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First Move with Julia Chatterley
Google Firms Distancing Themselves From The Chinese Tech Giant, Huawei, Despite The U.S. Government Reprieve; Qualcomm Shares Plunge After Ruling On Antitrust From U.S. Judge; Exclusive Interview With The Boston Federal Reserve President. Aired 9-10a ET
Aired May 22, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR: Live from the New York Stock Exchange. I'm Julia Chatterley, this is FIRST MOVE and here is your need
to know.
Hanging up on Huawei. Google firms distancing themselves from the Chinese tech giant despite the U.S. government reprieve. The chips are down.
Qualcomm shares hit free market by a ruling on antitrust from a U.S. judge and our exclusive interview with the Boston President. We talk trade, we
talk inflation targeting and some presidential tweeting. It's Wednesday, let's make a move.
Welcome to FIRST MOVE once again, we have a jam-packed show for you. As I mentioned, more trade developments and exclusive interview with the Federal
Reserve President of Boston, of course, Eric Rosengren and some Brexit developments and no surprises here, not good ones.
So let's get straight to it. Let me give you a look at what we're seeing for U.S. futures at this moment. They are lower. I can tell you,
following the sentiment that we've got the handover from Europe -- important to point out though, I think even with what we're seeing today
that we did manage to pull back some lost ground in yesterday's trading session.
The NASDAQ recouping over 1 percent, so that's two thirds of the losses that we saw on Monday's decline, with the Semiconductor Index as well
rising more than 2 percent. Though, I have to say, and I mentioned it already, that 90-day reprieve that we got granted from the U.S. government
for Huawei yesterday making little difference to the companies that have to decide whether to work with them in the short to medium term, especially
when you've got the President just reportedly weighing an expansion of his Chinese blacklist, too.
Now the market's number one go-to and therefore asked, for the Chinese may be thinking right now is the editor for China's "Global Times." Just take
a look at this tweet. The U.S. irrational behaviors, quote, "are making Chinese policymakers wonder if Washington is in a rush to reach a trade
deal. Conclusion if the Chinese: drag it out. Americans are about to have a nervous breakdown."
Yes, this is FIRST MOVE and you're not operating in a parallel universe, but we will stick with the theme of nervous breakdowns because take a look
what we're seeing, pressure on the pound right now as I also mentioned. Theresa May's withdrawal deal numero four seems pretty much dead on
arrival.
Bianca Nobilo is going to be here to explain the "what next" for us. Also in the mix, of course, too, the Federal Reserve Board minutes later today,
superseded by the apparent collapse in what the White House had indicated, was an imminent trade deal.
Fortunately, we've got you covered with our exclusive interview and what their current thinking is, and that is where we're going to kick off the
drivers.
Here's the Boston Fed President Eric Rosengren on how the current trade situation could impact the Federal Reserve's policy thinking.
(BEGIN VIDEO CLIP)
ERIC ROSENGREN, PRESIDENT, BOSTON FEDERAL RESERVE: We make assumptions about what we think is likely to happen. My own assumption is that both
countries do have an agreement that over time they will come together.
I don't know when exactly that will be, but my expectation is that it doesn't have a large impact on my forecast for the economy. But I could be
wrong, and if it is wrong, then we'll have to think differently about monetary policy.
(END VIDEO CLIP)
CHATTERLEY: Christine Romans joins us now. Christine, it's funny, because I followed up on that. And I said, "Look, are we being complacent here?"
And he said, "No, actually, we've seen the markets repriced," and particularly in the last several sessions, but the base case for the Fed
and you assume it has to be here if a deal is reached. I worry about that.
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: Yes, I do too. And you know, I love economists because they say, "Well, I think this
is going to happen. But if I'm wrong, then I'll rethink what my forecast is." And that's exactly how economists think.
And look, you know, the markets are pretty complacent, I would say, too. I mean, markets are still higher for the year. They're still up nicely for
the year. I mean, this has been kind of a rough month, no question as they are repricing attentions into the situation, but for the year, the market
is up, even though for the month it is down.
So I think that's a reminder that maybe investors haven't fully factored in that there could be a trade war and a trade war that could stay.
I mean, just look at what happened today. You know, the President of the United States says that he is happy with where we are. He is happy with
tariffs the way they are, and this is the regime he thinks is going to work long term.
And he is threatening to put even more and to tax basically everything that the Chinese bring in. And the Chinese President is also out there at a
rare earths metals facility talking about a new long march. I mean, these are kinds of things that both countries clearly seem dug in.
CHATTERLEY: Absolutely. And just to refer to that tweet once again, "America is about to have a nervous breakdown." That doesn't sound like
the Chinese are willing to give ground anytime soon.
[09:05:12] CHATTERLEY: Now, we talked about a lot of things. Obviously, the tariff impact on higher prices, whether they could be more liberal
about an inflation band rather than a target here.
Interesting that the Federal Reserve is talking about it. But we also talked about the two vacancies on the Federal Reserve Board, too, and
whether perhaps, they'd rather just deal with having less members, rather than having one join that perhaps has a perceived political bias. Listen
to what he had to say on this point.
(BEGIN VIDEO CLIP)
ROSENGREN: Whoever is appointed we can work with and it's better to have a full contingent of Governors than not having a full contingent of
Governors. It's actually been some time since we've had a full contingent.
So it'd be nice if we actually did replace the two vacancies and have that filled, and ideally, it would be by people that would be very concerned
about getting the right outcome.
(END VIDEO CLIP)
CHATTERLEY: I mean, Christine, you and I've talked about this a lot. And they will be adamant and say, "Look, politics doesn't enter the room." And
he reiterated that again, but the perception that the President is influential here, matters for markets.
ROMANS: Look, it really does. I love that he said someone who wants to get the right outcome, because what the President has been interested here
is get somebody in there who is going to rock the boat, and people who have been critics of the very existence of the Fed.
Now, look, what I'm hearing is that, you know, these two -- the two prior candidates of the President was considering, you know, those were the two
outliers. And now there's more comfort in Washington about, you know, a Fed critic would be fine, as long as it is somebody that the Fed -- the
people at the Fed things that they could work with.
So, you know, I think that you'll see whoever the next candidate is will get that job. But, wow, it's likely to be someone who has been critical of
the Fed and who wants low rates, I'm sure.
CHATTERLEY: Yes, a calibrated answer there from Eric Rosengren.
ROMANS: Yes.
CHATTERLEY: Christine Romans, thank you so much for joining me to discuss that interview. And congratulations, by the way, 20 years at CNN.
ROMANS: Can you believe it?
CHATTERLEY: Wow.
ROMANS: Thank you.
CHATTERLEY: No, I can't. You were a child when you joined. Thank you so much for joining us.
ROMANS: You're welcome.
CHATTERLEY: And congratulations again. We are very glad to have you. Yes, big hearts from FIRST MOVE. All right, let's move on to our second
driver. Trade well and truly the focus here. Japan's top mobile carriers, delaying sales of new Huawei phones. You've got EE, the U.K.'s largest
mobile network pulling Huawei from their 5G launch.
This of course, despite as we've mentioned, the government delaying their crackdown for some 90 days on Huawei. Sharisse Pham joins me now.
Despite that reprieve for Huawei, companies are having to make decisions, Sharisse and they're making the decision to step away from the firm.
SHERISSE PHAM, CNN BUSINESS REPORTER: Absolutely, because the reprieve only applies to existing products. That statement from Wilbur Ross said
that this reprieve will let Huawei service existing mobile phones and networks.
Google, their statement said that we can continue servicing existing Huawei phones. That means that new Huawei phones are not covered under this
reprieve, which means that the phones NDT DoCoMo and KDDI and SoftBank are planning to roll out in Japan, and that EE and Vodafone are planning to
roll out in the U.K., it is very unlikely that those phones will have access to the Google ecosystem.
And without that access, it means more than just losing apps like Gmail and YouTube, third party apps also rely on Google Services. So your Uber and
your Deliveroo apps which rely on Google Maps, they may no longer be functional on your brand new fancy Huawei Mate 5G phone. It's going to be
an ultra-fast phone that you won't be able to use to do very much.
So analysts have been telling us that look Huawei can survive this trade ban for a while, but a long-term ban, Julia would be crippling.
CHATTERLEY: Yes, crippling for the international business here, too, whatever else they've got going on in China. Talk to me about the stock
price for Hikvision, the security firm over in China because the rumors of course overnight that the blacklist that the President has for Chinese
companies perhaps could expand.
PHAM: Oh, yes, the blacklist it grows, or reportedly so anyway. "The New York Times" came out with a report, morning side over here in Hong Kong,
saying that Hikvision was next in the crosshairs, that they could be added to this trade blacklist. And that immediately sent shares plummeting the
daily limit in Shenzhen of 10 percent.
They recovered a little bit, I think they closed down about 6 percent. And Hikvision is an interesting company. Hikvision is a surveillance tech
company. They make cameras that use AI to track people with facial recognition and also through physical movement like how you walk and they
can also track sudden crowd movements like a crowd suddenly becoming violent or suddenly running.
And if you look at that technology and like a retail store or an ATM branch, that seems pretty harmless.
[09:10:10] PHAM: But Hikvision has come under international criticism for its surveillance deals in Xinjiang and Tibet and U.S. lawmakers have been
calling for sanctions on this company since last year.
We will look to the Commerce Department today to see if it is added to the entity list and to see if the Trump administration is finally to take
action on the sanctions that those lawmakers have called for.
CHATTERLEY: You know, Sherisse, one of the things I do love about you is how politely you correct me. In the U.K. hick basically means dated. So
one would not want to call one's company Hikvision, but it is Hikvision, so I love what you did there and you were emphasizing the word as well there
as delicately as possible. Sherisse Pham, thank you so much for that.
PHAM: We have to help each other out here, Julia.
CHATTERLEY: Well, you certainly helped me out. Thank you.
PHAM: Thank you.
CHATTERLEY: Yes, let's move on to our third driver now. A major blow for tech titan, Qualcomm. I shouldn't be smiling now. A U.S. judge ruling it
is violating antitrust laws ruling it illegally charges firms high prices to license its technology. Samuel Burke is live. Okay, Samuel, so talk to
me how important this ruling is. And also talk to me how closely this connects to the settlement that we just saw between Qualcomm and Apple
because of course, this is what Apple were accusing Qualcomm of before.
SAMUEL BURKE, CNN BUSINESS TECHNOLOGY CORRESPONDENT: Well, no matter how you pronounce Qualcomm, it is a very tough week, if not month and now tough
year for this company, they can't get a break, not even a little bit of oxygen, it feels like. This is an incredibly important decision for
Qualcomm, certainly did not go in their favor that is why the stock is over -- is down over 10 percent in pre-market right now.
Essentially, what this decision says is that their whole business model comes into question. Apple was always furious at them for charging so
much, a percentage of the phone sales, for licensing the chips that go into their phones. And now the government has said this is a violation of
antitrust laws and they over used their position in the market to squash their competitors.
So number one, if you're a consumer, next time you go to buy a phone, if you wonder why it's so expensive, this is why, in part. Number two,
Qualcomm has to rethink their business model. Number three, the entire industry has to rethink their business model, and certainly Apple is
saying, "We told you so."
CHATTERLEY: Yes, I mean, this is quite fascinating. Clearly, Qualcomm is going to fight this once again. But to your point, this is not just about
Qualcomm, this is far bigger -- a bigger story for the industry here, too.
BURKE: Certainly every chip maker that we've been talking about as part of the Huawei story is affected by this, anybody who makes these components,
especially chips, and licenses them is going to have to go back to the drawing board, at least when the case is finished being appealed and think
about how they're going to make money.
There's a very good reason why the stock is down 10 percent right now, because this will mean less revenue for them undoubtedly. My real question
is, who are the players that are going to come in at this point in the market, given the tensions that we see with Huawei? May be a company like
Qualcomm won't be as aggressive, but the market is really a brutal place to be right now.
And I think a lot of companies like Huawei are going to become more self- reliant, given the circumstances, certainly while Donald Trump is in office. So I'm not sure that there's another American company out there is
saying, "Oh, great time to get into the chip industry," which is certainly what the Trump administration would like.
CHATTERLEY: Yes, it's such a great point. It's kind of your court in all directions here. Some huge challenges. We will watch the Semiconductors
Index once again. I was just saying it caught up some ground yesterday. Watch it again today. Samuel Burke. Great points. Thank you very much
for that.
All right, let me bring you up to speed now with some of the other stories that we are following around the world. The U.K.'s opposition party says
it won't back what it is calling a rehash of the Prime Minister's Brexit deal. It comes a day after Theresa May announced her latest version of her
withdrawal agreement.
The Labour leader, Jeremy Corbyn has ruled out supporting a repackaged full of Mrs. May's deal. Bianca Nobilo is live in London to explain what's
going on. Bianca, it's some feat when you offer the option of a vote on a second referendum and you outreach your Brexiteers, but also the people
that are calling for a people's vote and a second vote say they're not voting for your deal, either. So where does that leave us?
BIANCA NOBILO, CNN CORRESPONDENT: Exactly Julia. It's a feat and a skill which the Prime Minister seems to have honed and refined to perfection over
the last couple of months.
So now what we're seeing is the Prime Minister presenting the withdrawal agreement bill and managing to isolate herself further. She has aggravated
and calls the Brexiteers who feel betrayed because she has a concession in there which would essentially facilitate a second referendum.
She is trying to appease some of the DUP and those concerned about the contentious backstop. She has made some overtures to protecting workers'
rights, as well as environmental protections for the Labour Party.
[09:15:08] NOBILO: Labour said that that hasn't gone far enough. As you mentioned, Jeremy Corbyn said they won't be backing the deal. But I think
it really is the outcry from the Prime Minister's own policy, which is such a concern.
She seems to have lost support from the last time she presented her iteration of her Brexit plan, which already wasn't sufficient to get across
the line. So it looks like she's not going to be able to get anywhere with this.
So inevitably, the voice that is pushing for the Prime Minister to leave is growing louder. She said that she is going to depart over the next couple
of months. There will be a leadership contest. But if she isn't able to get this Brexit plan any further, and given that she's not pushing any
other policy through the House of Commons, practically now, not just in terms of a critique on her handling, there is no point of her being there.
CHATTERLEY: So does she step down or do we see the powerful 1922 Committee of the Conservative Party change their own rules and have another
confidence vote. I mean, should she hang around for that ultimately, if she's paralyzed?
NOBILO: You're right to mention the 1922 Committee, it is powerful. And that really is where the impetus is coming from. The Prime Minister could
say or could repeat again that she is going to step down and that she will resign. But realistically, the control of the situation is not with her.
It lies with the 22 and it lies with the party.
Now parties, it's that living organism so they can change their own rules. There would be the possibility for members of the Conservative Party at
this extraordinary meeting next month to change the rules to try and oust her sooner rather than later. The 22 Committee could also do something
similar.
So really, the question is, how desperate is the party? How soon do they feel like it's essential the Prime Minister leaves and that will drive them
to a course of action, which will try and oust her as soon as possible and the Prime Minister will just have to accept whatever she is presented with
because this can't go any further. She has shown today -- well, we've seen the apotheosis of her compromised strategy, just completely falling to
pieces.
CHATTERLEY: Yes, fallen by the wayside. Bianca Nobilo, thank you so much for that. All right, Britain's second biggest steelmaker has collapsed
just a few hours ago. Emergency talks aimed at agreeing a loan from the U.K. government ended without agreement. British Steel is now in
compulsory liquidation. That means up to 5, 000 jobs at the company now at our risk.
It also threatens the further 20,000 jobs located at their suppliers. British Steel partly blames Brexit uncertainty for a slump in sales.
U.S. House Democrats have subpoenaed the President's former Communications Director, Hope Hicks in their probe of possible obstruction of justice by
President Trump. The Judiciary Committee wants to ask her about a misleading statement regarding Donald Trump, Jr.'s meeting with a Russian
lawyer back in 2016.
The Committee has subpoenaed Ann Donaldson, one-time Chief of Staff to former White House counsel, Don McGahn.
All right, so we are going to take a break here on FIRST MOVE. But still ahead, the Fed is forced to be patient again. This time, of course, as you
heard, on trade, we will bring you plenty more of my exclusive interview with the President of the Boston Fed ahead of the Fed minutes later today.
And no pulling the wool over Elon Musk's eyes. How one simple tweet landed someone a job at Tesla. We've got the details. Stay with CNN.
(COMMERCIAL BREAK)
[09:21:36] CHATTERLEY: Welcome back to FIRST MOVE live from the floor at the New York Stock Exchange where we're anticipating a weaker open for U.S.
equity markets on this Tuesday -- no, it's Wednesday today, I'm losing track of days.
Alan Ruskin is the Global Head of G-10 FX Strategy, and a macro strategist at Deutsche Bank. Alan, it is Wednesday. We're good.
ALAN RUSKIN, GLOBAL HEAD, G-10 FX STRATEGY: Good.
CHATTERLEY: Talk to me about what you think with China at the moment, because we've talked over the last few sessions about how close the
investors are watching the exchange rate right now between dollar and the Chinese yuan and that key seven level. How important is that?
RUSKIN: That level has been important in the past. We've seen the Chinese defend that seven level in the past. It's got more psychological meaning
then ready meaning in terms of the economics, you know, if we blew through seven, as a number from a trade standpoint, a competitive standpoint, it is
not that important, but from a psychological standpoint, it is hugely important.
CHATTERLEY: So, I mean, what it would mean is if they weakened their currency, it makes their exports cheaper to offset some of the tariffs, as
you said, psychologically, perhaps more for the White House than anyone else. It would be seen as a step up, an escalation in the current trade
battle. How high do you think it is on the pecking order here in terms of retaliation for the Chinese?
RUSKIN: I don't think it's their first step. I think --
CHATTERLEY: Because they know.
RUSKIN: They know that the U.S. would see this as a direct attempt to manipulate the exchange rate and offset the tariffs directly in terms of
the tariff's competitiveness impact, so they don't want to go down that path right now. That would be a genuine step in terms of escalation.
I think at a minimum, we get through the G-20 meeting, see how President Trump and President Xi get on with each other where that comes out, and if
that doesn't go well, then I think the seven level is going to get broken.
CHATTERLEY: Wow. Do you think the Chinese is also propping up their equity market here? I mean, we know that there's interference and things
that they set their own currency strength, they make strategic choices. What about the stock market here? Because the sort of difference between
the relative pressure that we're seeing on the U.S. markets versus the Chinese markets also feels important here, just in terms of the overall
rhetoric and the mood right now.
RUSKIN: There's certainly a lot of market talk about the Chinese supporting the equity market. The equity market is trading very
differently to times past. So it's certainly relatively stable.
CHATTERLEY: Yes.
RUSKIN: At the same time, I have to say the U.S. market has been remarkably stable. You see the VIX at 15. And you say, "Oh, my God,
really? Is there really a trade war going on here?" So on both sides, I'd say it's quite quiet.
CHATTERLEY: I love that you mentioned that point because we spoke to Eric Rosengren of the Federal Reserve and he was like, no investors aren't being
complacent. The Fed isn't complacent here, one that they believe ultimately a deal will happen. But given the repricing that we've seen a
bit over the last several sessions, investors are aware. I'm not sure I agree with that.
RUSKIN: Yes, I'm a little worried. I think they are asymmetric risk. I think whilst the trade issues are boiling over, there's almost no chance of
us making new highs on the S&P and there's definitely a lot more chance that we have a large downside move. So there's definitely asymmetric risks
in terms of price action.
CHATTERLEY: What about for FX markets here? I now we've mentioned dollar- China, but what's the trade here then if you think that the risks here are very asymmetric and the risks are downside here particularly in the stock
market and the general sentiment here is so high.
[09:25:08] RUSKIN: Yes, so I think the way the foreign exchange market is looking at it, it is looking at surrogates that relate to China. Korea has
been really in the frame. So the Korean one has weakened substantially.
We see Taiwan weaken, other Asians generally on the weaker side, and then G-10 will -- the Aussie dollar, which has had a lot going on, obviously, an
election as well, but a lot going on there. But it has also tended to weaken as well.
So anything that's tangential to China is in the mix. The foreign exchange markets are trading much as you would expect.
CHATTERLEY: What about the bond market? Because one of the tweets that has come out from effective Chinese propaganda and obviously newspapers,
Twitter handles that are very close to the government here is that we could sell treasuries. The largest foreign owner of U.S. debt, we could sell
them. How credible is that?
RUSKIN: Again, not a first order of call, really. I mean, the Chinese I think are pragmatic. They don't want to hurt their own interest. There's
no real alternatives. You've got $3 trillion of reserves really.
CHATTERLEY: What else will you invest in?
RUSKIN: Exactly. So you're going to own a lot of Treasuries, regardless. You don't want to really disrupt global markets because it's going to
feedback to your own economy as well. So I think this is really low on the totem pole in terms of action.
CHATTERLEY: It's such a complex dance. Alan Ruskin, thank you so much for joining us here.
RUSKIN: My pleasure.
CHATTERLEY: At the New York Stock Exchange, right, we are counting down to the market open as I mentioned there, and you can take a look at U.S.
futures right now. Once again, we are under pressure there. We did take back a significant proportion of the losses that we saw in Monday's trading
session yesterday. So it'll be interesting to see how this session plays out.
But clearly, a lot of nervousness under the scenes particularly for the technology sector. Qualcomm, of course, in the firing line, too.
Plenty more to come, and our exclusive interview, of course, with Eric Rosengren. Stay with CNN. You're watching FIRST MOVE.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE. That was the opening bell here bat the New York Stock Exchange. It is Wednesday. I've got my
days straight now. We were expecting a softer open at for the equity markets there and that's what we're seeing.
Remember it comes off the back of a positive session yesterday though, where we saw the NASDAQ in particular outperforming ending the session up
more than 1 percent. So I think choppiness, general nervousness about the tensions between China and the United States and of course technology, in
particular caught in the crossfire.
We're also going to be watching the chip makers more broadly in the session, the semiconductors amid the noise and news on Qualcomm to which
I'll walk with you in just a few seconds.
Let me walk with you now some of the global movers that we've seen because we've also had some further earnings in the retail sector, too. Target's
Q1 earnings and sales beating expectations, e-commerce, front and center. Those sales jumping some 42 percent. Thanks to their curbside pickup
service. That's something Amazon, of course, doesn't offer.
It maintained also their full year outlook despite the looming 25 percent tariffs on apparel and footwear imports from China. Right now, Target up
some 7 percent early on in the session.
Qualcomm as we've mentioned already in the show, a Federal judge ruling the chip maker violated antitrust laws, saying its patent and licensing
practices, quote "strangled competition." It comes off to the U.S. Federal Trade Commission filed the lawsuit back in 2017.
The judge is ordering Qualcomm to change how it calculates royalties, also license its patents to rivals at fair prices. Qualcomm will appeal the
ruling, of course. Right now down some nine percent in the session.
Tesla, once again in focus. Citi Group this time cutting its price target to $191.00 a share. It also said there's a 40 percent chance that shares
could collapse to $36.00. So that's more than an 80 percent reduction from where we're trading right now.
Analysts citing both demand and cash flow concerns. It's more of the same. We've heard this time and time again. Morgan Stanley, if you remember said
this week, it's absolute bear case that Tesla is $10.00 a share, though admittedly, its base case is much higher than that. Right now, Tesla down
a further two percent.
Something else, of course, it's also dropping in currency land is the British Pound edging lower in the session amid some fresh Brexit chaos.
Sterling falling below that $1.27 mark versus the U.S. dollar. Fresh fears that the U.K. could be lurching towards a messy exit from the E.U., that's
after U.K. opposition party, Labour said it won't back the Prime Minister's last ditch effort to get a Brexit deal from Parliament next month. This,
as Theresa May faces renewed pressure from her own party.
Nigel Evans is a Conservative MP and is also a Joint Executive Secretary at the party's powerful in 1922 Committee and Nigel, always a pleasure to have
you on FIRST MOVE even if I'm in a different location.
Talk to me about the potential rule changes here for the 1922 Committee.
NIGEL EVANS, BRITISH MEMBER OF PARLIAMENT, CONSERVATIVE PARTY: Hello, Julia.
CHATTERLEY: Can you succeed in forcing a second confidence vote on the Prime Minister here?
EVANS: Yes, as it currently stands, the rules say that you can't contest a leader of the Conservative Party within a 12-month period after you've had
a vote of confidence, well, we've had one in December.
But the meeting that's taking place today, 18 Conservative MPs will meet. We are the Executive Committee of the Conservative MPs, if you like, it is
called the 1922 Committee. And we will decide whether we want to change the rules or not.
And if we decide to change the rules today, then it will take a number of MPs to write letters to the Chairman of the 1922 Committee who is Sir
Graham Brady. And if the threshold is reached, and at the moment, the number of letters is 48, we could decide to change the number of letters
that are necessary, too.
But however many letters will be necessary, once that is triggered, then there will be a vote of confidence in the Prime Minister. But we'll see
because we had a vote a few weeks ago and we decided rather narrowly not to change the rules.
But a couple of things have happened since then. The talks between the Conservative Party and the Labour Party have broken down completely. And
of course, the Prime Minister has decided to bring forward the withdrawal agreement bill early in June.
But as you've just intimated, the forecast is not looking particularly good for that because the leader of the Labour Party has said that he is not
going to support it. The Scottish nationalists aren't going to support it. And there's now a growing number of Conservative Brexiteers who have said
even though they supported her deal, second time or third time, they will not support it on this fourth occasion.
[09:35:07] CHATTERLEY: I mean, you're one of those people who voted yes for her deal twice. And now even you are saying, "I'm simply not going
through this withdrawal deal, the fourth time around." Why are you making that decision at this stage? Are you suggesting that actually, you'd
rather see the U.K. leave via a hard exit at this stage? Or you're willing to risk a second referendum, even a general election here that sees the
Conservative Party ousted from power?
EVANS: I'd rather just listen to the 17.4 million people who voted in 2016, that's almost three years ago now, and just leave the European Union.
But the reality is, and the Prime Minister has said herself, that she will be leaving 10 Downing Street, probably by the end of the summer. That's
all the intimations that we've got. And then somebody else will be taking over the leadership of the party.
And the question, then you've got ask yourself, is, is it better for the new Prime Minister to have a clean sheet completely, to be able to reboot
the negotiations with the European Union? Because they will have had elections themselves. There's elections that are taking place tomorrow.
The results will be known on Sunday, but they will also have a new Commission as well.
And I -- my own personal view, is it is far better, rather than to saddle the new leader with something that may well be toxic, it may have a Customs
Union in it, it could have a Single Market in it, it could have a second referendum in it, far better, to allow the new leader of the Conservative
Party, a clean sheet to be able to negotiate again with the new Commission rather than to be handed a toxic baton, which quite frankly, will poison
our relationship with the electorate for maybe a few years to come.
CHATTERLEY: So, can we conclude by that that one, if this withdrawal deal comes to Parliament, it's going to fail? And my follow up question to that
would be, is Boris Johnson the person that should lead the Conservative Party? Would he get your vote?
EVANS: Well, the first one first, do I think that the withdrawal agreement is going to pass? And the answer is no. But there's also speculation that
it may never even be put before Parliament, that the whips will do the arithmetic, find out that it's not going to pass and therefore why have the
embarrassment of it failing what is in effect a fourth time?
Then we move on, let's say to your second question, which is, after Theresa's days, who is best to take over? Well, that is going to be the
job of people like myself, who will be conducting that election. I am one of six conservative MPs who will be holding those elections. There's been
about 16 or 17 conservative MPs who said they are interested, so there's going to be a lot of runners and riders.
But my own view talking to MPs is that they would be looking towards a Brexiteer, somebody who is going to win the next general election for them,
as well as delivering the Brexit that people voted for in 2016.
Now, I'm not going to say who I am supporting, but all I do know is that my preference is that when we've whittled down the candidates to two and
that's the responsibility of the MPs. Those two names will go to the membership of the Conservative Party throughout the United Kingdom. It
will be their responsibility then to select one.
In the past, I'm afraid Theresa May didn't go through that exercise because the person that was up against her pulled out and supported Theresa May in
the end. I don't want a coronation this time. I do want it to go to the membership and that will give whoever wins greater authority with the
membership and greater authority in Parliament.
CHATTERLEY: Yes, makes sense. Nigel Evans. Sir, thank you so much for joining us on the show.
EVANS: Pleasure. Lovely talking to you, Julia.
CHATTERLEY: And we will see how it goes. Likewise. All right, we're going to take a quick break here on FIRST MOVE. Still to come, stepping on
toes, what happens when the U.S. President tries to take the lead in the difficult dance between rising interest rates and stock markets. More of
our interview with the head of the Boston Federal Reserve, right ahead.
(COMMERCIAL BREAK)
[09:42:05] CHATTERLEY: Welcome back "The Chatt Room," investors may be waiting for the minutes of the Federal Reserve's last meeting where if you
remember, at that point, the White House was indicating that a U.S.-China trade deal with swiftly approaching. There's just one problem, of course,
the political landscape has shifted pretty dramatically.
Since then, as hopes of a deal near collapsed. Fear not, we've got you covered. I sat down for an exclusive interview with Eric Rosengren,
President of the Boston Federal Reserve. Here is what he had to say about that.
(BEGIN VIDEOTAPE)
ROSENGREN: So it's difficult because there is a lot of uncertainty about what the actual outcome will be. And it does make a difference whether
first, the tariffs actually do go on, and if they go on how long they go on? And whether there's any follow on to the next round of tariffs?
So we'll have to wait and see. We make assumptions about what we think is likely to happen. My own assumption is that both countries do have an
agreement that over time they will come together. I don't know when exactly that will be. But my expectation is that it doesn't have a large
impact on my forecast for the economy.
But that could be wrong, and if it is wrong, then we'll have to think differently about monetary policy. But both countries do have a strong
incentive to try to get to an agreement. Hopefully they are able to do that over the course of this year.
CHATTERLEY: I mean, right now, the rhetoric is flying thick and fast. Do you acknowledge that the hope or the expectation of a deal here could be
complacent, whether it's the Federal Reserve, or whether it's for financial markets and for investors at this moment?
ROSENGREN: So I don't think anybody is complacent. You certainly see a fairly large financial market movements when news comes out that people
view as indicating that there may not be an agreement as quickly as others had hoped.
So there's a lot of uncertainty and uncertainty is bad for the U.S. economy as well. So we have to be concerned that the longer this goes on without
some resolution, there are some costs, just having this period of waiting where we're not sure what the outcome will be.
CHATTERLEY: Can we be clear, because I do think there's some confusion out there that tariffs are a tax on imports, they are a tax on businesses --
U.S. businesses -- because they're paying them and if they offset the cost to U.S. consumers, it becomes a tax on consumers, too. It's the United
States that puts the cost on some of the tariffs rather than anyone else.
ROSENGREN: Tariffs are attacks on imported goods, and so that will increase the price of those imported goods and it operates like any other
tax that is specific to a certain product, it will increase the price.
Now how much the price increases depends on a variety of things, including whether you can buy other goods that are very similar, or whether suppliers
are able to produce goods in a nontariff country. But the one thing that it does do is it raises prices.
CHATTERLEY: You mentioned the impact that it has on the U.S. economy. Do you see this -- the Federal Reserve right now is the biggest risk to the
economic outlook?
ROSENGREN: I would certainly say it's one of the biggest risks that tariffs have potential to slow down the economy very significantly, not
only here, but abroad as well.
CHATTERLEY: What about where we lie now, today for the U.S. economy versus where we were at the beginning of the year because there was a real fear
factor into the backend of last year that we were going to see a material slowing and actually, the data hasn't shown that.
[09:45:20] ROSENGREN: Yes, the economy is actually in a better place than many expected we would be at this time. In particular, the first quarter
growth was higher than people were expecting. The rest of the world has turned out to be a little stronger than people were expecting both in
Europe and China. So I think that's a positive sign as well.
The consumer confidence seems to have come back and the stock market has recovered substantially even though it has come down a bit in the last two
weeks, but substantially higher than it was at the end of the fourth quarter.
All of those are significant signs of positive outcome for the U.S. economy, and I think if you took tariffs off and didn't have to worry about
tariffs, we would have a pretty strong underlying economy.
And my expectation is, as long as we come up with some kind of an agreement over the course of this year that that underlying strength of the economy
will prevail.
(END VIDEOTAPE)
CHATTERLEY: Unmoved by market moves. Donald Trump may be firmly focused on the relationship between stock prices and changes in interest rates, but
the head of Boston Federal Reserve says they watch markets closely, but it is all about the economic impact. Here is what he told me.
(BEGIN VIDEO CLIP)
ROSENGREN: We have to think about financial market conditions, but we shouldn't be driven by financial market conditions. So small changes in
the stock market that don't effect inflation or unemployment shouldn't be something that we get particularly concerned about.
If the stock market declines enough that we're worried about consumption and investment going down significantly, then that's a financial market
condition that we should react to, not because the stock price is lower, but because we are worried about the economic outcomes more broadly.
Sometimes, I think the markets forget that our goal is not to set a stock price, it is to get our inflation and unemployment consistent with what our
mandates are by Congress, so that we will react if it is a very negative shock and should, because that's indication that more than likely, the
economy will slow down.
CHATTERLEY: Is that what happened in December? Is that what led to the patience starts because you looked at the sheer fall that we saw, the
tightening of financial conditions because it wasn't just about stock markets, and when actually there are big spillover effects potentially
here?
ROSENGREN: I think there was a risk that if we didn't take some action that the spillover effects would be more significant than were acceptable
at that time, so I think the pivot that occurred around the end of the year is completely appropriate, and I think it is good news that the economy is
on much more solid footing.
There's still plenty of challenges for the economy, so I think we have to think about it at each situation. I think monetary policy is appropriate
right now.
But we're going to be watching what happens with trade, we're going to be watching what happens in financial markets more generally, and we'll have
to see over time how data comes in.
CHATTERLEY: But the message to investors is, "Don't get complacent because it always comes down to the economy, not about magnitude of moves in the
market."
ROSENGREN: That's correct. I mean, we think about financial market conditions. We certainly think about if stock prices go down enough that
businesses don't want to invest and consumers become much more worried about whether they want to spend.
There are quite a few economic studies that have highlighted that consumers tend to be more focused on stock markets. It is a little bit more visible.
You see it day-in and day-out. You can see it on new shows such as this one, what's happening in the stock market.
CHATTERLEY: Try not to be alarmed.
ROSENGREN: So we do -- so I think consumers are quite aware of what's happening to the stock market. But the market can move one or two percent,
that certainly doesn't affect consumers' decisions. It doesn't affect firms' decisions.
CHATTERLEY: What about politics at this moment because I know you have been adamant and you've said, "Look, politics does not enter that room when
the Federal Reserve makes a policy decision." But we do have a President here in the United States that -- let's call it encourages the concept of
lower rates.
ROSENGREN: We do what's appropriate. So politics does not enter the room. The discussion is pretty technical, when we talk about monetary policy. So
there's very little political discussion that occurs at the Federal Reserve and I think that is appropriate. You want a Federal Reserve that's
politically independent.
But I think we're working very hard to try to communicate much more clearly what we're doing and why we're doing it, and hopefully if people see us
doing what's right for the economy, they'll realize that that is not politically motivated.
And so I would be much more concerned if we were going back to where we were 20 or 30 years ago where monetary policy was much more mystical and
there wasn't much communication with the public at large, with Congress or anybody else. I think having a transparent Fed is exactly where we should
be, and even if it causes some volatility in the short run, understanding why we make decisions that we make is an important component of the
process.
(END VIDEO CLIP)
CHATTERLEY: Still to come in that interview, should the Fed stick to 2 percent inflation target or be more flexible and give themselves room to
ease up on rate hikes. That discussion is next.
(COMMERCIAL BREAK)
[09:51:12] CHATTERLEY: Welcome back to the show and returning to our interview with the President of the Boston Federal Reserve, Eric Rosengren
and I talked about the possibility of the Fed adopting a more flexible inflation target. So allowing prices to rise more than 2 percent,
particularly in areas like a recovery.
The counter, of course to that is the risk if you don't raise rates enough, and you end up having less room to cut rates when a slowdown strikes.
Here's what he had to say on that point.
(BEGIN VIDEO CLIP)
ROSENGREN: One important consideration is how long you think inflation will be below our 2 percent target. My own view is that over time, we're
actually going to see inflation closer to our 2 percent target. And that most of those effects are going to turn out to be transitory. But we'll
have to wait and see if that's the case.
CHATTERLEY: That was the message to markets. Look, don't fixate too much on the inflation number, the core inflation number right now because if it
does pick up, we could mistakenly cut rates. If it weren't transitory, there is an argument here to cut rates.
ROSENGREN: So if it's transitory, then we're likely to be very close to 2 percent. I would say that the Federal Reserve has been missing pretty
persistently on its 2 percent inflation target.
CHATTERLEY: Yes.
ROSENGREN: And if you look at averages over 5, 10, 15 years, we haven't missed by a lot, but we have missed. And so even though any one inflation
number isn't a problem, if you're consistently below the target, you start being worried that you need to stimulate the economy enough to make sure
that you actually do get that outcome.
We'll have to see if that actually does occur. I'm a little bit more confident than some that that will happen because wages are going up. So
our current framework is that we should be hitting 2 percent. And that it should be symmetric, which means we should be a little bit above sometimes
and a little bit below sometimes.
We haven't been as successful as we want to be. And one way to address that is to talk about an inflation range, where you're more comfortable
being a bit above 2 percent during good times, knowing that when you're in a recession, and we've had some bad shocks that we're probably not going to
be successful at keeping it at 2 percent.
So that would imply having a little bit more flexibility than what we've had over the current framework.
CHATTERLEY: Is the risk though there if you are a little bit more flexible on your inflation targeting level that you never actually manage to get
rates up again to give you some ability to then cut rates if the economy slows down. You could argue we're kind of in that position right now.
ROSENGREN: You raise a very important question, which is how much room do we have when the next recession likely occurs?
So if the next recession occurs, and we're at the current interest rate, our Federal funds rate now is 2.4 percent. Normally, we reduce rates by 5
percent or 6 percent in a recession, so we don't have nearly as much room as we've had in the past.
That's one of the things that we're actually going to be considering when we think about the framework for monetary policy is, how can we make sure
that we have a little bit more policy space?
CHATTERLEY: It would argue either going to negative rates or back to QE again, perhaps buying even more than bonds next time, buying equities,
perhaps as we've seen in other countries, is that the risk?
ROSENGREN: So there is a risk that we'd have to do quantitative easing. We're prohibited from holding anything that -- like equities -- well, for
now, we're prohibited. Other Central Banks have more flexibility in that, we do not.
My own personal view is that we should not have negative interest rates, and I don't think they've been as successful where they've been tried in
Europe and Japan. But I do think it is a concern that we have enough policy space that monetary policy can react to negative shocks that hit the
economy.
(END VIDEO CLIP)
CHATTERLEY: Thanks to the Boston Fed President, Eric Rosengren there. All right, so let me give you a look at today's "Boardroom Brief," too.
Two of China's largest airlines are demanding compensation from Boeing over the grounding of it 737 MAX planes. Air China and China Eastern Airlines
want reimbursement for the costs they've incurred since the aircraft was deemed unsafe.
[09:55:10] CHATTERLEY: Chinese state media also report that the Chinese Southern Airlines is asking for compensation also.
Amazon is set to face pressure from investors today. Shareholders gathering in Seattle for the Annual General Meeting. They'll be voting on
12 proposals including a ban on selling facial recognition technology to governments.
And finally, a tweet can make or break careers as Elon Musk know better than most. He reportedly has appointed the man behind this tweet as
Tesla's new social media manager. The Brit's Absolute unit meme went viral last year. And so it charmed Musk that he briefly made it his profile
picture.
As you can see, he does have a degree though. I have to say, I did look at his educational qualifications just to give him cover there.
All right, let me give you a look at what we're seeing as far as the markets are concerned. Some pressure. Keep an eye on the tech sector. As
you can see some two tenths of 1 percent right now lower.
We'll be back on "The Express" for more. But for now, that's it for the show. I'm Julia Chatterley. You've been watching FIRST MOVE. Time to go
make yours.
(COMMERCIAL BREAK)
[10:00:00]
END
