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Quest Means Business
U.S. Lifts Travel Restrictions, WTTC New CEO Responds; Wall Street Tumbles on China's Evergrande Crisis; France Could Scuttle E.U. Trade With Australia; Biden, Macron To Speak As France Livid Over Betrayal; Investors Spooked By Evergrande Default Fears. Aired 3-4p ET
Aired September 20, 2021 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:00:07]
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: With an hour to go before the end of trading at the start of a new week, a brutal selloff on Wall Street, it
has intensified throughout the course of the day. Look at the big board, it shows you -- we will show you the triple stack we've got in a moment. We
were off 929 points at its worst point so far today, we're going to be that -- let's see if we maintain that sort of -- down two and a half for the
Dow, down two and a half for the S&P, but the NASDAQ is over three percent lower, so a route is underway. We need to understand what and why because
the markets and the main events explain it.
China's most indebted property developer appears on the brink of debt default, the Evergrande crisis is sending shivers through global markets.
On the other side, tourism stocks are up. The U.S. is announcing a plan to ditch its travel restrictions opening up to vaccinated passengers.
And France continues to be angry and miffed at AUKUS. It's now threatening to scupper a trade deal between the E.U. and the U.S. with the diplomatic
row deepening.
We are live in New York. As you can see, a very busy start to the week. It is September the 20th. I'm Richard Quest, and yes, I mean business, believe
me.
Good evening, the markets today and the moment -- we will begin in a moment, but the time that travelers have wanted, those who have been
separated from families have been waiting for. The U.S. says it will ease restrictions for fully vaccinated passengers from November, a major step
forward in the recovery of the travel industry. We'll get to how it works, who is in, who is allowed. We will have reaction from the new head of the
World Travel and Tourism Council in a moment.
So we are fully aware of the significance and importance of the travel story tonight, particularly to those of you who are wanting and waiting and
have been dying to fly to the United States to see friends and relatives. But before we get to that, more pressing more urgent, what's happening on
Wall Street.
Markets are on track for the worst session in nearly a year. A debt crisis at one of China's biggest real estate developers has shaken the confidence
of investors around the world.
The Dow is off more than -- it had been 929 points, and the reason is the fear that this Chinese conglomerate, Evergrande might default on some of
its loans. It sank 500 points, the Dow, in the first five minutes of trading. The Dow is off -- I showed you a moment ago, well worth showing
you again -- it is the NASDAQ that is bearing the brunt, down more than three percent at the moment, a loss of 469 points.
So why? What is it about Evergrande that has got people talking? Is this a Lehman moment for China?
Well, Evergrande owes $300 billion to banks and other investors. In the past week, some of those have been protesting at the company's headquarters
in Shenzhen. The debts were due to be paid today and this week on various bonds. Clare Sebastian is with us in New York. And let's first of all --
have they paid their debts, do we know?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: We don't know yet, Richard. There was a report from Bloomberg that the Chinese authorities had told the
banks not to expect the payments today. So that has, of course, intensified fear.
There are really two fears around Evergrande, Richard. One that this debt, the defaults on the debt that might happen will reverberate around the
world that are being held by banks around the world.
And second, that it could have fallout for the Chinese economy if it hits Evergrande's customers and dampens sentiment in the property market.
Generally, we're already seeing, of course, some of the fallout in the global markets today. So those are the fears many people, very uncertain as
well as to how China will react to this. Will they come in and rescue the company in some way, try to prevent some kind of disorderly sort of
collapse?
Most people believe they will, but there is still significant uncertainty around this because of the way China has handled private companies
recently. Its crackdown on sectors ranging from technology to education. So those are the concerns, it is not the only concern there in the market
today, Richard. We also have the Fed meeting coming up on Wednesday.
All right. So what's the fear in the U.S.? Why are people -- why you should Wall Street be worried by this, albeit very large Chinese developer?
SEBASTIAN: Well, look, I mean, this is not the first time, Richard, that we've seen something happening in China reverberate on Wall Street. I think
this just shows how interconnected these economies and these markets are, despite what we see geopolitically, a deterioration of relations between
the U.S. and China.
[15:05:06]
SEBASTIAN: We saw in 2015 and 2016 when there was a concern about Chinese growth that the markets fell out of bed in the U.S. The same thing happened
with the trade war in 2018 and 2019. It's not at all uncommon to see events in China reverberate in Wall Street.
This is a huge property company, six and a half percent of all debt that is held by the Chinese property sector is held by Evergrande. So there could
almost certainly be fallout from that. That's why Wall Street is worried.
But as I said, there's a lot of other things going on here. We've got the delta variant, we've got the Fed meeting coming up this week. We've got
worries about the debt ceiling in Washington, a potential hike to the corporate tax rate, a lot of things coming to a head. That's why you hear
the likes of Morgan Stanley saying we could see a 10 percent correction, it could go even further than that, to a 20 percent bear market -- Richard.
QUEST: Are they serious?
SEBASTIAN: They really are, Richard. They say that right now, the market is on track to lose 10 percent by the end of the year. But they say that there
is increasing likelihood -- this is according to analysts at Morgan Stanley -- that it could go down as much as 20 percent. They point to the huge drop
in consumer confidence that we saw in July and August. That was down to levels not seen since 2011.
They point to potential downward revisions to earnings. Of course, that's the key thing that moves the markets, and that the impact on companies and
supply chains that we've seen as a result of this sort of the stranglehold of supply chains around the world and the delta variant. Those are the
things that they are pointing to.
Others disagree, they say that we might see things resolved this week when we see what happens with Evergrande's debt payments and with the sort of
communication that we get from the Fed.
QUEST: Take your money, you take your choice, Clare Sebastian, on the way Wall Street is viewing it. And throughout the course of the hour,
believe me, we'll give you up to date on that.
The picture was even worse for the Chinese market. The Hang Seng Index was down 3.3 percent on Monday. Evergrande shares were off at 10 percent. We
need to understand their position of Evergrande in the Beijing economy.
From Beijing, Steven Jiang on how the Evergrande crisis is escalating.
(BEGIN VIDEOTAPE)
STEVEN JIANG, CNN SENIOR BUREAU PRODUCER: It's really not surprising to see Evergrande stock price plummet again in Hong Kong on Monday, given the
company was supposed to repay interest on some bank loans on Monday, according to Bloomberg, which also said that Chinese authorities had told
major banks that they wouldn't be getting those payments.
But the bad news doesn't stop there for China's most indebted property developer because more interest payments are due later this week on two of
the company's bonds, totaling more than $100 million.
It's not clear how much if any of those debt obligations will be met by this company, whose liabilities are now exceeding $300 billion. Publicly,
the company is still trying to put on a brave face, but it has acknowledged its cash flow problems.
The worry right now is the company's debt burden is so large, it could spill over into other parts of the Chinese economy. Mainland Chinese
markets are closed on Monday because of a public holiday, but in Hong Kong, we've already seen share prices drop sharply for companies associated with
Evergrande, including local Hong Kong developers, as well as Chinese banks and insurance companies, even those that claim they have little or no
exposure to Evergrande.
Now this is really a reflection of how increasingly nervous investor have become about this prospect of disorderly collapse of Evergrande and its
wide impact on numerous industries and sectors in China.
And this company, of course, employs some 200,000 people and its huge liabilities are widely held not only by financial institutions, but also
retail investors as well as home buyers and suppliers in numerous industries.
And already in the past few weeks, we've seen sporadic protests from retail investors at Evergrande offices throughout China, and more protests could
emerge if things don't change or improve quickly.
And social stability, of course, has always been the number one priority for the Chinese government. So that's why all eyes are now on a Beijing
leadership to see if and how they will step in to bail out this once high flying Chinese conglomerate.
Steven Jiang, CNN, Beijing.
(END VIDEOTAPE)
QUEST: So Evergrande is China's second biggest property company, housing and department and wealth management and rebuilding the world's biggest
football stadium. It had $110 billion in sales last year and employs 200,000 workers. Tens of thousands of borrowed money, and then stopped
repaying. It's on the hook for an estimated more than a half a million apartments to buyers. Shares have lost 80 percent of their value so far to
date.
Dexter Roberts is the author of "The Myth of Chinese Capitalism" and a former China Bureau Chief for Bloomberg Businessweek.
Dexter, you know, you and I have been around, let's just be charitable and say a year or two and therefore, one always takes it with a pinch of salt
where there is a busy day like today, is this froth off the top, or is this something more serious?
[15:10:00]
DEXTER ROBERTS, AUTHOR, "THE MYTH OF CHINESE CAPITALISM": Yes. So I think first of all, you know, there's been talk of just comparing this and
calling it a Lehman moment, and I don't see that. We have to keep in mind that the Chinese government has a very firm hand over the financial sector,
and they will continue to exercise that firm control.
What we are experiencing in dramatic color today on the markets is the fact that this clearly has the potential to really damage foreign investor
confidence, and also something I'm watching closely, confidence among amongst the Chinese people themselves.
QUEST: So where does this go? Because the transmission of anxiety, that I'm not surprised about. What I'm curious about is, if this is going to hit
China, then do the authorities step in either to back and bear up Evergrande, because let's face it, they don't want a systemic crisis on
their hands, or do they also take the foot off the throat of these tech companies? Because you don't want to pour petrol on the flames either?
ROBERTS: Yes, well, first of all, I think with Evergrande, they are in a very difficult situation. The party and -- the government, which is the
party has made it very clear that they want to rein in this corporate debt profligacy that they've seen throughout corporates in China, but in
particular, in the property sector.
Xi Jinping earlier this year also said, apartments are to be lived in. They're not for speculation, and they want to rein in some of that
speculation. On the other hand, they know that the property sector makes up about a quarter of the economy, household savings, about close to half of
all household assets are in property. People use it as a way to park their savings.
And so this is a real concern. Again, they could -- this could backfire. They've promised to rein in the sector. We've seen it, as you say in other
-- dramatically in the tech sector and elsewhere, but there is this real danger of overshooting.
QUEST: Right. But, Dexter, you see, I guess from the Chinese authorities' point of view, it is fine to say Big Tech is too powerful,
let's rein it in. It's fine to say we need to get back our data privacy, so you start attacking the Alibaba's and the J.D.'s and all of those, and it's
fine to say you need more education, so you start attacking those as well.
But if you then suddenly get a major property crisis that could be systemically dangerous to your economy, do you rethink?
ROBERTS: Well, yes, and first of all, housing is another area they've been eyeing for a long time. I mentioned the debt profligacy. But also because
it's such a concern of the Chinese people themselves. They talk about three big mountains that are contributing to this wealth inequality in China --
education, healthcare, and property or housing. So they want to do something about it, but they are mindful that it is so important to the
larger economy.
I think they will continue to crack down. I think they would like to make an example of Evergrande. It's also a very political move, as has been the
crackdown on the private enterprises and the tech sector. It is telling the Chinese people, we care about you. We also are unhappy that some people
become so wealthy in this economy, while you the average Chinese is not doing so well.
So they want to send that message out. But absolutely, there's a real danger of overshooting as I said here.
QUEST: Right. Finally, and I guess one of the beauties and virtues of being in Missoula, Montana, is that you do sort of see things with a
certain perspective that you don't get from being stuck in Wall Street, so to speak.
Do you see the U.S. as being -- do you see this as a storm in a teacup for the rest -- for the international markets? Or is it more serious?
ROBERTS: I think we're seeing a little bit of a storm in a teacup today. But I want to point out that I think that this continuing crackdown -- this
crackdown on entrepreneurs on the tech sector, now on real estate, I think this is going to continue. Xi Jinping has made it very clear that he has
much more, he wants politics injected into the economy. He wants to be -- he has these ideological concerns about reducing wealth inequality.
So we're going to see more of this. Perhaps a storm in a teacup today, but more storms ahead.
QUEST: Dexter, we will talk more as we find out exactly what Xi is up to and how far it goes. Thank you.
We'll watch the market. You'll see the Dow on the screen. We seem to have hit a sort of a new medium, a potential of what will be with you for the
full hour, right the way through to the closing bell.
Quite often, as you'll be aware, of course, you've been with me over the years, you do get an acceleration towards the end of the trading day. If
that happens, we'll be with you to discuss and see what happens.
Now yesterday, I was in London. Today, I'm back in New York, and I'm looking forward to the fact that you'll be here, too.
The U.S. is to lift the travel ban for foreign travelers, those who are fully vaxxed. I'll have the details after the break.
(COMMERCIAL BREAK)
[15:17:54]
QUEST: The White House announcement that families kept apart by the pandemic had been waiting for. After nearly 20 months, the Biden
administration has now said it will ease travel restrictions and allow fully vaccinated foreigners to enter the United States and that will begin
in early November.
For the travel industry, the change in policy will go a long way towards achieving some level of pre-pandemic normality. Restoring transatlantic
routes in particular will reopen some of those valuable markets in the world.
Joe Biden is preparing to leave for the U.N. General Assembly later in this hour, and the move will help repair a widening rift with European leaders.
E.U. countries felt miffed, they'd opened theirs back in June, and they were furious that the U.S. failed to reciprocate.
Pete Muntean is in Washington. Peter, is there any understanding as to why now? There's been no logical reason for some time since the U.S. had been
open to countries in a worse position. So why on a random Monday in September?
PETE MUNTEAN, CNN AVIATION CORRESPONDENT: Well, Richard, if politics is driving the policy, then the White House is really walking away from that.
White House COVID-19 coordinator, Jeff Zients was asked about that and he says this is more guided towards individuals rather than a complicated
patchwork that goes country to country.
Six billion people have been vaccinated globally, he says. He says that's all the more reason to do this right now. A strict set of protocols that he
says really follows the science. This is really more about protecting Americans. He says that vaccines do protect against the delta variant. All
the more reason to get this done right now.
As you mentioned, being so celebrated by the hospitality and travel industry, airlines cannot wait for something like this. Here in the United
States, domestic air travel is what has been going up during the pandemic, but international travel is still so, so down.
You know one example, between the U.S. and the U.K., travel in August of 2020 was down 86 percent compared to August of 2019 back before the
pandemic. Holidays are around the corner, families who have been separated by these travel bans simply can't wait for this to be over.
[15:20:03]
QUEST: And as you look at this, and the decision, the prospect of a boom -- I was looking at prices a few moments ago. Interestingly, it's still
cheaper to travel from the U.S. to Europe, even looking forward than the reverse back. But that's a method of pricing and market power. But the
airlines will ramp up quickly.
MUNTEAN: Absolutely. I mean, the airlines have waited for this for so long and they have been pushing for this in different ways. There were talks of
a testing bridge between the U.S. and the U.K. with lobbying going on, on both sides of the Atlantic. There were talks about a vaccine bridge to do
similar thing.
I think the days of cheap tickets to Europe are probably over. You know, the airlines have really conscripted their wide body airplanes that have
been parked during the pandemic, typically on transatlantic-transoceanic routes into other routes and other things. So, they're ready for this to be
over.
QUEST: Finally, because this is one of those stories tonight that we're doing that is a more than just academic interest to the dear viewer. They
are wanting to know the nuts and the bolts and the details. Do we have those yet for how this is going to work?
MUNTEAN: There needs to be a bit of prep time, according to the White House. So they are putting this in place in early November, and this
requires that somebody, a foreign national coming into the United States have to show proof that they are fully vaccinated. We still need to figure
out exactly what vaccines and how the definition of fully vaccinated will come out to be.
And then also somebody has to show a proof of a negative coronavirus test taken within 72 hours of coming to the United States. One more layer here
is that airlines will have to keep contact tracing info for those passengers for 30 days. So, it's really layer upon layer, barrier after
barrier. It's a really safe and conservative approach to all of this -- Richard.
QUEST: Thank you, Pete Muntean.
A bit of a down day for stocks around the globe. Travel shares rallied in Europe, not so much in the U.S. Obviously, IAG, owner of BA and Iberia and
Aer Lingus rallied sharply. Lufthansa and Air France KLM each were up more than five percent. More muted for the big three. They're still each
outperforming in the broader market, however, if you look at the U.S. carriers.
$200 million a day. That's how much the World Travel and Tourism Council estimates the U.S. economy loses every day because of its restrictions on
visitors. The group's new President and CEO told me these changes from the White House are long overdue. Julia Simpson spoke to me in her first TV
interview since getting the new job.
(BEGIN VIDEOTAPE)
JULIA SIMPSON, PRESIDENT AND CEO, WORLD TRAVEL AND TOURISM COUNCIL: The transatlantic market, if you look at it in terms of economic impact, we're
talking about in 2019, the U.K. and U.S., it's at least 46 billion, and you've got to remember that's a piece of the pie where you have got an
annual gross benefit to the global economics of about 10 trillion from travel and tourism.
And we were really, really worried actually about the U.S. because the U.S., we estimate has been losing about $200 million a day because the
transatlantic route was out of action.
QUEST: And so this is going to take some time to introduce. There is going to be some confusion in a sense of who is covered, who is not, the
exact rules towards it.
But the substance would mean if this was announced that and it comes in sort of October-November, at the end of the year, it could pick up quite
nicely.
SIMPSON: Exactly. And as you know, Richard, the end of the year is very, very big and important for business travel, and also moving into the
Christmas season. So, it's a really critical time.
QUEST: Once this piece of the jigsaw is put in place, what do you need next?
SIMPSON: You know, what we need next is I fully understand that governments have had a very internal focus as they dealt with this pandemic, but we
want them really to lift their eyes now and look internationally.
You know, the pandemic of its own has, you know, cost lots of lives in terms of health, but now the economics are beginning to kick in. We've got
to remember, still globally there are vast parts of the world, Australia or New Zealand, that are still closed almost completely to travelers.
The Europe in the U.K. are doing quite well. There are a lot of green shoots, people are traveling a lot. And what I particularly welcome is, is
it was a little bit illogical, if I may say. You know, we could have U.S. travelers traveling to the U.K. and Europe, mixing freely in U.K. and
Europe and then going home, but you couldn't have, say the U.K. where you've got 80 percent vaccination rates among the adult population
traveling to the U.S.
So that kind of that illogicality is now going to be wound out and that's really good news for us.
[15:25:07]
QUEST: I wonder when we look at this, where, how much of the damage that's been done, this lack of coordination, how much can be repaired, do
you think?
SIMPSON: Well, I think eventually, it will have to be repaired because travel and tourism represent probably 10 percent of global wealth,
generally. And you've got to remember, 80 percent of the business, the small and medium businesses, we're talking about sometimes, you know, small
family businesses, and in parts of the world, they have literally been decimated. They cannot even put food on their table.
So, you know, we need to deal with this and we need to deal with it urgently. And if people do have vaccinations, I think it's time for
countries not to look country to country, but carry -- look at risk, according to individual.
QUEST: Is this possible, do you think? I say that because during the worst part of the pandemic, everybody was in it for themselves for obvious
reasons. And your predecessor and I talked on many occasions about the lack of global coordination and cooperation. Do you think that's changing?
SIMPSON: I think today's announcement sees the beginning because once two large global economies can start making sense of this, I think others will
follow. And I think there's a massive pent up demand for travel -- business travel, leisure travel, reuniting families -- and I think we will see
things eventually return to normal. Yes, I do.
But you do need, you're absolutely right, Richard, we need global leadership on this. You know, countries have been very internally focused
and they need to join up the dots now.
(END VIDEOTAPE)
QUEST: Julia Simpson, the new CEO of the WTTC who I'm sure and I would hope we'll hear more of here on QUEST MEANS BUSINESS and become a regular
guest for us to get the insights of what's happening in the industry.
You all know, of course, there is a very big selloff taking place on Wall Street.
We are off the lows of the day, that was about 229. However, the Dow is down five percent for the year over fears -- I think I've got that, right.
Yes, it's off more than five percent Since its peak, not for the year or five percent since its peak.
We'll bring you the other numbers as we move forward, a full check on the markets.
Its QUEST MEANS BUSINESS. I'm delighted you're with me.
(COMMERCIAL BREAK)
[15:30:00]
[15:30:42]
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: The White House says it's trying to set up a call between Joe Biden and France's President Emmanuel Macron.
Now the French government says the president the U.S. president requested to call, officials from both sides say that you want to put their fight
over a submarine contract behind them, which sounds great but won't be that easy.
You're aware of course, it is the decision by Australia to ditch France and buy the nuclear power subs from the U.S. and the UK. instead of the attack
subs from France. Paris is threatening to block the E.U.'s free trade talks with Australia. France has also accused all three countries of duplicity.
In an exclusive interview with Christiane Amanpour, the head of the Commission, the president of the commissioners Ursula von der Leyen said
questions need to be answered, and of all, why the submarine deal broke down.
(BEGIN VIDEO CLIP)
CHRISTIANE AMANPOUR, CNN CHIEF INTERNATIONAL ANCHOR: Do you see relations going, you know, in a negative direction, in that region with Australia?
You've also -- already seen the French recall there, key ambassadors over this issue?
URSULA VON DER LEYEN, EUROPEAN COMMISSION PRESIDENT: Well, there are a lot of open questions that have to be answered. And therefore, I mean, one of
our member states has been treated in a way that is not acceptable. So we want to know what happened and why and therefore, you first of all, clarify
that before you keep on going with business as usual.
(END VIDEO CLIP)
QUEST: Cyril Vanier is correspondent in Paris. So let's take this in fact that there's a lot to cover. Firstly, listening to Von der Leyen, why did
it happen? Well, Scott Morrison told us why it happened. The attack submarines no longer served Australia's sovereign interest. So how
seriously miffed are the French?
CYRIL VANIER, CNN CORRESPONDENT: Richard, they are seething, they're not pretending to be angry, they really are angry. The big reason is they feel
that they were lied to because when you negotiate these contracts over the course of several years, as France has done with Australia, you would
expect, put yourself in their shoes for a second, you would expect that if Australia hasn't changed apart.
If Australia feels that submarines no longer reflect what they need and their strategic interest then Australia first thing they would do is
actually tell France. France says they didn't do that. France says that neither Australia nor the United States ever responded to their questions.
So number one, France brought this up at the G7 meeting earlier this year this summer. They say Australia did not raise major concerns. Certainly did
not say that the deal was in jeopardy.
Then Mr. Macron hosted Scottish Prime Minister Mr. Morrison. Same thing, Mr. Morrison did not say the deal was about to break down. Mr. Macron wrote
him a lengthy letter. And he at least they told CNN today that the answer they got from the Australians was designed only to buy time. So they feel
this isn't just normal rivalry between competitions for military -- between rivals for a military contract. They feel they were properly betrayed,
Richard.
QUEST: Okay. So, let's just -- let's put that on the table. Isn't the reality, as I've been reading in the New York Times and in other journals
this morning. The reality is that France isn't as greater military power independently, as it would like to think. Europe, the E.U. has no military
might absent of NATO. And when it comes to alliances, it's natural that the three Anglo alliances if you like (INAUDIBLE) will get together.
VANIER: Well, you're right in several respects. France is a medium-sized power which does not like to be treated like a minor power, which is what
happened and really that is at the heart of France's anger and reaction. And there isn't a ton that France can do when faced with the world
superpower. Now. France has always believed that its power came from joint action within the European Union.
That is why Mr. Macron is going to be making a renewed push for further military integration within the E.U. Whether or not that's going to happen,
a skeptic would tell you there is no chance because there is precious little that the Europeans agree on. Americans would probably agree with
that assessment. Be that as it may, Mr. Macron is going to get a great platform to push that agenda in just a few months, Richard because France
will have the rotating presidency of the E.U.
[15:35:02]
VANIER: And they will be using that moment, that window in time to make the point that the E.U. should have hard power to back up its soft power.
QUEST: At what point, bearing in mind their elections. So obviously there's huge sensitivities to the ego of a president who has just been snubbed so
royally but at what point does Macron have to just suck this up?
VANIER: Well, that -- look, that's a great question. We are just seven months ahead of the presidential election. Mr. Macron is not going to want
to just suck this up. The language that has been used in the French media has gone far enough that I believe France is going to have to back it up
with words otherwise it is going to appear to everybody international community and domestic audience included that it has all been for nothing,
that it has all been hot air.
I think a lot, Richard, is going to hang on the phone call between Mr. Macron and Joe Biden. Can the U.S. President put anything on the table that
allows Mr. Macron to say face? Better than that, can he put anything on the table? He wouldn't cut France into this this three-way nuclear powered
submarine deal that he has with Australia and the U.K. But can he offer something that France will feel it has not been totally cut out of the indo
Pacific?
QUEST: Excellent to have you in Paris for us tonight, Cyril. Thank you, sir. I appreciate it. Returning to our top story tonight, the markets now
just shows you we are just 24 minutes away from the end of the closing of the trading day. We had been off 924 points. It is significant that we've
now pulled back a bit not much. And I guess the issue is have we sort of hit an equilibrium for the rest of the day or do we see a tumble as people
close out before?
The reason about huge concerns on the Chinese property developer, it's Evergrande's and the scramble to avoid default. Also on investors mind, the
Federal meet, we had a weak job numbers, and it's throwing down and when the feds going to begin trimming the bond purchases. A quick rebound may be
on the horizon. Manpower is predicting an unprecedented labor market recovery in the next quarter.
Jonas Prising is the chief executive of ManpowerGroup. He joins me from Wisconsin. I think you're our second guest today from Wisconsin. So
clearly, it's all happening in Wisconsin. But I do -- I think you've got a much better perspective on what's happening in the real economy, where the
further you go from the two coasts towards the center. But do you see this rebound in jobs continuing?
JONAS PRISING, CHIEF EXECUTIVE OFFICER, MANPOWERGROUP: The survey we just released, Richard shows very robust employer hiring intent here in the
Midwest, here in the United States, but frankly, also globally. So it continues to point a very strong labor market recovery in terms of
employers' desire to increase their workforce. At the same time shortages in terms of finding that workforce are also very high across the world.
So that is going to be the conundrum that employers are faced with. They want to hire more workers, but they're having a really tough time finding.
QUEST: So why? I mean, the conundrum in the U.S. is this difficulty of finding workers. But at the same time, we're told that the number of jobs
and the number of people seeking jobs is still elevated. So I don't -- and even as the -- as the unemployment benefit, extra money stops. Where is the
three-card trick here?
PRISING: Well, that is one of the anomalies of this pandemic, we had anomalies going into the pandemic. And here in the U.S. during the month of
April and March of last year, we lost 20 million jobs, 14 million of those have come back, but six million of the workforce that was there before the
pandemic is still sitting on the sidelines. And the same is true in most of the developed world.
Of course, in the developing world vaccination access is limiting the ability to come back in full force. But between childcare concerns,
continued healthcare concerns and an unprecedented policymaker response to the pandemic means that many people are still waiting on the sidelines
before they reengage in the workforce.
QUEST: And as we grow -- as we look at this, at what point do you think, on a bigger issue, never mind the Dow is up the dollar is down. On a bigger
issue at what point do we recognize the acceleration of digitization that took place during pandemics that has now accelerated the change in the
composition. In other words, we knew he was coming, Jonas, but now we have a workforce where many people are simply not qualified for the new jobs.
[15:40:08]
PRISING: I would say Richard though, that is still premature to think of this as being part of a -- this current shortage being part of the
structural change that was occurring before the pandemic and carried on and was accelerated during the pandemic because we are too far behind still in
the work of workforce participation rates across the developed world to be able to say that it's all due to the skill shortages.
Because many of the skill shortages you're seeing come from hospitality, leisure, travel industry, all things that are still related to the
pandemic. And certainly the emergence and the resurgence of the Delta variant is also causing hesitation. So I don't think that the current
shortages can be attributed to that. But clearly, this is a trend that will continue to impact labor markets long term.
And that's why companies are increasingly focusing on rescaling and upskilling their workforces, as they look ahead and see those changes.
QUEST: As each month numbers come in, Jonas, we'll need you to help us interpret them. I'm grateful for your time today. Thank you, sir. As we --
it's a rough fail on Wall Street. The Dow is off more than 700 points. Even though we are off the session lows, I think it's important tonight that we
understand whether or not we are starting to see a crack that could get worse. And that's why we're talking to Art Hogan after the break.
(COMMERCIAL BREAK)
QUEST: Start of a new week and it's all rather grim with Wall Street's going down. And the last hour of trade the Dow is off or had been more than
940 odd points lower. We're down at 734 down. The S&P looking at the triple stack shows off more than 100. That's pulled back as indeed as the NASDAQ.
They've all pulled back to where they're down pretty much similar and types. Chip makers with exposure to China are dragging it down.
We've gotten a video of four percent, it was five earlier. And you've got micron often AMD. Art Hogan is the chief market strategist at national
securities. And art is with me from Boston. I am very wary, Art, as indeed are you of doing -- the sky is falling, the sky is falling.
[15:45:04]
QUEST: However, when you can tie this to an event like Evergrande, I wonder what do you make of it?
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES: Yes, it's such a great question. I agree with you. It's -- I think it's a whole lot less
about Evergrande. And I think it's all about everything, right? And everything is -- China is clearly pulling back on corporations and almost
every sector now. One at a time putting new restrictions and grabbing back control of their economy. So I think that started at the beginning of the
year.
So, you know, arguably, last year with Alibaba, but certainly moving forward into this year, went after for profit education, certainly went
after online gaming for kids, regular gambling for adults, certainly big technology, and now levered land developers and clearly saying, OK, enough
is enough, this is the way things are going to run. So, I think that's the larger piece coming out of this Chinese story.
And then you couple that with all the other things we've been concerned about, modestly over the course of the month of September, which is
historically bad for markets. Things like stubborn inflation, things like will the Fed taper or not? Certainly things like COVID, Delta-19 variants,
and will that ever peak and how much economic damage do we find in the wake of that Delta variant.
So I think you put all of that together, and in a month that is never been friendly to stocks, and you get this kind of a crescendo of salary? I don't
think it's ever grant. I think it's everything.
QUEST: OK. But to me a temporary thing, if we just look at it now, from a U.S. perspective, this -- and bearing in mind the Fed meeting, the Fed are
not going to be concerned with one day's movements. But they are going to be concerned about a lot -- if there's something systemic building up.
HOGAN: Yes. And so you'd have to make a case that the land developers in China that are highly levered are getting that leverage from us financials,
whether it's banks or non-bank financials that are lending into that. And they're not. We don't have exposure there. There's some small European
exposure but there's really de minimis U.S. exposure directly to any of the levered real estate players in China, and certainly the ones that are
called into question today.
QUEST: So, the age old question, for those who have been waiting to, "buy the dips," Morgan Stanley thinks this could be a bear market of 10 percent
-- sorry, a correction of 10 and may even be a bear of 20. Let's not worry about that. Is this a buy on the dips moment?
HOGAN: I certainly think it's going to be buying the dips moment over the course of the next two days, I don't think you need to rush in at the open
tomorrow, we'll obviously have to sort some things out and likely get some margin calls again, tomorrow to sort this out. But I think, you know, the,
the majority of the damage will be done by Wednesday. And just hopefully, you wrote yourself a note that said, hey, Richard, I'm going to buy if we
ever get a 10 percent pullback because I've been out of the market for too long.
And here are the things I really like to look at. If you left yourself that note, go back to the page in your notebook where you left that and remind
yourself you've been waiting for this, this is likely a buying opportunity. A lot of this has nothing to do with United States in the U.S. equity
markets unless you're selling a lot of to China or levered to China and need a lot -- a lot of exports from them.
QUEST: Gosh, that's extremely useful advice in difficult because absent the Chinese issue and bearing in mind that monetary stimulus, in terms of low
interest rates continues for the foreseeable. And we are nearly at full employment and the Fed is tapering but there's been no taper tantrum. It's
perverse to assume it's going to collapse.
HOGAN: No, I think that's right. And I think the most important thing to look at is how do we stand in valuations right now and how do we stand
technically? So technically, we -- the RSIs looks like we're getting oversold. The Dow is below 30, oversold. The S&P is at 30 getting close to
oversold. The NASDAQ's at 33 on the bell here, and that looks like it's close to 30, which would be oversold.
So technically, we've done a lot of damage in a short period of time. But fundamentally, if you look at the forward 12 multiples of the S&P 500, it's
trading at --- just about 20 times. It was 23 times seven percent ago last April. Earnings are going up. Earnings estimates continue to go up. So I
think this is a market that, you know, four percent off an all-time high, looks cheaper than it did three months ago.
QUEST: And we'll talk more about those forwards and trailing earnings and EPS because I think it's important for us to understand (INAUDIBLE) when
they've been elevated for so long, they're starting to come back and whether or not we are at that equilibrium. That makes sense to go. Thank
you, sir. I'm grateful. And as they claw back some of the losses in this last trading hour, we'll get a last look at the route (INAUDIBLE) by
Evergrande.
The issue here is whether it's a Lehman moment. Well, that's maybe overselling it. Matt Egan versus Clare Sebastian after the break.
[15:51:54]
QUEST: Last few minutes to trade on Wall Street today. It's one -- well, it's ugly, a sea of red on the Dow all the way down. We're pulling back
nicely now we're under two percent. Caterpillar got hit. That's on global growth. It's on infrastructure. Caterpillar is the worst of the day down 4-
1/2 percent. Goldman, J.P. Morgan bangs down heavily. Treasury yields are dropping and the Fed started meeting tomorrow. Clare's with me. And Matt,
two of our best to put this into perspective. Matt Egan is this Lehman moment in China with Evergrande?
MATT EGAN, CNN REPORTER: I don't think so. I mean, this is not the same situation. When you think about 2008 what happened with Lehman Brothers and
the collapse of other Wall Street banks. The federal government, the fed, the Treasury Department, they tried everything they could but they only
have so much power. You remember some of those bailouts and attempted bailouts, they got bogged down by some of the legal issues.
I don't think the China is going to have that same problem because they have a different style of government. I mean, they call all the shots and
everything that happens in the economy, in the financial markets, look at the crackdowns on the gambling companies on video games, on ride sharing.
So they are not going to let it get to that point because it just wouldn't be in their best interest.
QUEST: The question though, relative to that Clare is, it may not be in their best interest but nor was nearly getting rid of Alibaba and all the
other things that they've done.
CLARE SEBASTIAN, CNN INTERNATIONAL CORRESPONDENT: I think that's the crucial context here, Richard is that the Chinese government has shown a
willingness to crack down and to hurt the profits of private companies to further its longer term gains recently. And I think there's a fear at, you
know, I agree with Matt, that this is probably not a Lehman moment. But there is a greater fear around that that there might otherwise have been.
There was a quote in Reuters recently from the editor of the influential Global Times in China who said that, that Evergrande should not consider
itself too big to fail. And while I think it's more than likely, and certainly that's what people in the market believe the ones I've been
speaking to today, that China will step in, that there is a sort of fear that they're allowing to fester around the possibility that they might not.
And that is what is contributing partly to the moves we're seeing on Wall Street today.
QUEST: So Matt Egan and Clare when -- this morning at our morning meeting. I grandly said that I was convinced that the market would have recovered.
And when it was down 300 points, oh, don't worry by teatime it will all be over. I'm not saying I've been proved right, Matt Egan. But we are now over
660. So, is Wall Street passing the book now to Asia for the next few hours to see how things go?
EGAN: Yes, Richard. I mean, this is kind of a bullish closing bell here when you consider the fact that that was down almost 1000 points, just
about 25, 30 minutes ago. So the fact that the market has paired much of those losses is pretty impressive. Also, I think it's worth pointing out
that, you know, if it wasn't Evergrande it would be something else. I mean, this market has been so strong for so long.
We haven't even had a five percent pull out -- pullback since last fall. There hasn't been a 10 percent correction during the entire bull run that
began in March of 2020. It can't go straight up forever. We are seeing a pullback here. But Richard, there's no panic here.
[15:55:08]
QUEST: No panic. Thank you. Go ahead.
SEBASTIAN: Yes, I will say that one thing to watch is the VIX index which is now up above what we saw in May when we saw those losses on the markets,
Richard, due to inflation and keep an eye on not just tomorrow but Wednesday and Thursday and Friday. We've got not only the Fed meeting but
we have potentially more payments coming due for Evergrande. And big questions about whether or not they're going to be able to pay them.
EGAN: And Richard, one final note there. Thankfully, the VIX while it has been elevated, it's nowhere near the levels that we saw in early 2020 when
the pandemic erupted. Let alone of course, the levels that reached when Lehman Brothers collapsed.
QUEST: Which begs the interesting question filling from Art Hogan said, whether your pie on the dips may have already dipped a little too late.
Thank you both. Thank you, Matt Egan and Clare Sebastian, grateful for both. The market has pulled back as Matt and Clare was saying quite
impressively which does beg the question of course, the next 24 hours, 48 hours with Asia starting to trade in just a few hours from now.
And then on to the Fed meeting. Whilst we all consider that we'll have our profitable moment which is not on the market, it'll be talking about travel
after the break. QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment. Why did the United States choose this random Monday in September to lift it or announced the lifting of travel
restrictions? No idea. The restrictions have been in logical for some time. And now fully vaccinated travelers from all parts of the world will be able
to come to the United States with of course, the test before the pre departure test. Hopefully they will continue what they've done with
citizens and green card holders, which means it can be an antigen, not a PCR because that now has to be the next move.
Antigen regular testing, lateral flows and the like that you've got certificates they should be used. We're seeing massive improvements. The
U.K. has got rid of its traffic lights. The U.S. is opening up. Australia hopes to open up internationally before the end of the year. There are
still major issues in Asia and the Pacific that there can be no doubt. But the fact that the United States has today moved forward on the most
important air routes in the world is a huge development.
And takes us one step closer to getting together face to face. And that QUEST MEANS BUSINESS for tonight. I'm Richard Quest in New York. Whatever
you're up to in the hours ahead I hope it is profitable. The Dow has come back quite healthily. The closing bell is ringing. Look at that. We're back
about 300 to 400 points from where we are. See you tomorrow.
[16:00:08]
END
