Fed rates, AI spending and bond yields shape the market outlook 9/18/26

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0:45I'm Morgan Brennan and this is your morning call.

1:02Good Friday morning. It's great to be back with you after a busy, busy week. Let's get a check on U.S. stock futures with the S &P and Nasdaq coming off their best trading days since August. You can see we are in the green here again this morning, pre-market for all of the major averages. S &P poised to open up 27 points, the Dow 139 points, the Nasdaq 158 points as of right now coming into this final day of trading. It's a mixed picture for the week with the Nasdaq holding on to ever so slight gains, the S &P and the Dow slightly lower as of right now. We'll see what today brings. Big story this week is financials, though.

1:35It's the worst performing sector since Monday following big business warnings from Bank of America and Goldman Sachs. Both are down sharply this week. You can see right there under bitter pressure, financials sector this morning. But if we could show what we've seen, there we go. Bank of America down 7 percent since the start of the week. Goldman Sachs down almost 7 % as well. On the flip side, we're seeing a strong rebound in chip stocks since Tuesday after that steep sell-off to start the week. All about those AI fears. We've got more on that straight ahead. Stocks is really what you want to focus on here in terms of this broader S &P rally.

2:09We're going to dig into that throughout the hour. Let's get a check on what we're seeing in the Treasury market as well, as the bond action has continued to drive so much activity across other markets, too. See U.S. 10-year Treasury yielding 4.95 % right now. Fed-sensitive two-year, 4.70 percent. What a move we've seen there months to date. And the 30-year Treasury yielding 5.28 percent. Let's get a check on energy, too. Oil riding a three-session losing streak. And again, big reversal from where we started the week. WTI crude is down about 1.6 percent right now, trading right around$100 a barrel.

2:43Brent is down 2 percent, trading just below$103 a barrel. Let's turn to one of our top market stories, though. Bank of Japan hiking interest rates overnight by 25 basis points to the highest level in more than three decades with more increases planned. We're watching reaction in currency markets and specifically in the end. It's the weakest against the dollar in about two weeks here. You could see 157 is the level there and big move. And the end, though, falling after the announcement as two dovish board members voted against the increase that raised doubts about the pace of further policy changes.

3:18not that they're coming, but the pace at which they're going to come. That, in turn, as I mentioned, pressuring the yen, as you can see right there on your screen. Japan's policy moves have ripple effects around the world, including here in the U.S. Japanese investors own about$2.5 trillion worth of U.S. stocks, bonds and other financial assets, accounting for about half of Japan's enormous$5 trillion stock of overseas portfolio holdings. The whole debate here is, as you see, rates go higher in Japan. What does that do to bring some more of that investment back home away from some of these assets held overseas?

3:51The rate call caps a big week of central bank decisions, though. That follows the rate increase by the Federal Reserve on Wednesday, as well as an unusually public campaign by Treasury Secretary Scott Besson urging Japan to raise borrowing costs ahead of what we saw from BOJ today. Other banks are expected to tighten, too, as this Iran war spurs energy prices, stokes inflation. The one exception here that we've seen this week is the Bank of England, which held rates steady yesterday with what's been interpreted as a dovish tweak to QT policy. All of this, though, amid surging bond yields around the world in general.

4:24Ten-year U.S. ten-year yield is basically at the highest or touched the highest that we've seen since 2007 a few days ago. Japan, ten-year highest since 1996. Ten-year gilts highest since 2007. Germany's 10-year highest since 2009, and France is at the highest since 2008. Let's get to our Steve Sedgwick in, who is live in London, with more on all of this and what we are seeing in Europe. Steve.

4:52Yeah, Morgan, I'm going to go off script again. Sorry, I've got to talk about European equities. We're slightly in the red. There we go. We can see that. Look, I'm really worried about Japan as much as I'm worried about the UK and the US as well. The numbers are stratospheric. Eric, can I just feed on the numbers you just said there as well? They have a debt to GDP, right? We're worried about the US, we have 120 % debt to GDP. The Japanese have a debt to GDP of 230%, and they're running a deficit of 4.6%, not quite as bad as the US, but still pretty hefty as well. And they've got a fiscally expansive government as well, on top of that 4.6 % deficit figure.

5:30OK, so let's talk about this rate hike as well. They've gone up, they're at historic highs, 1.25 percent. Hang on. Inflation's virtually 2 percent. So they're behind the curve on that. And they've got something called the Shunto, which they have every year as well, which is a wage round, which has started for 2027 already. And the last three years, the wage round has seen wage increases of above 5 percent. All right. So let's just get this right. They've just gone to 1.25 percent on the rates. They've got 230 percent debt to GDP. They've got a deficit of 4.6 percent. They've got wage increases of 5%.

6:01And they think this hike is enough? OK, let me get you even more worried about it. They've got an aging population. What does an aging population mean? It means they're not only bringing that money home from the US Treasuries where they've been keeping it, they'd also potentially start paying down some of that money from their JGB holdings. Huge, huge, massive private savings. So if they start pulling that out of the JGBs, we all know what that means. The yields start picking up. And why would they be taking it out? because they've got an aging population, a really bad demographic. In order to keep a population stable, you need 2.1 % birth rate.

6:34They've got 1.14. It is a record low. So what's not to worry about, Morgan? Back to you. I love when you go off script. I don't think you should ever have a script. You're the best. Have a wonderful weekend. Appreciate it. Always great insight from Steve Sedgwick. We're turning back stateside with futures holding on to gains and the momentum trade back in vogue, I guess you could say, despite the rate shock we have seen and we're just talking about. Investor attention continues to focus on the AI trade in the wake of warnings and calls for calm. The latest take coming from Palantir CEO Alex Karp on CNBC yesterday.

7:12The first step isn't to say we get out of it because we want to self-regulate or we want regulation. The first step is to say, OK, you've disclosed this. What are you doing about it? And the second step is to say, if you're not doing it, you're not being responsible here, we're going to have to get people involved. That's going to be also very complicated because regulating these things needs people. You need people who understand them. Another problem we have is seemingly everyone who understands this is on some payroll. So it's like, you know, it's like who are you going to trust? Well, Carp's comments coming the same day, Anthropik said its clawed bot now leads more than a quarter of its AI research and development work inside the company and works alongside humans on more than 90 % of its total research.

7:50Also following word, a group of cybersecurity researchers managed to gain access to OpenAI's internal systems using Anthropics Clawed as part of a bug bounty program. Well, joining me now on all of this and so much more is Dan Ives, Yorkville Ives and company partner and senior managing director. Great to have you here on set in what's been a wild week. Where should we start here? You want to start with AI safety? You want to start with the CARP comments somewhere else? Look, I think Karp nails it. And I think if you look at Nadella and what Jensen said as well, look, the reality is you can't put the genie back in the bottle.

8:24And I think what's also happening here is sovereign AI and what Karp and, of course, Jensen talked about, that that's ultimately a threat to the model players. And I think part of it when it comes to anthropic and open AI, you know, calling for every sort of halt and regulatory. It's also, you know, I think the industry is not slowing down. And the reality is, like, when you get to the top of, you know, the penthouse, you don't stop the elevator to others coming up. And I think the regulatory capture issue, you've seen the industry push back hard. I think to some extent it backfired. Like, if you look at what Dario did going back to the weekend, I don't think the outcome, what's happened this week, is maybe what they expected.

9:08Interesting. I want to go back to this idea of sovereign AI. And I just want to like it's just a basic question, but I think it needs to be established because you do hear folks like Alex Karp at Palantir using it to apply it to the commercial industry as well. We're talking about sovereign AI. What specifically are we talking about? I think it's fundamentally it's enterprises that their data, who's going to capture that? So when you have the model players and that data goes in there, is that a threat to their business? Do they like who ultimately has control over that data? I think that's why it's hit such a chord to what CARP's talk, because Palantir has definitely been front and center when it comes to sovereign AI.

9:47And that's how you get hundreds or thousands of ultimately CIOs in the room, because it's a threat. And I do think for a lot of companies that I talk to, OK, this is sort of, you know, going 100 miles an hour, coming out of the gate in terms of AI. But now they're realizing, OK, our data, who's going to have control over that? That also speaks to more the data is where the value is. And I think that's why I also look at software in stocks in terms of what you're seeing. The SaaS apocalypse, that was a fictional narrative. So I think you're seeing a lot of these dynamics playing out, including cybersecurity.

10:21So right now, whether it's cybersecurity or whether it's some of these software names that have been beaten down like the sales forces of the world, now's the time to buy? No doubt. I think software, there's a renaissance that's happened because it started with Palantir, than to Snowflake. And now what you're seeing across the board from Salesforce, even Oracle now is starting to get a bid from, because I think the reality investors are recognizing the second, third, fourth derivatives of AI, software is going to play such a huge role. And it's not just Anthropic and OpenAI. They're going to own the trillions of dollars being spent.

10:54And that's why I think the hyperscalers are going to continue to sort of narrow the gap. And then, look, if Anthropic and OpenAI, If they slow down, Meta, Zuckerberg, they're not. So they're going to. That's literally where I was going with you for the next question. We got Meta Connect next week. Mark Zuckerberg giving the keynote Wednesday night. How closely do you watch this when we are having this conversation about open source, open weight and, you know, sort of this new chapter we find ourselves moving into here? I think you go back to this week and what Dario did and just over the weekend, you know, the sort of back and forth.

11:27That was gift wrapped for Meta and Zuckerberg. And they're not going to take debate and say, OK, we should slow down. Instead, they're going to be in a Ferrari left lane going 100 miles an hour because that just enables them to narrow the gap. That's also why Meta as a stock is significantly outperformed because investors are recognizing they have three and a half billion users. They're going to be able to now monetize and try to close that gap when it comes to open source and everything that's playing out. And it's also why look at what Apple. That's the reason that's a stock that's going to continue, I think, ultimately outperform because investors are recognizing in what's happening now, those with the install bases that are going to be able to monetize.

12:11Yeah, it's worth noting, too, that you're not going to see government, at least not U.S. government, step in in any meaningful way, at least not anytime soon. We've heard what we've heard from the Trump administration, including the president himself, and the House is now gone. And they are, you know, on the campaign trail until the midterm elections. So this is an industry debate now. One to that point, you don't want a lot of these politicians that have flip phones and Blackberries, that they're going to be the ones to ultimately understand the innovation in this country, where for the first time in 30 years, the U.S.

12:41is ahead of China when it comes to tech. All right. Dan Ives, it's great to have you here to start off the hour. Appreciate it. Thank you. Well, we got a lot more to come here on Morning Call. We really do. Including rising inflation, boosting mortgage rates, putting pressure on the housing market, And we're going to speak with the CEO of EXP Realty next about the real estate realities that are facing homebuyers and sellers. Plus, with new questions about AI development, capacity constraints, safety concerns, what does it mean for the millions of retirement savers with huge exposure to the AI trade?

13:14We have answers. A very busy hour still ahead when Morning Call returns.

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14:53Rising yields boosting mortgage rates and putting pressure on the housing market in the week of Wednesday's Federal Reserve hike. 30-year and 15-year fixed mortgage rates now standing at 7.2 and 6.8 percent respectively. It's up nearly 100 basis points since the start of the U.S.-Iran war in the Middle East as well. Rate pressure also hitting housing stocks, the iShares Home Builder ETF making a sharp move lower as the yield on the 30-year continues to tick higher. And when it comes to what's next, let's look no further than Home Builder Lennar, out with earnings earlier this week, highlighting a challenging economic environment.

15:28Fewer families can afford to both produce a down payment and qualify for a mortgage. When families are paying more at the pump and more for electricity, their willingness to make the largest financial commitment of their lives moderates, even when their underlying desire to own has not changed at all. Well, joining me now with more frontline insights is Leo Pereja, CEO at eXp Realty. Leo, it's great to have you back on the show. I think let's start right there and what you've seen from those front lines just this week alone. Yeah, good morning, Morgan. Thank you for having me on. I've actually been on the road this whole week.

16:05I've spent time with agents It's in Las Vegas, yesterday in Boston, and today I will be in Hollywood, Florida with agents. And exactly what Mr. Miller said, the pressure on the first-time homebuyer at any decision point is affecting everything. So we've crossed a very real psychological threshold of 7%. The reality about the homebuying purchases, you know, if someone's going from a renter to a home purchaser, there's not that payment shock of I'm used to a 3 % rate like it is on people selling their home. But the headline narrative there is we expect the latter part of 2026 to be flat. That's sharp contradiction to where we're in the beginning of the year.

16:46Fannie and Freddie estimates had a transaction count of home sales growing. But we're we're telling our folks in the front line to expect a flat year over year on home sales at around four million. So the headline there is that for the American consumer, that it's tough right now. Oil crossed$100 a barrel, which translates to higher diesel prices for freight and groceries and affecting everything. So transaction counts are not coming up anytime soon. And how does that break down when you look across different parts of the world since you have been different parts of the world, different parts of the country as you have been on the road here?

17:24Yeah, it is more and more a local market. So in the suburbs of right where you are, it's still low inventory environment with multiple offers on a single transaction. Parts of Southwest Florida, Texas, most of the COVID post-boom markets are seeing sharp declines. I live in Miami, Florida. We're seeing quite a bit of days on market for single family homes. Even rents are coming down. So rents are something that had trajectory, you know, 50 year trajectory tend to go up. But depending on the market, we're seeing that in the multifamily starts, as some of the charts are showing right there. And I would really pay attention to the new construction index you just pointed out at the beginning of the call.

18:06There is going to be downward pressure. And the more pressure home builders feel, the starts are going to slow down. And we desperately need them to continue building homes to bring inventory to market. I think it was a great thing that happened in Congress when the 21st century bill passed. And there's a lot of energy into creating more inventory for the American consumer. But there's just a lot of pressure placed on the entire ecosystem right now. What would be pressuring starts the most right now? Is it higher rates and the fact you're seeing sluggish demand from consumers? Or is it also the fact that when we talk about inflation, it's not just diesel prices.

18:42It's other types of commodities and other types of goods that go into building these homes too. Absolutely. It's kind of the perfect storm of pressure. Right. Because the diesel prices translates the pressure at the grocery store, which makes people think twice before spending money. When you think about what drives consumer demand for housing, it's always human condition. We need more space. We have more humans. We got relocated to another job. And as as not necessarily correlated, it could be you could have a very stable job. Think about a federal employee or a county employee who's got a very reliable job that's not dependent on AI or any of the other kind of sound bites that affect the decision making process.

19:25But what happens is you are coming out of a lease. You have 90 days left on it. You're deciding whether to buy a house. You open the news and you see, like, do you feel good about the macro? It makes a psychological impact on the decision. and you had Mr. Stuart Miller's quote there from the earnings call, it's harder to save for a down payment. Make the decision on the monthly payment, and that adds to the psychological pressure. Really, Morgan, we ideally get to that Goldilocks interest rate that we were heading to in January. High fives, low sixes, relieve some of the rate lock that we see with sellers currently and gets more buyers off the fence.

20:06The opportunity I would see is for a first-time home buyer, someone who's not abandoning a low rate and probably has been priced out of the market for many, many years. There's a lot more inventory to choose from. You have the ability to take advantage of first-time home buyer down payment assistance programs that normally are hard to win in a competitive situation when there's maybe a cash buyer or a traditional buyer with 20%, 30 % down. And right now, those first-time homebuyers that normally get priced out of the market or get outbid out of the market have time and inventory to pick from. So trying to see the bright side for those first-time homebuyers is a good opportunity in certain markets.

20:47Interesting. Okay. We'll take the silver lining. Just quickly, in light of all of this, and we talk so much about mortgage rates, when you buy a home, a mortgage rate can always be refinanced if it goes lower at some point or another. But the actual price you pay for a home, I mean, that's pretty fixed. So if you see rates elevated like this, if you see demand sluggish, at least on a national level, are prices poised to actually come down here in a meaningful way right now? That's a fantastic question. I think that was a strong narrative over the last 24 months. They would say you buy the property and date the rate.

21:17I think that's also just oversimplification. This really comes down to a local market. There are markets that are seeing, you know, high single digits year over year decrease in value. I'm talking 6%, 7%, 8 % in parts of the country. But then there's other markets that we will be up on a net basis, 2%, 3%, 4%. So this is really one of those, the consumer who is thinking of buying a house really needs to get onto that local market, consult with some experts, and really have a local, like zip code by zip code, county by county, assessment of what's going on on the ground in that marketplace. Okay.

21:54Leo Pereja, it's always great to have you on, CEO of VXP. Appreciate it. Thank you so much, Morgan. Straight ahead. We're getting technical with a rough start to September. This is still a start. We're more than halfway through the month already. Can you believe it? We've got a closer look at where we go from here and the critical market event today that could create fresh pressures for stocks. Our morning call crew will weigh in. Morning call. We'll be right back. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that.

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23:41Taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. Welcome back. A tough week for AI amid new questions about the pace of development, capacity constraints, safety concerns. For millions of retirement savers, the AI trade may already be inside of their 401ks. Sharon Epperson is here, and she joins us now with more. Sharon, it's so great to have you on. Great to be here, Morgan. You know, you may not think about it, but even if you don't own an AI stock or an AI-themed fund, market swings can still affect your 401k.

24:16When you look at the five tech giants like Nvidia, Apple, Microsoft, Alphabet and Amazon, they account for about 30 % of the S &P 500. Now, that doesn't mean an S &P 500 fund is not diversified, but it does mean a handful of mega cap stocks can have an outside effect on returns. And that's because AI can also show up in companies that supply chips, power and data centers and other infrastructure for the AI buildout. That exposure can also show up in target date funds, the automatic default option in many 401k plans, and that's through their stock allocations. So if the AI buildout slows, investors could see more volatility.

25:02Financial advisors, though, stress that AI-linked stocks are not your entire portfolio. So what should savers do? Well, they say look beyond the fund's name and check out its top holdings. Rebalance if you're overweight in one area. Consider a portfolio bucketing investing strategy. Keep near-term retirement spending and safer assets like cash and bonds and give growth investments, including volatile stocks, smears to ride out the market swings. And keep your retirement goal in mind. Moving to a more conservative mix may reduce volatility, sure, but it could also mean you need to save more to stay on track.

25:41The bottom line is know what you own, know the risk you're taking, and don't make a long-term investment decision for your retirement savings based on short-term market volatility. You can find a lot more retirement saving strategies by subscribing to my Money 101 newsletter. You can use the QR code right there on the screen or go to cnbc.com slash money101, Morgan. And to our viewers, sign up. It's the best ever. So in light of this, you just mentioned target date funds. I just want to dig into that a little bit more deeply. What impact could AI have in a target date fund, which is supposed to be a safer play?

26:18It's supposed to be a safer play because, as you know, as you get closer to retirement, it gets more conservative in terms of what it's investing and its equity allocation will be reduced. But that equity allocation is still based largely on the U.S. market. And so the U.S. market is exposed to AI in so many ways, as we just talked about. So that target date fund, that's still something to pay attention to and find out what holdings might be in there as well, because you could be exposed to AI more than you think. All right. Sharon Epperson, thank you. Sure. And join us for our second annual CNBC AI Forum in Dallas.

26:55That is October 1st, where top business leaders and entrepreneurs will share their insights on the booming AI market and how various industries are adopting it. Scan the QR code. Visit CNBCEvents.com slash AI to learn more. It's right there on your screen. While still on deck here, OpenAI releasing a new model that could send shockwaves to one corner of the market. Morning Call. We'll be right back. I'm Morgan Brennan. Welcome back to Morning Call. Let's get a check on U.S. stock futures this Friday morning. The S &P and Nasdaq coming off their best trading day since August. And you can see all the major averages are in the green this morning.

27:28Pre-market with the S &P poised to open 23 points higher. The Dow up 119 points and the Nasdaq poised to open up 137 points. It's a mixed picture right now in terms of the week with the Nasdaq pointed to fractional gains. But the S &P and Dow, at least ahead of trading today, slightly lower. Big story this week, though, actually from a sector perspective, has been financials. The worst performing sector since Monday, following big business warnings from Bank of America and Goldman Sachs. Both are down sharply this week, about 7 percent apiece since Monday. On the flip side, though, seeing strong rebound in chip stocks since Tuesday after a steep sell off to start the week.

28:03That was all tied to A.I. fears. But you could see the stocks in particular has had quite a rebound recently. Turning to the Treasury market and what we've seen in terms of bond market action overall, all. You can see right there on your screen U.S. 10-year Treasury yielding 4.95 percent. Fed-sensitive two-year Treasury, 4.71 percent. We've seen quite a move there in the last couple of weeks coming into and now out of that Fed rate decision. And the 30-year Treasury, 5.29 percent. We're getting a check on energy, too. Oil is actually riding a three-day losing streak. And you could see lower again right now.

28:38WTI is down about 1 percent, trading right around$100 a barrel. Brent is a similar story to, I think, around 103 last I checked, if we could bring that up on the screen. But if we check on some of the morning's latest headlines, the Bank of Japan raising its policy rate overnight by 25 basis points to 1.25 percent. It's the highest level since 1995. The 72 decision followed similar hikes by the European Central Bank and the Federal Reserve as central bankers look to deal with rising prices, an accelerated pace of inflation, she said, that is triggered by the Iran war as well as the AI boom. We're watching the 10-year yields at multi-year highs really around the world or just below.

29:17And we're also watching names like Thomson Reuters, LegalZoom, and others ahead of the open here today, too. OpenAI announcing a new Astra model for a new Astra for Law product, an AI agent that combines its latest and most powerful model with settings and tools tailored for professional legal work. As you can see right there on your screen, those stocks are anywhere from unchanged in the case of Thomson Reuters to down about 1 % right now for RELX. Speaking of AI, Anthropic now says that its Clawed bot leads more than a quarter of its AI research and development work inside the company and works alongside humans on more than 90 % of its total research.

29:54This as a group of cybersecurity researchers say they managed to gain access to OpenAI's internal systems using Anthropic's Claude as part of a bug bounty program. And President Trump is reportedly making plans for a first ever meeting with Venezuela's interim president as early as next week. Now, according to Axios, the meeting is likely to take place on the sidelines of the U.N. General Assembly in New York, with sources adding that, quote, nothing is finalized. This, of course, coming in the wake of a number of energy related deals, more energy related deals between the U.S. and Venezuela, including one with continental resources as well.

30:32Well, if we turn back to the markets overall, mixed picture as we look to close out the week following yesterday's post-Fed decision rebound. The Nasdaq back in positive territory on pace for the third positive week in the last four. The S &P working to finish in the green and avoid two straight weeks of losses. We'll see if we get there. The Dow is down 1.5%. It's on pace for its third negative week in a row. But for more, let's bring in Afsani Beshlas, founder and CEO of Rock Creek Group. And Afsani, it's great to have you on. There's so much to talk about. I actually want to start with you with what we've seen with rates amid these central bank decisions.

31:05Most recently, this one with the Bank of Japan, because despite the fact that we're now at the highest rate in Japan that we've been in 31 years, you've had the yen weekend this morning, the 10 year JGB yield fall and the Nikkei gain. We saw similar market activity yesterday following the Fed, too. Great to see you, Morgan. And it is really interesting, as you said, what has happened in Japan overnight is historic in terms of it being, you know, a rate that is higher than it has been in 30, over 30 years. However, I think the big difference between the U.S. and Japanese rate hikes was that in the U.S.

31:42it was a unanimous decision. There was sort of a clear message that Governor Walsh, at least in language, was being very hawkish following on his Jackson Hole speech. However, the Japanese decision was a split one. It was a 7-2 decision, plus the fact that the governor did not send messages the way that Governor Walsh did in terms of future hikes. And so the increase was already priced into the markets. And so they did not hear what's going to happen in terms of next rate hikes. And we saw the action on the currency, which weakened overnight as well. The other side of the market in Japan, of course, I think two things to watch.

32:28One is that the size of retail savings and direct savings by individuals has increased a huge amount and is starting to equal or be larger. than the official and the pension fund savings. That means that the individual will matter a lot more. The retail sector will matter a lot more. And what those people are doing is buying more Japanese stocks. You've seen a lot, you know, Japanese stocks are up close to 30 percent. And they probably will remain attractive, not just because of things like robotics, et cetera, but also because of money moving. You know, people may have less interest over time, not today, in U.S.

33:12Treasuries and start moving more into Japan. Yeah. And I mean, and along those lines, foreign holdings of U.S. Treasuries fell in July to the lowest level since October. So you are starting to see that rotation back into other markets and home countries. In light of that, what are the signals coming out of the global bond market right now? And how do investors need to interpret those and understand those, especially when, just to go back to the Fed decision, for example, earlier this week, it does seem the market made itself known. And the rally you saw on stocks behind that yesterday, perhaps speaking to this idea of credibility more than anything.

33:50Exactly. And I think I think what the governor did is to to sort of move it from a political decision, because there was so much concern of politics overriding the independence of the central bank. And by the unanimous decision, I think it became clear that it was the central bank making a decision and moving forward to make a decision. And it would be interesting, Morgan, to think that Kevin Walsh did come in, you know, and there was sort of a presumption that he had close relationships with the president. At the same time, there is a long history around how he has behaved before when he was on the FOMC.

34:31And in terms of future, he might be more concerned about his place in history as a governor of a central bank. And so his continued hawkishness may be something that keeps the markets more comfortable moving forward in the U.S. Nonetheless, there is the huge rollover issues that we have in the U.S. in terms of 2027. You have two risks there. You have huge amounts of bonds coming up for reissuance. but also the interest rates costs have gone up, right? So those are two big stresses on the system that will continue to be important. I do want to get your thoughts on what we're seeing in the energy markets right now, too, which seems to be, you know, a marketplace.

35:16The price of crude seems to be driving activity across other asset classes as well. And as somebody who has deep roots in understanding and studying energy, I do want to get your thoughts on what all of this means. Well, I think a lot of people are getting excited that there's going to be this meeting at the sidelines of the UN this week with the Gulf and U.S. president, and the energy prices have sort of calmed down and been on the lower side. But what I would emphasize is the fact that a lot of the fuels that we're using, whether it's jet fuel or diesel, continue to be at very, very high levels.

35:55And their levels are closer to like$150 plus oil price versus the sub$100 that we're seeing today. And those continue to be high. I think two things. On the negative side, I think there's still more mischief that Iran is going to be conducting in the region and around the world. And that, I think, is something that has to be dealt with. And so that also is something to consider. The second thing is that the positive side is green fuels, whether it's nuclear, whether it is solar here, whether it is other forms of cleaner energy like SAF to replace jet, not to replace jet fuels, but at the margin be helpful in places like Singapore, et cetera, where we're paying huge amounts for jet fuel could become super interesting.

36:44Yeah, it was just the G20 energy conference earlier this week. And I think the theme coming out of it from everyone I spoke to from the administration was that it's not energy transition. It's energy addition to your point right now. OK, so in light of all of that, we don't just have U.N. General Assembly next week where we are, I think, anticipating some more deals around things like energy and trading deals. But we also have this Trump-Xi meeting in Washington. What are you watching there? How does China factor in? I think this is going to be a super important decision. Obviously, the big conversations will be between Secretary Besant and his counterpart over the weekend, this weekend.

37:21So that will be something super important to watch. On the one hand, you know, probably what is going to come out is already baked in. However, we don't know whether President Trump will make any statements around the armament sales to Taiwan at this point or not. They already put the trade question kind of aside, the tariffs are question aside, and the increase in tariffs has been put on hold, at least for a very short bit. On the other side, we saw the yuan get stronger overnight, which did not get a lot of attention, by the way. And that often is something that, you know, the U.S. has asked for in the past.

38:01So the yuan currency getting a little stronger may be sort of a positive signaling to the U.S. But I think the big question is Taiwan, obviously, and the kind of messaging that President Trump will send around Taiwan will be critical to watch. And in terms of tail risks to the market, I think that will be like a very big one to watch next week. OK, Avstani Beshlas, it's always wonderful to have you on. Appreciate the insights. Thank you very much. As we head to break, let's look at crypto, which is catching a bid right now. Everything on your screen. Bitcoin's up about 2 percent. 77, well, trading just below 78 ,000 right now.

38:39Other cryptocurrencies are higher, too. And if we get a check on metals and what we're seeing there, silver up more than 2 percent right now. Gold up fractionally, trading around 4 ,400. And other metals, precious metals, are also catching a bit. We're back after this. There's a live look on your screen at the Apple Store on Fifth Avenue in New York City. It's the big day for the tech giant. The company's iPhone 18 Pro and Pro Max officially hitting store shelves, along with the latest versions of the Apple Watch and AirPods. Well, that video, I think we're going to show you some more video. There you go.

39:13Beijing earlier today as people lined up to get their hands on the new devices. Recent analyst data suggesting demand for the new iPhone might be stronger than first anticipated. Morgan Stanley noting earlier this week that lead times, this is the total amount of time from when a customer places an order to delivery of that order. for both iPhone 18 models are two to four weeks. That's flat to slightly longer from last year's iPhone 17 launch. Morning Call is back after this. It's time for your call sheet. Crew members today, Stephanie Gild of Robinhood, Jessica Inskip of Stockbrokers.com, and Gilbert Garcia of Garcia Hamilton & Associates.

39:48It's great to have you all here. Before we even get into the week that was or what you're watching, heading into the next one, Jessica, I'm gonna kick this off with you because the other thing we have today, And I realize it's more of a technical thing, but still it's something that could create some gyrations in the market is quadruple witching.

40:07That we do. So it's going to be more of a function of market mechanics, but that could send the market down. And with this quadruple witching, and I believe we also have a rebalancing of the S &P 500 as well, we can see a lot of buying and selling. And they're skewed over to the call side, though. So if we think about the market mechanics and the unwinding that market makers have to do, there could be a lot of selling pressure, which means it could push the market down, but only temporarily. So I'd watch that around 1.30 and 2 p.m. But it's really interesting because most of the concentration around 600 ,000 contracts, which represents over$5 trillion notional value, is found on the 7 ,000 and the 8 ,000 line.

40:48So that really pins us to almost a slightly positive and neutral market. But if there is some sudden selling pressure, I'm going to see that as a buying opportunity. But there's a key level of 75.93. That's important that we close out today that I'm watching very closely. OK, we'll be watching that, too. Gilbert, the big story this week, and I feel like it's been the big story all month, if not all year, has been what we've seen in the bond market. So I do want to get your thoughts after a Fed decision, a Bank of Japan decision, a Bank of England decision. And, of course, just big moves across the global bond market.

41:20Sure. First of all, obviously, the reason for higher rates is well known. It comes back to the tariffs. It comes back to the higher oil prices. And many of these things are just self-imposed or the mistakes that we have made or Washington policymakers. If you look at already, I believe that what the Federal Reserve has done has really been the exact opposite of what the problem was during COVID. In other words, during COVID, they did not raise rates that they should have. Well, now they are raising rates and they shouldn't. Because if you look at inflation, it's already at a five year low, whether it's the core inflation or trim mean inflation.

41:58And if you look at things like the job market, it's not as strong as it seems when you start looking under the hood. If you look at things like the real rate, real rates are very high, unlike during the oil crisis in the 1980s where real rates were negative. Here they are very high, some of the highest ever. And if you look at consumer confidence, it's already near 50-year lows. So when you add it all up, you would say this is not the time to be raising interest rates. Stephanie Guild, I want to get your thoughts on that, especially since it would seem there's a credibility component here, at least in terms of how the market reacted to that rate hike and the hawkish tone from the press conference and the fact that we have seen a rally in stocks after a really rough start to the week.

42:42Yeah, I mean, I agree with what was just said in many ways, but I also think that the rate hike probably was needed, to your point about credibility, because the Fed needed this is a new Fed chair. And I think the group just needed to show that they are willing to do something in the face of inflation. And while there are a lot of reasons why we have inflation, which comes back to the mistakes that were made and energy prices and tariff. But it also comes down to the fact that there's a lot of debt issuance because there's a lot of demand for and growth is actually happening when it comes to the AI play.

43:20And so we can't ignore that part. It's not all just coming from mistakes. It's also coming from a huge amount of growth in the tech world. Jessica, I want to get your thoughts on this. especially as we know the energy market has been driving a lot of the activity that we've seen across other asset classes as well. Well, going back to some of the things that I had mentioned. First and foremost, I agree. Jessica, Gilbert, I'll get to you, too. Let's start with Jessica. Thank you. Thank you. That's OK. I agree. I agree completely with what Stephanie is saying here. It is a credibility hike that was needed.

43:55And I want to think about that for a moment. Fed Chair Warsh came into this position with a cloud over his head, which is this large question is, is he political and is he going to raise rates when it is necessary? And now I also agree with our other guests here that the data suggests that this is a supply side shock. So raising interest rates isn't going to tackle the supply side. It's not going to print or provide more oil. Interest rates are a component of demand. But if Fed Chair Warsh does not have credibility, any future interest rate decisions won't really matter because of the way that the market reacts.

44:31And then that leads me to my biggest risk that I see within the market. Right now, the biggest risk is higher bond yields are competing with equities really directly with capital. And there's three reasons behind that. Number one, the complete regime shift that we're seeing underlying within the bond market. We've moved from price agnostic buyers to price sensitive buyers. So think central banks, less institutional. The second is the normalization of yields. Now that we have inflation and growth to Stephanie's points, the fiscal backdrop, that want to understand the normalization. So less parabolic shifts, more where are we going to land?

45:08And third, we have AI competing for capital. We've had the hyperscalers had negative free cash flow. Now we need to go and grab some cash from the debt market. So there is competition, but it's price sensitive competition, which means yields are going to find what they're actually worth. But that's the larger question that's more sensitive to economic data. OK, the competition between yields and equities, which is normalization. But I am happy with Fed Warsh's decision. I don't think it was the right one, but I think it was the right one due to credibility. All right. We got 30 seconds left. Gilbert, I'm going to let you weigh in here since I know you had thoughts.

45:43OK, thank you very much. There's no doubt that I believe he did it to build camaraderie with the FOMC members. But I think he should have waited for the task forces to report back. I think he should have waited to see what they're going to be doing with the balance sheet, what they're going to be doing with getting better data. If you look at where the consumer is right now, they're already stretched out. Savings is very low. They already are having problems affording everyday goods. And I believe they're making a policy mistake. I think we're going to look in the future and say, you know what?

46:14They're making the very same mistake. Okay. I'm sorry. We have to leave it there. Okay. We have to leave it there, unfortunately. I hope you all have a wonderful weekend. Thanks to our call crew. Real talent is defined by what people can do, not where they learn to do it. So by stopping at the education section of a resume, you might throw away the perfect hire. Skills First Hiring helps you see talent others miss, like more than 70 million stars. skilled through alternative routes. Let their story unfold and gain a competitive advantage because hiring managers who start with skills are 60 % more likely to find a successful hire.

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