>> i'm haidi stroud-watts in sydney. i'm annabelle droulers in hong kong. we're counting down to asia's market opens. >> i am a shery ahn, our top stories. u.s. core cpi arises the most in five months of topping estimates and putting pressure on the fed as it weighs its next rate decision. >> they're cutting their outlook on the banking sector after the collapse of three lenders. u.s. stocks rally and treasuries stall. >> the new ceo speaks to bloomberg. ronald lam says profit is insight once more for hong kong's flag carrier. >> do you think you have a staffing crisis? >> i don't think so. we're making steady process towards our plan. there's a lot to review and terms of manpower resources but we are building according to our plan. you're not in a crisis mode. shery: take a look at how u.s.

futures are coming online. very little in terms of movement , this after we saw the recovery in u.s. stock prices for the first time in four sessions. we are talking about every sector on the s&p 500 being green, tech stocks as well. the nasdaq 100 gaining ground. the expectation and perhaps the idea that we may see less tightening coming from the fed, given the turmoil in the banking sector. perhaps the idea from traders that the worst may be over. we had a date as well, where trying to digest the cpi numbers -- we are trying to adjust the cpi numbers. yields are rising. the two-year above a 4%. treasury volatility peaked to the 2009 high. we're seeing it steadier across markets. we're watching what is happening with the russian fighter jet colliding with the u.s. surveillance drone. that really cut the s&p 500 gains by half in the afternoon.

it finished higher. crude prices in the asian session rebounded a bit after wti sank to a three-month low. there is concern about the supply picture. opec coming out and saying they will cc -- they will see a modest surplus. the banking sector is where we have the rebound. it took a hit in the last few days with the collapse of svb and other two lenders. kbw bank gaining 3%. first republic halted trading because of volatility. after the s&p global ratings agency put the company in watch negative. we have a moody's cutting the outlook for the whole u.s. banking sector. we saw the gangs in first republic and -- and first republic saw the first rise. haidi: we're watching tech stocks as we get the breaking story from tiktok. tiktok leadership is talking about the possibility of

divesting tiktok from bytedance to address these concerns about national security risk concerns. tiktok is undergoing a security review, they agreed to that last year to implement a number of measures to address the security concerns from u.s. officials. if we're looking at this div esting which could take the form of a public offering, it's considered a last resort, only if the company's existing proposal does not get approved by national security officials. this is according to people familiar with the matter. you would have to get the chinese government to agree. we know that this national security review is ongoing. tiktok is also undergoing a barrage of other external pressures, potential legislation in congress. some of which mandates the separation. lawmakers have been concerned about the amount of data collected by this app and whether a kid potentially be shared with ash could potential he be -- whether it could

potentially be shared with the chinese government. annabelle: they could add tensions to the things investors have the way up. so much indecisiveness in the markets. we saw the volatility gauge dropping in futures. a bit weaker. the focus is on this prospect that a fed rate hike is back on the table. off that we are seeing moves in the that space tracking what we fondly treasuries. the kiwi to year yield both climbing higher. what we have seen in the inflation hedges, golden bitcoin, both retreating from -- gold and bitcoin, both retreating. the markets are reading the cpi report, particularly the core one that came in harder than expected. bitcoin touching $26,000 a coin. let's take a look at what we are expecting for equities, given that we have kiwi stocks online, pointing higher. aussie futures, a gain of 1% in

the next hour. the focus on what happens in the banking sector, the thought that the work of -- worst of the crisis is behind us. so much for investors to weight up. the u.s. inflation print, and most importantly what it means for the fed. shery: what does it mean for the fed? another hot u.s. inflation report, tilting bets back towards a rate hike next week. even as concerns linger over the financial fallout from the svb collapse. our policy editor kathleen hays that joins us with the latest. as i said, what is the fed going to do with this huge complication in terms of the banking sector and still elevated inflation? kathleen: think how -- think if you are a fed official, think about friday, what happens svb, what the markets did. yesterday we got the big news,

headline from nomura that they think that the fed will cut to offset the financial volatility and follow. -- fallout. blackrock says they will do 25 because inflation is a bad problem. you run through them again. on the headline, the monthly came down. energy prices were a big part of this. they go up and down, they do not give us a trend. on the monthly number, it went up. what happened was, sometimes he focus more on the month, or the year-over-year. the year-over-year went down on both counts. but not very far. you've got components here, like airfares, auto insurance that are moving higher. those are the things that drive services. you have rent to rise. it started. to slow down but it is expected to stay high for the next year. clothing prices are bit better. food at home is flat.

some mix news. the super court, core core, core, take-out food and energy. the shelter costs and then you see it is not going down. that is what jay powell wants to see. let's look at this chart. you can start at the bottom and look at how energy prices are flat, you see the food prices. go up the line, you can see that goods are looking good, it's the services that are looking the worst. if you took those three numbers, the headline cpi year-over-year, the core cpi year-over-year, then the super court, -- core, the lines are going in the wrong direction. the fed has this report that says, any other time, 25 for sure, maybe 50. but they cannot turn their back on the financial stability. it cannot turn its back on the other big responsibility to ensure financial stability. they've had to create a special

lending facility for svb and others that may be in trouble. that old saying in markets is, until the tide goes out, you cannot see who was not wearing their swimming suit. this is the problem. with the pressures, you don't know until, the other shoe drops , who might need help? a lot of people are saying that the prudent thing for the fed to do a setback, cialis plays out, se -- see how this plays out. boa says the inflation numbers are still too strong for the federal reserve to send the signal. they have to move again and they will do 25 next week. shery: kathleen hays with a preview of what to expect next week from the fed. kathleen said it, another shoe can drop. moody is cutting its outlook for the u.s. banking system to negative from stable, after the three lenders collapsed in less

than a week. the failure of svb now the focus of investigations by the fed, the sec and the justice department. let's bring in bloomberg finance reporter, sally bakewell. moody is cutting the outlook for the sector. the collapse is already happened -- has already happened. what are we learning in hindsight? >> the interesting irony we have reported is that moody's was behind a lot of what happened with svb. moody's had this meeting with svb executives and said if you don't take some sort of action, we will have to downgrade you. goldman sachs, together with svb came up with this capital raise plan. it did not go to plan. it triggered a flight of deposits from svb and lo and behold it collapsed. we have moody's coming out today saying that has caused a crisis of confidence of most depositors

and investors in the sector. it was cutting it from stable to negative. haidi: have we gotten a sense of a bottom, have we had a bottom when it comes to these expectations? is there still a lot left to play out, given that we know interest rates on the whole are likely to keep moving higher? sally: today we had a slightly calmer day in the markets. a lot of the banks that suffered and so their share prices -- saw, their share prices take a walloping sorted to rebound. we learned from the last financial crisis, you do have these days of common things looking better. then, actually, it can deteriorate again. it's hard to say. we still have concerns about about banks like first republic, western alliance, pac west. a lot of them have been pointed at for having this very troubling asset liability in

management, issue on the balance sheet. that makes them not well suited to interest rate hikes. haidi: sally bakewell, our finance reporter. let's get to vonnie quinn. >> good morning. the pentagon says a russian fighter jet collided with a u.s. surveillance drone in international airspace above the black sea, causing the american aircraft crash. in a statement, russia's defense ministry denies a claim saying the jets did not come in contact with the drone. the state department says the collision was a brazen violation of international law. meta is planning to cut 10,000 jobs in close 5000 open roles in his latest round of layoffs. the facebook parent has been marketing 2023 is the year of efficiency in a bid to perform -- improve financial performance. a slowdown led to the sales decline in 2020 it already laid off 11,000 workers in november, more than 13% of its staff.

credit suisse ceo is pleading for patience as he tries to turn the bank around with a radical overhaul. he told bloomberg exclusively that business momentum improve this quarter, including in the markets unit. he says there also seeing an overall slowdown in outflows. that progress will take years, not months. >> they have significantly moderated. we gave an update in terms of where we are. we'll give the next update after the first quarter results. this is clear. we talked about what has happened in the first quarter. we're fully focused on it. turn it around. that takes longer than just two months. >> cathay pacific says it sees a good chance of posting a net profit. the ceo told bloomberg the airline is planning to return to pre-pandemic capacity. lam says they have enough pilots and cabin crew as travel picks up with hong kong and mainland

china's reopening. >> we see the bright light at the end of the tunnel since late last year, as hong kong opened to international countries. even brighter light in quarter one this year when hong kong opened with chinese mainland. it's going to be a bit of a tunnel to so go through. we're aiming to rebuild back to 200% pre-pandemic capacity by 2020 for. >> global news 24 hours a day on air and on bloomberg quicktake, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm vonnie quinn. this is bloomberg. haidi: coming up, pimco joins us to review the inflation numbers. the fed gets squeezed between price pressures and the banking sector. this is bloomberg. ♪

>> the data still pointing

towards inflationary pressures. >> inflation data is strong enough to have a hike next week. >> they will have to pivot towards maintaining financial stability. >> financial stability trumps inflation in the short run. >> maximum stability ensures it will not be 50 for sure. >> they wanted to 25. >> for them to not to 25 will be construed as tempting. >> if they had a pause in march, they could do that. >> if the markets are in distress, pausing is ok. >> it would not be an indictment of the tools they put in place. >> the ring fencing works. the fed goes back to hiking interest rates. >> this is a fed that will keep raising interest rates, until you see signs that inflation is slowing. shery: tv guests on the inflation data coming out of the u.s. our next guest says the turmoil around silicon valley bank also has push the u.s. economy closer to recession.

pimco multi-asset strategy portfolio manager erin browne joins us from newport beach. erin, good to have you with us. given the elevated prices, how much harder has the banking situation made it for the fed to engineer the softish landing? erin: it does make it more difficult. you are now seeing you will likely see over the course of the next couple of months and quarters, a retrenchment of credit creation from the regional banks. the regional banks were supplying up to 50% of credit extension to the real economy in the u.s. for for them, stepping away slightly from the margin, from being a lender to the economy it is going to slow the economy more aggressively. you will see some of that absorbed by larger systemically important banks, you will see the larger banks potentially

take a larger share. by and large you are going to see an accelerated pace of credit contraction over the next couple of quarters, because of the failure of silicon valley bank. shery: what do you make of the market reaction today? even as you look at this chart on the bloomberg regional banks, they have seen a huge recovery in their stock prices, almost as if this was the all clear for the sector. is this sustainable? erin: i think there is going to be a lot more differentiation in the weeks ahead, amongst the banks. we're in very early innings of this trade and trading environment, post the failure of silicon valley bank. you'll see money flow to the larger banks. what are considered more of the safe haven banks. you'll see money potentially flow out of some of the regional banks, particularly those that are potentially sources of risk in the market that don't have

sustainable or really sticky deposit bases that will have to pay up for deposits, going forward in the future. it's going to be a lot more differentiation. there is value in some of the large cap banks. they've sold off over the course of the last few trading sessions. not as much as some of the regional banks. but, certainly have underperformed the market. you will see money flow back into those names. they are still well-positioned to take advantage of some of the deposit outflow from the smaller regional banks. shery: you still see opportunities in the underperformance of credit at this point? erin: i think credit is underperformed equities over the last three trading sessions. it's surprising. if you look at investment grade quality, credit or triple b's. these are high-quality companies with sustainable cash flow, clean balance sheets. they've underperformed equities.

you'll likely see that rebound. i would move up in quality, move into investment grade credit at the expense of equities, particularly given the recent performance. it even on a longer-term basis, on a yield basis, great credit is yielding close to 5%, that is equivalent to what you will get from the s&p earnings yield this year. you get a better quality asset with lower potential downside in a recession environment, at an equivalent yield. that's a solid investment. annabelle: what is interesting is that the relative lack of correlation between chinese assets and what is going on in the u.s.. haidi: does that add to your conviction that there is more opportunities there? you are overweight when it comes to the economy reopening names. erin: it's us. i think chinese equities have

limited, if any exposure to what is going on in the u.s. with respect to the banking system. chinese banks have pretty much zero exposure to silicon valley bank. they funded -- either from a funding or asset side or liability side. that certainly, you will see, further differentiation on a regional basis coming out of this, as the u.s. lows. china continues to accelerate in terms of the economic growth on the reopening story. if you're looking for places iwth very low correlation -- with very low correlation that have independent cycles that are going on from the global economic cycle and from the u.s., chinese equities are really the place to own right now. they have underperformed year-to-date. some of the extreme optimism that was priced and lately the fourth order of last year has come out of that market --

fourth quarter of last year has come out of that market. global fund managers are underweight. you have a catalyst to start re-engaging in chinese equities, particularly those that are more geared towards the service sector and the reopening story. it is a place we have been exploring and investing in. it's something we remain highly convicted in. haidi: pimco asset strategy portfolio manager, erin browne. great to have you with us. terminal subscribers can find that at day b . you can customize those settings so you get news on the assets that matter to you. this is bloomberg. ♪ go spotlights. go stadium lights. emerson software helps clean energy become reliable electricity. go “good night." go boldly. emerson.

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haidi: tiktok is said to be considering a split from its chinese parent company bytedance

to address national security risks. tiktok is undergoing a national security review. sarah frier who does our tech coverage in san francisco is here. what circumstances would this scenario play out? sarah this is the scenario that tiktok has told congressional national security folk that it is not considering. we have heard from our sources that it is being discussed. they considering the possibility of a device teacher from bytedance -- divesting from bytedance. it's addressing concerns from the u.s. that if there is a national security problem, or potential chinese use of the u.s. user data on tiktok, that they could be in trouble. i think that while tiktok has tried to put forth of this idea that -- of what they call project texas, a pl thatan --

plan that is working with u.s. government officials to ensure u.s. user data safe, that plan is not satisfying u.s. officials on this committee, including the doj. it's been stalled for several months. now, they need to come up with another way to move forward. shery: another company that moves past the issues around user data safety, meta. we have more news about their year of efficiency. sarah: the company is cutting 10,000 employees today. that's a second major round of layoffs. the first was in november. when it cut 13% of its workforce. this has caused the stock price to go up significantly. it's also led to a bunch of issues with morale, internally at the company is people are not sure whether their role is going to be cut. beyond this, there undergoing

what they call a flattening, which is removing some of the middle managers from meta and trying to make sure that they become more efficient, better at releasing products, better at doing work quickly, and with -- better work quickly, and better bureaucracy. this company has been bloated over time. they're trying to reduce that to get back to doing the inventive things they need to do in the order to move forward. shery: sarah frier in san francisco with the latest in tech. an american drone crashes after a run in with russian jets in international airspace. we'll have

haidi: cathay pacific says it sees a good chance of posting net profit this year.

ronald lam told bloomberg that the airline is rebuilding as pre-pandemic capacity returns. >> we have seen the bright light at the end of the tunnel since late last year, as hong kong opened up to international countries. then, even a brighter light in quarter one this year, one hong kong opened up to chinese mainland. it's going to be a bit of a tunnel to still go through. we're aiming to rebuild back to 100% pre-pandemic capacity by 2024. rishaad: by the end of this year? >> it's a bit early to tell. we're still rebuilding. the middle milestone will be reaching 75%, passing near capacity and 80% cargo capacity by the end of this year. rishaad: what is holding you back? >> currently, we are struggling with the supply-side, and the manpower front.

it's not just manpower in the air it also manpower on the ground. it is not only cafes -- cathay's manpower but across the whole ecosystem in hong kong. rishaad: what is the problem, hiring staff? give us a sense of that. >> at the end of 2022, we had 21,000 staff across the whole group. this year we will recruit another 3000 people across our group. across all types of staff groups. in general, we are making steady and good progress towards our plan. rishaad: have you got enough pilots? do you have enough cabin crew? those two elements that are important? >> we do have enough pilots and enough cabin group. the critical path right now is about training the pilots.

hong kong faced a unique situation. during the pandemic, hong kong was one of the few cities that imposed quarantine on aircrew. because of that, we were only able to operate a small percentage of our normal capacity. because of that, our pilots' licenses many of them of expired. after the opening up, the cancellation of the crew quarantine, we have been scrambling to train our pilots to regain their licenses. it s the critical path at the moment. rishaad: where are you seeing the most flow? >> everywhere. i'm seeing a lot of long-haul travel resuming. people have not seen their friends and families overseas for a long time. i'm also seeing travel in the region, both for business and leisure. of course, for hong kong people, there are fewer popular destinations than japan, korea,

thailand. there is a lot of student traffic onto our london route. we're planning to resume that soon back to four to five times daily, flying between hong kong and london. by the summer season, the end of this month. rishaad: why are tickets so expensive, ronald? >> currently, the supply and demand is not matching up. the demand is still higher than supply. we're working very hard to rebuild. rishaad: it is a global thing. do you all not get it right in terms of seeing the bounce back? >> overall, global aviation, we are short of resources and manpower, supply. the supply is falling short compared to the demand. therefore, you see the ticket prices being higher than normal. from our market perspective, we're rebuilding as rapidly as we could. we're already seeing the ticket

price coming down gradually, as we build towards 70% by the end of the year. i foresee the ticket price will come down further. shery: cathay pacific ceo, ronald lam. let's get to the first word news. >> thank you. underlying u.s. consumer prices rose in february. that is left the fed officials facing a tough choice as they waive the inflation fight against financial stability following the svb collapse. cpi, excluding food and energy, increased .5%. 5.5% from last year. bond markets are pricing better than the odds of the fed hike next week. moody investors have cut the outlook for the u.s. banking system from negative to stable. it cites a substantial decline in depositor confidence after signature bank and silicon valley bank collapse last week. it cites concerns over

unrealized losses in the risk profitability. this comes as u.s. authorities are set to be examining the collapse of svb by misconduct of officers including stock sales and whether they violated trading rules. the probe is being handled by prosecutors of the justice department's fraud a section. the u.s. attorney's office for the northern district of california and the sec. inflation in argentina accelerated in february due to soaring food prices. its cpi spiked over 6% and registered a 102% increase annually. it saw a right back early in the 1990's. the skyhigh consumer prices and drought are said to tip the economy into recession. support has clashed with pakistani police, as police tried to arrest him for the second time. slowly -- a spokesperson said

the arrests will ensure that khan will face charges for failing to disclose assets for estate gifts. the former prime minister has been skipping court appearances citing threats to his life. global news 24 hours a day on air and on bloomberg quicktake, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm vonnie quinn. this is bloomberg. shery: the pentagon says russian fighter -- a russian fighter jet collided with the u.s. surveillance drone, above the black sea, causing the american aircraft crash. let's go to our bloomberg national security team in washington. the russian defense ministry is denying the u.s. claim. where are we at? >> well, the u.s. says it is working to declassify the video. it says it will definitively prove what happened here. what we know is that neither side is disputing the fact that the drone, that it crashed. in the black sea. the u.s. says that happened

after it was harassed by a couple of russian fighter jets. one of the fighter jets collided with its propeller. that sent it down. russia says the drone drifted close to its airspace and performed some strange maneuvers and then plummeted of its own accord. we're trying to sort through the differing accounts. haidi: when we hear from the state department that the collision was a brazen violation of international law, how much further do we think be repercussions will go? >> that is the big question we are trying to answer. for so long the strategy around russia's invasion of ukraine has been to avoid being pulled into the conflict itself. they are selling and giving assets to ukraine but never piloting those assets or sending u.s. troops to the ground. the strategy there is to avoid a broader war, spreading from ukraine into a broader

continental conflict in europe. this is what appears to be the first, at lease public situation, where we have a u.s. piloted weapon coming into contact with russia. the fear is a misunderstanding. the u.s. is pleading for calm at the moment, so it doesn't look at the moment like things are getting worse. frankly, the relationship is so bad already. shery: where is the chance for de-escalation at a time when we know that president zelenskyy is meeting with china's president xi jinping next week? >> that is another great question. it feels at the moment that there is no real opportunity for de-escalation. if there is, there is this chinese proposal on the table. that's a possible path toward some negotiation. but, ukraine so far has insisted it does not want to abide by the terms that russia has presented. the u.s.'s stance is, this is

ukraine's choice to make. if they want to get russia off their territory, that is their sovereign decision to do so. the u.s. will not undercut that. it will be interesting to see what pressure xi jinping puts on zelenskyy. shery: nick wadhams n washington. hear why robertson stephens sees a 25 basis point hike next week despite the turmoil in the u.s. banking sector. this is bloomberg. ♪

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shery: the credit suisse ceo says business momentum improved this quarter including in the markets unit. he's told us exclusively that the shareholders need to be patient with the benefits of the banks a radical turnaround strategy. still years away. >> i'm fully convinced of the strategy. we are executing it with the right team. that is why we said in october it needs radical change. the bank needs to be changed. we said it is a three years transformation. after two months you can see and say why everything is not done. >> radical change could be

splitting up the bank. >> the new credit suisse is focused on the core strength of the bank. asset management, what would put in the market, trading and sales business, it makes sense. entirely different risk profile. it will be very profitable. >> when will you be able to say the worst is behind us? >> we said it is a three years transformation. we will get a loss this year. this is something you need to understand. a lot of the restructuring cost, baked into the transformation are coming in 2023, before we see benefits, and out of that transformation. that is why we said it takes three years. >> three years is a long time. a lot of the shareholders will start asking questions. have you asked them for more money to make it faster? especially in the spanking world anything could happen. >> no. our relationship is strong.

it has gone stronger as we speak. ou capital ratio is strongr, at 14.1%. we have everything we need to go through a transformation. haidi: the credit ceo -- the credit suisse ceo there. the cpi coming in at the most in five months topping estimates and creating more of a headache for the fed as it moves forward and as a deals with the ongoing banking crisis. our next guest sees no reason for the fed to raise 50 basis points next week. it thinks the quarter put increase is likely. let's bring in robinson's -- robertson stephens chief, jeanette garretty. we were talking about the hugest set of challenges, more challenging than the inflation mandate, going forward for the fed. where do you think they will try to chart this path, given a lot of the unknowns in the banking sector, potential further systemic risk there?

jeanette: i think they're going to try to do it all. everything, everywhere all at once is the theme this week in the u.s. that's going to be the issue. i think the inflation numbers today give them some ability that they are going to appreciate to kind of keep on track and do the 25 basis point increase instead of 50. at the same time, the actions by the treasury, fdic and the fed on sunday, u.s. time, in stepping into to calm things down at the svb signature bank, silverlake -- silverpoint failures, which took most of monday to sort out. today seems to have settled in. the combination of those two

things puts the fed back on track. that's where the consensus is right now. haidi: even before the implosion of svb, we've been talking about why the data comes in so strong. there is a thought that suggest we have not given adequate lag time for the transition effect for policy to come through. do you think what has played out gives the fed more reason to pause and wait for the potential shake of confidence and potentially moving to aggressively? jeanette: that is probably the major message to the fed as a result of what happened here. the centrist group at the federal reserve has always been in the camp of trying to figure out, at what point is the right place to just wait and see the continued affects play through. this is an argument for that. the cpi numbers are in argument.

. but, certainly to recognize that there is a lot build -- bill in -- built in here that will have an impact on the economy. powell, gave a lot of emphasis to the housing data, which in saying he knows that the impact of the decline in in home prices and lease rate is yet to come. that will be a benefit to the cpi numbers. given how much emphasis he gave, they're going to go back to having a wait and see attitude. again, they will not be sitting on their hands. i think they will make the 25 basis point cut. shery: you saying your notes that svb is an actual case of the violation of the don't fight the fed mantra. explain this to us.

what more could have been done to avoid the situation we are seeing? of course, in hindsight, is there anything else that can be done to avoid the situation in the future? jeanette: look, i'm only going with the stuff i am reading about what went on behind the scenes. i can only go that. the thing that has been very clear and jumps out to me as an economist who has been saying for some time, look at the fed, is saying they will raise rates and keep rates high for an extended period of time. that means they are probably going to do it. there were all sorts of other voices out there, they were saying, we think they will cut in the second half of the year. that's not what the fed is saying. it seems quite clear that silicon valley bank in dropping some of their hedging on the bond portfolio, appears to have

been taking the view that rates were in fact going to fall. i qualify all of this, because clearly a lot of what is coming out of this is maybe hearsay, speculation, i am being very careful. it's a tough job running a bank. we'll find out more as things go forward as to what went on. shery: from what we have learned from 2008 and the financial crisis, are you concerned about systemic risks? especially as we are seeing the immense pressure on regional banks materialize the last few days. all of a sudden today, they start trading as if nothing had happened. jeanette: there is always systemic risk when it comes to banking. it's embedded in everything that we do. but, unlike 2008 we've got experience that the fed officials have agreed on picking

up the signals and moving fast. we saw that in the response to covid, very quick actions to stabilize the system. i think we saw the same thing this last weekend. there is always systemic risk, the question is, can it be managed? i think it can be. it's got wrenching when you see it happening in front of you, which is how we felt over the last five days over here. but, i do think it can be managed. i expect that there will be changes in supervision, in particular, especially for the regional banks, all of that will go towards -- for increasing the cost of the banking business model. but that is going to be what comes out of this. shery: jeanette garretty, good to have you with us. robertson stephens chief economist.

let's stay with the broader economic picture. let's bring in annabelle. how are investors reacting to the inflation print? annabelle: ing has a new name out. saying is going to force the fed to hide by another 25 basis points. they are attaching a big caveat to that. the fed hike will be contingent on market calm being restored, because u.s. financial stability trumps near-term financial or inflation fears. that is always the case according to ing. it's looking closely about the expectations for inflation. they see that dropping, or easing in the second half of the year. he are watching the fallout from svb -- they are watching the fallout from svb, around financial conditions from the fed. you can take a look at the terminal chart. we have seen the fastest campaign of tightening in four decades, we have seen the rapid

reply, the tightening of u.s. financial conditions. that is something that is going to be weighing on credit flows. ing says banks will be cautious now, because of svb. regulators will be watching, further exacerbating the situation, making it difficult to access credit. that is something that weighs on the health of the u.s. economy. haidi: goldman sachs also saying there is another factor that could add some more volatility. annabelle: that's right. they have been watching the liquidity issues closely. scott rudner is someone who has been following market flows for two decades now. he's looking closely at how difficult it has become to trade stocks and bonds. a measure of liquidity in the s&p 500 futures, that is dropped to 90%. a similar guage -- gauge for treasuries. that's the lowest for both,

since the start of the pandemic. rubner is shocked by the magnitude of the moves we are seeing, how difficult it is to place trades without rapidly affecting the market. there are a lot of factors that contribute to this, he trading, regulations, risk aversion from svb and a more hawkish fed. we know liquidity spikes can go in both directions. yesterday, in the u.s. session on tuesday, the two year yield picking up close to half of its recent declines. also the big move in first republic bank and for the regional lenders. shery: we do have breaking news. we were talking about regulations in the banking sector. more supervision given the latest developments with the three lenders collapsing in the spanish five days. wall street journal coming out and saying that the fed will

consider tougher rules after the svb and signature failures. this would be a raft tougher capital and liquidity requirements under review. as well as steps to beef up annual stress tax that assess banks stabilities to whether hypothetical -- two hypothetical inflation. now, the rules could target firms between 100 billion, to $250 billion in assets. it escaped some of the toughest requirements at present. we've been talking about how the regulations, the revision, and higher standards were put forth for the larger banks after the 2008 financial crisis. we've seen the smaller banks running riskier businesses. we've seen that with the failure of svb and signature, as well as a silver gate capital in the past week.

wall street journal saying the fed is considering tougher rules for the midsize banks. this is bloomberg. ♪

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