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First Move with Julia Chatterley
Ford And Volkswagen Tying Up In Autonomous Tech And Electrification; AB InBev Shares Pressured As Questions Swirl Over Their Asia IPO; President Trump' Is Not A Fan Of Facebook's Crypto Ambitions; Labor Secretary Alexander Acosta Is Resigning. Aired 9-10a ET
Aired July 12, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE and here is
your need to know.
A stronger Alliance: Ford and Volkswagen tying up in autonomous tech and electrification. A bitter taste. AB InBev shares pressured as questions
swirl over their Asia IPO. And not a fan: President Trump's verdict on Facebook's crypto ambitions. It's Friday. Let's make a move.
Welcome to FIRST MOVE this Friday. TGIF, or should I say TG High F. Yes, I'm talking about record highs here for the U.S. majors because that's
what we saw yesterday. I can give you a quick look at it.
Investors well and truly hoping here that the Fed is going to come to the rescue ultimately and cut rates in July, I am just not sure anybody really
can understand the size or if indeed an emergency exists here right now. We saw the S&P 500 and the Dow breaking fresh granted. The Dow closing
above that 2,700 level for the first time ever and right now, futures do look set to add to those gains.
Among the sectors that we're going to be watching though, energy stocks today. Oil right now sitting at some seven-month highs. We have two
brewing storms, in fact driving oil prices. A possible hurricane barreling towards the Gulf Coast currently shuttering half the region's oil output as
we await that.
The timing, of course, particularly difficult given the tensions that we've seen in the Strait of Hormuz between the U.K. and Iran just this week, of
course, never mind anyone else. We'll talk through all the details of that shortly.
But I also want to draw your attention to some of the other things that I've been watching and something else actually that I've spotted. Warning
signals from Asia overnight. Singapore reporting its worst second quarter growth numbers in a decade.
We saw that GDP shrinking from 3.4 percent in the three months to April. What about the Chinese data for June, too? Trade war reality kicking in
here once again. Imports dropping sharply, 7.3 percent down from a year earlier. Exports also falling over one percent for the same period, too.
I'll tell you what if Jay Powell is looking for evidence of that international slowdown, never mind the United States, then hey, look no
further.
All right, let's get to the drivers and driving is the key here. Volkswagen and Ford announcing a third extension of their tie up, this this
time joining forces on autonomous vehicle technology and electric vehicles.
Volkswagen investing some $2.6 billion into Ford's AI unit, Argo. Peter Valdes-Dapena joins us now. Peter, I think this is what we were all hoping
to hear about back in January when they were talking about commercial vehicles. Talk to me about what we're going to see both in autonomous
vehicle technology, but also in electric vehicles, too, because the comparative advantage here for both is huge.
PETER VALDES-DAPENA, CNN BUSINESS SENIOR AUTO WRITER: Right. Well, on the autonomous front. Volkswagen is becoming now a co-investor in Argo AI, an
independent company that Ford is already an investor and so together Ford and Volkswagen combined will own a majority of Argo AI developing self-
driving car technology.
The other part of this deal is that Volkswagen, as you know, is very heavily investing in electric cars and has huge plans in the EV space.
Coming out of their diesel scandal, they really aim the company towards electric cars. And they have a platform, an electric vehicle platform
called MEB. Ford is going to be the first outside automaker besides Volkswagen to use that technology. Ford is going to develop two different
European market electric cars based on that platform.
That's a big deal for Volkswagen because it means Volkswagen now has another chance to lower its costs, get some more profit back from that
investment, but also established itself as a go-to maker of electric vehicle platforms for the future.
CHATTERLEY: Yes, I mean, it's so fascinating. Economies of scale here for Volkswagen, as far as their electric cars is concerned and the platform,
the architecture that they built here. Do you think we see more car companies coming to them now and saying, "Hey, you know, you've produced
this technology. You've invested billions and billions of dollars in it now. Can we use it to?"
DAPENA: Yes, I bet you probably will. One thing about electric vehicles is they're mechanically very simple, which makes platform sharing even
easier, you can build a much greater variety of different vehicles on the same basic engineering with electric vehicle technology.
And as the CEO of Volkswagen pointed out, you know, kind of, it's all the same underneath. It is batteries, it is electric motors, there's not that
much reason for companies to feel like they should develop their own if somebody else has a good engineering platform for this.
So yes, I'm going to bet that we're going to see other companies probably coming to Volkswagen, wanting to share that as well.
[09:05:31] CHATTERLEY: And I want to circle back to what we were saying there about autonomous vehicle technology. I mean, we've seen big players
in this space, Alphabet - WayMo, out there up front. We can name some of the others. But where does this position Ford and Volkswagen now in this
space? Because it's all about scale. It's all about data collection as you and I have discussed on this show many times.
DAPENA: Yes, well, this puts Ford and Volkswagen, I think in a very good position. Certainly, Ford was already invested in Argo AI, but this
certainly helps Volkswagen to jumpstart some of that autonomous driving technology that that company is going to need as well.
And yes, for something that's really not out there yet, or making any money, it's become a very, very competitive space. And this puts Ford and
Volkswagen up against General Motors and Honda with cruise automation based out in San Francisco, it's going to be interesting to watch how this comes
out.
And this is an area where there's a lot of difference in the technologies, a lot of difference in how companies are approaching it with a different
philosophy. So it's going to be really interesting to watch.
CHATTERLEY: And I will be speaking to the CEOs of Ford and Volkswagen later on today, and that will air on "The Express." Can't wait for that.
Peter Valdes-Dapena, in the meantime, thank you so much for that. Fascinating to watch.
All right. Next driver sour taste for AB InBev, investors today amid reports, it might delay its IPO at the Asia unit. Paul La Monica has all
the details on this. Paul, this was going to be perhaps the biggest IPO of the year. We're talking more than $9 billion.
You know, when I look at the details here, the pricing, the way that the book run is on this, Morgan Stanley and JPMorgan approached it, I can see
all sorts of problems here. What do you think on this one?
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, I agree, Julia. I think the biggest issue is that this IPO, which if it happens would be bigger than
Uber. The problem is that investors realize that AB InBev wants to do this deal so that it can pay down some of its debt. This is a company has more
than $100 billion in net debt. It has a very bloated balance sheet. It also wants to do acquisitions in Asia.
But as a result, AB InBev's intentions are well known. So the buyers of the possible IPO, they're the ones with the upper hand and they look at
this valuation, and I think they realize that it is a bit frothy -- pardon the beer pun, if you will -- and that is going to lead AB InBev to have to
come to a realization that if they want to do this deal, they may have to cut the price, even though it means they won't get as much money from it as
they were hoping. The buyers are in the driver's seat right now, not AB InBev.
CHATTERLEY: I couldn't agree more. When I looked at this and looked at the relative valuations of the competitors in the area, I was like, wow,
that's the low end of their anticipated pricing here, I just think perhaps they were drinking some hard stuff when they were thinking about pricing
this one, Paul.
But to what extent is this also, do you think about market conditions? I mean now, we are just looking at what else is going on over there in Swiss
Re pulled an IPO. They suspended the Reassure Group PLC yesterday. So is this to some degree to do with market conditions, the problems that we've
seen in Hong Kong with the protest, the broader tensions between the United States and China here? Do you think it could be about that, too?
LA MONICA: I think that might play a part in what's going on with AB InBev. Clearly, right now, there are more worries about the rest of the
world's economies slowing in light of trade tensions particularly, Europe and China.
But make no mistake, China is still a very attractive market for the beer companies, which face stagnant growth in the U.S. and other developed
markets. AB InBev wants to make some acquisitions, they're facing tough competition from rivals like Heineken and Carlsberg. They need to probably
do this deal even if they have to cut the price because it's not as if the Chinese consumer has suddenly lost their taste for Western beers. That's
not really the case at all.
So I think it's less about some of these macro concerns right now and just an issue of it's a bloated company with a lot of debt. The market
recognizes that. So why should they pay up for this when they can force AB InBev to sell it at a more attractive price?
CHATTERLEY: Yes. And they also didn't get big institutional investors involved at to anchor it either. So some really strange mistakes here.
LA MONICA: Yes, that was a key one definitely.
CHATTERLEY: Paul La Monica -- thank you. Yes. Paul La Monica, I don't get too excited about this, but watch this space. Paul La Monica, thank
you so much for that.
[09:10:05] CHATTERLEY: All right. Next driver, the President -- President Trump tweeting, he is quote, "not a fan of crypto currencies." He
suggested that Facebook might also need a banking charter for their currency, Libra. He says, the quote, "Dependable dollar is the only real
currency," just don't buy it of the course because he wants it weaker. Naughty.
Hadas Gold joins us now on this story. He also said, Hadas, here that actually this facilitates illegal activity. I mean, some could argue cash
does that, too, but he has not pulled his punches here on cryptocurrencies.
HADAS GOLD, CNN BUSINESS REPORTER: No, Julia, he has not pulled his punches on cryptocurrency. Just to remind everybody, Libra is the
cryptocurrency that Facebook announced last month and they're doing this setting up a Swiss nonprofit. They're doing this in a separate way than
what we've seen for example, Bitcoin do. They are bringing in 28 other companies. Big names, like Uber, Spotify and MasterCard, each of which has
pledged to invest at least $10 million into the project, which they hope to launch in 2020.
But there's already been a lot of pushback on Libra, of course, coming from Donald Trump most recently. He tweeted yesterday, "I'm not a fan of
Bitcoin and other cryptocurrencies, which he said are not money and whose value is highly volatile and based on thin air. Unregulated crypto assets
can facilitate unlawful behavior, including drug trade and other legal activity."
"Similarly, Facebook's Libra as a virtual currency will have little standing or dependability if Facebook and other companies want to become a
bank, they must seek a new banking charter and become subject to all banking regulations like other banks, both national and international."
He goes on to say that the only real currency in the United States is the dollar, but he's actually not the only one who is coming out against or
questioning Libra and actually in one of the rare moments of agreement with the Fed Chair Jay Powell. He is echoing what Jay Powell actually told
Congress just this week, which he said that he has serious concerns over privacy, money laundering, consumer protection and financial stability.
And so his comments could be as a result of the Jay Powell comments in Congress this week, or also there was a Social Media Summit at the White
House yesterday, and though the Social Media Summit was more about conservatives and whether conservatives are somehow censored online, this
is part of Donald Trump's general sort of antipathy towards a lot of these Big Tech giants that he says is biased against him.
So it could be also a reaction as a way that he thinks he could get sort of in Facebook's way, but as I said, there's a lot of legitimate concerns
around Libra. And there's sort of this trend that we have, we're seeing with regulators and with politicians' unease over a lot of these tech
companies becoming bigger than what they were.
I mean, Facebook was just a social networking site a few years ago, and now they're getting into the currency world. You see the same thing with
Amazon, getting into web hosting, getting into supermarkets, so we're kind of seeing all of this concern come around how big and powerful these tech
companies can be. And David Marcus, who is the cofounder of Libra tweeted that they want to work with regulators, and that's why they actually he
said, shared the plans early.
He'll be in Washington next week in front of lawmakers where they're going to have hearings specifically about this cryptocurrency, Julia.
CHATTERLEY: Yes, I mean, the global remittances business, a $500 billion industry is ripe for disruption, particularly in emerging markets. People
pay way too much money to transfer money. I just didn't believe that Facebook actually is the right company here to be pushing this.
I just -- the trust isn't there, but to your point, and it's a really important one, Facebook's Libra is going to be discussed by the Senate
Banking Committee next week and the rumors suggest that's going to be a tough hearing -- Hadas.
GOLD: It will be a tough hearing for David Marcus and they do seem ready for it and you're right, especially about the idea of all these people out
there who aren't necessarily banked with specific banks. Those are the people that Facebook is trying to target and there's just a lot of
concerns. Because of Facebook's history with security with data that a lot of these politicians and regulators are looking at them and say, "We don't
trust you to handle something like a currency that could disrupt the market."
Because think about it, think about how many users Facebook has, something like two billion users. So imagine what that could do to monetary policy
around the world, if even just half of those users started using this cryptocurrency.
CHATTERLEY: Yes, as we've discussed with Scott Galloway on this show, it could be huge. Just again, I am not sure Facebook is the company to do it
right now. Hadas Gold, thank you so much for that.
All right. Let me bring you up to speed now with some of the other stories that we are following around the world. Turkey has received its first
shipment of Russia's S400 missile defense system. A Russian plane landed in Ankara earlier today. The delivery is expected to continue in the
coming days. The move comes despite the U.S. warning over NATO allies purchasing quote "weapons from our adversaries."
Monsoon rains are causing extensive damage at Rohingya Muslim refugee camps in Bangladesh. Thousands of families have been displaced after landslides
destroyed their makeshift homes. UNICEF says at least two children have drowned and there's more rain in the forecasts.
Millions of Americans along the Gulf Coast are bracing for a possible hurricane. Tropical Storm Barry is closing in on Louisiana. It could
reach hurricane force when it makes landfall on Saturday. Barry is expected to dump half a meter of rain on the ground already threatened by
the swollen Mississippi River. A state of emergency has been declared in New Orleans.
Natasha Chen is there for us. Natasha, a huge problem here because you've already seen heavy rainfall, swollen Mississippi River and now having to
deal with a potential storm, too. Talk about the preparations that are being made there and what we can expect.
NATASHA CHEN, CNN CORRESPONDENT: Right. Well, Julia, we are seeing a lot of floodgates being closed. There's one just down the levee right there,
we saw a crew closing that gate yesterday. That would help a great deal in preparation for this. They've also closed pedestrian gates close to the
river walk downtown, which is right across from us there.
And you can take a look at the Mississippi River right here, as you mentioned, very swollen. You can see there by the large tree is the top of
a fire hydrant, so you can just tell how far out people are typically able to walk this time of year. But right now it is all water.
The good news is that the water is not expected to top over this levee where we are standing, Julia and the authorities are hoping that it stays
this way.
CHATTERLEY: And yet, for many of us, I think we remember the devastation brought by Hurricane Katrina 14 years ago now, but the infrastructures
since then have been updated. The pumping systems, the storm barriers. This is going to be a crucial test of everything that's been put in place
since then, surely.
CHEN: Yes, and they have been tested since Katrina with other storms, too. The challenge with this one though, is because we have a record flood level
of the Mississippi River. This is now more than 250 consecutive days of this river being at flood stage. You're adding a storm on top of that.
Typically, the river is not this high. So this is sort of an unprecedented situation for them. The Mayor of New Orleans says that while they have 118
pumps that are functional and ready to go, this is still not a situation they can simply pump their way out of.
Right now, the City of New Orleans is telling people to be prepared to shelter in place while there are a few other parishes that have certain
areas under mandatory evacuation. And of course, local authorities also have buses that are ready to go in case people need to leave at the last
minute -- Julia.
CHATTERLEY: Yes. Natasha Chen there and stay safe this weekend. All right. We're going to take a quick break here on FIRST MOVE, but still to
come, as Tropical Storm Barry barrels through the Gulf of Mexico, oil of course and the industry there in its path.
And Daimler's great profit warning sending shares lower. The carmaker expects to sputter through the quarter with deep losses. Stay with us.
We've got all the details. You're with CNN.
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[09:16:04] CHATTERLEY: Welcome back to FIRST MOVE this Friday live from the floor at the New York Stock Exchange where U.S. futures are indicating
another positive open for the U.S. majors here having me fresh highs of course for the Dow above that 27,000 level in yesterday's session. The S&P
and the NASDAQ also positioned for a strong open here.
Let's talk about what we're going to see here as we head into earnings season. Lindsey Bell is Investment Strategist at CFRA Research and joins
me now. Lindsey, Happy Friday.
LINDSEY BELL, INVESTMENT STRATEGIST, CFRA RESEARH: Happy Friday.
CHATTERLEY: Fresh record highs for U.S. markets. They expect Jay Powell to ride to the rescue here whether or not we see an emergency. Is there an
emergency here? Is there a need for a rate cut?
BELL: I mean, it's really hard to square the economic environment that we're in right now with the need for a rate cut. But his concern really
revolves around inflation and trade. He doesn't want inflation to get too low and also to turn into a Japan situation. And then also trade, it's
like kind of like might be buying some time for Trump and the trade negotiations to really get on.
CHATTERLEY: So you've mentioned trade negotiations there twice. To what extent have corporates baked that into the cake for their forecasts here
because I know this is one of the things that you see, it's going to be critical as we head into earnings season, simply what they say about the
likelihood of a deal this year?
BELL: Yes, absolutely. I'm a little bit worried about this. Numbers have come down, especially for the third quarter. We're looking for flattish
earnings there. With the fourth quarter, we're looking for a robust seven percent earnings growth.
CHATTERLEY: Wow.
BELL: Yes, and that's pretty big. So to the extent that trade is baked into, I don't think it is at all. And I think that investors really could
be disappointed once second quarter earnings season gets underway, because you're going to see outlooks and guidance from CEOs and CFOs come down
because it needs to, they need to be prepared in the event that the trade tensions escalate.
CHATTERLEY: So for the second quarter though, what we've seen and what we tend to see coming into these earnings season, is analysts bring their
expectations down and they bring them down, they bring them down and strangely enough then, earnings feat because the expectations are so low.
BELL: Right.
CHATTERLEY: Is this going to be any different?
BELL: No, I don't think we're going to have any different situation here. You're absolutely right. For the second quarter, we're looking for a
decline in earnings of 1.8 percent, which is pretty low. It's come down from a positive half a percentage point at the beginning of the quarter.
So the numbers are weak. I think we're going to get a lot better growth, like two and a half percent somewhere in there was what we should actually
see. Look, these guys haven't missed estimates since 2009 and in the entirety of this bull market.
CHATTERLEY: Yes, the analysts are rubbish, we need to like get a grip here. I said it, not you. What we've also seen, though, is that nine
percentage point rally in U.S. stocks since the first of June. So we're coming into it where there's also a lot of good news baked into the cake
here.
So sort of explain what the likely reaction is, given that there's a lot of good news in the price here, too.
BELL: Yes, it's pretty tough when you have a run like that in the stock market before earnings season starts, especially in an earnings season that
there's some questions about the operating environment, especially because of trade.
It's going to be a rough patch to go. And we've seen a couple early reporters. And if they beat on bottom and top line and guidance is good,
then you see the stocks rally, but these guys that are lowering guidance are getting crushed faster than who reported yesterday. And that was one
example where they talked about how trade is impacting their business.
They've actually been raising prices for their customers, and they've been able to pass that through to offset tariffs. But they're seeing inflation
in their own cost of goods. So that's the problem.
CHATTERLEY: Yes, and investors are sort of moving, reacting very quickly - -
BELL: Very quickly.
CHATTERLEY: And maybe this is a real negative here. Talk to me about what we're seeing between the majors here and some of the smaller cap stocks
because I've been seeing this earlier this week, there's a 17 or 18 percentage point difference in performance -- under performance for the
small caps here over the last year. To me, that's a warning. Should we be listening to it?
BELL: I would also point to what you're seeing in gold. Gold is rallying, and the gold has actually outperformed the S&P 500 since the beginning of
May. So the gold us up 9 percent since the beginning of May while the stock market, the S&P 500 is up about three percent since then.
So you've seen that outperform and I think the weakness that you're seeing in the small caps, too, goes to show that investors are really putting
their money in large caps, safe havens with good balance sheets, high quality stocks, and gold and some of these -- it just points to the fact
that investors are getting worried.
[09:25:34] CHATTERLEY: Yes, there's an increasing dizziness despite the fact that you know, Jay Powell is talking about rate cuts here. If we see
a resolution to the trade deal, and forgive me, and our viewers if I keep asking that question, does that make small caps then a great buying
opportunity, given the underperformance and the lack of rally that we've seen relative to the big ones, the big caps?
BELL: Exactly. I think that's the case, because these guys are shielded from trade, which is like why it's confusing that they haven't been
rallying. But the problem with the small caps is they're highly levered. They're much more levered than the large caps are at this point in time,
they really have taken advantage of the low interest rates and to fill out their businesses.
So I think that that's going to be an area of pressure until we have trade resolution where we know that we can sustain economic growth here in the
U.S. and that's really what it's all about.
CHATTERLEY: We have 20 seconds, which sector surprises us in earning season? Is it technology? What do you think actually outperforms here?
BELL: I think technology could outperform. I think numbers have come down quite a bit and that could be an area of surprise -- positive surprise. I
mean, we have heard from some semiconductor companies, and the numbers are a little bit better than the dire expectations so --
CHATTERLEY: What the chips and the techs, too. Lindsey Bell, great to have you with us. Thank you.
BELL: Thank you.
CHATTERLEY: Lindsey Bell there. CFRA. The market open is next. Plenty more to come.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE and the opening bell here at the New York Stock Exchange for the final time this week. We were
anticipating a higher open for stocks and that is exactly what we've got adding to gains from yesterday's trading session. Of course we've got the
S&P 500 now above that 3,000 level. Dow crossing the 27,000 mark. It's going to be fascinating to see what we get through our earning season.
But right now, as I said earlier, TG high F. Record highs for these U.S. majors. Not so great news though for Daimler. Let's take a look at what's
going on with that their shares under pressure today, after the firm issued its fourth profit warning in the past year. They're expecting a Q2 loss of
nearly $2 billion.
Anna Stewart joins us now. Second in a month, fourth profit warning in a year and whatever it is, you name it, we can throw at it -- airbag issues,
the emissions scandal, a softening market anyway. Challenged, I think that's the word for Daimler right now.
ANNA STEWART, CNN REPORTER: But a kitchen sink, we have there. A hefty loss for the second quarter. $1.8 billion, now as you said, this is
certainly not the first profit warning we've had from them in the last year, it is the fourth.
Now, there is a new CEO and a new CFO at the top. And I think that is why we're seeing this. They want to have a fresh start. It involves doing a
big deep clean of the company and they have uncovered quite a few nasties.
Top two that are really weighing down on this report. New information they say related to the Takata airbag recall. They are putting that at $1.1
billion; also reassessing the projected cost of dieselgate in the Mercedes Benz division, that's going to cost $1.8 billion.
Now you might think that this kitchen sinking would please investors, you might see a bit of a relief rally, not -- we saw shares fall three percent.
They have come back a little since then.
But speaking to analysts today, Julia, there's a sense that maybe there's a trust issue for investors, because this is new management. But this is
actually the second profit warning they've given within just a few weeks, are the one-offs, really one-offs? What does it mean for the dividend?
And what about the overall health of the underlying business? It doesn't look good.
CHATTERLEY: Yes, it's a case of isn't it, one and done or we keep doing this? Are we over the worst now? Are we going to keep hearing more bad
news as far as this company is concerned, even with the bad news that we see in the price right now? But it does underscore a bigger issue here,
which is that the entire industry is struggling with softness, weakened profit, so the time when they need to be pumping money into investments for
the future of cars, whether it's electrification or autonomous vehicle technology. It's a tough environment right now.
STEWART: It couldn't really be tougher, and they're certainly not alone. We had that profit warning from BMW earlier in the year. They're also
actually looking for a new CEO. But yes, you're facing weak demand in almost every single market, particularly China, which is of course such an
important market, drop off in sales in diesel, huge cost in investing in the future as you said, because if you don't, you will fall even further
behind. And that's why we're seeing all these big joint venture.
So Daimler has partnered with BMW, both pretty troubled, though, but both partnering together for the future. And of course today as announced,
Volkswagen and Ford, they're all in it together.
CHATTERLEY: Yes, absolutely. And they are trying to share the costs here, the cost burden of technology and share of that technology, indeed, is
critical here. What about China? What were they saying about China, because this is a huge theme for all of these guys and the softening demand
that we see there.
STEWART: So in its preliminary report, nothing said specifically on China. It will be interesting to see in the broader report that comes out because
we saw just earlier this week one earnings report is saying that they saw car production fall 12 percent in the first half of this year. So I expect
to see further numbers to do with that.
CHATTERLEY: Yes, it's going to be fascinating to see. Anna Stewart, thank you so much for that. All right, let's move on and take a look at what's
going on in the energy market. Because we do see oil trading at around a seven-week highs, all eyes, of course, on Tropical Storm Barry, as we
mentioned in the northern Gulf of Mexico.
John Defterios joins us now. John, let's talk about the short-term dynamics. We've got the storm. We've got the impacted facilities in that
region, but also, more broadly, what we've been discussing this week in the Strait of Hormuz and the ongoing tensions with Iran and vessels there.
It's a lot for investors to keep an eye on right now.
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Yes, I think, Julia, we have to break this market down into two different categories, as you're
suggesting there, the short-term risk and the longer term glut that's emerging and we can cover that shortly.
But let's break down the Double Trouble that's in the energy market today. I think we have to put Iran at the top of the list here because of what's
been transpiring over the last hour or so with the Iranians from the Revolutionary Guard camp suggesting that the U.K. has to release this
tanker to avoid a quote unquote "dangerous game."
Now, this is very tricky on behalf of the Iranians because they're honing their attention in on the U.K., picking one target, particularly, perhaps
in this energy transition and leadership transition that's taking place in the U.K. with Boris Johnson siding with Donald Trump. The Iranians,
focusing on the U.K. deciding to take out a single target, perhaps, going forward.
[09:35:24] DEFTERIOS: Khalid Al-Falih, the Minister of Energy in Saudi Arabia told us at OPEC that Iran serves as a global threat to energy
supplies here. This is what he is talking about -- stepping in, intervening at different occasions. And we can't overlook Barry, this
topic that you'd led into the segment with here.
We already have seen 53 percent of the facilities shuttered in Louisiana when it comes to oil, about 45 percent of the facilities when it comes to
gas. And I've seen early estimates here of a perhaps a billion dollars' worth of damage. And the energy companies don't want to take any risk
because of the refining capacity. It comes in particular out of Louisiana.
You said we're hovering around a seven-week high here, you have to go back to the end of May when we were at $70.00 a barrel. And we're hovering
around $66.00 to $67.00 for the international benchmark -- Julia.
CHATTERLEY: Yes, I mean, I do want to circle back to what you were saying about the IAEA and the warning that we got from them this week about the
supply cut hitting in 2020 despite all the efforts that OPEC and OPEC-plus are making to strip capacity out of the market.
I mean, these guys are saying that we'd need to see a further 800,000 barrels a day strip back in order to prevent significant weakening of
prices here. I mean, I can only imagine the howls going on over OPEC for the OPEC members here and OPEC-plus, of course, Russia.
DEFTERIOS: Yes, they're trying to stay with the strategy here that they've had going for two and a half years between Russia, Saudi Arabia and all 24
members of the OPEC-plus structure right now. But whether it's OPEC on Thursday, or the International Energy Agency on Friday, that message is the
same, we have a glut forming in 2020, a tighter market in the second half of this year.
But the glut emerging in 2020, let's take a look. The real reason is the expanding U.S. production. Let's go back to 2018, knocking on the door of
11 million barrels a day, surge into what? 12.4 in 2019. And look at the surge for 2020.
We've added basically with the United States in the last five years, the scale of Iraq to the market. So OPEC had to make a call going back four or
five years ago, the previous Energy Minister, Ali Al-Naimi wanted to flood the market to keep shale out of the market.
In the collaboration with Russia, Saudi Arabia is basically saying we're going to serve as the global shock absorber for the shale market. We want
to keep oil prices $60.00 to $65.00 a barrel. We want to keep the surplus under control and having them doing that, you have to make space for shale.
And basically the Saudi Minister said, "Look, we were producing about 9.4 million barrels when the U.S. shale was expanding. We're around 10 million
barrels, we're not losing market share. We're earning more money per barrel. But we have to respond to this revolution that's taking place in
the United States.
And if we slow down, Julia, 2020 is going to be even nastier when it comes to the glut that's forming that the IAEA is talking about today.
CHATTERLEY: Yes, one heck of a tug of war. What is that breakeven level now for the shale guys? At what point did they look at the price and go,
"Actually, we have to strip back again and stop pumping so much because it's not working for us either because the oil prices has got so low?"
DEFTERIOS: Well, it's a very clever question that you're asking, because if we had this conversation two and a half years ago, most of the field's
breakeven price was $50.00 to $55.00 a barrel. They've become much more competitive with $30.00 to $35.00 a barrel.
But you hear the cries from Wall Street suggesting here, should the U.S. be throttling forward here with so much production on the market serving as a
disruptor if you're not making that much per barrel, knowing that they're being propped up by Russia and Saudi Arabia.
Sources within that OPEC-plus apparatus are saying they're playing a medium term game and this is where it gets very interesting. They don't think
that the shale expansion can last for better than five, six, seven years. So they're willing to be the balancer of the market right now hoping that
this revolution that we see tops out in by -- say what? 2030 maximum going forward.
CHATTERLEY: Yes, fascinating. John Defterios, I've missed you. Great to have you back.
DEFTERIOS: Thank you. I've been traveling everywhere.
CHATTERLEY: I know you have. We missed you. Okay, good. All right. Let's move on and talk about the global movers that we are watching in this
session today. Ford -- higher -- announcing it is extending its global collaboration with Volkswagens, as we've been discussing on the show,
adding autonomous and electric cars to the joint venture that they announced back in January.
The automakers are saying there they will remain independent and fiercely competitive. But on technologies of the future, they're working together.
[09:40:01] CHATTERLEY: Illumina also in focus in the session. The biotech firm slashing its revenue expectations. It predicts Q1 revenue at some
$835 million. That's significantly lower than Wall Street's estimates. It also says -- actually, I'm going to actually hand over to my colleagues at
CNN U.S. actually for some breaking news.
POPPY HARLOW, CNN ANCHOR: ... underage minor girls. Again, if you're just joining us, the breaking news this morning, the Labor Secretary
Alexander Acosta is resigning. This is after, remember, that defiant press conference that he held on Wednesday defending vehemently the decisions he
made while he was a prosecutor in Southern Florida on the Jeffrey Epstein case.
And, remember, Epstein will be in court on Monday. The President, we were told was pleased with Acosta's performance in that press conference
Wednesday. But something has changed in the last 24 hours. We heard rumblings that the President may not still feel that way.
What contributed to this, of course, our reporters are all working their sources. But this is really big. Jeff Mason, White House reporter for
"Reuters" is back with us. My colleague, Brynn Gingras as well, who's been covering this. And Brynn, let me just turn to you first. Remind people,
if they're not as familiar with this story, the highlights of what has happened in the last few days for Acosta.
BRYNN GINGRAS, CNN CORRESPONDENT: Yes, it's been a lot, right? I mean and you kind of summarized it really well there. The big thing that sticks out
in my mind is, yes, he came in that press conference, he placed a lot of blame on other attorneys, essentially saying that they didn't do their
jobs. We're the super heroes. We jumped in. We actually, you know, helped bring some sort of agreement, which was the big shady agreement, as
we can probably call it. And he didn't apologize. He wasn't sorry for anything that came of it.
HARLOW: And, actually, when he was asked by a reporter, would you, you know, give Epstein the same deal again, he didn't say no.
GINGRAS: Right, he didn't say no. He kind of said, you know, we -- we can't turn back the clock in a sense and try to sort of think about what we
gave him and think, was it good or bad, because you have to take it in that time reference.
But the other thing that sticks out too is that he said he had the President's support, right?
HARLOW: Yes.
GINGRAS: But we also know the President has been very careful about distancing himself from Epstein from the very beginning.
HARLOW: Yes.
GINGRAS: So in that sense it's not 100 percent surprising.
HARLOW: Right.
GINGRAS: But certainly this is a huge development.
HARLOW: Jeffrey Epstein, a very just high-flying hedge fund guy, very politically connected. The President called him a terrific guy, Jeff
Mason, back in 2002. Former President Bill Clinton has flown on his plane numerous times, he has been to his homes. And now because, you know, it's
clear that it's the fallout from this that is why Acosta is resigning.
What has your reporting told you over the last 24 hours here in terms of the turn that apparently the President has taken on him?
JEFF MASON, WHITE HOUSE CORRESPONDENT, REUTERS: Well, number one, yes, this is clearly the reason why he is resigning. And, number two, I think
the President was watching closely during that press conference and must have decided that the fallout was going to be too great or was too great.
He's just outside right now talking to the press, and Acosta joined him on his way out to get on Marine One. And so he's giving him sort of a send-
off in some ways, which he doesn't always do for people who he fires.
HARLOW: Yes.
MASON: So he is, I think, trying to show that he still likes him and likes the fact that he performed well as Labor Secretary, and they were talking
about the job numbers being good. But clearly he also is not eager to have somebody at the helm of an important department who is tainted, and now he
is.
HARLOW: One thing -- so we're learning this and we're going to play you, of course, everything the President and Acosta says on the South Lawn as
soon as we get that in here, so standby for that.
But the Labor Secretary, apparently we're hearing, Jeff, called the President this morning and said that he thought it was the right thing to
step aside.
What I find interesting is that it has really been a call from Democratic lawmakers, Democratic senators and Members of the House for him to resign,
like Schumer and Pelosi, not Republicans at this point yet.
MASON: Yes, I think that is interesting. And it's also interesting to the extent that that may have played a role in this. I mean usually in
Washington, you get pressure from both sides and the Democrats, obviously, as you say, Poppy, certainly upped that pressure on him.
And have also, in that sense, kept the issue in the news. And that's probably one of the bigger things for President Trump. I mean the story of
Jeffrey Epstein, whether or not the Secretary did well in his press conference the other day or not, is not going away.
And the more and more we continue to watch that, hear about the charges, see what happens to him, Acosta's name is going to continually be part of
that narrative.
[09:45:08] HARLOW: Right. Sarah Westwood joins me outside of the White House, I believe -- in Milwaukee, I apologize. That's where the President
is going.
All right, so this is huge news, Sarah. What can you tell us about what has happened within the White House in the last 24 hours? Because,
frankly, last, all our viewers heard is that the President was pleased with how Acosta has been handling himself.
SARAH WESTWOOD, CNN WHITE HOUSE REPORTER: That's right, Poppy, but there was some questioning of whether Acosta's connections to that extremely
lenient plea deal that Jeffrey Epstein received back in Florida about a decade ago was going to become an even greater distraction for this
administration. Sources told CNN that President Trump and his White House team were waiting to see how the coverage of Acosta-Epstein connections
developed over the past week.
We know that earlier this week President Trump and Secretary Acosta spoke. President Trump requested that Acosta go out and address this more
forcefully. And Acosta said in that press conference that he had a solid relationship with President Trump and he acknowledged that, "At some point,
if the President is no longer satisfied with my performance, then I would go," saying, "I serve at the pleasure of the President."
And President Trump, this morning, speaking to reporters on the South Lawn at the White House, as he's heading here to Wisconsin, said that it was the
Secretary of Labor's decision to leave. He did not force Acosta out. That is what he made clear to reporters.
But there were a lot of pressure building of Democrats, of 2020 hopefuls, calling for Acosta's resignation. Acosta apparently telling the President,
Poppy, that he did not want his connections to his explosive case to become a distraction for the administration.
HARLOW: Right. And, Sarah, let's remind people that part of Acosta's mandate as Labor Secretary is to oversee any human trafficking. I mean
that -- the irony of that cannot be overstated, right? I mean that is part of his mandate. And he is the boss who signed off a decade ago on this
sweetheart plea deal for Jeffrey Epstein.
Stay with us, Sarah. Let me bring Brynn back in, because, Sarah, I want to go back to you on sort of the judgment and the vetting of the White House
in a number of picks, including this pick, because we knew a lot of this before his confirmation hearing. Can you explain to people the highlights
of the deal that Acosta gave to Epstein?
GINGRAS: Well, it's -- and so everyone has been calling it a sweetheart deal, right? And the reason is because Acosta's office at that time
actually drafted an indictment, a Federal indictment against Epstein. I believe it was 53 pages long, right?
And then all of a sudden a deal is made between Epstein's attorneys and Acosta, basically making Epstein plead to a lesser state charge. Of course
we know Federal and state charges, there's a big difference there.
HARLOW: Sure.
GINGRAS: And that state charge basically meant that Epstein would have to go to jail -- not prison, jail -- for a year, and he was even allowed to
leave on work-release, conduct his business deals, several times leave the jail, go do his work and then return to jail. And this is for a 13-month
period.
And then in addition to that, the most important part of this was that deal was never discussed with the victims who came forward against Epstein.
HARLOW: And we're talking about dozens of underage women, 13, 14-year-old girls.
GINGRAS: Dozens of underage women. And we're talking about dozens of reports, too. I mean the reporting of this, before Epstein's office even
got -- I'm sorry, Acosta's office even got involved, it was -- it was a lot. I mean there was so much investigation that was done, not only by
local authorities in Florida, but in other states. The F.B.I. was involved. So he had all the information in front of him --
HARLOW: Well --
GINGRAS: And yet there was --
HARLOW: And I'd be remiss not to mention, Sarah Westwood, if we still have you, White House reporter, that the Southern District of New York now is
the lead on this. I mean the Southern District of New York is now taking a deep, deep look at Jeffrey Epstein and thereby, obviously, will look at,
again, the deal that was made for him by Acosta, right?
WESTWOOD: That's right. And there was a lot of scrutiny on that deal. It's not just on the charges that Epstein is now facing in New York and
what he did face in Florida ten years ago, but also on how prosecutors at that time behaved, what they did with the evidence that was given to him
and why victims at the time were not notified of the plea deal that Epstein ultimately accepted.
Acosta faced questions about that at his press conference, as well as, as you mentioned, how he can continue to oversee a big parts of the
administration's human trafficking policies when his handling of a case that is now involving alleged sex trafficking is being scrutinized this
way.
HARLOW: Right.
WESTWOOD: And Acosta did attempt to answer those questions earlier this week, but, naturally, those questions are going to continue, Poppy.
HARLOW: Right. And so we have some reporting as well, Sarah, from our colleague, Kaitlan Collins, also a White House reporter. Let me just read
this to you, adding that the President was having his doubts about Acosta, people close to the President were questioning how long Acosta would last
because the President went from praising him earlier this week and urging him to defend himself, to privately questioning why the victims had not
been notified about the deal.
[09:50:03] HARLOW: That's very interesting, Jeff Mason, if we still have you with us, that what seem to have turned the page here for the President
is his learning more about the lack of notification to the victims in this plea deal, which, by the way, a Federal judge has subsequently ruled was
illegal. It broke the Victims' Rights Act.
MASON: Yes, I mean, I think that's one of the -- that's one of the issues in this whole case that has been the most troubling to everyone who has
seen it. And I'm not sure that Secretary Acosta had an answer to that at his press conference the other day that was enough to assuage the concerns
of people and apparently that affected the concerns of President Trump as well.
At the end of the day, it's the victims here who, you know, everyone's heart has gone out to. And even Secretary Acosta indicated in his press
conference that, you know, that he's seen the testimony and seen the accounts of some of those victims in the meantime, and that it was a
concern to him as well.
But why didn't they have a hand in approving or giving a thumb's up or probably a thumb's down to what the Secretary or the then prosecutor was
doing? That's something that is troubling to a lot of people, including apparently the President.
HARLOW: Yes. And when you talk about, Jeff, how many people around the President in these Cabinet positions have resigned, have been forced out, a
lot of -- because of their past and because of things that could have been better vetted.
And this was brought up in the confirmation hearing, but a lot was not known until after Julie Brown's great reporting for "The Miami Herald" in
November.
Okay, again, the breaking news, the Labor Secretary, Alexander Acosta, is resigning. The fallout from this sweetheart plea deal he gave to a sexual
predator, Jeffrey Epstein, who is very connected politically. We'll have much more on the other side.
(COMMERCIAL BREAK)
[09:56:14] HARLOW: All right, we are back with our breaking news, and it is significant this morning. The Labor Secretary, Alexander Acosta, has
resigned. This is in the fallout from the sweetheart plea deal that he led for known sexual predator, Jeffrey Epstein a decade ago that has come into
much more stark focus this week as the Southern District of New York has brought new charges against Epstein for essentially running a child sex
trafficking ring for years and years.
All of our correspondents on this story are with us. But let me begin with Kaitlan Collins. She joins me on the phone.
Because, Kaitlan, you know, the president apparently thought that Acosta did a good job defending himself in that press conference on Wednesday. He
said this morning this was Acosta's decision to resign. But what is your reporting on what seems to be a change of heart from the President himself?
KAITLAN COLLINS, CNN WHITE HOUSE CORRESPONDENT (via telephone): Yes, that's right, Poppy. So the President was the one who had the idea for
Alex Acosta to come out to defend himself, something he felt that he needed to do on his own from the Labor Department.
And he had initially been pretty receptive to how that had gone. He noted he had this calm demeanor. He took a lot of questions. It didn't go as
poorly as people had thought it could have gone.
But then there started to be this shift in the President's tone essentially based on what our sources are telling us. That the President started to
have his doubts about it. He started talking about victim notification. That was a big part of that plea deal and why Acosta was facing scrutiny
because those victims had not been notified about the plea deal, something he spoke about during that press conference. And that was what led people
to start to believe that potentially Acosta did not have that much time left in the White House.
The President also has said nothing publicly about it, which was another cause for concern for people at the West Wing who were worried about
potentially the Labor Secretary having to be forced out of his job.
Well, the President made clear this morning, he said that that was based on Acosta's decision, that he didn't want to be the focus, but certainly he
did not feel that he had the support of the President based on the conversations that the President had been having over the last 24 hours or
so.
HARLOW: Kaitlan Collins, thank you very much. Stand by. Let us know if you have more reporting. Nia-Malika, let me go to you.
I think it's interesting that, according to Kaitlan's reporting, the President's turn here was about the lack of the victims being notified.
And let me remind people, it's a Federal judge that has ruled that what Acosta agreed to here, to basically keep this deal secret from all of the
victims, the dozens of victims, over 30 victims that we know about, was not only illegal, that's what a Federal judge said.
The great reporting from Julie Brown in "The Miami Herald" earlier this year pointed out that Acosta actually acquiesced to Epstein's lawyers over
and over again after having this secret meeting with them, agreeing to keep things private, also helped them limit the scandal by shutting out the
victims, moving some of this to Miami to keep it out of, quote, "significant press coverage," away from many of the victims in the Palm
Beach area?
NIA-MALIKA HENDERSON, CNN SENIOR POLITICS REPORTER: That's right. And he tried to offer an explanation in that press conference, but, you know, when
the reporters from "The Miami Herald" sort of fact checked it, it came up to be false. He was, you know, in many ways, he was sort of full of
excuses and misdirection.
In that press conference, I thought he was terrible, terrible, terrible. In that press conference, he seemed smug. He seemed self-satisfied. There
was a glibness about him. He portrayed himself as sort of the hero in this story who rescued this case from the folks in the State of Florida who
weren't going to go further and really be harsh on this guy, Jeffrey Epstein.
So, yes, I mean, it's not a surprise. I mean it sort of sounds like the President, once he listened carefully to the press conference, that he saw
I think what I saw initially, which was a poor, poor performance by Acosta.
[10:00:10]
END
