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First Move with Julia Chatterley
The Bank Of England Cuts Rates, The U.K. Government Ramps Up Spending, Cathay Pacific Warns The First Half Of 2020 Will Be Tough; Saudi Arabia Escalating The Fight, Orders Aramco To Boost Oil Capacity. Aired 9- 10a ET
Aired March 11, 2020 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
JULIA CHATTERLEY, CNN BUSINESS ANCHOR, FIRST MOVE: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE and here is your
need to know.
Coordinated action. The Bank of England cuts rates, the U.K. Government ramps up spending.
Substantial hit. Cathay Pacific warns the first half of 2020 will be tough.
And no blinking. Saudi Arabia escalating the fight, orders Aramco to boost oil capacity.
It's Wednesday let's make the move.
A warm welcome once again to FIRST MOVE where March Madness once again rains on the global markets. I have to say though, where Magnus rains,
support does follow. As I mentioned, the Bank of England slashing rates in an emergency measure today. That's helping Europe, but Wall Street quite
frankly, is not listening.
Take a look of what we're seeing for futures at this moment. We are lower, as you can see, approaching some three percent. That's the open we're
expecting, this after bumper gains -- yes, I said gains in yesterday's trading session.
Oil not helping sentiment either. We've got prices down some three percent. But gains yesterday, stocks rallied in the last few hours of trading ending
up around five percent for the biggest one day gain since December of 2018.
I tell you that stat purely for context. We are simply yoyo-ing major volatility here on a daily basis, up one day, down one day the next,
sensitive to headlines, and seeing knee jerk reactions playing out in the market.
Speaking of headlines, President Trump promising all sorts of support yesterday for airlines, the tourism sector, for oil firms even throwing in
a zero percent payroll tax.
The immediate question of course is what is actually feasible here, never mind what's actually required to support the economy given we simply don't
know what the fundamental impact is going to be here.
Take a look at Europe. We did see gains there bucking the trend, actually, I'm showing you Asia first, stocks there as you can see once again under
pressure.
Asia stocks closing lower. Australia in a bear market now, too. Now we get to Australia, my apologies, gains there helped by actually, I am just
looking at it now, no, we had earlier gains, a bit lower, the Bank of England rate cut helped earlier, lent us some support and now we've tilted
into the red.
It's the United States actually, sentiment here, that's dragging Europe lower too.
Big question of course is going to be what do we see from the European Central Bank tomorrow? The latest set to ease. The European Central Bank
head, Christine Lagarde reportedly told E.U. leaders late yesterday, coordinated fiscal action is needed.
She fears a 2008-style financial crisis if governments don't act. For now, it's simply markets that are acting up.
Christine Romans joins us on this. Christine, the fundamental problem there is as fast as you look at it, markets are turning here and I just made the
mistake with Europe. We've had one day down the next with the United States markets and Wall Street, of course, and the problem is we don't have
fundamental backing.
We can't judge yet what the impact is going to be.
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: And while the caution flag is waving on the fundamentals, I think you're going to expect
that action and reaction in the markets.
It's really not that surprising. You're absolutely right to call it yoyo- ing in this market and you know, it makes you know long term investors frustrated. It's an opportunity for day traders I suppose.
But the big picture here is that there are still new coronaviruses. We are all learning about social distancing. In the United States, they are
closing schools. They are canceling concerts and all kinds of gatherings of people.
That means any industries that rely on us going from one place to another and spending our money while we're together, those economies are grinding
lower.
In fact, Goldman Sachs this morning saying the end of the bear market, the bull market rather, is upon us. This is what Goldman says, "After 11 years,
13 percent annualized earnings growth, 16 percent annualized trough to peak appreciation, we believe the S&P 500 bull market will soon end."
It goes on to say, "There's acute stress in the real economy and the financial economy and puts an S&P 500 midyear low at 2,450 before what
looks like a V-shaped recovery heading into later this year and into next year."
You know, but this is all pressure on earnings, a lot of uncertainty. I think up and down is going to be the way it goes with an emphasis on down.
CHATTERLEY: I'm critical to this of course, and to your point about whether it's a V-shaped recovery or a U-shaped recovery and how long it
takes, stimulus, support leadership, action, whether it's quarantines, whether it's businesses, whether it's trying to lend some confidence to
consumers, of course pivotal to the U.S. economy.
Leadership is what's required here, and we're seeing it sporadically. The Bank of England today, the government stepping up spending promises here in
the United States -- Christine.
[09:05:19]
ROMANS: So far, those are only promises in this country. Now, there's a little bit of skepticism from some in the Senate about the zero -- about
the payroll tax holiday. There are others who think that is more important to have paid sick leave.
Do you want to have bailouts for the leisure industries? Could there be political blowback for bailouts, for example, for the hotel industry, which
would benefit the President and his family?
So this is now a discussion and no consensus on stimulus in the U.S. and I think that's one of the reasons why you have a little bit of nervousness in
the market here this morning.
There's another discussion, if you did all of that, would it just not make things worse, not necessarily turn things around and make them better?
Meanwhile, not even 24 hours ago, the President was bashing the Fed again saying that it's the Fed who needs to stimulate and that frustrated some
market participants who want to see this gravitas and leadership and realism from the White House speaking with one voice, not casting blame and
insults.
CHATTERLEY: Yes. And speaking with one voice, what it seems we're seeing in the U.K. today given what we've seen between the Bank of England, of
course, and the U.K. Government, we're simply not seeing that coordination.
In fact, we're already seeing tension, at least in one direction between the Central Bank and the government here. Christine, great to have you with
us.
ROMANS: Thank you.
CHATTERLEY: Thanks for joining us. Now, speaking of a coordinated action, a double dose of stimulus as I mentioned in the U.K., an emergency rate cut
and the U.K. Government ramping up spending hereto. Anna Stewart joins us on this story.
Anna, maximum impact is what Mark Carney said and he talked about the coordination here between the Central Bank in the U.K. after years of crazy
it seems over Brexit. It looks like the country getting its act together here. What did we hear in terms of government stimulus because I think
that's critical here?
ANNA STEWART, CNN REPORTER: Yes. Because right now we are hearing from the budget, from the brand new Chancellor, new kid on the block, Rishi Sunak,
and I have to say, this budget which is the first for a year because yesterday the whole government was in paralysis, a new budget but it's a
corona budget.
It is a very much an emergency budget and it attempts to vaccinate the U.K. economy against the economic effects of the virus, and it is closely, as he
said, coordinated with the Bank of England, with Mark Carney, with a big focus on protecting businesses and households from a supply side shock as
well as a demand side shock.
And there was lots of headline figures here. Overall, fiscal stimulus is being given here of 30 billion pounds, that's nearly $40 billion, and it's
a three point plan.
So to take you through it. Number one, they will give the N.H.S. whatever resources are needed, whether that's in the millions, or the billions.
Secondly, for people that fall ill or sick in the U.K. and they're expecting up to one fifth of the workforce to be off sick or in self-
isolation at some point, they are going to make sure that statutory sick pay kicks in on day one rather than day four.
They are also going to allow some smaller businesses to be able to get their refund or VAT for 14 days afterwards.
They're also going to allow for people that work in the gig economy, those who are self-employed to get some sort of benefit quicker than they
currently do, to try again to sort of soften the impact of having to take time off work, particularly if you have to self-isolate when you don't even
have symptoms.
And thirdly, and this was possibly the most interesting one, a big support system for SMEs in general, abolishing business rates for the smallest
businesses offering a lifeline for others deferring tax payments.
A huge focus on here, I think, just starting to bridge a potential cash flow gap for so many businesses that either have employees off sick, have
supply side sort of supply side sort of supply chain disruptions, of course, and then, in addition to those that simply don't have any consumer
spending and are not seeing footfall in their shops and their restaurants and their cafes -- Julia.
CHATTERLEY: Yes, you raise such a great point. It's that gap. It's that period where if people are sick, what do they do to pay the bills? Can they
keep paying their mortgages? For businesses, the same? Can they continue to pay their bills if they're not seeing customers coming in store,
particularly the gig worker economies, too?
So, for me, these measures are critical, unless excited, and I see it more as symbolic perhaps that the Central Bank, the Bank of England, decides to
cut rates, even if that does send some kind of message that look, we're trying to get funding -- cheaper funding -- out to the real economy here.
What it also poses questions for, for me as well, is the European Central Bank tomorrow. Anna, what can the European Central Bank do? Because you're
talking about many different nations that have to perhaps boost spending versus a Central Bank that stands there and gets sort of pressure and
shouted out for not doing enough in these circumstances.
STEWART: And let's not forget the E.C.B. Governing Council which is hugely divided so as they meet tomorrow, I think the market expectation is for
another rate cut pulling it further into negative territory.
[09:10:00]
STEWART: As we said, we saw this with the Fed and I think we're seeing it with the Bank of England. The rate cut in and of itself, isn't that
helpful. That doesn't fix supply chain disruption. It doesn't get people spending more. It doesn't get people flying or traveling or increasing
tourism, does it?
It does help slightly with you know, cheaper borrowing for banks. I think it will be interesting, the E.C.B. and what we saw today out the Bank of
England is the overall package.
If they have a rate cut, do they combine it with some sort of extra liquidity into the banking system? Something for these smaller and medium-
sized businesses.
So I think it really is the general package, but there is expectation for a rate cut and if it's not there, I think we'll see more market turmoil
tomorrow -- Julia.
CHATTERLEY: Anna Stewart, great job. Thank you so much for that.
Now, next driver, more distress signals from the airline industry. This time, it is Cathay Pacific. Kristie Lu Stout joins us on this story.
Kristie, these guys have been caught in a perfect storm. Hong Kong riots, the trade war and now the coronavirus.
KRISTIE LU STOUT, CNN INTERNATIONAL CORRESPONDENT: Yes, A perfect storm is right between the protests and the corona outbreak and it was a brutal
second half of last year for Cathay Pacific. It posted this 28 percent fall in profits compared to the previous year after months of those anti-
government protests scared away travelers and kept tourists away.
And the airlines chairman is warning of a "substantial loss" for the first half of this year. It is all because of the coronavirus, and it's not only
Cathay Pacific, the global airline industry is suffering as passengers the world over cancel their travel plans and governments impose more and more
travel restrictions.
In fact, according to IATA, the entire sector could lose up to $113 billion in revenues this year. Now, South Korean media outlets, they earlier today
were reporting that Korean Air is questioning its "own survival" in a memo to staff.
Now, we asked Korean Air for comment, for a statement on this and then the president of Korean Air told us this. Let's bring up the statement for you,
"Our industry faces significant challenges now and we're trying to minimize sacrifices of our employees."
The crisis is being dealt, you know, all over the world, various airlines, including Cathay Pacific. How is Cathay addressing it? Well, first of all,
it's slashing capacity. You know, it is slashing all flights by 65 percent in March and in April.
Two weeks ago, Cathay said that 75 percent of its staff would take unpaid leave affecting around 25,000 employees. In fact, we've been talking to a
flight attendant who has worked with Cathay Pacific for seven years. She enjoys her work there. She is taking the unpaid leave, but she is afraid
that she's going to lose her job.
And finally, Julia, I want to share with you an update, a 22-year-old Cathay Pacific flight attendant has tested positive for the corona virus.
She worked on a weekend flight from Madrid that carried an infected passenger from Dongguan, China, and just this latest infection really just
drives home the impact, the brutal impact of this outbreak on Cathay Pacific -- Julia.
CHATTERLEY: Yes, and to your point, the whole -- the global airline industry, just these massive capacity cuts. Kristie Lu Stout, great to have
you with us. Thank you for your insights there as well.
All right, let's move on. Raising the stakes in the oil market standoff. Saudi Aramco says it's been told to boost production capacity to 13 million
barrels a day.
John Defterios joins us on this. John, clearly no one blinking to go back to our earlier conversation or a conversation on the show yesterday.
I mean, the Russians have said, look, we can increase capacity, too, but just how feasible is this for Saudi Aramco? I mean, it feels like years to
get to these kind of levels. Can we do it?
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Yes, you'd be surprised, Julia. I call it the all-in strategy. So it's boosting
production to 12.3 million barrels a day, that's going to be done with storage adding two and a half million barrels next month, and then adding
another half a million barrels of capacity by the end of the year.
They've had this in the works in terms of the paperwork and the strategy. Now, they're going to deliver upon that. And now we found out in the last
hour that the Abu Dhabi National Oil Company representing the UAE adding another million barrels a day by April.
So taking this production from three million to four. So if you do the math here, we had cuts of better than two million barrels, right now in place at
the end of March, that you have to presume is going to be wiped away by the other producers like Russia coming back up with their production.
And then this added capacity from Saudi Arabia and Abu Dhabi, and that's why it's having this impact on prices.
By the way, we were up three percent in Asian trading today, and now down better than three percent. That's a six percent swing and catastrophic if
you think of the 30 percent loss now over the week.
The IEA Executive Director, Fatih Birol, somebody I know very well told Richard Quest last night, this will damage the other OPEC players from
Latin America to Africa, but more importantly during the period of the coronavirus, when you need people to come together and collaborate, they
are indeed clashing at the wrong time.
[09:15:04]
DEFTERIOS: And on that note, I would just add one other point. Saudi Arabia has the chairmanship of the G-20 in 2020. This could cause some
reputational damage, if you crash the oil market right now and be seen to be hurting economies on oil prices, when indeed it need help the most.
It's kind of a risky strategy, but the Saudis are going full frontal on it.
CHATTERLEY: Yes, but to your point, perhaps they're doing it at the perfect time because this means maximum leverage and the collateral damage
here, of course, is huge.
If it is, you're playing one heck of an oily game of chicken here and unfortunately, everyone gets fried. What about the Saudi Aramco IPO here?
Are the Saudis just saying, you know, what, those interests, the diversification of the economy, all that goes out the window right now
because we're going to prove a point and it's a much longer term strategic point that we're making here?
DEFTERIOS: Well, this is going to require a little bit of nuance because you have the listing, of course in Riyadh and that is below the IPO price.
So that's a risk to domestic investors and other Gulf sovereign funds, who decided to go all in.
Number two, what happens to the international strategy? They said they were starting to work on that again, and it's hard to see you have international
buyers if oil price is going to be crashing.
I also thought it was interesting in the statement that came out from Amin Nasser, the CEO of Aramco, they were instructed by the Minister of Energy
that burns right through a firewall as a publicly traded company, and I think it's a very important point.
And there is precedent here, Julia, 1980s, they punish Russia for going into Afghanistan and destabilizing the Middle East. 1990s, Venezuela was
over producing, so Saudi Arabia did exactly the same thing.
Alexander Novak, the Minister of Energy for Russia basically said, this is not the right time for this. They don't really want to boost production and
there's a back channel to Novak, that but right now, nobody is blinking in the Gulf. You've got Saudi Arabia and the UAE all in.
CHATTERLEY: But your point there, JD, so important. Saudi Aramco is weaponized here, so for global investors, don't ever forget it. If indeed
one day this thing IPOs, I said it, not you.
John Defterios, thank you so much for that.
All right, let me bring you up to speed with some of the other stories that we are following around the world.
Former Vice President Joe Biden beating Senator Bernie Sanders in Tuesday's Democratic presidential primaries. Biden won four of the six states that
voted yesterday including the key battleground of Michigan.
(BEGIN VIDEO CLIP)
JOE BIDEN (D), PRESIDENTIAL CANDIDATE: I want to thank Bernie Sanders and his supporters for their tireless energy and their passion.
We share a common goal and together, we will defeat Donald Trump. We will defeat him together.
We are a step closer to restoring decency, dignity and honor to the White House. That's our ultimate goal.
(END VIDEO CLIP)
CHATTERLEY: CNN project Sanders will win in North Dakota. Washington State has not yet been called.
The shamed movie producer, Harvey Weinstein will be sentenced today in New York for sexual offenses, including third degree rape. The 67-year-old
faces up to 29 years behind bars.
Weinstein was acquitted of predatory sexual assault, but faces further charges in Los Angeles.
After the break, Adidas counting the cost of the coronavirus in China. We will hear from the CEO of the sportswear giant.
And of course, more analysis on the market stocks set to tumble once again as we open up the markets. Stay with us.
(COMMERCIAL BREAK)
[09:21:52]
CHATTERLEY: Welcome back to FIRST MOVE on the countdown to the market open this morning. We're joined by Jason Draho. He is Head of America's Asset
Allocation at UBS Global Wealth Management. Great to have you with us.
JASON DRAHO, HEAD OF AMERICA'S ASSET ALLOCATION, UBS GLOBAL WEALTH MANAGEMENT: Great to be here.
CHATTERLEY: I have to get my teeth in gear. More volatility, up one day, down the next. We just have to expect that.
DRAHO: I think for the time being, this is going to be kind of that the reality with how the markets react every day to new news on the virus,
potential policy stimulus. So it's going to be volatile for the time being.
CHATTERLEY: Goldman Sachs today they think the bull market is over. Do you agree? Do you think we're going to head to a bear market because we've been
teetering at that 20 percent pullback for the last few sessions?
DRAHO: So if we define a bear market, as you're down more than 20 percent, today, we could close down around 18 percent.
CHATTERLEY: Again?
DRAHO: Again, so we could end up easily kind of tipping past 20 percent. So technically, we could sort of meet that threshold. How long we stay
below that? I think that remains to be seen because things could improve on the virus crunch in the next -- in a few weeks, so you would give the
markets comfort and then things could kind of rally back.
There's a lot of uncertainty. So I think it's likely we probably could pull up 20 percent even almost in intraday. But how long we stay there, that's
the big question.
CHATTERLEY: But you're not willing to make the bold call at this stage that the run high that we've seen for the last 11 years is formally over.
You still think a dip and then perhaps a recovery?
DRAHO: So, I think for anyone to make that call, you're basically making the call on the virus and none of us as investment professionals have that
expertise.
CHATTERLEY: I agree.
DRAHO: So I think we can't make that call. The economic fundamentals right now don't warrant it. But that's, you know, there's a different factor
driving the markets.
CHATTERLEY: So can we separate those two things? One, and I agree with you, we can't quantify what the virus impact is going to be. But we can
look at the underlying fundamentals of the economy.
And we can also start to gauge perhaps what the impact of stimulus, whether it's rate cuts or whether it's government support, where does that leave
us?
DRAHO: So I think, you know, first quarter, at least, the U.S. GDP will be okay, maybe around one percent. Global GDP will probably be down about one
percent relative to the expectations at the start of the quarter.
So let's say instead of 3.3, it could be 2.3. We're seeing recovery in Asia and China. It sort of normalized, so essentially, it will bounce back in
the second quarter.
But the U.S., the implications are only being felt. I think we've heard this in the past 24 or 48 hours, a number of conferences, events being
cancelled. People are starting to curtail activity. The impact is going to show up in the second quarter.
So that there, we can grow maybe zero percent, maybe even negative. Again, it just depends on how bad things get. Beyond that, that's the open
question. How much stimulus do we get? Congress is working right now with the President to figure that out.
It could be as much as one percent of GDP, which helps move forward, to kick in, it's not going until later in the second quarter. So not until
things have already slowed more significantly.
CHATTERLEY: You've done some analysis too on some of the pull backs. The bear markets as we've been discussing since the Second World War and the
level of drawdown or the pullback in markets that we've seen and it's generally around 35 percent, a balanced portfolio -- and we'll define what
that is -- makes a huge difference. Talk us through that.
DRAHO: So we think of a balanced portfolio as a mix of different asset classes, but its core -- it is stocks and bonds. And 60/40 is sort of a
classic portfolio, 60 percent equities, 40 percent bonds.
So we may dip into a bear market for equities. But bonds this year have done fantastic because interest rates have fallen so much.
So for example, if you bought like longer dated Treasury bonds in the U.S., they're up over 20 almost 30 percent this year.
[09:25:10]
DRAHO: So that 60/40 portfolio, that looks bad on the equity side, maybe down almost 20 percent; the bond side could be up at least 10 percent.
So the mix there means it's only down maybe in the neighborhood of like eight or nine percent. Still down, but not nearly as bad as the equity
markets.
CHATTERLEY: There is a messaging in there somewhere for pension funds. So for people looking at their pension funds as well, I think as well, not to
look at what we're seeing --
DRAHO: Diversify, diversify, diversify is the key message here.
CHATTERLEY: Yes. What else should investors be doing at this moment?
DRAHO: So the advice that we give to people right now is one, don't panic. I mean, we get bear markets, we get recessions. We had volatility similar
to this at the end of 2018, and even two years ago, in February of 2018, usually we get through this okay.
CHATTERLEY: And we forget very quickly as well.
DRAHO: We have short memories, unfortunately. The second thing is, you know, control things you can and don't sort of focus on things we can't
control.
The virus, how that plays out, none of us can control it, but we can control our own portfolios. We can make sure that it's properly balanced.
If this is really painful for you for right now, it's altering your lifestyle in some way because your portfolio is down, you probably didn't
have the right financial plan. So think about what is the plan you need going forward.
CHATTERLEY: That's an interesting point.
DRAHO: So it's a key point, like you can rebalance. Maybe you can use this as a time to tax lost harvest, for example. You may have or should have had
a plan to say if the market sells off 10 percent or 20 percent, maybe I'd go in and buy if I've been waiting to buy.
People were talking about I want to buy the dip. Well, we have a dip right now. So you have to have a disciplined plan. Those are things you can
control and ultimately, if you do that, the long term will be better off because the markets will bounce back at some point. It's a question of
when.
CHATTERLEY: Great advice. If you're panicking now, there's something wrong. Jason, great to have you with us. Jason Draho there, the head of
America's Asset Allocation at UBS Wealth Management. I got it right the second time.
Let me give you a look of what we're seeing. We are expecting once again steep losses the U.S. markets open in a few moments' time.
We've got your covered. More analysis to come. Stay with us. You're with FIRST MOVE. The market opens, next.
(COMMERCIAL BREAK)
[09:30:01]
CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange where the U.S. Army is ringing the opening bell this morning,
though it is a weak start.
As expected, we were predicting losses of some two and a half to three percent. We're looking at just over two and a half percent. There's the
picture. So we're giving back more than half of the five percent gains that we saw from yesterday.
It's just sheer volatility, up one, day down the next as we've been describing.
As I mentioned earlier, Goldman Sachs believes the long running bull market might be at an end here. You just heard from UBS Wealth Management there
though Jason Draho, which just basically argued guesswork at this stage. We simply don't know.
European shares also have been mixed throughout this session we had gains earlier. Look, we've now jumped into positive territory for the German DAX
and the Paris CAC 40. It's so tough to predict. It's a minute by minute thing, so I'm reticent to give you any analysis really. It's just simply
about volatility.
Also volatility is the story in the oil markets, too. We've got losses of around three and a half percent. This of course, as we've been describing,
Saudi Aramco is readied for production hikes at Saudi Aramco, of course, the giant oil producer.
Clare Sebastian joins me now. Clare, I have written a bullet point to myself, and it's just one and it just says, volatility. And that's what
we're seeing.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia, another day in this trend of alternating between big gains and big losses.
We're not right now at the worst point that we saw in the future sessions and things are sort of at a moderate level so far, but it'll be interesting
to see which individual shares are moving. I don't know if we can pull up the 30 stocks on the Dow because what we saw on Monday was that some of the
sort of consumer staples, the like that we see there, Walgreens is flat United Health -- healthcare companies were some of the least bad losses
that we saw on Monday.
That reversed yesterday. But we're seeing again today that those sort of more consumer stapled stocks are the ones that are faring the best of all,
and then the likes of Boeing, Caterpillar, and the banks down again today.
So this is -- you know, the volatility is set to continue. I think the markets are going to continue to move on the psychology of this at the
prospect of stimulus, the lack of detail around that in the U.S., and that is what we're going to continue to see, Julia.
It's very hard to sort of put a real stamp, a real point of analysis on this while we're in this sort of up and down situation.
But it's interesting to note that that Goldman Sachs report you were talking about, they say that their forecast for the S&P 500 for the
midpoint of this year is 2,450. That's sort of 15 percent or so down from where we are right now. So that is a pretty sobering outlook.
CHATTERLEY: Yes, and you raise a great point as well about looking at specific sectors, and perhaps those that have been so incredibly beaten up,
like the airline stocks, for example, the financials have taken a pounding, the energy stocks.
You can see them bounce back briefly in a session and then they lose more ground the next day. It's so tough to predict beyond the broader themes
that we've been talking about now for many days.
Speaking of taking precautions, though, here, I know you've been looking at what some of the banks in particular have been doing simply to try and
protect the workforces as best they can, separating workers and shifting them to different locations.
Talk us through what you've been finding.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, you know, even as the financial institutions grapple with this historic levels of volatility,
they are facing a major logistical challenge as well, Julia.
We've seen banks having to shift to backup plans in the wake of 9/11, Hurricane Sandy when Lower Manhattan was cut off and they are starting to
do the same thing now.
And I spoke to Ken Bentsen, who is the CEO of the Securities Industry and Financial Markets Association that sort of an advocacy group for the
industry. He told me what is going on right now.
(BEGIN VIDEO CLIP)
KEN BENTSEN, CEO, SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION: We have firms that are testing their redundant sites and sending large
swaths of their traders and other bankers to work from home and to make sure that their systems work.
So I wouldn't say firms are fully executing, but they are certainly executing parts of it and testing other parts to be prepared if this turns
into a full blown pandemic.
(END VIDEO CLIP)
SEBASTIAN: They certainly, Julia, banks seem to be ramping up those efforts. We've seen a couple of cases confirmed on Wall Street and we've
already seen some regulatory relief. FINRA is the Wall Street regulator. They have waived some rules on supervision to allow for working from home
for traders.
CHATTERLEY: Yes, and I believe some of the big bank CEOs were at the White House today as well, including some of the tech leaders, too. So lots of
discussions taking place.
Clare Sebastian, great to have you with us. Thank you so much for that.
We're going to take a break here on FIRST MOVE, but coming up, the company that says its experimental coronavirus vaccine is close to clinical trials.
We'll speak to the scientist in charge, after this.
(COMMERCIAL BREAK)
[09:38:19]
CHATTERLEY: There are now more than 120,000 cases of the coronavirus worldwide with no sign of the contagion slowing. The race is on to find a
vaccine.
Novovax is a clinical stage vaccine company that says it is close to Phase 1 trials. Gregory Glenn, President of Research and Development at the
company joins me. He has previously led research into SARS and Ebola vaccines.
Gregory, fantastic to have you with us. Just explain at what stage you're at and what this means to us.
GREGORY GLENN, PRESIDENT OF RESEARCH AND DEVELOPMENT, NOVOVAX: Yes, thank you for your interest. So it might be worth just pausing for a minute to
think about how vaccine might work first, and then that will explain the work we're doing.
So, these coronavirus disease spikes. The spikes are essentially a protein that allows the virus to attach to a human cell, almost like a spaceship
docking at the International Space Station.
So our goal is to make that protein inject it, induce an immune response to the spike. That immune response is in the form of an antibody, will block
that docking and prevent infection.
So our task is to make a spike protein that is very properly folded, it's functional, looks just like the virus of course, it's -- we never touched
the coronavirus. We are making recombinant vaccine.
So we engineer, so we got the sequence from China approximately January 10th. We then engineer a system to make that protein.
Again, we just read the virus genetic sequence from the internet. We then synthesize the gene, we put it into a cell. That cell makes the protein.
So that's a modern process, I would say, it's our time. It can be engineered very carefully to make a functional vaccine. So we've done that.
[09:40:08]
GLENN: We actually made about 20 different candidates. We down select based on their ability to bind that receptor and do some good immune
response, and we're now in the process of working to scale that up to support a clinical trial.
CHATTERLEY: So how soon could you -- do you think have a vaccine that's ready for human trials? And then I'm going to jump forward again, perhaps
be ready for more widely use or more wide use?
GLENN: Yes, that is the question. That's a very good question. That's what my team is obsessed with.
So I think we're going to be in human trials in the next month or so. And that is what we call a Phase 1 trial where we inject a limited number of
people, demonstrate it safe and really importantly in the case of a vaccine, those trials are extremely informative, because you could measure
the immunity, and you can project through a number of means that it might work. And that that would be, you know, that would be an important marker.
Now, you know, the goal is to try to get to the sort of testing that really proves it works as soon as possible, and we're working very vigorously to
compress those timeframes.
I can tell you, the U.S. F.D.A., we've been in conversations with them, they're very constructive. We talked to the N.I.H. So that is that -- you
know, our goal is to try to make this vaccine in time and what we see, we may have a different perspective from what people see today.
You know, this is a -- it's important it is safe, and it really has proof that it will work. So there's a lot of work to be done.
We're looking forward. We think that now the virus has seeded the world and you know, frankly, what we're seeing is very, very, you know, daunting and
important to respond to, but we're working concerned about a second wave.
So you can imagine the virus is now seeded throughout the globe. If it's a seasonal virus, which goes away the summer, it will come back -- roaring
back, much more widespread.
CHATTERLEY: Critical.
GLENN: And we'd like to have a vaccine in time for that event if it's at all possible.
CHATTERLEY: So we are talking hopefully late 2020 and sorry to interrupt, but this for me is so important because there are fears of a mutation. And
I want to get back to what you were saying about the spikes. Why it's called a coronavirus and the crowns that we see on the protein.
You've learned with your work, I know with MERS and SARS, about trying to develop a vaccine that's cross protective that can learn and it isn't just
specific to one form of coronavirus, but if that virus mutates, it can be cross product. How close and able are we to create a vaccine like that?
GLENN: Well, that's really -- that is actually a great question. I mean, my motto internally is let's create a vaccine for the common cold and the
uncommon cold.
So coronaviruses, as you probably know are common, and so the spike protein mechanism infection is common. And there's a lot of what we call homology.
There's a lot of similarity because these proteins have a function. They can't mutate too much, or they lose a function.
Think of a syringe. If it was pink or yellow or green, it wouldn't matter, but if it didn't have a plunger, it wouldn't work. So the viruses have
places they can change and not change.
I will say we encounter this same phenomena with flu and our company has been focused on a better flu vaccine. You know, there have been roughly 40
million U.S. flu cases. You know, compare that the number of coronavirus cases and roughly 40,000 deaths already this season of flu and we face the
same problem.
The virus in one year mutates and changes, and so the vaccine from the past year may not cover it. We're just about to unblind a Phase 3 trial, and the
focus of our technology is to make the kind of vaccine where it would not matter so much if the flu virus is mutated from year to year, because we
have actually -- we have -- we call those conserved proteins in our vaccine, our immune responses recognize that.
And so you could have a vaccine that that was, you know, using the sequence from a virus in the past year that may have changed that still works. And
that's what we've demonstrated in our early Phase 1 and 2 trials with our influenza vaccine.
So we're about to unblind the end of this quarter, a Phase 3 trial that should lead to licensure of a new flu vaccine, a better flu vaccine, which
I think is needed.
CHATTERLEY: This is so key. Gregory, we will get you back to discuss this. Please keep me posted and you and I, I can tell, are going to talk offline.
I spent a lot of time reading Biology books last night. Gregory Glenn, President of Research and Development at Novavax. Thank you once again.
GLENN: Thank you so much.
[09:45:01]
CHATTERLEY: Thank you. All right, let me bring you up to speed with today's Boardroom Brief. Fiat-Chrysler temporarily closing some of its
plants in Italy as authorities react to the most severe coronavirus outbreak outside of China.
Fiat says the stoppages will allow intensive cleaning to take place. More than 630 people in Italy have died as a result of the coronavirus outbreak.
Adidas stocks falling steeply after its dire warning on the effect of the virus. For the first quarter, it expects more than a billion dollars' worth
of lost sales in Greater China alone.
CEO Casper Rorsted told me the fundamentals of the business are strong, and they will weather this storm.
(BEGIN VIDEOTAPE)
CASPER RORSTED, CEO, ADIDAS: What we're seeing right now in China, is what -- the estimates were done between 800 million to a billion for China of
this quarter, is we believe it's very realistic, because there's only two and a half weeks left at this stage.
What we're not projecting is what's coming in the future, and I don't think anybody can and that's why we're very clear on we're reporting at what we
have seen. We're not, you know, giving a forecast as to what's going to happen in the second quarter.
However, I would say as the fundamental hasn't changed at all, the fundamentals for the sporting goods industry is still very, very good
despite the virus.
CHATTERLEY: I'll come back to the underlying fundamentals because I do think your forecast is important to discuss here, but China is 20 percent
of your business and they are doing their best to get back up and running.
You'd already suggested you could see an 80 to 85 percent hit to activity into the business there. What are you seeing as of now? How capable are
they of getting back up and running? And particularly for you, specifically, how are you managing and what are you seeing?
RORSTED: So we are seeing China coming back on track. We're seeing manufacturing up, most of our factories are completely up and running.
But the demand for our products or sporting goods products as such, of course is coming in the end of the chain and that is what we're of course
seeing. We're seeing a delay compared to food or beverage products.
CHATTERLEY: The other obvious question to ask here I think would be Europe. There's a lot of expectation building that perhaps the European
Central Bank can do something. As a business who is headquartered in Europe, what do you want to see in terms of stimulus here? Can that help --
as a business leader, what's your view here?
RORSTED: So having been around in 2008, so it's a very different challenge compared to the financial crisis in 2008, because in 2008, you had a high
price for money and companies were running out of cash.
Today, most strong companies, including ours are cash rich, the price for money is very low. We have no debt. We generate $2 billion in cash flow
every year.
So frankly, we've never been, you know, stronger as a company.
The only thing that we would like to see is of course, a stimulus around the consumer. But right now, the consumer is concerned.
I'm certain there are some mid-tier companies in Europe that have a different financial position, but I'm just saying the fundamentals of
driving stimulus into the market are just totally different compared to 2008 for the reasons I just mentioned.
CHATTERLEY: You know, I think a lot of this as well as the fear factor, the misinformation that we're all dealing with, and that goes to the heart
of consumer behavior to your point, too.
I believe, as a company, you're also dealing with a case yourself. Can you just talk to me about the measures that you've implemented and how we
separate perhaps some of the fear of dealing with this from the fact and the realities of ever being a worker and of being a business and carrying
on as best you can?
RORSTED: So as a global company, we deal with effects that we get in and we report the facts into our organization. We have a global task force with
me every day. Any incident that happen, we will communicate to our workforce.
We have completely an open line into our Head of HR. People can send e- mails. We have a very comprehensive package that describes to our employees what they can expect from us.
We've had an incident last week. What happened was that that person had been in contact with 26 people. The 26 people left the company. They
underwent a test. Those who had a negative test came back. Those who didn't take a test have a quarantine for two weeks, and they come back.
Now, I think the important part is, a leader in a company and that is like our company is just being totally transparent to your employees about what
is happening, and what are you going to do should an incident happen.
You know, all companies, it's going to happen to all companies, and I think people just expect to be dealt with as grownups and they want transparency
and they want clarity in the messages.
And all the time, you know, people get used to the environment. Right now, most people are concerned what will happen to me and what are the impacts?
CHATTERLEY: It's great advice. Communication here and openness, I think is key. Now, I know you want to talk about the underlying business. You began
with it. You said it at the beginning.
Look, talk to me about the underlying business here because that looks pretty solid as far as these numbers show.
RORSTED: As I said, 2019 was a record year in all levels, six percent top line growth, 50 in bottom line, 34 percent online growth, 15 in China, and
really the fundamentals for the sporting goods industry has not changed whether without the coronavirus.
We have the move to a much more leisure lifestyle. We have people are moving into doing more sports, and those elements will not change.
They might be delayed because of the coronavirus, but everybody is going to move on the journey or continue on the journey.
So the way we look upon it is, we think this is a temporary impact to our business. But we don't think that it will have any strategic impact to our
business.
And that's why we are also taking a very clear position. We will continue to invest in the future as this is not happening. And then we'll deal with
the daily events as this happen because nobody can project will it be, you know, one quarter, two quarters or four, six quarters.
But that's why we're so optimistic about the sporting goods business, and that's why we're so optimistic about our position in Europe or the U.S. or
Asia.
(END VIDEOTAPE)
[09:50:47]
CHATTERLEY: No one can predict and that's what markets are struggling with. More after this.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE this morning and a look at how markets on Wall Street are trading at this moment.
We continue to sit around these levels. The Dow off some three percent. The NASDAQ actually the relative outperformance lower by some two and a half
percent. Remember, this follows five percent gains for the U.S. majors in yesterday's trading session as the volatility, the choppiness continues.
Also take a look at the oil market because we are seeing energy stocks just among the losers in the session today. We're off the lows, I have to say
for the energy markets, but again, losing around three percent as you can see here.
This, after Saudi Arabia ordered Saudi Aramco, the big oil producer there to increase production capacity as John Defterios was explaining to us
earlier, so just one of the other additional concerns that investors are dealing with here.
Clare Sebastien joins me now. You can take your pick, Clare of the individual issues whether it's the airline sector. We continue to hear from
more airlines cutting capacity here, the energy sector and all pressure wobbles.
And of course, the ongoing uncertainty over the coronavirus. I called it a perfect storm earlier, but it's an imperfect storm clearly.
SEBASTIAN: Yes, it's interesting to look at oil prices falling today, Julia, because we just got CPI inflation numbers for the U.S. and they are
already showing that they're being restrained by lower oil prices, which of course, we're falling significantly even before we heard of this price war
between Saudi Arabia and Russia.
So it looks like those lower oil prices will continue to restrain inflation. And that, of course, strengthens the case for the Fed to move
even lower on interest rates.
The market is of course, pricing in another big cut at that Fed meeting, which is happening a week today. But it despite the expectation, of course,
as you've been saying of monetary stimulus and fiscal stimulus, and the fact that we're seeing this in a coordinated fashion today, in the U.K.,
it's already been happening and in other countries.
The market simply, if you look at it now, 800 I think we're at session low is now -- are just not finding a reason to buy and I think you know,
certainly if you talk to Goldman Sachs based on their report today, we're just going to continue to see this.
[09:55:08]
CHATTERLEY: Yes. They're saying the bull market here is over, but to your point, we see a pop higher and people see it as an excuse to sell it seems
rather than to dip your toes back in. Clare Sebastian. Always a pleasure. Thank you so much for that.
Now, on a quick programming note. CNN will have Special Coverage of My Freedom Day. Throughout the day, we will hear from young people all over
the world in a half hour special program. That airs at 12:30 p.m. in New York, 4:30 p.m. in London.
It's not too late to be part of the global celebration. Tell us what does freedom mean to you? And you can share on social media using the
#MyFreedomDay. A great thing to focus on at times of great uncertainty.
That just about wraps it up for the show. We'll be back in a couple of hours' time, but for now, you've been watching FIRST MOVE. Time to go make
yours. We'll see you tomorrow.
(COMMERCIAL BREAK)
[10:00:00]
END
