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First Move with Julia Chatterley
President Trump Threatening Mexico With Tariffs If They Don't Do More To Tackle U.S. Migrant Flows; U.S. Firms Bracing For The Release Of China's Own Naughty List; Uber's Earning Show A Lot Of Spending, But A Lot Less Worry About Competition. Aired: 9-10a ET
Aired May 31, 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's your need to
know.
Trade tariffs turn political, President Trump threatening Mexico with tariffs if they don't do more to tackle U.S. migrant flows. Beijing's
blacklist. U.S. firms bracing for the release of China's own naughty list. And a billion dollar burn. Uber's earning show a lot of spending, but a
lot less worry about competition. Shares rise premarket. It's Friday. Let's make a move.
We made it -- almost. Welcome to the show. It is Friday. I tell you what it may have been a holiday shortened week, but we've had no shortage of
news loan today.
Once again, we're talking about tariffs. This time on Mexico, as I mentioned there, the President threatening to ratchet up tariffs on Mexico
if they don't do more to prevent migrant flows into the United States.
As you can well imagine, the global reaction from investors is negative. Take a look at what we're seeing right now. The latest uncertainty, U.S.
futures pointing to a drop of a 1 percent or more. We've also got month- end, so some pairing of positions to watch today and that's going to impact flows as well.
Europe also under pressure. German stocks taking the biggest hit over in Europe. We've got the DAX off by what some 1.7 percent right now.
Remember, German carmakers like Volkswagen have operations in Mexico, and this is key.
When you think about Mexican exports, other countries importing, you have to think cars. You have to think car parts, global supply chains, and I'm
talking layers upon layers, five, ten, twenty layers. I'll take you to all the details.
Take a look at this graphic, though because this is key. It's a list of the most important goods coming into the United States from Mexico. Number
one, car parts; number two, trucks and buses; and number three, finished cars.
The bottom line, guys, you can't manufacture cars here in the United States without using parts that have been made in Mexico.
And Deutsche Bank has even quantified this for us. Thirty five percent of U.S. auto exports include imported products, much of them Mexican made.
This has huge ramifications for car prices, for car demand because remember, we keep saying this American firms pay these tariffs.
The other big question here of course is what happens to the NAFTA deal mark two, the USMCA, what happens to that deal and the ratification of it
now? Who knows? So many questions, and we'll try and answer them for you throughout the next hour.
But for now, look at this, U.S. auto stocks tumbling premarket. We've got shares of GM, the largest automaker, in fact, in Mexico sector for more
than 4 percent. Fiat-Chrysler, down more than 5 percent right now. Ford shares also under pressure. Let's get to the drivers and quantify for you
what we've seen in the last 24 hours.
President Trump punishing Mexico for failing to stop people from crossing the border into the United States, and he is using his favorite weapon of
choice -- tariffs. We could see tariffs of 5 percent hitting all Mexican imports on June 10th; if Mexico fails, then to stop the flows, tariffs
could rise 10 percent as of July 1st; 15 percent on August 1st, reaching 25 percent by the start of October.
All right, we've got this story covered from all angles for you. We've got Gabriela Frias, she is in Mexico City for us. Peter Valdes-Dapena is going
to give us the car angle and the impact there, of course, too, but Paul La Monica, let's talk, Paul, reaction about what we're seeing here and the
result in the markets right now.
Two things for me, a second front in the trade war. Two of the United States' three largest trade partners, and everyone looking at this and
going, "What does this mean for the economic outlook in the United States?" It can't be good.
PAUL LA MONICA, CNN BUSINESS REPORTER: That's right, Julia. Obviously, there are bigger concerns today about these trade tensions with Mexico and
China and what impact that will have on consumers because ultimately, as you pointed out, they're going to be the ones that will pay higher prices
as a result of these tariffs.
You have retailers already warning that prices are going to be going up. Costco which reported results last night, their CFO said during the
conference call, admitted that prices are going to increase on a variety of products.
And keep in mind, this is Costco, a company that makes its name by keeping prices very, very low. They are a bargain warehouse retailer and they're
going to be raising prices.
[09:05:11] CHATTERLEY: Yes, it's such a great point. I was going to say double whammy, but I think it's triple, quadruple -- you name it.
Gabriella, come in here because obviously the key reaction now is what do the Mexicans do? Do they slap retaliatory tariffs? What happens to their
part of the NAFTA mark two trade deal here and at a time when I read that they've deported some 37,000 plus migrants to Central America? Can they
stem the flow here?
GABRIELA FRIAS, CNN ESPANOL CORRESPONDENT: Julia, Paul, Peter, good morning. Mexico is doing its part. That's what President Lopez Obrador
has said since yesterday after knowing -- after hearing about these terrible news for Mexico, for businesses, for consumers, even because
uncertainty comes back to the game.
The Minister of Foreign Relations has traveled to Washington and he does not have a specific meeting with a specific U.S. authority. But he is
going to remain in Washington in the Mexican Embassy in Washington looking for those critical meetings to talk about this and look for a point, a
common ground, so that by June 10th, we don't have these, which is one of the worst scenarios.
Very briefly, I wanted to also set the scene for you. Only 24 hours ago, the Mexican authorities were pretty much pumping up the champagne after
announcing that the Mexican Congress was going to start the ratification process of that USMC you were talking about. President Trump pretty much
ended the party.
CHATTERLEY: I mean, that's shocking, isn't it. And of course, the White House is pushing for that here in the United States as well. A huge
complicating factor. Peter, come in here because I've mentioned already at the start of the show the impact, particularly for car trade between the
United States and Mexico, but more broadly, just talk to us about the impact here for some of the big U.S. car makers in particular.
PETER VALDES-DAPENA, CNN BUSINESS SENIOR AUTO WRITER: Well, in that same Deutsche Bank report that you mentioned, U.S. automakers, they said it will
be particularly hard hit. One reason is that one of the biggest areas that will be hit by this, pickup trucks, full size pickup trucks. That's right
where domestic automakers live; Silverado's F-150s. Those are trucks that that rely on Mexican made parts, some of them are sometimes assembled in
Mexico. So that's very difficult. Prices will go up.
And ultimately, its consumers that will pay and consumers who might pare back on buying their next new car.
CHATTERLEY: Yes, it has a direct economic impact. And of course, we keep saying it's the strength of the U.S. consumer that's so critical for the
U.S. economy going forward.
Paul, and on that point, is the backstop here for the President always that the Federal Reserve will kick in and if we've got a real problem in the
U.S. economy, they'll cut rates because that's what the market and that's what the bond market, in particular has been saying all week, I think.
LA MONICA: Yes, you have the yield curve having inverted, Julia. Fed funds, futures are now indicating several rate cuts by the end of the year.
But here's the problem and I am actually going to have a story on this on CNN Business later today.
At the same time that you have these concerns about a potential hit to U.S. economic growth, you also have rising inflation, the job market in the U.S.
is still healthy, which the President loves to point out. Wages have gone up. That could be inflationary, and these tariffs on Mexico and China
could also lead to higher prices at many big retailers.
Not to mention, as Peter pointed out, higher prices for cars and trucks. So if the Fed is looking at the situation and realizes that yes, growth
could take a hit, so we should cut rates, but also inflation is creeping higher. Now all of a sudden, you get stagflation. So what does the Fed
do? Do they cut rates? Raise rates? I'm guessing they'll probably just sit tight and see how this all plays out.
CHATTERLEY: And hope peace comes as a result. We shall see. Paul La Monica, Peter Valdes-Dapena and Gabriela there, thank you so much for
joining us this morning.
All right, let's move on to our second driver and it's again, the front in the trade war -- retaliation in the trade war with China. The nation is
creating a blacklist of foreign companies found to have cut off supplies to Chinese firms. Matt Egan is following the story.
A direct result, it would be argued here of what we've seen the United States do as far as China's Huawei is concerned, a lot of U.S. companies
say will be eagerly watching to see if their names are listed. Tim Cook must have his head in his hands. Matt Egan, tell us more.
MATT EGAN, CNN BUSINESS LEAD WRITER: So, Julia, I think it's another reminder of the unintended consequences from trade wars. China announced
today that it will create a blacklist or as they're calling it, an unreliable entity list for companies that violate market rules.
They say that will include firms that block supplies to Chinese companies for non-commercial reasons. Now, the exact details including the timing in
which companies will be on this list are not clear yet. But as you mentioned, this is clearly a reaction to the U.S. crackdown on Huawei which
really is the crown jewel of China's tech ambitions.
[09:10:10] EGAN: U.S. officials announced an export ban on Huawei that effectively bans U.S. companies from doing business with Huawei.
Now, U.S. officials say that Huawei is a national security threat and that's why they've done this. But that's a charge that Huawei strongly
denies and they say that United States is simply trying to put Huawei out of business.
Now, even though Huawei is a -- it's a Chinese company, you know, it does business with a lot of foreign firms, including U.S. ones.
You know, last year alone, Huawei purchased $11 billion of goods and services from dozens of U.S. companies, everything from computer chips that
have bought from Qualcomm to software that have purchased from Microsoft to the Android operating system Google.
So you know, in many ways, this threat of a blacklist is a shot across the bow of Silicon Valley. And, you know, I think at the end of the day,
Julia, this is just a kind of a reminder of the asymmetric risk of retaliation in a trade war.
You know, we're no longer just talking about adding up tariffs that each side have placed on each other. We're now talking about things like
restrictions on rare earth minerals, whether or not it would make any sense for China to sell some of its U.S. Treasury holdings, boycotts of U.S.
companies, and now this blacklist. So clearly, you know, the trade war is getting real here.
CHATTERLEY: Yes, the unintended consequences, as you said. We'll watch the chip makers, of course, and they've been punished over the last couple
of weeks. The question is how much bad news is now in the price? And could there be more?
Matt Egan, thank you so much for that. All right, let's move on now and talk about a stock that is going in the opposite direction now, which is
Uber. Investors hailing Uber's first set of results. This despite a $1 billion cash burn in the quarter. It's up over 2 percent premarket.
Clare Sebastian has the story. Fascinating business model to me, Clare, on this one, you can burn a billion dollars in the quarter and your share
price rallies. Talk me through this one.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia, from everything that we know about it, what a good earnings report should look like. This
definitely wasn't that, but relative to expectations, this was slightly better than expected.
Uber had put out unaudited numbers around its IPO filing. And this came in, you know, revenue was at the higher end of what was expected. The
loss, even though it was a billion dollars was roughly at the lower end of what was expected. So that was a slight positive for Wall Street.
And there was some other vaguely positive science. They said that costs when it comes to sales and marketing should start to come down in the
second quarter.
Dara Khosrowshahi, he talked about opportunities in new countries. He named about half a dozen countries where he sees regulatory openings, where
Uber might be able to grow its customer base. And interestingly, he talked to us about cross selling.
We know that Uber Eats is a much faster growing part of the business than the ride hailing core, and he said that 50 percent of Uber Eats users don't
actually use ride hailing. So while they've been using ride hailing to funnel customers into Eats, they can now start to do the opposite. So I
think that was a sign of potential growth going forward for Wall Street.
CHATTERLEY: Yes, that's quite fascinating actually. You use Uber Eats, but you don't use the ride hailing, and perhaps you could be encouraged to
do so.
The interesting thing for me as well on the call was how he talked about competition and the fact that we know in the United States, they've been
undercut on price by competitor, Lyft. His suggestion that perhaps going forward, they could compete more on brand rather than pricing and that
would then give Uber the advantage -- that stood out to me.
SEBASTIAN: Yes, that was a really, really important part of the call. That's a big reason why the stock price, I think is up today. It's also a
big reason why you see Lyft stock price up today.
He hinted that the price war, the drivers and incentives and things like that, between the two companies might be starting to end.
He said that competing on brand has got a healthy amount of competition than just throwing money at a challenge. But Julia, they continue to throw
money at the challenge. In the last quarter, Uber spends an enormous amount to be the market leader.
Some of the numbers here. Ride sharing money spent on driver incentives more than doubled and Eats that number more than tripled. And that is
outpacing the growth in revenue and they are not out of the woods yet when it comes to market share in the U.S.
If you look at Uber's revenue growth, up 20 percent in the last quarter compared to Lyft's, up 95 percent. That was just they are still losing
market share. So they still have some work to do and this will be a delicate dance going forward.
CHATTERLEY: Yes, we're looking for a path to profitability. It's a long path ahead. Clare Sebastian, thank you so 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.
Hungarian Police are suggesting that the fatal boat crash on the Danube River in Budapest may have been caused by human error. The captain of the
second vessel has been detained. Seven South Korean tourists were killed in Wednesday's accident, 21 people remain missing. None of the passengers
were wearing life jackets.
U.S. Attorney General William Barr is defending his view of the Mueller report making clear in an interview today, he didn't simply misinterpret
Special Counsel Robert Mueller, he overruled him.
(BEGIN VIDEO CLIP)
[09:15:10] WILLIAM BARR U.S. ATTORNEY GENERAL: As a matter of law, many of the instances were not amount to obstruction.
JAN CRAWFORD, CBS NEWS CHIEF LEGAL CORRESPONDENT: As a matter of law?
BARR: As a matter of law. In other words, we didn't agree with the legal analysis -- a lot of the legal analysis in the report, it did not reflect
the views of the Department. It was the views of a particular lawyer or lawyers. And so we applied what we thought was the right law.
(END VIDEO CLIP)
CHATTERLEY: Barr repeated his criticism of Bob Mueller saying he should have made a determination as to whether the President engaged in criminal
activity or not. This in response to public comments Robert Mueller made earlier this week of course.
All right, we're going to take a quick break here on FIRST MOVE, but still to come, unfriended. Facebook shareholders trying to loosen Mark
Zuckerberg's grip on power. We will tell you how that turned out. Hint -- not happening. Stay with us. You're watching CNN.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange and U.S. investors are looking ahead to a selloff in the markets.
This morning, all the major indices as you can see off. The NASDAQ in fact bearing the brunt here once again down some 1.3 percent. This of course,
as we've been discussing already, throughout the start of the show, President Trump threatening Mexico with tariffs if they don't do more to
stem migrant flows.
A global flight to quality continues, too. The 10-year yield now lying at 2.17 percent as you can see there. The German bund 10-year yield hitting
refresh record lows earlier on in the session. Almost half of European government bonds now have a negative yield.
Currencies -- safe havens. We're keeping an eye on those. The yen and the Swiss franc -- all trading higher in the session. As you can see, the
Japanese yen outperforming there versus the U.S. dollar.
The dollar also higher as you can see by some 3 percent versus the Mexican peso.
[09:20:08] CHATTERLEY: The initial reaction to the President's announcement yesterday. Joining us now is Ruchir Sharma, Chief Global
Strategist and Head of Emerging Market Equities at Morgan Stanley Investment Management, always a pleasure to have you on the show, and to
have you here.
RUCHIR SHARMA, CHIEF GLOBAL STRATEGIST AND HEAD OF EMERGING MARKET EQUITIES, MORGAN STANLEY INVESTMENT MANAGEMENT: Yes, Julia.
CHATTERLEY: As a global investor, whether you trade for the short term, the medium term or the long term, how do you manage this kind of risk
environment when an announcement like that has global implications?
SHARMA: Well, you don't. I think that the broad picture which we've been speaking about in the past is we have to accept that we're in an era of de-
globalization, that we have this sort of unfettered globalization for the last three or four decades, and post the global financial crisis, we are in
an era of de-globalization and it is sort of manifesting itself in the salami slice type cuts.
So I think that's what is the best that you can price in, and I think that's what's even there for the global economy, as I've been sort of
discussing with you in the past.
There are three Ds, as I quoted, which are really dragging down global growth -- de-globalization, demographics, and debt. And so therefore, the
global economy remains weak and de-globalization is a big theme, which is sort of putting a lid on global growth everywhere.
CHATTERLEY: Particularly if you've got tariffs being slapped on nations like Mexico. It throws up the rewrite of NAFTA mark two whether or not the
three countries -- Canada, Mexico, and the United States -- will even ratify that now.
The point about this, and you were saying this, the de-globalization and the sort of lash back that we're seeing here is having, even in the short
to medium term, economic consequences. Can Mexico respond to this? Do you think we see retaliatory tariffs?
Because we've got a fresh President in a Mexico, AMLO. He is a populist of his own. I mean, he made a comment this morning, or in a letter that he
sent last night suggesting that, you know, America's policy of America First is a fallacy. Where do this -- particularly this part of the story -
- where does that lead for Mexico?
SHARMA: Well, I think that, you know, like, they're really like, in a hard spot here. But if you look at the sort of commentary this morning coming
out of Mexico, in terms of what the ministers are saying out there, it seems a lot more conciliatory and calm.
So I think they understand that this is something which hurts. And also back, if you look at the reaction, this is something which hurts the U.S.
also a lot, because if you look at the reaction of the auto stocks this morning, you can see that this is something and also some of the key
Republican states in the south, they know where the linkages are very strong with Mexico.
So I think that this is a very different battle compared to the one against China. And this is where I think a lot of people will be disappointed,
because so far, it seemed as if finally, the Trump administration was getting a strategy here, which is to sort of focus on China to make this
all about China, and to leave the allies out of it.
So this is a real curveball and this is the kind of uncertainty we have to deal with as far as the current administration is concerned.
CHATTERLEY: I mean, you make two really important points. The impact on farming states, some of those, the soybean angle with China as well, and
the exports that they've provided to China, but also with Mexico here, too.
And to your point, two weeks ago, when they removed the Canadian and the Mexican steel tariffs, we thought that the President was choosing his
battles, and he was going to fixate on China. And now it doesn't seem to be the case.
SHARMA: Yes, and this can turn very quickly, again, in terms of interest in a few days before this comes into effect, and I wouldn't be surprised if
this changes.
Now, there's one sort of thing that I've always said, is that the President here pays a lot of attention to the stock market.
CHATTERLEY: He does.
SHARMA: And that's the kind of putt -- that Trump putt as the market calls it, which you need to be a bit aware of.
So I think that the market starts to react too negatively to this. So far what's happened is rather benign, that the U.S. stock market is falling
five or six percent from its highs, but it's still up, you know, eight to nine percent for the year.
So it's not really a big sort of reaction. But I think that if you begin to get any further declines from here, I think, at least with the cases
like Mexico, there is a chance that the President could begin to back down.
With China, I think it's a bit more complicated, because the negotiations they seem to have, you know, gotten really into a tough spot.
But I think that as far as Mexico is concerned, my feeling is that this is not something which is likely to last. That's my feeling for now.
CHATTERLEY: You make an important point about what we've seen so far for the U.S. stock markets and the President's sensitivity to them. At the
point where we're perhaps back to December, two things occurred to me. One that perhaps the President gets very nervous if all the gains of the year
are wiped out.
But also we sort of had Fed pivot and their patience over the markets and their decision to pull back from changing rates any further was also a huge
backstop for these markets.
If the Fed stops talking about perhaps cutting rates, then that gives the President more latitude perhaps to continue to play hardball with these
nations.
SHARMA: Yes.
CHATTERLEY: Surely.
SHARMA: Yes, that's true. And I think that the Fed is back in play. I think the Fed is beginning to get worried about the economic momentum here.
[09:25:06] SHARMA: In the second quarter, it's quite likely that economic growth in the U.S. will be close to one percent, after having sort of
gotten above the much cherished goal of three percent for one quarter, which was in the first quarter.
So now you begin to sort of get those type of GDP prints and the stock market begins to decline further from here, and I think that you begin to
get a U.S. policy response.
In terms of both the Trump administration possibly softening some of it, but more importantly, I think the Fed comes back into play. So this is why
the bond market has been sniffing this so much better than the stock market. You know, people have been talking about the fact that the markets
priced again, one now, possibly two rate cuts, and people have been very -- sort of the commentary are very dismissive of that.
CHATTERLEY: Yes, they have.
SHARMA: Yes, but I think that now, the fact that you could get a Fed rate cut is seeming like a very realistic possibility.
CHATTERLEY: One cut or two this year --
SHARMA: It's just you know, like I'm trying to say this is like an evolving story.
CHATTERLEY: I know. Finger in the wind.
SHARMA: Yes, but I'm saying that now, definitely, like the sort of sentiment switch has been complete from sort of talking about how many
retired six months ago to now begin to price in one if not more rate cuts, so that pivot has happened completely.
CHATTERLEY: Do you think we get a trade deal? Very, very quickly, do we get trade deal with China this year?
SHARMA: I'll be surprised on that. But I think there are things that are much more complicated. But you know, I think, Julia, we need to step back
out here that these trade deals we get, we don't -- we get lost in this sort of daily volatility and the daily talks.
CHATTERLEY: The rhetoric.
SHARMA: Exactly. But the big picture is this. We are in an era of de- globalization. These tensions are bound to mount as we sort of go ahead.
Nationalist figures across the world are gaining much more than this era and that for me is the big picture.
CHATTERLEY: The key.
SHARMA: Yes.
CHATTERLEY: Ruchir Sharma from Morgan Stanley Investment Management and the author of "Democracy on the Road: A 25-year Journey through India."
I'm sharing the book title, I love the book. We'll talk about it again. The market open is next. Stay with us.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE this Friday live from the Stock Exchange. We were expecting a weak start to the session and
that's what we have.
President Trump threatening tariffs against Mexico. The big story here today, if they don't do more, to quell migration flows into the United
States, what we're looking at now as a result of this pressure. It's the Dow on track for six straight weekly loss.
This is of course as well, the last trading day of the month. Stocks on track in fact for their first losing month now of the year.
The 10-year Treasury also telling you a story here as we were just speaking to Ruchir Sharma about the U.S. 10-year Treasury down to 2.17 percent.
Some real nervousness right now in the bond markets in particular.
U.S. stocks, the thing to focus on. Given the extent of traders in the United States and Mexico, all U.S. autos are under pressure today. GM
right now down more than 4 percent. That is, of course the largest automaker in Mexico, but watch some of the others, too. It's tough to
gauge this right now. Fiat-Chrysler, down some five percent, too.
All right, let's give you a look at some of the global movers; some of the individual stocks that we're also watching outside of the auto sector.
Dell Technologies. So Q1 earnings beating expectations, however, revenues missed. The revenues that fell in the server business in particular.
That's Dells second largest business, it was down more than 8 percent to $4 billion. It comes amid an industry wide slowdown in China, of course, due
to the trade war. So we're feeling it. Right now down some 8 percent in the session.
Gap also in focus. The first quarter earnings there, and sales missing expectations. The retailer also slashed its full-year outlook. Now, we
saw shares closing down Thursday at the lowest level since June of 2016. The CEO called it and he said the quarter was quote, "extremely
challenging" and that he's not at all satisfied.
He partially blame the cold weather for keeping shoppers inside, but also said that February business was extremely slow, down 15 percent in the
session so far.
Uber, as we've mentioned already on the show releasing first earnings report since the IPO on Thursday. We've had a glimpse, if you'll remember
of the numbers, pre-IPO, so you have to bear that in mind.
They did post a $1 billion loss as expected, but it did post a profit a year ago. The revenues are coming in at the higher end of the expected
range. It's still its slowest quarterly growth rate since it started disclosing results in 2017. Right now, up some 3.3 percent.
All right, let's talk about what we're seeing here. Art Hogan is Chief Market Strategist at National Securities, and joins us now.
Art, we called you this morning in an emergency once we saw these headlines. What do you make of what we're seeing right now because we have
seen these markets that have been under pressure for a couple of weeks now, but again, a fresh blow here in addition to the tensions with China?
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES CORPORATION: Yes, that's so true. So the market is down about five and a half percent over a
five-week period. And it felt like we might get to a point where were you stabilized last night.
We had tested the 200-day moving average and successfully bounced off that and that's getting wiped out today.
Unfortunately, this is a surprise, and it's a trade war on a different front that we weren't expecting. And now we're going to happen find out
just how much damage that's going to cost.
Sentiment had gotten pretty bad. If you look at the CNN Fear-Greed Index, it was showing extreme fear and the AAII numbers about bearishness versus
bullishness. Very bearish right now.
So I don't know how much worse this gets, but we're going to certainly see today that we're going to test a lot of those levels and come down pretty
precipitously.
CHATTERLEY: We've talked all week about the difference between the stock markets, the relative resilience even given the pullback that we've seen
versus what the bond market is pricing and the fact that it's saying, "Look, the Fed needs to come in here and cut rates," and we've started to
price even two cuts this year.
Do you believe, given your experience and everything that you know that actually the message of the bond market segment here is perhaps more
accurate?
HOGAN: Yes, I think that's -- the issue is how much does the economic data actually get affected by what we're seeing? Right?
CHATTERLEY: Fundamentals.
HOGAN: Some of the April data has been mixed. We've seen some bad data in the manufacturing side. We have seen some good data on the employment
side. The Chinese data is rolling over and that had stabilized in the first quarter, it's starting to roll over to the second quarter.
So there is a concern that this -- the elongated trade war is starting to manifest itself in that economic data. And that's going to force the Fed
to come back in.
My guess says the next move by the Fed is probably to ease. I'm not sure if it's two times this year. But certainly the longer either one of these
things last, whether it's with Mexico or with China, the more it's going to affect the economy then the Fed will have to make a move.
CHATTERLEY: It's interesting that the conversation has shifted from the Fed sitting on its hands to more and more analysts that I speak to
acknowledging that we see some kind of cut potentially from the Fed, and even discussing the idea perhaps of more.
[09:35:06] CHATTERLEY: You also raised a great point there which was China and on any other day, we'd have been talking about this survey data
overnight from China that actually shifted into contractionary territory.
Also really important here, because the requirement, the need for China to be stimulating their economy to keep the global economy afloat here and
stable, critical. And that's another fear here.
HOGAN: That absolutely is and the Chinese has been spending hundreds of billions of dollars to stabilize their economy. They've been doing that in
the hopes that sometime in the first half of this year, this trade war would be behind them. That has changed.
So now that that's changed, we're seeing a roll over in both sentiment and economic data coming out of China. And unfortunately, we're starting to
see that in the United States.
It hasn't manifested itself, but we're going to see it in forward looking data. And the problem with that is because the Fed stepped in and is it
too late?
The silver lining -- all of this -- sentiment has already been tamped down a lot, right? So it's not as though we weren't coming into this with a
negative attitude.
My only fear is that the Fed waits too long to say, "You know what? There's something going on here, we better step in." And if you look at
all the Fed speakers we heard from this past week, it's kind of a mixed picture. It's about 50/50.
CHATTERLEY: It's interesting. We spoke to Erin Rosengren of the Boston Fed last week, and he was saying, "You know, look, we don't react to the
stock market or to investors' pressure, but we do watch it. And if that's going to have an economic impact -- a hit to consumer sentiment, which is
so pivotal to the strength of the U.S. economy, then we could react."
So for me the question is, how resilient can stocks be? And how much more downside could we see particularly given that we're still in positive
territory this year?
HOGAN: That's absolutely right.
CHATTERLEY: Despite what we've seen, do we go back to December if we continue to see these kind of headlines?
HOGAN: Well, three things and I saw your interview with Eric up in Boston. That was fantastic. And he is pretty dovish, historically, right? So for
him to not lean into that we need to do something here is kind of shocking. And I was watching that and I was surprised.
Now I will tell you this, in terms of what we think about the market, we have to think about where earnings estimates have gone and in the month of
May, they started to come down on the back end of this year.
CHATTERLEY: Right.
HOGAN: That's the danger, so if you're going to use the same multiple, this market has to go lower than it is right now if those earnings
estimates keep coming down and that's what we're keeping a close eye on.
Does this affect the economy and how much does that affect earnings estimates and if that continues to happen, the longer this lasts, the more
we're going to have to take that done and we haven't done enough damage.
CHATTERLEY: Particularly for the big players, I mean, if we think of the tech stocks which have also bore the brunt here, the chip makers for
example. We're waiting for China to release their naughty list as I called it, the entities that they're now more cautious about in response to their
restrictions on Huawei.
Apple -- such a huge component of the big indexes here -- the Dow -- see pressure on those, greater pressure on those and again, I just feel like
it's a huge dent to sentiment here.
HOGAN: Oh, absolutely. When you look at Dell components, there are only five companies that are up in this month of May. The rest of the
components -- the other 25 are down and the ones that are down the most are those with the biggest China exposure.
Think about Caterpillar, think about Boeing, think about Apple.
CHATTERLEY: Yes.
HOGAN: And it's amazing when you think about, well, you know what China was supposed to be the place that's great for us to be. All of a sudden,
it's the worst place for a company to have that much exposure, especially in this environment right now.
CHATTERLEY: Huge break of growth opportunity, but simply don't right now. Art Hogan.
HOGAN: Thank you.
CHATTERLEY: Fantastic to have you on, as always. Of National Securities Corp., of course.
All right, we're going to take a quick break here on FIRST MOVE, but plenty to come. A big thumbs down from Mark Zuckerberg. The CEO blocking
proposals to loosen his own grip on Facebook. Funny that. I talk to a shareholder about why she feels this really matters. That's up next. Stay
with us.
[09:41:43] CHATTERLEY: Welcome back to FIRST MOVE. Friends don't let friends monopolize power. That's what some Facebook shareholders have been
trying to tell CEO, Mark Zuckerberg.
They voted Thursday on multiple proposals to try and loosen his grip on power of the company but were thwarted. Why? Because he holds the voting
majority.
Joining me is Facebook shareholder, Julie Goodridge. She's CEO of NorthStar Asset Management. For the past five years, she has pushed to
change the voting structure and to try and split the roles of Chairman and CEO.
Julie, fantastic to have you on the FIRST MOVE. Are you ready to accept after five years that Mark Zuckerberg simply isn't going to let control of
Facebook go here?
JUDY GOODRIDGE, CEO, NORTHSTAR ASSET MANAGEMENT: You know, I don't know that I'm ever going to really accept that. I think that other shareholders
should be very concerned about that as well.
I think it's time for him to really take a lot of good long look at his strengths and weaknesses. And I think his weaknesses have become
incredibly apparent over the last 24 months in particular.
You know, yesterday during the shareholder meeting, he was saying what we need is more government regulation. And what's crazy about that is it's of
course impossible for a bunch of, you know, 60-something year old white men to determine how to regulate a rapidly changing technology industry.
So I think that he's really sort of trying to pass the buck. And he's not really taking responsibility for the impact that he's had over the last 24
months.
CHATTERLEY: But he's making all the right noises for now at least, Julie that seems to be placating advertisers, it placates other shareholders. It
even placates other investors, quite frankly, that are looking at this situation and watching the share price rise.
Julie, why don't other shareholders care more about this? And why aren't they fighting with you here?
GOODRIDGE: Well, what I've experienced as I've been bringing this up over the last five years or so is that other shareholders really only care
about, you know, quarterly earnings and the price increase of the stock.
Now we've seen stock drop, you know, have moments of dropping 20 percent overnight simply because of some misstep that Zuckerberg has taken that the
company has taken.
So you know, a lot of people are very, very short term investors. We're looking at the long term here. It was interesting, because yesterday
during the shareholder meeting, Mark Zuckerberg during his statement said that what we're looking at is his concern that we've moved -- we moved from
the town square impact that Facebook has had back into the living room.
So he thinks that there's a lot of growth to be had in the, you know, his living room, the living room of his Facebook users. But ironically, it's
that group that has lost complete trust in this company in terms of protecting their data over the long term.
So if that's where the growth from the company is supposed to come from, why in the world is he making decisions that are hazardous to that growth?
CHATTERLEY: Yes, we've had two years of shocking news flow. We had the House Speaker this week, basically accusing Facebook of facilitating
Russian interference in the 2016 elections.
[09:45:08] CHATTERLEY: Never mind all the privacy scandals. Is there anything that could see Mark Zuckerberg removed as CEO and would you
ultimately like to see that if that's what it takes to lessen his power here?
GOODRIDGE: Mark Zuckerberg has three areas of power. One is CEO, one is Chairman of the Board, and one is the majority shareholder. He has 60
percent of the shares of Facebook.
Yesterday, Susan Desmond-Hellmann, who was supposed to be the independent Board member was asked a question about whether or not she would act on
behalf of the other Board members and have an executive session regarding Mark's performance. And the answer to that question was no.
So he has in place a Board that is not going to move. I cannot see how in the world anybody is going to force Mark Zuckerberg out. It would be Mark
Zuckerberg himself that would have to understand his -- the limits to his abilities, quite frankly.
CHATTERLEY: To your point, though, if they are about financial performance, ultimately, then the share price is going up. You don't
necessarily have to worry all the other things are a byproduct.
In the end, Julie does it come down to Facebook users? If you care enough about your privacy and your own data, then you have to delete this app and
you have to turn off your profile because no one else is going to do anything. Ultimately, whether its shareholders, he is the biggest
shareholder. Advertisers right now don't care. It comes down to us, as users.
GOODRIDGE: I think when he's talking about moving to people's living rooms, he is talking about creating sort of a sacred private space. And
ironically, of course, Facebook is a media a company that makes money off of placing ads.
The way they do that is by having very good data about the people who are sitting in that living room. And if people don't want to share that data,
that's going to lose -- they're going to lose their edge. It is very different than the current Google platform. And I'm concerned about that
long term as a shareholder.
CHATTERLEY: Yes, and some shareholders can just sell their positions if they've got a problem, but if you have pension fund money and you're in an
index, you don't get a choice. Julie, keep fighting the good fight. Thank you for joining us.
GOODRIDGE: Thank you.
CHATTERLEY: Julie Goodridge.
GOODRIDGE: Thank you, Julia.
CHATTERLEY: Great to have you on. All right, so we're going to take a quick break here, but still to come moving too fast, then grinding to a
halt. Why Donald Trump's new NAFTA might struggle to survive in lights of new developments on trade? Stay with us. We'll explain.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE and I just want to give you a look once again and what we're seeing in terms of the price action here for U.S.
market. All the majors under pressure.
The NASDAQ, the tech heavy sector, underperforming here. Those with greatest exposure to China once again, the trade sensitive stocks are going
to be under pressure here. Also the automakers, we're watching those today, in light of the broader tensions between the United States and
Mexico and the possible threats of further tariffs there, too.
[09:50:25] CHATTERLEY: Let's talk about what's just happened in the last few moments as far as Donald Trump is concerned, he's just tweeted about
those Mexican tariffs saying, "Mexico was taken advantage of the U.S. for decades. Because of the Democrats, our immigration laws are bad. Mexico
makes a fortune from the United States, have for decades. They can easily fix this problem. Time for them to finally do what must be done."
What about the broader backdrop here, though, of course? The Mexican President has hit back against these tariffs saying, I believe President
Trump will understand that this is not the way to resolve things. What does it mean for the broader trade deal? Because even before he announced
the Mexico import tariffs, Donald Trump's new NAFTA deal, the USMCA was in trouble.
U.S. House Speaker Nancy Pelosi slammed the White House for kick starting the approval process yesterday, saying Democrats need more time to have
their concerns over labor rights addressed.
Paula Newton joins me now from Ottawa, Canada. The third partner, of course, in this broader trade deal, the NAFTA mark two. One can only
imagine what the Canadians are thinking as they're watching the fallout here, Paula, between the United States and the Mexicans here.
PAULA NEWTON, CNN INTERNATIONAL CORRESPONDENT: Yes, I think about it, Julia, they're saying we're going to stay right out of the way.
I want to remind everyone that Vice President Mike Pence was here in Ottawa just yesterday, touting the fact that they were going to try and jumpstart
the approval process for that USMCA.
He even said, Julia, to that point about Nancy Pelosi, that look, he will be on Capitol Hill this coming week to try and talk to any -- he said even
the Democratic leadership to assuage some of their fears about the USMCA.
And then last night, boom, we get the announcement from Donald Trump that we're going to have this 5 percent tariff. It will certainly complicate
the ratification, certainly complicate things for the United States, Canada and Mexico in terms of trying to get this trade deal done in very, very
short timeline.
We have an election here in the fall, Julia, and of course, Nancy Pelosi continues to say that they have some problems with the deal as it stands.
But the important thing is, Julia, when it comes to the tariffs or the USMCA is that the House leadership, those Democrats, and those Republicans,
especially in the House, will be listening to their constituents?
How is the 5 percent tariff hurting us? If we don't get USMCA passed, how is that going to hurt us? And Nancy Pelosi will have to listen to that as
well.
CHATTERLEY: Yes, the balance of economics and politics always. Paula Newton joining us there from Ottawa. Thank you so much for that.
All right. Let's move on. Three of the biggest entertainment companies have threatened to boycott the U.S. State of Georgia over its new abortion
law -- Netflix, Disney and CNN's parent company, WarnerMedia all say they will make or stop -- may stop making films there should the restrictive law
go into effect.
Brian Stelter joins me now. Brian, the threat is real here for a state like Georgia, though, does the politics here outweigh the economics or vice
versa?
BRIAN STELTER, CNN CHIEF MEDIA CORRESPONDENT: It does seem to the Republican Governor of the state, Brian Kemp and other local politicians
are prepared to go forward with this bill.
This is one of many of the so-called heartbeat bills that have been passed by states across the south trying to provoke a Supreme Court reexamination
of abortion rights.
There's an expectation that this is going to take many months to work its way through the courts and many media companies are saying that if this
actually does take effect, they will reconsider working in Georgia and these other states.
Look, as you mentioned, it did start with Netflix and Disney and WarnerMedia. Those are the biggest players involved here. We've also
heard from Comcast, NBC Universal, saying they will strongly consider where to do business based on the results here.
Also, some of the smaller studios, the AMC's, the Viacom's, Paramount -- all of those also. So essentially, we're at this point where almost every
major and minor Hollywood studio says, "We're going to have reservations about working in Georgia, if these bills actually do take effect."
Right now, it's not an economic boycott, but it is a serious economic threat.
CHATTERLEY: It has a political implication here, too, though. I mean, if I just look in isolation, perhaps that the women's vote here for key
Republican states in combination when you've got senators like Chuck Grassley, a real loyalist up into this point of the President, looking at
the situation now with Mexico and going, "I see a real problem here."
If you've got tariffs being slapped on Mexico, the trade war with China -- are we getting to a point politically here where the Republicans are
looking at the President and going, "We could have real problems here if this continues?"
STELTER: Yes, I think they are privately, but oftentimes, we don't hear it publicly. You know, look at what's happened this week with Justin Amash,
the only Republican to speak out for impeachment.
[09:55:07] STELTER: He claims a lot of his colleagues agree with him, a lot of other GOP lawmakers agree with them, but they won't speak up. And I
think oftentimes we don't see these Republican lawmakers willing to stand up against the President because they believe their supporters are more
with Trump than with these senators and congressmen.
Now, maybe the tariffs is one of the exceptions to this rule because of the severe economic consequences. Maybe it will be one of the exceptions to
the rule. But I've got to say after two and a half years of a Trump presidency, I have very low expectations for Republican lawmakers. They
seem very content to stay quiet most of the time.
CHATTERLEY: Yes, I just think, watch the Republican donor here as well. Some real nervousness behind things.
STELTER: That's interesting, yes.
CHATTERLEY: At what point does it spill over? I see a perfect storm brewing.
STELTER: Right.
CHATTERLEY: Brian, always great to have you on the show. Some serious discussions over the last two days. I prefer it when we laugh. Brian
Stelter, thank you so much for that.
All right, let me give you a look at the markets. Pressure. That's the name of the game. We will be back. I'll be back in a couple of hours'
time on "The Express" to keep you abreast of the developments.
For now, you've been watching FIRST MOVE, time to go make yours. Make it a safe one.
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