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First Move with Julia Chatterley
U.S. Stocks Set To Plunge At The Open, Another Trading Halt Looking Likely; Airlines Asking For Government Support To Counter The Disruption; China's Data Crunch: Industrial Output Falling At The Sharpest Levels In 30 Years. Aired 9-10a ET
Aired March 16, 2020 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:08]
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR: Live from the New York Stock Exchange. I'm Julia Chatterley. This is FIRST MOVE, and here's your need to
know.
Trading turmoil. U.S. stocks set to plunge at the open. Another trading halt looking likely.
A matter of survival. Airlines asking for government support to counter the disruption.
And China's data crunch. Industrial output falling at the sharpest levels in 30 years.
It's Monday. Let's make a move.
Welcome once again to Monday's FIRST MOVE. Another dramatic 24 hours in financial markets where we saw global Central Banks finally coordinating to
try and shore up the plumbing in the financial system. I'll walk you through all the details in just a moment's time.
But the message from stock investors it seems is confusion and fear. We've got S&P futures falling more than five percent premarket. That five percent
of course is the lower limit. So now we're paused.
Our best guess is take it from exchange traded funds -- ETFs that track the S&P 500. They're pointing to an early session drop of more than 10 percent
at this level. It's almost certain.
As I mentioned, circuit breakers will be triggered and then we'll see another 15-minute trading halt. If we end the session like this, we will be
giving back much if not more of the nine percent gains that we saw on Friday. All of that long forgotten.
European stocks also deeply in the red. Asian markets lost ground, too. Australian stock markets fell almost 10 percent. That was their largest
drop on record.
You're getting a sense of the picture that's building here.
Let me explain what the Fed announced on Sunday. Interest rates in the U.S. have been cut to near zero. Bond buying will be restarted, so-called QE.
We're talking $700 billion worth. That's to help keep interest rates, Treasury yields lower.
They also joined four other Central Banks to offer cheap U.S. dollars. We also saw the Bank of Japan announcing that they will buy further assets,
too.
China injecting more than $14 billion of cash into the system, as new numbers as I mentioned show a deep economic contraction in the first
quarter there.
Australia, New Zealand also making emergency moves.
Normally, when policymakers start to panic, investors panic less, but not so today. Unprecedented times.
Let's get to the drivers because Clare Sebastian joins us now. Clare, we're setting up for another ugly session here on Wall Street.
The Federal Reserve taking all sorts of moves here all at once, suspending the meeting that they were going to have this week. I think investors
simply looking at this and just going well, it's not enough. What else do they have left here? And where do we go now?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia. There's an awful lot for these very fragile markets to digest.
I think you're absolutely right. There are two things going on here.
One, people are looking at this and thinking, what does the Fed know that we don't? Is this, you know, much worse than we thought, given that the Fed
has now basically thrown almost the entire kitchen sink of its policy tools at this crisis?
And the second is a sort of understanding that there are real limits in this particular crisis, which is, you know, a real sudden stop to daily
life as we know it. There's real limits to what the Fed can actually do here.
Now, Jerome Powell did address this in his sort of telephone press conference last night, and he said, look, we are trying to unfreeze
critical markets like the Treasury markets, and they do filter in to those markets where consumers and businesses go for credit.
So you know, by encouraging banks to lend, he is doing everything he can right now to try to get cat into the hands of consumers and businesses.
This is a return, Julia, to 2008-2009 policies. The Fed is clearly on a very defensive stance here, but people are also pointing out this morning
that given the situation in the corporate credit markets and corporate bond markets where companies facing a drop in income and revenue are going to
find it very difficult to borrow.
There is one more thing the Fed can do, and that is to buy corporate bonds. They haven't done that yet. People are talking about that.
CHATTERLEY: And the commercial paper, the short term unsecured lending market, which is a real concern here. Jay Powell, we don't have the tools
to reach individuals, and particularly small businesses and other businesses, and people who may or may be out of work here.
The Federal Reserve is saying, look, we're approaching the limits, targeted support for businesses or consumers is essential here.
SEBASTIAN: Yes, fiscal policy. That is what we're hearing from all of the Central Banks. It has to be a combination of the two.
I think in the U.S., we are moving towards a potential tax cut, potentially targeted support. You know, the word bailout is heavily tainted obviously,
but something on that -- along those lines for the travel industry.
[09:05:06]
SEBASTIAN: But I think there's a couple of different ways to look at this, Julia. There are a couple of different problems that the Federal Reserve is
now looking at.
One, you know, helping to avoid a recession. That horse may have already bolted. We've got a New York Empire State Survey on manufacturing this
morning and that fell by a record amount.
So it is looking like this is starting to show up in the data in the U.S.
Then there is preventing a financial crisis, which they can help do by unfreezing these critical markets and hopefully helping to unfreeze credit
in some ways.
So that is what they are grappling with, and of course, there's the issue of a softer landing, which is something the Fed can also help with when
this starts to abate, when we start to see a recovery, they can help things return to normal quicker and more smoothly.
So that is really what we heard from Jerome Powell last night.
CHATTERLEY: That's a great point. Kick starting the recovery important hereto. Clare Sebastian, we'll get you back later on in the show. Thank you
for that.
Speaking of targeted support, global airlines are saying look, we simply need support to tide us over through this credit crunch. For the airlines
in particular, they're warning of unprecedented disruption.
Anna Stewart joins us now. Plenty more warnings overnight but they're simply saying, look in the interim, this is unprecedented level of
disruption and we need support to get us through it.
ANNA STEWART, CNN REPORTER: They're going to need support. They're going to need coordinators' help.
A couple of weeks ago, Julia, we had the IATA warning that this could cost global airlines $130 billion of revenue this year, and that was before the
most recent U.S. travel ban on Europe.
Now, we're really seeing these airlines bracing themselves for the full economic impact trying to protect their balance sheets. Flight slashed,
planes grounded. There are so many headlines in the last 24 hours, it's hard to know where to go.
I mean, EasyJet warned, they may ground the majority of their fleet. Ryanair say they cannot rule out full grounding. We are seeing
redundancies. Some are warning for the coming week, some are already being implemented.
Scandinavian Airlines for example, they have temporarily laid off 90 percent of their total workforce. I could go on.
None of this is reassuring investors. We will try and bring you some stocks up, but this morning, EasyJet fell by some 30 percent. IAG, the owner of BA
was down 26.5 percent, and the bailouts are being requested, not by individual airlines now, but by the big alliances, the big global three,
One World, SkyTeam, Star Alliance; together, they contribute more than half of all global airline capacity. They need help, and they're already asking
for it now -- Julia.
CHATTERLEY: The message here is that we can't look at this as a bailout. These were economically viable companies that have been brought to their
knees as a result of circumstances at this stage, so we have to look at this as targeted loans.
The question is, how easy can they get access to that and how quickly can it come? Anna Stewart. Great job. Thank you so much for that.
To China now, where fresh data is showing the scale of damage to China's economy. Beijing says retail sales for January and February were down by a
whopping 20 percent from a year earlier.
Industrial output slumped by around 14 percent. David Culver is live in Shanghai. David, even if they're getting on top of the current virus
outbreak here. The data is showing you the economic crisis that this has caused continues.
DAVID CULVER, CNN CORRESPONDENT: Absolutely devastating here, Julia and we got a sense of that as we've been covering this now eight weeks since the
lockdown went in place in Wuhan.
We started to see life here come to a halt, much like it is in the States, much like it is across much of Europe, and so to say that we're through it
here is far from the truth to be quite honest.
In fact, March data could be far worse than what we saw coming out in January and February, and what we're looking at from the China perspective,
as far as how they're trying to handle this is an injection of liquidity into the markets and they've been doing that since February. Hundreds of
billions of dollars' worth in February alone.
As of today, as you mentioned at the top of the show, another $14.3 billion that's being done by essentially giving cheap loans to banks and then
they're lowering the cash reserve requirement for many of the banks here. They did that on Friday. That was another more than $70 billion dollars
equivalent that they've injected into the money market here.
The reality is things are starting slowly to come back online. We've noticed that as restaurants have been given permission to reopen, hotel
occupancy is slowly slipping back upwards.
To give you an example, here in Shanghai, I know that a sampling of the hotels generally sit around 60 to 80 percent occupancy, that's what they
look at. As of this crisis, they were down three, four, some of them even lower than that percentage wise -- coming back up.
In fact, the hotels that I've been speaking with are sitting around 15 to 20 percent right now.
So not near where they need to be, but we're starting to see some improvement as they're coming back online. And that's the reality across
the area outside of Hubei Province because when we look at Hubei and when we look at Wuhan, which we've talked about as being transportation hubs
within China, and even places of a lot of manufacturing, they are slowly coming back online -- more slow -- I would say slower than even much of
other parts of Mainland China.
[09:10:06]
CULVER: And part of the reason is, Julia, we've been seeing that they have been dabbling with this idea of easing restrictions in parts of Hubei and
they've put that out there, but then they'll withdraw that. They will revoke it and they'll say, you know, not so quickly. Let's hold off before
people start moving around in too many parts.
So while the most recent rules to come out have suggested that they're going to ease some of the restrictions in parts of Hubei, we know within
Wuhan for example, health officials just today said this is still a severe situation. They're still requiring people to remain in their homes, avoid
going outside, so they're still far from returning to any sort of normality there, really -- Julia.
CHATTERLEY: That is such a great point. David Culver still need more time. But despite that, sending support to Italy, sending support to the United
States. Jack Ma's Foundation, a million face masks, 500,000 testing kits. I wanted to mention that because I do think this is an important and a
pivotal signal actually of support between two countries.
David Culver, great to have you with us. Thank you so much for that.
All right. Let's move on now to around the world and some of the other headlines that we're following.
The United States will hold a conference call with other G-7 members to coordinate an international response to the coronavirus pandemic.
More than 160,000 people have been diagnosed with the infection with Europe now seeing a rapid spike in cases. In Italy, Sunday was the worst day yet
with more than three and a half thousand new cases and 368 people losing their lives despite severe restrictions on movements for the past week.
One man decided the best thing to do was give people something to smile about.
[VIDEO CLIP PLAYS]
CHATTERLEY: Melissa Bell is in Rome for us. Melissa, that just gives me goosebumps listening to it. A breathtaking scene, breathtaking scenes quite
frankly at an incredibly difficult moment.
MELISSA BELL, CNN CORRESPONDENT: Julia, they take place every evening at 6:00 p.m. It has become a daily event because it is so important for people
in this lockdown to remember their connections with each other and the only way they can do that is by going to their balconies singing when they can,
playing instruments where they can, banging their sauce pans where they can, and just shouting across the road to each other.
There are extremely emotional moments and you realize the psychological toll that this lockdown is taking on people. There is of course, Julia,
also that economic toll.
We're expecting Giuseppe Conte's government to announce a new stimulus package today. They've been meeting to discuss that. Remember, they'd
already announced a 25 billion euro package. We're expecting more today.
Help for businesses, help for families. Relief with any kind of payments that they may have to make in which they may be unable to make, given that
they're unable to work at the moment and given that the economy is frankly ground to a halt.
It is also all about pumping fresh money into the country's extremely stretched healthcare system. We've been speaking to one doctor up in the
north of the country, which was, remember, at the forefront of this outbreak within Italy who said that he reckoned that if things continued as
they were, with these record spikes continuing that the North of Italy, Lombardy probably had only until the end of the month to continue finding
enough beds for people. So the healthcare system needs more money.
And of course, it's going to take some time to really count the full economic impact of what's going on here.
We also spoke to a virologist earlier on. We asked him why those measures - - we're nearly at the end of the first week of this -- why we're not seeing the numbers come down. On the contrary, we're seeing these spikes, two new
records yesterday, as you say, Julia.
We will look to those numbers that we'll get in a few hours here today to get the very latest, those latest numbers, both the number of new
infections and the number of new deaths are record numbers so far.
He explained that it was going to take at least another week for these extraordinary measures to translate into anything like a stabling out of
those numbers -- Julia.
CHATTERLEY: Yes, we've just got to stick with the measures. Our hearts go out to everybody there and those that have been impacted, of course.
Melissa, thank you so much for joining us. Melissa Bell there in Rome.
All right. We're going to take a break.
Coming up here on FIRST MOVE. Was it too much too soon? Former New York Fed President Bill Dudley gets us into the minds of the Central Bankers and
what they're doing right now.
And more expert analysis. Mohamed El-Erian joins us as we head for another red day on Wall Street. Stay with us. We're back after this.
(COMMERCIAL BREAK)
[09:17:54]
CHATTERLEY: Welcome back to FIRST MOVE. We are counting down to the market open and I can tell you, Wall Street is bracing for steep losses this
morning.
S&P futures have hit their five percent limit down. What we're looking at from indexes that track these is losses of more than 10 percent at the
open, a trading halt, almost a given at this stage, but it's not just about stocks.
Take a look at what we're seeing in oil markets as well. We've got Brent crude, down some 10 percent. U.S. crude breaking below $30.00 a barrel.
Gold is also under pressure.
This is a sign that investors are still being forced to raise cash. You sell what you can at this stage. It was the worst week for gold since 2011
last week.
What we do see that was gains for U.S. bonds. The U.S. 10-year yields trading at 0.76 percent. As you can see, a reversal of last week's jumping
yields where we saw four straight sessions of gains.
Let's get you some context Mohamed El-Erian, Chief Economic Adviser at Allianz joins us now. Mohamed, always great to speak to you.
You tweeted this morning that you were baffled and upset by what the Federal Reserve did yesterday. Can you explain why?
MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ: Yes, I mean, the first rule of crisis management is don't fire all your ammunition when it's not
going to hit the target.
So the ammunition that should have been fired was very laser like focus on market functions and relieving in particular market failures.
This notion of cutting interest rates by another hundred basis points, that's not going to change anything, Julia. If I gave you a cheaper loan,
if I put cash in your pocket, because you've refinanced your mortgage, you're not going to go out there and spend it on travel. You're not going
to go out there spend it on the movies. You're going to keep it.
So it's really important to understand that the time for these general policies will come, but not now.
CHATTERLEY: Why did they do this, Mohamed? And why say we're not going to have a meeting this week. I mean, they need to be prepared to have a
meeting whenever to talk about what's going on and to laser like precision focus on the dislocations or potential issues here. What happened, do you
think?
EL-ERIAN: So I think if you want to be charitable, you say two things. One is they wanted to signal whatever it takes, we are all in in this, so do
everything, throw everything at it.
And two is that while what they did wasn't sufficient, some will argue was necessary. That's the charitable interpretation.
I think the less charitable interpretation is the lack of crisis management experience. It is once again communication mishaps.
And finally, it is not having a good feel for the technicals in the market. So I'll leave it up to you whether you want to be charitable or less
charitable, but the marketplace is tending towards the second one, which is a problem because that means the credibility of the Fed is in play and the
Fed is a critical anchor to the functioning of markets.
CHATTERLEY: My read is the market is panicking because they think the Federal Reserve panicked here and we can't have that at this moment in
time.
I think one of the differences that we can look at here, when we saw the announcement from the largest U.S. banks yesterday is that they're not
going to buy back their own stock.
They're going to make sure that they have capital on hand here, a symbolic gesture, if necessary, but they're better capitalized than they were during
the financial crisis. Is this something important to focus on here, Mohamed, particularly since we're looking at a health crisis that's
becoming an economic crisis? We're trying to stem it becoming a financial crisis.
EL-ERIAN: Oh, absolutely. Julia. I mean, it's so important that our banks are in a better place because that protects the payments and settlement
system. I know that sounds complicated, but it's basically the oil in your car. You don't think about it much, but when it oil breaks down, nothing
else works.
So the payments and settlement system, what gives a heart attack to the system, that is robust, that is well-protected, and the banks in the U.S.
are in a good place.
The concern is elsewhere is that risk morphed and migrated from the banks to the non-banks. And in the process, people got lazy about liquidity, got
lazy about risk management. They thought the Central Banks would always have their back covered.
So the risk is there. It is not as critical as when it is in the banking system, but it can still make finance, reverse contaminate the economy and
that's what we need to avoid.
CHATTERLEY: What do you want to see the Federal Reserve do now? A lot of people have been pointing to the fact that what the stock market is telling
you is we have subsets, sectors of business that are simply on their knees. The airlines is a classic example.
There's the Federal Reserve announcing that they can buy commercial papers or the unsecured short term, borrowing markets are given some support here.
Is that an option for you? Or what else do you want to see them announce now?
EL-ERIAN: So the Fed is in a worse place today than it was 24 hours ago. Having said that, they can still learn from the Bank of England.
I think the Bank of England set an example; that unfortunately, neither the E.C.B. nor the Fed followed. It had laser focused measures, including
helping certain sectors. The Fed has authority to get somewhere near there, it has to go a different way. It had coordination with the Treasury, and it
had crystal clear communication.
You know, we should learn from the experience of the Bank of England, because we cannot repeat policy mistakes. Otherwise, we will create a whole
new set of problems.
CHATTERLEY: Do you think we're already in recession, Mohamed, and is this an important question to ask -- is the more important question to be asking
what measures need to be in place to kick start activity once we get through this period?
EL-ERIAN: So yes, we are heading into recession. It will be sharp. We need to make it short. So forget about the V, this is not a V. This is more like
a U and we need to avoid an L or an I. So it's very important that we contain the damage, that's step one.
And when the health issues become less paralyzing, because that's what they are. We being yanked out of our comfort zone and we are front warning all
sorts of behaviors when we have better assurances from the health professionals that we can contain this crisis, which we can and that we can
increase immunity, then focus on the rebound.
That's when you deploy the big bazookas. So yes, we need to both manage a journey that's going to be difficult, but we also have the basis to jump
back up once we can contain the health issues.
[09:25:10]
CHATTERLEY: Now, Mohamed, I think there'll be people watching this show right now and listening to you and watching for another dramatic plunge on
the stock markets.
And to your point, we don't have a -- we don't have a model for what we're seeing here and the economic sudden stops. We don't have a model for
isolation in the west or the kind of restrictions that we're being told to enforce.
What's your message here to people that perhaps have money here, and they're worried about their pensions or even just trying to come to grips
with how they have to live their lives on a daily basis now.
EL-ERIAN: So we have models, but they come from fragile and failed states, or they come from communities that have been hit by a natural disaster,
because what that does it simultaneously contracts supply and demand and that's what people are feeling.
Look, I would tell people and I would tell my family and my friends, understand what you going through. It is really unsettling, but we will get
through this. We will get through this.
We just need to navigate the journey and not make things worse. You know, when people rush and buy everything in stores, that's where it's panic. So
we have to be careful.
And companies also have to protect their workers. This is not a permanent shock. They must not overreact and governments must do a much better job at
isolating the most vulnerable people in society and economic segments, protecting them and helping on the health issues.
We'll get through this, Julia. We will get through this, okay, but people have to understand, it is going to feel really uncomfortable for a while.
CHATTERLEY: Wise words, sir. Thank you so much for joining us, as always, Mohamed El-Erian there, Chief Economic Adviser at Allianz.
The market opens next. Stay with us. We are back after this.
(COMMERCIAL BREAK)
[09:30:00]
CHATTERLEY: Welcome back to the New York Stock Exchange. Just one individual, a representative of the New York Stock Exchange ringing the
opening bell this morning, a sign of the times and I can tell you some very concerned faces watching the price action.
We were expecting deep losses across the board. There you go, and that's the picture. So we are just waiting now for that bell to halt trading.
That is the opening picture for the Dow and the S&P 500. Remember that trading halt kicks in if there are losses of five percent or more pre-
market, and then we wait and see what happens once trading kicks off hereto and we just wait to see if trading is halted for the session here as well.
But for now, we will just be getting a sense of where things are. You don't even see anything moving at this stage. So the fear here for global
investors is that the emergency moves that we saw with the Global Central Bank is simply not helping economies dealing with the health crisis.
You can work on the plumbing of financial markets to make sure they're working, of course, but everything else at this stage is an open question.
Goldman Sachs sees the U.S. economy posting zero growth in Q1, contracting five percent in the second quarter. They said that the S&P 500 might not
bottom until it falls to 2000.
So as you can see right now, we're lying at around 2,490. So that takes what? Another 20 percent off the levels that we're seeing. It's really
concerning. It's a 26 percent drop from Friday's close, of course.
What we're looking at now is taking back gains that we saw on Friday's session that really no one trusted, but as you can see, we are static at
this stage.
So immediately, immediately as this session opened, the decision here was to halt trading, and that's where we lie right now. Clare Sebastien is with
us. Clare, this is what we were expecting.
Beforehand, we were tracking exchange traded funds that were mirroring what was going on premarket and they were suggesting a nine to 10 percent drop
for these markets, perhaps no surprise that almost instantly trading here has halted for 15 minutes.
SEBASTIAN: Yes, Julia, the third time in six trading sessions that we've seen this happen and I think this is the quickest. Last Monday and last
Thursday, it was a couple of minutes before trading was halted. This was pretty instant on the open.
I think that just shows you the level of concern, the level of volatility out there is only increasing. Really a reversal of what we tend to see when
the Fed acts is that markets celebrate the return of cheap money. This is the opposite.
Investors are looking at this and thinking, is this going to get worse? Does the Fed think that we're heading into a recession? We might already be
in one and do they have the tools to fix this?
I think the consensus is, you know, there's a certain amount they can do. They can unfreeze certain markets like Treasuries, which is supposed to be
the safest corner of the market, which really saw some disruption last week and they could try to get credit moving through the economy again, but they
cannot get people to spend money on travel.
They cannot open closed restaurants and bars. They cannot reopen schools, and that is what the market is dealing with. This is an unprecedented
situation.
CHATTERLEY: The economic shock of sudden stops to your point, we often talk about the Central Bank's bazooka, but in the face of the challenges here,
it's more of a peashooter.
Though, I know you were listening to Mohamed El-Erian saying that they should have been far more targeted, and it seemed that they just empty to
the toolbox on Sunday with remaining tools that they have in place at this stage and seemingly acted out as some form of fear or at least that's the
message that investors have taken from this.
The measures that they took were never about supporting equities. It was about financial plumbing. But at the same time, the reaction here, I think
across all assets is clear.
SEBASTIAN: Yes. And to be honest, you know, this may well be a lose-lose situation for the Fed. If they didn't act, they could be faced with more
market turmoil or just the same as if they did act. This is a very fragile situation out there.
In terms of sentiment, there's a lot of emotion playing into the market, but I think the timing was crucial as well. When the Fed does this and does
this on a Sunday night, just three days ahead of a scheduled meeting that really does set up some fear.
The question of why they couldn't have just waited three days, how worried were they about how markets were going to function on Monday morning?
Again, bringing that concern back into the markets, Julia.
And I think it's important to note even in, you know, the sort of last hour or so, everything is changing so fast. We have a survey of business
activity and sentiment, the New York Fed Empire State Index that has plummeted by a record amount.
One of the key factors that's bringing it down is optimism. We are really seeing a decline in confidence out there among businesses and that is
something that is really sort of outside of the Fed's ability to fix at this point.
[09:35:03]
CHATTERLEY: Yes, the hope -- the belief is that this will be a short term shock, one heck of a shock, but a short term. But the problem is we have no
sense of time here to understand how long businesses, individuals can survive and continue throughout this process.
Clare Sebastian, don't move a muscle because I'm going to come back to you in a second. You posed some great questions, though, and questions for my
next guest, Bill Dudley, former President of the New York Federal Reserve.
Fantastic to have you with us on the show, sir. I'm sure you were listening to that and heard some of those questions posed. What do you make? What's
your assessment of the Feds announcements last night and obviously the market reaction to them?
BILL DUDLEY, FORMER PRESIDENT OF THE New York FEDERAL RESERVE (via phone): I think they've been doing
what they need to do to try to help ensure that markets continue to function. What you don't want to have happen is the economy goes down and
then that disrupts markets and then the market disruptions makes the economy worse.
So they're trying to prevent that negative feedback loop from bad economy to bad markets. In bad markets, causing the economy to even be even worse.
But the Fed can't do anything about the initial shock. We're going to see a very significant downturn in economic activity over the next few months.
The important thing though is what the Fed can do is prevent the financial system from breaking and make sure markets continue to function, and so
prevent a negative feedback loop by which poor market function hurts economy even more.
CHATTERLEY: Mohamed El-Erian was just on our show, and he said that he was disappointed that the Federal Reserve should have been far more targeted
here. Perhaps looking at things like commercial paper, targeting specific lending, more like what the Bank of England did. Do you agree with that
assessment? Did the Federal Reserve need to be more targeted?
DUDLEY: Well, I think it depends on what they identify in terms of areas of market stress. I mean, what they've identified so far is stress in the
Treasury market and stress in the mortgage backed securities market and they responded to that.
I think what they're going to be looking at very closely now over the next few days is what's happening in the commercial paper market.
The commercial paper market starts to have dysfunction, then it's possible that the Fed will bring back the type of special facilities that we saw in
2008.
CHATTERLEY: Do you think at some time or will become very quickly time to invoke emergency powers to establish a government backed new credit
facility? Because we're looking at dislocations that are impacting certain sectors, like the airline sector, for example? Could we do something like
that and give the Federal Reserve more powers?
DUDLEY: Well, I think that's certainly possible. It is something to think about. But I think the more important thing is fiscal policy, I think there
needs to be fiscal policy stimulus. There needs to be broad base to support families and small businesses who are going to take a hit to their income.
We know that the economy is going down and the next consequences of that is people's incomes are going to fall and we need to basically provide some
mechanism to support their income over the next three or four months as we go through this process of getting through the virus.
CHATTERLEY: I just want to remind our viewers as well that we are currently in a trading halt. Markets plunged instantly on the open and we are now
observing a 15-minute trading halt to try and allow some pause, thought, decisions over further pressure on these markets.
We'll see if indeed that works. Will we see further pressure? But that's what we're seeing right now.
Bill, I just want to say -- and you raised a critically important point about the fact that more fiscal policy, more government policy is required.
We did see Congress acting over the weekend, but the fear here is among the 57 million working Americans, 20 million people will be exempt from the
measures that they passed over the weekend. It's good. It's something, but it's not enough. Do you want to see more from governments, too?
DUDLEY: I agree. I think there needs to be quite a little bit more.
CHATTERLEY: What more do you need to see -- do you want to see here? Because even Jay Powell said in the press conference last night, we support
small businesses. We can't support individual workers.
DUDLEY: You have to distinguish between a liquidity crisis and a fiscal problem and what we have here is mostly a fiscal problem. So I think the
government needs to think about bringing resources to small businesses and households to help them get over the hump of what's going to be a
disruption to their income flow over the next several months.
CHATTERLEY: Are you in favor of a payroll tax cut? We need to forget about the cost and just take action short term.
DUDLEY: I think a payroll tax cut is certainly one thing that could be contemplated, but I think probably even better is just to send money to
people, put checks out in the mail, so every family in the United States gets a check to support them over the next couple of months.
Because, probably the payroll tax cuts is it unfolds relatively slowly. And it's also, you know, if you're a higher income, you're going to get a
bigger tax cut. That doesn't seem very fair.
So I think you'd want something that's basically to support low and moderate income households that don't have much savings. For them, this is
really going to be a very serious time.
[09:40:05]
CHATTERLEY: Yes and there's growing consensus of that on the conservatives and on the liberal side of many economists to simply send checks out.
Bill Dudley, former President of the New York Fed. Sir, thank you so much for joining us on the show this morning. I'm incredibly grateful.
All right, we're in a trading halt here at the New York Stock Exchange. We saw a plunge in markets as expected immediately, as the markets opened this
morning, that's a snapshot.
But at this stage, it's unclear. Plenty more to come on the show. We'll talk you through it. Stay with us. You're with CNN.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange where we are currently in a trading halt. The third trading halt
in six trading sessions.
That was the picture as things closed down, but it was immediate. The opening bell rang. We instantly saw pressure. We were expecting falls of
nine to 10 percent based on exchange traded funds that track these markets and that's exactly what we've got.
So that's the picture. Everything is halted. We now observe a 15-minute halt. We've been in that for over 10 minutes at this stage. The question
now becomes -- and I know Clare Sebastian is back with us -- the question now becomes, Clare, what does this picture look like when trading resumes?
Does this 15-minute trading halt give people a chance to reflect, to pause at this moment? That's what it's there for, or do we see further selling
pressure?
SEBASTIAN: Yes, it is less than a minute, I think, Julia, until we find out. Now, when this has happened to two other times over the past week, it
has sort of stabilized things for a couple of hours, but this effect has not been a very long lived one.
We have seen further falls later in the session and these are long trading sessions in the context of today's news cycle, a lot can change and
frankly, people are digesting a lot of negative headlines this morning.
Be it school closures in multiple different places, restaurant closures. We now have really the first piece of data that's starting to show the effect
of the coronavirus.
[09:45:09]
SEBASTIAN: The New York Fed Empire State Manufacturing Index falling by a record amount, driven down by a huge drop in in not only orders, but
confidence, optimism as well. So that is a really sobering moment.
But I thought it was interesting listening to Bill Dudley that the Federal Reserve despite the fact that it's postponed or canceled the planned
meeting on Wednesday based on his actions last night isn't going to be issuing economic forecasts.
And that they are continuing, he believes, to still look at this, wondering what more they can do keeping a close eye on credit in particular, looking
at whether you know, a facility to buy a commercial paper might be warranted. So this is something to watch in the coming days as well.
CHATTERLEY: Bell here at the New York Stock Exchange, Clare. My apologies for interrupting you, but we are and have resumed trading now.
So we're building a picture of what the pressure looks like on this market and I'm just keeping my eyes coming back and forth to our viewers, as we
watch what's taking place here.
At this moment, we've got the Dow and the NASDAQ approaching down 12 percent. And Clare, I don't need to remind you, but perhaps our viewers
just to be clear, a 13 percent drop -- one three percent -- is when the next circuit breakers kick in.
So the question now is, as we're tracking and approaching 12 percent, whether or not we can hang on, and we can bounce off these levels, or
whether we continue to see further pressure?
These are unprecedented times. Clare, despite the actions perhaps, as a result, we could argue if the actions that the Federal Reserve took
yesterday, slashing rates down to near zero, announcing that they're back into quantitative easing, buying bonds; once again, investors here really
taking fright. We are now down 12 percent.
SEBASTIAN: Yes, they're not holding on to any kind of stability, Julia, and this is very different from what we've even seen over the past week, which
also showed record volatility.
This is continuing to fall. If it does reach 13 percent, that will be the first time that we've seen that, and this is well and truly wiped out that
record or biggest rally since 2008 that we saw on the Dow on Friday. Well beyond reversing that now.
I think, you know, investors are truly shaken by what they saw by the Federal Reserve coming out, not even able to wait three days until the next
scheduled meeting and really throwing the entirety of their policy toolkit at this problem.
Analysts are saying this morning, the Fed can basically step aside at this point. It's now up to the government -- the U.S. government and other
governments to come in and really do decisive fiscal policy.
The U.S. Chamber of Commerce came out this morning with recommendations including legislation to provide credit facilities, legislation to cancel
payroll tax payments by companies, all kinds of measures are being put out there on the table.
It remains to be seen when exactly we're going to get a final decisive decision from the administration.
CHATTERLEY: You know, it's interesting and that's exactly the message that former New York Fed President Bill Dudley was just saying to us. Firstly,
that they are being specific in what they are targeting.
Where they are seeing dislocations, they will take action. So they'll watch the commercial paper market now, which is the unsecured short term lending
market for businesses, for corporates.
And if they see dislocations there, they will take action. But to your point, he also reiterated that the government needs to do more at this
stage.
He was even suggesting and there is building consensus for this, simply sending out checks to people. Give people money in their hands to try and
shore up confidence.
Clare, it's okay if people are out of work, but simply if they can't go out and spend, it's going to help them in the medium term. It's perhaps not
going to help them so much in the short term beyond a bit of confidence here and they are not taking fright about what this means to their jobs
going forward.
SEBASTIAN: I think confidence is truly currency at this point, Julia. I think if people can sort of avoid panic, if we can start to see people
avoid panic buying in grocery stores and frankly panic selling on the markets that will put everyone in a better and safer position to weather
this.
So that, you know, while it's seemingly, you know, truly emergency measure that he suggested does sort of make sense in the context of this
unprecedented situation.
But look, businesses are, you know, in trouble at the moment, we see, even the strongest ones the likes of Boeing drawing down $13.8 billion loan
facility as a precaution to preserve cash. We see the big banks canceling buybacks in order to preserve cash.
People are selling both good assets and bad. We see gold down today, despite the fact that it's a traditional safe haven and in order to try to
preserve cash.
It's a theme that we see now across the financial markets even at a time -- and it's made worse, frankly, by the fact that the corporate borrowing is
becoming increasingly difficult. So that is why fiscal policy is so important at this point.
CHATTERLEY: Absolutely. And actually, we're just giving you a picture, a snapshot now of what we're seeing not just for the broader markets which
are down more than 11 percent at this stage, but also the airline stocks.
[09:50:07]
CHATTERLEY: We've talked already on the show, and Clare, you've been talking to us for days now about the existential crisis that some of them
are saying they're facing now as a result of cut capacity.
But also the banks here, and this is something we need to focus on as well. The largest U.S. banks all saying yesterday that they're not going to buy
back their stocks. It's a symbolic gesture, but they're simply saying that we're going to have cash available to get to the real economy. We're not
going to put it towards buying back our own stocks.
But if I can show you once again what we're seeing for those share prices, the financial sector here is also dragging the broader index down because
investors are looking at themselves and saying, well, if the banks aren't buying their own stocks, who is at this stage?
It's a cascade of pressure and at the heart of that is fear. Clare, stay with us. We're going to take a break. We're down some 11 percent plus on
these markets. The next circuit breaker kicks in at 13. We've got you covered. Stay with CNN.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE where we are seeing severe pressure once again on the U.S. stock markets. I'm glad to say the New York
President -- the NYSE President, Stacey Cunningham joins us now. Stacey, we spoke to you on Monday last week. Same story here again, fears pressure,
tell me what you're seeing.
STACEY CUNNINGHAM, PRESIDENT, NYSE: So what we're seeing this morning is a lot of market anxiety, and I think that's reflecting the anxiety people
feel more broadly across the country.
And so the markets have been selling off. We triggered a market-wide circuit breaker this morning after a decline of seven percent. The markets
reopened.
We're opening stocks now and going through that process of seeing how the market is going to react throughout the day. It is very possible that we
would trigger a 13 percent decline, that's not out of the realm of possibility, at which case, we would pause again and halt for 15 minutes
before reopening.
I think it's important to recognize that while we're seeing a significant selloff in the market, all the conversations that I've had with regulators,
Federal, local, and state government is that they're very focused on helping.
So what I think people should focus on right now is taking precautions around their health and then we'll turn our attention to the markets after
we get the virus under control.
CHATTERLEY: I agree.
CUNNINGHAM: We will get through this.
CHATTERLEY: Stacey, is there any cones that the Stock Exchange -- I mean, we're taking all sorts of precautionary measures here, temperature testing,
is there any chance that the New York Stock Exchange will simply move location? That this will shut? Just given the turbulence that we're seeing?
CUNNINGHAM: Given the precautions that we put in place, we don't feel the need to shut the markets right now or shut the trading floor right now.
We do have the ability to shut the trading floor. We do have the ability to trade entirely electronically. Our stocks trade better when we can include
human judgment, so we haven't taken that additional step just yet. But we can do that.
[09:55:04]
CUNNINGHAM: We operate five different equity markets. The New York Stock Exchange is the only one that incorporates a human element to the trading.
We can on the New York Stock Exchange trade entirely electronic. We haven't done that.
Instead, we focused our energy on precautions to keep the people safe here in the building and to introduce more social distancing.
We've dramatically reduced the number of people coming into the building. We've segregated entrances. We've increased cleaning. We had a deep
sanitization of the trading floor over the weekend. And we've implemented medical screening at the doors.
So before anyone walks into the building, they're screened by a medical professional, taking their temperature and looking at additional testing if
warranted.
CHATTERLEY: And Stacey, we do appreciate it. We've noticed and we appreciate it. Thank you so much for that. Stacey Cunningham there, the
NYSE President.
We're under pressure with these markets, but we have gently bounced off the lows. We'll be back with plenty more in the coming hours. Stay with us.
You're with CNN.
(COMMERCIAL BREAK)
[10:00:00]
END
