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First Move with Julia Chatterley
The E.U. Says It Will Extend The Brexit Deadline, But Won't Make It A Formal Offer Until Next Week; Boeing Vows To Fix The 773 MAX After Indonesia's Lion Air Crash Report Points To The FAA And The Crew As The Cause; Amazon Same-Day Shipping Makes A Rare Cut In Its Profit. Aired 9-10a ET
Aired October 25, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:25]
ZAIN ASHER, CNN INTERNATIONAL ANCHOR: Coming to you live from the New York Stock Exchange, I am Zain Asher in for Julia Chatterley and here is what
you need to know.
Agreed in principle: The E.U. says it will extend the Brexit deadline, but won't make it a formal offer until next week.
Never again. Boeing vows to fix the 773 MAX after Indonesia's Lion Air crash report points to the FAA and the crew as the cause.
And Amazon same-day shipping makes a rare cut in its profit.
It's Friday and this is FIRST MOVE.
All right, welcome to FIRST MOVE. Great to have you with us. Call it the angst over Amazon. Shares of the online retail giant are sharply lower in
premarket trading. Let's take a look here, down six and a quarter percent after earnings miss and softer guidance as well.
Jeff Bezos is about to become billions of dollars poorer. He could actually lose the crown of the world's richest person. His net worth is
down about $7 billion or so, but Amazon's woes aren't hitting the broader market hard, futures are on track for a flat to modestly lower open as we
wrap up an intense week of earnings result have come in overall, mixed.
As of yesterday, more than 80 percent of companies have beaten expectation and the S&P 500 remains, only about one percent away from record highs.
That said, Amazon joins the list of high profile companies like Twitter, 3M and Ford whose results have actually greatly disappointed investors.
Twitter shares closed down almost 21 percent on Thursday.
Trade war uncertainty continues to be a big theme as well a speech by U.S. Vice President Mike Pence yesterday shows that even with a trade truce, the
tensions between the U.S. and China are still simmering. Pence criticized China for its record on human rights. China called the speech quote,
"lies."
All right, let's get right to the drivers and in another ongoing flashpoint for investors, I'm talking of course about Brexit which is six days until
the British Prime Minister's die in a ditch deadline to leave the E.U., October 31. Brussels says it won't decide on the length of a delay until
next week. It is waiting to see the outcome of the latest standoff Between Boris Johnson and the U.K. Parliament. At this time, the deadlock is over
a proposed general election on December 12. As Johnson says, it is the only way to solve the nightmare Brexit crisis.
This is his third attempt to try to force a snap vote, and it looks far from certain things will go his way when the House of Commons vote again on
Monday.
All right, let's bring in two of our best and brightest international diplomatic editor, Nic Robinson who joins us live now from Downing Street.
Nina dos Santos is with us from Brussels as well.
Nic, I want to begin with you. So just walk us through what do you make of Boris Johnson's strategy here? He is supposed to be saying, listen, I will
give you a little bit of extra time to look over the withdrawal agreement bill as long as you give me my general election. Will his strategy work?
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: Yes, look at the do or the die -- do or die in the ditch, that's now dead. That's clear. The
Prime Minister sort of offered an extension for these talks that wouldn't be acceptable to anyone in the opposition. Quite simply, it's still much
shorter than what they required. And it's tacked on to that an election that they're not ready to sign up for.
The Leader of the opposition today has said, Boris Johnson, the Prime Minister has to absolutely take off the table the possibility of a no-deal
Brexit, although, interestingly, the leader of the opposition did seem to indicate that he would potentially go for an election even earlier than
December the 12th.
And the very fact that Jeremy Corbyn, leader of the Labour Party appeared on sort of primetime morning viewing in the U.K. is sort of an indication,
is really sort of gearing up for an election race, because that's the sort of audience you would target.
So we do seem to be in this sort of high and great expectation of an election, but perhaps not on the Prime Minister's terms because they're not
palatable at the moment. He needs a two-third majority in Parliament. He needs the support of the Labour Party and at the moment, that just isn't
clear that he is going to get it at all.
[09:05:04]
ASHER: All right, Nic, standby. Let me bring in Nina dos Santos, so Nina, walk us through how is this proposed general election by Boris Johnson on
December 12, affecting the E.U.'s thinking when it comes to an extension?
NINA DOS SANTOS, CNN EUROPE EDITOR: Well, it means that we have another one of these political games of chicken and egg if you like, just each
waiting to see which one will blink first, essentially, the E.U.'s position is that things are so fluid in Westminster. They are waiting to see
whether or not that motion is tabled for a general election.
And as Nic was pointing out, whether or not it would command enough of a majority to actually pass before they actually sign off on this extension.
Now, what we had today, in the morning was the second meeting so far this week of E.U. ambassadors for the 27 remaining member states. Apparently,
that meeting was constructive according to an E.U. official I was speaking to earlier today, and that there was a full agreement that there should be
an extension.
The only problem is, is that they can't grow one until they know how long that extension should be. Now, the only date that they have on the table
to work with at the moment is the one that Boris Johnson's letter sent over the last weekend proposed, which is the end of January the 31st of next
year.
But as we've been reporting over the last couple of days, France has made it very clear that it believes that the time pressure should be kept up to
try and focus minds in the House of Commons. And for that reason, they haven't yet managed to come to a unanimous agreement.
Any extension has to, by the way, be granted unanimously by these member states. And as such, the work will continue over the course of the
weekend.
Now, one piece of good news so far is that it seems as though both the European Commission and E.U. officials who were in these ambassadorial
meetings continue to say that they're looking to try and achieve this agreement on an extension by written procedure, which means they might be
able to try and avoid one of those costly and time consuming E.U. Summits next week -- Zain.
ASHER: All right, Nina dos Santos, Nic Robertson, thank you both so much. All right. Amazon stocks sank premarket as the e-commerce giant admitted
same-day delivering is costing more than it thought. Shares fell as much as eight percent after hours after Amazon earnings came in below Wall
Street's expectation.
The company says have back those losses just a little bit. All right, Clare Sebastian joins us live now. So Clare, they missed estimates and as
a result that stock is being punished by Wall Street. Just walk us through part of the issue here. They've been spending so much money on same-day
delivery.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Zain, in the last quarter, we got really the news that Amazon is back in an investment cycle.
They are really now spending out once again to maintain their market leader position and this is yet more evidence of that, so their revenues
accelerated a little bit, 24 percent was the best growth rate in a year. But profits were down 28 percent year-on-year so that is worrying to the
street. And also the fact that guidance came down for the crucial fourth quarter.
But let's take a look at that one-day shipping specifically because this is what's getting a lot of focus. Amazon promised earlier this year to make
it standard for Prime members, and this has caused a major overhaul of their logistics and fulfillment system.
So you see that shipping costs in the quarter were up 46 percent. They also forecast a one and a half billion dollar penalty, because of those
shipping costs in the fourth quarter, that is, again a crucial quarter for the holiday season, and it shows the costs are rising.
And really interestingly, they added up around a hundred thousand new jobs just in the third quarter alone, a stunning acceleration in terms of hiring
and most of those the company says are in fulfillment and transportation so to support that one-day shipping.
But Zain, it's not just in shipping that they're spending. Amazon Web Services, which is the crucial profit driver of this business, they saw
expenses go up there for sales and marketing and infrastructure. So that is also causing some concern among analysts, especially given the
competition in the Cloud.
ASHER: And when you think about the holiday season, the guidance for the holiday season this year slightly underwhelming, was that mostly because of
the domestic demand or international demand for Amazon?
SEBASTIAN: It's both, Zain. They said that there were actually some idiosyncratic factors that will affect international demand going into the
fourth quarter. Diwali, which is usually in the fourth quarter was now partly in the third quarter this year. There's also a consumption tax that
rose in Japan, so that could affect things as well.
But it's really overall and as I said, driven by those highest shipping costs. $1.5 billion is more than they say they have spent over the past
two quarters, so as that demand ramps up, so will the cost of providing the one-day shipping, which is now reset customer expectations.
The stock, Zain, which is down some 10 percent since their last earnings call when we got the news of that investment cycle down again, as you say
today, so it looks like the street is kind of lowering its expectations in the medium term for Amazon.
ASHER: All right, Clare Sebastian, live for us there. Thank you so much. Boeing says it is implementing safety recommendations raised by Indonesian
investigators about its 737 MAX aircrafts.
[09:10:09]
ASHER: Earlier today, the investigators released a summary of a report into the Lion Air flight 610 that crashed in October last year. They
identified Boeing as one of nine contributing factors to the crash, which claimed the lives of about 189 people.
Oren Liebermann is a CNN correspondent and a pilot who has actually been covering the story of the 737 MAX8 and the fallout of the crash for several
months now. So Oren, just walk us through the summary of this Lion Air report.
OREN LIEBERMANN, CNN CORRESPONDENT: Zain, first it is still worth noting that the final report by Indonesian investigators hasn't been put out yet.
So there are a lot of unanswered questions and certainly details we want to see, especially crucially, some of perhaps the transcript of what the pilot
and copilot were talking about during the 11-minute flight before it crashed.
But we did get a summary and they put out what they called nine contributing factors to the crash, saying that if any one of these hadn't
have happened, perhaps the crash wouldn't have happened.
But of course they did, leading to that crash back in October and the deaths of all 189 on board. Now, they spread out the blame over just about
every factor and agency involved in this crash. But crucially, they point to Boeing and the FAA for what they say was an improperly designed system
that was then improperly certified.
They said it was the automatic MCAS system at the heart of the investigation that activated improperly over and over again, eventually
overpowering the pilots. Shortly, after the release of the summary, Boeing put out its own statement saying it is working on correcting some of these
flaws. Crucially, making sure that this MCAS system has more than one source of information and that it will only activate if both of the sources
of information agree.
And then it said that a pilot essentially will be able to overpower the MCAS system if it improperly activates. We know that not only in this
crash, in the Lion Air crash, but all in the Ethiopian crash this MCAS system when improperly activated, overpowered the pilots on board, forcing
the airplanes to nose dive into the ground.
The 737 MAX aircraft remains grounded at this point. Crucially, Boeing now says that won't happen with the fixes and that the pilots will be able to,
with manual input, overpower the system if it is improperly functioning. They also say they're working on updating flight manuals and flight
training, which is what Indonesian investigators say was crucially lacking.
But that's not where this report ends, Zain. Investigators also pointed to the flight crew, miscommunication in the cockpit and a co-pilot who wasn't
properly trained and didn't properly respond to the emergency were some of the factors that led to this crash.
Again, Zain, it's a complicated report as we expected because it's a complicated aircraft. Boeing and the FAA are now trying to fix the
problems that were there on board, as well as on board the Ethiopian flight and get this plane recertified. It's been out of service now, grounded for
months around the world.
ASHER: So Oren, with these fixes, as you mentioned, the 737 MAX is still grounded, but with these fixes that Boeing is talking about, at what point
do we believe that the 737 MAX will be back in the skies.
LIEBERMANN: We're still weeks away, which is our latest update from the FAA administration and this process has been ongoing. Boeing was certainly
hoping to have the plane back in the air by now because it's grounded all around the world.
But the process continues, and throughout this process, Boeing has repeatedly discovered more problems as they try to recertified the aircraft
for flight and that process continues.
My colleague, Ivan Watson asked Indonesian investigators, would they be comfortable flying this plane? Do they have confidence in this plane and
do they think it's safe? They wouldn't comment on safe or not, but they say from everything that was learned from this crash and the subsequent
Ethiopian Airlines flight 302 crash five months later, the plane will be in a condition to fly once the FAA signs off, once the world's aviation
authorities sign off and the plane is once again certified to carry passengers and fly.
ASHER: All right, Oren Liebermann live for us there. Thank you so much.
Okay, so these are the stories making headlines around the world. Teargas and bullets have been fired in Baghdad where police dispersed a
demonstration. Two people died and 95 others were treated for suffocation in the Iraqi capital after being exposed to teargas.
Meantime, Lebanon's President has made no concrete concessions in his first nationwide address. This protest erupted against the country's fiscal
elites a week ago.
And in Chile, what started as a protest of rising subway fares have turned into a wider protest against living costs and inequality. Matt Rivers is
in Santiago for us.
So, Matt, just set the scene for us where you are. We know that at least 18 people have been killed and police have actually responded to
demonstrators by firing teargas, rubber bullets and water cannons as well.
MATT RIVERS, CNN INTERNATIONAL CORRESPONDENT: Yes, absolutely. I mean, if you're talking about protests that are going on around the world right now,
you know, Chile has to be near or at the top of that list. We're in the capital city of Santiago.
[09:15:04]
RIVERS: And right now, this would be the calm before the storm. We are expecting demonstrators to be out here yet again for probably what will
become more violent protest that would become the seventh straight day of protests here in Chile's capital, and we're expecting people to come out as
the day continues here.
It is a little after 10 in the morning here, but you can see police and the military are getting ready as well right there behind me. You can see
there's some trucks there. That would be a truck on top with a water cannon mounted that has been used quite a bit and in front of that, there's
a smaller truck that actually sprays tear gas as it drives through the streets. We've been seeing those kinds of scenes throughout the week.
Over here you can also see the fact that there's been a lot of damage on storefronts, subway stations and right now, we're seeing crews out here
before the protesters come out, try and do what they can to clean up before what will inevitably become more protests during the day today. No doubt
about that.
In terms of what people are upset about, the list is long. I mean, really, it starts and stops with the fact that this country has one of, if not the
highest rates of economic inequality in the world. And what you're seeing here on the streets is the middle class that is frustrated with what they
see, as the rich keep getting richer and the fact that the middle class is stuck in this middle income trap that they can't seem to get out of, even
though Chile, economically speaking is one of the wealthiest countries in Latin America.
People here are frustrated, and they're going to come back out into the streets once again today, on Friday here in Chile's capital.
ASHER: Matt Rivers live for us there, thank you and we'll have much more on the process in Chile and in Bolivia, actually a little bit later on the
show.
Okay, other stories that we are following, Maria Butina is due to be released from a Florida prison in the coming hours. The Russian operative
who pleaded guilty to conspiracy to act as an agent of a foreign government is expected to be deported as soon as she is released. Butina spent 18
months behind bars for trying to infiltrate American political groups and promote Russian interest in the United States.
And still to come here on FIRST MOVE, a global wave of rage as protesters from Latin America to the Middle East take to the streets. We will look at
what is sparking the unrest around the world.
And search get smarter as Google introduces AI that can make sense even off the most awkward phrases. That's next.
(COMMERCIAL BREAK)
[09:20:37]
ASHER: All right, welcome back to FIRST MOVE coming to you live from the New York Stock Exchange where it's still looking like a mostly flat open
for stocks.
Amazon's earning woes continue to weigh on sentiment. Its shares are set to fall about five percent at the open after its earnings miss. But Intel
is a bright spot for the techs. The chip giant is up three percent premarket on strong results and better than expected guidance.
In the meantime, European stocks have trading mixed as investors follow the latest Brexit uncertainties. The pound is under pressure but still near
five months highs.
The European Union has agreed in principle to grant Britain a further extension -- Brexit extension -- but won't make a decision on how long it
will be until next week.
This comes after a call for an early election by British Prime Minister Boris Johnson. Mr. Johnson plans to introduce the motion on Monday. He
spoke just a short time ago. Here's what he said.
(BEGIN VIDEO CLIP)
BORIS JOHNSON, BRITISH PRIME MINISTER: Of course, October 31st is still possible. We could leave on October the 31st. Unfortunately, it depends -
- unfortunately, it depends on what the E.U. sets.
We're in a situation now in which under the terms of the Surrender Act that was passed by Parliament, it is up to the E.U. to decide whether or not we
stay in the E.U.
QUESTION: You make that can I --
JOHNSON: It is now up to the E.U. to decide how long that extension would be. What I'm saying to the -- to the Labour Party, to Jeremy Corbyn in the
Labour Party is that they have the opportunity now to get this thing done.
It is the time of Corbyn to man up. Let's have an election on December the 12th.
(END VIDEO CLIP)
ASHER: Peter Dixon, chief U.K. economist at Commerzbank joins us live now. So in Boris Johnson's words, is Jeremy Corbyn going to quote-unquote "man
up" and grant the election for December 12th? Would that be a wise thing for the Labour Party to do given their standing in the polls?
PETER DIXON, CHIEF U.K. ECONOMIST, COMMERZBANK: Well, I don't think it would be a particularly wise thing to do. And as a consequence, I rather
think that the Labour Party will not grand Boris Johnson his wish. I mean, we certainly hear that something like 140 MPs have already talked to Mr.
Corbyn saying this would not be a good trap to walk into.
So I rather suspect that we won't get an election and it will then be incumbent upon Boris Johnson to try and promote his deal to Parliament and
allow an appropriate discussion of it and allow MPs to scrutinize it in the way which will allow it to be passed into law.
ASHER: So if Boris Johnson though does get an election, he does get what he wants on December 12th, just walk us through what is the best case
scenario and the worst case scenario for Boris Johnson going forward in terms of that Withdrawal Agreement Bill?
DIXON: Well, the best case scenario is that he obviously wins a majority in Parliament, and as a consequence, is in a position to push through any
legislation that he wishes more or less, and that will certainly enhance the chances of the Withdrawal Agreement Bill being passed, possibly by the
end of January, if the E.U. grants a three-month extension.
The worst case scenario is that he falls well short of a majority. I mean, I think it's pretty likely that the conservatives would still be the
largest party in Parliament. But after the events of the past week or two, it's pretty unlikely that he'll be able to rely on the Democratic Unionist
in Northern Ireland for support.
And as a consequence, he has to make sure that he has a smaller deficit as possible going into the next parliamentary session.
ASHER: So the likely scenario is that even with an election, even if he does get what he wants, he is still in a massive bind.
DIXON: Oh, for sure. I mean, I think it is often overlooked that just getting the withdrawal agreement bill through really only marks a staging
post on the way towards Brexit. It takes the U.K. into a transition phase, which will expire at the end of 2020.
And it is therefore incumbent upon both the U.K. and the E.U. to get a deal secured by the end of next year and it's pretty unlikely that will be the
free trade agreement that the government currently hopes.
ASHER: So given the uncertainty over the election, I mean, obviously E.U. officials are looking at this very, very closely. Now what would be the
smart move from the E.U. in terms of how long to actually grant an extension for? Do they grant an extension until January, latest; slightly
earlier -- what would make sense given Boris Johnson calling for an election?
[09:25:18]
DIXON: Well, I think granting an extension to January probably will be the optimum move. I mean, anything shorter probably just isn't going to be
long enough. But if you go too much longer than that, you certainly run the risk that emboldens rebel MPs in the U.K. to postpone the Brexit deal
still further and that's exactly what the E.U. does not want.
So I think the three-month extension, as has been mandated in U.K. law would certainly be the least worst outcome if I could put it that way.
ASHER: And the fact that we saw the pound obviously drop at one point down one percent yesterday after Boris Johnson called for an election. I mean,
what does that tell you about what the markets want in terms of just all the uncertainty surrounding what election would mean and just Brexit
overall.
DIXON: Well, I think the markets like, you know, like many of the electorate just want these problems go away and they can focus on some
fundamentals.
But I think the very fact that the pound initially weakened tells you that markets are as fed up with the uncertainty as the rest of the country. And
I think it just injects yet more uncertainty into the process. I mean, the pound had been trading pretty strongly over the course of the past couple
of weeks on the basis that a deal seemed near and it still is, it just requires it to go through Parliament. We just need a little bit more time.
And I think that the problem really is that Boris Johnson has tried to railroad this all through by the 31st of October. That's not realistic.
But if he said the 13th of November, that's certainly a realistic prospect and I think the pound would certainly benefit under those circumstances.
ASHER: All right. Peter Dixon, live for us, thank you so much. Okay, you are watching FIRST MOVE. The opening bell is just a few minutes away. See
you on the other side of this.
(COMMERCIAL BREAK)
[09:30:11]
ASHER: All right. Those fist pumps there. That is the final opening bell of the trading week. I am Zain Asher coming to you live from here at the
New York Stock Exchange. As expected, let's take a look. It looks like a modestly to flat lower open to stocks as we wrap up the first big week of
earnings.
Let's take a look. Here, the Dow is down 30 points or so, pretty much flat at the moment, almost half of all the companies in the S&P 500 have now
reported earnings. Most are actually beating expectations by not -- not by the wide margins we've seen in past quarters. Trading could continue to
remain in a narrow range until we get the Feds' policy decision on Wednesday.
Lot of people by the way, expecting them to cut interest rates at least once, if not twice this year. There is a growing sense that the Fed maybe
close to the end of its easing cycle.
Let's take a look at some of the Global Movers just in terms of earnings. Amazon shares are sharply lower. It's been down about four and a quarter
percent. The company's profits fell for the first time in more than two years due in part for cost of one-day shipping. Amazon is investing
heavily in one-day shipping and that's partly why they missed on earnings, also given some soft fourth quarter guidance as well; sales growth,
however, does remain strong.
Let's take a look at Intel shares. They are rallying. Up over five percent. The chip giant beat earnings estimates by a full 18 cents a
share, but it's raising its fourth quarter outlook as well. Intel is citing strong demand for chips that power Cloud computing data centers.
And Nike shares are a little changed. They are basically flat right now. U.S. Vice President Mike Pence criticized both Nike and the NBA in the
speech on China policy yesterday. Pence says when it comes to Hong Kong human rights, Nike quote, "prefers checking its social conscience at the
door."
Nike pulled Houston Rockets merchandise from China stores this month after the general manager of the Rockets angered China by supporting Hong Kong
protests.
And shares of Ab InBev are trading eight and a half percent lower in Brussels. The brewery reported sluggish sales in the third quarter,
especially at its Asian business. That prompted the company to cut its earnings forecast as well.
Paul La Monica joins us live now. So Paul, just walk us through this. Part of the issue was price hikes in Brazil, South Korea as well and also
commodity cost increases, too.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, that definitely weighed on the results. But I think the bigger story, Zain is that you have in China,
sales growth has really slowed dramatically. I think that's because of the economy in China cooling off so that is a problem for AB InBev, but also
here in the U.S.
This is a company that is continuing to struggle to try and find new drinkers for its core Bud and Bud Light platform. Hard Seltzer, think of
White Claw that is a major competitor now to AB InBev and other alcoholic beverage companies. That's why AB InBev is going to make a big splash
hopefully for them in this category, they are going to be launching your Natty Light on the lower end as well as Bud Light Spike Seltzer.
They have another product Bon & Viv and they're hoping that these new products can counter some of the slowdown in their core beer brands even in
their micro brews and craft brews that they own.
ASHER: So aside from the U.S., obviously that sort of struggling sort of market for AB InBev, but just in China, we know that competition is
increasing. You touched on this. How important is the China market for a AB InBev?
LA MONICA: Yes, it's extremely important obviously especially since you also had AB InBev recently list its Asia-Pacific business on the Hong Kong
Exchange. Shares there are lower as well this morning for the AB InBev Hong Kong, you know, stock for that Asia unit.
So clearly China and other areas of Asia are going to continue to be a growth market even though AB InBev sold a piece of that to try and cut
debt.
But the good news for AB InBev is that there are many other markets around the world where sales are still growing pretty dramatically. They're doing
extremely well in Mexico, Colombia, South Africa, so AB InBev, there are some bright spots, but the U.S., slow down and China, obviously the two
biggest economies in the world, that's going to be a problem, no matter how many other emerging markets are doing well.
ASHER: Paul La Monica, thank you. The White House has been adamant that Phase 1 of a trade deal with China is secure and that is a significant step
towards a wider deal. But the message from Beijing seems less optimistic.
Richard Quest spoke with Peter Navarro, the top White House trade adviser and asked him why.
The best thing for investors in particular to do is not pay attention to the press releases
[09:35:02]
(BEGIN VIDEO CLIP)
PETER NAVARRO, DIRECTOR, WHITE HOUSE OFFICE OF TRADE: The best thing for investors in particular to do is not pay attention to the press releases of
either side, right? It's all happening. The White House rule is, all negotiations happen behind closed doors.
So we have firm commitments from them that we will have a Phase 1 deal. They were good faith negotiations. They've left us at the altar before,
maybe this time, we'll get the deal, but so far --
RICHARD QUEST, CNN INTERNATIONAL HOST: So it is a real deal? Phase 1 is real?
NAVARRO: Well, I can tell you -- I can tell you what's in it. QUEST: But a lot of people that I've spoken to have sort of said this is smoke and mirrors.
NAVARRO: Of course, it's a real deal. Okay. I can tell you kind of kind of chapter and verse what's in it.
The centerpiece of it is an enforcement mechanism that will apply to all phases. That's -- we can't have a deal without strict enforcement and it's
going to be an enforcement mechanism that allows us rapid response to any violations.
Now having said that, the most important part of the deal when this is fully formed, is the intellectual property theft.
We get virtually the entire chapter that we had from 150-page agreement. There's a good start on forced technology transfer, there's good stuff on
currency manipulation. Some things are not in there -- dumping subsidies, for example.
(END VIDEO CLIP)
ASHER: All right, Peter Navarro speaking to our Richard Quest. Trade woes and slowing Chinese growth continue to weigh on third quarter profits --
3M, AB InBev and Ford are among the company's blaming China for weak results.
Dryden Pence joins me live now with his take on earnings and the markets. He is the Chief Investment Officer of Pence Wealth Management. Dryden,
thank you so much for being with us.
Let's talk about this earnings season overall. It seems as though just given some of the global headwinds, given the U.S. trade war with China.
The companies that have less international exposure are the ones that are bound to fair better.
DRYDEN PENCE, CHIEF INVESTMENT OFFICER, PENCE WEALTH MANAGEMENT: Exactly. I think the when you focus on the U.S. and the U.S. economy still
tremendously strong, more people are making more money than ever before, and I think that that's going to carry through.
And the international companies with a lot of exposure there are kind of subject to this global slowdown, some of the headline risk that's out
there. So more U.S. focused portfolios, we think are going to outperform the global portfolios in nature.
ASHER: And just in terms of the U.S. trade deal with China, what's your anticipation because obviously, you know, both companies, both countries
rather stand to benefit especially given that President Trump has an election around the corner.
PENCE: Well, in negotiating with the Chinese, you're always going to find these jukes and pivots and the things that they're going to do and they'll
do something and they'll back away, and they'll come back and forth.
So this deal is not over yet, and I think there's going to be still a lot more negotiation after negotiation and renegotiation to go on, but the big
thing to know in all of this is every day that goes by, China gets weaker, the U.S. gets stronger, it stays the same.
Because companies are moving out of China and when they do that to avoid all the tariffs or the threat thereof, China has got some real problems
long term. And I think that they're not gonna be able to fully wait this thing out.
ASHER: And so when it comes to the Fed, the anticipation is that at least -- the Fed is at least going to cut interest rates one more time, it could
be two more times this year. What's your expectation? And if the Fed only cuts once, what sort of market reaction are we going to get now?
PENCE: I think if the Fed only cuts once, you're going to have a negative market reaction, but we won't know that fact until December.
ASHER: Right. Right.
PENCE: Right? So the other challenge is, is the last two cuts that the Fed did are really just taking off two hikes that we don't think they
should have done in the first place. So now we're sort of back to even keel where we were back in July and now they are probably going to take one
off, they might have to take two to kind of catch back up to where they are.
If they hadn't raised too much too fast, they might not have to do two, but I think they're going to have to do two, if it's not two this year; then
it's one this year and one right at the beginning of the next year.
ASHER: When you think about the state of the U.S. economy, especially the strength of the American consumer that everybody talks about, are two
interest rate cuts really warranted? I know you said they have to make up for the fact that they raised interest rates too many times. But is it
really warranted based on the state of the U.S. economy right now?
PENCE: Well, here's the issue, the Fed raises interest rates to change human behavior, and human behavior has changed. I mean, 45 percent of the
population is under the age of 44. They don't know an interest rate.
So when you get housing rates above four percent, demand really falls back off. We're used to, we would think six percent was an acceptable interest
rate -- no longer. So behavior has changed dramatically.
And so the Fed, those moments where people really changed their behavior around interest rates, happens at a much lower rate than in the last 50
years. And I think we have to adjust to that and that means the Fed is going to adjust how they think about it. So we're going to end lower for
longer.
ASHER: Let's talk about Boeing. You're bullish on Boeing. You own Boeing. You know, for Boeing at this point, we got the summary of the
report for the Lion Air crash. For Boeing, at this point, it seems as though things are really going to turn around when the FAA is able to be
certify the 737 MAX. But they've been boosted by their defense business. Right? And so that is what -- I mean, we've got their earnings. It wasn't
as bad as people had been anticipating partly because of that.
[09:40:19]
PENCE: Sure. Well, I think people -- Boeing has got a 50-year-history of solving big problems, the 737 will eventually fly again. You've got a very
long backlog of orders that people are not going to do, so all of that's kind of -- it's just - the question is not if, but when does the 737 fly
again?
But people forget also the major defense components of Boeing and the U.S. is spending on defense, but also the NATO Treaty and forcing everybody to
increase their spending to two percent. There's a lot of additional foreign countries needing to spend.
They've got another $780 billion that they are going to spend over the next five years probably, and a lot of that's going to be spent with U.S.
defense contractors and Boeing is a big one and they're going to benefit from that because the same treaty that says they've got to spend two
percent also says it has to be interoperable with U.S. products.
So I think that there's an underpinning, the people are under estimating Boeing and we think that it still a very good positive long term story.
ASHER: All right. Dryden Pence. Thank you so much. Appreciate it.
PENCE: Thank you very much.
ASHER: Okay. So after the break, anger and frustration boil over in flashpoints across Latin America and the Middle East, the politicians and
the economy in the crosshairs. We will take a deep dive after the break.
(COMMERCIAL BREAK)
ASHER: In the four corners of the world, we are seeing violent protests with a common thread. In Iraq, demonstrations flared against corruption
and unemployment.
In Chile, a rise in metro fairs triggered wider protests. In Lebanon, in all began with anger over a tax on WhatsApp calls, while in Bolivia, public
concern about election fraud boils over.
Bring it all together and these protests are about the economy, corruption and a failure on politicians. Patrick Esteruelas is Head of Global
Research at Emso Asset Management.
[09:45:10]
ASHER: Patrick, thank you so much for being with us. So you look at the protests happening in Bolivia and it appears that people are angry about a
perceived power grab by Evo Morales, and you look at what's happening in Chile and on the surface, it looks as though oh, people are upset by income
inequality. But what is the common thread that ties though to those two protests together?
PATRICK ESTERUELAS, HEAD OF GLOBAL RESEARCH, EMSO ASSET MANAGEMENT: Well, thank you very much for having me on the show. It's very easy, you know,
to use, you know, throw away labels like a Latin American Spring, right? I mean, that could be not cut across all of these countries and these
protests, but in fact, the drivers are very, very different. Right?
As you pointed out, you know, in Bolivia, you know, the protests are primarily fueled by the perception that Evo Morales was trying to tamper
with the votes and secure a first run victory, which may not have actually been a first run victory, right?
In Ecuador, you know, the protests were really protests against fiscal adjustments, right, in a country that is, you know, undergoing a very, very
aggressive fiscal consolidation adjustment under the auspices of a financial program that is, you know, clearly, you know, cutting against,
you know, various sectors of the population at large. And driven by an indigenous movement, I mean, that, you know, folks particularly
disenfranchised.
Chile is a different kettle of fish. Chile is an example of economic modernization theory. People's incomes have gone up. The poverty lines
have declined. People's expectations are going up.
So now, you know, people are no longer asking for, you know, a home or higher basic incomes. They're asking for better education, better public
services, better transportation, and it's that increase in the public transportation fares that detonated a level up of disenchantment that has
been bubbling and adjusting to the level in a number of other middle income countries so far in Latin America.
ASHER: So people look at Chile, for example and they think, oh, this is one of the wealthiest countries in Latin America. Oh, it's super stable,
but what are we missing about what life is like, if you are -- if you feel disenfranchised or if you are at the bottom of the totem pole, or if you're
middle class, you just feel as though you're being left out.
ESTERUELAS: So what we're missing, you know, is that, you know, even though poverty has come down in Chile significantly even though Chile has
enjoyed deeper and a more sustained growth cycle than practically all of the countries in Latin America, inequality continues to be very high.
And this unfortunately, is a trait that is common across the entire region. Okay. So many of these countries that enjoy the super commodity cycle,
right in all through the last decade and were able to paper basically I mean over these cracks are now facing a population that is structurally in
a very different place and is asking for very, very different deliverables.
In Chile -- that has also been particularly aggravated by the fact that you have a President who is one of the wealthiest members of the country who is
generally perceived as having something of a tin ear, right, and embodies right that entrenched inequality that people have been protesting about.
ASHER: When you think about the fact that a subway fare hike could have sparked this level of anger and frustration, it makes you wonder what has
been bubbling beneath the surface for many years?
ESTERUELAS: Exactly, what we've been talking about just now, the fact that Latin-American populations, I mean, by and large have now matured to a
different cycle, right, and are asking for a very different set of deliverables are asking for deeper social safety nets, they're asking for
greater protection.
They're asking for policies, something that will diminish overall inequality I mean, that is prevalent throughout the region. Let's not
forget that this is not the first time we've actually seen a generalized protest in response to public transportation hike.
In Brazil in 2013, we had thousands of people who sat on the streets, right? Triggered by exactly the same thing we're seeing in Santiago today.
ASHER: So what is the lesson that we should take away from this? It's not just about this idea of everybody becoming a little bit more prosperous,
it's about the gap. It is about the perception of unfairness. Even if everybody's income rises, the gap between the rich and the poor will always
be a source of frustration for people.
ESTERUELAS: That's exactly right. We're moving to a phase where it's no longer about lifting people out of poverty. It is about ensuring that
policies will be much more equitable and will distribute the wealth a lot more broadly across the entire country.
ASHER: All right, Patrick Esteruelas, thank you so much. It's a time for a quick break here on FIRST MOVE. We'll be right back
(COMMERCIAL BREAK)
[09:52:07]
ASHER: All right, welcome back. Here is today's "Boardroom Brief." The social media giant, Facebook says it will add a new section to the app
dedicated to news. Facebook news tab will have curated content from various publications, but only some will be paid for their content. Who
will be paid remains unclear, making local newsrooms worried about being left behind.
And nearly 50,000 General Motors employees in the U.S. are voting on a tentative deal that could end their five-week strike. The results are
expected to be announced in a few hours. The early reports are mixed. It is the longest strike in a decade and it's estimated to cost GM billions of
dollars.
And Google Search getting smarter. A new AI tool will help answer even the most casually phrased question. It is the biggest upgrade to Google's
algorithm in five years. Hadas Gold joins us live now.
So Hadas, the system is cold BERT. Just walk us through how exactly it works and how it will change the way Google Search actually functions.
HADAS GOLD, CNN BUSINESS REPORTER: Yes, Zain, so BERT stands for a Bidirectional Encoder Representations from Transformers, which is pretty
much a fancy way to say that Google Search is getting smarter in terms of how we actually talk and how we actually search.
The easiest way to explain this is to show you an example. So let's say you searched can you get medicine for someone at a pharmacy? Now you and I
understand that what you're trying to find out is whether you could pick up medicine for somebody else at the pharmacy, but before Google would show
you results about getting your own prescriptions from the pharmacy. Now, it will start to show you the correct answer.
Another example, parking on a hill with no curb. Before, the system would consider the word curb more important than the word no. So pretty much
what the system is now doing is taking the cues of the order in which the words appear in the sentence, which is how you and I understand language in
a day-to-day basis.
So now what they're saying is that the results in your Google searches are going to be a little bit more accurate. I'm sure we've all searched for
things in our random search languages we all use, and the results aren't quite there.
Google is saying that this is going to improve the type of results we get. It's all about artificial intelligence, recognizing the order in which our
natural language is used.
Now, they say that these results will only affect about one in 10 searches. But if you think about the billions of searches that are done every day on
Google, that's going to mean hundreds of millions of searches are going to be what Google says are improved.
Now you're not going to be able to tell which of your searches uses BERT and which don't, you're not going to be able to revert back to a pre-BERT
search. But Google says this is a very significant change. As we said, it's the biggest change for their search in the last five years, and
unfortunately though so far, it's only going to be available in English in the United States, but I should expect this will be rolled out eventually,
across all different languages.
[09:55:10]
GOLD: Of course, different languages, they set up their sentences differently. Words have different meanings. But this is all showing the
power of artificial intelligence and how they're teaching their system to learn our natural languages, because every day, they say there are millions
of new searches in Google. And every time you put in a new search that Google hasn't seen before, they say this system is learning more and more
about how languages put together in order they say, to give us more accurate results for what we're actually looking for -- Zain.
ASHER: Yes, the biggest update to Google's algorithm, as you mentioned in five years. This is big. Obviously, a lot of companies live and die by
where they are in a Google search engine. So this is massively important. A lot of people are watching this very, very closely. Hadas Gold. Thank
you so much.
And that is it for the show. Thank you so much for watching FIRST MOVE. I am Zain Asher. Stay with CNN. "CONNECT THE WORLD" starting right after
this short break. Enjoy your weekend.
(COMMERCIAL BREAK)
[10:00:00]
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