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First Move with Julia Chatterley
The Federal Reserve Has A Split Personality; President Trump Hit A Nerve Talking About The Trade War With China; Britain's Boris Johnson Meets With Emmanuel Macron Ahead Of That All-Important G7 Meeting. Aired 9-10a ET
Aired August 22, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA NEWTON, CNN INTERNATIONAL CORRESPONDENT: Live from the New York Stock Exchange. I'm Paula Newton sitting in for Julia Chatterley and here
is what you need to know right now. The Federal Reserve has a split personality. Minutes show policymakers singing from very different hymn
sheets. We will call it singing, it's Fed Talk and you're going to get a lot more of it in a second. Now, the chosen one: President Trump hit a
nerve talking about the trade war with China. And working the room: Britain's Boris Johnson meets with Emmanuel Macron ahead of that all-
important G7 meeting. It's Thursday, and this is FIRST MOVE.
And welcome to FIRST MOVE. Good to have you with us. Okay, there's a whole lot of excitement on trading floors behind me today as the annual
conference of Central Bankers gets underway in Jackson Hole, Wyoming. And there will be a whole lot more to discuss amid those new signs of slowing
global growth and of course, that trade war with China.
Now they have also a new warning for the United States as we await a deluge of what we will call Fed Talk. As you can see, it's looking like a
modestly higher open for stocks after a pretty strong day of trade on Wednesday. We have to say as well, earlier futures were down, they are now
up.
Remember that on Wednesday, all the major averages closed up about one percent. Stocks rose despite another recessionary warning sign in the bond
market. Yes, this happened -- the yield curve on the two and 10-year Treasuries inverted for the second time in two weeks. That said U.S.
stocks have risen in four of the past five trading sessions. Not bad, right?
Tech stocks have risen more than three percent just in the past week alone. Hopes for new stimulus in various parts of the world have fueled that
event, as well as of course that strong earnings outlook from major U.S. retailers, as usual it is the American consumer there doing the heavy
lifting.
Now in Europe, stocks are mixed with the numbers from Germany showing manufacturing activity contracting again this month. That is a really
worrying signal. Factory orders there fell at its fastest pace in six years.
Meantime, Asian stocks finished mixed. New number show manufacturing weakening for the fourth straight month in Japan. Now in the meantime,
this is what we see this global consensus on cutting those interest rates. Indonesia cut interest rates again in response to those low growth fears.
Meantime, China said again today, here's the warning that it will retaliate if the U.S. goes ahead with those new tariffs on September 1st. Yes,
that's less than two weeks from today.
Okay, we want to get straight to your drivers. The Jackson Hole meeting comes after it emerged that the Fed was split over last month's rate cut.
Now, all eyes of course will be watching Jerome Powell ahead of his speech there as investors look for clues as, what the heck you do next?
One we will also be looking closely is President Trump. Yes, no surprise to you. He is tweeting again this morning. I give you his tweet.
"Germany sells 30-year bonds offering negative yields. Germany competes with the USA. Our Federal Reserve does not allow us to do what we must do.
They put us at a disadvantage against our competition. Strong dollar, no inflation. They move like quicksand."
And here are the final thoughts from the President this morning. "Fight or go home." Matt Egan joins me now. Okay, fight or go home as if there
wasn't enough pressure on the Fed, especially after we saw those minutes, right, Matt that said, look, they are, at best, data dependent. But at
worst, there's really no consensus there on where this Fed wants to go on those rates. And then on top of that, you've got the pressure piled on by
this President.
MATT EGAN, CNN BUSINESS LEAD WRITER: Paula, I think that's right. I mean, Federal Reserve officials are not on the same page, at least not according
to the minutes from the July meeting. They're sort of like how the stock market and the bond market are sending conflicting signals right now.
Fed officials were really sharply divided over how to fix the economy or whether or not it even needs to be fixed at all. A couple of Fed
officials, they were pushing for a half a percentage point rate cut, and several of them said there shouldn't be a rate cut at all.
Now, the Fed ended up splitting the difference and lowering rates by a quarter point. This is not the first time that there's been disagreement
at the Fed, of course, but the Fed has more influence. It has more power when it speaks with one voice and when there is broad agreement.
And you know, there are signs that this disagreement at the Fed still exists right now because even though that last meeting that took place
before President Trump escalated the trade war with China, it was actually the very next day that President Trump threatened to do another round of
tariffs on China. We saw that the Fed President from Kansas City, Esther George, she spoke this morning, she told CNBC that she still doesn't think
that it was right to lower interest rates in July.
[09:05:16] EGAN: She voted against that move. So maybe it shouldn't be shocking to hear her say that she doesn't think it was a great idea.
But then again, it really suggests that the trade war has not swayed her and perhaps some of her colleagues. So that raises some questions about
what the Fed does next. It'll fall to Jerome Powell to really try to build some consensus before the September meeting, hopefully that's what he
focuses on at Jackson Hole, and he avoids the temptation to prove President Trump wrong about his golf game.
NEWTON: Yes. It's always one other issue out there, among many. Matt, thanks so much. And as Matt was just talking as well, the President of
course, yesterday, we're now going to call him "the chosen one." That's Donald Trump, at least Donald Trump thinks so. The President is saying he
was forced into starting the trade war. Take a listen.
(BEGIN VIDEO CLIP)
DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: Somebody said, it's Trump's trade war. This isn't my trade war. This is a trade war that
should have taken place a long time ago by a lot of other Presidents. Somebody had to do it. I am the chosen one. Somebody had to do it.
(END VIDEO CLIP)
NEWTON: Joe Johns joins me now from the White House. I love the way he just kind of looked to the skies when that happened as well. I mean, when
you speak to his aides, is this just him speaking in jest? Or is there an underlying truth there that he actually believes.
JOE JOHNS, CNN SENIOR WASHINGTON CORRESPONDENT: Hard to say, but Paula, I can tell you that this President has said things that he knows are
entertaining, and he said them for entertainment value for those who are receiving the message, perhaps some will take it seriously, some will not.
But there's been a lot of discussion here at the White House about religion over the last 24 to 48 hours, some of it has related to the Jewish vote,
some of it has related to other things.
So "chosen one," anybody who comes from a Christian background understands that those are words that have tended to be associated with Jesus Christ in
the Christian Bible. And so the question is, does the President see himself that way?
What I can tell you is the President understands that the evangelical vote in the United States helped him get elected last time, and he once again
needs that evangelical vote. So in some ways, perhaps the President is trying to speak to those voters, many of whom approve of a number of the
things the President has done, because there is sort of this connection between the evangelicals in Israel.
We've seen it not too long ago, the President moving the United States Embassy in Israel from Tel Aviv to Jerusalem, which is seen by some as part
of prophecy, so if you're going to look for an underlying message, look for a political one, and understand that the President does want to speak to
evangelical voters in the United States as we move closer and closer to the November election -- Paula.
NEWTON: Yes. And interesting though when he was doing that, he was obviously talking about an economic issue, not a political one. And
getting to those economics again, you know, John, what is it, right? Tax cuts might be on? Tax cuts are then off? He seems to be waffling. Do you
get the sense that his advisers around him told him, look, Congress, given our fiscal situation, our deficit and our debt, Congress is never going to
go for any new edition of tax cuts 2.0 is that what happened there?
JOHNS: Yes, not clear again. But you know, when they advance, and then they retreat, that person is trying to lure you or so says, some of the
old, old scribes relating to conflict, including political conflict. But what we know about the President is he likes the idea of tax cuts. We know
also that there is in the background here at the White House, a concern that somewhere down the road, perhaps before the next election, there could
be a true economic downturn, a possible recession has been predicted by many. And what to do about that, of course, is the big question.
The Democrats typically are the ones who go for payroll tax cuts, which is one of those ideas that's been floated. And what we also know is the White
House isn't saying there's anything imminent or something they're going to jump on right now. But perhaps down the road, they might turn to it as
President Obama did in 2011 when he was trying to spur the economy just a bit.
So anybody's guess, but the President is talking out of both sides of his mouth on this, and we'll just have to see what comes down the road next.
[09:10:04] NEWTON: Yes, it does seem clear that Congress is going to need some kind of a crisis before they start to look at adding more to that
deficit. Joe Johns at the White House, appreciate it.
Meantime, Britain's Prime Minister Boris Johnson is in talks with French President Emmanuel Macron as they try to break an impasse over Brexit.
Now, a short time ago, Mr. Johnson reiterated that Britain would not in any circumstances impose a hard border with Customs checks between Ireland and
Northern Ireland.
Melissa Bell has been watching it all from Paris. And Melissa, Macron had some very tough words about that Irish backstop, saying, look, this isn't
just technical, this is a real issue. And then adding that it was up to Britain to decide its own destiny.
Melissa, I can't believe it, right? Macron -- after three years of this, Macron is now saying, we need to get to a real hard and fast deadline in 30
days, even though the deadline might be October 31st. He's been quite tough, right? This is on the heels of a presidential statement, saying
that look, whatever withdrawal agreement we negotiated, it's done. There's no more negotiation. Is this is a negotiating position from the French
President?
MELISSA BELL, CNN PARIS CORRESPONDENT: There is no renegotiation. You know, Paula, he has been so steadfast in this message over the last few
years that you have to understand that it isn't -- he has been absolutely determined, because his focus is protecting the credibility of the European
project, that what he needed to look at was what happened beyond Brexit.
Essentially, the message from both Berlin and Paris on this whistle stop tour of Boris Johnson has been the ball is firmly in your court. And if
there was a slight difference between Angela Merkel and President Macron, it was because of course the Germans are so keen on protecting the German
economy from the consequences of a no-deal Brexit.
But if you look carefully what Angela Merkel said, really what she was saying was, the point of the backstop was simply to give Britain time to
work out its future relationship with the U.K. -- the U.K. with the E.U. rather, and particularly to find a trade deal. If that can be done in 30
days, then that's great.
Both European capitals have repeated to Boris Johnson that the backstop itself is not up for renegotiation. Of course, behind all of this is the
emphasis that London and Paris and Berlin have been putting on the fact that all are ready if they need to be for a no-deal Brexit.
This is what President Macron had to say just before that working lunch with Boris Johnson earlier.
(BEGIN VIDEO CLIP)
EMMANUEL MACRON, FRENCH PRESIDENT (through translator): It is solely for the U.K. to decide its destiny, to decide about the way you will leave the
European Union and the basis of the future relationship. We are actively preparing for all the possibilities, including that of an exit without an
agreement on October 31st. It's not the choice of the E.U., but it is our joint responsibility.
(END VIDEO CLIP)
BELL: So essentially, what they're saying to Boris Johnson is, "Fine, go ahead and take those 30 days and see what you can come up with. But
essentially, we're not going to renegotiate the deal," that was negotiated by his predecessor, Theresa May -- Paula.
NEWTON: Yes. And that's where it stands as that countdown continues. Our Melissa Bell for us there in Paris. And we have to say that Macron now
moves on to that all important G7 meeting and that's what we start with when we talk about our stories making headlines around the world right now.
That G7 meeting in France this weekend, will close without -- without --an agreement for the first time ever. Until now, a joint communique has
always been released at the end of the Summit. But this time, French President Emmanuel Macron said if a statement were drafted referring to the
Paris Accord, President Trump wouldn't agree to it, so it would be pointless.
However, he added, no one reads the communiques, anyway. I want everyone to remember what happened at the G7 last year in Canada. A lot of talk
about the G7 statement and then President Trump again pulled out of it even when they had a statement.
Okay. Chinese state media are reporting that a missing staffer from the British Consulate in Hong Kong was detained by police in Shenzhen for quote
"solicitation of prostitution." Twenty-eight-year-old Simon Cheng went missing about two weeks ago when he was scheduled to return from the
Chinese Mainland and go back to Hong Kong. The British Foreign Office says it has not been able to contact Cheng since he was detained.
Wildfires are devastating parts of the Amazon Rain Forest. According to Brazil Space Research Center, the number of fires in the country are now up
by 80 percent this year with more than half of those in the Amazon region. While the government says the fires were caused by dry weather,
environmentalist and experts insist most of them are man-made.
With more, Shasta Darlington now joins us live from Sao Paulo and Shasta, there is a massive issue here, and it's one of those confrontation between
the government who perhaps is even on side with people trying to use fires to clear their land. But of course environmentalists saying this is
incredibly dangerous.
SHASTA DARLINGTON, JOURNALIST: That's right, Paula. I mean what is obvious is that we have a number of fires ravaging the Amazon right now,
many of them set by the loggers, ranchers and farmers. That Space Institute which tracks deforestation says that there have been more than
72,000 fires in Brazil so far this year, and that that is an increase of over 80 percent over last year.
[09:15:14] DARLINGTON: So it's clear that despite this being the typical season for fires, because it's drier, there's less humidity. This is not
the normal pace that we've seen in recent years. And in fact, this really hit home here in Sao Paulo earlier this week, when at about three in the
afternoon, the city was plunged into darkness. And researchers said that this was a combination of some low lying clouds, but also that smoke coming
from nearly 3,000 kilometers away drifting over the country and really making it look like it was nighttime here in Sao Paulo.
And now, environmentalists blame the administration of Jair Bolsonaro. They say that his constant messages that we need to develop the Amazon that
we need to allow loggers, miners in indigenous territories, and the fact that he has defunded the agencies responsible for cracking down on illegal
activity have really sent the message that anything goes.
Ironically, Bolsonaro has blamed this recent spate of fires on NGOs without any evidence. He said, well, they might be trying to put me in a bad light
because I'm defunding them. So the rhetoric has gotten pretty ugly here -- Paula.
NEWTON: It's ugly. And the collateral damage, of course, is happening to the environment. And while Bolsonaro tends to say that, look, the Amazon
is the lifeblood of that economic engine in Brazil, this could have clear consequences, right, in terms of what you are able to use those resources
for 10 or 20 years down the road.
DARLINGTON: Absolutely. I mean, there's the clear environmental debate. But there's also an interesting economic debate going on here with the E.U.
and Mercosur, just signing this trade deal. And now a lot of differences and controversy coming up over the treatment of the Amazon here in Brazil.
In fact, Germany and Norway just canceled $70 million of investments in the Brazil's Amazon Fund largely because Bolsonaro has been disregarding it.
Bolsonaro responded to Angela Merkel, well, why don't you go use that money to reforest Germany? So this could have an impact on trade deals between
the EU and Mercosur if the perception is that any development here is coming at the cost of the Amazon -- Paula.
NEWTON: All right, Shasta, thanks for letting it all out for us. Good to see you. Appreciate it. Now, coming up on FIRST MOVE, retail therapy.
Why analysts talk of recession, consumers instead they're delivering a stellar quarter for retail.
And knowledge is power, but South Korea is scrapping Intelligence sharing with Japan. We will tell you what's behind it, next.
(COMMERCIAL BREAK)
[09:20:54] NEWTON: And welcome back to FIRST MOVE. We are live from the New York Stock Exchange and something happened this morning. The Dow
futures were first negative. They have now turned a positive and you know that positive trading has continued with some momentum going through it.
Futures, as I said have strengthened in the last few hours. It's now looking like a solidly higher open after Wednesday's almost one percent
rally. And what's going on here? Central Bankers are kicking off their meeting in Jackson Hole, Wyoming today. Fed Chair Jay Powell -- a lot of
pressure on that man. He speaks tomorrow.
Now, the meeting could highlight divisions for the Fed over rate policy. The Kansas City Fed President said today she still believes July's rate cut
was not needed because the U.S. economy remains strong. U.S. bond yields briefly inverted Wednesday and that caught the market's attention. And
that is over the market fears that the Fed still will not sustain -- will not support a sustained rate cutting campaign.
Joining me now is Krishna Memani. He is the Vice Chair of Investments at Invesco. Thanks so much for joining us. Appreciate it.
KRISHNA MEMANI, VICE CHAIRMAN OF INVESTMENTS, INVESCO: Thank you.
NEWTON: Let's deal right with that for a moment.
MEMANI: Yes.
NEWTON: This -- I won't call it indecision, but there seems to be lack of consensus with the Fed. Right? How much of an issue is this for you right
now?
MEMANI: Well, you know, the Fed is a large entity. So there is always dissension. So that's not unusual. But I think, Chairman Powell at the
moment doesn't really have a choice. The markets are basically telling him that we are imminent -- a recession may be coming not in the U.S., perhaps
overseas. And they have to factor that into their own policy making considerations, and I think they will.
This is a grand opportunity for them to reset a couple of faux pas that they have committed. In 2018, they raised rates when they shouldn't have
raised rates. And in July rate cut, in the press conference, he basically made it a mid-cycle adjustment --
NEWTON: A recalibration.
MEMANI: Recalibration -- and he has to walk that back in some way. I think he can't give up the store and say that while I'm really eager to cut
rates, but at the same time buying some flexibility is something that he has to focus on.
NEWTON: Yes. What about that issue, though, that rate cuts aren't needed right now. And here's the thing, if you take those rate cuts, now, you
don't have any runway left until things get really tense.
MEMANI: Well, you have plenty of runway. Our rates are close to two percent. So I think they can cut that several times and they have plenty
of room to cut. It's really more a question of will rather than whether they can or not.
NEWTON: Okay, and then we get to the issue of how effective would these rate cuts be anyway? There is some debate right now that you know, even if
they move on monetary policy, it is really not going to do much.
I mean, look at it -- we already looked at CapEx and it's already suffering. Why is that? What are you seeing inside those numbers?
MEMANI: Well, the CapEx situation has been a phenomena ever since the financial crisis. Effectively, when there is not enough demand in the
world, people are not going to build new factories and capacities to service that lack of demand. So it's something that we will have to live
with.
But I think rate cuts do have an impact, just look at what has happened to the markets and the fact that, you know, if we didn't have rate cuts coming
out of the financial presence, it would have been very, very difficult.
They are not as effective as they used to be. But it is still a very significant weapon that the Central Bank has.
NEWTON: And let's move on to that other part of this equation, though, fiscal policy and the United States are quite hamstrung. We see a debate
in Germany now as to whether or not they should move a little bit more on that fiscal policy. What do you think?
I mean, I argue sometimes that instead of having things like tax cuts, well, let's dovetail back to that CapEx discussion, why not do an
infrastructure program? Which of course is still going to -- I mean, when it gets to fiscal policy, do you see any movement on that whatsoever right
now?
MEMANI: Unfortunately, with a divided Congress, we have lots of asks, but I don't think we are going to get any. And I think the only possibility
that we have of getting anything is probably a payroll tax, because that's much easier to work.
NEWTON: It didn't work so well the last time for Obama.
MEMANI: No, again, I don't think payroll taxes are a panacea. But at the same time, I think they help support consumption and helping support
consumption because of the tariffs that have effectively been a tax on the consumer. I think that's one way of undoing that a little bit.
[09:25:02] NEWTON: In terms of whether or not we are talking ourselves into a recession. What do you see? What does the data tell you? Do you
think we may hit a recession, if not this year, then next year?
MEMANI: Well, no. We don't think we will hit a recession, at least in the U.S. We think we still have another few years on the cycle.
NEWTON: Few years. This late cycle, you're telling me in 2021, we're still going to be a growing economy?
MEMANI: Our call, beginning of the year was five more years. And we are still sticking with that call. It may sound a little incongruous relative
to what's happening in the rest of the world. But what the retail data yesterday showed --
NEWTON: It was phenomenal.
MEMANI: That the consumption level, employment level, income growth in the U.S. is enough. There's enough economic momentum for us to kind of last a
few more years, unless the Fed commits a policy error, which it was on the verge of doing in 2008.
NEWTON: Before I let you go, strong dollar, emerging markets having a really hard time. Do you worry at all about any kind of contagion in that
space?
MEMANI: Well, emerging markets in a strong dollar environment are not going to work very well; having said that, our expectation is that China at
some point will turn on the taps in a more meaningful way than they have done from a stimulus standpoint. And when that happens, growth in emerging
markets are going to stabilize.
NEWTON: But it doesn't worry you in terms of us getting to that pressure point where we're talking about a global crisis again.
MEMANI: Oh, no, no. Not at all, I think --
NEWTON: To be clear.
MEMANI: Yes, but the most amount of debt that we have is really in China, and it's a controlled currency. And it's really a domestic market from a
policy standpoint. So they have lots of levers to deal with those issues.
NEWTON: Thanks so much for coming in as we continue to await what they do at Jackson Hole. It should be an interesting speech tomorrow.
MEMANI: Indeed, it is a momentous speech, that's what I'm looking for.
NEWTON: Okay. Fingers crossed. We didn't get much out of the last press conference, I will add, but you know, thanks so much.
MEMANI: We can hope.
NEWTON: Yes. Appreciate you being with us. Thank you for that.
MEMANI: Thank you.
NEWTON: And we are moments away of course, from that opening bell. A lot of excitement here as we await to see those Dow futures which are now
appointing higher. We will be right back in a moment.
(COMMERCIAL BREAK)
[09:30:00] NEWTON: And welcome back to FIRST MOVE. I'm Paula Newton here live from the New York Stock Exchange. That was the opening bell where we
do have moves higher on Wall Street today. Having said that, some of those movements have been a little bit tough, especially on the S&P and the
NASDAQ. And we have to remember that while they're building on Wednesday's gains, U.S. stocks are still down about two and a half percent this month
on fears that that trade war, of course, will tip global economies into recession.
And China, of course, warned again today that if the U.S. retaliates in September with those tariffs, they will retaliate back again. Now, in the
meantime as well, Fed members are expected to talk more about that trade war at their conference in Jackson Hole, Wyoming beginning today. U.S.
bonds are up over two percent as that meeting gets underway.
Meantime, U.S. stocks performed well this year, thanks in part to stock corporate buybacks. The new numbers of today show the rate of buybacks is
now slowing and that does make sense with companies repurchasing 13 percent less stock in the second quarter compared to a year ago.
And we go to those global movers now. L Brands down. The company beat expectations on profit, but missed on sales. Those were weighed down by
its flagship brand Victoria's Secret which saw a six percent decline in same store sales. That slide continues.
Nordstrom meantime was up. The Seattle-based retailer's quarterly profit beat Wall Street estimates. The company said it had cut costs and cleared
inventory and had a nice little uptick on online sales as well.
Meantime, Dick's Sporting Goods, it was up. The sports retailer raised its full-year forecast after sales and revenue for the quarter beat estimates
and our Clare Sebastian joins us with more on that.
It's interesting as well that they had that kind of look towards the future, even though they're obviously under the gun a little bit in this
trade war with China.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, I think that's an interesting turn of phrase, Paula, because yes, this was a very strong
earnings report relative to expectations especially when you see them joining the ranks of the retailers experiencing those really big stock
moves off the back of earnings.
Their same store sales were up 3.2 percent, the best number since 2016; e- commerce up 21 percent. And as you say, they up their guidance for the year. But the big question around these earnings, Paula is whether or not
Dick's will make an announcement on whether they're going to stop all gun sales. This is something that the company has been rife with speculation
around this.
You'll remember back in 2018, after the Parkland shooting, after it emerged that the gunman bought his gun at a Dick's Sporting Goods, the CEO stopped
all sales of assault style weapons. He raised the minimum age for buying a firearm to 21. They did face some backlash from gun manufacturers in
particular, they did see some sales go down in the quarter following that.
But they have now been testing pulling gun sales out of 125 of their 700 or so stores. And they are conducting a review of this. They said in their
earnings report that their review is continuing. But we expect that we might hear more on this in their call, which is happening in about half an
hour -- a big move that would be, Paula, for a mainstream retailer, one of the biggest gun retailers in the U.S.
NEWTON: Yes, an important move to make, of course, all eyes on Wall Street with that. And yes, what is this issue? I mean, Dick's Sporting Goods,
also willing to really get out there and perhaps be ahead of the curve, right? Even if they do take that potential hit to business.
SEBASTIAN: Yes, they've really been vocal on this. The CEO telling CNN that you know, it was essentially an emotional response to this. We've
heard that Walmart even before Parkland pulled assault style weapons out of their stores, but they blamed sluggish sales.
Dick's specifically linking this to the kind of prevalence of mass shootings and the fact that this gun was used in the Parkland shooting. I
think when it comes to the review, there is a bit more of a focus on sales. They say that the gun business is okay, it's not great. We know that gun
sales have been falling under President Trump while they were rising under President Obama. It tends to be at the gun sales rise when people are
worried about more congressional, you know, legislation that perhaps could crack down on things like background checks.
And they're not the only one that's under pressure, Paula, Walmart has been under pressure to do something about its own gun policy. They have said
that they're not -- you know, they're just looking at it at the moment, and they welcome the debate going on in Congress. But we're in a moment right
now when these retailers are really under scrutiny for their gun sales.
NEWTON: Yes, under scrutiny where this becomes, as you said, more of an emotional response, a societal response rather than an economic one. Our
Clare Sebastian for us there live in New York. Appreciate it.
And as we were just talking about those incredible American retailers, there is nothing that will get them down apparently, in this earnings
season. We are talking about Lowe's, Walmart, Target Home Depot -- the evidence is showing that those U.S. shoppers are doing the heavy lifting in
this U.S. economy.
For more on what's happening, I know I'm joined by Michael Lasser, who is the Retail Analyst at UBS. I mean, this has kind of shocked me in the
sense that yes, we knew the retail was out there, it was going to be strong. But remember, it wasn't that long ago, where a lot of retailers
were getting hit just behind the curve on online sales. And yet now you even have companies like Home Depot really blowing all those estimates out
of the water. What's going on as far as you could see?
[09:35:26] MICHAEL LASSER, RETAIL ANALYST, UBS: As far as we can see, there's a few things that are going on. Number one, the foundations of
consumer spending are very healthy with a good labor market, wages are slowly rising, and that's driving consumers to spend. Two, a lot of these
retailers have made significant investments over the last few years, and those investments are starting to pay off. And three, the divide between
those retailers that are doing well, and those retailers that are not is widening.
Consumers are choosing to do business with a select number of retailers. They're focusing more of their spending on those retailers. Because those
retailers are offering value and convenience and removing the friction from doing business with them. We think that that trend continues, and that'll
benefit the select few.
NEWTON: You know, Michael, this has been quite a retail reckoning, I'd say over the last 10 or 15 years. In your estimation, and that's all because
of Amazon and online sales. Where do you think we are in this cycle? Are we mid-cycle on this? Are we end cycle on this?
LASSER: So there's a couple of elements to that question. Number one, you know, we've seen a very good economic cycle for a while. A question from
here is does some of the macroeconomic uncertainties weigh on how consumers have confidence to spend and do their employers remain in the hiring mode
to continue to support that strong foundation and consumer spending?
And second, where are we from a rationalization perspective on retail? There's going to be more stores that close. And what that will do is shift
markets here to those that remain. And so the stronger gets stronger and the weak are going to go away.
NEWTON: And in terms of picking those companies, though, you know, I was interested to see that even Walmart is shifting its strategy a couple of
years ago, you know, their online sales have really come on quite strongly. And yet I was in the mall the other day, I'm not going to mention the
stores, there were some that you could shoot a cannon through and no one would have been touched.
I mean, where do you think the dividing line is there? While some people have been able to make that transition and other retailers have not been.
LASSER: I think the appeal of shopping in the mall has declined over the years. There will be a reformulation of the U.S. shopping mall. It'll be
more of an entertainment experience, as they add more restaurants and other entertainment type venues. And what that will do is hopefully stabilize
traffic.
But there's just too much capacity in all of these retailers at this point. And we're likely to see the rationalization of that to continue. But
again, what that will do is push more of the shopping towards those well positioned retailers, particularly the ones that are off mall and make it
very convenient for them to shop and do things like buy online and pick up in store. And that's where retailers like Walmart, Target and Home Depot
are doing particularly well.
NEWTON: Right. So you match that convenience, but you're also going into the bricks and mortar to go pick it up, and people seem to like that. I
have to ask you that American consumer things are going well now. We again had a fewer than expected jobless claims in the United States today. And
yet most people said that look, it was global expansion that was going to do the trick for these retailers. How important do you see that going
forward? Or do you think it's about the American consumer all the way all the time.
LASSER: Well, I think the American consumer is critical. I think what we're seeing from recent indications based on what happened in the second
quarter, and a lot of the commentary around the start to back to school shopping, is that spending remains quite healthy.
And that's important because there tends to be a high correlation between back to school shopping, and holiday spending. With consumers feeling good
now, they're likely going to feel good a couple of months from now.
Now, there are some uncertainties. We're going to see price increases push through as a result of the tariffs. And so consumers are going to have to
make more tradeoffs. So if the price of a sweater, a baseball glove and a couch, all go up at the same time, where's that consumer going to make the
trade off? And we'll see some retailers benefit from that and others lose from that.
NEWTON: Yes, and thank you for mentioning that Michael, because obviously that's also weighing when these companies look at what those tariffs might
mean and what it might mean to the wallets of those American consumers.
Michael Lasser, we will continue to discuss this with you over the coming weeks especially as that all important back to school results starts coming
in the United States. Appreciate it.
Now, up next, to old resentments, but new disagreements. Relations between South Korea and Japan take a turn for the worse. We will have all the
details when we get back.
(COMMERCIAL BREAK)
[09:43:12] NEWTON: And we are back. South Korea has ended an agreement on military intelligence sharing with Japan. Tensions between the two
countries have been rising in the past few months. You know, but this marks dramatic escalation and threatens to unsettle what has been a unified
stance at least towards North Korea.
David Culver has more. David, this is an escalation and quite a significant one that while what's at the heart of this issue has been
economic. Clearly, clearly this is now going a step further.
DAVID CULVER, CNN CORRESPONDENT: Absolutely, Paula, and it's got a historical and rather painful roots that I'll explain in just a moment.
But first, the very latest with the ending of this Intel sharing pact between South Korea and Japan. This is a decision that came out of South
Korea's National Security Council. They have decided that the pact that has been in place since 2016 should no longer go forward.
So essentially, that would limit the amount of Intel shared between South Korea and Japan. Why is that important? Well, look what's happening here
on the peninsula. We've been reporting over the past several weeks of the numerous missile test launches coming from North Korea.
Japan helps South Korea in monitoring the northern part of the peninsula using their satellites. That's classified information that's shared
between the two countries that could be limited with the ending of this agreement. So why do it?
Well, we heard from the Deputy Director of the National Security Council, who explains the motivation. Take a listen.
(BEGIN VIDEO CLIP)
KIM YOU-GEUN, DEPUTY DIRECTOR, SOUTH KOREAN NATIONAL SECURITY COUNCIL (through translator): Excluding South Korea from the whitelist has caused
a significant change in the security cooperation environment between the two countries.
Under these circumstances, the government judged that it would not be international interest to keep the agreement in place, which was signed for
the purpose of exchanging sensitive military information for security.
(END VIDEO CLIP)
[09:45:00] CULVER: So all of this stems from that bitter trade war, Paula that you mentioned that is underway between South Korea and Japan. And
that is rooted in a painful past going back to the early part of the 20th Century, that's when Japan occupied the peninsula. Many Koreans were
forced into labor. And as a result of that, there was a 1965 Agreement that seemed to have settled things.
Well, just last year, the High Court right here in South Korea, ruled in favor of those workers getting compensation from Japanese companies. That
angered Japan a great deal and what some perceived to be retaliation for that Supreme Court decision, in early July, they decided to limit the
amount of exports of three chemicals that are used particularly in manufacturing smartphones, especially when it comes to memory trip chips in
particular.
So think about Samsung, think about SK Hynix -- these are major companies that produce more than half of the global markets memory chips. So this is
a big impact on them.
Then earlier this month, Japan went a step further, and they removed South Korea from their preferred trading list partners and South Korea just a few
weeks ago, did the same.
And so you have this back and forth that is only escalating and getting more tense and now is impacting military Intel.
NEWTON: Yes, which the White House is of course reacting and saying that they hope that they can work this out. But again, you did a very good job
there in laying out the roots of this. They have worked for decades really to try and get on such a secure footing. And this has definitely taken
them back a little bit. David, you will continue to cover that for us. Appreciate it.
And take a walk with me now into the boardroom for our brief. Global banks are calling for a peaceful resolution to protests in Hong Kong. HSBC,
Standard Chartered and the Bank of East Asia ran adverts in local newspapers in the city. The bank stressed the need to protect Hong Kong's
status as a global financial hub amid months of long protests between the city's government and pro-democracy activists.
The Irish low cost carrier Ryanair says no flights departing from British or Irish Airports were disrupted on Thursday. Now this comes as some of
the U.K. based pilots began a 48-hour strike. The airline was able to stop Irish pilots, but lost a legal fight to stop strikes in London.
Qantas is now testing the limits of flying extra-long haul. Those are not words that I like to hear. It plans to stage a 20-hour trial -- 20-hour
trial flights carrying only Qantas employees to find out how passengers cope with such long periods in the air. The trial flights will run from
New York and London to Sydney. Qantas has said it hopes to start direct flights on both routes in 2022.
I hope by that time anyone planning to put toddlers on those airplanes have since grown up.
Now we look at the industries of tomorrow as our Sanjay Gupta visits factory -- a company, pardon me in Israel that is cutting out the cow and
growing its own steaks. You'll want to see this. It is a product they hope will hit the market in just a few years.
(BEGIN VIDEO CLIP)
SANJAY GUPTA, CNN MEDICAL CORRESPONDENT (voice over): Chef Amir Ilan works is magic in the kitchen. Now, while this may have the appearance of a
restaurant kitchen. He is at a startup outside of Tel Aviv. Welcome to Aleph Farms.
UNIDENTIFIED MALE: There you go, your main steak, sir. Enjoy.
GUPTA (voice over): The meat the company CEO is enjoying came from their lab grown in a petri dish.
DIDIER TOUBIA, CEO, ALEPH FARM: We use animal cells as a starter for growing the meet. We will just make the growing process more efficient.
GUPTA (voice over): Some view what's taking place here as a race to crack the code of meat -- animal meat that is.
TOUBIA: In the intensive farming facilities of today, we lost the connection with the animal and we believe that that being the given fact,
we better just grow the steak directly rather than use animals as mere emissions to produce steaks.
GUPTA (voice over): This is how it works. First cells are isolated from a living cow. They are then frozen until they're needed. The cells are
eventually thawed and given nutrients and then placed in an environment that mimics conditions inside the animal.
As the cells multiply, connective muscle tissue begins to form that ultimately grows into steak.
Right now, each piece of meat developed at Aleph Farms cost about $50.00. But the company expects that price to come down by the time the product is
ready for the market, which is within the next three to four years.
The big question is, will consumers bite? Advances in this field are also happening in the United States, where the Food and Drug Administration and
the Department of Agriculture have agreed to share regulatory oversight.
Jan Dutkiewicz of Johns Hopkins University believes the pursuit of quote "clean meat" also has major global economic implications.
JAN DUTKIEWICZ, FELLOW, JOHNS HOPKINS UNIVERSITY: If you're talking about cellular agriculture, that is to say clean meat or sell based meat. Here,
we're talking about a very real disruption of the food system as we know it. They're saying we can get something like meat without the animal.
We're trying to make the animal obsolete, not the entire value chain. So this could be read as a major threat to the incumbent meat industry.
(END VIDEO CLIP)
NEWTON: All right, well, that's a new term we're going to be talking about right, clean meat. Okay, coming up on FIRST MOVE, more layoffs for U.S.
steel workers despite some saying the industry is thriving because of these tariffs. What is going wrong? We'll have more when we come back.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Are you crypto crazy or are you crypto crazy? All next week on FIRST MOVE, we are going
to be talking to a whole host of crypto experts. We are going to try and separate fact from fiction. The questions of what you want to know,
contact us @jchatterleyCNN. I want to hear from you. Remember all next week, we're crypto crazy on FIRST MOVE.
(END VIDEO CLIP)
NEWTON: And we will wait for that. Welcome back here, in the meantime, from the New York Stock Exchange. U.S. Steel is temporarily laying off
about 200 workers as the industry continues to struggle. The company's market value has fallen by a third this year. That's despite the Trump
administration placing tariffs on steel from some other countries.
Vanessa Yurkevich is in Michigan for us. Vanessa, okay, full disclosure, I am a steel town girl. I literally worked at the steel mill when I was a
student and we're not talking the office, I was on the mill floor. I know what this means in terms of this being a livelihood for people. So how
significant are these layoffs? And what kind of insight are you getting into the industry as a whole?
VANESSA YURKEVICH, CNN BUSINESS AND POLITICS REPORTER: Hi, Paula, what we're hearing here on the ground that people are really confused and
shocked by this news because they thought that these tariffs were supposed to boost this steel economy here, as well as spur job growth.
But what we're hearing from U.S. Steel is that they are temporarily laying off 200 workers at this facility, and they are citing ongoing changing
market conditions in the steel industry. And this is very different, Paula from what we've been hearing from the President who has very much touted
the success of the steel industry and him bringing it back.
But we spoke to one city official here who says he has seen no sign of that. And we spoke to him and another community leader who are worried
that these temporary layoffs could in fact become permanent layoffs.
(BEGIN VIDEO CLIP)
RICHARD MARSH, CITY ADMINISTRATOR, ECORSE, MICHIGAN: We assumed that we'd have more production. And in fact, we thought it had a reverse effect.
There be more hiring taking place, you know here locally. Yes, it was a shock. It was a shock and I am hoping that things reverse quickly.
JAMES PERRY, EXECUTIVE DIRECTOR, DOWNRIVER COMMUNITY CONFERENCE: It's a recession when your neighbor is laid off. It's a depression when you get
laid off and it hasn't changed in the past 38 or 39 years, and there's all kinds of emotions to go through it. You know, you get concerned when you
hear 200 people are laid off, so it is a concern.
(END VIDEO CLIP)
[09:55:21] YURKEVICH: And when you hear 200 temporary layoffs here, that may not sound like a lot when you compare it the to the couple of thousand
people who are working here at this factory, but what is concerning people here in the community, Paula is the fact that this is an indicator of
what's going on with the industry that in fact there's a downturn instead of it picking back up again.
You look at U.S. Steel prices trading this time last year about $30.00 a share; now, they're $12.00 a share. And when we asked U.S. Steel when
these temporary layoffs would come, online, they said that they didn't have an answer. They don't know when -- Paula.
NEWTON: All right, Vanessa, thanks so much for bringing this story to us. We really appreciate it and that's it for FIRST MOVE. We have a good
little rally going on here in the markets, we will continue to cover this in a couple of hours on "The Express."
In the meantime, I leave you in the capable hands of IDesk with Robyn Curnow and it starts after a short break.
(COMMERCIAL BREAK)
[10:00:00]
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