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Investors Can See a Recession Coming; China's Paramilitary on Stand By; No Peace on Sight Between India and Pakistan; White House Talks About Gun Control Legislation; Greece Battling Wildfires. Aired 3-3:30a ET

Aired August 15, 2019 - 03:00   ET

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


[03:00:00] (COMMERCIAL BREAK)

ROSEMARY CHURCH, CNN ANCHOR: A key U.S. benchmark raises a recession warning as the Dow suffers its worst day of the year as global markets react.

Chinese troops are on the move. Beijing deploys paramilitary personnel close to its border to send a message to Hong Kong protesters.

And India marks Independence Day as its prime minister defends his government's move to strip the region of Kashmir of its special status.

Hello and welcome to our viewers joining us from all around the world. I'm Rosemary Church. And this is CNN Newsroom.

For the first time in a long time Wall Street is genuinely worried that the U.S. economy is headed for a recession and that sudden pessimism seem to come out of nowhere. The U.S. economy has been bullish for years, the stock market continually hits record highs, unemployment is at historical lows, and consumer confidence is strong.

But an ominous shift in the stock bond market trigger the biggest one day sell-off of the year. The Dow tumbled 800 points.

Markets in Asia are now trying to adjust. Looking there, you can see Hong Kong's Hang Seng up .65 percent, Shanghai Composite is pretty much level there but Japan's Nikkei lost more than 1 percent.

And the trading day is just getting started in Europe. So, let's have a look there. So can see the arrows are down but really the DAX is the one suffering the most there down more than 2 percent.

CNN's John Defterios joins us now from London. So, John, it's interesting looking at the reaction. I mean, certainly when you look at those markets across and Europe it doesn't appear that they're moving in the same direction as the U.S.

But the yield curve inversion of course set off alarm bells in the U.S. and resulted in President Trump blaming his own Fed chairman, and investors blaming Trump's trade war with China.

In the meantime, of course, the global economy is starting to slow down, so everyone is wondering are we heading for a recession?

JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Who would think that you and I would be talking about the yield curve? This is something that's a lead indicator of trouble in the U.S. economy. We see the same dynamics playing out in the U.K. where long-term interest rates are plummeting for the 10-year and 39-year bonds.

In past economic cycles, Rosemary, that was an indication that a recession was on the way. That wash out on Wall Street of 800 points clearly raising alarm bells.

If you take a look at the numbers from Wall Street to Tokyo, we've seen a correction of about 6 percent of the major indices around the world, that is a big sell off but it's not a panic.

The silver lining in today's session is that Asia had a sharp sell off at the beginning, 1.2. to 2 percent throughout the region. And then we found stable ground. Hong Kong and Shanghai have been down for their own reasons and they are starting to focus on the domestic pressures.

We're in the first five minutes of trade here so I would read too much into the European markets. The indications were on the DAX, down 2 percent, that was a close yesterday which was a very sharp selloff linked to what we saw on Wall Street.

But there's plenty of hard evidence of economic slowdown in the major economies. That's what took down the market severely.

On Wednesday, China's industrial production at a 17-year low. Germany contracted 0.1 percent and may go on to a technical recession here in the third quarter if that continues.

And you can circle that back to the U.S.-China trade dispute. Donald Trump has said it's not going to have an impact on the global economy but the evidence is suggesting otherwise. And we're nine years into an economic cycle. And many what suggested it's ill-time for the president to try to tackle such a big policy priority for what he sees in the United States.

When he cut taxes, that induce growth. But right now, the prevailing view is that the major exporters of the world are starting to slow down. It will get an indication how that's impacted the United States for both retail and industrial production numbers coming in about five and a half hours' time.

CHURCH: John, if we are moving toward a recession and it's not inevitable at this point, is it? But what would it take to avert that possibility?

DEFTERIOS: Well, it's a fantastic question, Rosemary. Because the tool box for the central bank governors around the world is almost empty. We've seen a number of the emerging market economies are cutting interest rates already.

[03:04:58] India kind of tops the list. And we've seen this and other economies like Singapore and Thailand and the Philippines you don't want to have a rush to the bottom here with currency players trying to lower their currencies for exports here and then you have competing forces with the Federal Reserve cutting interest rates and seeing the same thing in the European Union.

That is one thing. The central bank governor of Australia made a very good point and that market was down sharply today 2.8 percent. This is almost a self-fulfilling downturn because of so much external noise. So, I would suggest that we need to turn down that noise.

Top of the list of course, is trying a resolution of U.S. and China in that trade dispute. I don't see that happening quickly. And you have the problems in Hong Kong with the protest. India slowing down. And then global tensions that still exists in the Middle East and tensions between India and Pakistan.

Those are all alarming signals that are adding to a very tired economic cycle and that's the challenge today, Rosemary.

CHURCH: Right. That and many others. John Defterios, we always love getting your analysis on these matters. Many thanks, as always.

DEFTERIOS: You bet.

CHURCH: Well, China is sending a message to Hong Kong. Paramilitary units are at the border with Hong Kong. They are armed with riot shields and batons, apparently, ready to move in if necessary, after weeks of violent protests, though, there is no indication troops are to be deployed anytime soon.

CNN's Andrew Stevens is in Hong Kong. He joins us now live. Andrew, of course, there is much fear about this paramilitary units as they say. At this point we can't be sure that they would move in. But is it to intimidate the protesters or is it more ominous than that?

ANDREW STEVENS, CNN CORRESPONDENT: I think at this stage it's really aimed at sending a very clear message that China is getting -- is getting towards the end of its tier though with the actions of Hong Kong protesters, Rosemary, but it is also a giant leap to go from messing on the border or sending videos and pictures of armed personal carriers on the border than to actually driving them through the border onto the streets of Hong Kong.

Hong Kong is not a city on fire. There is sporadic outbreaks and continual outbreaks of protests which have a violent edge to them which has been led by hundreds, but probably no more than that more radical, violent protesters.

There has been hundreds and hundreds of arrests. So, for China to come in it risks an enormous damage to itself, damage to Hong Kong. And at this stage I don't think talking to people and certainly talking to people in Hong Kong it's not expected in any shape or form that China would come in also. China needs to be asked to come in by Hong Kong, by the Hong Kong administration under the basic law, Rosemary.

So, at the stage certainly not. But it all just adds to the sort of the atmosphere in Hong Kong. The confidence in Hong Kong. That confidence is being sort of felt, or the lack of confidence I guess is being felt pretty much everywhere.

There is an interesting statistic came out from the government showing that arrivals into Hong Kong airport down by more than a third in the first two weeks of August. And that obviously is having a knock-on effect on the economy, on tourism-related industries, in particular. And one of those is Cathay Pacific.

Cathay Pacific is probably Hong Kong's best-known band, Rosemary. So, it's getting caught in the crossfire not only it's dealing with this sort of confidence issue but it's also dealing with how to keep Beijing on side while keeping its own staff happy, as well. So, take a look at this.

(BEGIN VIDEOTAPE)

STEVENS: Tempers were fray at Hong Kong International Airport as weary travelers tried to pass through a cordon of protesters to get to their flights this week. It wasn't just travelers who suffered. Airlines too are hit as Hong Kong airport was forced to close two days in a row.

The hardest hit one of Hong Kong's best-known international brands, Cathay Pacific. Cathay is still counting the cost of the 272 flights canceled over the past 48 hours, but that's just a temporary headwind.

These demonstrations have thrown up a much more significant problem. How does Cathay keep its biggest and most important customer happy - that's China, while still maintaining the support of its own Hong Kong staff?

Many Cathay employee support the protests and that doesn't watch with Beijing. Cathay was forced to make a hard U-turn after the company said it would not stop employees joining the Hong Kong protest.

(BEGIN VIDEO CLIP)

JOHN SLOSAR, CHAIRMAN, CATHAY PACIFIC AIRWAYS: We certainly wouldn't dream of telling them what they have to think about something.

(END VIDEO CLIP)

STEVENS: It spark a huge backlash in China pushed hard by state media. The Communist Party's mouthpiece People's Daily ran the headline "the four sins of Cathay."

[03:10:04] Actions by the carry and staff it claimed supported the pro-democracy movement. A social media campaign with a hash tag boycott Cathay Pacific racked up 44 million views.

Within days, Cathay CEO Rupert Hogg reversed course telling employees there was zero tolerance for any joining illegal demonstrations. And Cathay has also fired two pilots. A company source tells CNN the dismissals were linked to the protests.

Behind Cathay's change of heart is an economic imperative.

(BEGIN VIDEO CLIP)

ELEANOR OLCOTT, CHINA POLICY ANALYST, TS LOMBARD: What the Cathay example shows us, is that essentially for this company that is a Hong Kong legacy brand. The mainland audience, the mainland consumer is just too important.

(END VIDEO CLIP)

STEVENS: About 15 percent of all seats on Cathay and its sister airline Cathay Dragon is sold to mainland Chinese customers. Between them they serve 22 Chinese cities. For Cathay staff many of whom joined a general strike in support of demonstrations recently, it's a new reality.

Carol Ng represents about 15,000 Cathay bin crew.

(BEGIN VIDEO CLIP)

CAROL NG, CHAIRPERSON, HONG KONG CONFEDERATION OF TRADE UNIONS: I don't think any carriers including Cathay are able to find the right approach how to respond and completely but not upset the Chinese government.

(END VIDEO CLIP)

STEVENS: But she says many Hong Kong-based crews are frustrated. Despite bouncing back to profits in the first half of the year, business conditions remain tough. The disruptions at the airport helping Cathay share price plunge to a 10-year low.

The last thing Cathay can afford is to turn its biggest passenger market against it.

(END VIDEOTAPE)

STEVENS: Company flight Cathay which is actually controlled by a private company John Swire, they have been giving their supports to Carrie Lam, the administration of Hong Kong in her calls to try and stop the violence in Hong Kong.

Rosemary, it's not just Cathay. It's a lot of the big companies in Hong Kong are calling for the violence to end. Obviously, this has economic ramifications here and that is their fear at the moment.

But as we know there is certainly no sign that this stage at least of the protests coming to any sort of conclusion.

CHURCH: Right. And we'll continue to follow the protest and the ramifications of them as well. Andrew Stevens joining us live from Hong Kong. Many thanks.

Well, India celebrates Independence Day and the prime minister refuses to back down on the controversial move on the Kashmir region. Ahead, the perspective from New Delhi and Islamabad.

Plus, a suspect in a Philadelphia shooting that injured six police officers has been taken into custody. We'll have the details.

(COMMERCIAL BREAK)

CHURCH: Welcome back, everyone.

[03:14:59] As India marks Independence Day, Prime Minister Narendra Modi defended his government's one-nation, one-constitutional policy. The policy revoked Jammu and Kashmir special status giving India greater authority over the Muslim majority region.

Kashmir remains on lockdown and Pakistan's prime minister is warning of Muslim ethnic cleansing.

For more on this, we have Sophia Saifi in Islamabad, Pakistan, and New Delhi bureau chief Nikhil Kumar joining us from the Indian capital. Good to see you both again.

So, Nikhil, let's go to you first. And India's prime minister not backing down. What all did he have to say about his future plans for Kashmir?

NIKHIL KUMAR, CNN'S BUREAU CHIEF: That's right, Rosemary. Not backing down at all, far from it. In fact, he reiterated a message that we've heard from his lieutenant and in fact, from him as well when he addresses the nation a few days ago.

Over the last two weeks since the policy was announced, that all of this was done, the revoking of the special status, tightening his government's grip over the former state of Jammu and Kashmir, which includes Indian-controlled Kashmir.

That all of this was done to end injustice, to integrate that region better with the rest of India, to bring development there and to stamp pad terrorism. And that this would all ultimately benefit the people who live in that region, ordinary Kashmiris.

But here's the thing, Rosemary. We're almost two weeks since this new policy was announced, since it was rush through and we still haven't got a full picture of what ordinary Kashmiris think. And that's because that region is under a massive security crackdown.

Communications are still cut off for people living up there in Indian- controlled Kashmir. We haven't heard many voices from them. Mainstream politicians in that region, prominent people, including two former chief ministers of the state have been put under arrest.

Another prominent Kashmiri politician who was in fact in Delhi soon after the policies were announced and came and spoke to CNN as well, Shah Faesal. He was taken under detention just yesterday.

So, we haven't got a full sense of what's happened there, and the concern is that when the security restrictions are ease, and when people are able to come out and express themselves that the reaction could be violent because we know that a lot of people there held at the special status quite close to their heart. It was pretty much largely symbolic because the Indian government

already exerted a lot of control over the region. But it meant a lot to people there.

And so, if the reaction is violent the biggest concern is that this could spiral into something much, much bigger because this after all is a disputed territory, it's a very volatile part of the world divided between India and Pakistan by the line of control, the de facto border.

And that this could spiral into something then that would worry the entire world, and namely, a nuclear confront -- confrontation between two nuclear armed countries.

Nobody wants that. So, we're still waiting to see how this unfolds. But the government here as you said has been defending it again today. Rosemary?

CHURCH: Yes. As you point out it has many concerned of course.

And Sophia, let's go to you now. Pakistan's Prime Minister, Imran Khan says his country will fight to the end over this disputed region. What does he mean that, though, what is he suggesting his country will do exactly and what else does he said?

SOPHIA SAIFI, CNN PRODUCER: What's -- well, Rosemary, what happened is that Imran Khan has been attempting to make a lot of noise regarding the Kashmir issue. He said yesterday on Pakistan's Independence Day speaking to Kashmiris and Pakistan administered Kashmir that he is now making himself the ambassador for Kashmiris around the world.

So today, in Pakistan there is a black day kind of in solidarity with the Kashmiris in Indian-administered Kashmir who like Nikhil said, do not have any access to communications. And there is this sort of black hole in that part of the world where we're not really getting an idea of what's going on in that part of the world.

And that is something that Imran Khan is really pushing forward. He's made this an international issue. He tweeted out just a couple of hours ago comparing what could happen as a warning to the world, saying that if the world remain silent, and the Indian -- the international community doesn't do anything that there's a possibility of Srebrenica kind -- type of massacre happening in Indian- administered Kashmir.

And these kinds of things will then in turn radicalized and marginalized Muslims around the world. And we've heard him say this yesterday when we were in Kashmir as well, when he addressed Kashmiri lawmakers and he said similar things.

Now we're hearing the same sort of chatter on the ground as well. We spoke to protesters on the ground here in Pakistan and Islamabad who said just regular people would come from all over the country to Islamabad to a protest for a free Kashmir who said that they were willing to fight. Now that called fight has not come. Pakistan's Prime Minister Imran Khan has said that he has information and the military has information that India could be, you know, attempting a false flag operation in Indian- administered Kashmir, which would then be blamed on Pakistan, causing Pakistan to react, causing a domino effect in the region.

[03:20:05] And that where he is saying that Pakistanis, the Pakistans -- Pakistan will react and fight to the very, very end for a free Kashmir. Rosemary?

CHURCH: We'll be watching this as we say, the world concerned, the region concerned about where this all might be going. Sophia Saifi and Nikhil Kumar, thank you both for those live reports. I appreciate it.

And we are following a developing story in Philadelphia where a standoff with a gunman that lasted hours is now over. This video shows the suspect surrendering at a home where police say he had barricaded himself on Wednesday.

Police say the shooter fired repeatedly during the confrontation, wounding six officers. None of their injuries were life threatening though.

Police came under fire when they tried to serve a narcotics warrant. At last check a SWAT team was still clearing the house where the standoff took place.

In El Paso, Texas, thousands turned out to remember the victims of two mass shootings in Texas and Ohio. The governor told the audience he would create a domestic terrorism unit to root out extremist ideologies in the state. Twenty-two people were shot and killed

The service also memorializes the nine people killed by a gunman in Dayton, Ohio.

Well, in the wake of those shootings the White House and aides from both parties have started talks over expanding background checks for gun sales. But there is still a lot of skepticism a deal can be reached.

Our Pamela Brown has our report.

(BEGIN VIDEO CLIP)

NANCY PELOSI, UNITED STATES SPEAKER OF THE HOUSE: We must pass gun violence prevention legislation.

(APPLAUSE)

PELOSI: Every day we lose lives.

(END VIDEO CLIP)

PAMELA BROWN, CNN SENIOR WHITE HOUSE CORRESPONDENT: House Speaker Nancy Pelosi today continuing to put pressure on the president and Senate Republicans to take up gun-control legislation following last week's two deadly mass shooting.

(END VIDEO CLIP)

PELOSI: So, weed to do that. We need to do it soon.

(END VIDEO CLIP)

BROWN: Behind the scenes, CNN is learning the administration is quietly talking with some Senate staffers was about a bill that includes expanded background checks, a move the president seems to favor.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES OF AMERICA: I would like to see meaningful background checks. I think something will happen.

(END VIDEO CLIP)

BROWN: The early talks which source describes as informational not substantive involves staffers for Republican Senator Pat Toomey and Democrats Joe Manchin and Chris Murphy.

(BEGIN VIDEO CLIP)

SEN. CHRIS MURPHY (D-CT): I know in the end Republicans aren't going to support background checks legislation unless the president supports it. I remain pessimistic that that's how this is going to play out.

(END VIDEO CLIP)

BROWN: With the August recess dragging on, other Democrats on Capitol Hill are also skeptical. One Democratic aide saying "I don't feel like they are any more serious than the last 10 conversations on guns."

(BEGIN VIDEO CLIP)

IVANKA TRUMP, DONALD TRUMP'S DAUGHTER: There is a strong poll --

(END VIDEO CLIP)

BROWN: The president's daughter Ivanka Trump has also been actively involved, having several conversations with lawmakers about gun policy this week.

Now sources familiar with the matter say that White House aides will be briefing President Trump later this week here in New Jersey on any developments any progress on the gun talks.

We are told that the president has told his advisors in recent days that he wants to do something concrete, something meaningful on gun control and not something just symbolic. So, we'll have to wait and see how it plays out.

Pamela Brown, CNN, Berkeley Heights, New Jersey.

CHURCH: Greece is battling wildfires and getting help from the E.U. to do it. The prime minister's warning, that's ahead.

[03:25:00] (COMMERCIAL BREAK)

CHURCH: Fighters on the ground and water dumping aircraft are battling to contain wildfires burning in Greece. Villages have been evacuated as searing temperatures and high winds spread the flames.

Bianca Nobilo reports officials are warning this could be the new normal because of climate change.

BIANCA NOBILO, CNN ANCHOR AND CORRESPONDENT: Trying to calm the flames in Greece, plane dumps water on the wildfire raging below. One of dozens of forest fires that broke out around the country since Sunday. Some have spread and are now burning uncontained.

The largest blaze threatens the Greek island of Evia. A state of emergency has been declared for some parts of the island. At least four villages were evacuated and the flames force to call outside help from the E.U., prompting Italy and Spain to send assistance.

Tuesday into Wednesday, firefighters battled tirelessly through the night. A strong wind and high temperatures fanned the frames. Officials say progress has been made and no lives have been lost. But the still uncontained fires will leave their mark on the Greek island and its vast nature preserve.

(BEGIN VIDEO CLIP)

KOSTAS BAKOYANNIS, REGIONAL GOVERNOR, CENTRAL GREECE (through translator): We have a big struggle ahead of us and we are talking about a rare unique pine forest that serves as the lungs of Evia and the ecological damage is enormous.

(END VIDEO CLIP)

NOBILO: A hundred kilometers south a view of the ancient Parthenon shows clouds of smoke from Evia have reached the capital. The thick haze covering Athens possibly worsen by a spate of fires breaking out across at least four regions.

The number of blazes has stretch firefighters thin. In the last three days alone, Greece's fire brigade has been called to put out over 180 fires. Though this is not unusual during dry summer months, the country's prime minister points to a deeper issue.

(BEGIN VIDEO CLIP)

KYRIAKOS MITSOTAKIS, GREEK PRIME MINISTER: We know that wildfires will be with us that it will be part of our -- as they've always been but they've been more part of our daily life as climate change is taking its toll on Southern Europe.

(END VIDEO CLIP)

NOBILO: He says coordination across the European Union is imperative now and in years to come. Environmental activists also point to climate change as a contributor to the increasing number of wildfires in recent weeks in Greece, across Europe, and around the globe.

Bianca Nobilo, CNN.

CHURCH: And thanks for joining us. I'm Rosemary Church. The headlines are next. You're watching CNN. Do stay with us.

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