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Quest Means Business

Stellar Jobs Report For June; Deutsche Bank Loses A Top Executive As It Begins Some Painful Restructuring; Amazon Celebrate 25 Years Of Doing Business. Aired: 3-3:30p ET

Aired July 05, 2019 - 03:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

ELENI GIOKOS, CNN BUSINESS AFRICA CORRESPONDENT: We are about an hour away before the close of trade here in New York City. As you can see, we are

off our worse levels, but we gave up some really strong gains and record levels that we saw earlier this week. But we are flirting with new

records. Are we going to get there? The big question is, how is the market going to fare given the fact that people are worried about whether

the Fed is going to cut rates or not.

So those are the markets and these are the reasons why. The Feds' job gets a little more tricky after a stellar jobs report for June. Deutsche Bank

loses a top executive as it begins some painful restructuring; and from bookshop to behemoth. Amazon celebrate 25 years of doing business.

Live from the world's financial capital, New York City. It's Friday, July the 5th, I'm Eleni Giokos and this is QUEST MEANS BUSINESS.

A very good evening to you and tonight's Independence Day is over, now the jobs report is setting all fireworks on Wall Street. The U.S. economy

added nearly a quarter of a million jobs last month. That is way beyond expectations and a comeback after a disappointing May.

So Americans went to work in June. Now, the question is will the Fed still go to work in July? Wall Street and the White House are clamoring for a

big interest rate cut. That might not be necessary if the economy keeps showing signs that it is humming along.

So speaking earlier, President Donald Trump said the Fed doesn't know what it's doing. Listen in.

(BEGIN VIDEO CLIP)

DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: We don't have a Fed that knows what they're doing, so it's one of those little things, but if we had

a Fed that would lower rates, you would have a rocket ship.

(END VIDEO CLIP)

GIOKOS: All right, so a rocket ship. So good news for the U.S. economy is perhaps bad news for stocks. Now, the Dow is a touch lower after closing

at a record high before the Independence Day holiday. The rate cuts that investors were betting on seems more doubtful tonight, but bank stocks are

doing quite well.

They're rallying. I mean, JPMorgan and Goldman Sachs are more profitable when interest rates remain higher. And as you can see the Dow, yes, we are

off our worst levels, but still very much in the red and the sentiment is that perhaps we are going to stay down going forward in the next few weeks,

depending on what the Fed is going to do.

We've got Anthony Chan with us. And he is the former Chief Economist at JPMorgan Chase. Thank you very much for joining us, Anthony. Great to

have you on the show.

ANTHONY CHAN, FORMER CHIEF ECONOMIST, JPMORGAN CHASE: Glad to be here.

GIOKOS: I mean, you're getting political pressure. You've got President Donald Trump talking about, you know, rocket ships, if we cut rates.

You've got good economic data that's coming through, you've got to market that's anticipating a rate cut, and then the Fed needs to look at what

monetary policy rules are saying, what would you do?

CHAN: Well, right now, the Federal Reserve said they would cut raise to remove some of the uncertainty. And the uncertainty is still there. Yes,

the economy is still strong. So I think that the reason why the financial market has acted the way they did today, the market didn't really go up, is

because it takes some of the interest rate cuts off the table.

Remember that before this report came out, people, investors thought maybe three rate because this year, maybe even a 50 basis point cut in July.

Now, I think they'll do 25 basis points in July. And then they may actually stop to look at how the economy is doing.

Remember, if the Federal Reserve was under pressure to lower interest rates when the unemployment rate was 3.6 percent, now it's 3.7.

GIOKOS: But hold on, you've got good economic data, you've got a strong economy, you've got low inflation, and this is what baffles me because in

any other time period, I think, you know, a Fed Chairman would say, you know, the economy is looking okay, maybe we should just hold off.

I know we're talking about an insurance cut. Is it market driven? Is it data driven? Or do you think it's politics here that would drive rate

cuts?

CHAN: Right now, it's mostly market driven, and also the fact that the Federal Reserve strongly telegraphed that they were actually going to cut

rates. For then now to switch --

GIOKOS: So we're expecting it basically?

CHAN: All the investors are expecting it. For the Federal Reserve now to shift certainly puts them in an awkward position. So that's why I think

they're almost forced to move in July.

Go So normalization of monetary policy, is that ever going to happen? It should.

CHAN: Well, it's gone for a long time. And by the way, in August, if you look at the changes in average hourly earnings last year, it was -- it

jumped in August of last year, twice as much as it normally does, which means that in two more months, the average hourly earnings number which was

very favorable, might even get lower than it is right now.

So no inflationary pressures for the Federal Reserve, per se. Remember, they also have an inflation mandate and they're not meeting that.

GIOKOS: Again, and I'm really curious, you know, in terms of the long term consequences of keeping interest rates too low for too long, doesn't that

create an overheated economy?

CHAN: There's no question that you can create bubbles, but I don't think anybody would argue that a 25 basis point cut is going to lead to the

mother of all bubbles. It'll create tiny bubbles.

[15:05:10] CHAN: Remember what Don Ho said, "Tiny bubbles make you happy, it's the big ones you have to worry about."

GIOKOS: Okay, fine. I want you to take a listen to what Peter Navarro said and he was saying that Alan Greenspan, basically, you know, is making

-- well, was making the same mistakes that Jerome Powell is making. So listen in.

(BEGIN VIDEO CLIP)

PETER NAVARRO, DIRECTOR, WHITE HOUSE OFFICE OF TRADE AND MANUFACTURING POLICY: When Greenspan was Fed chair, he raised rates too fast and

triggered a recession because he didn't understand the power of technology and allowing us to grow at a robust rate.

I think Jay Powell made the same mistake here. He doesn't understand the power of President Trump's de-regulatory agenda, the tax cuts that are

allowing us to grow with zero inflation. Jim, this is the bottom line. Jim, this is the bottom line, there's no inflation IN the economy when he

raised those raise, that's why he shouldn't do it. He cost us -- he cost us a full point of growth.

(END VIDEO CLIP)

GIOKOS: I am going to flip this as well, because we also know that Alan Greenspan also kept interest rates too low for too long as well, which they

say caused the bubble.

CHAN: So the short answer is that, yes, if you cut interest rates too much, you're going to cause a bubble, but a 25 basis point cut to remove

some of the trade tensions that we have. Remember, that if you look at the Purchasing Manager Survey, not only in the United States, but around the

world, they've all been going down.

So even though everybody says the economy is very strong, it's not manufacturing, it's the service sector. So we need something to give it a

boost. But we don't need three rate cuts this year. And I think the market realizes that the Fed is probably going to pull back some of those

rate cuts that they were early anticipating, not necessarily the July one, but maybe the ones later in the year.

GIOKOS: So I'm looking at the bond yields as well. And not only in Europe that have hit negative, but also here in the U.S., the 10-year bond yield,

it hit below two percent. It's now back up again. Do you look at this as an important metric?

CHAN: Oh, absolutely. The reason why that bond yield pushed a little bit above two percent is the expectation that the Federal Reserve won't have to

continue to cut two, three or four more times. Three times that the market was expecting between now and the end of the year.

If you get more employment reports like this, the July cut may be the last one for this year.

GIOKOS: Okay, so the second half of the year, we've got so many geopolitical things that we're looking at, you know, trade issues with

Europe and China. And the list kind of goes on. What are the big risks for you?

CHAN: Well, I think right now, I'm still worried about business investment, and by the way, both the second and third quarter are likely to

give you less than two percent economic growth. So it's going to be a lot weaker than you saw in the first quarter where you have more than three

percent growth.

So I think that at this point, the Federal Reserve almost gets a free pass if they cut rates. Inflation is not a problem. The economy is not

overheating. Is it moving towards the recession? Absolutely not. But with very little inflation, I think they get a free pass.

GIOKOS: Is it fair when President Trump says that the Fed doesn't know what it's doing?

CHAN: No, I do not. As someone who worked as an economist at the Federal Reserve Bank in New York and also at the Washington Fed during the Paul

Volcker years, I have great respect for the Federal Reserve.

GIOKOS: Thank you so very much. Good to have you on the show. Much appreciate it. All right, so Deutsche Bank's investment banking chief is

stepping down in what many see as a sign that a dramatic restructure is in the works. Anna Stewart has the details.

ANNA STEWART, CNN REPORTER: Well, Eleni, it feels like a starting gun for this highly anticipated restructuring plan for Deutsche Bank. It'll be the

lenders' fifth in just a few years. But clearly looking at the share price reaction today to this high profile departure, the market does seem fairly

upbeat about the potential for the latest plan, and it could be announced as soon as Sunday according to "The Financial Times."

Now, looking at all the media reports out there, here are the main things that we expect to see, a major retreat from investment banking,

particularly equities, and that's likely to be music to shareholders ears if you consider that the lenders investment banking revenue fell 13 percent

in the first three months of the year.

Jobs? Well as many as 20,000 jobs could be cut and that axe is expected to fall largely in the United States and Deutsche Bank is rumored to be

creating a bad bank of $56 billion worth of assets that eat up too much capital. That's according to "The Financial Times."

The bank's share price has fallen some 20 percent in the last year, dragged down by weak earnings, a money laundering probe and the collapse of merger

talks with rival Commerzbank. But shareholders now seem hopeful for this latest overhaul. And of course, the devil will be in the detail -- Eleni.

GIOKOS: It was red across the board on the European markets. Let's take a look to see London, Frankfurt, as well as Paris fell around half a percent.

Zurich also saw heavier selling.

Investors had been riding high all week on optimism for more Central Bank stimulus in the U.S. as well as in Europe. And of course, a big one this

weekend, Greeks go to the ballot box in the first general election since the end of the bailouts.

May see it as a referendum on the ruling left wing, Syriza Party and a taste of the staying power of populism.

(BEGIN VIDEOTAPE)

[15:10:03] GIOKOS (voice over) Call it the Battle of the Billboards. Greek Prime Minister Alexis Tsipras and opponent Kyriakos Mitsotakis are

ready for their face to face showdown to lead a post bailout Greece.

The vote comes after Tsipras was forced to dissolve Parliament and call for snap votes, following his party's humiliating defeat in E.U. and local

elections.

(BEGIN VIDEO CLIP)

ALEXIS TSIPRAS, GREEK PRIME MINISTER (through translator): I will ask the President of the Republic to immediately call national elections so that

the Greek people will make the final decision.

(END VIDEO CLIP)

GIOKOS (voice over): Now, that final decision is near as Greeks head to the ballot box. Mitsotakis's center-right New Democracy Party has taken a

commanding lead in the polls.

Investors believe it's not a question of whether Tsipras's Syriza Party will lose, but by how much.

(BEGIN VIDEO CLIP)

ATHANASIOS VAMVAKIDIS, GLOBAL HEAD OF G10 FX STRATEGY, BOA MERRILL LYNCH: The question is only if New Democracy will be able to form a government on

its own or if they will need a coalition partner. And whether the new government will have a strong majority to be able to implement very much

needed economic reforms.

(END VIDEO CLIP)

GIOKOS (voice over): Tsipras's fall from grace is a stunning reversal from four years ago. Back then he won a resounding victory on an anti-austerity

platform, a Greek exit from the Eurozone seemed a real possibility.

Fiery protests rocked the streets, then in mid-March 2015, Tsipras made grand pivots and agreed to the harsh bailout terms he had campaigned so

strongly against. Grexit never happened.

Last year, the Greek bailout program ended wrapping up almost 10 years of emergency support. The country's economy is finally growing again that's a

plus for Syriza, but harsh budget cuts and crippling taxes continue to pummel the middle class.

Mitsotakis says his pro-business low tax policies are what Greece needs to jumpstart growth.

(BEGIN VIDEO CLIP)

KYRIAKOS MITSOTAKIS, PRESIDENT, NEW DEMOCRACY: Growing at one to two percent is simply not enough for the Greek people. I'm aiming at a much

higher growth rate, but this can only happen if you can stimulate some serious investment.

(END VIDEO CLIP)

GIOKOS (voice over): A stable, business friendly government will please investors. Greek stocks have risen roughly 17 percent since the May E.U.

vote, and bond yields are at record lows, but ordinary Greeks worry that their economic safety net will suffer under New Democracy.

Mitsotakis may get his chance to govern, but Syriza will be ready to battle again if his growth plan falters.

(END VIDEOTAPE)

GIOKOS: So not exactly and all singing, all dancing birthday celebration for Amazon on Wall Street today. But the groundbreaking company is still

up almost 500 percent since 2014 alone. We look at Amazon's milestones as it marks a quarter century.

And the Duke and Duchess of Sussex are taking heat for how they're using public money. Go to cnn.com/join. We want you to vote and join the

debate. We're back right after this break.

(COMMERCIAL BREAK)

[15:15:49] GIOKOS: It was 25 years ago today that Amazon was founded from its beginnings as a humble online bookstore, it's since turned into one of

the world's most recognizable companies starting with innovations like subscription service, Amazon Prime in 2005, then the Kindle, two years

later. The share price has even soared since then, and the company expands further into our lives.

The smart speaker, Amazon Echo then came about in 2014. We know her as Alexa and that was perhaps a big turning point specifically when you see

how the share price was performing.

And then in 2017, Amazon spent nearly $14 billion buying Whole Foods. The company had a bit of a hiccup today, U.K. regulators ordered Amazon to

pause its investments in food delivery startup, Deliveroo, but its stock is still up. Take a look at this, 500 percent over the past five years. This

is unbelievable to see.

Pete Pachal is the Editorial Director of reviews.com and he is also the former editor of Mashable. He's with me now. Thank you very much for

joining us. Great to have you on. What were you doing in 1995?

PETE PACHAL, EDITORIAL DIRECTOR, REVIEWS.COM: Oh wow, mid-90s, I was probably almost flunking out of school.

GIOKOS: Okay.

PACHAL: I finished, so it's all good and I went to journalism school after that so it all it all turned out all right. But it was an interesting

time.

GIOKOS: It was an interesting time and not a lot of people had computers in their homes, not a lot of people had access to the internet, and not a

lot of people would afford, well, I'm going to use this to buy books online. Why books first?

PACHAL: Broadband didn't even exist. Think about the all the things we do online, it was -- remember, dial up and you had to sort of hook it up into

a phone and this is the environment that Jeff Bezos was coming out with Amazon and he needed sort of this streamline sites and experience and a

very sort of focused experience of like selling books online. And it worked.

There's nothing special about it. If you think about it, right? We're just going to have an online bookstore, and there were a million retail

efforts in the early internet era like Pets.com and whatever.

But he had a couple of insights that worked really well. And one of them being like the shipping costs, like once you got the shipping down to zero,

to for -- you know, as long as you didn't care when it came, and you could pay a yearly fee that was very remarkable.

GIOKOS: So that was obviously what got him to be a lot more competitive than people, you know, the other players within the industry, but he was

also visionary quite ahead of his time, because he constantly innovated. What would you say the big turning point was for Amazon?

PACHAL: Oh, I would say, if I had to pick, it was probably the development of AWS. So Amazon Web Services, which is not the sexiest thing, it's not

Amazon Prime, it's not the Amazon Echo or even the Kindle. But that business which they sort of developed as a way to support their merchant

network with infrastructure, they had this vision like we need -- we need some serious technology because we're scaling so fast.

They developed this system, and it didn't even occur to them when they were developing it that this was -- this could be like web infrastructure that

we could sell as a service to other companies.

And now it's by far and away the market leader. It's constant hockey stick growth for this division. And in terms of influence over the internet just

as a whole, I mean, so many services run on Amazon Web Services.

If you tried to live your digital life today without connecting to businesses that are supported by Amazon Web Services, nothing would work.

You couldn't use Twitter, you couldn't use Pinterest, like any -- pick your services, they're probably running on Amazon.

GIOKOS: You know, we've got antitrust issues that are facing Amazon, we've -- you know, Amazon does have a lot of different problems than when it did,

say 25 years ago, but where do you see the company in the next 25 years? Does it -- can it innovate extensively in the next few years to keep it

ahead?

PACHAL: I absolutely think they can. Honestly, I am so bullish on Amazon being the influence in tech over the next 10 years. Honestly, if you look

at the last 10 years, I think most people would agree that Apple has been the dominant player in tech thanks to the rise of smartphones and mobile

and the influence of the iPhone.

But throughout all this time, Amazon has been seeing so many things like the Echo, like AWS, Amazon Prime, which they keep adding services to.

Of all the tech companies today, Amazon probably has the most influence over our day to day lives and you think about what you do with it like you

order everything. It's somehow persuaded us to put microphones and cameras and screens that are all owned and operated by Amazon in our houses.

[15:20:16] PACHAL: the influence of this company, if they can ride out the things you mentioned, like the antitrust, because that's a very serious

concern. If they can avoid Cambridge Analytica style data scandal, I think the sky is the limit for them.

GIOKOS: Thank you very much. Great to have you in studio.

PACHAL: My pleasure. Thank you.

GIOKOS: The co-founder of Wikipedia wants people to briefly give up social media, to take a stand for privacy. He called for a two day strike ending

today. I asked him on the thinking behind the boycott.

(BEGIN VIDEOTAPE)

LARRY SANGER, COFOUNDER, WIKIPEDIA: I decided a little over a week ago, to actually get going on organizing it. I haven't spent months organizing

this thing. I didn't join into a big group of organizers to get the thing going. I wanted it to be grassroots to demonstrate to everyone that

there's actually grassroots enthusiasm about this. I think we've established that.

I think we've also established due to all of the news reporting all around the world, places like Uruguay, Sweden, Pakistan, that there's a lot of

enthusiasm about this idea all over Europe.

So I think the problem is, we haven't been able to coordinate the action of basically moving us all from the current system to a new decentralized

system.

So this is basically just the first step, you can say it's firing the first shot in the revolution.

GIOKOS: What do you plan to achieve with, you know, getting people of social media? We are talking about privacy concerns. We're talking about

a data breaches. We've seen issues. And this is, I guess, something that's on top of every user's mind, but what can we actually do to get

these, you know, giants to change their ways, in terms of how they deal with our privacy?

SANGER: I think the biggest thing that we can do is apply market pressure, essentially. So I mean --

GIOKOS: And what do they need to do differently? I mean, how do you see it playing out differently? What do they need to do? What would you

suggest?

SANGER: Yes, look what people have not done yet is to try to simply organize en mass, right? I hope what this strike does, if it does nothing

else, is to inject the notion into the Zeitgeist, that it is possible to organize us all, to take actions collectively that are in all of our

interests, left and right.

This is a totally nonpartisan thing. People want control of their own data. That's just a fact. You'd ask them and there isn't any opposition

to it. And the idea of decentralizing social media is a wildly popular one.

So it's just a matter of organizing people. There's a lot of people in the world who are really good at organization. If the idea is out there, it is

going to happen.

(END VIDEO CLIP)

GIOKOS: All right, is there trouble brewing up at Windsor Castle? This little bundle of Royal joy is sparking a very big debate. His Royal

parents, the Duke and Duchess of Sussex want his christening on Saturday kept strictly private, but public money about $3 million of it helped

refurbish baby Archie's Royal home and the grounds of Windsor Castle.

So critics say Prince Harry and his wife Meghan can't have it both ways. But supporters insist children of public figures should remain off limits.

We want you to join in on the conversation if the public is paying for parts of Harry and Meghan's life style, should they have access to Archie's

christening. Yes or no? Get out your phones and go to cnn.com/join.

All right, Right. So CNN's a royal correspondent, Max Foster is in Windsor, he sent us this report.

(BEGIN VIDEOTAPE)

MAX FOSTER, CNN INTERNATIONAL ANCHOR AND CORRESPONDENT: Eleni, we should get some more details about the christening tomorrow. But it won't be an

awful lot. We won't find out who the godparents are for example, it's very clear for the Duke and Duchess of Sussex, who wants keep this a private

event and they want to bring Archie up as a private individual, but it hasn't gone down particularly well in some parts of the U.K. media.

FOSTER (voice over): So far we've had limited sightings of baby Archie. So Royal fans are holding out for a clear shot of his face this weekend.

(BEGIN VIDEO CLIP)

EMILY NASH, ROYAL EDITOR, "HELLO! MAGAZINE": We have had a few little glimpses of him, but everyone wants to see how he's developing, how he's

growing, and it's such a happy occasion.

(END VIDEO CLIP)

FOSTER (voice over): The couple have organized a small, private ceremony at a chapel inside Windsor Castle. No media allowed, though they will have

a personal photographer there and will release pictures after the event.

[15:25:03] FOSTER (voice over): This lack of media access has sparked criticism among some British newspapers and politicians, calling out the

couple for refusing to allow public access to the christening when $3 million of taxpayer money is being used to renovate their private family

home.

(BEGIN VIDEO CLIP)

LUKE POLLARD, LABOUR PARTY MEMBER OF PARLIAMENT: But when you're still taking millions of pounds worth of public money, money that could be spent

on schools and hospitals, to upgrade and refurbish what is, you know, luxury palaces, you've got to ask yourself, what are the public getting in

return?

(END VIDEO CLIP)

FOSTER (voice over): But there's been a counter backlash from the army of Meghan and Harry fans on social media, known as the Sussex Squad.

(BEGIN VIDEO CLIP)

GOLDBURN P. MAYNARD JR., LAW PROF. AND SELF-DESCRIBED "ALLY" OF #SUSSEXSQUAD: I don't see any kind of contradiction between there being

taxpayer funding or public funding and the Royals asking for some privacy.

(END VIDEO CLIP)

FOSTER (voice over): Professor Goldburn Maynard, who describes himself as an ally of the Sussex Squad, claims Meghan faces unfair scrutiny because of

her background.

(BEGIN VIDEO CLIP)

MAYNARD: The default when it comes to Meghan, because she is a foreigner and she's not Royal from this society, et cetera, is that when she does

something, she's doing something that's wrong.

(END VIDEO CLIP)

FOSTER: Going back, the tradition was that Royal christenings were private events. It was the Cambridge's actually that changed that by inviting

cameras into record the arrivals of their children as they went in for their christenings. The Sussexes are just going back to the tradition that

came before that -- Eleni.

(END VIDEOTAPE)

GIOKOS: All right, so we asked you to vote as well on cnn.com/join, and most of you agree with the Duke and the Duchess and say the christening

should remain private.

So we're coming up to the last half hour of trade on Wall Street. Let's take a quick look to see how markets are faring. Dow Jones is flat with a

negative bias. We are off our worse levels. But remember, it was all about that really good jobs report that came through today.

And then that brings into question, what is the Federal Reserve going to do? Is it going to cut rates? Or is it going to leave rates and change.

So it's been fantastic being with you over this past week? Richard quest is going to come back next week Monday. Thanks so much for joining us for

this edition of QUEST MEANS BUSINESS, from me Eleni Giokos, I'll be back with a check of the news headlines in just a moment.

(COMMERCIAL BREAK)

[15:30:00]

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