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First Move with Julia Chatterley
Global Stocks Extend Declines As The Coronavirus Spreads; Disney Closing Another Theme Park, And The Geneva Motor Show Is Off; A Battle In Biotech, The Race For A Virus Vaccine Sees Stocks Soar. Aired 9-10a ET
Aired February 28, 2020 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:12]
JULIA CHATTERLEY, CNN BUSINESS ANCHOR: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE and here is your need to
know.
Coronavirus correction. Global stocks extend declines as the coronavirus spreads.
Closures and cancellations. Disney closing another theme park, and the Geneva Motor Show is off.
Meanwhile, a battle in biotech. The race for a virus vaccine sees stocks soar.
It's finally Friday. Let's make a move.
A warm welcome once again to FIRST MOVE this Friday. It's finally the weekend. We're almost there. And I have to tell you, guys, for Wall Street
in particular, that weekend cannot come soon enough.
Just take a look at what we're seeing at this moment premarket. I can tell you it's been incredibly volatile already. We're down. We're expecting a
weakness of around one percent at the open, perhaps even more. We have been all over the place.
We did see a bit of a lift earlier after former Fed official, Kevin Warsh called for a coordinated Central Bank as early as this weekend. That helped
the futures bounce off their worst levels for a short while.
But all I can tell you is, volatility is what we have to expect and it follows the worst ever point drop for the Dow yesterday, a loss of some
1,200 points. Context though, guys, I say the worst that percentage drop of 4.4 percent doesn't even rank among Wall Street's 10 worst days. It doesn't
make it any less painful though.
The three major U.S. markets are firmly in correction mode. What do I mean by that? Well, they are than 10 percent now down from their most recent
highs, 12 percent, in fact for the U.S. majors and it is sort of the speed here that matters.
Last week, remember, we were talking about these markets being at record highs. What we also saw in terms of price action is important, a dramatic
pullback in the last hours of trade yesterday. Stocks that actually recaptured much of the losses throughout the session to the close,
particularly given it is month-end, the final trading day of the month today will be very important to watch.
I'm just looking at what's going on in Europe right now. We've got the German markets off more than four percent. Weakness once again. Stocks
there in correction.
In Asia, we've now got seven of the major markets there down 10 percent or more from recent highs. Thailand is now in bear market territory, down some
23 percent from recent highs.
The big question I think everyone is asking here is what can and what should policymakers be doing at this stage? Is fiscal policy from
government better at this stage than Central Banks taking action with lower rates?
South Korea moved today. They announced measures like rent subsidies, tax breaks. This after the Central Bank held steady on rates earlier this week.
So an important contrast there.
In the U.S., investors now anticipating three rate cuts from the Federal Reserve this year. We've got the U.S. 10-year bond yield falling through
1.2 percent earlier in the session. There is a lot going on.
Let me bring you up to speed with precisely what's driving this. The coronavirus outbreak outside of China well and truly the focus. Ten new
countries reporting their first cases over the last 24 hours.
This includes Nigeria, Africa's most populous nation. The biggest outbreak outside of China is in South Korea. There's been 13 deaths there and over
2,300 cases reported.
As I mentioned at the beginning of the show, international events across the world are being scrapped. Switzerland has banned any gatherings of more
than a thousand people.
The World Health Organization, meanwhile, has warned that the virus has pandemic potential.
Once again, I'll bring it back to markets. The Dow futures are lower at this moment and the major indexes across Europe and Asia entering
correction territory.
Matt Egan joins us now. Matt, I mean, we're seeing losses everywhere at this stage. But it's this speed, I think, of this correction phase that's
just caught everybody off guard.
MATT EGAN, CNN BUSINESS SENIOR WRITER: Julia, it's incredible. It took just six trading days for the S&P 500 to go from record highs to a 10 percent
correction. That is the fastest that we've seen in more than 70 years.
We're talking about trillions of dollars, $3.4 trillion, wiped off the market over that period. And that's not counting the losses that we're
about to see in the next 25 minutes.
So the speed of this has been really, really quick. I think it's another reminder of how quickly confidence can be shaken. It is a fragile thing and
it can vanish in an instant.
[09:05:03]
EGAN: And Julia, you know that when it does go away, people instinctively turn to the Federal Reserve for help.
CHATTERLEY: Yes, they do. And it's a global thing as well. Global investors also look to the Central Bank of the world at this moment.
Interesting, as I mentioned, Kevin Warsh's comments, former Fed Governor saying on a channel this morning that he believes that the Central Banks
should step up and perhaps even could make comments as early as this weekend. What do we make of that? Because the market right now saying they
expect cuts from the Federal Reserve.
EGAN: Right, Kevin Warsh, who knows a thing or two about the Fed and has actually been rumored as a potential Fed Chair at some point.
I think we should be honest, though, Central Bankers are not able to cure epidemics, let alone pandemics. Lowering interest rates, especially from
these very, very low levels is not going to cure the underlying problem.
As Peter Boockvar, the market analyst put it, rate cuts right now, they are not going to encourage people to travel. They won't bring the factories
back to work.
But listen, we know that people -- that investors are trained to buy stocks when the Fed cuts rates. So if the Fed and other Central Banks do step in,
and they do pump in more liquidity, that could, in fact, stabilize the market.
And given how much everyone follows the market, everyone from the President on down to the mailman that could help from a psychological standpoint and
that is a big thing.
Now, you mentioned, the market is pricing in rate cuts and in some ways, the market is kind of forcing the Fed's hand. There's now a 25 percent
chance of the Fed cutting by half a percentage point in March. That's up from zero percent just a few days ago. Clearly, there's a lot of pressure
on Central Banks right now.
CHATTERLEY: Yes, it's a symbol. It's the symbol it sends and your point about sentiment here I think is truly key. It's just a pain and unfortunate
that interest rates around the world are already so low. The firepower there just is not what it was. We will see.
Matt Egan, great to have you with us. Thank you so much for that.
EGAN: Thank you.
CHATTERLEY: Now, the coronavirus causing ever greater disruption around the world. Disney, as I mentioned, closing theme parks in Japan until mid-
March. The K-Pop band BTS has cancelled four April concerts in Seoul. Next week's Geneva Motor Show has been called off and EasyJet has canceled some
flights to Italy with slowing demand thereto.
Clare Sebastian joins us on this story. Clare, what we're seeing actually is many of these closures now filtering into the second quarter of the
year, not only the first, but simply wherever we are seeing mass gatherings that have been scheduled around the world, people are saying these are not
going to take place anymore.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia. Disruption extending into the second quarter is really what all of the corporate world
was hoping to avoid.
As you said the BTS concerts, they were scheduled for April and other events Baselworld, the big watch fair in Switzerland we just heard that was
scheduled for the end of April has been postponed until next year.
There are questions swirling around the Tokyo 2020 Olympics scheduled, of course for this summer. Right now, organizers say preparations are going
ahead as planned. But this is a big deal, not just because of the lost travel dollars of people going there, hotel dollars being spent, but what
it does to how people do business. The lost opportunity to network.
In the case of the Geneva Auto Show, the lost opportunity for carmakers already beaten down by the coronavirus and other factors to show off the
latest cars.
So I think this is both perhaps a symptom but also a potential cause of the potential slowdown in economic activity that we're seeing as a result of
this. So very important developments here.
CHATTERLEY: Yes, you make a great point. It impacts orders further down the line. So even if we do see everything coming back online, at some point in
the near future, there is a delayed onset, the effects of the challenges that we've already seen.
To that point. IAG, of course, the airlines, just one of those that's been severely hit here. They're simply saying at this stage, they can't
forecast. There's too much uncertainty. They simply can't quantify the impact and how long it will go on for here.
SEBASTIAN: Yes, joining a growing club of companies who are saying that. Don't forget, it was just in the last week or so that United Airlines
withdrew their three-week old forecast for the year.
So IAG, they laid out very clearly, there's some confluence of events that's affected this. There is a drop off in demand growth in Asia and
Europe. They say the drop off in business travel, by the way, the Global Business Travel Association says they think this could shave 37 percent of
the forecasted dollar spend among business travelers this year.
They also mentioned by the way, IAG events canceled is eating into their profits and they say they're going to be able to deploy some of their long
haul capacity that they haven't been able to use in Asia.
They say they've laid on extra flights to India, to South Africa, to the United States, but they're also cutting capacity, Julia, in their short
haul market and that they say they won't able to redeploy capacity at the moment.
So this is impacting travel not just to the affected areas, but overall. I think this is what Matt was talking about the confidence issue that just
because you cut rates, just because governments announce new spending, it doesn't necessarily get people to events or onto planes.
[09:10:12]
CHATTERLEY: Absolutely. It's the fear, the uncertainty and the nervousness. It's exactly what we're seeing here at the New York Stock Exchange and in
the markets, too, reflective for real consumers and for real businesses.
Clare Sebastian, great to have you with us. Thank you for that.
Now, while most stocks have been under severe pressure, shares of Novavax, Gilead Sciences and Moderna are making considerable gains this week.
They're all working on drugs that could be used to fight the coronavirus.
And Gilead up more than 10 percent in the last five days says its medicine is ready to try it on patients next month.
Now, it's unclear how long it will take to develop an effective vaccine. President Trump has said it will happen pretty soon. One Infectious Disease
expert, Dr. Anthony Fauci says, he thinks it could be more like a year and a half.
Dr. Sanjay Gupta, CNN's chief medical correspondent don't joins us now. Dr. Gupta, as always great to have you on. Can you help us here? There's lots
of rumors, clearly a lot of hope here. But the path to getting an approval and actually seeing a vaccine in use here is complicated. Can you give us
any sense of timing here and gauge?
DR. SANJAY GUPTA, CNN CHIEF MEDICAL CORRESPONDENT: Yes. No, I think you're highlighting the distinction here, which is that even after you have a
candidate, as we call for vaccine, something that you think that might work, it's got to go through trials, Julia. I mean, because as good as the
candidate might be, you've got to test it to make sure that in fact, it is safe. You don't want the vaccine causing more harm, obviously.
And then you've got to prove that it's effective, that it actually does what you think it will do. What looks like a good candidate in the
laboratory might end up being a great candidate in large populations of people, but you don't know that for sure.
It's these trials, which take time, and I've had long conversations with Dr. Fauci, who you just talked about there, and he has worked on these
vaccine trials for other pathogens as well. You know, these things take about a year and maybe nine months to 15 months as he told me, but it is
some time away. It is not imminent. It won't be within this this particular season.
CHATTERLEY: Yes, we have to be realistic about these things. The other thing that I really want to get your help on here to tackle is that,
particularly in financial markets. I've seen a lot of people calling this pandemic fears -- pandemic, pandemonium -- and the World Health
Organization has said, look, it has potential to be a pandemic, but it's not a pandemic yet.
And I think we need to be very clear on this. How do we define a pandemic? And how far away are we from that point?
GUPTA: Well, you know, a lot of Infectious Disease doctors say if you look at the specific criteria, which is basically a pandemic -- pan means world
-- and this is an epidemic that's spreading around the world. In many ways, it already meets the criteria for that.
You do have these epidemics in many places now around the world, just about every continent except for Antarctica, and you have evidence of what is
called community spread in many of these places.
And what that means Julia is that, you know, look, you're in a community, one person spreads it to two or three people, then they spread it to two or
three people and so forth.
Once you see three or four generations of that sort of spread, that's clearly evidence that the virus is now present in that community.
So, you know, many people argue that we've already seen that. Even in the United States, we have some early evidence of community spread, not many
generations necessarily, but that's likely to happen.
So a pandemic is a bit of a semantic term. But from a World Health Organization, it also serves as a rallying cry for public health systems to
start acting with more uniformity, to make these testing guidelines more consistent, so that the world is approaching this as a more, you know, as a
global force, as opposed to the sort of spotty reactions in various places around the world.
And keep in mind, look, you know, the United States, you know, a developed world is going to be more buffered against this because of our public
health systems.
But we're now hearing about a case in Nigeria, and there's other countries around the world where they don't have as robust a public health system and
that's part of why the pandemic nomenclature makes a difference to start diverting some resources to those places as well.
CHATTERLEY: Yes, it just feels like a more coordinated response, to your point, required here. Dr. Gupta, great to have you with us. Fantastic, as
always.
GUPTA: You've got it, Julia. Thank you.
CHATTERLEY: All right, let's move on and talk about South Korea because South Korea is once more reporting more new cases than any other country.
Officials confirmed more than 250 new cases for a second day running, most connected to a religious group.
Ivan Watson is in Seoul. Ivan, great to have you with us, too. The real concern here is that they can't find members of this religious group and
those that they have found have tested positive, so the situation doesn't feel like it's under control here.
[09:15:00]
IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: No, the number of confirmed cases continues to grow by hundreds every day. It's reached at
latest count at least 2,337 confirmed cases of coronavirus, 13 people who have passed away as a result.
And the Korean Centers for Disease Control and Prevention is predicting that that number will increase this weekend, and the reason they say is
because they have tested more than 1,200 members of this Shincheonji South Korean religious group, and in past tests of members of this group who
showed signs of symptoms, at least 80 percent of them then tested positive for the disease.
And about half of all cases in South Korea involve members of this religious group, so it is clearly, the infection is clustered within this
group, which has a reputation for being quite secretive.
And a number of government officials here in South Korea at different levels of the government are now calling in the police to press charges
against this religious group accusing it of obstructing efforts to limit the spread of the disease.
The Mayor of the Southern City of Daegu, which has also seen more than half of the infections in the country, directly accused the group of not sharing
lists of its membership, which he insists would have helped try to track down people who could be sick and still could be spreading the disease.
The group itself fired back today in a statement that was released on YouTube from one of its spokesman insisting that it is in fact cooperating,
claiming that is the target of a witch hunt, saying that it can't help out with what it terms as trainees who aren't full-fledged members that it
doesn't have complete lists there.
There's clearly dueling narratives here, but also clearly, one religious group at the heart of one of the biggest infections and another church here
in South Korea also has seen more than 20 members from that group as well, which is part of why the South Korean government is urging all Koreans to
avoid gathering in large numbers to try to prevent the spread of the disease.
That's why you have groups like BTS canceling its concerts for April here in Seoul. That's why professional sports associations like the Korean
Basketball League are having games as we speak right now in empty stadiums, trying to limit the spread of this, a disease that has spread into both
branches of the militaries, the U.S. military and the South Korean military.
They have both announced that they're postponing joint military exercises indefinitely because they know when the disease gets further into the
military that can just debilitate a military unit entirely. So this is a big challenge.
The Vice Chair of a Daegu Crisis Association in Daegu, a doctor that I interviewed today, he said there are not enough doctors in that city to
deal with the rush of patients there. He says there are not enough protective suits, though there are hundreds of doctors who have volunteered
to come to that city's assistance -- Julia.
CHATTERLEY: Heroes and such a huge challenge. Ivan Watson, great to have you with us. Thank you for that.
All right. Let me bring you up to speed with some of the other stories that we are following around the world.
Hong Kong Police arrested media tycoon, Jimmy Lai for illegal assembly on suspicions of taking part in pro-democracy protests in 2019.
The newspaper mogul is known for openly supporting anti-government movements and criticizing China. Tw other veteran pro-democracy activists
were also arrested for their role in the protests.
Chinese Olympic swimming champion Sun Yang says he plans to appeal an eight-year ban from competition. The Court of Arbitration for Sport issued
the suspension Friday in response to Yang's refusal to do an anti-doping test in September of 2018.
In the United States, voters cast their ballots on Saturday in South Carolina's Democratic primary. Candidates there making their last push for
support ahead of what could be a critical vote.
A recent poll put Joe Biden ahead in the state after disappointing results for the former Vice President in earlier contests.
We're going to take a break here on FIRST MOVE, but coming up, China's coronavirus contraction. We know it's coming. We don't know how severe it
will be, but it could be bad. The CEO of China's Beige Book joins us to discuss.
And here to stay, the CEO of Europe's largest hotel chain tells me he is confident his business can withstand the coronavirus hit. More to come.
Stay with CNN.
(COMMERCIAL BREAK)
[09:22:54]
CHATTERLEY: Welcome back to FIRST MOVE. We're counting down to the market open. The futures are volatile here, but we are looking at around a one and
a half percent drop for U.S. markets as we open up for the final trading session. That follows the steep selloff that we saw at the end of the
session yesterday, majors falling well over four percent.
I do want to give you context here, though this is the short term. If we look at some of the big challenges that these markets have faced before,
taking a year forward, stocks were up 27 percent a year after the market crash of '87. They were up 35 percent the year after the collapse of long
term capital management in the '90s. Up 48 percent a year after the Lehman collapse.
In the financial crisis context, I do think support in here, as painful as today is. Alicia Levine, Chief Strategist to BNY Mellon joins us now. Great
to have you with us.
ALICIA LEVINE, CHIEF STRATEGIST, BNY MELLON: Thanks for having me back on such a crazy, crazy week.
CHATTERLEY: I know.
LEVINE: It's a crazy week.
CHATTERLEY: What do you think?
LEVINE: Look, I think that when the S&P fell through the 200 moving day support line yesterday. That's sort of when the algorithmic trading took
over yesterday.
So I have a new target for this should hold, and the new target is essentially halfway between the low of December '18 and a high just have a
couple of weeks ago, and that essentially is 2,870 on the S&P.
CHATTERLEY: Wow.
LEVINE: So you're really looking at a possible another more or less five percent downside from here as a target where you could think about putting
more capital to work.
CHATTERLEY: Okay, let's take a step back because you mentioned something important there. And you said that algorithmic trading, if I can get the
word out, that was what was different about the price action yesterday. Actually, we captured a lot of the losses in the session.
Then at the last hour to half an hour of trade, literally, the market selloff once again, that's when investors are going, oh, I think I'll sell
some stocks here. That was programs, automatic sell signals kicking in.
LEVINE: That's right. I mean, I've actually never really quite seen anything like this.
I mean, you know, I was having a lunch meeting yesterday and I said at the time, this has to hold.
[09:25:10]
LEVINE: I doubt it will and if it doesn't hold, it's going to be a deluge, and that's what it felt like the rest of the afternoon. It was just
wholesale, indiscriminate selling, all those ETFs, all those ETFs that people owned, they don't know whether they're in the ETFs necessarily, and
it sells all at the same time.
CHATTERLEY: And ETF, of course, Exchange Traded Fund. I just want to tie what we're seeing in stock markets, too, also what we're seeing in bond
markets. Because what we're seeing is investors pricing in three rate cuts now for the Federal Reserve, and we did see a bit of support for stock
market futures this morning with a former Fed officials saying perhaps the Central Bank, the Federal Reserve needs to say something this weekend.
LEVINE: Yes, I saw that.
CHATTERLEY: Probability of that.
LEVINE: So what the Fed needs to consider and the reason that the Fed has been saying, no rate cut, let's be patient is because if the philosophy is
this is going to be a short term hit to the global and to the U.S. economy, and the Fed is not going to cut into a short term event.
The issue as it's developed, and it's developed really very rapidly is whether even if it is mostly over in six months, do you do enough damage in
the short term that the Fed has to step in anyway? And I believe this morning, that's the conversation.
So even if we model in that essentially, we're going to get past it by, you know, the third quarter, is there room here for the Fed to support the
economy and not just the economy, think of all those credits, those BBB credits, those high yield credits, those overly levered companies.
CHATTERLEY: The weaker companies.
LEVINE: That if they have a stoppage to their businesses for one to four months, do they go into distress.
CHATTERLEY: Do they go under?
LEVINE: And that's where the Fed can make a difference.
CHATTERLEY: We're going to continue this conversation in a few minutes. The market open is next. It looks like a rough one. Stay with us. We're back
after this.
(COMMERCIAL BREAK)
[09:30:03]
CHATTERLEY: Welcome back to FIRST MOVE. That was the opening bound for the final session of the week and it's going to be a tough one. As predicted,
stocks falling sharply again in early trading. We are down -- wow -- more than three percent at this stage though we are quite volatile.
You've got the Dow in front of you there and the S&P 500 off more than three percent. The worst week on Wall Street since the financial crisis.
That's what we're looking at.
We've also had Citigroup warning investors not to buy the dip just yet. We could see a fresh weakness. You heard the same from Alicia Levine just a
few moments ago, too. Thirty eight percent of stocks on the S&P 500 and now in bear market territory. So we are talking 20 percent or more from recent
highs -- Conocophillips, American Airlines, Twitter, Ford, Royal Caribbean, Carnival Cruise Lines. Travel stocks in particular, the autos, the energy,
it makes a lot of sense here.
Speaking of energy, oil falling sharply once again. Down, as you can see over three percent for Brent, over four percent for WTI Crude.
Alicia Levine back with us. Alicia, you is saying just before for the weaker companies here, can they withstand one, two, three, four months of
disrupted supply chains. That's the other consideration that the Fed needs to be talking about here.
LEVINE: That's right. It's really very interesting because the first worry that the market has was a disruption of demand.
CHATTERLEY: Right.
LEVINE: That is everybody in China, home, not able to work, how is it going to affect the revenue line in the S&P corporates? But now there's another
issue which is the disruption of supply chains.
And so what we've heard from various corporates that manufacture overseas that actually they cannot get their intermediate goods to produce the final
finished product and that actually is a completely different problem and it also hits earnings and it hits margins, and it hits the bottom line for
cash flow.
So if you think about the fact that in the corporate sector, the corporate balance sheet has ballooned, since the financial crisis, even as households
have de-levered their balance sheets, and actually households are in a pretty good position compared to where they were for 2008, it is that
corporate sector you have to worry about.
You put all that together, you say what does it mean? It means it's very clear that the weaker companies, the ones that have a lot of debt, and
businesses that need -- require cash flow to pay it off, may be in trouble here.
So you see spreads spiking in the high yield market. You see spreads spiking in the BBB market, which is the lowest grade investment grades.
CHATTERLEY: Which is borrowing cost for these companies rising.
LEVINE: Right. Which is why I think there's room for the Fed to cut here because there could be credit issue if this goes on too long.
CHATTERLEY: You know, I was talking at the beginning of the show, basically saying that we have to make a choice here between what Central Banks do,
whether it's just words, soothing words versus perhaps cutting rates, and what fiscal stimulus, governments need to be doing here in terms of action
and coordination.
There's so much uncertainty, so much uncertainty. And I do think perhaps, and I've said this already on this show this week, that fear is the biggest
risk rather than actually the virus at this stage.
LEVINE: Well, that's absolutely right, Julia. The fear borne of the fact that is very hard to model. So in the end, like, if you look at the U.S.
where we're standing today, only 500 people have been tested for the coronavirus. We simply have an absence of information on how to model what
this pandemic kind of looks like.
And therefore if you can't model it, it is very hard to model the hit to the economy.
So in the absence of information, you know, investors who were sitting at all-time gains and everybody had a profit a week ago, they said, we just
hit the sell button and that's kind of what you're seeing here. Because it's very hard to model. There's just too much uncertainty in the models.
CHATTERLEY: And that brings it back to perhaps needing some soothing words from the Central Bank here to at least say, look, you know, if we do see
signs of greater weakness, we stand ready to take action. I'm just looking at where we are now. We are down some 635 points here for the Dow.
LEVINE: Well, I think this is a great time for concerted Central Bank words, if not action, and also governments to come together and say, to
kind of look at the financial crisis saying, we are working together. This is a global issue. And I think so soothing words will help us.
As we stand here today, the last day of February, although tomorrow is the last day of February.
CHATTERLEY: Yes, it is the last trading day.
LEVINE: Last trading day for February 2020, a year from now, a pandemic will be behind us, and economies will have stabilized. So the question is,
where do you get it? Right? Can you buy the dip here? And that's really the question.
You know, we invest for the long term. You have to decide, are you a trader? Or are you an investor? And for both, you have to decide where you
get in.
[09:35:05]
CHATTERLEY: It is such a great question. It is the question I should be asking. If we've got that chart that I just pulled out of, the stock market
performance one year after some incredibly momentous events in the world, also for financial markets. Stock markets were significantly higher.
So for people that don't trade on a daily basis, they're looking at their pensions. They're looking at money that they've got invested. What's the
advice here, Alicia?
LEVINE: So my advice here is to combine the fundamental issue with the technical issue. You know, in the end, when you invest money for other
people, you have to think about how to best do this for the long term.
And you have to start a combine, what is the market telling me and what do I know about the fundamentals? I would look for that 50 percent retracement
from the all-time low in this cycle, you know, December 2018 that brings us more or less to 2,870 on the S&P. Do not expect this to be a V-shaped
recovery in the stock market, you're going to get chopped.
Go test it again, you'll get chopped, but that feels like a reasonable place to sit if you're going to put fresh capital to work.
CHATTERLEY: It's always great to get your calm perspective on the show, Alicia, thank you.
LEVINE: If that's what I feel like, thank you.
CHATTERLEY: But it is tough watching this for people sitting at home. It's tough watching what's going on and asking the same questions we ask, so --
LEVINE: That's right. And a week ago, it looked very different.
CHATTERLEY: Yes, it did. Alicia Levine, thank you so much. Chief strategist there at BNY Mellon.
All right, let me bring you up to speed with some of our Global Movers this morning.
Airline stocks have been heavily hits as the coronavirus crisis continues. Big European companies have started today ban or restrict business travel
for their employees. JPMorgan, of course, was one earlier this week. The United -- and United announcing it is reducing flights to Tokyo and
suspending flights to Beijing, Shanghai and Hong Kong.
What about some of the tech stocks also being very heavily hit right now? Facebook as you can see. Apple, off some 3.3 percent. Amazon lower. Netflix
actually bucking the trend here, higher by some one percent. Alphabet of 1.4 percent.
Further selling pressure. Demand issues as well in focus now for Procter & Gamble, the world's biggest consumer goods maker also says it is seeing a
considerable decline in store traffic. China is its second biggest market. Suppliers based in China therefore, ship materials that P&G uses in over
17,000 products.
So once again, not just a demand story, supply chain issues being talked about on a continuous basis here.
We're going to take a break on the FIRST MOVE. But up next, Wall Street underestimates the impact of the coronavirus epidemic on the Chinese
economy so says our next guest. We've got the details. Stay with us.
(COMMERCIAL BREAK)
[09:40:53]
CHATTERLEY: Welcome back to FIRST MOVE with a look at what we're seeing for the price of action in U.S. majors this morning. We are losing further
ground. We are talking about the worst week on Wall Street since the financial crisis, though earlier, 10 minutes earlier we were down some
three percent at the open, so we're trying to find some stabilization here. But right now, as you can see, down some two percent for the majors.
Let's talk about what's going on. Leland Miller is CEO of China Beige Book joins me now. Leland, you collect private sector data, you're actually the
largest collector of data in China, and you say it's bad.
LELAND MILLER, CEO, CHINA BEIGE BOOK: It's real bad. You know, you keep seeing all these pictures and headlines about people going back to work and
cars back on the roads, you feel okay, this was -- China is taking care of it. They did their quarantines and now it's over.
That's not what's actually happening in businesses. So you have people going back to work, but firms are not back with normal operations yet.
CHATTERLEY: Give us a sense of quantities, because you're saying a third of companies now are operating normally which is the good news, but a third of
them still have people working from home. They're simply not traveling in to work, to businesses, that's a lot of people out of the work force.
MILLER: Yes, and the uglier way of even looking at that is two thirds of firms out there are not back to normal operations, are subject to some sort
of lockdown or restriction on their business.
So you've got people -- you've got workers who are working remotely. You've got firms that don't have their management in. You have firms that are
technically open, but can't get the inputs to run their business.
So right now, the idea that China is back online is just not true, you know, this is an economy that is still trying to get back on its feet.
CHATTERLEY: Is this changing on a daily basis? I do feel like every day, people will try and get back into work perhaps and we'll have more
confidence. When does your data -- when was your data collected and ended? When did the collection point end?
MILLER: You know, just a couple days ago.
CHATTERLEY: So it is very recent.
MILLER: So it is very fresh, but we're -- every day, I mean, I pick up my phone and it's flashing interviews in real time that are going in. So we're
building this up and we're going to be serving straight through the middle of March for the full data set.
Things will get better, I expect, as long as the outbreak stays relatively contained. So you're going to see more firms go back to work. You'll see
things get better, but the idea that you're in any type of positive growth, all of these expectations we saw at the start of a V-shape recovery looking
very, very unlikely.
CHATTERLEY: Okay, so what is your prediction? What are your models saying for what the Q1 growth number is in China just to give us a sense, and then
I'll ask you what they'll report?
MILLER: Look, I think the bet -- this is no longer a question of positive growth. This is a question of contraction, but how severe the contraction.
If they do everything right, you might have a mild contraction. If they don't do everything right or the outbreak gets worse, then you could have a
pretty severe contraction in the data.
CHATTERLEY: China is pretty good at targeted stimulus.
MILLER: It is and they'll do it and they are doing it, but the problem is, you could throw monetary stimulus at this, you could throw a fiscal
stimulus at this.
The most important lever they're using right now is simply telling banks don't call in loans. Roll everything over. So they're doing everything they
need to do. And we're not expecting there to be widespread defaults.
There are going to be some low hanging fruit. They are going to be crushed by this and there's going to be a lot of pain across the economy. But if
it's a policy priority to keep firms alive, they'll do it, just at an enormous cost to the government balance sheet.
CHATTERLEY: What do you think the Chinese will announce in terms of growth? Do you think that they will massage the figures and we have to read between
the lines and say -- massage the figures is the wrong thing to say, actually -- they'll give us a level and we have to read between the lines.
And the other thing is, what does this mean for workers? Because that's when the pressure points -- the political pressure points really begin?
MILLER: Well, if you're talking about the GDP number, I think people take that with a grain of salt. It should be negative. They're not going to
announce a negative number. But I think a lot of it depends on how early March looks.
Tonight is actually the most exciting thing because you're going to see the official PMI come out and if they had anything that's better than the
levels of 2008, they are lying.
This is the most severe contraction we have ever seen in our data. It's not even close. There should be an incredibly negative number tonight, which
could get better over time by the end of the quarter, but we're looking at a very negative number. If not, then all of Chinese official data should be
under the lens for its credibility, not just the GDP number.
CHATTERLEY: You see, I translate that to what we're hearing from U.S. companies as well. We're not really getting a sense there for how severe
those that have Chinese supply chains or are leveraged to the Chinese economy, whether that's for demand or whether that supply chain, we're not
really understanding yet how severe the impact of the disruption that we've seen in China is. Agree?
MILLER: Yes, I think so. I mean, I was reading a bunch of sell site reports. I read Goldman today and at two and a half percent, they're down
from six to four to two and a half percent growth. Where is that growth coming from?
We're looking at property. Property is in severe contraction. We're looking at retail and services. They're both in contraction. Manufacturing is
looking better than all of them and they're in contraction. Where is this positive growth?
So I think the problem is, people are picking up these weird proxy indicators. They're looking at cars on the streets.
CHATTERLEY: It is sporadic.
MILLER: They're looking for some little bits of hope. That is not what firms are saying on the ground. There is just not an economy that's working
yet. And so you're not going to have positive growth numbers for Q1 and you're certainly not going to have anything worthwhile. Tonight, you should
see a very, very ugly number come out tonight.
CHATTERLEY: We'll watch for that. Wow. That was one heck of a reality check. Leland Miller, great to have you with us. Good to see you -- of
China Beige Book there.
All right, let's speak to a company now who actually has operations in China. The coronavirus outbreak also having an impact on the hotel
industry.
I asked the CEO of Accor how Europe's biggest hotel company is coping and what he is seeing in China at this moment.
(BEGIN VIDEOTAPE)
SEBASTIEN BAZIN, CHAIRMAN AND CEO, ACCOR: What we're seeing is, it's a mess. I guess. We don't know what's going to be happening next. What we see
is, what do we hear from people -- I talk to my people in China every single day when I wake up and we have 25,000 of them in China.
CHATTERLEY: Right.
BAZIN: So we care for them. We told them to be safe. We gave them tools to in terms of actually things to do and things not to do. They know who to
call. They are mostly at home for 80 percent of them. And we are preparing for the worst.
At the same time, seriously, I think it is actually getting better in China as we speak. So in terms of actually, the pace is not increasing anymore.
I mean, this is a sign I'm getting from my people and some actually want to go back to work and I told them, if you really want to, please do.
CHATTERLEY: But you're also saying to them if they don't want to go back to work, then they can afford not to.
BAZIN: Yes, it is all voluntarily. That's correct.
CHATTERLEY: Wow. And what about I mean, bookings, room capacity? I love the fact that you've decided to speak, and an answer to that question about
your workers rather than business.
BAZIN: Well, that's what counts the most. I mean, the financial comes next. First is clients, people working for me and their siblings, their sisters
and then their children. What can we do to help? We've been there for 50 years. We've had some bad times. Don't ever leave when you have some
trouble. Just stay there. This is where they need you the most.
So -- and we do that for all the countries in which we have the virus happening.
CHATTERLEY: I was going to say, around 30 percent of your rooms are in Asia-Pacific.
BAZIN: Yes.
CHATTERLEY: What are you seeing there then, just in terms of volumes of bookings?
BAZIN: What we see is -- and I'll be -- I always look at the glass half full, and not half empty. So what are we hear, talking to Alibaba, Fliggy,
the travel agency of Alibaba, what we hear from Citrix, they've never seen for the last three days, so many what we call numbers of requests look to
book of people within China looking to travel as soon as it ends.
So that V-shaped recovery that we all hoping for, they will be there in the Chinese sentiment to actually finally breathe and hopefully recover in your
life. So you're probably going to have some optimism within that continent fairly soon.
CHATTERLEY: People looking to buy cheap holidays. What about in Asia- Pacific more broadly, then because we're perhaps a different stage there of the --
BAZIN: Very different per country I guess is being -- people have a lot of anxiety in Korea. It's actually not there in Southeast Asia, anxiety in
Singapore. It is okay in Kuala Lumpur.
And people actually, when they were meant to go to Kuala Lumpur, now they're not going there. They go to Bangkok, but they weren't meant to go
to Bangkok, they are now going to go to KL. So, which is why, for me it's so difficult to assess the cost of it, because Accor is so diversified that
when I lose in one country, I may gain in another country.
Interesting thing about the last 30 years, when people have fear of traveling, they never change continent. They will still continue go to
Asia. They change capital city within the same continent and we've seen that for terrorist attacks five or six years ago.
People were fearful of going to London, they went to Amsterdam. Fearful of Amsterdam, they to go to Rome. Fearful of Rome, they go to Paris.
So each of -- the last minute, you change your end destination. We never turned the continent that you want to visit, so something for Asia-Pacific.
CHATTERLEY: Is it having an impact elsewhere in the world? If I bring it to Europe for example, too. I mean, we've seen the outbreak in Italy. Are you
seeing to your point, people tend to switch and swap, but are you also seeing a reticence of people simply to travel to be in popular places like
hotels?
[09:50:08]
BAZIN: Well, I see it from big corporates on travel bans, which you've seen for the last three or four days, which is obvious, you need to address
this.
On really increase of fear from people traveling. Seriously? No. I mean, I guess, we still have a lot of people -- the one thing to be noticed for
each of us in the next three to six months, we're going to see a drop in international travels.
It really never dropped over the last 30 years, usually growing by three to five percent per annum. It might be the first time you're going to be
seeing a drop. I kind of doubt it, but it might happen for the first or second quarter.
I can actually bet you that within the third and fourth quarter, depending, of course on what's going to be happening in terms of pandemic, you might
see a strong recovery again, end of this year, early next year.
(END VIDEOTAPE)
CHATTERLEY: We're back in two. Stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE where we are moving further into correction at territory for U.S. majors. As you can see, right now, down
some 2.7 percent for the Dow and the S&P 500.
Christine Romans joins me now. Christine, we were saying -- what -- a week ago here that investors were complacent amid the risks. They're certainly
not complacent anymore.
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: Yes, and you know, at some point they're going to be overreacting, but I just don't know
when that is. You know, I mean, that's the -- the whole point of markets is they react and they overreact and they price in expectations and still
struggling to figure out what this coronavirus effect is going to look like on the global economy.
We know that it has strained global supply chains. We know that companies have been warning or at least pulling their guidance for the past few days
and they don't have the clarity and transparency in their business at the moment to see how this is going to shake out into the next days and weeks.
And even as, Julia, you have said indications that perhaps the virus is peaking in China where it began, you have the potential for headlines over
the next days and maybe weeks of new infections elsewhere.
And that's why I think so many investors are scared of getting in front of -- you know, reaching out to catch the falling knife, as they say so
terribly on Wall Street.
Every kind of little attempt to find a bottom here feels like it fizzles. Yet, you also haven't seen this big capitulation you usually expect to see
when you have a big market route. So we power through it.
CHATTERLEY: Yes, we do. And I think the other thing here is we were just having a discussion on the show about the fact that U.S. companies don't
realize that a lot of China still isn't back to work, and this is going to be a longer term issue. What about the Central Bank's here? What about for
the Federal Reserve?
We had comments from a former Fed Governor this morning saying time for them to step up and act. What do we think about that?
ROMANS: And then you have some who are saying they'd like to see some kind of coordinated global central bank action, which I'm not sure wouldn't just
spook people.
[09:55:01]
ROMANS: You know, the other thing is, we don't have a lot of room to maneuver, right? When you have rates that are already so low, don't you
kind of -- you don't have the same kind of bang for your buck, if you will.
I mean, futures markets are pricing in moves this year, more rate cuts this year, and so that's what investors are saying, maybe will be the thing to
help stabilize this.
But this isn't like -- you know, this isn't something that happened and then the Fed is reacting too to fix, right? This is something that hasn't
happened yet or is ongoing. So it makes it a little more difficult to figure out what the reaction would be.
CHATTERLEY: Yes, words perhaps at this stage matter more than action, just the knowledge that they are there and stand ready -- leadership.
ROMANS: Yes, and leadership.
CHATTERLEY: You said it. Right now, we've got the Dow down -- what -- over three percent now. Incredibly volatile.
Christine Romans, great to have you with us. Thank you so much for that.
It's shaping up to be another painful, volatile session. Stay with CNN. We've got you covered. For now, you've been watching FIRST MOVE. Have a
good weekend, guys.
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