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QUEST MEANS BUSINESS

Turkish Officials: Khashoggi's Body was Cut into Pieces After He was Killed in Saudi Consulate in Istanbul; Trump Threatens to Cut Honduras Aid Over Migrant Caravan; Trump Lashes Out at Stormy Daniels, Calls Her Horseface; Baby Gifts Start Pouring in for Britain's New Expected Royal; Dow Surges as Corporate Earnings Drive Stocks Higher; European Markets Close Higher, Italian Stocks Rally; Macron Reshuffles Cabinet as Approval Rating Slips; Donald Tusk: Irish Border Impasse has Become Gordian Knot; A New Report Suggests IAG Could Lose its License if There's No-Deal Brexit; Texas Senate Candidate Beto O'Rourke Raises Record $38 Million; Cnn Poll Shows Cruz Leading O'Rourke By 7 Points in Texas. Aired 3-4p ET

Aired October 16, 2018 - 15:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: We're an hour away from the closing bell on Wall Street, the Tuesday, trading is expected and what a

difference. Out of the gate and out like a rocket, just off the top of the day, but still, very impressive. We'll watch closely in this final hour --

the element of this gain can be sustained and it's not just the entire market, the Dow is up, the S&P is up in to 2% and the NASDAQ roaring ahead.

It's 2.4 over 7,600. So the three major indices are all sharply higher and these are the reasons that's driving the day.

Tech stocks, they bounced back and as we showed the NASDAQ, the best day since March and Netflix results still to come this afternoon. Healthcare

stocks looking as fit as a fiddle, strong earnings from United that powers the Dow ahead, United Healthcare of course and those bumper bank earnings,

Goldman Sachs and Morgan Stanley -- it all added to the cheer. In other words, the market seemingly shrugging off tensions because of Saudi Arabia.

We'll talk about that this hour.

We are live from the world's financial capital, New York City. It is Tuesday, October 16th, I'm Richard Quest, I mean business.

Good evening. It's corporate America to the rescue. Investors are throwing off the malaise of the last week and juiced up by strong corporate

earnings that I showed you in the market minute. The three major indices are having their best day since March. All 11 sectors of the S&P are

higher and NASDAQ is the best of the three majors with investors looking to Netflix earnings coming after the bell. Just to put some numbers and

perspective to you.

The Dow is now year-to-date up some 4%. The NASDAQ year-to-date, yet, it's now still up 10.2%. Ted Weisberg is with me from the New York Stock

Exchange, the founder of Seaport Securities.

Look, as you go into the last hour, first of all, is it your feeling that the market holds these gains as we -- or do the sellers move in towards the

close?

TED WEISBERG, FOUNDER, SEAPORT SECURITIES: It's a great question, Richard because this is the most critical time in the trading day and there is a

tendency to see a reversal whether we are down in the day or up on the day. When we get into this last 35-40 minutes, so the real test will be where we

are between 3:45 and the close and my guess is that we are going to hold these gains and we have a good shot. We have been up as much as 500, just

about 20 minutes ago, and I think we have a reasonably good shot at closing up at the 500 level, if not higher.

QUEST: It's worth asking and explaining. Why is this last hour so critical? What does happen in the hour that couldn't have -- I mean,

there's no news, there's no new facts, there's no new sentiment, so why does the last hour become so volatile?

WEISBERG: Well, I think it's primarily attributable to day traders and active traders because there's a tendency as we get towards the last hour

of the trading day, certainly the last -- even the last 20 minutes of the trading day for people who are trading more aggressively to flatten out

their positions, cover their shorts, sell their longs and basically try to position themselves for the next trading day, either going home flat or

whatever the case might be. So you tend to get a lot of changing of the ejectors if you will in these last 20 or 30 minutes.

QUEST: Let's just hope it's not the ejectors on the Titanic. All right, Ted Weisberg. We will watch -- stay not too far away. We will watch the

closing numbers in the last hour.

Now, it was a busy day. There were plenty of undercurrents in terms of the real business, which means, we need to look at business on the move.

Uber -- now, it may be valued at $120 billion according to IPO proposals from the banks -- that's Goldman and Morgan. Now, that could set a record

and I was looking at the taxis versus the black cars, who knows, it could be more than double, the recent valuations.

Volkswagen has ordered -- had been ordered to pay $926 million over diesel emissions. The thistle that has been everywhere in terms of checking at

Audi. VW is warning earnings will be affected. The German carmaker still badly affected by the scandal.

[15:05:11]

QUEST: And so Goldman and Morgan Stanley -- Goldman Sachs and Morgan Stanley both reporting strong revenues. It was revenues from equity

trading that rose and the shares are both -- were up sharply. That's your business on the move.

Paul La Monica is tracking all the earnings that we've got for us.

PAUL LA MONICA, DIGITAL CORRESPONDENT, CNN: I liked the pig you had out of the conveyor belt there.

QUEST: We're making no comment. The issue first of Goldman and Morgan Stanley. Equity trading -- what do we mean by that because is it -- they

are not trading for themselves ...

LA MONICA: There is not as much proprietary trading ...

QUEST: Right, so when we say they made the money from equity trading, what do we mean?

LA MONICA: Commissions from trading stocks, obviously, fixed income also another part of their trading business as well; commodities -- I mean,

these are still broker dealers. They are not just investing their own money anymore. They are investing other people's money.

QUEST: And the M&A, the old investment banking side of the business which is being so lucrative, but there's been so many deals. One of the best

years for deals in many a year.

LA MONICA: Yes, M&A, there has been a pickup and that has been very beneficial to Goldman Sachs and Morgan Stanley, but also IPOs. We're

starting to see a return to the IPO market where private companies are looking to go public and that could get even better in 2019 as everyone is

really hoping for the big unicorns like Uber and Airbnb to potentially go public.

QUEST: If we look at the way in which we've had United Healthcare as well. Excellent results.

LA MONICA: Yes, this was a broad based rally that we have so far.

QUEST: I mean, that's the point ...

LA MONICA: It's not just the bank earnings. United Health, Johnson & Johnson, healthcare has been a sector that people are starting to look at a

little bit more closely because of its defensive nature, too. Those dividend yields are very attractive.

QUEST: Give me some dividend stocks that are doing well as the result of what's perceived to be a rotation out of tech and out of the flavors of the

month, and into the solids.

LA MONICA: Yes, well definitely, United Health and Johnson & Johnson, those are two dividend payers right there. I'd keep an eye on Coke and

some of the other consumer staples companies and then not to talk our own book, but AT&T, the owner of CNN pays a pretty hefty dividend as well, so

does Verizon obviously.

QUEST: If this rally continues through the next few days, does that -- is that likely to reverse the rotation out of tech, or at least taking the

cream of the top of tech and we see people going back towards the riskier stocks or not? Is there a feeling that it is best to stay at the lower

end?

LA MONICA: Well, I think what's going to be interesting, Richard, is that in the next week, we're going to get those big tech companies that start to

report earnings, so you might have a rotation back for the right reasons. If Apple, Microsoft, Facebook, et cetera -- they all report good results,

then they should be going up.

QUEST: What do we hear from Netflix?

LA MONICA: Netflix is after the close today. A lot of people hoping that the subscriber numbers are finally starting to creep a little bit higher.

They were a little disappointing last quarter.

QUEST: Good to see you, sir.

LA MONICA: Thank you.

QUEST: Thank you very much indeed. Relations between two of the world's most influential economies are at a crossroads. President Trump says he

has now spoken to the Saudi Crown Prince, Mohammed Bin Salman. The US President tweeted that he just spoke with the Crown Prince of Saudi Arabia

who totally denied any knowledge of what took place in their Turkish consulate. He was with Secretary of State Mike Pompeo, joined the call and

told me that he has already stated and we'll rapidly expand a full and complete investigation into this matter. Answers will be forthcoming

shortly.

Today, in Riyadh, not surprising, it was all smiles between the US Secretary State and the Saudi Crown Prince. It comes at the time that a

Turkish official now telling CNN that the body of the missing journalist Jamal Khashoggi was cut into pieces after he was killed two weeks ago at

the Saudi consulate in Istanbul.

A CNN national security adviser says Donald Trump's next moves could be the most consequential of his presidency. There is potential for the fallout

should the US move ahead with the sanctions. Some predict oil prices could skyrocket to $200.00 a barrel. In reality, the US has been importing less

and less Saudi oil.

The other one of course, Saudi Arabia could stop buying weapons from the United States. Right now, according to Brookings, its Air Force depends

entirely on American arms, but that could change and the Kingdom could use its large holding of US Treasury bonds to cause trouble. That could also

hurt their own portfolio.

Sam Kiley is following developments in Riyadh. He joins me now. We will leave the commercial stuff to others, let's focus to you on the statement

of the discussions between Pompeo and both the King and Crown Prince.

[15:10:11]

QUEST: And now, the President saying he accepts the denial, or at least his says the Crown Prince gave a strenuous denial.

SAM KILEY, SENIOR INTERNATIONAL CORRESPONDENT, CNN: Yes, that's one of Donald Trump's characteristics, isn't it? He made the same remark when he

spoke to Vladimir Putin in the Helsinki Summit, a denial forcibly delivered seems to be convincing to Mr. Trump, but there may be something else going

on here given that we know from our sources that the Saudis are trying to work their way to coming up with some kind of a statement that would admit

a degree of culpability in what now appears to be a murder or an accidental death followed by dismemberment reportedly.

But at the same time, protect the highest powers in the land -- the King and the Crown Prince -- so it's very, very hard to fill this all out at the

moment. We do know that there has been something of a delay on that though, Richard, in making that statement.

QUEST: Right, now, John Defterios is also with me and the issue there, John is the credibility -- the credibility of the Saudis making this

statements, having said that they denied for the last two weeks. I mean, does it not, John Defterios beg a belief that they didn't know what was

going on in their own consulate and couldn't have found out pretty quickly?

JOHN DEFTERIOS, EMERGING MARKETS EDITOR, CNN: I would agree 100% with you, Richard. And also, the idea that it took us so long to give access to

Turkish investigators to get the investigation going and also what President Erdogan had to say about the tampering with toxic materials and

perhaps, painting over the evidence, but I have to say, what stands out for me tonight is the tweet that you were talking about there and reading out

from Donald Trump suggesting that he is taking yet another leader by his or her word here, suggesting that Mohammad Bin Salman didn't know anything

about it whatsoever and said he is going to proceed with the investigation. He wants to give it more time.

This is perhaps the most important decision of his administration so far and Sam would say the same. The implications for the Middle East, Saudi

Arabia, Turkey and Iran are grand. He has to handle it with a firmer hand than he is putting forward today.

QUEST: Stay with me both gentlemen, Sam and John Defterios. John Sfakianakis is the director of economic research at the Gulf Research

Center. He is in Athens. He joins me now.

The situation -- you heard me outline the economic situation, but we've gone beyond threats and re-threats. If this is the line that the Saudis

take, is it sufficient do you think for everybody else to continue business as usual?

JOHN SFAKIANAKIS, DIRECTOR OF ECONOMIC RESEARCH, GULF RESEARCH CENTER: Well, business as usual is going to continue as long as everybody thinks

that Saudi Arabia is an opportunity. It is the largest economy in the Middle East. There are hiccups and now, we are in a big hiccup. It is a

low in US-Saudi relations, but we have seen in the past that over the last 40 years, there have been lows and highs, and Saudi-US relations have

recovered. This is not an easy moment, but at the same time, if Saudi Arabia wants to do business and the rest of the world wants to do business

with Saudi Arabia, there has to be a silver lining in all of these things.

QUEST: Do you accept there has to be though a punishment price that has to be paid?

SFAKIANAKIS: Well, I am not the adjudicator here. I would say that Saudi Arabia needs to go forward with the investigation, it needs to be

transparent, governance has to be there as Saudi Arabia has been doing all of these things over the last two years on the economic front, I think it's

important that they talk to the rest of the world.

QUEST: If Saudi pushes oil to $200.00 a barrel, that obviously hurts everybody, but it also ultimately will hurt themselves.

SFAKIANAKIS: Well, first of all, I don't think that Saudi Arabia is going to push for oil prices at $200.00. They are not suicidal and I think that

this talk about using oil as a weapon is something that is preposterous. I don't think that Saudi Arabia is going to resort to such a thing, Richard.

QUEST: John, thank you very much indeed. Joining us from Athens, much appreciated. We needed that aspect as we put a full picture together. Sam

Kiley in Riyadh, back with you, sir. This interesting question that John Defterios has talked about, this denial by the Saudi Crown Prince. People

are saying that the President is accepting it, but as I read President Trump's statement, he is not saying he accepts it more that this was just a

total ...

[15:15:16]

QUEST: ... denial. On my mind, am I trying to parse something that really it doesn't need parsing? We seem to have had a problem there with

Sam in Riyadh, who suddenly can't hear me. We'll come back to him in a moment if we can. John Defterios, you heard the question. We're not --

President Trump isn't saying he accepts the denial, by the same token he is not saying he doesn't accept it.

DEFTERIOS: Yes, but Richard, he sounds like a reporter that is not providing any analysis. He is basically saying, "I had a phone call. The

gentleman said he is proceeding with the investigation as fast as he can." That being the Crown Prince and saying, "We have to basically take him on

his word at this stage." He is also -- the Crown Prince -- trying to create some distance between of course, what transpired and this rogue

group of killers perhaps playing out and his responsibility for it, Richard.

I think many have to test the Crown Prince going forward, particularly if the US and Saudi relationship endures like its down for decades for him to

take responsibility for what happens in his embassies. So he has consolidated the power. It also raises the question about how much more

involved, Richard, King Salman is going to get here. He has a very competent Cabinet around him, but perhaps, it's the spreading of the wealth

amongst other players in Saudi Arabia, not a concentration only with the Crown Prince as we see today.

QUEST: John Defterios, thank you. Sam Kiley, back to you. You can hear me. John, very kindly answered the question for you, so he got there

first. So I will come back to you. Look, Sam, you're in Riyadh, you've covered the region for a considerable time. It's not a question I would

normally ask, but tonight, with all of these going around, briefly, what to you is the most interesting aspect of this story as seen from the Saudi

picture?

KILEY: Well, I think, Richard, that the most interesting aspect and I don't want to sound too clincal about this. We are talking about the death

of a human being, but on a strategic and international level, you get these cycles. It's happened before with Saudi Arabia. You'll recall, you may be

old enough to remember the documentary called, "The Death of a Princess," which caused a very catastrophic breakdown in relationships between the

United Kingdom and a much younger Saudi Arabia over the execution of a Princess for alleged adultery.

These things happen. These things move forward. At the moment, it is a very catastrophic moment in history between the two countries, between the

United States and Saudi Arabia in particular, but there are many other nations that have been vocal in their demands for transparency over this.

Things will move forward in the end because realpolitik comes into play and Saudi Arabia, whatever the discomfort people may feel in the outside world,

is a vital Western ally and it is not a nation that can be or should be pushed in any other direction and that would be the analysis of the more

hard headed diplomats around the world, Richard.

QUEST: Gentlemen, honest politics brought in with business which is exactly the situation we need to reflect tonight. Everyone, thank you. We

will continue, it is "Quest Means Business" live from New York.

Back to the breaking news this hour. Donald Trump has spoken to the Saudi Crown Prince, Mohammed Bin Salman reportedly denied any knowledge of what

took place in the Saudi consulate in Turkey. Jeremy Diamond is following developments at the White House. He joins me now, tell me more about what

you've been told of this conversation.

JEREMY DIAMOND, WHITE HOUSE REPORTER, CNN: That's right. Well, we just saw the President put out his own readout of this call with the Crown

Prince of Saudi Arabia, Mohammed Bin Salman, also known as MBS. The President saying here that he spoke with the Crown Prince while Mike

Pompeo, the Secretary of State is in Saudi Arabia. He was also in the room for this phone call and the President points out, "Just spoke with the

Crown Prince of Saudi Arabia who totally denied any knowledge of what took place in their Turkish consulate and then he also notes that the Saudi

Crown Prince told him that he has already started and will rapidly expand a full and complete investigation into this matter," he says, "Answers will

be forthcoming shortly."

And so what we are seeing here from the President is a different version of what he said the other day about King Salman and the denials that the King

offered to the President about this same matter of the journalist Jamal Khashoggi and his -- what is becoming increasingly apparent to be a

possible killing here.

The President taking these denials it seems at face value, in a similar way that we've seen him do with other leaders as well, Richard.

QUEST: Yes, but this is interesting because some would suggest -- he is not accepting the denial, he is merely saying what he has been told. He is

merely reporting that which has been said to him by the Crown Prince. But with your knowledge of the way the White House works, and the way this

President tweets, you would guide us towards a different direction.

DIAMOND: That's right. Just because the President chooses what messages he wants and doesn't want to amplify it. A call like this could have

simply been read out by the White House. Sometimes, the White House doesn't even offer readouts of certain calls with foreign leaders. This

was clearly something that the President wanted to push out there and it is a line that he has pushed over the last week repeatedly emphasizing the

Saudi denials, emphasizing the fact that the Saudi journalist was a Saudi citizen, not a US citizen and beyond that, it seems like, as it is becoming

more and more apparent that Khashoggi was likely killed in the Saudi consulate in Turkey.

The President -- we are not seeing less cohesion between the US and Saudi Arabia. We are not seeing more distance between the two sides, instead,

the President seems to be staying just as close to Saudi Arabia so far, but it does bring us to this idea of the President and the denials that he

chooses to accept like he did for example with Vladimir Putin when he emphasized that Vladimir Putin strongly denied Russian interference in the

2016 election whereas other times when it's less politically convenient for the President, he chooses not to believe certain denials and certainly not

amplify them.

QUEST: Good to see you at the White House, sir. Thank you. The top Republican in the US Senate says he is very disturbed by rising deficits.

It's Mitch McConnell and he's called on lawmakers to get serious about fixing entitlement programs like Medicaid. Medicaid and Social Security

that account for two-thirds of the budget.

The US government's deficit bill is now the worse it has been since the financial crisis. The shortfall between taxes coming in and spending going

out, it's $779 billion for the year, 3.9% of GDP.

It's not just the amount of the debt that's a cause for worry, it's who owns it. China, Japan, and Saudi Arabia are among the top 10 owner --

foreign owners of US government debt treasury bonds. They all have to speak to one sort or another with the Trump administration. But of course,

they will be committing financial suicide for themselves necessarily if they decided to sell.

[15:25:16]

QUEST: Jason Furman served as President Obama's top economic adviser and he joins me now. And the rising deficit, well we know partially why --

lower corporate tax cuts and higher military spending.

JASON FURMAN, FORMER ECONOMIC ADVISER TO BARACK OBAMA: Yes, look, the Trump administration less than a year and a half ago projected the deficit

for this year at $440 billion. Instead it was nearly twice that amount at $779 billion. That wasn't because of an economic slowdown. We've had good

growth. That error was almost entirely -- because revenue is $350 billion short of what they projected and that's almost entirely because of a large

tax cut.

QUEST: Well, except if you do look at the numbers, the dropping corporate tax collection was $76 billion, 22%. But individual and self-employment

taxes were -- almost cancelled that out. So there is some justification for saying that the greater economic growth is producing more taxes.

FURMAN: No, Richard, taxes were up -- or basically flat. They were up 0.4% from the previous year, but remember that's an economy where you have

inflation, you have growth. You want them to keep up with GDP or more than that, if you look in the last 50 years, the only other times we've seen

revenue growth that low are in the middle of recessions or when you pass big tax cuts.

So this tax cut cost us a lot of money. Our revenue is a shared GDP, it is the lowest of the advanced economies. It is lower than it has been in

about 50 years. It's hard to have a decent budget when you keep cutting taxes.

QUEST: The Democrats are in a difficult position here, aren't they? Because the economy is growing, unemployment is low. We talk about that

every night on this program. It's difficult to make out a case for an economic crisis 20 years down the road because of a 3.9% budget deficit in

2018?

FURMAN: Yes, I don't think this budget deficit is going to cause a crisis. I think it chips away at our prosperity because it takes money we could be

using in investment. It means more of our future income. We are going to have to use to repay foreigners rather than use for ourselves. But look,

the financial markets aren't particularly worried about this. I don't think it's the number one problem in this country, but I think it's a

pretty unnecessary one. We didn't need a big fiscal stimulus in the year 2018.

QUEST: If you look forward now and you see the way the markets have risen and then the long term rates seem to have -- they went up and they went up

quite sharply, it seems to have paused for a moment. Do you think the current situation staves the hands of the Fed for the time being?

FURMAN: They have invested so much in the fact that they are raising rates in December. I don't think they should. I think financial conditions have

tightened. Inflation is undershooting and we are enormously uncertain as to where any of these stars are, so if I were them, I would say, "You know

what? We are data dependent. We are not doing forward guidance anymore. You come to the meeting in December. You decide to hold off for now." But

that's not a thought what I think the trajectory they are on at this moment.

QUEST: Good to see you, Jason, as always. Thank you, sir for taking time with us this evening. Good to see you.

FURMAN: Good to see you.

QUEST: Thank you. As we continue tonight, look at this, now, untying the Gordian knot. The 2.5 thousand year old tale given new relevance in the

age of Brexit.

[15:30:00]

(COMMERCIAL BREAK)

[15:30:00] RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Hello, I'm Richard Quest, more QUEST MEANS BUSINESS in just a moment and I'll be in the C-

suite with the chief executive of Iberia as airlines prepare for Brexit and we look at exactly the turnaround of Iberia.

It's one of the toughest Texas Senate races in recent history. One candidate is winning in the fundraising, the other winning in the polls.

We'll talk about that in a moment. This is Cnn and here on this network, the facts always come first.

Turkish officials now tell Cnn they believe the body of the missing Saudi journalist Jamal Khashoggi was cut into pieces after he was killed inside

the Saudi Consulate in Istanbul two weeks ago.

Turkish police searched that building on Monday. Turkey's president said they found fresh paint which could have been used to cover up evidence.

President Trump has just tweeted out a threat to cut financial aid to Honduras immediately if it doesn't stop a large caravan of migrants

currently heading towards the United States.

Close to 2,000 people crossed Honduras to Guatemala on Monday and they're heading north. Vice President Mike Pence says he told Honduran president,

the U.S. will not tolerate it, it's a blatant disregard for its sovereignty. Meanwhile, Mr. Trump has criticized the adult film star

Stormy Daniels, calling her horse face on Twitter.

Now a defamation lawsuit that Daniels brought against the president was dismissed by a federal judge on Monday. Daniels says she had an affair

with Donald Trump in 2006, a story that he calls "a total con job".

Baby gifts are already arriving and pouring in for the newest expected British royal. Prince Harry and Meghan Markle received a quintessentially

Australian gift, a kangaroo doll and a pair of ugg boots on the first day of their Australian tour. The first they've done together.

The couple announced on Monday, they're expecting their first child. Half an hour from the close and the Dow has come back, appears to be holding up

stocks or are near session highs, almost 500 points, the biggest single day jump in six months.

Alison with me from the Stock Exchange. This is the moment, the last 20 minutes, Alison, it -- I'm not going to turn faith by suggesting, but

normally, the markets would hold these levels if we haven't seen a crack yet. What's the mood on the floor?

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Having seen a crack yet, the mood is currently joyful because you're seeing this huge bounce back, and

you're seeing a really strong third quarter earnings season.

[15:35:00] Look, we're only into it, into the third quarter earnings season. This is a third day and each day is better than the last. Today,

we heard from some of the -- you know, state's biggest companies, Johnsons & Johnsons, Morgan Stanley, Goldman Sachs, United Healthcare, all beating

expectations and you're seeing investors really pile into these companies.

Richard, traders telling me that they think that corporate America hasn't even realized the kinds of profits that they're going to -- that they're

going to have as time goes on as these Trump tax cuts take effect.

So this is part of the reason you're seeing investors really pile into these companies here until today, Richard.

QUEST: And if we look at the Dow, you just -- only one stock -- oh, what a surprise, Verizon is the only stock that is down. Alison Kosik at the

Exchange, Alison, thank you.

KOSIK: Sure.

QUEST: The picture in Europe, well, it's equally rosy, all major markets closed higher, the Italian Stock Market rallied more than 2 percent, bond

deals fell and that was because Italy's coalition government approved a draft budget which could break the EU's spending rules.

Jean-Claude Juncker says Brussels is likely to reject it. France's Emmanuel Macron is shaking up his government to try to turn his faltering

presidency around. Mr. Macron's approval ratings has slipped in recent months after series of high profile resignations.

Now a new interior minister been drafted in to try to tackle growing frustration in the Macron agenda. Joining me now, Melissa Bell in Paris.

How deep, how significant, every leader, every really popular leader always watches some of the popularity evaporate.

MELISSA BELL, CNN CORRESPONDENT: Well, not so for Emmanuel Macron according to the French President himself, Richard. This is a president

who came -- so he simply doesn't look at opinion polls, and that's probably a good thing.

As you say, his popularity levels have slipped, but to almost unheard of levels. They really kind of come down sharp here with the course of the

Summer, he's now under 30 percent. This reshuffle you remember was prompted by the departure of his Interior Minister Gerard Collomb, yet

another blow, that was two weeks ago.

That is how long it's taken him to announce --

QUEST: Right --

BELL: The shape of his new government. We have a new Interior Minister, we have eight new ministers in all, a reshuffle to try and move on, but

nothing that dramatic and nothing that wasn't terribly expected. A president really trying to make amends internally but struggling to do so.

QUEST: Yes, but the question of course, business-wise, is whether he is able to continue to put forward his reforms. Now, he's done a lot on

pensions, and he's done a lot on restricting workers and the ability to change employees. What more is there to do that will have the unions out

on the streets?

BELL: Well, we're expecting another demonstration on a series, he continues to study space, although not as big as the unions would like. Of

course, clearly, he is pushing ahead with his very ambitious reform agenda, Richard.

But it is slow in yielding its fruit, you can imagine that turning this particular ship around that is the French economy is a no mean feat. One

of the big things this government is counting on, of course, is Brexit. France really hopes, Richard, to get some of those jobs that will be

leaving London over the course of the next few months, over the next couple of years.

It's banking on 3,500 new jobs create in Paris as a result of Brexit. But to do that, he has to fight off stiff competition, Luxembourg, Dublin,

Frankfurt, all competing for that top place when London changes its status and people have to move.

QUEST: So on this question of Brexit and the position that Macron is going to take in the final analysis here, tonight, roll about real politics. You

know what he says, not the position that he gives for the cameras. What's your understanding of how far he will be prepared to go towards meeting

with May and Merkel to make a deal?

BELL: Well, look, this is a French president who has made it very clear that he wants to hold Europe together. We're also coming up, don't forget,

the European elections next Spring, his message is clearly this, even the EU cannot simply reap benefits.

He's one of the primary proponents of a tough deal for the British. He believes that this is necessary to show other would be. Because remember

that populists have been rising everywhere in Europe to say, look, this is not necessarily a good thing, that is his position even as he tries to

convince the world that his reforms will go ahead and he has said, Richard, that he intends to stand firm, that he will reform France.

That he does not look at the opinion polls and that he will make this happen. And perhaps you need only look at the -- directed in which

people's feet were actually moving. We've had this announcement from Wells Fargo today --

QUEST: Right --

[15:40:00] BELL: Richard, that they will be moving an unspecified number of jobs from London to Paris. That is what the French government hopes to

build on to say, look, we are a credible --

QUEST: Right --

BELL: Solid alternative to what was the U.K. until recently, and we intend to reform France in a way that will ensure that, that can happen.

QUEST: Melissa Bell who is in Paris for us tonight, thank you. And indeed, was talking about Brexit. It reminds of the parable which came up

today, the parable of the Gordian knot. Now, you're familiar with the parable, I'm sure you all are.

An unconventional problem requires an unconventional solution. That was the wisdom of Alexander the Great. The ancient Macedonian conqueror, when

he was presented with one of these knots, the core of the Gordian knot is it's a simple solution that provides the ultimate answer.

In his case, he became a single sword that cut through, unraveling the Gordian knot. In the case of Europe, when the European Council President

Donald Tusk said when you look at Brexit and the tangled mess of Brexit, it's developed its own intractable problem, the Irish border solution.

(BEGIN VIDEO CLIP)

DONALD TUSK, PRESIDENT, EUROPEAN COUNCIL: It looks like a new version of the Gordian knot. Unfortunately, I can't see a new version of Alexander

the Great, if you know.

(END VIDEO CLIP)

QUEST: And remember, the legend has it that Alexander the Great sliced through the Gordian knot in order to break the bonds. Now, of course, how

anybody slices through this particular knot and tries to keep everything in one position without this is anyone's guess.

When we come back after the break, the chief executive of Iberia is with me -- please, come in to have a chat, come and join me in the C-suit, we need

to discuss Brexit --

LUIS GALLEGO, CHIEF EXECUTIVE OFFICER, IBERIA: OK --

QUEST: And I'll be right back.

GALLEGO: Thank you very much.

(COMMERCIAL BREAK)

QUEST: Europe aviation industry is bracing for the impact of Brexit and few airlines would be affected, perhaps like IAG. It's the Anglo-Spanish

airline group and it's one of the world's biggest. And a new report suggests it could lose its European operations license in a no-deal

scenario.

Because you have to remember, IAG owns British Airways, Aer Lingus, Iberia amongst others. Now, the three ones that could have a few tricky

difficulties. My next guest runs the -- Luis Gallego runs Iberia, the chairman and chief executive joins me here in the C-suite, good to see you,

sir.

[15:45:00] GALLEGO: Good to see you.

QUEST: I realized to some extent this is above your pay grade --

GALLEGO: Yes --

QUEST: This is at the IAG board level, Willie Walsh's level. But the reality is a no-deal Brexit, your parent company is not less than 50

percent European-owned, so you're going to have a problem or more than.

GALLEGO: Yes, well, the thing is that we are confident we are going to reach an agreement because we own CNS and Avio and with aviation, we don't

have a way to fly between Europe and U.K., so that's the scenario we are considering right now.

And I think realization(ph) of the sector has been very good. A lot of passengers, they have moved between EU and U.K. because of that.

QUEST: Because the reality is, if you win on your point, then your sibling British Airways has the opposite problem about ownership of IAG 50 percent

one way or the other. So to some extent, damn to do, damn, it could end.

GALLEGO: Yes, but as I said before IAG is a company, it's a Spanish company and we have several allocators(ph), the major part of thing in the

Europe countries, so the only one that they see in the U.K. is British Airways.

That the -- I am sure the European Commission said that even in the unlikely event that we don't have an agreement, we are going to have

flights between the EU 27 and U.K.

QUEST: On this -- to Iberia itself, Willie, your boss, Willie Walsh is praising hugely the turnaround that you've done, the quality of the new

aircraft, the new routes. Who is behind it? Because Iberia used to have a dreadful reputation.

GALLEGO: Yes, I think, without -- very well, thanks. But in 2012, we had started the transformation for one of the companies, and as a consequence

of that, we have changed the company, we have a new company, their financial results are really good, but not only that, operation is very

good on the customer, it's capable.

QUEST: And yet, we look at the -- you own your own market, I mean, it's well and truly sliced and diced, isn't it in Spain? Even within the Iberia

or within the IAG family, you have yourself, you have Vueling --

GALLEGO: Yes --

QUEST: And now you have level.

GALLEGO: Yes --

QUEST: I mean, you're competing against yourself.

GALLEGO: No, but we are not competing, I think we are complementary because we have Iberia that we fly long haul, Latin America and also North

America. And we have put (INAUDIBLE), but mainly to feed the hub. We have Vueling that they fly point-to-point from Barcelona.

And now we have little that these operator, new operator in the group that they are performing long haul flights from Barcelona.

QUEST: It begs the question, why couldn't Iberia fly those same routes that Level is flying. With all the yield management that you enjoy,

benefits versus them. Why create Level?

GALLEGO: Because we did the numbers in Iberia and we didn't have -- the course is tried(ph) through that this required to do those flights, so we

consider that modern sapphire(ph) aircraft flying from Barcelona with -- I did file a proposal for a customer, it's going to be better for the

customer.

And we see that we are stimulating their demand there, and I think it's a business model that is working.

QUEST: Good to see you, sir.

GALLEGO: OK, my pleasure --

QUEST: Thank you very much indeed, thank you. The Texas Senate candidate Beto O'Rourke is smashing fundraising records, it still might not be enough

to take down Ted Cruz when San Antonio before their debate tonight.

[15:50:00] (COMMERCIAL BREAK)

QUEST: Three weeks remain until pivotal midterm elections in the United States. And tonight, there's a debate in one of the most closely watched

races. It's at the Texas Senate seat and it is Ted Cruz versus Beto O'Rourke; the Texas CEO cashes, flooring the O'Rourke campaign, and it's

going in there at record levels.

Just look at that, 38 million versus Ted Cruz's 12 million. However, nothing in the last three months, it's the most ever for a candidate for a

Senate in a single quarter. Extraordinary while the polls are unusually closed with the Texas Senate's race.

Republican Ted Cruz is still up by 7 points in the latest readings. Registered voters say the economy is their number one issue. Ed Lavandera

is in San Antonio for us tonight. Ed Lavandera, so why -- the numbers are not close in terms of -- I mean, all right, Ted Cruz has a 7 percentage

point lead.

So how is O'Rourke managing to attract so much money?

ED LAVANDERA, CNN CORRESPONDENT: Well, he has really tapped into a great deal of popularity among Texas Democrats, and he's really kind of gone into

places. He has made it -- you have followed this race very closely.

Beto O'Rourke loves to talk about he has spent much of the last year and a half, traveling around to every one of the 254 counties of Texas, and he

loves to tell the story about one county hadn't been visited by a Democratic state-wide candidate since Lyndon B. Johnson back in the 1960s.

So this is a candidate who has spent a great deal of time traveling up and down all over this massive state, and that has garnered him quite a bit of

popularity and has made this race much closer than many people expected. Now, having said that, many of the recent polls that have come out here,

Richard, in the last week really show Ted Cruz cementing his lead in all of this.

So anywhere between 7 to 10 percentage points in these races. And of course, at the end of the day, if that -- if those polls do play out

accurately, Ted Cruz would easily win re-election. But there's a great deal of intensity and interest in this race.

Beto O'Rourke has really captured the imagination of many voters, not just here in Texas, but there's been a great deal of money that has flowed into

his campaign from outside the state as well. So it is really fascinating to see that this race is so close.

And here on the ground, we have followed both of these candidates for the better part of the last two months. Ted Cruz is fully embracing Donald

Trump, and if you have followed that relationship closely over the last couple of years, everyone well knows that the relationship between Ted Cruz

and Donald Trump was highly contentious back during the Republican primary where Donald Trump essentially accused Ted Cruz's father of being involved

in the Kennedy assassination.

Made disparaging remarks of about Ted Cruz's wife and her looks, despite all of that, Ted Cruz says that he needs to get past that to work for the

people of Texas, and that he couldn't -- he needs to embrace the good that Donald Trump --

QUEST: Right --

LAVANDERA: Has done, and Beto O'Rourke is really -- starting to capitalize on a lot of that, Richard?

QUEST: Ed Lavandera, who is in Texas watching the race for us and we're expected to report that. We are in the last few moments of trade and it's

a very fascinating day.

If we look at the Dow 30 in a second, you'll be able to see that the market itself opens higher, that almost every stock is up and it opens higher and

it continues that rise throughout the course of the session.

[15:55:00] Healthcare stocks were boosted by United Healthcare earnings. And the market itself liked what it saw in terms. So we are -- yes, we are

very happy. You have United Healthcare with a 4.5 percent gain of the top and at the bottom. You have no stocks, Verizon was down, McDonald's is

just off marginally on its own issues.

But the bulk in the middle, and it's not just everything is green, it is the size of the gains. You're over 1 percent when you're just 26 on the

Dow. Everybody else, 2 to 3 percent gain. Which is quite extraordinary when you put it into the perspective of last week's heavy losses.

Now, does that means we're all off to the races again? Probably not. This is a bounce back of sort, but those in the market would be the first to

stay at these elevated levels, there's still caution ahead. So an impressive performance. We will have our profitable moment after the

break.

(COMMERCIAL BREAK)

QUEST: Tonight's profitable moment, already, we can hear the undertones of let's go back to some sort of business as usual with Saudi Arabia. If as

expected, they do admit culpability, they do say there was a killing and by rogue elements, will that be sufficient for companies to go back in with

their investment and to rebuild their damaged relations.

It probably will, because the reality, it's business as usual. Is that distasteful? Is that unpleasant? Is that unkind? Absolutely. But it's also

a reflection that you can only take certain stands, and if you do take a very firm hard line on something, where do you go afterwards?

You have to leave yourself and get out of jail (INAUDIBLE) in this sense, some sort of way out. You have to be able to get back to normal because

investment, business, jobs, livelihoods all depend on the commerce that goes back with some forwards.

As I said, is that nice? No, is it real? Yes, and that's the reality we face. And that's QUEST MEANS BUSINESS for tonight, I am Richard Quest in

New York. Whatever you're up to in the hours ahead, I hope it is profitable.

(BELL RINGING)

The bell is ringing, the day is done, the Dow is about to close.

END