AI disruption, energy shocks, and policy risks reshape markets 3/25/26

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1:01I'm Morgan Brennan, and this is your morning call. Welcome to CNBC's morning call. This is a new show designed to be your daily destination to get an early start set the narrative for the business day. U.S. stock futures with the major averages coming off their fourth, down day and five. It was a whip-stop session yesterday, but you could see popping here this morning poised for sizeable gains at the open. Similar situation for treasuries, bonds right now, some buying in there as treasure yields are under a bit of pressure. You got the 10-year U.S. treasure yield, 4.334%. And take a look at what we're seeing in metals as well, because precious metals and industrial metals are both on the move higher. Gold is up about 3.5% silver is up 5% right now this after a five day losing streak for gold.

2:01But to our top story, energy markets pulling back in a very big way this morning. That's what's driving all the market action we just showed on your screen. Brent, back below 100 bucks a barrel. This is on reports the U.S. has sent. And Iran has received a 15-point plan to end the war, even as the Pentagon reties to deploy another 3,000 troops to the region this time through the Army. President Trump speaking with reporters in the White House yesterday. The fact that they're talking to us and they're talking since. And remember it all starts with they cannot have a nuclear weapon. Just, you know, I said yesterday, what did they said? What are the top 10? I said, well, number one, two and three is they can't have a nuclear weapon. And they're not going to have a nuclear weapon. And we're talking about that. I don't want to say in advance, but they've agreed they will never have a nuclear weapon. They've agreed to that. A regional reaction now with our Dan Murphy in Dubai. Dan, what are you hearing?

3:01Hey, then, Morgan. Well, the AP has just reported that Iran has now received President Trump's 15-point peace plan via Pakistani mediators. And the drop-in oil prices perhaps shows that investors believe Washington is serious about ending this conflict. But, of course, we still don't know who exactly the U.S. team is talking to. And analysts tell me today this peace plan could be more of a wish list than a ceasefire framework, at least for now. Iran's military also making clear where Tehran stands. A spokesperson saying today, according to state media, that the U.S. is, quote, negotiating with itself. It's a push back there on Trump's claim made just a day earlier that Iran wants to make a deal. Meanwhile, we're also learning more about Iran's demands, which are steep. The Wall Street Journal reporting that Iran is calling for the closure of U.S. military bases in the Gulf, the lifting of sanctions, and the right to keep its missile program intact as well, a U.S. official calling those demands, quote, ridiculous and unrealistic.

4:01That also seems to be the view from the Gulf as well, Morgan. Leaders here have balked at the idea that Iran could charge a toll in the Shared Strait of Hormuz, and are also reportedly lobbying the President to stick with this war plan until Iran no longer poses a threat to their people or infrastructure in the region. Reports also say that Saudi Arabia has told Washington it is prepared to strike Iran directly if its own power and water infrastructure is targeted again. And then Morgan on the ground, very few signs now that we are seeing a slowdown. As you mentioned, the Pentagon deploying thousands of additional troops to the region, Iran maintaining its grip on the Shared of Hormuz in Israel, also saying its strikes on Iran will continue. Yeah, the Army's 82nd Airborne, we're getting some more detail on that, and just a few minutes here on the show, also getting some reports of high-level meetings that could potentially take place as soon as Thursday, between delegates of the two countries. We'll see how all of this plays out here over the coming hours, Dan Murphy. Thank you. Well, as energy prices pull back, once again, we are seeing U.S. equity futures move in the opposite directions.

5:05As you can see right there on your screen, the Dow up about 400 points, indicated for 400 point gain at the open. Similar situation with the VIX as well, as we start to get a bit of a breather there this morning. Those still elevated, it's down about 5%, 2570 is the level there. Major indexes across Europe and Asia also, sharply higher. Joining me now, Joe Missola, head trading and derivatives strategist at Charles Schwab. And Joe, it's great to have you on the show. Let's start right there. Because we've been talking about the headline risk for the markets here and this inverse relationship between oil and equities, what breaks that loggerhead? I think that's a great question. I think, you know, we need to see that there is real movement in terms of these negotiations. Futures tend to spike fairly quickly and then what we tend to see throughout the course of the day as more information comes out. That's where that's when you really start to see whether or not the cash is moving alongside. I think getting grand back down below 100 helps.

6:06I think we have started to see some other indicators that maybe volatility is coming out of the market. You know, one of the things that I followed quite a bit is the move index and that basically measures the volatility of fixed income. That had, we had gone from 55 up to 110. So we basically had a double within a month's period. That is starting to come out. You know, not only are equities pricing off of what's happening in the oil market, but to a certain extent, you know, the bonds have had an effect as well too, as yields have pushed up. And it's basically making it difficult for investors to kind of follow any 60, 40 type of portfolio because you got bonds and equities falling at the same time. That's such a key point. It's been a nowhere to hide market here. So where do you hide? Well, I'll tell you what we're seeing. What we're starting to see from our own clients is that we saw a decent amount of selling at the beginning of the month, but that sounds really started to abate.

7:07What we've seen recently is a pushback into technology. A couple of names specifically would be Microsoft and they had those are two names that we've seen a lot of buying in. We've actually seen what's interesting Morgan is a bit of a rotation from equities into ETFs. So there's been more of this idea of we want to be a little bit more diversified in which is, which is a bit of a change because what we tend to see or what we tend to see over the last few years is a. A real pension for investors who want to kind of pick and choose what they consider the winners in the AI had been. Top of a list for many, many years in terms of the net buys, but now we're starting to see some of the more diversified ETFs move up that list as investors are trying to kind of figure out what path to take. On Monday, it was it was interesting in the markets all 11 sectors were up. So, you know, eight to one advances over the climbers, but that a lot of that started to dissipate yesterday, but I think we only had six of the sectors finish higher. We'll see what it looks like today.

8:07You know, we saw the equity futures of about 75 points earlier in the in the e-minis in the S&P 500. We're down to about, you know, higher by 58 right now. So there's still time before the market opens, but it'll be interesting kind of to see how these flows go. Yeah, and in the meantime, we haven't had a ton. We do not have a ton of economic data this week, but we have been getting in has been arguably conflicting. So Joe stay right there, because I want to turn to the broader economy ripple effects of the war with Iran. Economists now starting to weigh in as well on cnbc.com's Jeff Cox, just published an article with new details. He's joining us live this morning to break it all down. Jeff, good to see you. Good to see you Morgan. I'm glad to be on this show. Congratulations. Enjoying it a lot. Thank you. So it's just so it's just a Wall Street economist are getting a lot more nervous about the prospects for recession. The next 12 months, not trying to rain on the markets parade today. But Moody's has raised its recession probability to nearly 50%. Goldman Sachs is now up to like 30%. EY Parthenon is around 40.

9:07Wilming's entrusted 45%. So just getting a lot of this type of conversation from the economists that I'm speaking to. We're all on edge with uncertainty about the Iran war looming. Everyone's nervous about prices at the pump, which are risen by more than a dollar a gallon. But it's also very much about the labor market. We're coming off a year where we just saw 116,000 jobs in aggregate created. That was less than the monthly average for 2024. And then when you exclude health care from that, we're talking actually about a loss of more than half a million jobs. So a week labor market in turn means a week consumer. And that's what's really kind of got economists on edge here watching for further developments. Is this going to hit consumers spending? Are we going to see more of an aggregate aggregation of that case shaped economy? And how sustainable is all this as we go forward? Jeff, thank you. Joe, I want to get your reaction to that. Especially as you just touched on it before, we have seen a surge in yields for the two-year treasury

10:11as the Fed and other central banks across the world to become more hawkish. Hi, and look at yesterday's PMI reports, right? Even though both showing an expansion territory saw the prices paid up around the 60s in some of those components. So that's where sometimes you need to dig a little bit below kind of the headline news, especially with the PMI data that came out. Just to show that consumers getting hit harder, they definitely are. It's one of the things that we talk to our investors quite a bit, not only through our stack report, which is basically a look at kind of what they're doing in their activity, but we also interview them. And we ask them kind of an attitude and all standpoint, how are they feeling? And that is something that we're hearing quite a bit. Is that, look, your prices, their concern around prices going up, there's concern around the geopolitical conflict. We haven't seen that lead to, like I said, a mass accident in equities by any means. If anything, you know, there's just kind of a rotation going on. And they're still looking for opportunities.

11:11But at the same time, the longer this drags on, the higher the prices at the pump. And ultimately, the lower the discretionary income that's going to bleed out into the economy at some point. Okay. Joe Missola, great to have you on. And Jeff Cox, our thanks to you, go read his article. It's on cmbc.com right now. A lot of good information there. Well, we've got a lot more to come here on morning call as well, including the straight-of-form moves. What will it take to get back to business? And what does that mean for oil? What does that mean for the broader markets? Plus, about face at OpenAI, over one of its more controversial features. And later, a big legal blow from Meta, one of one of the company plans to appeal. We've got a very busy hour still ahead. You don't want to miss it one morning call returns. In 2024, a truck crashed into Canaw in Morescu, where I work. 146 of our dogs needed homes fast.

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13:14This winter, we're all on the same team. Comcast, proud partner of Team USA. Welcome back to Morning Call. The critical straight of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. Just 21 miles wide at its narrowest point. It handles roughly 20% of the world's daily global petroleum consumption, as well as many other commodities. With a straight effectively closed experts say the energy supply shock and subsequent market volatility will not subside until more commercial vessels are able to cross. So this is what this has caused over the past month. You're looking at a live picture of the ship congestion around the straight. This is from marinetraffic.com, if we could pull that up right there on your screen. In lieu of a peaceful resolution, what will reopening the straight take?

14:18While neutralizing land-based missiles and drone threats from Iran, on the water countering the Iranian revolutionary guards, hundreds of small, fast attack boats that can swarm larger vessels, and then, of course, there is a threat of underwater mines, which some experts say could take weeks to clear. Finally, there is the big unknown, and that is ground operations. So you could see right there joining me now is Retired Vice Admiral Kevin Donigan, who was former commander of the U.S. Navy's Fifth Fleet. He's now distinguished senior fellow at the Middle East Institute and Admiral. It is great to have you here. Also joining me in studio is John Kilda, founding partner at again capital and a CNBC contributor and Daniel Tannenbaum, partner at Oliver Wyman and a senior fellow at the Atlantic Council. But Admiral, I want to start with you, and specifically what it is going to take to open the straight from a military standpoint, from a logistic standpoint, especially as we hear the possibility of peace talks on the one hand, but more troops, more assets headed to the region on the other.

15:21Hey, well, thanks Morgan, yes. That's really the question that we all want to answer. Not just what's it going to take, but how long it's going to take. The first thing that I'll say is that there are two paths open, but war is inherently or conflict is inherently unpredictable. That's probably the only certainty about it. You have the negotiation path, and we'll put that aside for a second to talk about the options from a military standpoint. You see these forces flowing through the region, the 31st view, the 82nd airborne, et cetera. But you also have a change somewhat and inflection point in the campaign that's ongoing, that Sencoma is currently doing. Meaning they are doing a good job getting at missiles, drones, and the things that they wanted to get at in the country. And it allows them now to shift if they choose weight of effort towards opening the straights, where you'd see not just the navy going there and help do this, but this entire joint force would have to be part of it if it had to be forcibly opened. And that takes time. So Admiral, I just, I want to pull up this map again

16:23before I bring in our other guests. And specifically the piece of this that could mean ground operations, because devils in the details here. But there is talk that what you potentially need to see is some sort of seizure of some of these islands, for example, along the coast where we have so-called missile cities and drone activity as well. And then, of course, there's the talk about Carg Island as a key tactic, leveraging tactic, a key tactic for leverage. And in the wake of, I'm getting myself tongue tied, negotiations with Tehran. Just the fact that we do have all these Marines headed there, we have 82nd airborne now, according to numerous reports, headed there. How to think about what boots on the ground could actually mean and just how prolific that could be when we have seen forever wars and things like that in the past? Well, certainly boots on the ground raise the risk of the force, right? If you're going to put any boots on the ground, even if it's for a raid early on one of those islands, that's going to increase risk.

17:23But the overall idea is to deny Iran's capability to use those islands and those places as a way to stage any kind of attacks on commercial shipping. That's the idea. And you don't necessarily have to have boots on the ground do that. These forces could also help in terms of adding to the force that's already there to help defend anything that's moving through. But they definitely give the commander the capability to do a lot more if they needed to, unlikely that we'd go in and occupy large portions of Iran or even occupy some of these islands. However, like I said, there may be specific things that need to be done on the ground to nullify that threat you talked about. We used to talk about it as an air threat, right? A lot can come at you from mines and missiles and cruise missiles and these fast attack craft. But a lot of that's been eliminated already or significantly degraded. So the mission is absolutely executable. The real question is how long make to do it and when can flow be restored?

18:24Okay, so with that in mind, Daniel Tannenbaum, I'm going to bring you into this conversation as well, because we've also had reports that Iran has been charging for right of passage for some vessels and we've seen the waving of sanctions, not only on Russian oil, but now on Iranian oil that's on the water as well. That's right, and we saw Friday night the president put out a license that authorized pretty much anyone but North Korea, Syria, Crimean parts of Russia that were able to buy Iranian oil. But the challenge there is this is actually pushing people off the dollar. Most of this oil was never bound for the US. China had historically been the largest purchaser of it, but you're seeing a movement towards settlement outside of the dollarized system, which really makes the US's ability to sanction, to seize pretty meaningless. Interesting. John, I want to get your thoughts on this and what it means for what's potentially arguably a repricing longer term of oil here, because even as we release all these strategic reserves right now,

19:25those are going to have to be replenished. And perhaps there's an argument to be made about where geopolitical risk premiums are going to be commanded when you look at different oil contracts. No doubt, Morgan, and it's good to see you. Importantly, we're not going to be able to get out of this anytime soon. And as we're seeing with some of the reaction in the oil market to the various wildly breaking news events, such as this new 14-point plan that's been apparently sent over to the Iranians for a piece of the oil. You're only seeing oil prices come down, Brent's barely under 100, for example. And that's because the damage is being done an increasingly so on a daily basis here. The shut-ins among the various OPEC members that are around the straight that are before the straight. So to the left of your map of Oman here, you have the UAE, you have Saudi, you have Kuwait, you have Iraq. Okay, that's the 20% of world oil people are talking about. They're shutting in their oil production because they have no place to put it. They can't put it on boats, obviously, and they don't have storage for this.

20:25They're not built for that. They're like sharks. They have to keep moving and get them oil out. So you're going to see a higher price level. It's unfortunate because we came into this year talking about a glut. But potentially, oil prices as low as into the 40s that we hadn't seen. Or even dreamt about in a long time. That's over for some time now. We're not going to see that, and we're not going to go back to any lower levels. And we run the risk of going back up higher if some of this isn't resolved, particularly if they can't get the straight open. It's heartening to hear the admiral say that it's a mission that can be accomplished. But it seems like a very difficult undertaking. Yeah, and a lot of countries are already being impacted by this. And you're seeing policy pushes, whether it's things like gas tax holidays which are being floated here in the US. You've rationing in some countries already. Who's the winner in all of this? Is it Russia? The irony in all of this is it's Russia. I mean, it's reported that they're experiencing their largest weekly income since March of 2022. Just after the second invasion of Ukraine, Russia is almost undoubtedly the winner here.

21:29And these sanctions relief that were first imposed related to India buying Russian oil, then humanity buying Russian oil, and then the rest of the world buying Iranian oil. All it does is really erode some of the economic statecraft tools of the US and show how transactional they are that we really give in when there's pressure on the American economy, which doesn't bode well in the near term. Okay, Daniel Tannenbaum and John Kilduff here in studio. And vice admiral Kevin Donnegan, thank you so much. We'll continue to watch all of this and monitor it here in real time. We'll straight ahead. New details ahead of Wall Street's potentially biggest IPO ever. Reportedly coming to market sooner rather than later. But first, we're watching shares of arm holdings announcing it will begin selling its own chips for the first time ever. It says it will add billions of dollars in new revenue. It will mark a strategic strategy shift. Meta platforms is its debut customer. And also the EPS guidance now over the next couple of years is monster compared to what the street had been expecting.

22:31But the majority stakeholder soft bank is also popping overnight on this news. Perhaps not surprisingly, morning call is back right after this. That's pure automotive joy. I'm Peter, the owner of Muscle Car Junior. It started as a hobby, then I started posting about it. Before I knew it, I built a business for storing muscle cars on Facebook Marketplace. And the community of car lovers on Instagram. Today, new customers send me what's that message is from all over. Not bad for a hobby. Learn how Meta helps over 35 million American businesses, like Peter's Grow, at Meta.com slash community. United Health Group is bringing in-home treatment directly to patients, closing caregabs, identifying risks earlier and improving patient outcomes. In 2025, patients received over 19 million home visits. Learn more at unitedhealthgroup.com slash commitment. Few things are as uplifting as the greatest moments in sports. And nothing brings us together quite like Team USA at the Olympic Winter Games.

23:34From NBC Universal's iconic storytelling to the innovative technology across Exfinity and Peacock, Comcast brings the Olympic Games home to America, sharing every moment with millions. When Team USA steps onto the world stage, we're not just watching. We're cheering together. This winter, we're all on the same team. Comcast proud partner of Team USA. Welcome back. NASA unveiling sweeping updates. Updates had its ignite event yesterday, repositioning the agency for what administrator Jared Isaacman called, quote, a great power challenge with China. NASA now plans to invest $20 billion over the next seven years to develop a base on the surface of the moon to not only send humans back to the lunar surface, but to allow them to live there.

24:37To pay for it, NASA is pausing work on the lunar Gateway Station, which sent some space stocks tumbling in trading yesterday. Gateway was being built by Northrop Grumman with the help of contractors, including Redwire and Intuitive Machines, a subsidiary of Intuitive Machines. That sent shares of Intuitive Machines down almost 12% on the session yesterday. It also sent MDA tumbling to, even as the Canadian Space Company, issued a statement saying its robotic arm is under contracts with Canada Space Agency, not with NASA. You can see MDA is up about 2% right now, pre-market, but a push toward more commercial technology reversed Intuitive Machines tumbled to. And as you can see right there on your screen, it's up 4% pre-market. It disclosed last night that it was awarded $180 million contract. NASA wants near monthly robotic lunar landings starting next year, and Intuitive Machines Firefly others are on tap to be able to deliver that capability. Also on tap, the first nuclear-powered interplanetary spacecraft to launch to Mars

25:38before the end of 2028. And in the meantime, next week, the historic Artemis 2 mission that is still on track to send astronauts around the moon. All of this, as the information reports at SpaceX, is planning to submit, confidentially, its IPO application, as early as this week, and that it could be looking to raise even more money than had been previously reported. So we'll keep an eye out for that. But still on deck, JPMorgan's Joyce Chang. On stagflation risks, private credit concerns so much more. First, watching shares of GameStop after reporting a 14% drop in Q4 sales, you could see those shares are up fractionally right now. Morning call continues right after this. As America celebrates its 250th anniversary, CNBC spotlights the leaders, driving business, and the nation forward. The two things that really make America, what America is, is free expression,

26:42along with free market capitalism. And those two themes are really the bedrock of what makes the United States such a great country. When the United States was created, there was plenty of newspapers, and that evolved into radio and television and digital. But until 37 years ago, when we created CNBC, there was really no deadly window into the world of free market capitalism for the average citizen. So when we think about the 250th anniversary of this country, CNBC should be celebrated as critical to what makes America great. Welcome back. I'm Morgan Brennan and this is Morning Call, a new show designed to be your daily destination

27:53to get an early start and set the narrative for the business day. Let's take a check on US stock futures. What you're popping right now, you can see that on your screen. on your screen, all the major for a markedly higher open as of right now this after a a whipsaw day yesterday that saw the averages finish fractionally lower. If we turn to the Treasury market yields are a bit lower as well right now across the curve, 10-year Treasury 4.332%. And checking on the VIX as well, because that is coming off the highs here to down about 5% right now, but still around 25. Checking some of the morning's top story was crude prices sinking on mixed messages from the White House, including reports that the U.S. has sent, and Iran has received a 15-point plan to end the war. This, even as the Pentagon readyes to deploy another 3,000 troops to the region, the president himself saying Iran's already agreed to one point in his plan. The fact that they're talking to us and they're talking since. And remember it all starts

28:53with they cannot have a nuclear weapon. Just, you know, I said yesterday, what did they said? What are the top 10? I said, well, number one, two and three is they can't have a nuclear weapon. And they're not going to have a nuclear weapon. And we're talking about that and I don't want to say in advance, but they've agreed they will never have a nuclear weapon. They've agreed to that. Meantime, we're watching shares of meta-platforms, a landmark case in New Mexico where a jury just ruled the company must pay $375 million for violating the state's unfair practices act, failing to safeguard its family of action. And South Korean ship giant SK high-nix is exploring a US listing filing paperwork with the SEC for a 2026 IPO. Local media reporting the company is considering raising between $6.7 and $10 billion US at current exchange rates. And I refresh off of a $10 billion funding for the company. And I refresh off of a $10 billion funding round. OpenAI says that it's shuttering its short

29:53form video app, Sora. This is just six months after its viral launch. This is the company looks to rein and costs ahead of its perspective IPO. OpenAI, CFO, Sarah Fryer was on mad money just last night. We just are facing a lack of computes. We're having to make those really difficult decisions. I've talked about it to many investors. Often we hold back models, we don't release features. And this is the example of having to prioritize. It doesn't mean we won't get back into areas of creativity. It's not a never. It's just we have to make hard choices. Well, Fryer adding when it comes to openAI's contract with the Pentagon, a framework is in place to observe the company's, quote, red lines, including no master valence and no autonomous weaponry. Well, investors continue to ride the roller coaster of headline risks around the Iran War, driving the action. And as we highlighted just earlier, expectations on Wall Street of Recession are rising. Front and center to all of this is the action in the oil markets. And the energy problems in one state may just be getting

30:54started. Chevron is warning California may be headed towards an energy crisis due to its importing about 20 percent of its refined fuels from Asia with countries they're struggling to meet their own energy man's due to the straight-of-war moose issues. For more, I am joined by Joyce Chang, chair of Global Research at JPMorgan. Here on set, it's great to have you back. Welcome. Thank you. So much to get into here. How are you thinking about this market given all the volatility and headline risk? So we're looking at scenarios where you have oil prices staying at a hundred through the middle of the year. And we've made some adjustments to the economic forecast because of that inflation. You see that 0.8 percent higher, taking half a percent more off of growth. Now, the good news was that the economy was really strong going into this. CapEx growth was very strong. But when you look at infrastructure disruptions, you have to think about this being a scenario that endures. So we're looking at mid-year, $100. Doesn't come down to 90 by $80 at the end of the year.

31:54But you're not going back to where we had oil prices prior to this. Yeah. And in terms of that, how to think about that repricing, that re-rating of energy here and specifically that geopolitical risk premium that's now going to be associated with it. Especially as you have countries that are now potentially going to be stockpiling in the wake of this. Yeah. No. I mean, you're seeing real asymmetries and you're seeing uneven effects. I mean, in Asia, there really are shortages right now. It's not even about the price. I mean, that you're seeing schools shut down. You're seeing restaurants close. And you think about it too. Go from the straight-of-horn moves to the US. It takes about a month and a half. So you're not even filling some of those effects yet, given that we're only one month into this. So I think we are looking at oil prices that are going to stay higher. And the center of gravity remains the straight-of-horn moves. I mean, that's 20 percent supply. There are alternative routes. But they don't replace this and the SPR reserves, the strategic petroleum reserves and everybody's looking at what they have stockpiled. You know, are not going to

32:54last indefinitely. Yeah. And we're starting to get, you know, get comments about potential shortages and other types of commodities too, like helium. So a fertilizer price. A fertilizer. And it's the key spring planting season right now. So that has potential knock on effects. To go back to this idea of rising risk of recession. I mean, in the prediction markets, calcium specifically, I'm just looking at this right here. On March 1st, those risks of a recession this year were at 22 percent, currently up to 32 percent. Whether it's recession, whether it's, I think you call it, stagflation light. How to think about how this manifests and what that's going to mean across different asset classes, including, by the way, treasuries, which are behaving a certain way. Well, I think if you have to still look at the longer-term story, so much of the story was driven by cat-backs. And cat-x growth was still over 7 percent. So if you still think this longer-term story is AI and cat-backs and that that won't be derailed over the longer term, that's why I say stagflation first. I'm not so sure that you have a growth hit that is as bad as it could be. So we've taken 0.2 percent off

33:55of growth, but that's pretty modest here. And going into this, you had very strong growth. I mean, US growth, you know, over 3 percent, you know, China's growth, over 7 percent. So I worry more about the inflation impact. And I think, you're right, right now, you see hedging, but not de-risking from investors. And with treasuries, I mean, that has just not been a good hedge. You've had a breakdown of the stock bond correlation that's, you know, really in year five, right now. And so, long dollar has gone back to being the hedge and traditional energy. Yeah, I want to get into all of that a bit more. We have lots more to discuss. Joyce, stay right here. We're going to take a short break right now and there will be back with the call sheet. So a lot more to come here on morning call. Private credit crisis. More firms curbing client withdrawals. AI disruption. You can go on down the list here. We'll be right back.

35:08Welcome back to morning call mounting private credit concerns as yet another major player in the space looks to curb client withdrawals with some high profile funds from some high profile funds. Leslie Picker joins us now on the CNBC newsline with more Leslie. Hey, Morgan. Yeah, areas is the latest firm to cap redemption. And it's semi-liquid private credit fund that made redemption requests totaling 11.6%. So this is just like what we saw from Apollo on Monday. And then we've seen that with clipwater and Morgan's family and BlackRock in recent weeks. So areas opted to thwart redemptions above 5%. Just like those other firms did. So that means that investors who wanted, say, $100 back got less than 50. Blackstone is the only major firm that has so far opted to fulfill all the requests in the first quarter. But Morgan, if the date didn't exist, the fund would need to sell a bunch of liquid loans which could dent performance for the remaining investors. Or it would need to take on additional leverage or draw

36:08down cash to fulfill the redemption request. However, what's kind of interesting about areas that I would note is that the fund actually grew during the quarter thanks to $708 million in gross inflows or about $184 million in net inflows. So I was actually kind of curious why they didn't use those net inflows to fulfill redemption above the 5% threshold. And I'm told that it's because areas wants to use the dry powder for future investments. And it's also kind of a precedent thing to Morgan. If you are the firm that fulfills every single investor request and you start to turn into, as one analyst described it, an ATM where other firms are gating and you're the one letting everybody redeem. People just keep redeeming and redeeming and redeeming expecting that cash to pop out of the ATM. So part of its psychology and part of its opportunistic as well. Some key insights and key reporting from our Leslie Picker on the newsline. Thank you for joining me. I want to bring in our morning call crew. Just Joyce Chang, chair of global research at JPMorgan. She's still with us.

37:08Henrietta Trays, co-founder and director of economic policy at beta partners. And Drew Pettit, director of US equity strategy at city research. It's great to have all of you here. Joyce, I'm going to kick it off with you and get your reaction to what Leslie just reported given some of the cracks we have seen in private credit. And it takes me back to Jamie Diamonds comments about cockroaches. Well, there are some real headwinds for private credit. And I don't think you're through with seeing the redemption, some tightening of the liquidity. But I also have to say that this is not a problem that we see as being more systemic or having a lot of spill over. You also have unused bank commitments. There will be some secondary fundraising that's going on. And there is a lot of dry powder. And that is one reason why we do see a lot of the specialists firms now really holding out and saying, are there some opportunities to step in right now? Retail is also pretty small in private credit. So I'm not so worried about the contagion, but I think the headwinds are there and you're still going to see more of the trends that we have been

38:08looking at with the redemptions and the collateral also get the tightening of the liquidity considerations as well. Okay. Drew, your thoughts? Yeah. It's funny. I got to give a lot of credit to Michael Anderson and our high yield team here. Look, we expect to fall rates to rise. It's like four and a half percent in private credit now. We think that probably takes up to seven percent. And I think a really good proxy and something we should be looking at is BDCs in the discounted nav. That's been falling. So really to Joyce's point, yeah, liquidity is becoming the problem and you should see some deterioration. But is it massive? Not yet by our team's destination. Yeah. I mean, just be to this idea of a wall of worry that the markets are climbing. Even as we have deregulation for banks on the table here from a policy perspective, I think it's going to be a lot of trouble. I think it's going to be a lot of trouble. I think it's going to be a lot of trouble. I think it's going to be a lot of trouble. So I think the policy perspective, private, credit and private markets has not been nearly so regulated. Does that, does any of this shift that narrative? No, I don't think any kind of expectation for operations

39:09that a DC and a proactive approach to this should be expected. DC is struggling just to keep the lights on. They're hoping to get a DHS belt that can get us through the airport quagmire that we're in right now. And I don't know if that will even end by Thursday, which is my hope. But the widespread affordability narrative is really a huge problem. Some of the data sets that they're looking at are just atrocious with people thinking 17% of Americans think it's a good time to buy a home. It's just the affordability cascade and they can't pass any of this legislation. So I wouldn't expect them to be able to focus on this right now, either. Okay. We're going to get into much more on the other side of this commercial break. It's not just private credit that is driving the market and the conversation today. So the morning call crew is going to break it all down. Stay with us. We'll be right back. Welcome back. Let's bring back our morning call crew. Joyce Chang, Henrietta Trays, Andrew Pettit. Still with me here. Lots to still get through. We're going to kick it off, though, with a conversation that private

40:09credit, perhaps, dovetails into. And Drew, I'm going to start this piece of the conversation with you. And that is the AI disruption narrative. Seems to be back alive in the market yesterday. Perhaps due to some reports about Amazon and what they're developing internally at their company. But once again, software getting hit. Yeah, it's broad de-risking when you have these headlines. We've kind of talked about this before. I think the worst way to talk about this is near term earnings. Look, Q1 or sorry, Q4, Q1, probably going to be good for software. You saw a lot of beats and raises. But the problem is long term profitability, which really questions the terminal multiple. So to us, you de-risk the terminal multiple and software. Let's call it four or five times. We asked the made it. It was kind of closer to 28, maybe 30. You're kind of down to maybe 24, 25 now. But that has huge price impact on these stocks. So we're dealing with something unknowable. It's three, four years out potentially.

41:09And the market reaction is really just sell all of it. And any time we have these bad headlines. Yeah. I wonder if the areas of growth and how those are being thought about in this market and how those are being thought about in this market choice is changing. Because it does feel like especially with the geopolitical landscape, there are more traditional. We've been talking about the halo trade, for example. There are more traditional parts of the market. They're seeing more money flow in now. Yeah. So I think traditional energy, alternative energy is back. And if you're taking a look at software, some of the cybersecurity, I think, is going to be more important in the future. So there are some opportunities here. But there is a real thing on software company. And we've seen in many of the software companies that they've really stopped hiring human beings. That it is leading to a lot of labor market disruption. And there are concerns that that still has further to play out. So we are seeing, though, in the traditional sector is holding the dollar, high grade debt, rather than high yield debt. All of those trades, we think, have value here in an environment where you have to remain more defensive.

42:09Yeah. And we're really still in early innings for AI. Henrietta. And yet, in the economic data here in the U.S., we are seeing strong productivity readings. And that is arguably the bull case, despite higher commodity prices and some of the other issues around labor market, et cetera, here. So how to, I guess, work through that, especially as we are talking about things like affordability. Yeah. Absolutely. And I think the AI boom that we're seeing in all the benefits that we've seen to the market are so severely undercut by the rising commodity price. And we're seeing, we're seeing, we're seeing, we're seeing, we're seeing, we're seeing, we're seeing the rising commodity prices by inflation, by the tariffs, which we have to keep an eye on. And the President is going to get that same IEPA authority back in about eight weeks when USTR-DEOR grier finishes this section through one investigation. So the head wins that, well, the gains that we should be seeing from AI and all that productivity and all those economic boosts are being severely undercut by gas prices at where they are right now. And the most interesting thing to me is that after $83

43:10a barrel, the one big one big, beautiful bill tax benefits get completely wiped out for the American public. So we're way past that. And the AI boom is getting washed away here. You just brought up a great point and that is the tear of peace of this. We haven't, with all the policy talk, amid higher energy prices and what we're seeing in the Middle East right now, we haven't seen anything in regards to a shift of the tear of policy. Yeah, it's fascinating. So Secretary Besen and USTR Greer promised us that they deliver on Trump's agenda to get the Section 122 tariffs up to 15%. But you can see that the administration is not doing that because they don't have the ability to pass affordability legislation right now, so they can't hike tariffs. But one of the things that I look to in eight weeks' time when they get this new authority back is, you know, where are the NATO allies in the straight-of-formers, are they there yet? Or do we need them? Does the president want to come after them again? Most of these trade deals have not been codified and the tear of rates are scheduled to rise to 15, 19, even 40%. And there's no limit on a Section 301 tariffs. So that risk is very real.

44:10I hope that he'll choose not to put the tariffs on before the election. And I think that's realistic. But after that, November 5th and on, all bets are off. Okay. I want to get into the policy pot whole piece of this. But first, do you want to get your thoughts? Because you haven't been on the show recently with energy prices where they are and with where we are in terms of the possibility of peace talks here, at least the AP reporting that the Trump administration has delivered a 15-point plan to Iran. And now you have report surfacing that we could see peace talks actually materialize as soon as tomorrow. Yeah, look, it's a benefit to the cyclical side of the market. But it's interesting. It's the long end of the energy curve, like the oil curve, that's really the problem. That's much more elevated than it was. I would say oil prices falling back to where they were longer term, probably not the case. So I think dovetailing on the comments right before. That's pressure on the consumer. That becomes the side of the cyclical part of the market. We really don't want to buy.

45:10On the industrial side, I get it input costs are up. But a lot of these industrials that are tied to AI build out, they're selling to a customer that can absorb higher prices. You're seeing that in names like N-Ven Electric that are really pushing to new highs, even though input costs might go up. So to us, yeah, it creates this tailwind potentially for cyclicals. But I think differentiation within that, industrial still kind of went out here. And again, tie that back to secular trends, not necessarily short-term consumption trends. Yeah, Joyce, peace talk talks are sending fertilizer stocks and LNG stocks lower this morning. But you and I touched on this earlier. And that is the fact that Slovenia, for example, first EU member states implement fuel rationing this week. You've got New Zealand pledging weekly tax credits, shell CEO warning that Europe faces fuel shortages as soon as April. Even if we get this up and moving and the straight starts to become passable again, how long are we talking about in terms of knock on effects to really have our arms around it?

46:12I don't think we have our arms around now because the regime in Iran is intact. So there's talk about a peace plan, but I think that some of this destruction you see to the state of Hormuz will be permanent. So that means that the prices will stay elevated. And it's uneven. So in Asia, we are seeing the real demand destruction. Do you have to close schools and even some businesses? So it's uneven effects. The stockpiles will be in place for, I think you can look at the next 30 to 45 days, but you run through that as well. So a lot of this will focus not just on what the announcements are about a peace plan, a cease fire, but whether you can actually address the supply disruption and get the straight of Hormuz open. And of course, all of this in the midst of a Florida election upset last night and midterm elections later this year. So much more to get to. We'll have to do it another morning. Thank you to our morning crew. It's great to have you here with stock futures higher right now and squat bucks starting right now.

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