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First Move with Julia Chatterley
President Trump Citing The Trade War As China's Growth Slows; Citigroup Kicking Off Earning Season With Some Solid Numbers; Amazon Prime Day Set To Mean Billions Of Dollars Of Spending, But Also Draw One Or Two Complaints. Aired 9-10a ET
Aired July 15, 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.
A major effect: President Trump citing the trade war as China's growth slows. Feeling the city beat: Citigroup kicking off earning season with
some solid numbers. And primed for protest: Amazon Prime Day set to mean billions of dollars of spending. But also draw one or two complaints.
It's Monday. Let's make a move.
Welcome once again to FIRST MOVE. I hope you all had a lovely weekend. I personally am exhausted from all the sporting drama. Yay for the English
cricket team, of course, but also what about that epic Wimbledon final. Records being set and broken, left, right and center and Wall Street can
also be included, of course.
Take a look at what we're seeing for U.S. futures right now. Of course, we saw the week ending last week at record highs. We could see fresh eyes at
the open today, too. The S&P 500 posting its first ever close above that 3,000 figure.
The Dow and the NASDAQ also sitting at all-time records; also what a way to enter earnings season this week, especially given the fact that growth
expectations for earnings here are incredibly muted. Important, of course, because it means beating those forecasts should be easier. And that's
going to help determine whether or not the rally that we're seeing in U.S. stocks can continue. We will also be keeping a firm eye and this is
crucial on guidance.
What are the banks for example, saying about rate cut hopes? What are firms saying about their hopes for a trade deal with China? Ten percent of
the S&P 500 reporting this week, including, as I mentioned, all the major U.S. banks, Netflix, Microsoft to Citigroup, kicked things off before the
bell with a beat. Details on all of that in just a moment.
For now though, take a look at what's going on in the Asia session today. Stocks closing Monday's session high despite China reporting the weakest
economic growth in almost three decades.
That's a ridiculous headline, guys, because remember, the economy is so much bigger over that period that number magnitude comparisons have both
become completely meaningless, at least in my view. More importantly, I think for investors overnight.
China's industrial production, retail sales numbers also coming in above expectations. These were fresh reads from just the last month, perhaps
suggesting that recent stimulus efforts from the Chinese government are bearing fruit, perhaps.
But hey, let's get to the details because that's where we're going to kick off the drivers.
One man who certainly noticed those numbers was U.S. President Donald Trump. He tweeted this morning that his tariffs are having a quote, "major
effect, and that China wants a deal." Steven Jiang joins us now from Beijing.
What do you make it that Steven, these growth numbers clearly weaker than we've seen in the past, of course? But I make the point that on a
magnitude basis, the economy is that much bigger than it was three decades ago. That, hey, we have to take that line with a pinch of salt here. Talk
us through the numbers.
STEVEN JIANG, CNN PRODUCER: Well, Julia, that's right. You know, that was not Mr. Trump's first time assessing and analyzing the state of Chinese
economy. But I think the officials here would like to probably beg to differ.
When they announced these figures this morning, Monday morning, they acknowledged this economy, the world's second largest is facing a grave and
complex situation.
You know, blaming a global slowdown, but also, you know, citing rising external uncertainties that would certainly include this ongoing year-long
trade war between the U.S. and China. But in a way the officials here are trying to downplay the impact of the trade war on this slow down and almost
trying to separate these issues.
They of course, you know, say the trade war has affected the imports and exports to and from the U.S., and actually, the trade data doesn't look
that rosy for the broader picture as well, because some of the other major trading partners of China such as the European Union, Asian countries, you
see these numbers decline as well.
But the government officials are trying to say, "Look, this economy is not only about trade anymore, increasingly reliant on consumption," but here
lies the problem. Some of the economists saying this trade war is becoming a major factor because it's affecting business investment decisions, as
well as consumer confidence.
And we are seeing for example, consumers are becoming more reluctant to buy big ticket items. We're talking about cars. Of course, China is the
world's biggest car market already and that sales continue to slow down in the first half of this year. Now, that's affecting of course a lot of
global brands but other sectors are affected as well, Julia, such as Apple. Apple's product sales in the Greater China region dropped more than 20
percent in the second quarter.
So these are the kinds of factors that make some analysts say, the impact of this trade war will persist despite the temporary truce reached by the
two leaders last month because very few people see how the two sides can bridge their wide gap to reach a comprehensive trade deal anytime soon --
Julia.
[09:05:36] CHATTERLEY: Yes, you're absolutely right. It's going to be important to hear what we hear from companies States side as well about the
prospects of this, too. Steven Jiang over in Beijing for us there. Thank you so much for that.
All right, let's move on to our second driver. Citi shares higher by some one percent premarket after reporting profits and revenues that beat
expectations. They are of course the first big U.S. bank to report this earnings season. Matt Egan has been pouring over the numbers for us.
Capital markets, the trading business was always expected to be weak. So what's driving the outperformance here? Is it cost cutting, I hear here or
the U.S. consumer bank or both?
MATT EGAN, CNN BUSINESS LEAD WRITER: Julia, I'd say it's both. You know, what's interesting is that much like the U.S. economy overall, Citi is
benefiting from strength in the consumer business, which is actually offsetting some of the weakness elsewhere.
So this morning, Citi is kicking off bank earnings season on a positive note. And if you look at overall EPS, it was up about 20 percent, which
looks very strong. But that overstates the case a little bit. That's because Citi benefited from a $350 million pretax gain from its investment
in Tradeweb, which is an electronics trading platform that went public in April.
Now, if you exclude that, EPS was up by a more modest 12 percent. Now, that really does reflect two big factors there. One is the cost cutting
that you mentioned, expense is down about two percent. But the other factor is that Citi has been very aggressive with share buybacks.
Their overall share count actually was down by 10 percent during the quarter, that's because the bank went out and repurchased 54 million shares
during the quarter. So that is a big driver here.
Now, if you dig into sort of the overall results of the divisions here, the consumer division had revenue that was up about three percent, all three
geographical regions grew revenue. So that was a bright spot, but the institutional client's group, revenue was flat, and that's despite the
Tradeweb gain.
We saw the clients in fixed income revenue, which fell modestly and that the bank said that there was challenging market characteristics there and
then we had equity revenue, which was down as well. So I think overall, when you take a step back, these results from Citi are pretty solid.
They're not spectacular. But given all of the challenges here, they're solid.
CHATTERLEY: Yes, fascinating as well your point about the buybacks in light of the what? Thirty percent rally that we've seen in stocks year-to-
date. I guess we have to make the point that it's only three percent over the last year, but great point to make there. Matt Egan, thank you so much
for that update there.
All right, next driver. Protests and staff strikes planned worldwide against Amazon as its 48-hour Prime Day sales starts campaigning over pay
and working conditions. This is the protest, of course and the firm's involvement with the United States deportation efforts.
Clare Sebastian joins us now on this story. Let's talk about the numbers first. Prime Day, actually two days this time around. Multibillion
dollars last year, over $5 billion spending expected this year. Talk us through the details.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia. Amazon themselves, they don't break out the numbers for Prime Day. They keep
everyone guessing. But there are a bunch of research companies that have come out. And one of them Coresight Research says they expect $5.8 billion
in sales this year, which would be a new record.
But you know, obviously this is working for Amazon because they keep growing. At first it was 24 hours, then 30 hours, then 36. Now, we have
48 hours.
So the phrase Amazon Prime Day doesn't even begin to cover it anymore. But this year isn't going to be smooth sailing, as you alluded to in your
introduction there. They are facing protests. You've got 2,000 workers walking off the job in Germany in fulfillment centers. More are expected
to join. Protests are planned in the U.K.
And here in the U.S., for the first time on Prime Day, we're going to see a walkout by fulfillment center workers in Minnesota. So I spoke to the VP
of Prime, Cem Sibay from Amazon and I asked him for his reaction to the fact that this is the first Prime Day walkout in the U.S.
(BEGIN VIDEO CLIP)
CEM SIBAY, VP OF AMAZON PRIME: We have a lot of redundancy in place where we have over 175 fulfillment centers globally to make sure that Prime
member experiences are not disrupted during this event as well. But we take, you know, concerns of our employees, obviously very, very serious as
well. But I'm really actually proud of the working conditions --
(END VIDEO CLIP)
SEBASTIAN: So he said the same thing to me last year, Julia, when we saw workers protesting in Europe and walking off the job. This is the party
line from Amazon, but I asked him why this keeps happening, why these concerns keep coming up and he said, look, this is a very hot political
issue.
Obviously, we see these complaints and this line coming out from 2020 candidates, so clearly Amazon partly blaming the politics here.
[09:10:19] CHATTERLEY: Absolutely, but it doesn't deter consumers from spending billions of dollars and that's the punch line. And it's got
others, looking at what Amazon are doing here and perhaps trying to take a piece of the action here.
Look at eBay, Clare, you pointed this out and I love this advert. Guys, just watch this.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Alexa, what is Prime Day? Alexa? Alexa?
ALEXA: Yes.
UNIDENTIFIED MALE: What is Prime Day?
ALEXA: Prime Day is a Holiday Amazon totally made up to get people excited about their parade of deals. At least, real parades don't charge a
membership fee.
UNIDENTIFIED MALE: Alexa, how you know all this?
ALEXA: I am always listening.
(END VIDEO CLIP)
CHATTERLEY: This is great. Alexa, where do I go to shop? Why don't you try eBay? Nice. But it's a smart way of doing it, Clare and promoting
that there are other options out there.
SEBASTIAN: Absolutely. You know, we talk about Amazon reshaping the retail landscape. They've reshaped the retail calendar, Julia. Consumers
are now expecting sales in July not just from Amazon, but from everyone.
But I thought it was interesting that eBay is doing this. They're not the only one doing a bit of negative marketing here. We have Target doing
their Deal Day emphasizing that no membership is required. Because of course, Amazon Prime Day is just for Prime members.
But I asked the VP of Buyer Engagement at eBay, I said are you trying to ride the kind of the societal backlash that we're seeing against Amazon at
the moment? The Zeitgeist of protests and all sorts of criticism of Amazon, and he said, "No, we're just having a little fun." But I guess you
can interpret that advert the way you want -- Julia.
CHATTERLEY: We're always watching. Yes. Clare Sebastian, thank you so much for that. I am not watching, I am listening. I should be clear about
that.
All right, let me bring you up to speed with some of the other headlines that we are watching around the world. Democrats have widely condemned
comments made by the U.S. President over the weekend.
President Trump suggested in a series of tweets that a group of nonwhite U.S. Congresswomen should quote, "go back" to the quote, "crime infested
countries that they came from."
Joe Johns is in Washington for us. Joe, great to have you with us. I mean, to be specific, three of these women were actually born in the United
States. One came as a very small child. A deafening silence here from the Republicans, too. Talk us through the details. What do we make of this?
JOE JOHNS, CNN SENIOR WASHINGTON CORRESPONDENT: Well, you're right, there's one of those members of Congress who was actually born in Somalia,
Ilhan Omar, and came to United States something like 19 years ago. The other three have been born the United States.
But this expression, "Go back to your own country," is a very common racist trope used in the United States for generations, quite frankly. But what
is a bit shocking about it is that it's the President of the United States, who is the messenger, and it's being directed at duly elected Members of
Congress.
So the question, of course, is what are the President's allies in Congress going to say about this? And so far, we've pretty much had across the
board silence and that certainly speaks volumes.
And we've also had a bit of awkwardness here at the White House, as well, as the President has tweeted again, going after the four Members of
Congress. Meanwhile, the Vice President's Chief of Staff out here just a little while ago, suggesting that the President's tweets were really simply
directed at that one Member of Congress, Ilhan Omar, who is a huge critic of the President, by the way.
She has a matter of fact said over the weekend, that the President was playing into white nationalist sentiments. So we expect this to go on, and
hope to find out what some of the President's allies are saying about this sometime today. Back to you, Julia.
CHATTERLEY: It's also drawing attention away from infighting within the Democratic Party between these Congresswomen and speaker Nancy Pelosi as
well, which is interesting, but I do want to talk to you about all the headlines that were taken up over the weekend here in the United States
with migrant raids.
Authorities looking for illegal immigrants in the United States r those that have been posted or have been signposted as having to leave the United
States. It seemed to have more headline than the natural action here. What happened over the weekend?
JOHNS: You're certainly right about that. We know that the President on Friday as he was departing to go out to Wisconsin for an event said that
all of this was going to begin this weekend. And we had every indication that it would.
However, we haven't gotten a lot of information about what types of arrests and so forth these raids have netted. It's not clear at all that the
United States government has fully embarked on this plan to try to get what as alternatively been described as a million undocumented immigrants who
were in the country with no leave to 2,000 immigrants that they're trying to go after.
So a lot of questions surrounding that. A lot more bark, if you will than bite at least so far, as far as we know in when it comes to rounding up
these people who are in the country illegally.
CHATTERLEY: Yes, and of course the government argue they are documented. They've been cited for removal. Joe Johns great to have you with us.
Thank you so much for that.
All right, let's move on now to Iran. Iran is still a good year away from developing a nuclear weapon. That's according to Jeremy Hunt, the British
Foreign Secretary and contender for Prime Minister. He is meeting with European counterparts to discuss the Iran Nuclear Accord. He said there's
still a small window to keep the deal alive, but made clear there could be no partial compliance of it.
The World War II codebreaker and visionary mathematic Alan Turing will be the face of the new 50 pound bill in the U.K. When announcing the pick,
Bank of England Governor Mark Carney how Turing is the Father of Computer Science and Artificial Intelligence. The note is set to go into
circulation by 2022.
Jubilation in the home of cricket. England sweeping to a dramatic victory over New Zealand to win their first ever Cricket World Cup at Lord Cricket
Ground on Sunday. Fans piled into the Oval Cricket Ground in London to celebrate with their heroes. This morning, they met with players who are
more than happy to sign memorabilia and pose for selfies. British Prime Minister Theresa May who is a big cricket fan tweeted her best wishes, too,
to the victorious team.
All right, coming up here on FIRST MOVE, the biggest IPO of the year get shelved, but is it more about the company or the market? And from a power
cut that took Broadway from the stage out onto the streets of Manhattan to a streaming service that's giving the best seats in the house in your home.
That's all up next on FIRST MOVE. Stay with CNN.
(COMMERCIAL BREAK)
[09:20:13] CHATTERLEY: Welcome back to FIRST MOVE where U.S. stocks look set to move further into record territory when we open up in around 10
minutes' time. As you can see, earnings season of course, kicking off. Ten percent of the S&P 500 companies reporting this week.
Joining us now Krishna Memani, the Vice Chairman of Investments at Invesco. Great to have you with us.
KRISHNA MEMANI, VICE CHAIRMAN OF INVESTMENTS, INVESCO: Thank you for having me.
CHATTERLEY: Let's talk China first. China's second quarter numbers, growth numbers coming through. A lot has been made of the fact that
they're the weakest in 27 years. Don't care about that. The economy is much bigger.
MEMANI: Absolutely. So, I think the Chinese economy was slowing down for -- and it has been slowing down for quite some time. And the fact that it
grew at 10 to 12 percent in the early 2000s, is kind of irrelevant today.
The growth trend is slowing. But the question is, how fast and what are they going to do about it? And I think they have already started pump
priming and that is having some effect. If you look at some underlying data, there are signs of stabilization.
So the likelihood that we have significant drawdown on Chinese growth, I think is very modest at this point.
CHATTERLEY: The President tweeted this morning that China wants a trade deal. He specifically cited the growth numbers. Do you think or are you
seeing anything in the Chinese data as much as we believe that the headline numbers that we're seeing here that would argue to that point?
MEMANI: Well, I think that China does want a trade deal. I think if they don't get a trade deal, the risk to the economy increases meaningfully, and
especially they will have to stimulate the domestic economy significantly more, which they don't want to do.
So I think Mr. Trump does have a valid point. But so does he, for him to get reelected in 2020, he needs a trade deal so that U.S. economy doesn't
slow down precipitously as well.
CHATTERLEY: Because this is something we're also going to be looking in earnings season and the forecast that we get from companies.
MEMANI: Sure.
CHATTERLEY: What are they saying now about their expectations for a trade deal, and perhaps, do they have to recalibrate their expectations, their
investment decisions, if we don't get the deal by the end of this year?
MEMANI: So, I think right now, in the current framework, it's really not as much about getting a trade deal, as much as it is about not making it
far worse by imposing further tariffs.
CHATTERLEY: Okay.
MEMANI: So I think the U.S. economy will probably grow at somewhere close to two percent, irrespective of a trade deal, and we probably don't get an
all-encompassing trade deal anytime soon. But if we don't get tariffs, we are okay.
But the problem with that, though, is capital expenditures plan on the back of no trade deal remain very, very subdued. And that has been a challenge
for this economy for quite some time.
CHATTERLEY: That's the key. Business investment. Fine, we can stabilize and we can continue to sustain the growth levels that we're seeing, but
we're not going to invest to continue to support the economy or see stronger growth?
MEMANI: No, absolutely. I think the problem is, you know, we expected business investments to pick up after the tax deal. I personally didn't,
but that's what the economic expectation didn't pan out.
In a growth short world, expecting significant amount of kicker to the economy from businesses, I think that's just not going to -- not going to
happen.
This is an economy driven by consumption. Unemployment is low. Incomes are growing, so we will get enough consumption for us to grow at two
percent.
CHATTERLEY: Well, there is the kicker, and it comes from Jay Powell, of course, at the Federal Reserve. Everyone now, I think are expecting --
firmly certainly expecting him to cut rates in July. You too.
MEMANI: Yes, indeed. I think earlier, our expectation was probably later in the year, but now it is, he had an opportunity to walk back the market
in his testimony, and he did not.
So therefore, we are definitely going to get 25 basis points, the likelihood of a 50 basis points in our view is pretty modest. But down the
road, probably in September, or by the end of the year, we will probably get another one.
Having said that, I think all of these rate cuts are insurance rate cuts. Overall, economy will probably get back to its two percent trend growth
rate by the middle of the second half, and I think everything would be okay.
CHATTERLEY: Is it the right decision ultimately? Because you know, if you listen to certain people talking about the economy, they say, "Look, a
slowdown recession can be cathartic." I've seen that word used. Is that utter nonsense?
MEMANI: It is absolute nonsense. You know, expecting a recession to solve your problems.
CHATTERLEY: It's not healthy.
MEMANI: One, it's not healthy, and at what cost? I mean, in an economy where people have trouble coming up with $500.00, half o the population --
CHATTERLEY: An emergency check.
MEMANI: Emergency -- you know, getting them through a recession and that is how we are going to solve our problems. That's nonsense and inhumane.
CHATTERLEY: But when we're talking about U.S. stocks at record highs, you can understand some of the confusion over the idea that Federal Reserve
would be stimulating the economy here and risking inflating asset price bubbles. Or am I just talking nonsense?
[09:25:10] MEMANI: So I think asset prices are important. And, you know, clearly the asset prices are high, but they are relatively not that high,
if you kind of figure in low interest rates. That's point one.
Point two, an asset bubble in and of itself really does not matter. What matters is credit growth on the back of that asset bubble. And that really
hasn't happened. Credit growth is really very modest on the consumer sector. It's barely there, barely positive. It turned positive in 2015,
and there are really no pressures on the consumer side business. The business leverage has gone up a bit, but not a whole lot.
So if I were the Fed, I wouldn't worry about asset prices as much as I would worry about making sure we don't kill the economy.
CHATTERLEY: Yes, important. Also, they are kind of singing all from the same hymn sheet here, the European Central Bank -- but even if you look at
emerging market Central Banks hereto, everyone is recognizing that while the Federal Reserve is easing, they have room to move, too.
MEMANI: Oh, absolutely.
CHATTERLEY: Is this important, too?
MEMANI: Asolutely, especially for emerging markets. So U.S., real rates are really not that high. If you say one -- let's say one, one and a half
percent and two-year Treasury rates close to two and change. We are talking about, you know, sub one percent real rates.
But if you talk in Brazil or if you talk in India, where inflation rates have come down meaningfully, there's a lot of room to cut rates, nominal
rates and real rates would come down.
At the end of the day, my expectation has been beginning -- middle of next year -- middle of last year, is that economies globally is going to slow
down and policy is going to be supportive.
CHATTERLEY: Positive message to end on. Krishna Momani, thank you so much for that.
MOMANI: Thank you.
CHATTERLEY: The market open is next.
(COMMERCIAL BREAK)
[09:30:17] CHATTERLEY: It's nice to see happy smiling faces on a Monday morning. Welcome back to FIRST MOVE live from the New York Stock Exchange.
That was the opening bell here this morning and stocks are in a fresh record territory again. We hit all-time highs of course at the close on
Friday, helped along by Citigroup beating earnings expectations today.
It's going to be a huge week for U.S. banks this week. So that's setting a strong tone. Also, some data before the open this morning as well, strong
rebound in the New York Feds main factory index. That was a fresh July reading, though it's not all good news.
Take a look at this, despite July's record run for the larger cap stocks, economically sensitive smaller caps and the Dow transport index far from
record highs. Both have lost ground over the past three months despite the prospect of Fed cuts from Jay Powell and the Federal Reserve. Of course,
speaking of lower rates, plenty of Fed Speak this week as well, before their quiet period begins on Saturday.
All right, let's take a look at AB InBev, so those shares a falling over in Brussels. This after the firm pulled its planned IPO of its Asia business.
If you remember, we were talking about this on Friday, it would have been the biggest IPO or biggest public offering of the year. Anna Stewart has
picked up this story for us. Anna, we were talking about AB InBev and the planned IPO on Friday, and I was pointing out a lot of anomalies hereto.
Higher price, perhaps. They didn't have anchor investors, and now formally saying that they're pulling the deal. What are they saying?
ANNA STEWART, CNN REPORTER: Very little Julia. So no deal, at least not yet. And all they really said was that there was several factors involved,
including the prevailing market conditions, essentially, as you said, it just didn't think it could reach the valuation it wanted, and given a lot
of the rationale behind this IPO of the Asian business was to pay down its massive debt load since it bought SAB Miller.
If it couldn't reach the right valuation, then it could just hold off. It wasn't worth doing it at a much lower valuation. Our analysts have had
much, much more to say today, Macquarie have called it a meaningful negative development.
So despite it not really reflecting necessarily the underlying business and the health of the business itself, it does see this as essentially a way
that is going to take way longer to pay down that debt. It has got to meet its targets by 2020. It says we could see another dividend cut.
It did have a cut last October and that actually resulted in the share price falling some 11 percent. This is considered to be one of the more
shareholder-friendly sort of businesses. So they see that as negative.
Liberum on the other hand, they say it'll still meet its debt target reduction plan by 2022 or 2020. But it says it will prevent the company
growing some key Asian markets like the Philippines, Thailand, Vietnam, another rationale behind this deal initially.
CHATTERLEY: Yes, it's quite fascinating, isn't it? Because this is a huge growth sector of the business. I just wonder whether it comes down to the
economics here as I was pointing out that they simply priced this wrong and they didn't judge market conditions well, or whether it says something else
about where we are right now in the cycle with using equity allocations, perhaps you don't buy into a big IPO at this point in time. It's an
interesting one.
STEWART: I think it's a little bit of both. Yes, looking at where money is going and which assets and putting into context of Central Bank action,
et cetera, but also just looking at the IPO market.
EY's most recent report looking at the first half of this year points that Asia Pacific, IPOs we're down 12 percent so far compared to the year
before. Europe down over 50 percent in the first half compared to the year before.
Now, we are seeing unicorns finding little windows of opportunity particularly States side. But the global outlook for IPOs isn't great.
There may be a rebound in Q2 -- sorry, second half, but EY puts this down very much to what happens on geopolitical stories, U.S. and China trade
tensions and Brexit.
CHATTERLEY: Yes, we keep coming back to that. Anna Stewart, thank you so much for that update there. All right, to Indonesia now where the
President of Indonesia Joko Widodo is speaking out to CNN for the first time since his reelection for a second term sitting down with our Anna
Coren, the leader outlined his plans to drive growth in Southeast Asia's biggest economy. Listen in.
(BEGIN VIDEOTAPE)
ANNA COREN, CNN CORRESPONDENT: Julia, the Indonesian President, affectionately known as Jokowi has announced to make the major economic
reform after winning his second and final term in office.
In his first international TV interview with CNN since his reelection, he discussed the need to ease restrictions on foreign investments, flow the
corporate tax rate and overhaul labor laws that are holding back the world's seventh largest economy.
And while commentators question his political will, Jokowi says he has the mandate to do what is necessary.
(BEGIN VIDEO CLIP)
JOKO WIDODO, INDONESIAN PRESIDENT (through translator): We must conduct reform on a massive scale, a reform of mindset so that these changes are
real and will deliver a giant leap for this country so that we're not stuck in the middle income trap that's experienced by many countries. We don't
want that. But this is a huge challenge for us. And it's fairly difficult. But we will continue to work hard to achieve that goal.
(END VIDEO CLIP)
[09:35:21] COREN: Corruption is also a major problem here in Indonesia and a deterrent for foreign investors. The President says they are trying hard
to combat this, but in a country of 260 million people, it is going to take time --Julia.
(END VIDEOTAPE)
CHATTERLEY: All right, Anna Coren there. All right, let me bring you up to speed with our global movers today. Symantec, under pressure in the
session. There are reports swirling that the security software company has ended takeover negotiations with Broadcom. Sources are apparently saying
that Symantec would not accept less than $28.00 a share.
Earlier this month, there were reports that the companies were close to a deal. We'll continue to track that progress.
All right. Citigroup, also in focus. Q2 profits and revenues beating expectations. It was boosted by a jump in fixed income trading and cost
cutting. It also received a $350 million pretax gain from the IPO of the electronic bond trading platform, Tradeweb. Remember, we were pointing out
earlier, it is up some 37 percent year-to-date already.
Boeing also the one to watch today. "Wall Street Journal" is reporting that the impact of 737 MAX jets may stay grounded until early 2020. That's
months later than what the company has been privately telling customers and it comes after American Airlines extended its flight cancellations for the
plane for the fifth time on Sunday to November 2nd.
All right, we're going to take a quick break. But coming up. Geopolitics, supply and even the weather having an impact on the energy market. So
we're getting energetic. We are discussing all things crude and gas after the break. Stay with us.
(COMMERCIAL BREAK)
[09:40:06] CHATTERLEY: Welcome back to FIRST MOVE. Oil prices are moving higher as you can see in the session on the back of a positive data on
Chinese industrial output and retail sales. Let's blame or thank that.
Brent crude trading at $67.00 a barrel. As you can see West Texas Intermediate selling at around $61.00, just shy of that. There are several
other factors at play of course, and we've been talking about them endlessly, including tensions in the Strait of Hormuz, a tropical storm
slashing U.S. production and a warning from the IEA last week of oversupply as we head into 2020. So let's talk it through.
Rob Thummel is the Managing Director and Senior Portfolio Manager at Tortoise Capital Advisors, and it's your birthday today.
ROB THUMMEL, MANAGING DIRECTOR AND SENIOR PORTFOLIO MANAGER, TORTOISE CAPITAL ADVISORS: Thank you.
CHATTERLEY: Happy Birthday.
THUMMEL: Thank you.
CHATTERLEY: I am not going to sing. Okay, Rob, let's talk it through. I have to say it does feel like a trade deal, the prospects of a trade do and
what that means demand going forward and the demand outlook is front and center for all investors right now.
THUMMEL: Yes, you're right, Julia. A trade deal is really important. It really will solidify what demand is going to be. You've seen a lot of
agencies actually reduce demand for 2019 because of concerns about a trade deal not happening, but then they've boosted 2020, really demand.
And so we see that really important. We see that inevitable, but ultimately, once we get to that point that will be good for the broader oil
markets we think.
CHATTERLEY: Talk to me about OPEC here too, because I think what supported or prices in light of some of the disappointments around the trade deal was
OPEC formalizing their agreement with Russia and OPEC-plus nations to say, look, we're going to continue with the cuts that we've got in action. What
did they call it? A Catholic marriage? In a good way.
THUMMEL: Yes, you know, the most important thing that came out of OPEC was the fact that they wanted to decrease actually global oil inventories and
get them below the five-year average, actually get them to a five-year average that was from 2010 to 2014.
Why that's important is because oil inventories are really what are important to keep oil prices kind of stable and we think for energy
investors to come back to the sector, you need stable oil prices, and the OPEC meeting will result in that in our opinion.
CHATTERLEY: And so to your point, though, about what their forecasts look like for demand in 2020, we had the IEA last week and we talked about this
on the show saying unless there's material further cuts from OPEC and OPEC- plus, we're going to have a supply cut glut in 2020.
And at the heart of that is the U.S. production and the fact that it's going gangbusters and they're producing more and more.
THUMMEL: But no, that's a very good point, Julia, so here's the way I think about it. And I think you know, the U.S. actually is changing the
mantra. They're changing the way that they do business. In other words, trying to generate more free cash flow.
That means drilling less, that ultimately means production will be lower and help -- and so, at Tortoise, what we think is production in 2020 in the
U.S. won't be as high as everybody thinks it is. So that will help balance the supply and demand a little bit more in 2020.
CHATTERLEY: Why? Why do you think actually the U.S. producers won't be true producing so much? Is it simply because if they push the price down
that economics work less?
THUMMEL: That's exactly it. So think about what OPEC did. OPEC figured out they can do more with less rather than produce more at a lower price,
they decided to produce less at a higher price. And that resulted in more revenue for all OPEC producers.
The U.S. producers are figuring out the same thing. We don't have to produce as much, but we can get a higher price and that results in higher
net revenue than trying to push too much oil through the system and end up cratering the price.
CHATTERLEY: You know, it's interesting, and we spend so much time talking about the impact and the marginal impact of the shale producers in the
United States. But you're someone who says, actually, there are investment options outside of oil. And actually we should be looking at the increased
exposure and use of gas, particularly here in the United States as a sort of diversification tool here in the energy sector.
THUMMEL: Yes.
CHATTERLEY: Talk me through your picks and why?
THUMMEL: Yes, so, the way we look at that, Julia is there are lots of ways to play the energy sector. But the supply sources are changing and they're
changing significantly.
At Tortoise, we're focused on reducing carbon emissions and the most practical way to do that, not only in the U.S., but around the world is to
increase use of natural gas.
So natural gas has proven to reduce carbon emissions actually in the U.S., not a lot of people know that. But places like China and India need to
reduce carbon emissions. How do they do that? Use more natural gas and more renewables, less coal.
So the best way to get the natural gas is through liquefied natural gas, so Cheniere Energy. LNG is one of our favorite stocks. It's the first mover
advantage. It can actually ship and export LNG to countries across the world, including China and India and everywhere else.
We have Capital Oil and Gas is another one of our favorite picks. It's one of the lowest cost producers of natural gas in the world as well.
CHATTERLEY: Okay, and the other one, Equitrans -- am I doing that properly? Equitrans Midstream.
THUMMEL: Yes.
CHATTERLEY: Another one.
THUMMEL: Yes, and one of the things we like -- we love -- at Tortoise, energy infrastructure. We think that investors in this low 10-year
Treasury environment need stocks that have yield and Equitrans has significant yield, you know, eight, nine, ten percent yield. That's a
great stock down in this environment. It transports natural gas. It is providing that critical pipeline connecting where the natural gas is being
produced and where it's being consumed on the Gulf Coast, we need that critical pipeline and that's what Equitrans is doing.
[09:45:01] CHATTERLEY: I love this idea. I mean, you point out, according to the 2019 BP's fiscal review, U.S. carbon dioxide emissions declined some
11 percent since 2008. India and China, their rise is 69 percent and 28 percent, respectively.
I mean, we know that it's easier for the United States to push to cleaner energies. But for the United States, relative to India and China, these
guys need to be really focused on this, too.
THUMMEL: Yes, and how do you do that, Julia? So the reason why India and China have so much carbon dioxide and so much carbon dioxide growth is a
significant amount of their electric is generated by coal, right?
CHATTERLEY: Coal.
THUMMEL: You've got to get rid of coal. Almost 75 percent of India that generates electricity using coal, 69 percent of coal is used to generate
electricity in China. You've got to get rid of that. You need more natural gas, you need more renewables in those two countries in particular
and across the world and you'll see some of the same results as you saw in the U.S. which is a reduction in carbon emissions and that's what we think
is really important at Tortoise.
CHATTERLEY: So we should be looking at these opportunities all around the world.
THUMMEL: Absolutely.
CHATTERLEY: Gas -- natural gas. LNG, the future. Rob, fantastic to have you on and Happy Birthday once again.
THUMMEL: Thank you.
CHATTERLEY: Still not singing. Rob Thummel there. Coming up. I don't want it to rain. Coming up, the show must go on and if you can't make it
to the theater, you can now stream it yourself. We will speak to the cofounder of Broadway's answer to Netflix. Stay with us. That's coming
up.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE and a look at today's "Boardroom Brief." Now to a report from Axios citing some explosive allegations by
Peter Thiel.
The billionaire investor and President Trump supporter, Thiel, reportedly said at a conference that Google should be investigated for allegedly
aiding the Chinese military. Axios reports Thiel questioned whether Google had become so infiltrated by Chinese intelligence that it now fully
cooperates with it.
Huawei is to cut jobs at its U.S. research unit according to "The Wall Street Journal." This, as the Chinese tech giant battles against its U.S.
blacklisting. The move would significantly affect the unit and its 850 jobs.
It is one small step for man, no giant leap though for India. Well, not just yet anyway. India had to call off its first ever mission to the moon
less than an hour before takeoff because of a quote "technical slag." The country's space agency says it will announce a new launch date very soon.
The bright lights of New York City went out on Saturday when a power failure plunged Manhattan's West Side into darkness. The outage hit Times
Square and cancelled nearly 30 Broadway shows, but in the city of lights, the show well and truly must go on.
(VIDEO CLIP PLAYS)
[09:50:00] CHATTERLEY: The cast of Broadway shows literally took their shows on the road performing outside their theaters. Power has since been
fully restored and the show can resume their normal schedules. Pretty incredible scenes.
However, if you can't make it to Broadway in person, there is now a way that you can stream it at home instead. It's called BroadfwayHD, an online
streaming service offering more than 300 full length, high definition Broadway productions for just $.00 a month.
Joining us now is Bonnie Comley, cofounder of BroadwayHD. Bonnie, fantastic to have you with us.
BONNIE COMLEY, COFOUNDER, BROADWAYHD: Thank you so much.
CHATTERLEY: Fantastic first that actually these performances were done on the streets.
COMLEY: You know, that's show people. The show must go on. That's New York City. That's the New York City Police Department being able to herd
these people that should have been inside of a building. And everybody was safe. And everybody was having a great time. So yay for Broadway, yay for
New York City. Yay for the New York Police Department.
CHATTERLEY: Not a yay for the blackout in the first place.
COMLEY: You know --
CHATTERLEY: Talk to me about your streaming service? Because for a lot of people, going to the theater is incredibly expensive. So there's an
accessibility here that that your app provides clearly.
COMLEY: Yes, as you mentioned, BroadwayHD is a platform. We are a global platform bringing down the barriers of access to Broadway, we have 300 and
counting.
Today, we launched "Kinky Boots" on our service to stream. We have over 300 shows, full-length shows that are available for streaming, we also take
select titles, and we put them in cinema around the world and we take select titles for educational distribution around the world and some titles
that we take and put into broadcasts around the world.
So we are pushing out this content and making it accessible to everybody, and to the brand of Broadway, if you look at that, and the power of
Broadway.
Last year, there were close to 15 million tickets sold for Broadway shows and that box office brought in just under $2 billion. Now, that's just for
the box office. That's not the economic impact that that had on New York City, which is another $13 billion.
So this is a fan base with resources and when these guys want to see shows, they come in. Let's look at the demand for that. They have to pay for the
ticket, get into New York City, get into Times Square and be there for an eight o'clock curtain.
So what happens if we make that available to them 24/7 streaming? They're not going to stop going to see that because Broadway is magic. I mean,
there's nothing like live theater.
CHATTERLEY: Is that a challenge you're facing there? I mean, you're a celebrated producing yourself, is that the challenge that you're having,
saying to people, hey, put your show on our streaming service, because we're like, hey, we might stop people, you may come and pay a lot of money
actually to go and see it.
COMLEY: Yes, that is definitely a fear. But because BroadwayHD is a media technology company built by Broadway insiders, we're aware of that. We are
working with people within the industry and taking input from people to try and protect the brand.
It's a multibillion dollar brand, but these shows, the ones that we're talking about that are just in Times Square, what -- you know what happens
when they close? This is a way for the brand to remain relevant as the tours go out. Because those tours can go out a year or two later, after
the Broadway show has closed.
CHATTERLEY: How many people have signed up?
COMLEY: We have -- we don't actually talk about subscriber numbers, but we can talk about growth. So the growth is over 100 percent in the last year
and a half. Because the industry -- we're going to be four years old in October, and the industry is seeing the value of what we're providing.
So we are an amazing, you know, entertainment streaming service with this quality, full length content, but also what we are, is we are recognized by
the Broadway League. BroadwayHD is an affiliate member of the Broadway League, and what that means is that we are recognized as a service business
for the Broadway industry.
So we're promoting the brand of Broadway. We are the largest global commercial for the Broadway brand.
CHATTERLEY: Are you new profitable? And are you attracting investors at this stage? Because it looks expensive to go in there and film the way
that you're filming, even get the rights to put something like "Kinky Boots" on the platform.
COMLEY: We have agreements in place with all 17 of the Broadway Unions guilds and associations, and it is an invasive procedure to go in with like
14 cameras while there's an audience there.
CHATTERLEY: Of course.
COMLEY: But again, the Broadway community sees the value of this. So the unions are all behind us because we are additive and we are helping them to
protect their union members.
If there is a high quality multi-camera capture of a Broadway show, we're knocking out the bootleg market, because zero dollars from the bootleggers
goes back into the industry.
CHATTERLEY: Are you profitable?
COMLEY: We are making money, but we're not profitable at this point, but we're only four years old. And as I said, our subscribership just keeps
growing because it's being recommended by people in industry.
[09:55:01] COMLEY: So people in the industry recognize us as an educational tool, as professional development for the people that want to
get in.
CHATTERLEY: I understand they love it. What about the prospect of being bought by Netflix? Because if I compare $100.00 a year basically versus
what you pay for Netflix, it kind of feels expensive.
COMLEY: It does kind of feel expensive, but Netflix and the other giant streamers are all competing with each other. I think in the future -- in
the very near future, everybody is going to have one of those giant streamers, because size matters in those. It's all about how many titles
you have in your catalogue? But then other people are going to go to their hobbies and their special interests so the niches are going to find a
special place.
And as I said Broadway is a very distinct brand, so while you know HBO Go and AT&T grabs its Warner catalogues and all these other things, brand
identity is a little bit --
CHATTERLEY: This is something new.
COMLEY: You know, we're not sure where everything is going to land, but we --
CHATTERLEY: And going to the theater is way more expensive than going to the movies. I'm selling it for you, too. Bonnie Comley, thank you for
that.
COMLEY: Thank you.
CHATTERLEY: We are at record highs of the stocks. A quick look, but that's it for the show. You've been watching FIRST MOVE.
(COMMERCIAL BREAK)
[10:00:00]
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