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First Move with Julia Chatterley
U.S. Stocks Eyeing Buying Fresh Records As The Fed Chair Supports Rate Cut Hopes; U.K. Navy Defends An Oil Tanker From Iranian Harassment In The Strait Of Hormuz; France Passes A Law Tackling 30 Big Tech Companies, the U.S. Says, It Will Investigate. Aired 9-10a ET
Aired July 11, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE and here is
your need to know. Jay Powell Joy. U.S. stocks eyeing buying fresh records as the Fed Chair supports rate cut hopes. Interception: The U.K.
Navy defends an oil tanker from Iranian harassment in the Strait of Hormuz. And taxing tech. France passes a law tackling 30 Big Tech companies, the
U.S. says, it will investigate.
It's Thursday. Let's make a move.
Welcome to FIRST MOVE once again, where we're just getting ready for part two of Jay Powell on the Hill, of course. So I have to argue, I think his
work is done here. He was certainly speaking the language of love to investors yesterday, aka highlight all the risks.
Yes, that is the world we're living in. The market though pretty convinced that we're going to get that rate cut at the end of July. U.S. stocks
could be on track to hit fresh record highs today. We did see the S&P 500 breaking through the 3,000 level actually, for the first time ever
yesterday. The question is, can we stay above that level at the close today?
The NASDAQ managed a fresh record high yesterday. In fact, what about the U.S. dollar though? Take a look at what we're seeing there. It came under
a bit of pressure yesterday, and today of course. Encouraging news for one person, President Trump; he has blasted other countries of course for
keeping that currencies artificially low relative to the dollar in order to boost trade.
We've got to remember though it's the longer term trend here for both interest rates and the economic outlook that's going to determine the
dollar's ultimate direction. Is this going to be a one-off or two-off rate cut? Or are we at the start of a more broad rate cutting cycle? He did
rattle off, as I mentioned a long list of risks here to the record expansion including trade and slowing global growth.
He clearly wants to nip any potential downturn here in the bud, if he can, but of course there are risks to doing that, including what I just
mentioned, record highs in the stock market and investors, of course, that simply aren't just going to be happy with one rate cut here.
Even the Fed Minutes show that not everyone agrees with cutting rates at this stage, some even worrying still about stimulating asset price bubbles.
What's arguably though, giving the Fed room to cut here has been persistently low inflation. We did have some news on that front this
morning too.
U.S. underlying consumer prices increasing at the most in nearly one and the half years, even if it was just a little number. Let's get to the
drivers on that because Clare Sebastian joins me now. Clare, talk me through this number because it's not a slam dunk here care for cutting
rates. But hey, it's not going to deter the Fed, I don't think, just one number here.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia. Jay Powell has consistently said one data point does not a trend make. But I think this
further complicates the picture and it is leading people this morning to once again question the dovish tone that we heard from him last night.
He is dealing with a very complicated tightrope. We also got initial jobless claims this morning, we're at a three-month low. So two good data
points. So really, he is trying to figure out this economy, which as he put it, growing reasonably well, but there are serious downside risk.
But I will say his tone did surprise some yesterday. We were expecting particularly off the back of last week's strong jobs report that he might,
you know, start to prepare the market against a guaranteed rate cut in July. He definitely didn't do that. And I thought it was particularly
interesting what he had to say about the jobs market. Take a listen.
(BEGIN VIDEO CLIP)
JEROME POWELL, CHAIRMAN, U.S. FEDERAL RESERVE: A 3.7 percent is low unemployment rate, but to call something hot, you need to see some heat.
And while we hear lots of reports of labor -- of companies having a hard time finding qualified labor, nonetheless, we don't see wages really
responding.
(END VIDEO CLIP)
SEBASTIAN: The wages of course, playing that low inflation story. It was interesting, he had a had a really interesting exchange with Alexandria
Ocasio-Cortez, about the Phillips Curve, that traditional link between inflation and unemployment. He said they have now learned that the economy
can stay sustained much higher levels of unemployment than they thought without inflation running away with itself. So that is the central
conundrum here that the Fed is dealing with.
CHATTERLEY: Yes, one of the consistent battles here. Where is wage growth ultimately? One of the other interesting things that he points out from
the inflation numbers here to is goods. This was good price inflation that was kicking in, aka, are tariffs -- higher prices here in the United States
is also going to be a further spanner here.
You know, one of the interesting questions that he got from me, Clare yesterday was, have you learned anything from the European Central Bank and
the Bank of Japan? Their persistent battle here with low inflation and they've chucked everything and the kitchen sink to try and get prices
higher, and they haven't managed it.
And his response was, yes, you don't want to leave inflation too low for too long. I'd argue that the perhaps the right answer here should have
been, do we need to do something else other than just negative rates and buying assets? What do you think?
[09:05:28] SEBASTIAN: Well, I mean, there's a difference in the situation for the Fed and the ECB and the Bank of Japan. The Fed is much further
ahead when it comes to removing post crisis era measures. They've raised rates nine times since the end of 2015.
So they do have a little space, if they do want to do this insurance cut as many are calling it at the end of this month. But as you say, there's a
risk here that the market could expect more than that they could have to keep going after that.
And then you know, there are risk when it comes to what they do next. If the economy does start to slow, if they start to ease rates, will they have
enough ammunition to fight against a recession? I think that's another thing that the market is worried about, economists are worried about, and
that's why we see the divisions this morning on Wall Street and in fact, in the Fed Board about what to do next. It's an extremely complicated
situation.
CHATTERLEY: I couldn't agree more with you, Clare. The Fed has got more cushion here because they did manage to raise rates. It's such a great
point. Clare Sebastian, thank you for that.
All right. Let's move on to our next driver. Further the tensions between Iran and the West. Tehran has denied trying to force a British oil tanker
off course on Wednesday. The U.K. though claims the armed Iranian boats tried to impede a BP vessel. Sam Kiley joins us now from Abu Dhabi.
Sam, fascinating to see what's going on here. My understanding is that U.K. frigate physically positioned itself between that BP oil tanker, and
three Iranian warships. Talk us through what we know here.
SAM KILEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, you're absolutely right there, Julia. They did indeed do that on HMS Montrose. It was
unofficially escorting or shadowing at the MOD and London has been very coy about the terminology here because they didn't want to escalate the
situation that was already very tense between the United Kingdom and Iran over the British seizure of the Grace One -- that oil tanker that is still
under British control, but it was heading to Syria allegedly in breach of sanctions against Syria, Iranian oil, I should say.
So the Iranians had threatened retribution and that's exactly what appears to have happened. According to the MOD, they had to level their weapons at
these three Iranian fast gunboats. Those weapons include machine guns and a 30-millimeter automated cannon, it's a pretty scary looking bit of kit
and the Iranians backed off and the British Heritage, the BP ship carried on, on its way.
But what's very interesting also about this ship, it is called the British Heritage. It is owned by BP, the company formerly known as British
Petroleum, and of course, it was flying a British flag at a time when Britain was being threatened with retaliation by Iran and it decided that
sharp U-turn you can see there up close to the border with Kuwait not to take on 140,000 barrels of oil from Basra of Iraqi oil and ship it out, but
actually turned around empty, take on ballast and run first for a Saudi port.
And then that dotted line -- the two dotted lines there -- show where it actually turned off its transponder, as it, in the first case rendezvoused
with the Montrose and then was being escorted out through that very tight shipping lane in the Strait of Hormuz.
So indicating that the ship itself was aware that it could attract the unwanted attention of the Iranians and that according to the Minister of
Defense is exactly what happened -- Julia.
CHATTERLEY: Yes, everybody being very cautious with terminology here, as you said, because no one wants to see a further escalation here. But Sam,
the question is, how do we de-escalate? Because this comes amid a succession of sort of tit-for-tat events between Iran and the West?
KILEY: Well, they do, but they're also entirely separate things; at least, that's certainly the way that the British would like to portray them. They
are not on board at all with Donald Trump's administration's desire to tear up the nuclear deal that was signed in 2015, or not signed, but agreed with
the Iranians to suspend their nuclear program return for lifting sanctions.
Indeed, the Trump administration imposed sanctions that Britain and others have actually been trying to find ways for the Iranians to circumvent.
This though, adds to the problems at exactly the time when the Iranians in many ways could have been exploiting differences between the United Kingdom
and the United States, of course, not only over policy towards Iran in the medium and long term, but also somewhat perhaps ironically, at a time when
diplomatic relations between London and Washington are at a bit of a low.
CHATTERLEY: Absolutely, and Europe had 60 days to act and they failed. Something to give. Sam Kiley, thank you so much for joining us on that
story. All right, let's move on now to France and French lawmakers approving a three percent tax on Big Tech. That despite the White House
warning that they will now enact a probe into whether this unfairly targets U.S. firms. Hadas Gold joins us now.
[09:10:18] CHATTERLEY: Hadas, let's talk about what France is doing here because this is unilateral action to tackle Big Tech. The British are also
looking at their own options here. Why are they doing this? And how high is the risk that perhaps we see the U.S. retaliate? Is this unfairly
tackling U.S. firms in particular, as the U.S. argues?
HADAS GOLD, CNN BUSINESS REPORTER: Well, Julia, this is part of the hunger we're seeing from a lot of countries who want to somehow tax a lot of these
major digital companies that some people, some critics feel these companies are shirking their tax duties by setting up shop in lower tax countries
that we've seen. Some of them put their headquarters, for example, in Ireland or in Luxembourg.
So what the French just passed, the French Senate passed this morning is a three percent tax on global revenues of certain companies that reach a
certain threshold. They either make $145 million average -- sorry, $145 billion per year globally, or a lower amount just within France. But a lot
of the companies that would be affected by that are American companies. Think Google, Facebook, and Amazon and that's why the trade
representatives, they're going to launch what is called a Section 301 probe into whether this unfairly targets American companies.
And what that Section 301 allows them to do is potentially issue retaliatory tariffs against French goods as a result of this French law. I
want to read you what the USTR said in a statement, they said, "The United States is very concerned that the Digital Services Tax unfairly targets
American companies. The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or
unreasonable and burdens or restricts United States commerce."
Now, what the Americans actually want the French to do is to wait for the OECD to finish up its study of what could be a complete overhaul of the
global tax, how the global tax system works that would significantly change how companies like Amazon and Google and actually companies worldwide pay
their taxes. But that is years away from being implemented likely.
And so some countries like France, and like you mentioned, the United Kingdom are just moving forward on their own. Some see this is part of a
push to try to pressure the international communities to get going, and some see it as just the countries trying to take advantage of trying to get
some of the revenues that they believe they are owed by these companies.
Now, the French have been pushing back on this and they say that there's no need to resort to threats from the United States, and there's other ways
that they can negotiate this and talk about this. Keep in mind, Julia, also this is not actually signed into law yet. Emmanuel Macro will need to
do that, but it has passed both Houses of the French parliament.
CHATTERLEY: Yes, Hadas, it doesn't surprise me that Europe couldn't agree to do something collectively here. The likes of the Irish and the Dutch
are looking at their own revenues and going, "No way we'll leave it to the OECD even if it takes it years and years and years." We'll see. Hadas
Gold, thank you so much for that.
All right. Let me bring you up to speed now with some of the other stories that we are following around the world. The Vatican opened two graves a
short time ago, hoping to solve the mystery of a teenage girl who vanished without to trace 36 years ago, but no remains were found inside the exhumed
graves. Emanuela Orlandi was just 15 years old when she disappeared after a music lesson in the area back in 1983.
U.S. Federal agents will go ahead with massive immigration raids that were put on hold last month. "The New York Times" says the raids will begin
this Sunday and target thousands of people with deportation orders. Officials said the raids were originally set for late June, but President
Donald Trump delayed them.
Parts of the U.S. Gulf Coast are feeling the effects of a major tropical storm in the Gulf of Mexico. This is a staircase at a hotel in Louisiana,
now a raging waterfall. The storm system is expected to strengthen in the coming hours. Hurricane watches remain posted along the coast.
Japan has successfully landed an unmanned spacecraft in a distant asteroid for the second time. The Hayabusa-2 will collect samples from beneath the
asteroid's surface as part of an ongoing mission to explore the origins of the solar system. Wow, that's pretty incredible.
All right, we're going to take a quick break here on the FIRST MOVE, but still to come, how Japan and South Korea's trade rift could have memory
chips stuck in the middle.
And in Washington, Facebook and Twitter aren't getting a friend request from President Trump at today's so-called Social Media Summit. All the
details after this. Stay with CNN.
(COMMERCIAL BREAK)
[09:17:50] CHATTERLEY: Welcome back to FIRST MOVE live from the floor at the New York Stock Exchange.
The trial of former France Telecom execs now known as Orange, of course, the company is in its final hours. Six men accused of workplace bullying
which led to 35 suicides at France Telecom in 2008 and 2009.
Melissa Bell joins us from Paris on this story. Melissa, horrifying case. I mean, it was a fight for survival for the company at the time tens of
thousands of people were being made redundant that the alleged conditions that they were put under as a result of this are pretty appalling. Talk us
through what we're expecting to see today.
MELISSA BELL, CNN PARIS CORRESPONDENT: Well, this is a crucial day, as you say the last one, Julia, in this very closely followed trial. And of
course, a key moment since Didier Lombard, the man who was CEO at that crucial time that you refer to, just after France Telecom went from being a
state-owned monopoly through its transformation into privately owned Orange, 22,000 jobs needed to be shared as part of a restructuring plan.
The man in charge at the time, Didier Lombard will take to the stand today and speak for himself for the first time, and many of those in the
courtroom, Julia, will be some of the plaintiffs -- 39 people in all that were included in this action, including 19 who've committed suicide. Some
of the survivors of that workplace bullying will be in court to hear what he has to say for himself. How Didier Lombard will justify what went on.
They say that he was responsible for overseeing a restructuring of the company that led to harassment of the staff, a deliberate campaign of
harassment to try and get rid of them. And I think it's really important when you're looking at this story, Julia, to understand that in France,
this was the case of many of those 22,000 employees of France Telecom at the time, the status of the civil servant is an extremely important one
that many of them would have been reluctant to leave, which is why they stayed and in the end found themselves they say destroyed by the campaign
of bullying that went on -- Julia.
CHATTERLEY: Absolutely. Melissa, I don't want to excuse any alleged behavior by executives as a result of what was going on, but it is the
first case of its kind. Will it set some kind of precedent because we often talk about the relative restrictions that the labor market and the
challenge that businesses have been trying to reshape and adjust here? Does it answer any questions perhaps about that or shed any light on that?
Or do we have to take this in isolation about a company at that time or what happened there by these people potentially?
[09:20:33] BELL: No, I think you're absolutely right, Julia. It really speaks to one of the quirks of the French labor market, as dominated as it
is by that status of civil servants. And that is one of the things that has made it relatively inflexible over the last few decades.
Many of the victims that we spoke to yesterday in the courtroom, Julia were saying that they were really looking to see the harshest verdict handed
down, because they believe that if that were so, if a company could be held responsible for moral bullying, from moral harassment, with a verdict of
some jail time and fines going to the top executives, then they say, it is something that could never happen again -- Julia.
CHATTERLEY: Melissa Bell, thank you so much, and we await that verdict later today. All right, let me give you a look at U.S. stock futures at
this moment. We could see fresh records at the open. Fed Chair Jay Powell, of course, for day two, testifying in front of Congress.
He seemed to signal yesterday that they are on course to cut rates at the back end of July. We've also had the June inflation numbers coming in
slightly hotter than expected. Overall inflation of 0.1 percent on the month. Core consumer prices increasing at the most in nearly one and a
half year. Let's talk through our expectations here with Jim Keenan, Chief Investment Officer and Global Co-Head of Credit at BlackRock.
Jim, fantastic to have you on the show. Your thoughts on what we got from Jay Powell and the Federal Reserve yesterday? Are you pretty convinced we
do see the anticipated rate cut in July?
JIM KEENAN, CHIEF INVESTMENT OFFICER AND GLOBAL CO-HEAD OF CREDIT, BLACKROCK: Yes, I definitely think you'll see a rate cut. But I mean,
more than anything, I think you see, through the communication of the Fed that we do have a dovish Fed right now.
You know, Central Banks around the world are still worried about the expectations of forward growth. And clearly, we're still dealing with a
global economy that is slowing post some of the tightening of financial conditions last year, and more so than anything, the Fed and other Central
Banks are being aggressive and they are being proactive to try to defend against the weaker growth picture.
CHATTERLEY: Do you think as a result, and you mentioned it, it's not just about the Federal Reserve easing here, there's plenty of other Central
Banks that are either moving in this direction or making noises of it that actually, we can avoid a more material slow down here and avoid recession.
KEENAN: Yes, I think -- I mean, if you just take a step back, I think the reality is, we are in a low growth environment. And you know, the
aggregate debt in the overall system globally is still going to put downward pressure on that.
You're still going to see cyclicality in the market, and we saw that over the course of the last couple of years. That being said, I think what you
see from the Central Banks around the world is in that low growth environment is still very worried about deflationary risk.
And, you know, I think the world is in a much better place with regards to where we were over the last 10 years. That being said, we still are just
low growth environment, low inflation environment, and anytime you see growth start to tick down, you see very active accommodative policy from
Central Banks. And, and I think that Powell is positive to try to stabilize growth at lower levels.
CHATTERLEY: I'm going to ask you a crystal ball here. Do you think as a result of what you just said, and the fact that we are in a lower
inflationary environment here that you can tink around the edges, perhaps the Fed cuts once, perhaps it cuts again. Is that what we're looking at
here? Or do you think we're going into a rate cutting cycle here from the Federal Reserve, because that matters both for risk asset, but it also
matters for what we see in terms of the U.S. dollar hereto?
KEENAN: Yes, but I think it's -- you have a Fed that is going to be data dependent. So not only is it just about the rate cuts, but it's about the
language that they're using, around the expectations of how they will act in certain environments.
And I think if the data is very strong, on balance that still will be good for risk assets. They may reduce the need to cut, but the markets and the
expectations for the economy and corporates to understand that there is a stabilization or stimulus that will come in.
If the market gets worse, I think is generally going to be a positive. At the same time, when you look at it, I still think there are a lot of
opportunities to invest right now. And if you think about a low growth environment, you have stability at that low growth, you have more stability
on a low rate environment.
And I still think the credit markets provide a pretty good opportunity. We tend to like the front end of the market right now, where you can make four
to five percent in an environment that has some uncertainties to it, but you definitely still have a dovish Fed.
CHATTERLEY: Explain what you mean to our viewers by credit in this environment, because I think many of them will be looking at the situation
and going look, if you have a traditional portfolio where you have 60 percent in equities and 40 percent in bonds, you look at, particularly for
U.S. equities here, record highs, you look at bonds, and you say, actually, those prices are pretty high, and rates are pretty low, how much higher can
those bond prices go?
There's a very strong argument here to be looking to diversify into things like credit, where are you looking? Be specific.
KEENAN: Yes, well, I think a 60/40 portfolio, as you've mentioned, is going to give you a risk return profile that looks more like the credit
markets.
CHATTERLEY: Right.
KEENAN: You know, when you look at the credit markets, a low growth low inflation environment that you are seeing positive earnings growth, even
where spreads are today, meaning the aggregate risk premium, you're getting to go into the corporate credit market, you know, they're full on
valuation, but they still provide a good income stream in what I would think is a lower risk environment to a recession.
When we look at it, we still like the front end of the market, because there are a lot of different risk factors beyond just the trade tensions or
geopolitical risk. When you look at that, in order to make four or five percent type returns and get diversification relative to the equity market
or rates, there's a variety of different things. The bank loan market, front end high yield spreads, or even private credit in some of the things
you can get in the high single digits range.
And I think, you know, that's an environment today when you want to probably be a little bit more conservative with your portfolio as you're
adjusting to lower growth, that you can make a good return and diversify away from the potential volatility that you'll get in the equity market.
You are right, I don't think you're going to get a total return with good carrots.
CHATTERLEY: Jim, fantastic to have you on. I know you like China, India and Indonesia, too. We'll get to you, again. We'll get you back to talk
about that. Thank you for joining us, Jim Keenan there, BlackRock.
KEENAN: Thanks, Julia.
CHATTERLEY: The market open is next.
(COMMERCIAL BREAK)
[09:30:16] CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange. That was the opening bell for the fourth session this
week. And as anticipated, we do have a higher open for U.S. majors this morning. We are awaiting Jay Powell's second day of testimony.
But as I said earlier on the show, I'm not sure how necessary it is given the confirmation that the market took from what he said yesterday and the
risks out there and the likelihood that we see a rate cut at the back end of July from the Fed Chair of course, and the Federal Reserve. We will see
if he would do and address the inflation outlook. Though, I'll admit the dates that we got earlier today is slightly hotter than expected for last
month in terms of price numbers here.
We've got the NASDAQ also hitting a fresh record high and the S&P 500 right now in record territory. Keep an eye on health stocks today. Two among
the biggest gainers, after an about face by the Trump administration. It says it will not seek to eliminate rebates from government drug funds in
its efforts to lower drug prices. That is a win for the drug industry.
Of course, this White House and the Democrats of course, pushing to try and lower drug prices here in the United States. Well, that's one step. But
it's not certainly not going to help.
All right, let's move on and talk about Japan and South Korea and a trade dispute that is brewing between the two nations that ultimately could
threaten the global supply of memory chips. Anna Stewart has been looking at this story.
Fascinating story, Anna and deeply complicated. So I'm going to let you get us through the details here. But it ties back to World War II
reparation. So good luck with this one. Explain what's going on.
ANNA STEWART, CNN REPORTER: Like this is something of a hostile task, yes, Julia, bear with me. Let me get you to it. So this has its roots in
Japan's colonization of South Korea between 1910 and 1945 and the issues that came out of that, I can tell you are always in the media spotlight in
the region.
From my reporting in Tokyo, it's never far out of the news. There was the issue of the Japanese military forcing South Korean women into sex slavery,
comfort women in the region, and also the issue of Japanese companies forcing South Koreans to work in their factories.
Now last year, a South Korean court ordered several Japanese companies to make a compensation of hundreds of thousands of dollars to former forced
laborers in South Korea. Companies like Nippon Steel, Sumitomo Metal, Mitsubishi, and several others could be in the pipeline. There are lots of
other pending cases that involve different Japanese companies.
Now Japan says that no compensation is owed because all of that was settled in the 60s when the two countries normalized relations. Of course, South
Korea disagrees with that. And as a result, they did see some Japanese corporate assets in the country last year.
Now, fast forward to this last week. And what we had was Japan announcing stricter export controls the South Korea on three key materials, which I
won't even try to pronounce, but they are key ingredients used in semiconductor memory chips and smartphones. So something that is heavily
relied on by the likes of Samsung, LG, SK Hynix. They actually source over 90 percent of two of those materials from Japan over 40 percent for the
other.
And if you consider that these South Korean firms actually contribute well over two thirds of all these memory chips around the world, then the global
ripple effects, of course have any export controls could potentially be very big.
CHATTERLEY: It's quite fascinating, isn't it? I think other countries are learning perhaps from President Trump that trade tariffs can be a pretty
potent tool if you want to bring negotiations or negotiators to the table about anything, quite frankly.
But where does the World Trade Organization fit in here when a country is threatening trade tariffs as a results of something like this?
STEWART: Yes, and I think the international community has to look at Japan and worry about its free market, get concerned about the idea of
protectionism. South Korea has raised a complaint with the WTO saying that this is political retaliation, saying that this is illegal.
Japan says not. Japan says it is simply reviewing export controls in the light of its own security concerns. If that were the case, if it is
security concerned only, then that would be fine on the WTO rules. Now, it could take a very long time, of course for the WTO to come up with any kind
of conclusion or resolution.
And in the meantime, because the further escalation already in South Korea. We're seeing #BoycottJapan trending on social media. More than 36,000
South Koreans have also signed a petition, calling on the government to take retaliatory action against Tokyo. And also there in Japan, we've seen
threats that they could drop South Korea from their so-called white list of countries which have minimum trade restrictions.
So we really could see more of an escalation here if they can't reach an agreement.
[09:35:05] CHATTERLEY: Yes, the problem is the World Trade Organization is basically useless in this situation, it is what we keep seeing it seems.
STEWARTS: Your words not mine.
CHATTERLEY: Anna Stewart, thank you so much for that. No, I will stand by them. Anna Stewart, thank you for that.
All right. Let me bring you up to speed with the global movers today, Delta moving higher in the session. It posted record Q2 earnings results
boosted by strong demand amid the summer travel season. It also raised its 2019 profit forecast. Key: it is the only major U.S. airline that's not
been hit by the Boeing 747 MAX crisis.
We've also got Q3 off to a great start. It had the most sales in a single day ever on Sunday, apparently. Wow. Up some 20 percent in the session.
Alright, Bed, Bath and Beyond also in focus. Their quarterly earnings beat expectations, but their same store sales fell more than six percent. That
was significantly worse than expected. They were also a bit cautious about the full year outlook as well. They said profits and sales will be at the
lower end of guidance.
Snap also in focus. Bank of America raising its price target for the stock from $12.00 to $17.00. It kept its neutral rating. But it said the recent
spike in the app's downloads will drive better revenues for the Q2 results. The shares are up a whopping 177 percent year-to-date. Admittedly, from a
low base. It's still significantly below its $24.00 IPO price and a correction, Delta up only one percent. That makes a bit more sense. I
apologize for that. Getting overexcited.
All right, I'm back in my box. Coming up. We'll be talking about China after the U.S.-China trade talks are in focus again. I'll speak to one of
Wall Street's most prominent panda bears on China. He says the U.S. should just walk away from the talks. My interview with Kyle Bass, next.
(COMMERCIAL BREAK)
[09:40:09] CHATTERLEY: Welcome back to FIRST MOVE. Kyle Bass, the founder of hedge fund Hayman Capital Management is one of Wall Street's most
powerful and persistent critics of China. He recently urged the United States to walk away from trade talks and begin playing quote "hardball"
with an economically challenged Beijing, because he believes Washington can bargain for better terms later.
I began my interview with Kyle with a look at the recent protests in Hong Kong. He calls that a key battle ground in the U.S.-China relationship.
Listen in.
(BEGIN VIDEOTAPE)
KYLE BASS, FOUNDER, HAYMAN CAPITAL MANAGEMENT: This is the worst nightmare of China and Xi Jinping's regime is to show that a protest can actually
push back on the leadership of a dictatorial regime. And if you notice, what's happened is it's empowered Taiwan, which is China's worst nightmare.
These protests have really empowered the Taiwanese to protest as well, and I think what you're going to see, so I'll make a very controversial
prediction. But given Carrie Lam's failure here to get this through, and by the way, she has a full majority of pro-Beijing in the LegCo, i.e. she
could get this bill through if she just pushed it through.
I think she will end up -- she will end up resigning and Xi will replace her with a hardliner, and then they'll just ram this through. So I think
when you look at fixed asset investment, you look at business going forward in Hong Kong, you would not start a new business there, you would start it
in Singapore, you started in Sydney, you started somewhere in the region, other than the place where you know, you're going to be governed by the
Orwellian Iron Fist of China.
So I think Hong Kong is finished, whether from a business perspective, it's just when it happens.
CHATTERLEY: I mean, the catch to that would be, the risk is if they force this Extradition Bill through, they could lose preferred nation status and
that would have huge implications for the financial flows. I mean, it's a conduit for financial flows in and out of China, too. Do you think even
China is willing to risk that?
BASS: Yes, I think -- I think China made a dramatic miscalculation with this Extradition Bill. They thought they would just get it through, and it
was because of this murder in Taiwan, and that they don't have an extradition treaty and China thought, well, we'll just push this through.
If it's overt and it's a jam through, they will probably -- the U.S. will be forced to withdraw our special trade status with them. As Marco Rubio
and Schumer said, they'd be happy to, I think jointly file a bill in the Senate to revoke those privileges. And of course, that would even preempt
the President.
CHATTERLEY: You know, I think the obvious count to this, and forgive me for saying it is one that if China wanted to extradite a person, they could
do it without needing the law in place. And the second is will we know that you're bearish on Hong Kong, you're bearish on the Hong Kong dollar.
What is to say you're not just talking your book here and sort of trying to scare people? What's your response?
BASS: It's a great point. I think everybody has an incentive. And I think you know, you putting me on, this is 100 percent true. What I do in
my life is I spot anomalies and I try to understand all of the inner workings of what's happening. And then I act as a fiduciary.
And so the difference -- maybe one of the retorts to your to your comment is all of my money is where my mouth is, and if I'm wrong, I'm going to pay
for it.
(END VIDEOTAPE)
CHATTERLEY: Bass believes the ongoing trade war between the U.S. and China represents an important challenge for U.S. national security, and he says
there should be no lessening of the restrictions on China tech giant, Huawei in order to reach a broader trade deal.
He calls the 5G technologies sold by China's Huawei dangerous to U.S. interests and cites new research by an associate professor at Fulbright
University Vietnam as a smoking gun connecting Huawei to the Chinese military.
(BEGIN VIDEO CLIP)
BASS: When you get to this 5G network, if you have Huawei switches or routers or even phones, they are the digital -- they're a digital dirty
bomb and the U.S. and the Five Eyes and the developed West should not allow Huawei equipment in their networks.
It's actually really simple. If you read the Huawei indictment for the case with T-Mobile and Tappy the robot out on the West Coast and if you
understand, if you read Professor Balding's work from over the weekend, connecting the Huawei leadership to the Chinese government and Chinese
military. This is how they operate and we must realize that they are not our friend, they are our enemy.
CHATTERLEY: Talk to me about Professor Balding's work specifically because you have been, again, talking about this on social media and connecting
Huawei workers to Chinese government intelligence agencies.
[15:45:04] BASS: He's been doing a lot of research on number one, A. who owns Huawei? Who are the shareholders? Who are the direct beneficiaries
of the largess of the world's largest telecom company run by a dictatorial regime? And the second thing that he's been focused on is Huawei's
employees and the duality of their employees with the Chinese military, and how Chinese military embeds itself in the Huawei network.
And Professor Balding found through doing research in China on Chinese data, he found a data series of more than 400 million CVs or resumes in
China, and he has been able to use that work to connect directly the Chinese military to Huawei. And what's important to understand about what
he has done is immediately China's lobbyists, Huawei's lobbyists and China's lobbyists in the U.S. through the think tanks and through other
academics that they've corrupted with financial incentives, immediately went to discredit Professor Balding's work. They never called Professor
Balding to see his data series.
CHATTERLEY: So talk to me about the press coverage here then, if you're saying that actually the press are trying to understand what Professor
Balding has been doing, how well is that working out? Because you also mentioned the lobbyist power.
BASS: Yes, there were a number of different press outlets here in the U.S., including "The Washington Post" that were spooled up to release
various pieces of his work and his white paper after studying a large part of this data series. And Huawei's lobbyists were effective in what we've
heard, Huawei's lobbyists were effective in getting those stories either spiked or delayed.
CHATTERLEY: How high and how concerned are you about the risk that there is a carve-out for Huawei as a result of an upcoming trade deal between the
United States and China? Because we've had hints of that already coming out of the G20? How material is the risk to the United States if there is
a carve-out for Huawei here?
BASS: I don't think we will see a carve-out, but if there is one in some manner or fashion, and somehow they're taken off the BIS entity list, then
what we've done is we would -- we will be compromising our country's national security in the future for some political trade deal going into an
election next year, which I think would be the biggest mistake Trump could possibly make.
(END VIDEO CLIP)
CHATTERLEY: We did reach out to "The Washington Post" about Bass's claim there that it was pressured to drop or delay a story on Professor Balding.
"The Post" told us quote, "We looked at Christopher Balding's material and consulted with four experts in this area and decided against the story. No
Huawei representative or lobbyists influenced our decision."
Kyle Bass rose to prominence during the financial crisis when he bet against U.S. subprime mortgages and behind his recent focus on China lies a
real disappointment over China's current policy path. He says Beijing has squandered its chance to become a responsible player on the world stage.
Listen in.
(BEGIN VIDEO CLIP)
BASS: We all believed that we would see more economic liberalization. We all believe we'd seen more corporate liberalization in allowing China to
ascend in WTO in 2001. And what we've seen is unfortunately, we've seen them go the other way, right, they become more controlling, more
dictatorial and develop more of a surveillance state where the government actually monitors all of the data all the time with no due process and no
rule of law.
And one perfect case and point is in China, so you know, these colocation facilities and these termination points around the world, these things
called points of presence. So when you put a colocation facility on a node of fiber on the internet, we allow all the Chinese companies to have points
of presence here in the U.S., i.e. bring their systems into the nodes of the internet here in the U.S. China doesn't allow the U.S. to have points
of presence whatsoever in China.
Why do we allow that to exist? Either we should both have our systems in each other's countries, or none of us should have anything in each other's
countries. They have a duality that they play, where they play the victim at all times in which their restrictions on the U.S. are much greater than
any U.S. restrictions on China. But somehow China is always the victim here.
(END VIDEO CLIP)
CHATTERLEY: And to be fair to the White House, that's exactly what President Trump is talking about, tackling those asymmetries. That was
Kyle Bass, the founder and Chief Investment Officer at Hayman Capital Management. Great conversation.
All right, President Trump is holding a so-called Social Media Summit today, but you won't see any of the obvious names in social media. So who
will be there? Well, we'll discuss after this.
(COMMERCIAL BREAK)
[09:52:10] CHATTERLEY: Welcome back to FIRST MOVE and let's take a look at today's "Boardroom Brief." Shares in Reckitt Benckiser are trading higher
after it agreed to pay up to $1.4 billion to settle a long running probe in the United States.
The British company's former pharmaceutical business Indivior was accused of illegally increasing prescriptions for its opioid addiction treatment.
I've got my teeth back in now.
The Norwegian Airlines CEO and cofounder, Bjorn Kjos is retiring. The former fighter pilot pioneered low cost air travel and grew the airline to
be the third largest budget carrier in Europe. No successor has been found yet according to the company today.
Lockheed Martin is reversing the decision to close the Pennsylvania plant following pressure from President Trump to keep it open. The plant had a
contract to build the next generation of presidential helicopters. It is now unclear if it will make parts for them.
President Trump is hosting a so-called Social Media Summit today at the White House. However, America's two biggest social networks, Facebook and
Twitter aren't invited. Oliver Darcy joins us now on this story. Oliver, when I saw this headline, I was like "Brilliant." Heading into the 2020
elections, bring together a war room to decide how we tackle interference here. And then I looked at the guest list and was like, "Hang on a
second." What is the purpose of this Summit?
OLIVER DARCY CNN BUSINESS SENIOR MEDIA REPORTER: Well, this doesn't appear to be an actual Social Media Summit in the traditional way, I think you
might think of it. Like you said Facebook and Twitter are not going.
The people who are going happened to be a lot of conservatives and some right-wing extremists. People who have pushed conspiracy theories online,
people who have pushed lies and misinformation online. And these are the people that Trump was invited to the White House, and who we can expect
likely to complain that social media companies might be a little mean to them.
And, you know, the right wing has been complaining for some time about so- called censorship. Of course, the companies say that they are not biased one way or another. But when people break the rules, they enforce those
roles.
And so I think that's a lot of what we can expect today at this so-called Social Media Summit, not a serious discussion on technology companies and
the issues that face them. But really just a right wing grievance festival.
I think is also important to note that this is perhaps the clearest example yet of Trump seeking to validate and legitimize some of the political
allies he has there on the fringes of American politics. And he is doing this at the same time while he is trying to de-legitimize mainstream media
sources like this network, like "The New York Times" and like "The Washington Post." He is ticking to bring one up and then take the other
one down. And I think that's not only alarming, but it's also dangerous and something that we should point out.
CHATTERLEY: I mean, these are in certain cases, known right-wing extremists, and they're being invited to the White House and actually in
certain cases, some of them on the social media, and I've seen it where they thought it was a joke. They thought the invitation was a joke, and
they sort of questioned it on social media. That's how radical what we're seeing here is.
[09:55:21] DARCY: Yes, it's actually quite shocking. I mean, I know -- I've been I've been covering the White House and politics and the sphere
for some time. But it's shocking that some of these people actually did receive invites. It's shocking that the President of the United States is
going to effectively be rolling out the red carpet for people who push extremist theories online, people who push smears online against their
political opponents. That is shocking.
And the fact that the President of the United States is boosting these people. I mean, there are no words.
CHATTERLEY: Yes, this is not a Social Media Summit. Oliver Darcy, thank you very much for that. All right.
DARCY: Thank you.
CHATTERLEY: Records being made here for U.S. stocks. Let me give you a look at what we are seeing. We did get above that 27,000. The Dow though,
as you can see, we're a bit below it. The S&P 500 just below 3,002. That's it for the show. You've been watching FIRST MOVE, time to go make
yours.
(COMMERCIAL BREAK)
[10:00:00]
END
