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First Move with Julia Chatterley
The U.S. Government Blocking Foreign Firms It Deems A Threat; President Trump Set To Delay A Decision On European Auto Tariffs As The Battle With China Intensifies; Tesla Announcing A Software Fix To Tackle Recent Fires, But Still Says Electric Is 10 Times Safer Than Gas. Aired: 9- 10a ET
Aired May 16, 2019 - 09:00 ET
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JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Live from the New York Stock Exchange, I am Julia Chatterley, this is FIRST MOVE. And here's
your need to know.
No entry. The U.S. government blocking foreign firms it deems a threat. Huawei shares tumbles. Choosing your battles wisely. President Trump set
to delay a decision on European auto tariffs as the battle with China intensifies. And putting the fire out. Tesla announcing a software fix to
tackle recent fires, but still says electric is 10 times safer than gas. It's Thursday, let's make a move.
Welcome to FIRST MOVE again. And obviously another jam packed show for you, too. We've had a whole array of trade headlines over the last 24
hours. We'll sort through, or at least try to, what we need to be listening to and what we don't.
For now though, the noise is coming from investors who seems to be more "umm" rather than "ah." You could take a look at what futures are doing.
They are higher right now. Looking to add to two straight sessions of gains, although I have to say the NASDAQ futures are off their highs, so
we'll watch that.
Overall though, despite the gains that I'm talking about, U.S. markets still down over 1 percent this week of Monday's sizable drop. We are
seeing a bit of strength in the European market, some two to three tenths of a percent higher on some greater optimism over trade.
Chinese stocks, also closing in positive territory, too. Yesterday's about turn for the U.S. market, so it was led as I've already mentioned by the
news that President Trump could delay his decision on raising tariffs on imported cars by up to six months. It feels like a pretty prudent move to
me choosing battles wisely and I really meant it. It doesn't necessarily mean you're going to win the trade war, but it would certainly help in this
case.
Treasury Secretary Mnuchin said that trade talks could soon begin again with the Beijing, of course with China -- that helped as well. Investors,
I think simply remain desperate to believe a trade deal is coming right now. The good news on trade, offset the weak data from both China and the
United States on both industrial output and retail sales.
And I just want to bring your attention to a new reading for the Atlanta Fed showing second quarter growth here in the United States could fall
substantially from the first quarter. Important, because I think the action in the U.S. bond markets is telling the story here.
The 10-year yield up slightly today, but still below 2.4 percent. And shorter term yields have also come right down, too. In fact, investors now
believe there's almost an 80 percent chance of a rate cut later this year. Wishful thinking or not? You decide.
Let's get to the drivers. A double blow for China's Huawei. The U.S. government banning U.S. firms from buying Huawei's equipment and making it
harder for Huawei to buy parts from U.S. companies, too.
Samuel Burke has the latest. Boy, it is well telegraphed, I think, Samuel, you'll hear, but the timing feels pretty pivotal to me, too. Talk about
the impact. What impact is this going to have?
SAMUEL BURKE, CNN BUSINESS TECHNOLOGY CORRESPONDENT: Well, perfect that you said that there's double impact here because obviously, this is bad
news for Huawei. But it's also bad news for other companies, even American companies like Qualcomm whose stock is down about 2 percent in pre-trade,
that's because Qualcomm sells materials to Huawei.
And under this move from the Trump administration, companies like Qualcomm will have to apply for an export license and it's not clear if they'll get
it or they won't get it. This is what often happens with these types of moves from the Trump administration which claims to be pro-business and
they don't realize sometimes the knock-on effects that it may have.
It makes me think of this situation with ZTE, which was brought to its knees in China until American companies had to step in and say, "No, no,
no, they buy our goods. So don't do this to us." And then all of a sudden ZTE was back to life.
I just want to put up on the screen what Huawei is saying about this because I think it's quite interesting. And it's worth saying Huawei says,
restricting our company from doing business in the U.S. will not make the U.S. more secure or stronger. Well, that's debatable. Instead, this will
only serve to limit the U.S. to inferior yet more expensive alternatives. And that part I don't think is debatable.
Leaving the U.S. lagging behind in 5G deployment and eventually harming the interest of U.S. companies and consumers. This is something that we hear
from companies all around the world. Telecoms companies buying Huawei equipment, Julia, you know, they tell me, this material is better and it
costs less, so it can only leave countries like the U.S. behind that may be a price that the U.S. is willing to pay for security.
CHATTERLEY: Because all the alternative options that they have to go to that are outside the United States here are simply going to be more
expensive than Huawei's technology, which is one of the key things. Does it stem innovation then as a result, even if there are alternatives and
perhaps are a bit more expensive? Does it slow down the kind of investment that we're looking at here?
[09:05:14] BURKE: Well, it slows down innovation. If you want to be a company that develops a product for 5G and you don't have 5G, it could spur
innovation if some American company would finally develop 5G equipment.
I think a lot of people might assume, "Well, maybe Donald Trump is doing this to try and help American companies." But if you -- as you and I have
pointed out so many times, the companies that are supplying 5G equipment -- Huawei, Ericsson, Nokia, ZTE, Samsung -- they're not American companies.
So maybe long term, it could spurt some growth in the United States, but certainly we don't have any signs or many companies like Intel that they're
really putting more money behind 5G. We've seen less money, but that does give credence then if Trump isn't doing this to help an American company
because there is no American company, maybe they really do have legitimate security concerns here.
CHATTERLEY: Yes, it's interesting, isn't it? Despite the pushback that we've got from other nations, of course, too, and the belief that it could
be a carve-out here for Huawei as part of a bigger trade deal. So, I mean, this situation is incredibly complex. Samuel Burke, great job. Thank you
so much for that.
All right, this very much ties to our second driver, of course, to an apparent escalation in terms of Huawei and the reaction there with the
China. Just as report suggest, a decision over auto tariffs that would highly impact Europe, of course, is set to be delayed.
Christine Romans joins me now. I said it, Christine, at the top of the show, you're choosing your battles wisely it seems from the White House
here and it makes a lot of sense to me.
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: Yes, and the timing, I think is really impeccable here. They turned down the volume,
turned down the temperature on the fight with the Europeans over auto imports and potential auto tariffs at the very moment that they're really,
really getting tough on the Chinese and still talking about talking with the Chinese. So very fascinating there.
Look, we're talking about an investigation that the Commerce Department was ordered to do by the White House looking into whether imports of autos are
a national security threat, not that the auto imports themselves are something that's dangerous to America. But the fact that so much of
American imports, of the trade deficit is that category, is autos that that itself could be a national security threat.
There was a secret report delivered to the White House, the President, the clock started. The President had until Saturday to decide whether to
impose tariffs. He is now pausing it for six months, and that allows him to continue to negotiate -- his negotiators to talk with the Chinese and
the Japanese, or I'm sorry, the Europeans and the Japanese about auto tariffs and how to fix.
What the White House really feels is an egregious too large trade disparity between these other countries and the United States. Look, when you look
at both of these stories, right, the China story and the European story here. There's something that the Commerce Secretary said again and again,
Julia.
If you look at the overall goods deficit with the whole world, China accounts for about half of that. When you look at the categories -- the
overall deficit, trade deficit with the whole world -- about half of that is autos. And that's something that the White House just does not wants to
fix.
CHATTERLEY: Yes, too much all at once. Pace yourselves. What was interesting for me, though, was the yes -- was the reaction that we saw in
the markets yesterday. An immediate about turn in terms of sentiment, underscoring the uncertainty, the concern right now among investors. But
at the same time, what we see in bond markets right now, and the fact that we're pricing in an 80 percent chance upper cap here in the United States,
too.
So some real signaling going on, I think, here by investors of the degree of cautiousness.
ROMANS: I think so, too. And also, I mean, let's be honest, the headline risk here is going to be great for the next six months. Now we've moved
another deadline down the road here. There's a meeting of the G-20. The President is going to meet with -- in Japan, going to Japan next month, he
will meet with all kinds of world leaders.
So there's a lot of headline risk for investors, especially with stocks that are essentially a little bit higher than they were a year ago when the
trade war started. Think of that. Stocks are just right where they were or a little bit higher than when a year-long trade war began. That means
there's still a lot of risk in this market, I think.
CHATTERLEY: Yes, Christine Romans, thank you so much for that.
ROMANS: You're welcome.
CHATTERLEY: All right. Let's move on to our next driver. Shares in Walmart, up some three and a half percent pre-market. U.S. sales, in
particular showing strength. In fact, the best quarter, I believe in nine years, but there was a warning in there too about the impact of course on
pricing of the potential tariff threats of course,
Paul La Monica joins me now. Paul, talk us through it. E-commerce continues to be a huge driver for this business and strength in the United
States.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, e-commerce sales, digital sales, Julia, at Walmart up 37 percent from a year ago. That's a slight
pullback from the 40 percent growth they reported in the fourth quarter, but make no mistake, Walmart has recognized the threat from Amazon. Amazon
recently announcing free one day shipping for Prime members. Walmart countered saying they're going to do one day shipping in a couple of
markets as a test, free one day shipping.
So that is something Walmart realizes they have to stay competitive with Amazon and so far, things like Jet and all the other digital businesses
that Walmart has acquired in the past couple of years, they are doing well and they're reporting really solid sales growth, particularly for urban
younger customers who may not actually shop at a big giant Walmart in the middle of America.
[09:10:20] CHATTERLEY: That's such a great point. Okay, there's so much to deal with here. One, obviously, the challenge that Walmart face now
competing with Amazon on the one day delivery and the potential cost, did they say anything about that?
And then the other big question for me is, if we see a further escalation, the $300 billion plus goods hit with further tariffs, which of course has
been a threat from the White House. What is that going to mean for things like apparel, footwear, of course, that surely is a huge driver of their
business and cost increases will be pretty critical, I think for consumers here, too?
LA MONICA: Yes, I think that is something that American consumers have to be worried about, and Walmart does as well. The company has indicated that
higher tariffs will lead to higher prices for many goods in the U.S. so consumers will feel the pinch.
That's something that Macy's warned about yesterday when they reported their results. But what I think it's interesting here, Julia, is that,
despite all this trade tension, you look at Walmart's results today, you look at Alibaba yesterday, Chinese consumers and American consumers,
they're still shopping, even as Xi and Trump battle over tariffs.
U.S. and Chinese consumers are holding up relatively well in this environment. How long it last remains to be seen. But for now, the
consumer is still healthy.
CHATTERLEY: It's an important point, actually, Paul, to go back to the conversation I was just having with Christine, how much and how long can
the U.S. consumer continue to withstand the Chinese consumer? The data that's backing the stances that the two countries are taking right now in
the end, does it kind of push them more towards a solution because these are the kinds of stocks we need to watch ultimately to see, to gauge
sentiment, in particular and the impact that these things are having?
LA MONICA: Exactly, I would have to think that eventually, U.S. consumers and Chinese consumers will feel the pinch of these higher costs, whether
it's tariffs, whether it's commodity prices rising and leading companies to raise prices on many consumer goods. Someone is going to have to blink at
some point.
And I think for now, the U.S. and China are in a good spot and they can continue to battle each other. But that's not going to stay the same
forever.
CHATTERLEY: Yes, Paul La Monica, 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.
U.S. Intelligence has declassified a photograph of a missile on a small boat in the Persian Gulf that was put on board by Iranian paramilitary
forces. That's according to the "New York Times" that the existence of the Intelligence was first reported by CNN last week.
The paper also says the U.S. National Security adviser, John Bolton believes the photo and the other intelligence could indicate that Iran is
preparing to attack U.S. forces.
Former Australian Prime Minister, Bob Hawke has died. He served as Prime Minister from 1983 to 1991 winning four elections. Hawke championed the
economic reforms and started universal healthcare in Australia a year after he took office. He also helped to lead international efforts to impose
sanctions on South Africa's apartheid government. He was 89 years old.
New York City Mayor, Bill de Blasio is entering the 2020 U.S. presidential race. He is the 23rd candidate seeking the Democratic nomination to
challenge President Trump. In his campaign video, de Blasio takes direct aim at the President calling him a bully and claims to be the candidate
best equipped to beat him.
All right, we're going to take a quick break now, but still to come Huawei in the way as the Viva Tech Summit kicks off. There is one topic that is
taking everyone's attention. We'll discuss. Stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE live from the floor of the New York Stock Exchange where we are looking at the mostly higher open for U.S.
stocks to add to the gains that we've seen in the last two sessions.
The NASDAQ though, pairing some ground over the last 30 minutes or so. We did have market-friendly results from Cisco and Walmart, which is more
broadly helping the mood this morning.
Also going to be key, of course, after the closing bell, the chip giant Nvidia is going to be reporting results. These shares have come under
pressure in the last week or so. They are down 13 percent in fact. If you take the past month, big Chinese exposure of course, too. So the guidance
in light of what we've seen and what we've been talking about throughout the show, I think is going to be key for sentiment overnight.
All right, let's talk more broadly about what we see going on here. Joining us now, Sameer Samana. He is the senior global market strategist
at Wells Fargo Investment Institute. Sameer, fantastic to have you on the show with us. What do you make even if just the headlines in the last 24
hours that perhaps the delay to European auto tariffs. We had some positive noises from the Treasury Secretary, Steve Mnuchin on the likes of
Canada and Mexico in the negotiations there.
And then, of course, the executive order last night and the Huawei ban. So overall mixed bag.
SAMEER SAMANA, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE: Yes, I mean, we would try our best you know, if we were an
investor to avoid kind of getting carried away with any of these headlines.
We still think that probably the most likely outcome and it'll take some time, is there will be a trade deal not only with China, but probably the
European and Japanese sides as well. That being said, the uncertainty, the volatility, it's all here to stay.
And so when the markets do well as they have recently, what we want investors to do is try and take some chips off the tables, maintain that
neutral stance, make some very balanced stance, so that when there is volatility, they can take advantage.
CHATTERLEY: You know, for me again, the thing that you said there that is most striking is that you ultimately still believe a deal will happen here.
I mean, the White House has sort of suggested that the Chinese reneged, they weren't willing to reform or to put through any of the concrete
promises of reform that had been talked about. Do we just see a much softer deal here? And do investors just go, "Okay, fine. We're happy with
some kind of solution, even if it's not a ticky one, one that has some bite here?
SAMANA: That's a great question and we think that that exactly is the path that we're headed down. So the markets were led to believe that there was
this grand bargain taking place. Both sides are guilty of this - the U.S. side and the Chinese side -- both made it sound like there was something
very large in the offing, and now it's probably going on is they're probably going to dial it back and it may just be where the Chinese buy a
lot more U.S. goods, and some of those stickier subjects get, you know, kind of put off for another day.
CHATTERLEY: So, what we've seen in the last week to 10 days is tech stocks in particular, some of those have significant exposure to China, some of
them don't. Do you see this as a sort of paring back or perhaps of some of the complacency that we had about the trade deal or is it a buying
opportunity ultimately if to your point, we do end up seeing a deal here made?
[09:20:05] SAMANA: So it's all about -- we always worry about complacency especially as late as we are in the economic cycle. You know, you just --
want to be very careful right now, you don't want to get back all those gains that you've made over the last 10 years. So wealth preservation
becomes a lot more important.
So we want to make sure that investors are taking advantage of again rallies and stocks to pull back, knock it over their skis. But we do see
technology is one of those areas that should continue to do very well. It should outperform the S&P 500 because again, there's a lot of areas where
tech is disrupting them.
And while there might be some loss of demand on the Chinese side, it'll be more than made up in some of these other areas.
CHATTERLEY: So someone who have -- I have been keenly focused on in the last few days is the correction territory for the Russell 2000. The small,
smaller and medium-sized companies here in the United States.
We came into earning season far more optimistic, I think, about what performance they would provide versus some of the larger cap. You weren't
though. You were warning that actually, the results could be quite bad. So where are we now?
SAMANA: You know, we would still kind of stay away from small caps. Again, the tricky part tends to be when you look a year or two out, as we
start to approach the next slow down, again, we're not calling for a recession, but we do acknowledge that we are later in the economic cycle.
The problem for small caps is they are competing against much larger competitors. They're having trouble hiring at the lower market caps and
they start to get hit by different things like higher interest rates, higher borrowing costs, and they tend to be a lot more, you know,
inflexible from the standpoint of, you know, how they manage the end of the cycle.
So for all of those reasons, what we would do is, underweight small caps, and we would actually say some of the opportunities are an emerging market
equity. So if the trade deal does get resolved, if you do see some stabilization in Chinese economic growth, the emerging market equities are
probably the place to be.
CHATTERLEY: Which countries? Which nations should we be looking at here?
SAMANA: So it's actually kind of interesting, so if you look at some of the larger names, whether it's China, whether it's Brazil, whether it's
Russia, whether it is India, those are the ones that have kind of done particularly well.
So we're seeing not only size and quality matter within, let's say, the U.S. stock market, but also it seems to be working within the countries and
emerging markets.
CHATTERLEY: Yes, it's quite fascinating. I mean, to your point as well, just what you were saying there about the smaller cap, they tend to
underperform in a rising rate cycle. What we've got the bond market now pricing is 80 percent probability that we see a rate cut here from the
Federal Reserve, what do you make of that? And what do you think the Fed end up doing overall in 2019?
SAMANA: So first, let me let me kind of tackle that piece of it, where again, the reason small caps need rates to go up is a couple of reasons.
One, it indicates that the economy is on really solid footing, which kind of gives a little bit of a wind to their sails; and two, there's a lot more
financial services and banks within that small cap area.
So again, they tend to do well when the yield curve is starting to steepen. Unfortunately, all we've seen is flattening.
As far as the Fed goes, you know, we don't think they'll raise interest rates this year. But we also don't see a compelling reason for them to cut
interest rates. So, we think the Fed probably stays on hold for the remainder of 2019 unless we see some major downturn in the economic side,
which we do not expect.
CHATTERLEY: You know, what's interesting to me, too, and we've heard it coming out in earnings season is the currency headwinds. The challenge of
a strong or relatively strong U.S. dollar. Are you surprised by how resilient the U.S. dollar has been? Or is it sort of a lack of
alternatives to sell the dollar and buy into should you wish to?
SAMANA: Yes, I mean, the death of the dollar, you know, seems to have been greatly exaggerated. We've been calling for weakness in the dollar.
Clearly, it has not done that. A lot of it does have to do with the lack of alternatives.
Plus, once the Fed stopped thinking about raising interest rates, people started to focus from rate differentials to instead on growth differentials
and the U.S. is still growing relatively much faster than developed market peers in Europe and Japan. Then you think about some of the, you know,
Italian politics, which are causing some volatility in the Euro area.
So you know the dollar is actually a pretty clean story. Now, unfortunately, for U.S. large caps that will be a headwind for second
quarter earnings because a lot of people did not anticipate that strength and it will hit those bottom lines.
CHATTERLEY: So important. Great to have you on the show. Thank you so much. Sameer Samana there from the Wells Fargo Investment Institute.
Great to chat to you.
All right, let's focus in on one of the stories and the stocks that we are following. Tesla announcing an update to it software just in response,
some video that we were talking about a month or so ago were fires, spontaneous fires in some of their cars.
Peter Valdes-Dapena has some of the details here for us. Peter, be specific, what kind of software fix and on what cars are we talking about
here?
PETER VALDES-DAPENA, CNN BUSINESS SENIOR AUTO WRITER: Okay, we're talking about the Tesla Model S and X which are both based on the same engineering
platform, if you will, so they have a lot of similarities. These cars have been involved in some recent fire incidents. Model S particularly in China
and reportedly recently -- and very recently in Hong Kong.
Now Tesla isn't saying that they understand at this point what those battery fires were caused by. They're still investigating but the company
said quote, "out of an abundance of caution," unquote they are updating the cooling software on the car. These cars have radiators, much like gasoline
cars do and systems that cool the battery packs which can get hot, particularly when the cars are charging or when they're being driven hard.
[09:25:19] VALDES-DAPENA: So they have systems to manage the temperatures of those battery packs. Tesla is updating the software for
those. They say they've done some improvements, I guess to how those systems work.
CHATTERLEY: It's interesting, isn't it? I mean, actress Mary McCormick said her husband was in traffic when this happened to their car.
It's kind of interesting and grabby in terms of the pictures. You look at them, and you kind of worry. But Tesla made this point that look, we still
believe that electric cars are 10 times safer than the gas equivalents. And the statistics here do show that even though electric is such a tiny
proportion of the overall market, context here is key, Peter, surely.
VALDES-DAPENA: Right. And truly -- and also, there's just the level of understanding. People aren't used to electric cars yet. I mean, we
understand that gasoline-powered cars have a giant tank of flammable liquid that they're driving around with all the time and yes, that stuff can burn.
The idea of a battery pack fire I think is just worrying to people and scary to people because it's a new thing and something we don't understand.
Tesla makes the point though that when there is a battery fire, it spreads a bit more slowly and it's not usually sudden and explosive and the way the
fires -- the batteries are designed to allow the fires and the flames to propagate in such a way that occupants have time to get out.
CHATTERLEY: Yes. Context everything. Thank you for it. Peter Valdes- Dapena, great to have you on. All right, we are counting down to the market open this morning. I'm just looking at the futures.
We are still in the green, but we've had some gains for the NASDAQ, too. So that's going to be the one to watch, I think when we open. Plenty more
to come here from FIRST MOVE. Stay with us. You're watching CNN.
(COMMERCIAL BREAK)
[09:30:01] CHATTERLEY: Welcome back to FIRST MOVE, the live from the New York Stock Exchange. That was the opening bell for the fourth time this
week. Seeing some early gains for stock. So the tech sector, seeing a little bit of pairing of the gains and we can see that, of course, on the
open here.
Trump's decision -- President Trump's decision to blacklist China's Huawei is the concern for tech investors, I think here just trying to understand
the broader implications, the cost, of course of innovation of going elsewhere, perhaps for 5G related to technology. It's the blue chips that
are outperforming on a relative basis here in early trading.
Let me walk you through some of the global movers right now. To Walmart in focus, the world's largest retailer's Q1 earnings, beating estimates. We
saw revenues in the e-commerce segment growing some 37 percent. Walmart has been making investments online to step up its competition with Amazon,
of course, including one day delivery.
One of the big threats to Walmart this year of course, additional China tariffs impacting things like clothing and footwear. Of course, the CFO
did say on the earnings call that tariffs would increase prices for customers as you would expect. Right now that stock though up some 3
percent.
Overstock, also in focus today. The stock closed down more than 15 percent on Wednesday. The CEO Patrick Byrne disclosed in a SEC filing that he sold
half a million shares this week. He says he sold 250,000 on May 13th at $13.00 per share, then sold another 250,000 the next day at over $12.00.
Shares have fallen some 20 percent year-to-date. Seeing a bit of a bounce back in the session today.
Cisco also in our sight. The quarterly earnings beat expectations. Revenues also better than expected at $12.9 billion. They also
importantly, I think gave an optimistic sales forecast and said minimal sales exposure to China. It's around 3 percent of their overall revenues
and supply chain changes have cushioned the ongoing tensions between the U.S. and China and the impact of the trade war.
So that's the larger company's response. But what about the impact on smaller firms that are struggling to adjust to what we're seeing between
the two nations? Well, we're getting a temperature check for you. Matt Rivers has been at the Shanghai trade show for us. Clare Sebastian has
been sentiment at a trade show in New York for us.
Matt, I'll come to you first. What are people there been saying about the ongoing battles and the escalation of tension even in the last week?
MATT RIVERS, CNN INTERNATIONAL CORRESPONDENT: Well, we spent our day at a trade show here in Shanghai that was mainly featuring different food import
and export, so everything from nuts to wine to you know, fish to meat, all kinds of different import-exports that really is worth billions of dollars
in trade between the United States and China and you're right, when you talk about the smaller firms here.
There's a lot of concern. I mean, obviously, of course, what's going on right now, you know that the basic impact of tariffs that's going to really
play into all of these companies, especially smaller companies that aren't that agile, that companies that have really relied on the Chinese market,
that now the Chinese buyers aren't buying as much because of tariffs here.
For example, an American company that doesn't have a huge market share can't just up and start completely changing their business model and
selling to Argentina instead. It doesn't really work like that.
But the other thing that we heard a lot during the day today, Julia was we spoke to Chinese buyers and you hear from Chinese buyers saying we want to
buy American products. We want to buy blueberries.
We spoke to a guy who was really interested, wanted to buy American blueberries but said I can't do it right now because they went from a 10
percent tariff to 25 percent tariff, and it costs too much. He actually used the word "irrational." So there are people here that want to do
business with one another but because of the politics at play right now, they just can't do it.
CHATTERLEY: Fascinating, isn't it? You've got to remember that the tariffs have been applied on both sides here and it cuts both ways.
Unfortunately, those kind of comments, which I think would be music to President Trump's ears. Clare, come in here because Matt was making a
really interesting point there as well about the ability for big companies perhaps here in the United States to push back and to suppress the kind of
prices that they're paying to offset the tariffs far harder for smaller companies trying to do the same.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Absolutely, Julia, I have yet to find a company here at this creative packaging show in New York that has
been able to swallow the cost themselves. Most of them are passing it on to the consumer. And it's been fascinating because everyone we've spoken
to have pretty much has something to say about these tariffs, so many small businesses are being affected by it.
And particularly now that we've seen the rate of the tariffs on Chinese imports into the U.S. go from 10 percent to 25 percent. I want to give you
an example just over here. This is a packaging company that services the cosmetics industry.
[09:35:08] SEBASTIAN: They source products from all over the world. But right over here, we see some of the products, some of the plastic bottles
and things that they manufacture in China, they are having to pass the first 10 percent, and now 25 percent cost onto the consumers of products
like this, and they can't do what the President suggests and just move production out of China.
They say the quality is just the highest that they can find in China, and they're just going to wait it out and see how this trade war develops.
There's still a lot of uncertainty for these businesses.
CHATTERLEY: Wow. So they're actually just going to wait it out and suffer the consequences in the short term and hope it doesn't turn into the medium
to longer term. That's also pretty fascinating. Matt, you know, I think a lot of the discussion, particularly as we're going to push through towards
the end of earning season here in the United States is fine, you might be able to quantify the impact of a rise from 10 percent to 25 percent for
tariffs, but what happens if this White House does put tariffs at 25 percent on the final $325 billion worth of goods that are incoming from
China? What kind of impact would that have?
And are people even talking about what that prospect would mean for their businesses over there?
RIVERS: Yes, absolutely. And that's more about uncertainty than anything else. Because if the United States goes forward with that kind of the
step, well, then China can't match the United States dollar for dollar with tariffs. We know that. And so China would then have to look at nontariff
barriers to really try and match a U.S. escalation. How did they do that?
One of the ways that they could do that would be to actually impose restrictions on buying, let's say, U.S. foods, U.S. goods, U.S. nuts,
blueberries, fish -- there's a whole different range of industries that China would likely use to say you know what Chinese buyers, you can't buy
that and that would absolutely devastate some of the businesses that we talked to here. And one more quick point, Julia.
Also consider the option here that the United States and China eventually come up with some sort of a deal, right? But how much damage has been done
already? One of the fears that we heard today in China was that Americans here are worried that over the course of this trade war, Chinese buyers
have had to because of cost considerations, find other sources other places to buy their products.
Let's say there's a trade war deal. Let's say there's an agreement that comes into place, do those Chinese buyers then return to the Americans? Or
do those Chinese buyers say, you know what, things are pretty good with the Argentineans or the Polish or you know, anyone else in Europe, and then
they'll go back to the Americans, does this market still exist for American sellers when this is all over? That is an absolute fear for some of the
Americans we spoke to today.
CHATTERLEY: Yes, business lost, is it lost forever? Great point, Matt Rivers, Claire Sebastian, great work, team. Thank you so much for that.
All right. Very interesting point that Matt makes there because it very much relates to what's going on in the U.K. with Brexit talks, of course,
too, and decisions that have had to be made in light of the U.K.'s hoping exit from the E.U. and the struggle of course to achieve it.
Well, a new development today there. Boris Johnson has told the BBC that he is going to throw his hat in the ring and tries to become the next
leader of the British Conservative Party. Johnson, of course, was Britain's Foreign Secretary until he quit over the Prime Minister's
handling of Brexit. He was also a high profile leave campaigner.
Theresa May said she will stand down before the next phase of the Brexit negotiations, but has not yet named a date. So Boris Johnson throwing his
hat in the ring.
All right, we're going to take a quick break here, but coming up, Cisco, as we've mentioned, posting some pretty strong earnings as the networking
hardware giant transforms its focus further into a software business. We will discuss the strategy and those earnings with the CEO, next.
(COMMERCIAL BREAK)
[09:41:56] CHATTERLEY: Welcome back to FIRST MOVE and Cisco shares are trading higher this session. The company reported better than expected
sales and earnings in the latest quarter and strong revenue guidance, too.
Cisco is a shifting emphasis, moving increasingly into software in fast growing areas like Cloud computing, security and the Internet of Things.
And I'm excited to say, Chuck Robbins, Chairman and CEO of Cisco joins us now.
Chuck, fantastic to have you on the show once again. Thank you for joining us.
CHUCK ROBBINS, CHAIRMAN AND CEO, CISCO: Yes, it's great to see you, Julia, how are you?
CHATTERLEY: I'm Fantastic. Thank you. Really great. Talk me through the quarter because it seems like the shift that you are continuing to do, the
transformation of the business into software is bearing fruit despite broader challenges, I think going on around the world. You also manage to
come in with strong forward guidance as well. How are you achieving it?
ROBBINS: Well, first of all, I think our teams have done an amazing job over the last few years. The innovation that they have delivered and the
position that they put us in with our portfolio, with our customers is probably the best position we've been in in a very long time. And I think
that's reflected through the balance across our business across our technologies, as well.
As you know, with the exception of the service provider business, we saw strong order demand and enterprise public sector and commercial around the
world. And so our teams have executed incredibly well. We've been working on this transition to software and subscription, which continues to go
well. And, you know, I think right now, the things that we control, we're doing pretty well within a pretty complicated macro and geopolitical
environment.
CHATTERLEY: Yes, and we'll get there in a second. Unfortunately, we have to talk through those challenges as well.
ROBBINS: I thought we might.
ROBBINS: I know. What I saw in the numbers, which I thought was pretty great. As you said, you're focusing on subscription base, i.e., stable
revenue flows, rather than perhaps contracts that are a little bit more volatile. Two thirds now of the business subscriptions. I mean, that must
be really comforting to you. How high can that ratio go do you think? What are you targeting here?
ROBBINS: Well, you know, Julia, we have -- when we set out to begin to transition the business model a few years ago, in 2017, we did a financial
analyst conference where we said our objective was to try to have software be 30 percent of our business by 2020.
We're on track even a little ahead of that. And then within the software portfolio, 65 percent of that business is subscription, to your point and
that's up nine points year-over-year. And you know, that's just a -- we believe that we can continue to transition our security portfolio is
heavily software today, our collaboration portfolio is heavily software.
And now we have actually implemented subscriptions on top of our core networking franchises, which was the real challenge in the area that we
weren't sure we were able to pull off. And so the teams have done a phenomenal job. I think we can continue to grow that, particularly as we
add more and more to our core franchises.
CHATTERLEY: You mentioned it so I'll go there that the weakness that you saw in the services providers segment, the revenues there were weaker. I
mean, this is something that the entire industry has struggled with and actually you outperformed relative to most of them. What are you seeing
there and what efforts can you make to sort of mitigate what continues to be a real challenge, I think?
[09:45:13] ROBBINS: If you look at the service providers in the U.S., the top, you know, seven or so, their CapEx year-over-year was down almost 20
percent. So, it's not a surprise that, you know, our business was a reflection of that.
I think, even where they are spending CapeEx today, particularly as it relates to 5G, they're spending first and foremost, on the 5G radio side,
which is not an area we play in.
When they start building out the core networks, we will, but what we're focused on and we see it is really, the new portfolio that we're delivering
to our enterprise customers is absolutely resonating. And, you know, we continue to see strength there that has certainly helped us offset the
weakness that we've seen as a service provider.
CHATTERLEY: Okay, I want to talk China now. And first, I want to emphasize that this is three percent of your overall revenue. So we have
to apply context here with the questions that I'm asking you. But you know what you said and your team said on the earnings call was that, you know,
you moved within two days, really swiftly to tackle the rising tariffs that we saw.
How did you go about that? And if we're talking about situation where we see tariffs of 25 percent on the full imports coming in from China, what
will that mean going forward?
ROBBINS: Well, what I would say is that our team over the last nine months has done an amazing job. We have a global supply chain that we're
constantly modifying based on our component suppliers, you know, tax, tariffs, risk and our teams -- this is just what they do.
And so they have been working hard over the last eight, nine months and they put us in a position where they had mitigated the impact of a high
percentage of the tariff increases that we saw last week.
What I said was that the third phase, which is the pricing adjustments that we needed to do, which were nominal, our teams executed on within 48 hours
of the tariffs going into effect.
So just an amazing job that the team has done, and you know, we will work and be ready for whatever may come, you know, in the next wave. And our
teams will continue to execute to be prepared for that, but, you know, we focus on what we can control. And, you know, they did a great job on this
one.
CHATTERLEY: I think if we did see tariffs of 25 percent on the further $325 billion, it wouldn't just be a problem for your business, it would be
a huge problem far more broadly. What is your view on whether or not that's the right thing to do to address some of the challenges that we face
between the United States and China and the risks surrounding technology? Is it the right way to go? Is the reward ultimately worth the risk? Or is
your message to the White House here, be careful.
ROBBINS: Look, when I talk to the White House, I'm simply talking to them about the effects of tariffs on our business. I'll leave the broader
political debates for our politicians.
But I think that, you know, when you look at the size of the U.S. economy, what is it? $18 trillion? $19 trillion? And we're talking about $800
billion. So you do have to keep it in perspective. And I've seen many economists debating this topic over the last couple of weeks.
You know, look, this is something that I haven't seen in my lifetime. So it's very difficult for me to understand what the impact will be. But I do
think we have to keep it in perspective relative to the size of our total economy and how much of these imports that would have tariffs on them,
Julia?
CHATTERLEY: Yes, it makes perfect sense but the White House also signed an executive order yesterday to seemingly protect U.S. telecommunications
companies. They have also cracked down on Huawei and we've talked a lot about this throughout the show.
I mean, you are now the largest enterprise security business provider around the world. Congratulations on that. What does this crackdown mean
for your business?
ROBBINS: Thank you. You know, it really doesn't change anything about our business. We focus on competing on a global basis, we focus on ensuring
that our customers believe in our technology and feel like they have a level of trust with our technology. And we focus on innovation and
actually winning based on our own innovation.
And so anything that happens at a political level doesn't really change our strategy. We just continue to execute, and continue to focus on the things
that we actually have an influence on. And our team is doing a really good job right now.
CHATTERLEY: Yes, well, congratulations on a great course and Chuck, I'm just showing your share price, just about $55.00. So congratulations on
that, too. A great year so far. Chuck Robbins.
ROBBINS: Thank you.
CHATTERLEY: Always a pleasure to speak to you. Thank you for joining us. All right, still to come from Washington to Beijing to Paris, the battle of
between the U.S. and Huawei take center stage at a tech conference in France. We take you that live after this. Stay with us.
(COMMERCIAL BREAK)
[09:52:10] CHATTERLEY: Welcome back to FIRST MOVE, the European Union has fined five banks a total of $1.2 billion for participating in foreign
exchange market rigging. Traders at RBS, Barclays, Citigroup and JPMorgan formed a cartel calling itself -- wait for it -- the way banana split,
sharing information via online chat rooms to manipulate the currency markets for profit.
Barclays, RBS, and MUFG Bank were involved in a second cartel known as the Essex Express. I call that hiding in plain sight.
All right, so let's move on with the elephant in the room. The Viva Tech Summit just got underway in Paris. The French President is there rubbing
shoulders with tech bosses like Alibaba's Jack Ma and IBM's Ginni Rometty.
There are lots of topics on the agenda, though there's one that continues to keep everybody talking. Huawei's battle with the U.S. government. The
company's Deputy Chairman is due to speak soon. Anna Stewart is there and joins us now.
Anna, clearly a lot of things being discussed there. But front and center once again, Huawei, what are we expecting him to say?
ANNA STEWART, CNN REPORTER: Yes, the Deputy Chairman, Ken Hu will be speaking on the stage just behind me, as you can see there, and he wants to
talk about startups, how Huawei is helping startups in France and in Europe. But of course, the whole discussion around the conference
generally is this latest attack from the U.S. on Huawei.
And it's interesting this perspective you get when you're at a conference like this from the different tech companies. On the one hand, this is a
two-pronged attack. On the one hand, you have the executive order that effectively bans U.S. companies from using Huawei technology. And that's
not just damaging for Huawei people saying, hey, that will be damaging for some U.S. companies, particularly some of the smaller carriers that do
still rely on it.
And then you've got the U.S. Commerce Department pushing Huawei on the so- called entity list. That means Huawei will find it very hard to obtain components and technology from Huawei, and many of them rely on it. Sorry,
Huawei obtaining it from them. And Huawei rely a lot on Intel, on Qualcomm, so again, damaging for Huawei, also very damaging for other tech
businesses, and some in the U.S. and also today, you know, for the U.S. consumer as well.
Definitely the topic of conversation here and President Macron on arrival today was absolutely bombarded by journalists all wanting to know what he
thought is France -- is Europe going to ban Huawei next.
His answers to them was national security and technology is incredibly important. They've got to be very careful about it. But they don't think
banning a company outright is the right way to go about it -- Julia.
CHATTERLEY: Now from lightning fast 5G technology to lightning fast runner, I believe you've interviewed Usain Bolt, talk me through that. How
exciting.
STEWART: Not only have I interviewed Usain Bolt, I was just on stage with him, Julia. It's very exciting. Yes, Usain Bolt has lost launched his e-
scooter which is called Bolt Mobility. He has already launched in the U.S., now, he is launching in Europe starting off here in Paris, but it is
such a crowded space.
[09:55:19] STEWART: I mean, if you go around Paris, you get new mown down by about six or seven different ones. But I asked him, are scooters cool?
Or are they just, you know, for kids? Take a listen.
(BEGIN VIDEO CLIP)
USAIN BOLT, CO-FOUNDER, BOLT MOBILITY: He's a grown up on this side. We're talking about trying to get from place to place. And I mean, who is
thinking about looking cool? We're trying to be efficient.
I am not saying it is not cool. But you're not thinking about that at the moment. I'm trying to get to the doctor's right now. I'm trying to get
through this traffic jam. I'm not worried about that. This is what I'm focused on. How I'm going to be safe. How I'm going to get there on time.
Come on, if I'm doing something, it is going to be cool.
(END VIDEO CLIP)
CHATTERLEY: Anna Stewart there in Paris for us in a rather beautiful pink scarf. Anna, we love it. Great job. All right, let me give. Let me give
you a quick look at markets because we're wrapping up the show right now.
We are holding in the green as you can see. Plenty more to come on "The Express" in a couple of hours' time, but for now you've been watching FIRST
MOVE. Time to go make yours. Have a great day.
(COMMERCIAL BREAK)
[10:00:00]
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