AI safety, Fed rate hikes and oil risks test markets 9/14/26

0:00At Edward Jones, we believe rich is more than caring about the latest and greatest. It's also taking care of what gives your life meaning. That's why your dedicated financial advisor meets you where you are with personalized financial strategies that help protect what matters so you can preserve your progress while creating a path forward. The key to being rich is knowing what counts. Let's find your rich together. Edward Jones, member SIPC. Pro safe big with early Black Friday deals at low. Shop new Select DeWalt 20-volt max nailers under$350 for a limited time, like the 18-gauge Brad nailer.

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1:18Good Monday morning. Let's get a check on U.S. stock futures, which are session lows here pre-market. The Nasdaq under heavy selling pressure. We're going to dig into that a bit more in just a moment. The Dow coming off its worst week since March. It was a down week for the major averages, even though we did see a slight bump in terms of trading higher on Friday. You can see right there on your screen, we are poised to open firmly lower for the major averages this morning. S &P has indicated to open down 40 points, Dow down 32. So it's faring the best here. But the Nasdaq down 473 points here pre-market.

1:49Let's get a look at treasuries as well and what we're seeing in the bond market, because we are set for two big central bank decisions, plus a few more this week. The Fed, of course, being the one in particular focus come Wednesday. You can see Treasury yields taking a little bit of a breather here, but we are at multi-year levels across the curve still. U.S. 10-year Treasury yielding 4.96 percent. So we are continuing to flirt with 5 percent there. Fed-sensitive two-year Treasury yielding 4.62 percent. Wow, what a move we've seen there in recent weeks. And the 30-year Treasury, 5.35 percent. Let's take a look at energy, too, because we continue to monitor the situation in the Middle East, not to mention what we've seen in the Russia-Ukraine war as well.

2:31We're going to have much more on both of those in just a moment. But you can see crude continues its climb here. WTI is up 3 percent right now, trading around$103 a barrel. And Brent crude is also up 3 percent right now, trading right around$108 a barrel. Arbub Gasoline is 2 percent higher. Nat Gas is 2.5 percent higher. ULSD Heating Oil, that's the contract tied to diesel, has a five handle on it right now as well. But first, let's get to our top story and the global AI tech sell-off that is hitting stocks from Hong Kong to Wall Street, as you just saw on your screen with the Nasdaq under pressure after a trio of tech CEOs calling on the industry to hit the brakes on AI development following a series of high-profile security breaches and propose new measures to rein in the world's most powerful AI models to better understand the risks.

3:17So if we take a look at the biggest pre-market laggards on the Nasdaq 100 this morning, perhaps not surprisingly, it's the so-called picks and shovels of that AI trade and infrastructure build out. Arm is down almost 7 % this morning. Other semiconductor names like Marvell are also under pressure here. And the neoclouds like Nebius and CoreWeave also down more than 6%. And other AI infrastructure related names like Lumentum too. You can see NVIDIA is down almost 3 % this morning. And hyperscalers like Microsoft and Alphabet and Meta are also in the red this morning. So speaking on CBS over the weekend, after publishing a lengthy essay, 3 ,800 words, give or take, urging AI companies, including his own, to, quote, slow the pace at which we improve the capabilities of AI models.

4:05Anthropic CEO Dario Amadei says the risks have been up to date, understated. There are real dangers. And I think for too long, the industry lied to people about the fact that this technology had risk. The idea was that they would present it as positive as possible. We've never done that. But too much of the industry did that. And so it starts with telling the truth. And the truth is, there are risks. Amadez calls finding support from rivals, including Sam Altman and Elon Musk. Altman taking to X just hours ago, supporting the idea of, quote, pacing AI development, posting, quote, no amount of American competitive pressure should justify recklessness or let capabilities get ahead of alignment or monitoring.

4:54Altman adding that pacing does not mean stopping. Musk, meantime, reposting Amadei's call, simply writing, quote, Dario is right. Industry warnings not coming without policymaker pushback, though. So in a Post on ex-President Trump's former AI czar, who now co-chairs his Technology Advisory Council, David Sachs, says AI companies do not need government permission to slow down, adding that they should self-regulate. So from a very long and fiery post, adding, quote, if you do, you'll buy Goodwill for the next conversation. If you don't, we'll know this was just another bid for regulatory capture or an election season psyop.

5:31Well, policymakers in Beijing taking another angle here. China's foreign ministry this morning calling for a slowdown for a slowdown of fear mongering. And in an editorial on the state backed Global Times describing it as, quote, hypocritical and short sighted. Remember, Chinese officials, including Xi, are meeting with the BRICS countries amid that summit as well right now. So definitely a topic of conversation there. Red arrows across tech in Europe and Asia, too. Our Karen Cho has more from London. And Karen, it is certainly a busy Monday morning.

6:08Morgan, good morning to you. A moment of truth, too, for markets. If you take a look at technology stocks at the index level, and this is fascinating, perhaps it tells a story of diversification, that we do have some downbeat moves for the index as a whole. But you are seeing resilience here versus the individual tech place. For instance, the FTSE 100 here in the UK is higher thanks to that oil story as we watched the pressure around the Arabian Peninsula as the Houthis managed to take key strategic strangleholds and throttle more oil product coming out to global markets. But elsewhere we are down, as you can see, and the worst performing market has been the Italian stock market down 1%.

6:44But drill down into those chip makers, and Morgan just showed you a board of roughly a 6 % move to the downside for some of the AI plays in the States. That's where we started out here in Europe as well. But some of the selling has now inched high as we've moved throughout the trading session. You can see names there in that basket of supply chain stocks. ASMI, for instance, that builds the equipment for these chips, down 8.5%, Infineon down close to 8%, and 9-plus percent down on Extron. So the selling has certainly marked higher at this point. If we're talking about a slower pace of AI infrastructure development, what is it going to do to the demand and the earnings story we've seen so far?

7:21So big dangling questions for markets that are selling first up this morning. to Asia. And don't forget the hub of activity for a lot of the big chips, namely particularly in the South Korean market. That market in Korea has been down heavily today. You've seen fairly large scale selling in some of the big names like SK Hynix, for instance, and you can see that Cosby is down to the tune of more than 3%. Also individual names in the likes of Japan, for instance, the soft bank trade was down heavily 10 odd percent. So at the overall index level. You're not seeing it, but underneath, that is where you are very much feeling some of the pain points as investors look towards some of these stocks.

7:58SoftBank there, you can see this is how it closed up, down 10 % percent. Don't forget, one of the big investors in open AI, so it did tumble on that Tokyo session overnight. Morgan, it could be a brutal day for the tech stocks your way today. All right. We're going to strap on our seatbelts and get ready for this. Karen Cho, thank you. We appreciate it. Well, it's not just AI fears that are hitting sentiment ahead of the open either. Energy markets are also in focus as crude spikes to kick off the week amid new Hutsi airstrikes on Saudi Arabia, Iranian tax on more ships in the Gulf. We've got further amplifying supply fears following last week's shutdown of that critical Saudi oil pipeline.

8:35That's one responsible for as much as 4 percent of global oil supplies. Let's get to our Dan Murphy in Abu Dhabi with the very latest. Dan. Morgan, good morning. Well, oil prices up here ahead of the open, the geopolitical risk premium back in spot WTI and Brent after a really busy weekend of news flow that basically suggests the fight over the region's energy choke points is ramping up. Now, the immediate pressure point is the Strait of Hormuz, Iran saying it's now shot down an advanced US MQ1 drone over the waterway. It's a claim that CNBC has not been able to independently verify. But the MQ-1 is made by American defense company General Atomics.

9:18Historically, it's been operated primarily by the U.S. Air Force and the CIA. And then separately, the U.K. Maritime Office also saying a vessel was hit by an unknown projectile while transiting the strait on Sunday, sparking a fire. Those two incidents suggest that Iran is still threatening ships and blocking supply. But of course, the risk here is also now spreading beyond Hormuz. We've seen Houthi attacks around the Bab al-Mandeb at the weekend that are threatening a second vital shipping lane now, that vital gateway between the Red Sea and the Indian Ocean, raising freight, insurance and energy supply risks all at the same time.

9:56And then, of course, Saudi Arabia already closing its key east-west energy pipeline after a series of Houthi strikes, effectively removing the kingdom's important alternatives to Hormuz. The ministry there still unclear about a repair and restart timeline for that lifeline. So all of that helping to drive the latest leg higher that we're seeing in crude right now. And the political pressure is also building. Axios reporting today that Crown Prince Mohammed bin Salman in Saudi Arabia urged President Trump to strike Iran after the latest Houthi attacks, But apparently Trump pushed back at least for now.

10:34So markets certainly hanging in limbo right now as we watch and wait to see what happens next in the region. Morgan? Limbo seems like a very astute and accurate word right now for what we're seeing here in real time. I'm just curious, Dan, because we've had headlines as well out of Iran that it's set to unveil a deal on a temporary shipping lane through the Strait of Hormuz as soon as today. And then on the other hand, we've also been getting reports that this Iran-Oman agreement will not immediately reopen the Strait of Hormuz and that actually a plan to announce something that's more joint in the region has actually been scuttled or at least temporarily halted.

11:12That's exactly right. We've seen talks on a Hormuz shipping arrangement being postponed in Oman today. So the market, once again, pricing in the prospect of a longer confrontation, not just a temporary disruption here. And, of course, the Iranians for some time now have been suggesting that we could see some kind of an agreement between them and Oman on opening up the waterway. Of course, all of that not necessarily going to fly with this White House or this administration. So clearly the battle over who controls Hormuz into the future, also a key pressure point for the price of oil right now.

11:46OK. Dan Murphy, thank you. Well, as if AI fears and what we're seeing in the energy markets weren't enough, we're also bracing for a Federal Reserve decision this week and what will likely be the first interest rate hike under Kevin Warsh and by the central and the first by the central bank since December of last year. Users on CalSHE nearly all but certain of a 25 basis point hike on Wednesday. Joining me now to discuss all of this and more, Patrick Palfrey, head of portfolio strategy at Seaport Research Partners. Patrick, it's great to have you here. I mean, it's almost like where do we where do we start?

12:20But maybe I'll work my way backwards here and just say, given everything we just laid out and talked about with our CNBC staff. I mean, is there any reason to think that a rate hike is not a foregone conclusion? No, the rate hike is certainly a foregone conclusion. If we look out into what the market's expecting, we're expecting two bright hikes over the course of the year. The question is whether or not it's going to be disrupted, the stock prices. And when we see hikes, there's typically a bump in the road. But the question is what's going to happen longer term? What is the pace of economic growth in the underlying trajectory?

12:51All of that still remains quite strong. So longer term, we don't see an impact to equities. But certainly a hike is on the table. It will happen. And we will potentially see a bump in equities around that. OK. How about AI? When you have the three biggest personalities in terms of the frontier and the build out of AI all saying, hold on, we need we need to slow it down here. What does that do to stocks? Well, first of all, I think it's an incredibly mature response from a lot of these actors to basically ask for whether it's greater scrutiny or regulation. The question is whether or not it's going to disrupt adoption of models for typical people like you and I.

13:26These are cutting edge models with different applications than what we are using over the near term. Once again, it's going to be a negative for the sentiment. There is a lot riding on CapEx trends. There's a lot riding on the pace of earnings revisions and chip sales and hardware sales. That said, we are underinvested for what the needs of adoption are across the world, even putting aside these kind of more advanced models. So we still see upside to estimates. We still see longer term, the trajectory of that being safe. But it's going to be a negative for the sentiment as we try and sort out what this means from a regulatory standpoint.

13:59point. Meantime, I mean, crude continues to climb higher. We just touched on it. Diesel at record highs right now. I mean, gas prices are highest they've ever been for this time of the year. Not to mention the fact they're going to a midterm election and the role that's going to play in terms of consumer sentiment going into voting booths here. How do you put it all together? I mean, what's an investor to do? Where do you put money to work right now? How do you, I guess, navigate the uncertainty? I mean, we always like to draw investors back to the underlying trend in earnings. And even putting tech aside, which is having strong trends, which I think people are very familiar with, we're still seeing revisions continue to come through in other areas of the market, financials, industrials.

14:37These are the second and third order plays that we are seeing for some of these AI trends that we're talking about. They continue to remain incredibly robust, and that's really what's driving the market forward. This year, revisions are up 20%. That is really what's powering the market, despite the fact that we're seeing multiples come in. So So as long as earnings remain intact and we don't see that changing, energy, oil up is a positive for earnings as well. That is all going to push stocks forward. Yeah, I mean, obviously, we just talked about treasury yields at multi-year highs here across the curve.

15:09But the velocity of the move, how much do you need to factor that in? The issue with treasury yields is what does it mean for discount rates? Higher yields mean higher discount rates, which means lower PEs. And we're seeing PEs come in. PEs have come in about two multiple points over the course of the year thus far. But that's been offset by that underlying earnings trend that we're seeing. So as long as earnings remain intact, we can certainly power through that dampening of multiples coming from the higher rates. OK, Patrick Palfrey, it's great to have you here on set. Appreciate it. Thank you.

15:40OK, we've got a lot more to come here on Morning Call, including. We can put guardrails, we can do this and that. But I think you have a lot of negative forces that are bringing it up that shouldn't be bringing it up. And they're bringing up things that won't happen. Well, President Trump weighing in on this AI slowdown debate. And so our former Google, Microsoft and Defense Department AI engineer XIE, who's going to join the conversation. Plus, the big business of weather tracking and weather can get better. We speak with one CEO on the cutting edge and later, ready for a roadster? Years after its 2017 unveil, why Tesla may be ready to start deliveries.

16:22We've got a very busy hour still ahead when Morning Call returns.

16:31Nassau and Paradise Island is home to the world's clearest turquoise waters and white sand beaches, where couples find secluded escapes, savor local flavors, and unwind to rhythms of Bahamian nights. All this and more is just a short flight away. This holiday season, plan your escape at NassauParadiseIsland.com. Something amazing is happening in data management. Even though storage needs are constantly changing, companies are only paying for what they need now. That's because CDW customized an ever pure evergreen one sla driven storage as a service solution delivering hybrid cloud storage that's easy to manage efficient and continuously evergreen simplify storage administration with ever pure and cdw make amazing happen find out more at cdw.com slash ever pure your sausage mcmuffin with egg didn't change your receipt did the sausage mcmuffin with egg extra The value meal includes a hash brown and a small coffee for just$5.

17:35Only at McDonald's for a limited time. Price and participation may vary. Promotion pricing may be lower than meal pricing. Welcome back to Morning Call. We're tracking the weather. That's become a big part of the business for both governments and companies worldwide. Helping to protect workers, prevent costly supply disruptions, optimize daily operations, so much more. The global weather technology market is projected to top$23 billion over the next five years, driven by an increase in extreme weather events. That's replacing aging infrastructure and also industrial demand. Tomorrow.io operates a weather intelligence platform that combines satellite data, real-time forecasting, and just announced the full launch, all the details, technical details of its next-generation early warning system, Deep Sky.

18:18Joining me now is Ray Goffer, co-founder and chief strategy officer at Tomorrow.io. And Ray, it's great to have you on the show. We just talked about it, weather forecasting. What specifically does Tomorrow.io do that didn't exist before? Thank you. It's great to be here. So we're doing a few things that were not done before. First off is what we call weather intelligence, which is we basically help translate weather into actions in a very scalable way. So up until now, you know, weather was this big thing that you get a forecast. It's very generic, and now every individual in an organization, whether it's an airline or disaster management authority, have to make their own call, their own decision on exactly what they should do.

19:04And that often breaks. And so our software, as of 2016, when we first launched it, has managed and helped hundreds of organizations essentially translate weather to decisions at scale, telling them exactly what they should do. for example, for an airline, should this flight take off? Should we use this de-icing material? Or where should the emergency workers be? So that's one thing. The other thing, which is, I guess, what we're talking about today, is we are launching satellites to space, specifically weather satellites, that help to see things that nobody else currently does see. And that helps to create a much better forecast.

19:44So in terms of deep sky, and you also announced that York Space Systems, which is a publicly traded company, one that we've had on this show before, is going to be a key supplier to build out this constellation, at least initially. How quickly does Deep Sky get deployed here? And what does that bring to the equation when it comes to this ability to forecast weather and to analyze events, especially when I feel like it's just, I mean, my whole life, there's been complaints about why can't we get the weather better? Yeah. So as of now, we've launched 13 satellites from our Generation 1, and those will stay on orbit in space until more or less the end of the decade.

20:27Within a few years, we're starting to launch deep sky satellites, which are far bigger and far more capable from our Generation 1 satellites. Just to give you a sense, these are nearly 1 ,000 kilogram satellites that will carry five different instruments, which is what we just announced, very capable instruments from radars to other types of instruments that can see the atmosphere in a way nobody else could before. Particularly, we're looking at increasing the revisit rate of these scans, meaning the time between each scan, so that we can provide much more accurate and much more timely forecasts relative to what's available today.

21:04We're having a bigger conversation here on the show. I think I think everybody around the world is, including the markets, about what happens now with AI, as you have multiple companies saying that it's time to put guardrails in place and slow the pace of development. What does that mean for a company like Tomorrow.io? I would say that in the context of weather forecasting, we're actually in a different position. We have had pretty impressive improvement in AI-based weather forecasts, but they are currently very much limited in their performance because of the lack of data, which is the problem we're solving with DeepSky.

21:43So today, these weather forecasts, the AI weather forecasts, are all trained on historical data sets that don't really help create granular forecasts, but they don't have the kind of data like the LLM models had, which is the entire human language, you know, to train on, because there is not that many, believe it or not, observations of the atmosphere and the oceans. And so what DeepSky is attempting to do is to dramatically increase the number and quality of these observations so that we can actually see the benefits from AI in the context of weather forecasting. All right. Ray Goffer, it's great to have you on.

22:19Appreciate it. Thank you very much. Great to be here. As we had to break, let's get a check on the price of diesel. continuing to test new record highs now at$6.23 a gallon. That's up over 30 cents just in the last week, according to AAA. I'll be discussing this and much more live from the G20 Energy Abundance Ministerial in Houston tomorrow, speaking with a number of energy and policy executives, including the executive director of the National Energy Dominance Council, Jared Agin. That's going to be right here tomorrow on Morning Call at 5.30 a.m. Eastern. Also going to be sitting down for a first on with the U.S.

22:56Energy Secretary, Chris Wright. That is going to happen at 1130 a.m. Eastern. You're not going to want to miss that. In the meantime, we're right back.

23:11Nassau on Paradise Island is home to the world's clearest turquoise waters and white sand beaches, where families can explore our vibrant culture, taste local flavors and dance to Bahamian rhythms. All this and more is just a short flight away. This holiday season, plan your escape at NassauParadiseIsland.com. Something amazing is happening in data management. Even though storage needs are constantly changing, companies are only paying for what they need now. That's because CDW customized an ever-pure, evergreen-one, SLA-driven storage-as-a-service solution. Delivering hybrid cloud storage that's easy to manage, efficient, and continuously evergreen.

23:56Simplify storage administration with EverPure and CDW. Make amazing happen. Find out more at cdw.com slash everpure. Your sausage McMuffin with egg didn't change. Your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just$5. Only at McDonald's for a limited time. Price and participation may vary. Promotion pricing may be lower than real pricing. Welcome back to Morning Call. We have a news alert for you. Ukraine's Navy said it destroyed a Russian unmanned surface vessel, an autonomous ship, in the Black Sea using an armed Ukrainian naval drone.

24:32Experts are describing the engagement as the first recorded battle in history between two uncrewed surface vessels. This is footage. I think we're going to pull it up for you. We should have footage of the strike released by the Ukrainian Navy. Long-range missile and drone attacks have continued between the two countries, and prospects for any U.S. brokered peace deal appear, according to experts, dim. Now, over the weekend, President Trump did call for Ukraine to halt attacks on Russia's diesel refineries, asserting the attacks were causing a shortage in increased prices in diesel fuel. Why are we bringing this up to you?

25:03Two reasons here. The first is that it's not just the Middle East that is pushing diesel and other energy prices and commodity prices higher right now, as we do continue to see ongoing escalation in this Russia-Ukraine war. also at a time where we're hearing calls for guardrails and regulation and a slowdown in the pace of development of AI, whether it is recursive self-improvement or whether it is autonomy. AI is in real time being deployed on the battlefield, which takes us right to this debate about how fast or how slow you can go from a geopolitical context. While checking some of the morning's latest headlines, NVIDIA is reportedly in talks to invest up to$10 billion in Anthropics IPO.

25:41That could come before the midterm elections in November. Reuters says Anthropic is seeking to raise as much as$100 billion, which could value the company at around$2 trillion. NVIDIA and Anthropic haven't commented. Business Insider reports that Anthropic has chosen Nasdaq meantime for its IPO, the site of several other major offerings this year, including SpaceX and SK Hynix's U.S. listing. And the FT says that Anthropic has told investors it will be profitable for a second straight quarter. Well, President Trump says he's not worried Chinese President Xi Jinping may cancel his visit to Washington next week.

26:15Recent reports say that China has warned it would scrap the trip if the U.S. approves new arms sales to Taiwan. President Trump telling reporters in Ireland yesterday, quote, we have a great relationship and we're going to get along. Well, the president also saying that he'll remove U.S. tariffs and Irish whiskey, making the announcement to cheers from the crowd at the Irish Open at his family's golf Of course, Irish whiskey and other goods from the EU have been subject to a 10 percent tariff since the Supreme Court struck down Trump's sweeping tariffs earlier this year. And Elon Musk says Tesla will unveil the second generation of its long delayed Roadster on October 1st.

26:51Tesla first unveiled the sports car back in 2017 and said deliveries would begin in 2020. And Amazon is pausing operations with 21 Air. This is the company that operated the cargo jet that crashed in Miami a week ago, killing five people. The NTSB has said that Amazon airplane overran a runway while landing and struck multiple vehicles on the ground. We'll still on deck. Stock futures hovering near session lows as big tech gets hit on those new AI slowdown warnings. NASDAQ 100 losing steam all morning. You could see poised to open down 1.8 percent right now, down more than 537 points. We've got some high-flying names seeing the biggest selling in the pre-market.

27:34It's all those names that are tied to picks and shovels and AI infrastructure build-out, semiconductor stocks and neoclouds, as you can see right there on your screen. We'll be right back. Hi, Morgan Brennan. Welcome back to Morning Call U.S. Stock Futures. With the NASDAQ under heavy selling pressure this morning, you can see it's a lot of red on the screen. That's really where so much of the selling is centered is the NASDAQ, which is poised to open down something like, oh, one and a half percent, maybe more than that. currently poised to open down 488 points. S &P under pressure this morning, too, down 48, and the Dow down 91, this after a down week for the major averages.

28:09Let's get a check on treasuries and specifically what we're seeing with yields right now is we have two big central bank decisions this week, a number of others, too. But the Fed, of course, is going to be the one in the most focus here. So U.S. 10-year treasury yielding 4.95 percent, Fed-sensitive two-year treasury yielding 4.63 percent, 30-year Treasury 4.34 percent. Let's also get a check on energy as we continue to monitor the situation in the Middle East. And you could see crude continues to climb this morning. It's up about 3 percent, trading right around$103 a barrel. That's WTI. Similar move higher for Brent, which is trading just below$108 a barrel.

28:46Similar situation in terms of the moves higher for Arbog gasoline, for heating oil, other contracts as well. Turning to our top story and the weekend of warnings around AI from some of the sector's biggest players, Anthropic CEO Dario Amadei, publishing an essay urging AI companies to slow how quickly they improve their most advanced models in the back of growing calls by researchers calling for a coordinated deceleration. Amadei proposing a three-step plan aimed at tempering the pace of development without sacrificing a commercial advantage or the U.S. lead in AI. And the developments come as Anthropic prepares for what's expected to be a historic IPO.

29:25Amadei discussing his view in an interview yesterday. I don't think I fully just appreciated what it would actually be like when the progress was as fast as it was. So we're we're an exponential curve looks a little like this. Where are we on the curve? We're kind of we're kind of on the bend where it's starting to get steeper. So is that a five alarm fire to you? What it means, it doesn't mean we need to panic today. It doesn't mean we need to shut it all down. What I would say. Why not? It's a warning sign. It's a warning sign that we need to slow down. Well, Amadeus calls finding support, including from two of his biggest rivals, Elon Musk, talking to X, reposting Amadeus calls, simply writing, quote, Dario is right.

30:10And also finding support from OpenAI CEO Sam Altman, also writing on X a few hours ago, quote, I agree with Dario that we need to pace the frontier, adding, quote, no amount of American competitive pressure should justify recklessness or let capabilities get ahead of alignment and monitoring. Altman adding that the pacing does not mean stopping. He also said in an interview this weekend that because of this, OpenAI will push back its IPO until next year. Well, President Trump weighing in on whether the AI industry should slow down or be more regulated in Ireland yesterday. We're leading China in AI.

30:49We're the most sophisticated country in the world. And frankly, I want to keep it that way because whoever wins, AI wins. And we can put guardrails, we can do this and that. But I think you have a lot of negative forces that are bringing it up that shouldn't be bringing it up. And they're bringing up things that won't happen. Well, for more, let's bring in XIE, partner at Offline Research and a former engineering leader at Google and Microsoft X. It's great to have you back on the show. You and I have been talking about this for months and the risk around this and the cyber security risks around all of this for months.

31:23The fact that we have the three largest voices, personalities on the frontier right now. now calling for a slowdown. Does that surprise you? Definitely not surprised. The AI industry is selling both acceleration while asking for a slowdown at the same time. And what's interesting here is that Dario isn't asking for a slowdown on AI development. They're asking for a slowdown on the pacing of capabilities, which means, hey, as we train these models and we make them extremely smart, let's make sure that before we turn those capabilities onto the world, we have the proper evaluation features. He calls for three things specifically.

31:59He asks for us to embed safety evaluators into their company as the first. So like these independent auditors that will live inside of the companies and be doing these safety evaluations and the ones who are sort of the external monitors, if you will, of their AI systems. He also calls for this sort of coordination among democracies. Obviously, the AI race has geopolitical implications. We are in a race against countries that are our literal adversaries, such as China. And so he's calling for democratic countries to come together and come up with what the rules should be to determine what a safe AI actually is ahead of regulation, because that will take too much time, sort of a handshake deal, if you will, around what those safety requirements are.

32:46Interesting to note that in order to do that, he does ask for the government to coordinate that so that they don't end up violating antitrust, which is interesting to think about, you know, how much power we want to give them to regulate themselves while also, you know, maintaining and being careful about how much power we give the AI companies to define what those measurements should be. We need to keep that kind of a balance. So the other two AI leaders agreeing, again, is really important and critical. This was driven by two kind of events. First, the recursive self-improvement or how much AI is now building its successors and needing to make sure that as AI is making those capabilities, we have enough time and space to check them.

33:25And the second is the hugging face hack incident, right? So we're seeing AI develop these capabilities beyond their ability to keep it safe. It's already doing things that would be considered criminal if a human were doing them. So we need to be able to build out these frontier capabilities and check them before we put them in humans' hands. Okay. I do want to find out the government reaction here. So stay with us, X, because we are going to turn to the Washington side of the story. Our colleague Garrett Downs has been reporting on the scramble in D.C. to address all of these calls for AI guardrails all weekend.

33:58Garrett. Yeah. Hey, Morgan. Good morning. So we're hearing sort of a mixed reaction here in Washington. You know, we're hearing a call from Democrats, people like Sam Liccardo, Ruben Gallego and even Brian Schatz last night, the upcoming number two in the Senate. And it's really a call for action. But the thing is, that's getting in the way here is Washington has a big election that's seven weeks out. So we heard Mike Johnson yesterday speaking on network network shows saying sort of A.I. needs to police itself. He also said China wins if he calls an emergency session. And you'll remember China or the House of Representatives, which Johnson runs, only has one week left of session until they leave town all the way up until the election.

34:42So really, there's a very tight window and there's not a lot of existing legislation that's exactly ready to go on AI regulation. So it's really clear to us that, you know, Washington is struggling to meet this moment and they're scrambling for answers on AI. And it's unclear if they're really going to get there within any sort of time, within any sort of rushed time frame, at least until the election. So we could see something here. We also might not see anything too soon. OK, Garrett Downs. Thank you. I want to get your response to that, especially since we had a fiery post from David Sachs over the weekend, basically saying, you know, stop pretending the motivation to slow down is purely altruistic.

35:25The Wall Street reaction so far has been that this is really an opportunity or I guess a shot at regulatory capture as well. Yeah, 100 percent. I think one, you know, I think one at the federal level, the challenges around whether or not, you know, regulation exists. We have tons of examples across states. I think in this legislative session from 2025 to 2026, we've had over 2000 AI laws submitted at the state level. There are tons of example language, example problems, example challenges that they can tackle within that legislation if they can send their staffers to go look. I'd say that the challenge here with regulation is that AI companies shouldn't get to turn their product failures into these philosophical debates about what a machine is or isn't thinking.

36:15Right. When you have a car fail, like if I'm driving a car and it explodes in the middle of the road, I don't go. Why did the car decide to explode? I go. What did the manufacturer do wrong? What needs to be done differently? There's no difference between any of the other machines we produce that can have a potential impact on human life and the common sense guardrails that we need around. AI, if an AI is capable of harming people, there needs to be responsibility intentionally assigned on its manufacturers. What that looks like obviously will be different based on the type of AI in the situation that it's in.

36:49But to say that our election is coming up and, you know, given that our election is coming up too soon, we're not able to put guardrails around the very thing that can destroy the citizens who were supposed to be voting for us seems a little bit silly to me. Um, humans in the United States, particularly 1 million percent want guardrails around AI. They are developing anti-AI sentiment because they do not feel protected enough from these systems and they don't feel like they have an FSA. So ironically, it'd work better for the politicians if they were to strike the right balance of putting and assigning consequences for harmful results that come from an AI that are due to manufacturer default than if they were to do nothing at all.

37:30Okay. XIE, great to have you on. Appreciate it, as always. And of course, we have China's President Xi saying that China will take the lead to foster AI tech cooperation among BRICS countries in the middle of all this as well. And as we head to break, we've got a market flash in Oracle, the company announcing this weekend's co-founder and executive chairman Larry Ellison has canceled the plan to sell up to 50 million Oracle shares. That was worth about$7.5 billion as of Friday's close. Oracle shares are down over 20 percent so far this year and down another three and a half percent this morning.

38:01Welcome back. It's time for your call sheet where we look at the topics driving the trading data head. And we have a lot of them today. Crew members today, Peter Bokvar of One Point BFG Wealth Partners, also a CNBC contributor, Marta Norton of Empower and Jeff Hugh of BNY. It's great to have you all here. Peter, you're sitting right in front of me. I'm going to kick this conversation off with you. AI. We have all the chip stocks, all the names that are associated with this infrastructure build out under pressure this morning. Does it make sense? The question is to whether it makes sense or not is if this impacts the pace of CapEx, or is this just going to impact sort of the functionality rollout and the type of models that they roll out?

38:39Because if they slow the pace of CapEx, yes, this does make sense. Because the U.S. economy, the U.S. stock market, the trajectory of U.S. earnings, and U.S. profit margins are all in on this CapEx spend. The$800 billion this year, the$1.2 trillion that are expected next year, anything that negatively impacts that does make sense in terms of this sell-off, if it were to happen. Okay. Marta, I would love to get your thoughts on this, especially as you're already seeing a number of folks on Wall Street and elsewhere saying, hey, this is an attempt at regulatory capture by the biggest AI frontier companies here.

39:20Yeah. I mean, there's no question that You can make the argument that there are a range of incentives that drive how companies behave and how they kind of discuss what this looks like going forward. And you do have some some dominant companies that are, I guess, somewhat riding the rules of the road or trying to. But I think the bigger question is what what Peter is pointing to. When you look at this market, it has been driven entirely by this infrastructure build. And if we're looking at anything that calls that into question, then that's going to cause problems for the U.S. market broadly, not just some of these companies like the chip companies in the memory, but all the other companies that support the infrastructure of AI.

40:02Yeah. And of course, this hasn't just been even a U.S. story, although you've seen it in the economic data here for the U.S., Jeffrey. But it's been a global one. Case in point, the sell-off we saw in Asia overnight. Absolutely. If you look at the markets in South Korea, Taiwan, they are uniquely exposed to this cycle. I actually consider companies manufacturing semiconductors there as an extension of whatever's happening in the U.S. They are one of the same trade. So one broad thing to consider here is also the Fed in terms of financial conditions. We know U.S. bond yields are going up. If the Fed hikes and is hawkish along the way, there's further upward pressure on yields.

40:37At the same time, that hyperscalers are trying to finance more via debt, you know, crowding out other issuers, including government issuers. So it's a crowded market out there. Financing is essential right now. There's less of it and it's costing more. So I think that's causing all the gissers. Yeah, I do want to get dig a little deeper here into the Fed and what we should expect this week and what all of you will be watching. First, though, the geopolitical piece of this, you can argue that, you know, A.I. build out and sort of, you know, development, pace of development of things like, you know, recursive self-improvement of A.I.

41:06are geopolitical stories in their own right. But just given what we've seen over the weekend, Peter, coming out of the Middle East and also with this Russia-Ukraine conflict that's escalating to. I think the issue is, is there's no sign that this ends anytime soon. Putin's not going to stop until it gets to the eastern part of the country, unfortunately. We don't know when that will be. Ukraine's obviously not giving up. The situation in the Middle East, we thought that there would be a deal back in April. And here we are in September, approaching October. We don't know. And the products market is clearly reflecting that.

41:40And now we're getting to some major pain points. You know,$3.50,$4 gasoline, we can deal with. $4.50,$5 diesel, we can deal with. But getting above$4.50 in gasoline, getting now above$6 in diesel, we're reaching some pain points that I think are now really centering attention again. Yeah, and we talked about it earlier on the show, Marta. I mean, you've got diesel right here. We have it on the screen. $6.23 a gallon this morning, according to AAA. That's a$0.31 increase in the past week, record highs. And we know we got a hotter than expected core CPI number on Friday as well. That's not even factoring this in yet.

42:18Yeah, well, two things leap to mind. I mean, the first is that we have been myopically focused on the Middle East, but there are these geopolitical developments wars that are also impacting markets. And it's important that we keep that in mind. And the second thing that comes to mind is when we first originally saw the war in Iran, we thought of it as a supply shock, something that we could look through from an inflationary standpoint. But the longer this continues, the less likely it's a single supply shock. And it is something that can permeate into core inflation. And so I do think it's something that maybe the Fed has to take into account more seriously than maybe it would have looked a few months ago.

42:54So you touched on the Fed, Jeffrey. Let's go back to it. You've got a decision from the Fed this week. You've got a decision from the BOJ, also Bank of England, Brazil. But the biggie is really, I think, here the Fed. And it seems, at least according to how the market's pricing it coming off that inflation report on Friday, that a rate hike is a foregone conclusion. What do you think? I would agree with that. But then what's the signal thereafter? Is it one and done? Is it going to be a hawkish hike? Or is it one of those, a phrase that I really dislike, that a dovish hike, right? If you're going to be dovish, then don't hike in the first place.

43:27So, yes, we do think that they will hike. And it's about the message thereafter. that if they're going to anchor credibility, anchor inflation expectations, then maybe clearly signal more will be on the way. A bit like the European Central Bank, every meeting is going to be a live meeting. I think that applies globally. And also a lot of eyes on the BOJ as well. In terms of credibility, they are far more under the scrutiny as far as markets are concerned, especially with how the yen has been behaving. So a hike and more signal from them is just as important for financial markets. What do you think, Peter?

43:57Does that plot matter as much here, given what we've heard about forward guidance? Well, you make the right point. The dot plot doesn't matter in terms of Kevin Warsh's eyes. And on one hand, he doesn't want to really tip his hand to what he's going to do after this week because of that forward guidance issue. The Fed's in a very difficult situation because everyone's asking the question, OK, they're going to hike rates, but is it going to matter? Is it going to affect the demand side because of these supply side issues? Now, you can argue on one hand, and it's not so easy as inflation's up, the Fed needs to hike.

44:31Because if they do hike, what does that do? It raises interest rates. There's a trillion dollars of interest income that consumers are receiving. And we know that upper income spend has been a major driver of the economy and inflation. So all you're doing is giving them more interest income. But on the other hand, if you want to actually really negatively impact the demand side, well, then that means that you may have to negatively impact the stock market, which is obviously what the Fed does not want to do. This is a very difficult situation. Marta, I see you nodding your head here. Yeah, I mean, it's kind of interesting because I do think inflation is obviously front of mind for Kevin Warsh.

45:07To me, when he was at Jackson Hole, it felt like a hawkish tone. It felt like forward guidance, even though he explicitly said it was not. And yet at the same time, we have a wage growth situation that is not in strong shape, right? And we do know that the quarter point adjustment isn't necessarily going to adjust AI spend. So there's a lot of things on inflation that the Fed can't necessarily control. But given the tone, given the dynamics, it would strike me as something of a credibility issue if we don't see the Fed take action. I think the other thing to watch is just how long term yields respond to higher short term rates.

45:43Do we actually get those to come down because people feel as though the Fed is taking inflation seriously? OK, we're going to have to leave the conversation there. Thank you so much to our call crew setting up what is going to be a crucial week here with stock futures under pressure, in particular the Nasdaq.

46:18from electrical challenges. Triplight by Eaton and CDW. Make amazing happen. Find out more at CDW.com slash Triplight.