to be very clear from from the president of the United States. It's not very clear. You have the midterm elections that are key element to consider and the behavior ahead of the midterm elections might be different, you know, from the behavior after the midterm elections. In addition to that, you have a uh you know, diplomacy probably continues more than people believe, uh you know, between between the US and and Iran. So I would be very very cautious uh before, you know, having very strong conclusions on on what's going on between between Iran and the United States. It's very difficult to you know, disentangle the narrative and the communication from what what is played, you know, on the ground and where diplomacy is these days. So be careful. We know that it's going to be take time to solve this question. We know that oil prices are likely to stay volatile and to but I think we don't have the means to have very strong conclusions when it comes to these geopolitical matters. >> Okay, Didi, we have to leave it there, I'm afraid. Thanks very much for joining us this morning. >> Thank you. >> That's Didi Borowski, who's head of macro policy research at the Amundi Investment Institute. Well, coming up on the show, Open AI admits its agents may have breached dozens of international institutions' websites, prompting the company to halt the training of its most advanced models. Plus, Bank of America warns funflation, the increased cost of fund may be rising quick. Says consumers aren't cutting back just yet. We'll be discussing that. And the UK Chancellor of the Exchequer, John Healey, will today pledge to embark on quote a new age of industrialization. Bends at the Labour Party conference in Liverpool, where he'll be speaking to the Financial Secretary to [music] the Treasury, James Murray. That's up next. >> [music] [music] >> Executive Decisions is the new podcast from CNBC, where I ask powerful leaders about the decisions that changed everything. I'm Steve Sedgwick and here's the CEO of Siemens Energy, >> Christian Bruch. Business leaders should not stay quiet in a world which is super complex. We are sitting in a privileged position and we have to use that to ensure that a society remains prosperous, stable, successful. >> That's Executive Decisions with me, Steve [music] Sedgwick. Catch it wherever you're listening to this. Welcome back. UK Prime Minister Andy Burnham has said he wants to bring in a new social care system where everyone contributes and everyone is covered. Burnham, who warned a broken social care system would break the National Health Service, is expected to lay out his vision tomorrow. He admitted the plans may be unpopular with some and refused to rule out more tax rises. While speaking on Sunday with Laura Kuenssberg, Burnham compared social care in England to the American healthcare system. >> There is a cost. People are paying care charges now. They are spending tens of thousands of pounds from their savings, sometimes losing their homes. That is what's happening at the moment. So, to suggest there isn't a cost to people at this moment in time, there's a huge cost. Social care in England is as unfair as American healthcare, where the most vulnerable in society can lose everything. They can be wiped out not just by the condition that they have, but wiped out financially. >> Meanwhile, the Chancellor, John Healey, is set to say that Britain is about to enter, quote, a new age of industrialization in his speech to the Labour Party conference today. He's also expected to confirm a 6 billion pound plan to build three new floating docks at the Royal Navy's submarine base on the Clyde in Scotland. Well, we can join Ben now, who's at the Labour conference in Liverpool. Ben. >> Yes, good morning to you. And the challenge the Chancellor faces just about a month out from that first budget for this new administration is a stark one. Oil today hitting $107 a barrel, UK borrowing costs among the highest, if not the highest, in the G7, >> [music] >> and customers, consumers, and businesses really feeling the pressure of those filtering through. So, let's get the thoughts of James Murray, who is Labour MP and also financial secretary to the Treasury. Um, Mr. Murray, very good to have you with us. Um, how is the Chancellor going to navigate this this very tricky period um while staying within the fiscal rules, but also winning over the confidence of businesses and ultimately voters? >> Well, you're right to point to the fact that there is unprecedented turbulence around the world. We've got things going on in different places around the globe, but, you know, I don't think that means we're powerless um as a government or powerless as a country. And what the Chancellor will be setting out today is how we are giving families and businesses breathing space right now, while setting out our long-term changes for the way the economy works, to the way we deliver public services to make sure that we bring back hope for the future. And that's really what will be running through John's speech. The idea of breathing space now and hope for the future. >> The messaging from your leader, your new leader, Andy Burnham, is that the triple lock for pensions will not be scrapped. We have conversations around the desk in the studio many a time with guests who say, "Actually, that's the sort of bold move that would restore confidence from the bond markets." And and they would then perhaps pull back on that premium that they're they're charging the UK because of what they see a potential concerns in the way the fiscal rule the fiscal situation's being >> handled. Well, I think one of the first things that John said John Healey said when he went into the Treasury was how he was going to commit to the fiscal rules and how they were going to continue to be met by him as Chancellor and they would be the foundations of what we're doing as a government because all of the things we talk about as a government about making sure the economy grows faster, making sure businesses can invest, making sure public services are in a in a better position, they depend on those foundations of fiscal stability. And so, the fiscal rules for us are non-negotiable. They're the foundation of of what we do. And as John has said, they will always be met under him as Chancellor. >> The former Chancellor, Rachel Reeves, left you with fiscal headroom of about 24 billion while still being able to meet the target of balancing the books by the end of the parliament by the end of the decade. There is speculation in some of the papers that actually the Treasury's considering living with much slimmer fiscal headroom. Can you tell us anything about that? What what what's the thinking around that? >> Well, one thing I can tell you is that that speculation doesn't do anyone any good. And as a Treasury Minister, it's right for me not to fuel speculation or or give some kind of commentary on speculation or rumors. You know, the Chancellor will set out his policies on tax at the budget on October the 28th. And as I said, the fiscal rules underpin what he's doing. But the reason why the fiscal rules are so important is because what that enables us to do, you know, the fiscal rules provide that stability, provide that economic stability. But, on the basis of that stability, that's where we want to invest in the future. That's where we want to bring back hope. That's where we want to invest in growth in every postcode across the country. We're doing it for a purpose. >> And if investing in that sort of growth meant having a bit less headroom, how comfortable would you be with that? >> Well, the fiscal rules say that day-to-day spending has to be paid for through tax receipts, and that we we can borrow to invest um well, as long as GDP the borrowing is falling as a proportion of GDP um by the target year within the scorecard. Now, that's a really important set of fiscal rules to have, because it means that people uh can trust that day-to-day spending is paid for through tax receipts, whilst allowing that crucial investment um in the future. And that investment in the future is so important to leverage in greater private investment as well, and get us growing as a country. >> I was speaking to the CEO of Starling Bank, um you know, a UK success story in the financial space. And And he was saying what he wants to hear is really solid, robust policies for growth, for economic stability and growth. What can you offer him on that front and others? >> Well, one of the big focuses of this government is about devolution. Um and I think if we're talking about getting growth in every part of the country, growth in every postcode, having that devolution, making sure that mayors, uh local authorities, strategic authorities across England um have those powers and resources to invest in growth, is really crucial to changing the way we deliver growth in this country. Because I think we realize that growth can't be delivered just from Whitehall, you know, just from some government offices. Um it has to be delivered in every part of the country. And so, devolution, making sure that mayors and other local authorities have those powers and resources to invest in growth, is a really crucial part of how Andy Burnham and John Healey see growth has been delivered across the country. >> There are concerns that there are some tax rises already baked in from the the previous administration from Kier Starmer and Rachel Reeves that will kick in next April. Things like the tax on cash savings, part of the ice if people have a tax-free ISA, there are the thresholds being frozen which ultimately it's not just the consumers and households that are hit, but they have less discretionary spending and that then harms businesses who then have less to invest in growth. Is there any scope for some of that to be pulled back while still maintaining the confidence of those lending to the UK government in the bond markets? >> Well, I think you're encouraging me to speculate on the budget and as I said, I don't think that speculation does anyone any good and it's right for me as a Treasury Minister not to fuel speculation, not to engage in in rumor about what might happen. >> It could do some good if if bond investors are listening and they think actually, you know, this is a government with some bold ideas and and they're just giving us you know, some hope that actually that they are going to go ahead with some of the stuff that will spur growth and and help the economy. >> I think what investors and people watching around the world can see is our commitment to the fiscal rules, to making sure that day-to-day spending is paid for through tax receipts, our focus on investment, our focus on devolution, our focus on making sure that we're growing the economy right across the country because, you know, we're never going to meet our potential as a country when it comes to growth if growth is all focused in one part of the country. We have to get all parts of the UK growing and that's exactly what we're focused on now as a government. >> Why why do you think the UK does has this persistently high premium on on borrowing in the bond markets? Why what is it that investors don't like about the UK that they charge this higher level of interest say on the 10-year yield? >> Well, I think if you look back at recent years under the previous government when Liz Truss was Prime Minister, obviously that shook I think a lot of confidence in the UK because of her recklessness with what she did when she was Prime Minister for all be a brief period. You know, that kind of thing does a lot of damage. Um and so when we came into office in 2024, we were determined uh to reset uh stability to make sure we had the public finances in a strong position and to have that as a basis of economic growth. And now with Andy Burnham and John Healey, uh they are building on those foundations by sticking to the fiscal rules, uh but going further with a new vision of hope and saying on the basis of those that fiscal stability, we need to make sure we're investing and growing every part of the country so that all parts of the country can be better off and can contribute towards economic growth across the UK. >> Um the the big um policy, I suppose, that um we've been alerted to that the Chancellor will reveal later in his speech is this investment in the the sort of the the shipbuilding side of things. Um does that not send a message though that this is a a Labour administration that's more focused on the old-style in industrial bit of the economy rather than focusing on things like AI and tech and where the real growth is being seen in economies like the United States, for example? >> I don't think it's an either/or. I think it's a both/and. Uh we need to focus on the new technologies of the future like AI, making sure that we have the right workforce skills, that we have the right investment climate to make sure we're really backing AI to succeed uh with it with the right guardrails uh to guard against risks. Um but at the same time, some of the uh changes which have happened in this country over the last 40 years, uh which have put us in a weaker position as a country, has been the centralization of political power and deindustrialization um of the UK. So, having that industrialization, having that backing of British uh shipbuilding, making sure those ships are built in Britain, the new floating uh docks uh on the Clyde, that they are built here in the UK. That's a really important part of our economic picture as well. So, I would say, "Look, we need to make sure we've got new jobs and industries in AI, that's part of our growth story. The everyday economy is part of our growth story on high streets across the country. And industrialization, making sure we're building those ships here in Britain as part of our wider picture about industrializing the UK. >> Okay. James Murray, uh Financial Secretary to the Treasury, uh thank you very much indeed for joining us this morning. And uh we're going to be here throughout the the morning. We'll bring you more uh guests and conversation around the announcements here at the Labour Party conference. I should say uh Karen and Ian, um there is really high security here. If I look distracted at any point, one of the sniffer dogs is called Ben and I keep hearing people shouting him when he goes, "Woof! Ben! Ben!" So, if I look slightly off camera, that is probably the reason. >> What a strange name for a sniffer dog, Ben. When I worked at The Sun, we had uh we had Charlie the sniffer dog, who used to uh we used to take him to all the celebrity red carpet events and he'd be there to sniff out uh illegal substances of another sort. >> You know, this is like Ben when he sees the fruit bowl. He's like sniffing out the fruit bowl in the morning. >> [laughter] >> There we go. Thanks, Ben. Right. Uh well, before we go to break, uh let's show you what uh European futures are up to. All of the uh main indices being called to the upside. We're just half an hour away from the open and we will be bringing you that live here on CNBC. >> [music]