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First Move with Julia Chatterley
U.S. Firms Hiring Fewer Workers In May; Mexico Promising Plenty Of Troops To Head To The Border To Ward Off The Threat Of U.S. Tariffs, Beyond Meats, The Fake Meat Firm Gives Some Pretty Sizzling Earnings. Aired: 9-10a ET
Aired June 07, 2019 - 09:00 ET
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JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE and here's
your need to know.
Hiring halted. U.S. firms hiring fewer workers in May. The question is does the Fed get to work in June? Mexico moves. The nation promising
plenty of troops to head to the border to ward off the threat of U.S. tariffs and beyond meaty expectations. The fake meat firm gives us some
pretty sizzling earnings. It's Friday, let's make a move.
Welcome to FIRST MOVE once again this Friday. Not any ordinary Friday, of course, it is U.S. payrolls report, the jobs numbers and they were weaker
than expected. Let me get you right to the details and walk you through these and then we'll get some analysis.
Seventy five thousand jobs created last month versus 175,000 expected. We also got some revisions lower for April numbers and May, too. Overall
though, as a marker here, the unemployment rate was unchanged at 3.6 percent multigenerational low of course. We also have got wage numbers,
too. Slightly softer than expected that growth of 0.2 percent.
U.S. futures features right now are higher. The takeaway, the message here for me, it may only be one job's report and one number -- set of numbers,
at least -- but it's certainly more weighted towards further Fed action here and rate cuts versus not and I think that's the bet that investors are
making this morning.
The Dow right now on track to rise for the fourth straight session in a row. It's been a week though, of easing measures around the world from
Central Banks. India and Australia cutting rates as I mentioned.
The ECB head, Mario Draghi also providing more loans to Eurozone banks yesterday, not a moment too soon. What we got today, the German Bundesbank
slashing their growth forecast for the next two years. Industrial output numbers today were also weaker than expected.
This, of course, is a nation that will be closely following the talks this weekend between U.S. Treasury Secretary Steve Mnuchin and the Chinese
Central Bank Governor, Yi Gang. Yi said today that Beijing has lots of big stimulus guns at the ready if the trade war worsens.
Well, I can tell you, speaking of big stimulus guns, President Trump would I think like the Federal Reserve to be a little bit more proactive, too.
He told Fox News last night that the Dow would be as much as 10,000 points higher if the Fed hadn't raised rates last year -- 10,000 points higher.
One could argue perhaps that the Dow would be a lot higher if we didn't have a trade war and tariff threats going around left, right and center,
too.
But let's get to the jobs report before I say anything else that gets me into trouble. Paul La Monica joins me now. Paul, a weaker number than
expected. Clearly, it follows the private payrolls, the ADP numbers that we got this week, too. So perhaps not as big a surprise as mentioned, but
walk me through the numbers. What do you make of this?
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, I think, Julia, you already mentioned 75,000 jobs added last month. That was disappointing, much below
the forecast. But there's another number also 75,000 that is equally disappointing. That's the number of jobs revised downward for March and
April.
So when everyone talks about how one month is not a trend, well, guess what? We now have three months where the jobs numbers aren't as good as
one thought. That could be viewed as a trend and I think it's going to increase pressure on the Federal Reserve, not just from President Trump,
but from the broader financial markets to potentially signal at its June meeting that a rate cut might be coming as soon as July.
CHATTERLEY: And this is the point because now investors and of course, the Federal Reserve, pouring over these data points to look for weakness and
the debate this week has been whether or not the Federal Reserve is ready to make an insurance rate cut. A cut, perhaps even before the data signals
is necessary.
How soon could they do that, Paul? Because that's also the debate. Could we see the Fed move in June or do we at least get a signal and perhaps they
go in July if they are going to do it?
LA MONICA: Yes, I think that if the Fed were to move in June, that would really set off some alarm bells because I think the narrative would quickly
change from well, the Fed is listening to the markets to, oh my gosh, they are doing it this quickly. What do they know that we don't that really
scares the bejesus out of them so to speak.
So I think given that Jerome Powell, like all of his predecessors, they like to telegraph things in advance. They set the table for a rate cut in
July with comments in the Fed statement in June, as well as Powell's own press conference.
[09:05:02] LA MONICA: I think the good news, if you want to call it that, for the Fed is that wage growth tick back a little bit 3.1 percent growth
year-over-year as opposed to 3.2 percent last month, that means that inflation signs are cooling off a little bit. And that was, I think the
big word for the Fed, wage growth picked up and it looked like the job market was still healthy, wages were rising, that's inflationary, and the
Fed doesn't want to lower rates with inflation still as a concern.
Inflation really isn't the biggest worry right now. It's the deceleration in the U.S. economy that we're seeing that I think is the bigger worry for
the Fed at this point.
CHATTERLEY: Yes, and I feel that this is such an important point with the debate out there of just how inflationary the tariffs are going to be as
far as prices in the United States are concerned, because even if, ultimately, we're seeing the average job gains coming down here on a
monthly basis for 2019, we have to reiterate that these are six decade lows for the unemployment rate, and the jobs market remains incredibly strong.
What's the risk here, Paul that the Fed moves? We then get trade deals. And actually, the Fed finds themselves having acted too quickly, because
that's the other side of the argument here.
LA MONICA: Yes, I think the possibility still exists that the Fed may stay on pause, because they are concerned about just what you talked about,
Julia that, namely, if this economic slowdown is a manufactured crisis, because of obstinate politicians in the U.S. and China and Mexico that are
all digging in their heels, and you know, looking at a trade war and retaliatory tariffs, if that trade nightmare winds up going away, and we
have a good trade deal that rejuvenates the financial markets and potentially the economy, then the Fed has to worry about inflation again
and things possibly overheating.
So I think that is in the back of Jerome Powell's mind and all the other Fed members as well, that might be a reason why they have to still proceed
cautiously, but again, the jobs numbers were not that encouraging today.
And when you add other signs like the ISM manufacturing weakness, the inverted yield curve that still paints a picture of a slowing economy,
possibly even a recession in 2020.
CHATTERLEY: Yes, lots of signals here to watch. Paul La Monica, thank you so much for that. All right, as Paul was mentioning there, of course,
trade remains front and center. Talks continue between the United States and Mexico today. But it does look like Mexico is making promises to crack
down on migrants.
They said they'll deploy some 6,000 National Guard troops to the border with Guatemala. Paula Newton has been in Mexico City for us all week.
Paula, interesting move here, which I'm sure the United States will welcome. The question is, is it enough to prevent the United States from
hitting them with tariffs as of Monday, because that's what we're counting down to here.
PAULA NEWTON, CNN INTERNATIONAL CORRESPONDENT: Yes, and Julia, look the White House is saying so far, it is not enough. As you pointed out, those
talks continue.
At issue, though, are those migrant flows, and they really want some legal changes to asylum laws, and that's what the United States believes will
actually help them stem that flow of migrants.
Gosh, Julia, you'd like to be able to tell investors that they can at least go into this weekend calmly. Not at all. I want to point out that the
President here, President Lopez-Obrador says that if these talks fall apart today, that tomorrow he will be all set and ready to go with retaliatory
tariffs.
So think about it, Julia, just building on what Paul just said, when you look at the kinds of decisions that the Fed needs to be making here, you
are looking at trade wars, at large.
At the table today in D.C., a lot at stake in whether or not they can avoid those five percent tariffs on Monday, but then avoid that escalation in
trade as well.
Mexico does have some American sectors that it can targets. They're well known, and they will continue to try and target those retaliatory tariffs
starting by an announcement on Saturday if those talks fall apart in Washington.
CHATTERLEY: Yes. And you make a great point here, which is that trade and trade tariffs are being used for nontrade related issues, and that's the
crux of the confusion here, I think for investors. It's what else might tariffs be used for if you can use them for flows of individuals trying to
enter the United States.
But to that point, Paula, what are we seeing in terms of flows, because you've been reporting throughout the morning that we're seeing an increase
in migrant flows, perhaps trying to get in because they're afraid of a greater crack down here from both the Mexicans and the United States. So
it's like now or never, if you want to move in. It's almost exacerbated the problem short term.
NEWTON: And that is very much the issue, isn't it? Certainly, a lot of the human smugglers that work around this have been working the issue for
several weeks, most principally this week, and saying, "Look, you need to get in under the wire here. The laws could change," and that's been
obviously exacerbating the crisis.
The issue here though, is that Mexico has been making, I would say some moves that have gained a lot of publicity here in Mexico and have gotten
the attention of the White House and that is trying to even intercede these caravans -- small ones, albeit -- as they begin to move from Central
America into Mexico. You're still talking hundreds of miles away from that U.S. border.
[09:10:13] NEWTON: But is it enough? And right now, Julia, the White House is saying at this moment, it is not enough and they expect those
tariffs to go into action on Monday.
That delinking though, it is clear, though, right? We are looking at economic tools that are now becoming economic weapons. And that is what is
so destabilizing to investors. And obviously those multinational companies, which I have to point out, Julia, some of them were looking to
Mexico to try and steer clear of that China trade war. And here they are.
CHATTERLEY: Yes, and they got caught out, but hey, it brought the Mexicans to the table. And if they're deploying troops and going to take action,
then I think the White House will have to call this a win. Paula Newton, thank you so much for that.
All right, let's move on to our next driver. Facebook in focus, stopping the pre installation of its apps on Huawei phones. That includes Facebook
itself, WhatsApp and Instagram. Hadas Gold joins us now.
Hadas, great to have you with us. How is this going to work? Because my understanding is you can still download those applications afterwards.
You're just not going to get them automatically if you buy a Huawei phone, is that right?
HADAS GOLD, CNN BUSINESS REPORTER: Yes, Julia, this is the latest American company that has to respond to the Trump administration blacklisting pretty
much any Huawei phone, any American company from interacting with Huawei products, which I have to note is the second largest smartphone
manufacturer in the world.
So this is a big deal for companies like Facebook. So you're right. Any Huawei phone will no longer be able to have Facebook preinstalled on the
phone. So the moment you get it out of the box, you already have Facebook there, that's obviously very important and very valuable for a company like
Facebook to have because it increases the likelihood that if you don't already have Facebook, or even if you do, you will use it because they took
care of that step for you of downloading it onto their phone.
Now, you're right that users will still be able to go to their App Store or anything like that, and download the Facebook app and sign up that way.
However, there is another issue at play that could affect even that step of users being able to download Facebook independently onto their Huawei
phone. And that has to do with Google.
Google is also caught up in this Washington blacklist, and they are actually warning according to "The Financial Times," they are trying to
warn the Trump administration against making Google have some sort of special license in order to interact with Huawei, because they warned that
this could create sort of two versions of their Android operating system.
And if you don't have that Android operating system on the Huawei phone, you might not even be able to download Facebook or other apps. And Google
is actually warning that a sort of split level, Android operating system could be susceptible to new bugs and that could actually harm U.S. national
security and obviously, it can also harm Google's business model, because then Huawei might be forced to create its own operating system, and that's
not very good for Google in the business sense.
CHATTERLEY: So wait, let's be clear about this. So what we're saying here is Google saying to the U.S. government, look, we have to be really careful
here because if Huawei comes up with their own operating system, which is a hybrid of what you can still have as part of Google's but adapted by
Huawei, then actually, these phones could be that much more insecure, unsafe and actually could be available to be hacked. So you're kind of
creating problems that might not have existed in the first place.
GOLD: Exactly, Julia, they're saying that they are more susceptible to bugs, because the way the Google operating system currently works, comes
with a bunch of extra measures in there that sort of scan your phone for malware, and they're worried that the Huawei version might not be as good,
and that it is actually in the U.S. national security interest to allow Google operating systems on Huawei phones.
And Julia, I do have to say this, as we're starting to see what we've heard of as sort of the internet iron curtain, two versions of the internet
possibly coming out. And this is what Google is warning against.
CHATTERLEY: Yes. Fascinating. Hadas Gold, thank you so much for that. All right. Let's move on to our next driver and Beyond Meat stocks
sizzling premarket. We had a really juicy set of numbers from the fake meat company. Anymore analogies, and someone is going to tell me off.
Clare Sebastian, quick, get in here and save me. The feeding frenzy continues though, as far as the stock price is concerned. I make that
almost what? $6 billion valuation now. Wow.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, a really big move expected when the market opens, Julia, to about $125.00. That would be
five times the IPO price. I will say that even the most bullish analyst who have upgraded their price target today off the back of this earnings
report, most of them don't get to $125.00 on the price target.
So this might be a bit of a knee jerk reaction. But mostly this earnings report did confirm the overall thesis that has propelled the stock price
since the IPO. That this is a company that does have the potential to be profitable and is in a very high growth market. The revenue beat
expectations, the net loss that they posted was lower than expected, and crucially the company is guiding towards breakeven this year. Revenue
expected to be up 140 percent.
And one thing that the more bullish analysts are really latching on to today is the fact that built into that guidance and none of the
partnerships that they are currently testing, that includes Tim Hortons, and they teased that there are others that they can't tell us about.
So this is a conservative outlook it and it may even go higher than that. So certainly a lot of positivity off the back of this report today.
[09:15:21] CHATTERLEY: What about the competition though, here? I mean, we've got Nestle just in the last week or so announcing their own Amazing
Burgers coming. We know Impossible Brands have got Impossible Burgers, is the demand out there enough that it can take all of these players or is
some of share and some of this growth going to be cannibalized over the next 12 months or so as other players come on board? Tyson Foods is other
one that's going to be a big player, I think, too.
SEBASTIAN: Yes, I think they've got a ready capital up there. There are some giants as you say, moving into space -- Nestle, Tyson Foods ---
they've got big competition, particularly when it comes to restaurants from Impossible Foods, which is seen as their closest competitor at the moment.
I think one of the things that a lot of people are looking to, when it comes to Beyond Meat is can they partner with more restaurants? This is
something that Impossible has so far got the edge on with their partnership with Burger King.
And the question is, will McDonald's move into this space? They are under pressure from their shareholders to try and match the Burger King move with
the Impossible Whopper, and Beyond is a company that that many believe that McDonald's might partner with. That is something that people believe would
propel the stock price.
But of course there's another risk in that, can they meet demand? Can they ramp up quick enough to meet a partnership like that, I would say 36,000
stores around the world. That is a challenge they face.
CHATTERLEY: And the supply of the materials as well. P-protein because they've had supply issues in the past. Jeffrey's say that if they do a
partnership with McDonald's that could increase it further $25.00 on the share price. Wow. Clare Sebastian, thank you so much for that.
All right, let's bring you up to speed now with some of the other stories that we're following around the world. CNN has obtained a video showing
how close U.S. and Russian warships came to each other in the Pacific. This Friday, the two governments are giving conflicting accounts of the
incident. Both sides claim they had to perform emergency maneuvers to avoid a collision.
Theresa May steps down today as leader of the Conservative Party. The British Prime Minister announced her resignation two weeks ago, saying she
deeply regretted being unable to deliver Brexit. She'll stay on as Prime Minister until a successor is in place.
The first technological war of the coming digital era, that's how the Russian leader, Vladimir Putin described the situation surrounding Huawei.
Speaking at an economic forum in Saint Petersburg, he said the Chinese tech giant had been "unceremoniously pushed out of the global market," quote.
Russia has agreed to a deal to build a 5G network with Huawei.
All right, we're going to take a quick break but still coming up on the show, way, way up, why billions of dollars are being sucked into space, and
May's teaching moments. The British Prime Minister wants to give schools a multi-billion dollar boost. Will she get away with it? Stay with us.
You're watching CNN.
(COMMERCIAL BREAK)
[09:21:16] CHATTERLEY: Welcome back to FIRST MOVE live from the floor of the New York Stock Exchange this Friday, the final session of the week and
we are looking at a more positive start to the session particularly compared to what we saw yesterday after that week of unexpected U.S. jobs
report, just 75,000 jobs created.
To remind you, we saw March and April numbers revised a bit lower as well. The monthly job gains now averaging around 164,000 per month this year.
That's down from last year's 223,000.
What we are seeing though is the Dow on track for its best weekly gain off the year, up some three and a half percent this week. Same story for the
S&P 500. The NASDAQ slightly shy of that, up some 2 percent as well. We know that the tech sector has been front and center in the trade concerns
and that's been a relative weight over the last couple of weeks in particular.
What about the oil markets right now? Higher for a second day, bouncing higher from bear market levels, of course down some 20 percent since the
most recent highs.
Getting support from new Saudi Arabian comments this morning. The Saudi saying they are confident that OPEC production cuts will remain in place in
the second half of this year. So some support for the oil markets coming there. More discussion on what's going on in oil later on in the show.
But for now, let's bring it back to that jobs report and get some analysis. Diane Swonk is Chief Economist at Grant Thornton and joins us now. Diane,
fantastic to have you on FIRST MOVE this morning. Your assessment of the jobs numbers two start.
DIANE SWONK, CHIEF ECONOMIST, GRANT THORNTON: It really was a dismal report and opens the door to a Fed rate cut, a preemptive cut in June.
They've been considering this anyways because of the trade situation and what we saw was, the gains in professional hires and healthcare was still
there.
But the shortfall in everything from construction to manufacturing activity, retail. Some of that is cyclical and some of that is structural.
We know in retail, we had a surge in closures in the first quarter and that is showing up as a loss in retail as traditional retailers try to compete
with the big box discounters, and their move on to the online behemoths and online presence, they just have not been able to do that. And so that's
more structural in nature.
But this is really showing some underlying weakness in reflection of tariffs and overhang of inventories and slower global growth. We were
expecting a slowdown in underlying payroll growth, this was much more than expected. And we're now within error measure of zero.
CHATTERLEY: Okay, so in light of everything that you just said, and actually that very much ties to what contributed to much of the strength
that we saw in the Q1 growth numbers, which was the inventory build, and then the decline in imports versus exports. How do you think the Fed is
going to look at this? And in terms of whether they indicate perhaps a cut, what about the timing on that, too?
SWONK: I think we're up for a June rate cut. I think the Fed has been fairly clear this week at the Fed Listens Conference, which I happened to
be at in Chicago, and you know, much of the Board, much of the Federal Reserve Presidents were there. They were quite chatty about what's going
on and their concerns about a sudden shift in sentiment and what that could mean for the economy, even as underlying fundamentals were okay.
And they're also very concerned about the trade situation and what trade wars meant as a headwind. And you really saw this shift and pivot and a
willingness to cut rates preemptively to try to soften the blow of tariffs on the U.S. economy and the slowdown in global growth that we're seeing.
Also there -- I said, the sentiment issue, a mood issue is very, very important to the Fed. They were taken aback by what happen last December,
and taking the lessons very seriously.
[09:25:03] SWONK: We had very good economic data going into the chaos of December, and just fear alone of a trade war, and that the Fed might be
asleep at the wheel actually prompted a lot of pullback by consumers and businesses that showed up in the actual data.
And I think that's what they're worried about as a self-fulfilling prophecy, and they want to shore up confidence along with sort of ease up a
bit to allow the economy to continue.
They really want to extend the length of this economy, which is not something we've seen the Fed talk about at length in the past. They're
talking about employment, really engaging people in this marathon and expansion which cross 10 years in June, and they want to engage more people
in the race, because even though it's now tied to the 1990s in terms of its length of expansion, we still have too many people on the sidelines.
CHATTERLEY: The messaging here, though is going to be critical, surely because the risk here is if they do decide cut rates, and they do it in
June, that they suggest some great element of fear, perhaps that even the market is showing and also that they look like they're being led by the
market and sort of following through with the pricing that investors are giving them here in terms of what they want the Federal Reserve to do. How
do they manage both of those things?
SWONK: That's a great question, and credibility is a critical issue for the Fed, particularly now that they've been under attack pretty
consistently, not just by this administration that preceded, but certainly accelerated under this administration.
Partisan attacks have been very common this entire expansion, because of the role and controversial role that Fed had to play to shore up growth. I
think what's important is, even though this may look like the Fed is capitulating, I think the reality is they're doing what they need to do.
You know, Jay Powell once said that Greenspan told him to wear head muffs and he really does not listen to those issues.
CHATTERLEY: Diane, I have to interrupt, too because we have to go to break. The market open is next. Brilliant to have you on the show. Thank
you so much, Diane Swonk.
SWONK: Thank you.
CHATTERLEY: The market open is next.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE from the New York Stock Exchange where the ceiling is about to fly off quite frankly.
As you can hear the screaming and shouting behind me, Revolve, the online e--retailer is listing today, and there are lots of very happy people. I
can tell you.
What we are seeing right now is a higher open for stocks. I think, in fact, counterintuitively led by that weaker U.S. jobs number, just 75,000
jobs created in May, the argument being of course, does this make it more likely that the Federal Reserve now looks ahead and starts to signal the
likelihood of a rate cut here as Diane Swonk was just talking about with us there.
They stopped screaming now for the moment, at least, obviously, the things to watch as well. This weekend, the talks between Steven Mnuchin and the
Chief of the Central Bank of China are going to be sitting down in Japan. So watching headlines on trade as well, very important for these markets
right now.
Ten-year bond deals under pressure following that jobs report down more than six basis points, 2.06 percent. This is near the week's lows. And we
will continue to watch that in particular.
Let me to give you a look of what we're seeing as far as the global movers are concerned in this session. Barnes and Noble in focus. The bookseller
is being taken private by hedge fund, Elliott Advisers. It's an all cash deal worth almost $700 million. Elliott bought the U.K. bookseller,
Waterstones last year. So Barnes and Noble being taken private.
Beyond Meat rallying. They are reporting a narrower than expected first quarter lost sales with a big story storing over 200 percent, so they are
also out with a pretty bullish sales forecast, too. This of course, their first earning since going public last a month.
Zoom Video, also in focus today. It's out with its first earning since going public. The video communications firm sales more than doubled with
the earnings also beating expectations and investors liking the fact that the company provided some strong guidance here, too.
AMD shares higher in the session so far this morning. Actually, slightly lower. It was the best performing stock on the NASDAQ on Monday, this
after Morgan Stanley analysts raised the rating a longtime AMD, bear. The analysts, they are admitting the call was wrong. And in fact, the shares
have risen more than 160 percent since then.
So wow, some incredible news this week as a result of that. All right, let's put it back now to the oil markets and do a deep dive into what's
going on there. We've got both Brent and U.S. crude up, but off today's high. WTI as we were mentioning earlier in the show still in bear market
territory.
Francisco Blanch is Bank of America, Merrill Lynch's head of Global Commodities and Derivatives, and he joins us now. Francisco, fantastic to
have you with us.
FRANCISCO BLANCH, HEAD, BANK OF AMERICA MERRILL LYNCH GLOBAL COMMODITIES AND DERIVATIVES: Thank you, Julia.
CHATTERLEY: I've seen some comments that you've made recently about the sheer level of disruption that we can see on the supply side is the worst
it's been for some three decades, whether it's Venezuela, or Iran. But right now, it's the demand side of the story that matters, is that's what's
driving us to bear market territory for WTI at this moment?
BLANCH: That's right, Julia. I mean, you put it -- you put it well. We have the highest levels of oil supply disruptions in three decades since
the first Iraq war.
But it doesn't matter because despite the fact that we've lost, well, I guess it doesn't matter, right? We've lost 2.3 million barrels a day of
supply sequentially from November, all the way through May, through Saudi Arabia production cuts. But also, as you pointed out, Venezuelan output
declines, accelerated by sanctions -- by U.S. sanctions, we're down to now 34 percent on 35 percent year-on-year in Venezuela.
We're also down very meaningfully in terms of Iranian barrels hitting the market. And then remember that this is all happening in the context of
slowing global demand. Demand is now running at half the rate in terms of growth, half the rate that we've seen in the last five years.
So we have very muted demand growth, and frankly, in the last few weeks, we've had these risks around trade war with China, with Mexico coming to a
fore and creating additional downside demand risks.
So I think it's very important to understand that if it wasn't for the supply shocks that we've had, perhaps oil prices will be a lot lower than
they are today.
CHATTERLEY: Yes, I mean, it's really difficult to understand for investors, never mind anybody else, what you base cases for oil prices
here, not only have we seen the Chinese-U.S. trade talks collapse, but also to your point about the potential Mexico tariffs. I mean, this is
something that doesn't even relate to trade. It's about immigration. So how do you even quantify what the likely demand impact is going to be?
Never mind the supply issues that we're talking about here?
[09:35:20] BLANCH: Well, look, Julia, you have to think about this and go there's two dimensions. There's the three-dimension and then there is the
geopolitical disruption, I mentioned, the Iran dimension.
And in both cases, they're pretty binary. Either we get a trade deal or we don't, either, we get -- for the Iran disruptions with potential military
conflict in the background, or we don't. And we get the Iranian barrels. But there's some additional scenario, which is what happens if China walks
away from the negotiating table deciding that they are not going to get a good deal with the U.S. and have to start buying Iranian barrels.
That's what I call the uber-bearish oil scenario, because we're going to be -- in that in that scenario, China prepares for much slower growth, the
global economy slows down materially, but then we have a lot of supply that suddenly gets released back to the market as the Chinese government if or
if rather, the Chinese government is going ignore those U.S. Iran export restrictions.
So I think that's why a lot of the lot of the speculative length in oil markets has been exiting in recent weeks. Remember, this is not a
fundamental move. Inventories haven't really changed this dramatically, it's just that market participants are very wary of being long with some of
these downside tariffs that are rising here.
CHATTERLEY: I mean, that's just mindboggling. The idea that we could see China then turning to Iran and buying their oil is a huge wild card here.
On May 21st, you also made the point that if we did see an escalation of tensions in the Middle East, we could see oil prices back up to $100.00 a
barrel so that the volatility potential here is huge.
What kind of feed through do we see to the prices that consumers pay at the pump? If we're talking here about the United States? How quickly did they
adjust? Because at the end, for the U.S. consumer, that's what's front and center?
BLANCH: Well, I'm glad you asked that question, because I think that is very important here, a very important point to make here. I do think that
if, in particular is tariffs on Mexico go through on Monday, we're going to be seeing a big impact the pump.
Remember, Mexico is the third largest crude exporter to the USA. It exports 700,000 barrels a day of crude oil to U.S. refineries in the Gulf
Coast. If they have to start paying tariffs on that, there's going to be a big impact at the pump.
And I'm not sure if the tariffs go through on Monday, and if they do go through, is do they go through a $350 billion worth of Mexican exports into
the U.S. or does oil get accented? I don't know. It's a little bit hard to say.
I think the risk of mixing tariffs with immigration, as you pointed out, is that you start being, you know, not too surgical about what you're trying
to do, and ultimately, it creates confusion and confusion leads to uncertainty and uncertainty leads to paralysis which is really the worst
thing you want to have in an economy. Paralysis is bad thing for economics, it is a bad thing for business.
CHATTERLEY: Wow. I just don't think anybody is talking about this and the impact of Mexican tariffs on energy prices here in the United States.
Fascinating. Francisco, always a pleasure to have you on the show. Francisco Blanch Bank of America.
BLANCH: Thank you, Julia.
CHATTERLEY: Of Merrill Lynch there. Thank you. All right, we're going to take a quick break. But coming up, NASA set to make an announcement that's
pretty much out of this world, letting private companies buy into outer space. We've got the details for you. Stay with us.
(COMMERCIAL BREAK)
[09:42:18] CHATTERLEY: Welcome back to FIRST MOVE with a look at today's "Boardroom Brief." Two media giants reportedly in a bidding war over film
and TV hit maker, J.J. Abrams. "The Variety" reports, Apple and CNN's parent company WarnerMedia are seeking to strike a deal for his production
company Bad Robot. The deal could be valued at nearly half a billion dollars.
French President, Emmanuel Macron is set to meet with Twitter CEO, Jack Dorsey today. A Twitter spokesperson says the two will continue their
discussions focused on building a healthy online environment. France is working on draft legislation requiring platforms like Twitter to remove
content with hate speech within 24 hours.
All right, my favorite story of the day, NASA is just about to make a big announcement. It is putting low Earth orbit up for sale. Essentially,
NASA is giving private companies the opportunity to take over a raft of NASA operations and create whole new industry as NASA is shifting its focus
to more ambitious goals like sending people back to the moon and even to Mars.
It comes amid a major investment boost in the space sector. Venture capitalist firm, Space Angels say space companies raised $1.7 billion of
equity in the first quarter of 2019, nearly twice the sum raised in the last quarter of last year.
Joining me now is Chad Anderson. He is CEO of Space Angels. Great to have you with us.
CHAD ANDERSON, CEO, SPACE ANGELS: Hi, Julia. Happy to be here.
CHATTERLEY: As you can see, I'm super excited about this subject. Why is NASA doing this?
ANDERSON: I think the news today is really two parts. The first is to expand access to the space station. So they're going to do this through a
number of means, greater access to private companies to operate there. They are going to open it up for marketing opportunities as well which is a
bit controversial.
They're going to give access to NASA astronaut time and they're also going to open it up for private astronauts to go for stays up for 30 days. So
that's very interesting kind of supplying the market with space.
And the second part is on the demand side so this is really about enabling commercial stations and being an anchor tenants of them and sort of opening
up and letting them know how much demand NASA would have for these types of stations.
CHATTERLEY: Is the message here the fact that the private sector -- we've got all sorts of well-known companies now -- Blue Origin, SpaceX -- to name
a couple of them. Are they just more efficient at making these trips and utilizing things like the Space Station than NASA has ever been and
government money ultimately has ever been.
ANDERSON: They absolutely are. And NASA is really starting to embrace that. So the commercial crew and commercial cargo programs are what
enabled SpaceX to get off the ground, if you will, and the government is really starting to realize you know, the efficiencies and schedule and in
cost. And so they now apply this to the commercial lunar payload services program and getting NASA back to the moon, they just awarded some contracts
last week.
[09:45:20] CHATTERLEY: Yes.
ANDERSON: And it's the same type of program where NASA is a customer of private companies. And this is what they're doing today is they're
announcing that they are now doing this in low Earth orbit as well.
And so just to give you an example, the Space Launch System is NASA's big rocket that they're building, the biggest rocket ever built. It is, you
know taking -- it is years over schedule and its cost $30 billion to make.
CHATTERLEY: $30 billion.
ANDERSON: $30 billion, right. And SpaceX has been able to do this for an order of magnitude less. And by doing so, and being, you know, bringing
the costs down.
CHATTERLEY: How much less?
ANDERSON: A lot less, like in order of magnitude, like maybe $5 billion. And so -- and this is, they've been able to develop Falcon -- their Falcon
rocket, and also the Falcon Heavy, which competes almost directly with that. And so it's incredible.
And even amongst the commercial providers to NASA of these commercial cargo and commercial crew programs, there's quite a wide disparity. So the old
government contractor, Boeing does things in an older, you know, incumbent type of way, they are charging almost what the Russians are charging.
So the Russians charge us now at $80 million to get to the Space Station, Boeing charges a little over 70 per seat to NASA. SpaceX is able to do it
for 44.
CHATTERLEY: Wow. So when we talk about Blue Origin, and we talk about SpaceX and particularly from the likes of Elon Musk, he talks about living
on Mars.
He talks about the sort of to the moon and beyond options here. Is it feasible when NASA makes an announcement like this to say, look, we're
going to give low orbit to other people, and we're going to focus on the Moon and Mars. In the end, it's going to be the likes of SpaceX, Jeff
Bezos with Blue Origin, Virgin Galactic that actually end up getting us there, surely? I feel like NASA's being a little bit out of business here.
It is being circumvented.
ANDERSON: There is a bit of truth there. So what this enables NASA to do and why they've really embraced this, important question, I think what
you're saying is true, and a lot of people have felt that way at NASA for a long time, which is why they've been so slow to adapt, and so slow to jump
on board.
But they're realizing that by working with private companies and doing it for much less, and doing it much faster, they're able to accomplish so much
more.
And so that's really, I think, it seems that the idea behind this announcement today, and what they're doing in low Earth orbit is really to
save them money and also generate revenue to support their bigger missions to Moon and Mars.
CHATTERLEY: So a hundred years ago, he works for JPMorgan, you're a real estate investor, then you switched to space, and now you're investing in
some of these private companies. We'll get you back on to talk about some of these because they're incredibly exciting.
But how do you choose? How do you look at a company and go, you know what, this is going to be a real winner. This is going to make great returns for
my investors. You know, I'm going to invest in you. How do you go about that process? Particularly in this area?
ANDERSON: Yes. So it's important to think about the context and when all of this started. So before SpaceX, there wasn't even any access to space,
so there was nothing really to invest in. And that was in 2009, when they first got -- took a customer to orbit.
It took a few years, but now we're maybe five to seven years into this entrepreneurial space age. We've been investing since the beginning. So
even since before 2009. So we've been involved and so we've got -- we are without a doubt, the most established. And so that really helps us get
access to these companies.
And we've got great networks that we've built into NASA, MIT and some of these other space incubators and startup labs. And so we really pound the
pavement to get the companies to come forward.
CHATTERLEY: Positive returns?
ANDERSON: So far, again, we're on venture capital timelines here. So we're investing in startups. And the timeline is five to seven years that
we're looking at. And so we're right about at that time, we're going to start to see some of those returns. Our companies are doing very well on
paper and we're looking forward to some of these.
CHATTERLEY: Positive returns. Chad, we'll get you back. Thank you. Chad Anderson there. All right, so let me give you a look at what's going on as
far as stocks are concerned because there's soaring, not quite to the moon, but they're getting there.
As you can see the NASDAQ outperforming, up some one percent, too. Funny, back news is good news for these markets when you think the Federal Reserve
will cut rates as a results and that's the takeaway.
All right, we're going to take a quick break. Still ahead, May's class act. Why Britain's outgoing Prime Minister wants to pour billions of
dollars into schools. We will discutss. Stay with us.
(COMMERCIAL BREAK)
[09:52:54] CHATTERLEY: Welcome back to FIRST MOVE. Let me give you a look once again and what we're seeing for the stock markets this morning.
Responding positively to that weaker than expected jobs report for the month of May here in the United States. The take away as I mentioned, bad
news being good news here.
If it ultimately leads to some easing from the Federal Reserve and that's the message coming from both the bond markets today. Pricing in the
possibility of Fed action of course in either this month June or July in fact and right now stocks are higher set to add to four straight sessions
of gains if we end up closing like this.
Right now, you can see it higher by almost one percent for the NASDAQ, the tech stocks outperforming. We will continue to track this over the coming
hours of course on "The Express" and "Quest Means Business."
But for now, the end of a turbulent era today as Theresa May steps down as leader of Britain's Conservative Party. She will stay on though as Prime
Minister, but only until a successor is in place. Let the games begin.
She plans to leave office with a series though of big spending announcements including a multibillion dollar overhaul of Britain's
schools. Bianca Nobilo is at 10 Downing Street, a few technical issues, but we have got you on the phone, I believe, Bianca, great to have you with
us.
Clearly the one word here that she's trying to achieve its legacy. Legacy building here having failed on Brexit. Is she going to get away with some
big spending measures here, Bianca?
BIANCA NOBILO, CNN CORRESPONDENT (via phone): It is unlikely, Julia and yes, I am coming to you from directly outside Downing Street because as it
often happens here, there is this whole security incident, which is under control, but it's been a peculiar day of coming and going here actually
because Nigel Farage, leader of the Brexit party, on Theresa May's last official day as leader of the Conservatives decided he would turn up and
give a lesson to the Prime Minister urging the government to include them in the Brexit negotiations in their next phases.
So Mrs. May's legacy remains incredibly troubled when it comes to Brexit and this is just now one new problem for her successor. In terms of other
policy, it was remarked by pundits and MPs alike that she really struggled to create any kind of policy agenda outside of Brexit.
When she took over at the helm and she gave her first speech on the steps of Downing Street on a sunny day back in 2016, she pledged to try and solve
some of the burning injustices in society, but she fell woefully short of that by any metric and more than able to focus on it because Brexit has
taken up almost all of the parliamentary oxygen here in the United Kingdom and her successors, Julia are going to face exactly the same problem.
[09:55:30] NOBILO: The fact that the Parliamentary arithmetic has not changed, the fact that Parliament remains opposed to no deal and that the
E.U. is unwilling to negotiate any other agreement.
So we are where we are, and the successor is going to have to face all the same problems as Mrs. May.
CHATTERLEY: Yes, Brexit will continue to suck oxygen in U.K. politics. Bianca Nobilo, thank you so much for joining us and the hustle there that
was required.
All right, one more look at what we're seeing as far as stock markets are concerned, gains. Gains across the board as you can see.
We will continue the theme on "The Express" in a couple of hours, but for now, that's it for the show. You've been watching FIRST MOVE. Have a
great weekend.
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[10:00:14]
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