m. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> welcome to the bn them and bloomberg audiences, welcome to "bloomberg markets." >> let's get a check on what is going on in the markets. we see a continuation of the rally. the s&p rising .4%. powered higher by financials after the stress test were ace yesterday. we are getting closer to the big round number. the u.s. 10 year yield rising right now. 14 basis points, as investors sell off that debt. three point 8481.

we see oil coming up, but only about nine cents right now. $.10. $69.66. crude holding under the $70 level. what are you looking at? jon: we are keeping an eye on technology. it has been a softer day for those names. macron, a lot of ai excitement. when it comes to dealing with the inventory glut, the message from the company seems to be a slow recovery. we have seen the stock off 4%. i wanted to highlight alphabet. in canada, the last few minutes, we saw the company put out a statement, saying they are going to block news from canadians on their properties because of a new bill that became law. . we were covering that. meda said something similar. we will watch that story. it is an ipo day. i wanted to highlight the performance for an initial public offering on wall street coming from a company that operates in the thrift store

category. we are watching the story of savers value village. there is a look at the market cap. we are watching the banks closely because we have those stress tests completed, and a checkmark for the biggest players out there. if you look at names like wells fargo or jp market -- jp morgan, we see a green screen. matt: we will continue to focus on those banks. earlier today, jay powell spoke at a conference in madrid. he discussed the stresses for the industry, and a possible further tightening in credit conditions. >> since early last year, we have raised our policy rate by five percentage points, 500 basis points. we see the effects of our policy tightening on demand in the most interest rate sensitive rates of the economy, especially housing and investment. it will take time for the full effects of monetary restraint to be realized, especially on inflation. matt: higher interest rates usually seen as good news for

banks. this year has shown some banks can get squeezed by such rapid fed moves, particularly as money markets and treasuries become more attractive than savings accounts. our correspondent wrote about that for today's big take. she and hermann chan joins us now. your story is a fascinating one. we have been watching these regional players try to figure out their path ahead, and this focus on rocher deposits is at the center of your story. what can you tell us about that transition and the risks it comes with? jenny: we have seen a big uptake by these regional banks in terms of having more of these brokered deposits on their balance sheet. they are more expensive than the core deposits they had for so many years that cost next to nothing. you have seen a increase in interest expense, and all of the banks are starting to complain about this higher cost of funding and how it will weigh on their profits quarter after quarter to come.

matt: i have to ask about -- i didn't know about this until i read jenny's story. brokered deposits seem sketchy. and then of course, the loans they are getting from the fs hob and from the fed, that is not a sustainable source for deposits. what do you think about these regional banks? hermann: you can think of brokered deposits as the plug for the balance sheet of banks when your traditional core deposits exited out from a lot of the banks in the first quarter after the turmoil with svb and signature. what the banks are facing today is a profitability squeeze, with net interest markets come crashing because of the higher funding costs. it is going to be more profit pressure going forward. banks are talking about that, expect higher deposit betas, upwards of 50%. repricing your deposits, 50% of the fed funds increased.

all of that means squeezing profits and lower profitability, lower net interest. jon: if i find out my bank is using brokered deposits as its base, i want to take my money out of that bank, right? jenny: it is a very mixed picture. regulators tend to not like them. they call them hot money because they move wherever the highest rate is. in general, and a lot of these deposits can be structured as insured deposits. it might not be as bad as you might think. they are definitely more expensive. it gets back to what hermann was saying. when you have this profit squeeze, that is when regulators get worried. jon: jenny, to go deeper into your big take, what was interesting to me about it is when you think about a bank dealing with depositors, you talk about the intermediaries who play this role in connecting these banks to these folks generally, is it fair to characterize them as wealthier

individuals looking for those higher returns? jenny: that's exactly right. it is these networks that provide companies and wealthy individuals who have more than $250,000 in the bank. they can spread out their pile of cash against a different network of banks. . that is why regulators don't like them. they tend to be focused on the rate offered they will move as soon as they can find a better rate. at the same time, and a lot of these banks are desperate to keep these moneys. there is a push and take with this. banks are finding a way to fill the hole that hermann was talking about. it is more expensive and regulators don't like it. matt: in jenny's story, she cites an analyst who describes this as a slow-motion car wreck. when everything was unfolding in the regional banking sector, you would join us a lot. we talked about what happens already in the day of trading, we are watching the biggest banks with their stock prices

rising because they are passing these stress tests with flying colors. the issue of consolidation in the banking sector in the u.s., is it reality going forward? herman: you will need to see consolidation over time. you talked about the profitability squeeze from the interest rates and higher deposit costs, but you will have process -- have profitability squeeze from higher regulations, higher capital ratios, liquidity ratios. all of that means the returns for these banks will be more challenging going forward. one way to deal with that is m&a. janet yellen has talked about being more open, and michael hsu of the occ has talked about being more open to seeing regional bank tieups. that is something we can see over time. matt: how much worse does the problem get if the fed does go ahead and raise rates two more times this year? are they -- these regional

banks, sitting on assets that are losing more and more money as rates rise? herman: you may see unrealized losses increase as rates rise. that will hit values going forward. matt: it is a vicious cycle. because then they have to pay more for more brokered deposits and they are taking bigger losses. you rate these banks as an analyst for "bloomberg intelligence." is your rating like thumbs down? herman: there is near-term profitability pressures. that means further margin compression. jon: just a final question to you, jenny. if people are trying to figure out where the bouncing ball goes from here, watching interest expenses is going to be one of the telltale signs? jenny: yeah. that is one of them. the data we looked at for our story was based on car reports which provided detailed analysis of brokered deposits and fhlb

borrowing. those of the things that investors will be keeping a close eye on as banks continue to complain about rising funding costs, and definitely something we will be keeping a close eye on as well. matt: thanks very much. jenny surane, who wrote the story, and herman chain -- herman chan, talking about brokered deposits. coming up, a big week for aviation as virgin galactic launches its first commercial flight. shares of that stock plummet after the successful launch, which is really interesting. the market cap nearly triples this week after it starts to test out electric air taxis. that is our stock of the hour. this is bloomberg. ♪

>> our target is to launch our commercial service in the u.s. in 2025. we have an amazing partnership with the team at delta airlines. and that recently -- i had the opportunity to go to jfk laguardia and lax where delta has invested more than $10 billion in terminals. we will look with the delta team where we will cite the takeoff and landing locations to deliver the spectacular customer experience that we want to deliver to delta customers, where you can step off of your air taxi and onto your delta flight as seamlessly as possible. jon: that was joby ceo this week. . that gets us to the stock of the hour. aviation obviously a big theme. matt was talking about virgin galactic with those first paying customers out of this world earlier today.

shares of joby surging today. it has been a big week for that company. they are receiving a $100 million investment from sk telecom after getting the green light from u.s. regulators in that quest to build their electric flying taxis. matt: it has been incredible. the stock started out the week at 632 and went as high as 1198. almost doubling in a four trading sessions. a little bit of the air has come out of it now. there is great hope for a way to get from the island of manhattan to one of our three airports in a faster and greener manner than you can now. i guess investors are betting this could be one of the ways to do it. jon: it is fascinating. obviously we heard from the ceo talking about maybe 2025. in terms of the investors, not just an airline, but the auto industry watching and the chipmakers. matt: absolutely.

these machines are clearly very complicated and require probably thousands, at least a thousand microchips to fly. it is not just a eyewear we need the -- just a eyewear we need the silicon wafer's. it is in transportation as well. i guess electric helicopters is what this looks like to me. jon: everywhere we go. we will keep the conversation going on technology, and combine it with the world of trading. brett harrison will be joining us in studio to talk about the crypto market, and what is happening on the ai front. stay with us. this is bloomberg. ♪

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when i finally could hear for the first time, i started crying. i could hear everything. call 1-800-miracle and schedule your free hearing evaluation today. matt: this is "bloomberg markets." i am matt miller with jon erlichman. we have learned this hour that fidelity investments is the

latest company to throw its name into the race to offer the first u.s. spot bitcoin etf. we had an inkling this would happen. we have already seen that filing come across from blackrock. it looks like the biggest institutions in the u.s. are getting aligned on the idea that there needs to be a bitcoin, a spot bitcoin etf. so far has not been allowed by the sec. you have one in canada. but i just asked about the optimism that is coming. jon: it is incredible to watch the story of momentum from these different players. we have a great guest to get more perspective on this. brett harrison joining us, the founder of architect technologies. nice to see you. you are in toronto because there is this collision technology conference. this fidelity news following the news from blackrock. everybody is looking to get into the etf rush. does this surprise you?

brett: not at all. the sec has this way of applying for an etf. etf's are a way for people to get exposure to a variety of products, whether they are international equities, commodities, currencies, through this regulated vehicle in a way that is cheaper and easier. it is natural for people to bring exposure to retail through the etf process. of course, this is a good opportunity following blackrock applying for their etf to try to throw their hat in the ring and figure out if they can get over that hurdle that the sec has placed for them since the first wave of rejections have happened. jon: how much does the situation with ftx itself play a role in the fact that it has felt like a roller coaster? a crypto crackdown. now within the last few weeks, all of these etf applications, which builds the story of momentum. brett: etf's were getting rejected prior to the collapse.

post-collapse, it caused damage and credibility for the crypto industry in washington, and across financial service sector in general. i think people are starting to emerge again, not just because the price of bitcoin is going up, but because people are seeing if we are going to create regulated vehicles and exchanges, properly surveilled places for people to trade this asset, we should start doing this again. that is where we see these traditional players throw their hat in the ring for this. matt: i want to get to your young firm, architect financials. which is fascinating. for many reasons. but also because of your use of ai. before we get there to wrap up the idea of spot -- spot bitcoin etf, i spoke with the former sec lawyer who said, in his mind, one of the biggest problems is volatility and settlement. do you think that is an easy one to solve, especially for gigantic firms like the $10

trillion blackrock? brett: i do think they can solve that problem. think about all of the other etf's that are out there now. you have the double long leverage vix etn, you have etf's on corporate bonds that are extremely illiquid. you have etf's on a foreign stocks. having the bitcoin market which is a trillion dollar total market for all of crypto, i think these companies can figure out how to do proper settlement, they can do surveillance of the exchanges in a way that will satisfy big chelators in a way that well protect the investors who will get this better way of getting exposure to the underlying product. jon: with that behind us, because that was a cool story to drop this hour, and you have a background in etf's, so it was perfect timing, let's get to architect, the firm that you recently founded. and even before this wave of ai fascination, you already had planned on using ai to help

institutions trade crypto. explained to us how it works. brett: the intersection of ai and financial services is a very exciting area. when you think about what something like gpt is good at, it is great at taking natural language instructions and parsing those and creating interactive dialogue with the user to. help them solve a task. . it could be finding restaurant recommendations or coding of a project. . with what we are building with architect, which is trading software, we are trying to help people to be able to create automated trading systems to create trading strategies in a way that is easier than needing to know how to code from scratch or have years of experience within a trading firm. that is what we are working on, being able to use ai and the connections we are building through various exchanges for regulators to let people make these strategies easily using

ai. jon: it is interesting, you were just at this large tech conference and call -- in toronto, where it is ai all the time. everybody has been working in their own silos in a year where this has become such a story of excitement. to see that energy at one place, did it almost make you field validated -- you feel validated? brett: yes. one thing that is important for us is we are taking the long view on what we are building. we are not just going to follow the hype cycle, and we are not pivoting to become an ai company. we are a financial services technology company, we believe in the long term process. we believe in all emerging technologies helping investors, whether that is blockchain or ai. we want to use our skills in the areas of programming and finance and market structure to help investors. matt: is it a software as a service plate? you are not doing any kind of actual crypto trading. you don't have a platform that

custody's any assets. you are just looking to help institutions that want to be able to play in this market. brett: right now, we are a pure software company. our product, we deliver a software bundle to the company -- to the customer. they install it on their own servers and hardware to allow them to have easier connectivity to exchanges, to manage their portfolios, to see their balances, to create algorithms for trading. in the future, we plan on getting into the broker services by applying for licenses in the u.s. and other jurisdictions. for now, we are a pure software market. jon: speaking of trading activity, you were fielding our questions on that bitcoin etf news from fidelity. the bloomberg team was noting the cryptocurrency has yet to surpass its recent june hi, even with this news out there. what would you say -- what has been your observation of bitcoin trading? brett: i think a lot of the recent price action has to do with general optimism that

institutional players are finally entering the space. they are looking at their recent turmoil in the markets as an opportunity to come in as established players and build these regulated environments for trading. i think we will see that continue. i also think there is optimism from other jurisdictions like hong kong, singapore, japan, where they are rolling out rules to make it easier and safer to trade this asset class. over the long run, we will see the price track. matt: this there any other overhang you are watching to follow away? -- fall away? the plane etf highlights the institutional interest. that optimism, it has already been baked in, which is why the prices holding steady. is there anything else the crypto community is looking for to get another leg up on the bitcoin price? brett: i think the community is looking to see volume's return, especially in the u.s. post the sec crackdown, their

complaint against coinbase, generally speaking, the volumes have dropped in the u.s. and a lot of large proprietary trading firms, market makers, have pulled out. with that depression of liquidity, i think that is holding back price. i think these different new exchanges coming online, edx is one of them, but for example, sebo digital got margin approval for their future exchanges. there are other exchanges that are trying to become regulated commodities, platforms for things like bitcoin and ethan. if those can pick up and bring liquidity back, i think that will help a lot. matt: great talking to you. brett harrison therefrom architect financials, coming to us from toronto where he is attending the collision conference. jon was there for the last couple of days. i guess a lot got done at that conference? jon: [laughter] definitely a lot of excitement around crypto and ai.

for matt miller, i'm jon erlichman. this is bloomberg. ♪

romaine: fight the fed or fight the data? live from studio to at bloomberg world headquarters, romaine bostick kicking you off to the close on this thursday afternoon. the big market movers on the day, u.s. treasuries, a massive font a selloff led by tenors most sensitive to changes in fed policy. 18 basis points higher on a two and five year yield. 14 basis points on the 10 year. that is bolstering the dollar and send rates on a swap contracts referencing future fed policy meetings. this is suggesting one more hike by september.