SOTS 2nd Hour: Iran Flashpoints, Rate Hike Questions, & Super Micro's Smuggle Trouble 3/20/26

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Sara Eisen (0:52)

Good Friday morning. Welcome to Squawk on the Street. I'm Sara Eisen with Carl Quintanilla and Mike Santoli today. We are live from Post 9 of the New York Stock Exchange. David Faber is out. Coming up this hour, Council on Foreign Relations president Michael Froman will join us with two flashpoints he says could force an escalation in the Iran war. Plus, we'll talk to former cybersecurity and infrastructure security agency director Chris Krebs about the cyber threats from the war facing companies and agencies. And details on the scandal rocking shares of chip maker Super Micro this morning. With that stock losing more than a quarter of its value, it is a wild story.

Carl Quintanilla (1:26)

We are on Supreme Court watch this morning as we await a potential decision this hour on the president's authority to fire Fed Governor Lisa Cook. We're going to get you those headlines if we get them. In the meantime, Journal's out with a story a few moments ago. Pentagon sending three warships and thousands of additional marines to the Middle East. Felt like we took maybe a small leg lower on that headline, Mike.

Michael Santoli (1:48)

For sure, yeah, we did sort of push lower on that. Been this pattern, obviously, market sort of stays in position, at least being prepared with one eye for something de-escalatory or some relief on oil. Didn't get it. The S&P kind of looks like it wants to touch the hot stove, which is the November lows, 6520 or thereabouts. And we'll see if that creates a little bit of a dam break to the downside or not. We have this big expiration day, but so far the market's been trying to keep it somewhat contained.

Sara Eisen (2:19)

All right. So what I'm watching is rising yields and rising probability that the Federal Reserve will not cut this year and may even hike. I mean, that is starting to get priced in a little bit. Okay. I have this great chart. I want to walk you through the chart. The orange line on top is the Fed funds rate. That's where we are right now. The little stair step down. Those are the three cuts we got last year. And as you can see now, it's like flatlining because the Fed's not doing anything. They're not cutting. They're not raising. So there's where we are. The blue line below it, that's December in terms of market pricing of Fed funds futures. And pretty much throughout the year, up until like a few days ago, the market expected by December, we'd have lower interest rates than where we are now. See, it's lower than the orange line. So the market has been expecting cuts. They expect Kevin Warsh to come in, start cutting. They expect inflation to come down, start cutting. But guess what's happening now? Because of the rise in oil, because of questions about who's going to be Fed Chair, the December cut odds have gone all the way up to where we are now, taking out all chances of a cut. And you can't really see it on this chart, and it's gotten more extreme just in the last few hours, starting to price in more odds of a potential hike by December, where they would actually raise interest rates. Now, we've been talking about why that's happening, right? Oil prices sustained higher. That's inflationary.

Powell's tone was interpreted as more emphasizing the risks of higher inflation than the risks of weaker jobs. And now there are questions about how easily Warsh is going to get in there and get confirmed because Tillis is digging in here, Powell's digging in, that he said that he would stay governor and interim chair until he needs to, until this investigation is gone. And then there are questions, if the longer Powell is thought to be on, the more hawkish.

Michael Santoli (4:11)

Well, that's definitely a big part of it. I mean, you can't also ignore the fact that the rest of the globe is now pricing in hikes. ECB is pricing in a couple of hikes, three at this point, you know, obviously things like New Zealand, Australia, obviously that's going to create an upward drift. I mean, all you really have to look at too is the two year yield, which is now above 390 And of course, as your chart shows, the upper end of the Fed funds rate range is 375 So it's saying over the two year span, maybe we go down a little bit, we're going to be back up here, at least that's according to the bond market right now. So yeah, I mean, I would say it's a very confused market. It's not saying, yep, we're headed for hikes. It's saying we absolutely can't be confident in cuts. When you get beyond three months, the Fed funds futures, you know, it gets a little bit highly sensitive to little changes in perception, but there's no doubt it's changed the story. And now it's about, can the economy show that it's strong enough to withstand all this?