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First Move with Julia Chatterley
Investors Expecting A Rate Cut Today, But Will The Fed Hint At More; Apple's Earnings Beat As Services Grow And Chinese Demand Stabilizes; CNN Hosts The Second Democratic Presidential Debate In Detroit. Aired 9-10a ET
Aired July 31, 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 he is
you need to know. Christmas in July. Investors expecting a rate cut today, but will the Fed hint at more? China: Chill Out. Apple's earnings
beat as services grow and Chinese demand stabilizes. And Biden's big night: CNN hosts the second Democratic presidential debate in Detroit.
It's Wednesday. Let's make a move.
Welcome once again to FIRST MOVE on what's going to feel like a pretty historic day I think here on Wall Street. We could see -- I know we're
expecting to see the first rate cut from the Federal Reserve here in the U.S. for the first time in over a decade. Fine. The cut is priced in
here. What's going to be key ultimately is what they say about the future -- future cuts, of course -- what we call it the guidance here and what a
difference of course, too, seven months can make. The Fed hiked rates back in December, but I won't go into that ahead of that decision.
Let me give you a look at futures right now because they are higher, a bounce back for me yesterday's pullback. It's not all about the Fed
though, guys, as well. What about the trade talks? Well, the Shanghai talks wrapped up incredibly quickly overnight. No Shanghai surprise.
As we said yesterday, no big breakthroughs announced either. Officials say they will talk again in September, so I think we can prepare for more
hardline campaign rhetoric in the meantime.
China's Foreign Ministry likened the U.S. economy to a sick person today. But what about their own economy? Chinese factory activity data for July
falling for the third straight month, though I will say an improvement on June's numbers. We will also be getting plenty of factory activity numbers
from around the world this week, too, to help gauge the broader trade war impact.
We know already, it's been a problem for the Eurozone economy. Second quarter growth came in barely above the flat line. Today, half the growth,
in fact of Q2, a stun really to the European Central Bank right now, but what about over in Hong Kong, too?
Their economy weakened in the second quarter, too, as months of protests as we've been discussing beginning to bite. I say that's plenty of
international based ammunition for the Federal Reserve right now to justify easing.
The question is how much do they do? And what hints do they give? Clare Sebastian joins us now on this. Clare, I've said it many times. It's not
just about the cut that we get today even if there is some debate. It's what about the guidance, particularly given the market has now priced
around three -- three of these cuts for this year -- room for disappointment perhaps?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Definitely, Julia. I think the bottom line of this meeting is there is no way for the Fed to do
something neutral. If they do what the market expects, 25 basis point cut, that's a 78 percent priced in by the market.
Right now, that might be the most neutral outcome, but 22 percent of the market also pricing a half point cut that would be bigger than most expect.
And if they do nothing, the danger is they end up tightening financial conditions by default because this could lead to precipitous falls in the
market.
So, what the Fed Chair, Jerome Powell says is crucially important today, this is a communication balancing act for him, and if you look at the past
year in the markets, Julia, you can really see how he has pivoted, how the market has hung on his every word, and how that has affected this.
Look, from October 3rd, where he said rates were a long way from neutral, suggesting that there were many more hikes to come, to that last rate hike
in December 19th, to the pivot in January, where he said he would be patient in the statement. And finally this phrase that we've now heard
multiple times that he will act as appropriate to sustain the expansion. That was the clearest sign to that point that he was ready to cut rates.
So you know, we'll be looking for more language today. Language, probably the third monetary policy tool that we've got there aside from rates and QE
-- Julia.
CHATTERLEY: Absolutely. I mean, to your point, we've seen a Fed fueled rally arguably this year, a Fed-fueled sell off back in December, the worst
December since what? The Great Depression. I mean, there has been a lot of volatility here. So, you've got to argue hereto, I think that they've
got to be very cautious.
One person who's not going to keep quiet is of course, the President of the United States, and he is going to continue to put pressure on here, too.
At the same time, the uncertainty is high. Look at what happened with trade. It's a real tough one for them right now. Data dependency are the
two words.
SEBASTIAN: That's right. And they have to keep that going. They have to keep telegraphing to the markets and to everyone else that data dependency
is the key and that they haven't been backed into a corner by the markets or by the President who incidentally, was out yesterday again, calling for
quite a large cut from the Fed saying again, that if they hadn't raised rates fast that the markets will be 10,000 points higher than they are.
[09:05:08] CHATTERLEY: And of course ironically, Julia, a lot of the reasons why the Fed has now pivoted over the last seven months is down to
the President himself, his trade policy and the uncertainties around that. Cynics and indeed, serious economists have speculated to me that there
might be an ulterior motive behind prolonging this trade uncertainty for the President that then the Fed is forced to cut rates -- that sends the
market higher. And of course, we're getting deeper into the 2020 election season here.
CHATTERLEY: Yes, campaign mode. Well, and truly. Clare Sebastian, thank you so much for that. All right. Let's move on now and talk Apple.
IPhone sales may be down, but Apple shares are up over four percent premarket right now.
Revenues and earnings beating much lowered expectations, I should point out, but also the outlook here was positive. Paul La Monica joins me now.
Paul, everything growing here except iPhone sales, of course. But I have to say and I'll reiterate rate, expectations coming into this quarter were
incredibly muted. And I think that's part of the benefit that the share price we are seeing premarket hereto.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, definitely, Julia. I think Apple has caught wise to the Wall Street game if you guide low initially,
and then ooze over that lowered bar, Wall Street will typically react in a positive fashion. And that's exactly what we have here.
You know, the expectations were lower coming into this report, even though as you pointed out, iPhone revenue is down which on the surface should be
alarming. It's now less than 50 percent of the company's total sales.
But I think the positive and Tim Cook, you've got to give him credit, because he is spinning this story, and Wall Street is buying it right now
that the rest of Apple's businesses are growing at a healthy clip. So that includes the Mac, the iPhone, not doing well, but the iPad actually showing
some growth. And then all of those ancillary services -- Apple Music and other subscription services growing as well.
And then I think the other thing that Wall Street likes is that while China sales were down again, they are not down as much as they were in the prior
quarter.
CHATTERLEY: And this is key, I think, too, because that was what caused a lot of the concern back in January, amid -- around what was going on in
China. It's 20 percent. It contributes 20 percent of the anticipated upgrade cycle for the iPhone over the next 12 to 18 months. And Tim Cook
was talking about a marked improvement in their business there -- stabilization. Can we be that bold?
LA MONICA: Yes, if we are going to be so bold as to suggest that Apple may be you know, stabilizing in China and gaining some traction at the expense
of some of the homegrown rivals that operate on the Android system. That is fantastic news for China.
And of course, this is a company that is still buying back a lot of stock, paying out the dividend and still has $210 billion or so in cash -- a
pretty massive war chest to invest in content with the Apple Streaming Service coming very soon, and in any other day that it might want to look
at.
I mean, I can't rule out Apple, I think or Wall Street can't rule out Apple as a company that might go on an acquisition hunt for more growth in the
future.
CHATTERLEY: Yes, absolutely. They still feel -- it still feels like they need that game changer. Paul La Monica, thank you so much for that.
All right, let's move on and talk Samsung. Shares under pressure, so it's a tale of two halves here, down some two percent. The world's largest
smartphone maker's profits plunging some 56 percent in Q2 that was better than expected, I have to say, but they were also hit by falling chip
prices, too. Anna Stewart joins me now.
These guys are well and truly caught in the crossfire: weakening smartphone demand, chip price pressures, and this is a huge chunk of their business,
and of course, trade tensions, and it's not just about U.S. and China. Talk us through it.
ANNA STEWART, CNN REPORTER: Yes, they are being hit in all directions. And we did kind of expect this. They did give us some warning some weeks
ago. The smartphone front as you said, weak demand there, facing some similar issues, too many rivals, slow upgrade cycles, that sort of thing.
Then of course there is the U.S.-China trade where we knew that would weigh on this earnings report and the Huawei ban from the U.S. in particular.
Now Samsung can fill a void in terms of the smartphones in some ways in the U.S., particularly the low mid-range smartphones, however, of course, it is
a major supplier to Huawei of memory chips.
So it is getting hit there particularly hard, and ultimately it also now faces another trade spat, this time between Japan and South Korea because
Japan has got export restrictions on very crucial materials that go into smart chips, into South Korea, and that could be set to get worse.
Japan is talking about removing South Korea from its trusted trade partners list -- Julia.
CHATTERLEY: Yes, I mean, when I was pouring over the numbers here and you raise all the important points here, I didn't realize that three quarters
of their operating profit comes from chip sales here. You'd think Samsung, you think smartphones and it's simply not the case here.
Having said that, are they going to get a bit of a lift when they announce, what have we got? The Galaxy Note 10 and their foldable phone later on
this year, too.
[09:10:06] STEWART: Yes, we have the Galaxy Note 10 that's supposedly going to launch next week. I think now due to a slowing upgrade cycle that
won't get quite as much interest as the foldable phone. That, rumors have it, could be launching in September. And it's more exciting by virtue of
the fact that it tried to launch earlier in the year, it faced all of those delays. You'll remember all of those videos of early users trying it out
and seeing that the hinge broke, the screen broke, so there will be lots of pressure on them to really get it right.
Although they'll be lots of media interest, will it translate into sales? There are several issues at play here. Firstly, some insiders question
whether people really want a foldable phone, whether it's a gimmick, and it feels like an old gimmick, since it really announced this much, much
earlier in the year.
Also, it's likely to come out at the same sort of time as the next iPhone. Also Huawei's own delayed foldable phone, also rumors of an LG and a
Motorola foldable phone as well -- Julia.
CHATTERLEY: Yes. So there's going to be some stiff competition no matter what comes out here. Anna Stewart, great job. 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. North Korea has fired two short-
range ballistic missiles of its east coast. It's the country second missile launch in a week. That's according to South Korean Military.
Last week's launch was the first since Kim Jong-un and Donald Trump met in June. It comes as Pyongyang warned South Korea to cancel its upcoming
joint military exercises with the United States.
Hong Kong is facing disruption as it braces for a major typhoon. Officials have raised the storm warning to the third highest level on its scale.
Hundreds of flights have been disrupted. Schools and offices have closed and the financial markets have also shut early. Trading maybe suspended on
Thursday if the typhoon warning remains high.
The first batch of U.S. Democratic candidates faced off on Tuesday night in CNN's new round of presidential debates. Top progressive candidates,
Bernie Sanders and Elizabeth Warren clashed with their moderate rivals over healthcare and border issues. The second debate takes place tonight. All
eyes will be on the much anticipated rematch between Joe Biden and Kamala Harris.
Phil Mattingly joins us now. Great to have you with us, Phil. I saw the POLITICO headline and it said Joe Biden actually won the debate last night
because there was a real sense now of how extreme some of the views out there right now. What was your takeaway? And what were the highlights?
PHIL MATTINGLY, CNN U.S. CONGRESSIONAL CORRESPONDENT: Yes, look, it's nice to win a debate you don't participate in and to some degree, I think that's
true. Joe Biden's name wasn't brought up even though he is the clear front runner in the race, and even though two of his kind of sharpest competitors
in Bernie Sanders and Elizabeth Warren were center stage throughout the course of the night, and it was their ideas that were repeatedly under
attack from more moderate and more pragmatic individuals on that stage.
I think you make a really good point. When you look at the Democratic Party, there are very clear fault lines between those who are very
progressive and very left, if you will, who want to go big, who want to go bold, who want to pursue proposals that I think even in the last couple of
years would have been considered completely out of the realm of possibility.
And those Democrats who believe that that won't win you a general election. It might get the basic side and it might win a primary, but it won't win
you the general election. And you got to see that laid bare last night.
What it was also interesting is Elizabeth Warren and Bernie Sanders are essentially fighting for the same pool of voters. There was some question
last night as to whether they would start to clash with one another, try and draw some of their own contrast to split apart where they stand
currently in the polling. That didn't happen.
We basically saw some kind of an unofficial nonaggression pact between the two as they fought back between the moderates. And I think it's something
you're going to have to keep an eye on. At some point, those two are going to have to differentiate themselves. But last night, it was very clear
they were essentially on the same team fighting against individuals in their own party.
CHATTERLEY: Yes, very collegiate. They're going to let everyone else fall first and then they'll turn around and start attacking each other. To your
point, I think, what do we expect from Joe Biden tonight? How does he handle what was an uncomfortable situation with Kamala Harris, of course,
the last time these two faced off and also at this stage, who does President Trump really have to worry about if anyone?
MATTINGLY: Yes, on the latter point. If you look at the polling and look, it's very early -- it's very early in the polling. Everybody has learned
their lesson about polling. But clearly, when you look at the states that are crucial to President Trump be it Michigan, be it Pennsylvania, be it
Wisconsin, Joe Biden is the biggest threat when you look at the polling at this moment. Again, it's early.
But what's most interesting about tonight, you mentioned the Miami debate where Joe Biden had a very uneven performance, Kamala Harris really kind of
lit him up and kind of laid bare that he wasn't prepared, he wasn't ready to respond, he wasn't ready to respond to attacks.
His numbers since that point in time, they dipped a little bit. They've started to come back to where they were. I think tonight is crucial
because he has said and his team has said he will be ready. Tonight will be different.
Here's what won't be different about tonight. He will be attacked repeatedly and not just by Senator Kamala Harris, he will be attacked by
pretty much everyone on the stage over and over and over again, punching up to try and make a point, punching up to try and get a moment.
[09:15:02] MATTINGLY: If he is prepared, if he handles that, if he is able to brush it off and show that he is maybe the Joe Biden of a decade ago,
then I think everything is going to be comfortable for his team and it is going to be clear that he is certifiably the front runner in this campaign.
If he is uneven, again, if he gets knocked off balance, or if he looks unprepared, that would be a big problem for his campaign. His team knows
that. They've said he is prepared, I think that's what everybody is going to keep their eyes on because it won't just be Kamala Harris tonight. It
will be Cory Booker, it will be Michael Bennett. It will be everybody on stage with a big target on the back of the former Vice President.
CHATTERLEY: Yes, and you know, to your point, it is really early days. But I think for all the other candidates, they know who they've got to
beat. They know who they've got to tackle. Who do you think might surprise us because they feel like they're under a lot of pressure hereto,
at least step up and be recognized and to show they've got the metal to do this?
MATTINGLY: You make a really good point because this is a make or break debate, right? The next debate in September, the thresholds are higher.
There's only five six that have qualified, maybe seven to 10 will eventually get there.
And so for everybody else, you either make it happen tonight or last night or you don't exist in a couple of months from now. You run out of money,
you run out of support and you're not on the debate stage. Someone who is already qualified for the second debate, but to keep an eye on will also be
standing next to the Vice President and that's Cory Booker.
He has sharpened his attacks, the senator from New Jersey, sharpened his attacks on the Vice President, is well-known, has good name recognition and
can raise money, but hasn't really broken through in the numbers game up to this point.
Get ready for him to go after the Vice President trying to have his own Kamala Harris moment. This is a make or break moment for the Booker
campaign to see if they're for real or whether or not he's going to head back to the Senate. Watch him tonight. He'll be close in proximity and
the attacks should be coming fast and furious according to folks tied to his campaign.
CHATTERLEY: We absolutely will be watching. Phil Mattingly, great to have you on the show with us. Thank you so much for that.
All right, don't miss it, our second night of debates coverage beginning at 8:00 p.m. Eastern Time in the United States, but you can see encore
presentations at 7:00 a.m. London time and 2:00 p.m. in Hong Kong Wednesday and Thursday, right here on CNN.
All right, still to come here on FIRST MOVE, Aston Martin losing steam as demand in Europe stalls and the latest data breach to expose the personal
information of millions of people. How the alleged Capital One hacker may have also preyed on others and given hints about it. That's all coming up.
Stay with FIRST MOVE.
(COMMERCIAL BREAK)
[09:20:31] CHATTERLEY: Welcome back to FIRST MOVE where I actually have a better view up here, and I can tell you futures are still indicating a
positive open as we await that decision at from the Federal Reserve, a cut is expected. How big and what does the guidance look like? And of course,
we await President Trump's inevitable post-meeting tweets and something tells me he is not going to be happy.
Before the bell, new private payroll numbers to keep an eye on, too. U.S. companies adding some 156,000 jobs last month, a bit better than estimates.
We've obviously the U.S. releasing its non-farm payrolls numbers on Friday, so a little indicator ahead of that, too.
Also earnings out as well. GE shares are around three percent premarket beating expectations and raising its guidance, its outlook hereto. So,
investors liking that. We've also had European banking giants BNP Pariba and Credit Suisse posting market friendly results as well.
What about Apple as well? Because we've already talked about that on the show. Shares are up premarket following their earnings beat and a positive
guidance coming from that despite a 12 percent drop in iPhone sales in the quarter. Let's talk this through more.
Michael Olson is Managing Director and Senior Research Analyst at Piper Jaffray. Mike, fantastic to have you with us. Give me your sense of
earnings here, too, and what you think of the numbers because you did raise your price target $243.00 here. Talk me through it.
MICHAEL OLSON, MANAGING DIRECTOR AND SENIOR RESEARCH ANALYST, PIPER JAFFRAY: That was a solid quarter. You know, I think that there was
definitely some concern amongst women investors. There's just not a lot of catalysts right now, so we might see lackluster numbers.
And as we look to the company really building a bridge to the future, they're doing a good job of just having stability in the business. And
what I mean by a bridge to the future is they just need to maintain a stable business through the end of this year, at which point I think
investors will start to focus on 5G iPhones coming out next year.
So, they did that through the non-iPhone device segments, as well as, you know, decent strength within iPhone, which improved its year-over-year
decline versus what we saw last quarter.
CHATTERLEY: So, it's just about maintaining similar kind of growth in the services segment, which is now 20 percent of their revenues. There was
also a strong performance in wearables, too. You're basically saying, as long as they can be consistent with what they're seeing here, things will
be okay.
OLSON: That's basically what we're saying, because this year is not going to be a very exciting iPhone year. The iPhones that come out in September-
October will likely be more evolutionary versus revolutionary. So, as long as they can continue to drive strength within services, which as you
mentioned, was solid on an organic kind of FX neutral basis, services revenue growth was 18 percent year-over-year, which was unchanged from what
it was last quarter. So, they kind of maintained their strength there.
And then, yes, wearables and some of the other segments, as long as those can continue to do well, then that will, again, kind of build this bridge
into the 5G iPhone excitement.
CHATTERLEY: You know, it's interesting earlier on the show, we were talking about Samsung and their phones that they're going to bring out
later on this year, some of the other competitors also. What makes you so confident that when Apple comes up with its 5G phone next year that
actually, it's going to resonate with consumers the way that perhaps past upgrades have? Is it simply that they have so many customers out there
that perhaps will upgrade it will resonate, and you assume that?
OLSON; Yes, that is generally what we're assuming is that you know, the intentions that we see in various surveys that we do to buy an iPhone as
your next, whether you're a current iPhone owner, or even in some cases, owners of other devices, the intentions are very high, and we think 5G will
only intensify that upgrade cycle.
You know, the last major upgrade cycle was the iPhone 6 Plus and that caused dramatic growth in iPhone units. We're only modeling for two
percent growth in iPhone units in Fiscal 21, so the year that will get the majority of benefit of the initial 5G launch.
So, we believe our numbers are relatively conservative, but we think that it will drive an upgrade cycle as 5G brings new features and functionality
to the table.
CHATTERLEY: Yes, it's interesting. The 6 feels like a really long time ago at this stage. Let's talk about China as well, because obviously, that
caused a lot of the concern that we saw back in January, and they said they've seen a marked improvement there, some stabilization really of
demand.
We know there's been stimulus from the Chinese government. We know that Apple's been cutting prices. What's your view on what we're seeing now?
And do you think that they can maintain that to?
[09:25:00] OLSON: Yes, that was definitely a positive point from the quarter. They talked about growth actually in mainland China specifically.
And you're right some of it was external with some of the stimulus from China, and some of it was internal related to what Apple was doing with
various incentives.
So you know, based on that, we expect to see continued positive trends, or at least stable trends in China over the next several quarters, and this is
another thing that can help investors get more comfort around the story.
CHATTERLEY: Talk to me about Intel, and the fact that they bought the chip business in the last week or so as well. I mean, we've talked endlessly on
this show about the tensions between Apple and Qualcomm, and the challenge that that presented. How strategic a move is this? And what do you think
this is going to mean going forward, particularly as we get into 5G phones and the technology into 2020?
OLSON: Yes, I think a lot of it comes back to the 5G discussion we've been having, which is that Apple is going to want to have more control over
their ability to get the pieces in place that they need from the supply chain, and owning this Intel modem business is definitely a large part of
that.
So, I think it's a good move in the grand scheme of things. A billion dollars is a lot of money, but not when you have $102 billion of net cash.
So, I think it's the right move to just gain more control over their supply chain, especially as we go into 5G.
CHATTERLEY: Absolutely, and a company buying $17 billion worth of their own shares in the quarter as well, that helps support the share price here,
too.
OLSON: Absolutely. And we expect to see more of that, you know, it's unlikely that Apple is going to do some sort of major acquisition. So we
think the majority of that focus on getting the $102 billion of net cash down to zero or net cash neutral position will be in the form of share
buybacks, so expect more where that came from.
CHATTERLEY: It certainly helps. Mike Olson from Piper Jaffray, great to have you with us. Thank you for that. Price target there, $243.00. All
right, the market open is next. Stay with FIRST MOVE.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE and the opening bell this morning from the New York Stock Exchange. It is Wednesday and we do
see a higher open for stocks as anticipated. We're counting down, of course, to the Federal Reserve rate decision later on today. The first cut
expected in more than a decade in fact, since the financial crisis joining other Central Banks, though that have recently eased. We've also got a Jay
Powell press conference as well, guidance.
What are we looking at in terms of data dependency over future rate cuts, particularly given the markets pricing around three cuts for this year, not
the only thing we're watching though, of course. Trade talks wrapping up over in Shanghai, no breakthroughs there. But no breakthroughs admittedly
were expected and they will be meeting again in September.
Also worth pointing out, today is the last trading day of the month today. Before today's session, the Dow and the S&P were up some two percent in
July. The NASDAQ in fact, up more than three percent. Stocks have risen in every month this year except May when we saw the U.S.-China trade talks
breaking down really formally for the first time.
Interesting performance and a lot of expectations, I think the easing here. Let's talk this through with Michael Feroli. He is Chief U.S. Economist at
JPMorgan. Michael, fantastic to have you on the show.
As I've been pointing out on the show already this morning, we have two separate Federal Reserve rate cuts from the forward guidance. But as far
as the cuts are concerned, you're expecting a quarter of a percent and no more today?
MICHAEL FEROLI, CHIEF U.S. ECONOMIST, JPMORGAN: That's right. I think, you know, the Fed communications has been a bit all over the map really
over the past month. But I think toward the end, within about a week or two ago, I think that communication has really started to hone down to
getting markets to expect only 25 basis points.
There had been some anticipation earlier and in July of a 50 basis point cut, but as I said, I think the communications is now pointing to 25 basis
points for today.
CHATTERLEY: Calibrating what the outlook is for the Federal Reserve here is tough. The market has got three cuts almost priced this year. We've
seen a Fed driven rally in broader markets, particularly for U.S. stocks this year. How do they keep everybody happy here and leave themselves open
to providing more stimulus if it's required? Particularly given some of the data since the last meeting has been improving?
FEROLI: Yes, that's right. I think the Fed has been in kind of an unusual situation really over the past month, because at the June FOMC meeting,
they really strongly signaled that they were going to be cutting in July, and then in the period since then, most of the data have come in better
than expected.
So I think as we, you know, today, I think the guidance toward the next meeting, which is in September, will probably try and to emphasize that
they're going to be a little more data dependent. And if the data is good, that maybe they won't have to cut again. If it's a little disappointing,
you know that they'll continue to ease, but I think, you know, as I said, the last period that we've had over the last month has been by Fed
standards unusual, right?
Usually, when they think they're going to cut, they just cut rather than say we're going to cut in a month from now. So, I think probably there are
some on the Federal Open Market Committee at the Fed who are going to be a little bit unhappy with that situation and would want to have a little more
flexibility, as they head towards September.
That said, in terms of keeping everyone happy, well, you know, that's not their job. Their job is to keep the economy on a sustainable path. And,
you know, someone is always going to be disappointed. But that's as I said, that's not really their job.
CHATTERLEY: I agree. It's not their job. But it's also arguably their job not to create volatility and we saw a huge sell off in December. We've
seen a rally subsequently. Is there a credibility issue here? We're seven month between hiking rates and then cutting rates, particularly given the
noise and the news flow and the lack of certainty over trade negotiations, too, par for the course here. They're showing that they react where
necessary.
FEROLI: Yes, well, you know, look, they're not perfect forecasters. I think a year ago, it seemed like the economy was on a pretty good path.
Then we had some disruptions related to trade, which was really out of their hands.
And so I think, you know, the best thing to do is just to react nimbly when you can, and you know, look, if the economy remains in a good place, and
it's like, it's in a good place now, then I think all will be forgiven. Right?
So if, if a year from now, we continue to have very low unemployment, stable inflation, it doesn't really matter that there had been some
missteps or some back and forth in terms of what the Fed has done. But yes, I don't think they want to create undue volatility. Sometimes that
just happens because, one, you have a very large committee and so views are going to differ and so what the market hears from that committee are going
to differ.
[09:35:02] FEROLI: But also, you know, look, the world is a volatile place and sometimes the President can tweet things about trade policy that cause
disruptions and that the Fed has to react to that.
So yes, I agree they want to limit volatility, but they also ultimately just want to keep the economy in a good place where it is now. And I think
if that remains the case, you know, we'll get past this.
CHATTERLEY: They'll certainly try. I mean, they've emphasized many times now, the international outlook, and the challenge that presents whether
it's trade, and we saw the talks wrapping up very quickly overnight in Shanghai. Europe is slowing. The European Central Bank is going to
provide support here. How high or how low is the bar at this stage for cutting further in your mind, given how strong the consumer is, the
softness in inflation? They are kind of considering a lot of different things here?
FEROLI: Yes, yes. So I think the bar is pretty low for them to ease again in September, that's actually our forecast. And I think the reason that's
the case is, as you mentioned, one, inflation remains very low. So, that's not a problem. And the second is, as you also mentioned, the global
backdrop is not supportive at all. And that means that you know, rates around two percent look high by comparison to global standards.
So, you know, I think if there's even the slightest wobble in the growth data between now and September; that gives them the leeway to cut again in
September. So, I think the bar -- the bar is pretty low. I think beyond September, you know, again, it becomes more and more data dependent, I
think the farther in time we go.
CHATTERLEY: Speaking of data, Michael, very quickly, payrolls tomorrow, what's your expectation here? And what should we be looking for?
FEROLI: Right? So payroll is on Friday. We're pretty close to the market, which is looking -- we are looking for 155,000 jobs to be created
in July. We are just a little below the three-month average, which is about 170,000. Pretty close to what consensus is looking for.
You know, I think the big picture here is that job growth looks to be slowing somewhat from the pace of the last few years. But that slow down
so far, doesn't look to be too abrupt. And we had that -- we saw that again in this morning's ADP report, which is kind of a bit of a preview for
what we can expect on Friday.
So, generally looking for still pretty solid job growth though perhaps not quite as gloomy as we've seen in prior years.
CHATTERLEY: It makes perfect sense and thank you for the delicate correction there. Tomorrow is not Friday, it's Thursday. Wishing my life
away. I know. Michael Feroli, U.S. Economist at JPMorgan, thank you so much for that.
FEROLI: Good to see you.
CHATTERLEY: All right, let's move on and talk about the global movers here. Spotify in focus. The music streamer's Q2 revenues beating
estimates. However, Premium subscribers rose some 30 percent year-on-year to 108 million just missing expectations, down about three and a half
percent at this stage.
General Electric higher. Their Q2 earnings beating expectations. The struggling conglomerate also boosting its full year outlook. The company
now anticipates industrial free cash flow between negative $1 billion and positive $1 billion for 2019. Some interesting range. Strong indication
that CEO, Larry Culp's turnaround plans are gaining traction, but actually moving around a bit to actually now lower as the session gets opened up
here.
Carlyle Group abandoning its tax advantage partnership status. It will become the first U.S. private equity firm to hold shareholder votes. The
move is an effort to improve its share price. It will allow the company to be included in indices that exclude publicly traded partnerships. The
conversion is expected to be complete on January 1st of next year.
All right, let's move on. Because there are new developments regarding the huge Capital One hack attack that we discussed on the show yesterday. The
alleged hacker may have targeted other companies as well.
Donie O'Sullivan joins us live on this. Who else might be in the equation here and I guess it's -- do we know these details? Because the hacker was
blogging about these names as well as Capital One?
DONIE O'SULLIVAN, CNN BUSINESS REPORTER: Julia, it's really extraordinary when you think of the lengths that some hackers will go to, to cover their
tracks and make sure that they are not caught.
In this instance, Paige Thompson, the suspect in this case was allegedly bragging on Twitter and also on Slack and other social media platforms
about what she had found.
On Slack, she had allegedly posted a list of file names, and the files had certain companies and organizations names in those. Now, those files, she
indicated that there was hacked materials in those files. Those organizations include the Ohio Department of Transportation, Ford, the
motor company; the British telecoms company, Vodafone; and Michigan State University.
[09:40:07] O'SULLIVAN: CNN reached out to all those organizations yesterday. None of them have said that they have been hacked, but all of
them said they are looking into it. And the Ohio Department of Transportation said they have reached out to the F.B.I. to figure out
really what's going on.
CHATTERLEY: It's quite fascinating, isn't it? I mean, we also talked on the show yesterday about her apparently being part of a network called
Meetup that listed their interest as hacking and cracking here.
When you're an employer of somebody like this or you're a company like Capital One, you've got checks that are in place to look at your employees
perhaps or those working for you or around you that have interests listed like this or are blogging certain things like this. It's kind of mind
boggling.
O'SULLIVAN: It's absolutely remarkable. I mean, how Capital One found out about this was that a tipster e-mailed them and said, "Hey, guys, there's a
person online who is claiming to have records of millions of your customers and people who have applied for credit cards from you."
And this hack allegedly started back in March. So, that's quite a few months ago. You'd think about, you know, how much companies invest in
cybersecurity and particularly financial institutions. But you also think about, there's a lot of organizations who pay for sort of social media
listening tools to see what is being said about them out in the public and out on Twitter.
And in all those cases, it seemed that it didn't -- that this did not come on Capital One's radar, even though this woman was posting about it on
Twitter and Slack.
I must say, the Slack channel where these files were posted did get taken down yesterday, but CNN was able to get in there before it got taken down.
My colleague, Kevin Collier was able to get into that and the D.O.J., the Department of Justice here who brought the charges against Paige Thompson
are telling us that based on their -- their investigation is ongoing and more charges may be coming.
CHATTERLEY: Yes, we'll watch this space. But to your point about the investment in cybersecurity protections, not enough. Donie O'Sullivan,
thank you so much for that.
All right. We're going to take a quick break here on FIRST MOVE, but coming up shortly, up in the skies. Airbus forecasting Brexit headwinds as
a no deal exit looms large back on the ground. Stay with CNN.
(COMMERCIAL BREAK)
[09:45:35] CHATTERLEY: Welcome back to the show and some sad news now. The body of the founder of India's biggest coffee chain has been found two
days after he disappeared. Nikhil Kumar has more.
NIKHIL KUMAR, CNN NEW DELHI BUREAU CHIEF: A tragic end to a standout entrepreneurial career. Indian authorities say they found the body of V.
G. Siddhartha, the founder of Cafe Coffee Day, the country's largest coffee chain following a massive search after he went missing earlier in the week.
Siddharta went missing in Southern Karnataka State. According to police, he asked his chauffeur to drive him to a local river before leaving the car
to go for a walk on the bridge. He never came back. His body was found in the same river on Wednesday.
Siddharta's business introduced millions of Indians to the cafe chain culture that's gone global with the expansion of Starbucks. In India, his
business is far and away the leader in the sector. Cafe Coffee Day boasts more than 1,700 outlets across 245 Indian city. Starbucks, in comparison
has 146 outlets in this country of more than 1.3 billion people.
They had a statement to the Bombay Stock Exchange where its shares plunged on the news. Cafe Coffee Day's parent released the letter purportedly
written and signed by Siddhartha before he went missing. In it, he says he was facing quote, "tremendous pressure from lenders" that led him to quote
"succumbing to the situation."
The company says it's still trying to verify the authenticity of the letter. It was dated to 27th of July. Nikhil Kumar, CNN, New Delhi.
CHATTERLEY: Nikhil Kumar there, and our thoughts of course to anyone involved or those who knew him. All right, let me bring you up to speed
with today's "Boardroom Brief." A no deal Brexit is on the radar for Airbus. The plane maker is urging European governments to step up
preparations before the October deadline.
This comes as Airbus reported strong earnings with profits rising some 72 percent. The company is on course to overtake Boeing as the world's top
plane maker by the end of 2019.
Now, to 007's getaway car of choice. The British carmaker Aston Martin, posting a half yearly loss of some $69 million on Wednesday. Shares had
plunged in London today and have now lost three quarters of their value since its IPO last October. The company says an economic slowdown and
weakening demand for luxury cars is to blame.
Credit Suisse stock is up over four percent in Zurich. The Swiss bank reporting its best quarterly earnings in four years. They jumped some 45
percent. The company praised its cost cutting strategy for the performance.
All right, we're going to take a quick break, but coming up, putting the ethics into Artificial Intelligence. We hear from the next generation
platform that has $1 billion of investment from Microsoft. Now what? We'll find out, after this.
(COMMERCIAL BREAK)
[09:50:25] CHATTERLEY: Welcome back to the show and we are in the "Chatt Room" with Greg Brockman today. He is the co-founder and Chairman of
OpenAI, an artificial intelligence research firm that was also cofounded by Elon Musk. Their goal is to build a next generation platform that's
powerful, but also ethical and trustworthy. They also announced a $1 billion investment for Microsoft. I asked Greg, what Microsoft and the Big
Tech giant brings to the table.
(BEGIN VIDEOTAPE)
GREG BROCKMAN, CO-FOUNDER, CTO AND CHAIRMAN, OPENAI: What's really important for making progress towards Artificial General Intelligence is
building very large supercomputers. And what we're going to be doing with Microsoft is going to be building supercomputers of unprecedented scale.
CHATTERLEY: Okay, the key there was in the word, artificial general intelligence. Explain to me what AGI is versus the times where we just use
the term Artificial Intelligence and perhaps don't really isolate what we're talking about here.
BROCKMAN: So Artificial Intelligence today looks a lot like in capabilities, the, you know, individual brain regions, right? We have
systems that can see, they can speak, but they can't really understand a domain.
What Artificial General Intelligence will be is a system which can understand an entire field better than any one human and can understand
more fields than one human can and can integrate information across those.
CHATTERLEY: So, are we talking about human intelligence capabilities, if we're talking about something that can perhaps process data, make judgment
calls on data better than a human can?
BROCKMAN: So, what we're really interested in is systems that can perform tasks that are too complex for humans to do. Think about Medicine, for
example, the way that we approach Medicine these days is through increased specialization.
You know, I have a friend who is going through medical procedures today, where he gets an ultrasound from one doctor who can't even read it, has to
send him to another doctor who doesn't have context. And I think for us to really deliver cheap, affordable healthcare to everyone, we're going to
need a better answer.
And so for problems like this and other problems that are too complex, that's what general intelligence is for.
(END VIDEOTAPE)
CHATTERLEY: The level of interest in there for investment in Artificial Intelligence has been pretty volatile over the last five decades. I asked
Greg if the acceleration in sheer computational power today would turn hype about AI into reality.
(BEGIN VIDEO CLIP)
BROCKMAN: I think that the history is also very interesting that before 2012, the amount of computational progress was exactly equivalent to
Moore's Law. So, that's an 18-month doubling period.
Since 2012, we have had a five times increase. Every two years, we now cover the same ground that we did in a decade previously. And this is
being translated into results that you can look at these big companies that are generating huge amounts of revenue.
If you look at, for example, after we did this deal with Microsoft, where they invested a billion dollars, their market cap increased by $10 billion.
And that's because people understand these technologies are becoming so powerful, and that you really can't put a boundary at they're going to go.
CHATTERLEY: I mean, there's all sorts of names in this space. Google would be one. Facebook is looking at it. Baidu, Tencent -- who is winning
this competition? Who is most advanced at this stage, would you say and are we in a war with some of the big Chinese players in this space? Is
this sort of a U.S. versus China battle to own and to lead in this technology?
BROCKMAN: I think that OpenAI it has done a really remarkable job for being, you know, an upstart. It started about three years ago and that
we've had some of the field leading results in the past 12 to 24 months.
You know, I think that Google and you know, inparticular, they have a couple of different labs that have also produce great results. And you
know, the other players that you mentioned, as well.
But I think that what's really important to us is that general intelligence does not turn into an arms race. If you think about creating the most
transformative technology that's ever happened, that brings in the next Industrial Revolution, getting that right on behalf of humanity is the most
important thing.
And if there's a race where people give up on safety, and there's a race to the bottom on just trying to get out the door, I think that's going to be
bad for everyone.
(END VIDEO CLIP)
CHATTERLEY: Critics arguably say this is not the best way to democratize Artificial Intelligence. Greg said, it's the outcome for the world that
matters. Listen in.
(END VIDEO CLIP)
BROCKMAN: The way that I think about it is that if you look at the current world's most valuable company, seven of them are technology companies.
Whoever built Artificial General Intelligence is going to be by a massive margin, the number one most valuable company.
And so if you look at how we do this -- our structure -- any investor that comes in will be paid back a fixed amount, but everything else is owned by
the world.
[09:55:07] BROCKMAN: And I think that at the end of the day, focusing on this end goal, making sure that Artificial General Intelligence is used
safely and securely for good applications that benefit the world. All of that is what we are focused on.
CHATTERLEY: So to those that say this is a Silicon Valley vanity project, because I've seen that quoted as well, what do you say to those people?
BROCKMAN: I actually don't listen too much to those people. I think that there is always going to be critics. And if you look at the history of
technologies, you know, one of my favorite stories of this is 1878, Thomas Edison announced he was going to be building an incandescent lamp and gas
securities in England fell.
So, the British Parliament put together a commission of distinguished experts who went out to Menlo Park and checked it all out, they came back
and said, "This is never going to work." One year later he shipped.
Now, I'm not saying that that you know, again, I think that there is uncertainty and I think that really what happens in this field is anyone
who is certain, I think, is really setting themselves up for some real surprises.
And so for us, we look to the logical conclusions of where this technology can go. We look at our projections. We look at the progress we're able to
make, and I think that you can't put a bound on what we're going to be able to do.
(END VIDEO CLIP)
CHATTERLEY: I like surprises. That's it for the show. You've been watching FIRST MOVE, time to go make yours.
(COMMERCIAL BREAK)
[10:00:00]
END
