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First Move with Julia Chatterley
Alphabet Shares Surge After An Earnings Beat; Amazon's Earnings Showing One Day Prime Is Denting Profits; Softbank Launching A Second Multimillion Dollar Investment Fund This Time, No Saudis. Aired 9-10a ET
Aired July 26, 2019 - 09:00 ET
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JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE and here's
your needs to know.
B is for buyback. Alphabet shares surge after an earnings beat. Misdelivered: Amazon's earnings showing one day Prime is denting profits;
and double vision, Softbank launching a second multimillion dollar investment fund this time though, no Saudis. It's Friday. Let's make a
move.
Welcome once again to FIRST MOVE. No Friday feeling on this show. I can tell you, we've got all sorts of information for you -- earnings and data
of course, too. So, let's get straight to it because we've had the second quarter GDP numbers from the United States coming in at 2.1 percent
annualized. It is a sharp drop from the first quarter's numbers if you remember that 3.1 percent pace, but it is better than expected.
Well, what did we see? Business investment falling. Trade, inventory is dragging. The support here, coming from government and consumer spending.
Christine Romans is going to break it down for us in a moment.
But the key point here is yes, it's backward looking data. But it is important to understand what the trend looks like here to understand what
the Federal Reserve needs to be doing, if anything, as far as the economy is concerned.
Right now, futures are higher this morning following a modest pullback in yesterday's trading session; around half a percent for the Dow and the S&P
500, one percent for the NASDAQ -- actually the worst performance in a month. Alphabet, Intel, Twitter helping provide some support today.
We are also halfway through earnings season, of course. So, worth at this stage taking stock. As expected, most firms beating significantly lowered
profit expectations, and actually the stronger pace, the strongest pace, in fact, over the past three years. What did I say yesterday? Sack the
analysts, yes, I was just being naughty.
But what we are hearing is that a number of big multinationals are warning about trade. The bottom line here is investors would be far more worried
if it weren't for Central Bank easing. And that includes, of course, the Federal Reserve set to cut rates on Wednesday next week.
But the guidance on future cuts is going to be key, and for that, of course, we need to understand the fundamentals. Let's get to the drivers
and those U.S. growth stats. Christine Romans joins me.
Christine, great to have you back with us on the show. Payback, I think is the name of the game. Payback for the strong trade or net export figures
and inventory figures in Q1 leaking away this time around.
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: Yes, and some revisions that we're trying to sort through here. But you're right,
payback, indeed, because a lot of companies knew that higher tariffs are probably coming, and that helped juice first quarter -- first quarter
numbers when you had 3.1 percent economic growth.
And so then here, the second quarter numbers are 2.1 percent. So, slicing a point there off of that growth. Still it's stable, it's hanging in
there. I mean, when you consider the headwinds from trade overall, when you consider Boeing and its crisis, this is a big part of the American
economy. So, there's the Boeing issue there as well.
The consumer though doing very, very well; behaving quite strongly. And so, I would say, hang in there. This is a deceleration of growth from
earlier in the year, no question. But hang in. So, the big debate right now all the money nerds are having, the finance nerds are having is, "Wait,
a 2.1 percent economic growth in the second quarter, does that justify a rate cut right now in an economy that is growing overall with a 50 percent
-- a 50-year low for the unemployment rate and earnings that have been coming in great if you look at consumer led kinds of companies? So, that's
the debate folks are having this morning on seeing this number.
CHATTERLEY: Absolutely, and stock market is trading very close to record highs as well, just to throw one other thing. I feel like there's two
economies right now in the United States. I mean, the average growth over the last two quarters, 2.6 percent. But if you look at trade, if you look
at business investment, the manufacturing sector, it feels recession like, but then if you look at the consumer, you look at jobs, wages -- it's a far
better economy. It's a tough one for the Fed here.
ROMANS: It is. It is also tough when you've got sort of a microphone at 1600 Pennsylvania Avenue that is screaming that you want it. It's the best
economy in the history of the world, as the President says, but he wants a rate cut. And so those two ideas don't seem to mesh here.
Although looking into these numbers, I will say you look at the fourth quarter of last year, it was weaker than thought. It looks like that was
downwardly revised pretty substantially, which means that last year might not have been that big, you know, three percent growth year that the White
House wanted so badly. And that is what the promise has been from this from the White House. The official statistics were, you know, we expected
three percent growth. The President said three, four or five percent growth on the backs of regulatory cuts, on the backs of the tax cuts.
[09:05:08] ROMANS: That just hasn't really come in there. That Trump economic miracle that he has promised supercharged growth, it hasn't really
materialized quite yet. And it looks like even like last year might not have been as strong as we thought.
CHATTERLEY: You have to say it feels like an economic miracle if it belonged to any other country, basically, in the G10, quite frankly, I
think they'd be delighted. Christine Romans.
ROMANS: That's true.
CHATTERLEY: Thank you so much.
ROMANS: It's all relative.
CHATTERLEY: Yes. It is. See, Friday, glass always half full on Fridays. Let's move on to our next driver. Alphabet shares are set to open up at
eight percent plus, potentially with their Q2 earnings beating expectations, lifted by Cloud and advertising gains here. But the key
point, I think, perhaps the company authorizing a $25 billion buyback.
Anna Stewart joins us. It's a sign of great confidence in the future or the company feels like their stock looks cheap here, or you simply have
lots of money, Anna, when you're announcing your $25 billion buybacks, perhaps all of the above.
ANNA STEWART, CNN REPORTER: I was going to say I'm going to check the box for all of the above. I think it shows that there is a celebration of what
is a fairly robust earnings report, also that management does care about the share price, and it is rewarding its investors, and I'm sure we'll see
that share price higher on the open today.
To run you through those highlights that you mentioned; ad revenue, that was the big one. It's the one that investors were really worried about
after Q1 because it looked like maybe the advertising revenue was beginning to mature, maybe it was the competition, not just from Facebook, but also
of course, Amazon, Alibaba, maybe that was beginning to bite. It beat last quarter, it also beat expectations for this quarter.
And then as you said, Google Cloud -- this I find interesting -- because Google doesn't often divulge the information. We haven't heard any numbers
on this since the end of 2017. But they say, they project their Cloud business will have an annual run rate of $8 billion. Great news. But it
does highlight the fact that we don't have much transparency when it comes to Alphabet earnings, in terms of we know what's doing well, because they
may decide to divulge certain units. We don't necessarily know which units are underperforming -- Julia.
CHATTERLEY: Yes, you made such a great point here. I mean, we don't even have intrinsic details on YouTube either, which is arguably the advertising
powerhouse here, which I find quite fascinating.
But the other thing, of course is regulatory excitement that we've had this week in particular, and I was looking at the earnings transcript, 52
minutes into a 58-minute call before the CEO even talks about it tells you something.
STEWART: Yes, I was listening in. It took some time, didn't it? Very interesting, because they are under sort of tech clash, I guess the United
States. This week, of course, the Department of Justice, but also the House of Representatives, the Trade Commission, State Attorney Generals --
they are under attack from all sides, but so are all of its rivals.
It was interesting that the response from the CEO, Sundar Pichai was, "It's not new to us." He will engage constructively. He has committed to
addressing any concerns. But frankly, he shrugged it off saying that they've experienced similar both in the States, and you have to remember in
Europe as well.
Since 2017, Google has amassed fines totaling over $9 billion in Europe, an absolutely huge fine if you think about it, but also I think you've got to
look in terms of States side, is this politically motivated? Is tech regulation a bit of a political football? If it is this may be vaguely
temporary, it might not have teeth to it. And regardless, it will hit it, but all of its rivals as well -- Julia.
CHATTERLEY: Yes. $121 billion cash on the balance sheet. That gives you some perspective and context on the size of the fine here. They don't
care. Anna Stewart, thank you so much for that.
All right, let's move on and talk Amazon's earnings as well. Their run of record profits has ended. They made a mere $2.6 billion in the second
quarter year-on-year, of course it comes as Amazon makes big investments in one day shipping. Clare Sebastian is on this story for us.
Clare, it was interesting to see what the CFO said. It does create a shock to the system, the cost of being able to provide one day shipping for Prime
members not only about this, but this was a huge issue.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, this was the biggest issue, Julia, by far. He said that they had predicted it would cost $800
million in the last quarter, and it came in above that. He said things like extra transportation costs, the cost of moving products to fulfillment
centers, so they would be nearer to customers. He did say that the customer response has been really good.
But the one that the street was really watching is the fact that he said that they're in the middle of this journey. This is going to go on for
multiple quarters. And I want to bring up the picture of where we see Amazon's profits, the evolution of Amazon's profits over time, because it
was in the fourth quarter of 2017 that we really saw a sea change in how much money they were making. They talked a billion dollars for the first
time after never doing that before.
And I think now that we see this deceleration, people are starting to think are we in a new investment cycle? Is this another shift back to the kind
of high growth, high investment model that Amazon has really come to define? And I think that's why we see a bit of a dip in the share price
today.
[09:10:06] CHATTERLEY: Yes, it's funny, isn't it? I mean, their Cloud services, the Amazon Web Services. I saw that mentioned several times is
slowing. Revenues are only growing at 37 percent now year-on-year, not what we've seen for the last several quarters, which was 40 percent.
I mean, when you're complaining about 37 percent year-on-year growth, I wonder whether you need a reality check here, Clare.
SEBASTIAN: Well, I was going to say 37 percent is bad -- that really gives you the big picture. But I go back to the numbers that I always look at
with AWS, it accounts for this quarter 13 percent of revenues, 80 percent of profit. That is why it's so important to Amazon. This is the key
profit driver. This is why they're able to invest so much in the retail business.
And the key word here, Julia, just as it is in retail, is competition. They have to stay vigilant. They're the market leader, but their market
share has been flat-lining a bit while the others like Google, like Microsoft have been growing.
And we saw just this quarter, Microsoft's Cloud Vision grew 39 percent higher than Amazon's 37 percent, Azure grew at 64 percent. That's the key
competitor to AWS today. They say they're spending more on things like sales and marketing, and it looks like they have to, to stay ahead of the
competition. Again, we're back to this point. They are back into an investment cycle.
CHATTERLEY: Such a great point, Clare, when you've got the largest market share, it's only yours to lose. Clare Sebastian, thank you so much for
that. All right.
Softbank is the focus of our next driver, launching a Vision Fund Mark 2, this time, they're expecting to raise a slightly bigger fund of $108
billion. The focus will be on artificial intelligence. Sherisse Pham joins us. Sherisse, great to have you with us.
The key point here I think with the Mark 2 of the Vision Fund is, this time around Softbank itself as the anchor investor, no Saudis invited, it seems.
SHERISSE PHAM, CNN BUSINESS REPORTER: It seems they are not invited to this party, Julia. And I have to say, I went back to the last time we
talked about Softbank and you predicted this, you said that the next Vision Fund 2 likely will not come with Saudi cash. I was a little skeptical, you
win that bet.
Because among the dozen or so companies, I think 13 companies and institutions and banks were listed as partners for this $108 billion Vision
Fund 2. Companies like Apple which is a repeat investor; Foxconn, another repeat investor, and some other names, Microsoft and you named the
investment fund of the Government of Kazakhstan -- they're all in on this new fund.
But of course, the biggest name that is not on that list is the Saudi government. Of course, Masayoshi Son had to distance himself from the
Saudi government after the killing of journalist, Jamal Khashoggi. When he was asked about it back in May during an earnings report when he announced
the formation of Vision Fund 2, he was cagey and he said, "You know, we haven't decided on investors. It's too early." Now, we have a few more
details and we're seeing the Saudis, they are not listed here -- Julia.
CHATTERLEY: Yes, it's interesting. He clearly was uncomfortable being asked about that, I think, but you know, if we just look at this in
isolation, the benefit of having a huge investor like the Saudis was that it was a sort of counterbalance to a Masayoshi Son himself in his
investment decisions.
I mean, I remember that WeWork investment where there was a rumor that he was going to add an extra $16 billion to the $8 billion he had already
invested and the added investment only ended up being $2 billion. I just wonder whether there will be a concern from some of the big players here
that he has kind of let loose, if he doesn't have a giant investor in the form of a Saudi this time around.
PHAM: I think those are interesting points that you raise. However, when that story came out, there didn't seem to be much reporting surrounding
saying that the Saudis were the ones that pulled Masa back from making that giant second, additional investment in WeWork.
As far as we can see, and as far as our reporting has shown, this has always been Masayoshi Son's show. You had a huge anchor investor in Saudi,
but you have other big players as well. Apple put up, I think, a billion dollars in Vision Fund 1. They're probably putting up a decent amount of
change in this one, too.
Microsoft, Foxconn -- these aren't companies that are shrinking violets, but Masayoshi Son, he is -- he is the visionary of the Vision Funds and he
wants to have a stake in the companies that will lead the AI Revolution.
CHATTERLEY: Yes, and you don't have a career like his, I think, without knowing exactly what you want to do and going and doing it. Sherisse Pham,
thank you so much for that.
All right. Let me bring you up to speed now to some of the other stories that we're following around the world. North Korea says it launched two
short range missiles Thursday as a warning to South Korea. The tests were reportedly ordered personally by leader Kim Jong-un. It comes ahead of
Seoul's joint military exercises with the United States set to begin next month.
[09:15:01] CHATTERLEY: More than 100 migrants have died after a shipwreck off the coast of Libya. Those migrants like thousands before them made the
risky journey to escape violence and poverty back home. Survivors are being sent back to Libya where they face more danger amid that country's
Civil War.
Live pictures now from Hong Kong where protesters are taking their fight to the city's International Airport. Scores of demonstrators dressed in
black, the color of the protest movement have taken over the Arrival Hall. They're calling attention to safety after a mob attack on a train station
and sent 45 people to hospital last Sunday.
British Police are hunting the two armed men who attempted to rob the Arsenal football stars Mesut Ozil and Sead Kolasinac. The masked men
pulled alongside the footballer's vehicle on a moped in North London. The Bosnian footballer Kolasinac is seen leaping out of the car unarmed to
confront the would-be robbers before chasing them away. Yes, that'll teach you to take on someone called "The Tank."
All right, we're going to take a quick break. But coming up here on FIRST MOVE, a roller coaster week for Facebook and big tech of course with an
antitrust probe looming, but what does it mean really? And proof that nice guys finish first, how tech company is changing the world by taking on the
almost impossible.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE where U.S. stocks look set to open higher after Thursday's slight pullback. The NASDAQ fell some one percent
yesterday, the Dow beginning today's session at a two-week low, I'll call that trading around near record highs. New GDP numbers this morning
showing the U.S. economy growing at a 2.1 percent annualized rate in the second quarter better than expected, but obviously less than that Q1 level
of above three percent.
The strong consumer and government spending offsetting a drop in business investment and net exports. Of course, too, Twitter is the last of the big
tech companies to report profits this week. Shares are set to rally after the company reported a greater than expected jump in daily active users.
[09:20:07] CHATTERLEY: That's their new metric, of course, for measuring user growth. Ad revenue also rose by a better than expected 21 percent.
And what a week it's been for Big Tech. The U.S. Justice Department launching an antitrust probe. Investors given a pause for thought there.
Facebook, Amazon and Alphabet are all likely candidates.
For the inside track, we're joined by Roger McNamee, a former mentor to Mark Zuckerberg. He's also the author of "Zucked: Waking up to the
Facebook Catastrophe," and now Managing Director and cofounder of Elevation Partners. Roger, always a pleasure to have you on the show.
ROGER MCNAMEE, MANAGING DIRECTOR AND COFOUNDER, ELEVATION PARTNERS: Julia, likewise.
CHATTERLEY: You argued consistently that we need to see much more antitrust intervention here. Are you worried? Or how worried do you think
the Big Tech companies are at this stage about what we've heard this week? Because it's not just about the D.O.J., it's the F.T.C., it's the F.T.C.,
it's a whole host of them.
MCNAMEE: And there's no sign yet, Julia that the Big Tech companies are worried. You can see Wall Street is not worried. And I think in many
ways, that's the metric that they will use to decide when it's time to panic. But I believe there has been a massive change in the state of
affairs relative to the government.
The Trump administration's Department of Justice, the antitrust division, the Federal Trade Commission, the S.E.C. are all investigating not only
Facebook, but Amazon, Google, and I hope at some point, Microsoft, because surveillance capitalism, which is this business model these companies use
of gathering massive amounts of data and using it to manipulate the behavior of the people who use their products, that has created massive
issues, not just in competitions, which is what antitrust is about, but also for public health, for elections, as we know, and also privacy.
And those are going to require new legislation, which I hope the government will undertake, relatively soon.
CHATTERLEY: You've called this surveillance capitalism. The fact that for most consumers, we're not even aware that websites, apps, we can say
Facebook, which to your point it's far broader than that are continually collecting our data where we've been, and right now we can say, "Look,
you're not allowed to use that data," if you're smart enough to know how to stop that. But we can't stop them collecting it. Do you think that that's
easier to achieve than perhaps antitrust? Tacking them all on antitrust?
MCNAMEE: You know, Julia, this is the important question that we need to answer right now. The challenge that we face and a Harvard Professor by
the name of Shoshana Zuboff is the person who coined the term "surveillance capitalism."
She wrote a brilliant book earlier this year that really describes how this economy works, and it's not just the internet platforms. It's really every
business we touch is collecting data. And the problem is whether it's banks, or credit card processors, healthcare companies, cellular companies,
online applications, affinity cards -- they're all collecting data, and they will sell it to pretty much anybody who wants to buy it.
And now companies like Amazon have Alexa, Google has Google Assistant and Google Home. Facebook has got Portal, you know, you have projects in New
York City at Hudson Yards and in Toronto, where Google Sidewalk Labs is putting surveillance absolutely everywhere.
And you know, these things are incredibly in my mind dangerous to society, because we lose any sense of privacy, any sense of control over our lives,
and to do that without a discussion I think is inappropriate. I think the important thing is, let's get the facts out there, which is what I'm trying
to do. Let's have a fulsome discussion, and see what people think.
Because there's a lot more going on here than consumers realize. And I think once they discover what's going on, they're going to want to have --
I think, at least some level of regulation, not just on antitrust for competition, but also of the way data is collected and treated.
CHATTERLEY: I mean, if we could crack down on this, this would then have an impact on the business model, because in the end, selling the data,
access to that data is what advertisers care about. So, if we did see restrictions on this, you know, then at least it would have a material
impact whereas a $5 billion fine for Facebook this week is peanuts.
MCNAMEE: And Julia, that is precisely the point. The way I look at this, and I think the way all of our viewers should be looking at this is that
internet platforms are today what chemical companies were in the United States say around 1950. Chemical companies were growing incredibly
rapidly. They were unbelievably profitable, because they poured their waste products, products like mercury and chromium into freshwater
polluting rivers and streams.
They would leave the tailings for mines on the side of hills. They would pour spent fuel into sewers, and they never had to bear any cost for that
until the 80s. And eventually society caught up with them and made them bear the cost of that. it turned out the chemical industry wasn't nearly
as profitable.
[09:25:07] MCNAMEE: And I think in the case of Facebook, the damage that they've caused to public health, democracy, privacy, and competition would
probably make Facebook unprofitable if they had to bear all the costs that they create, and in Google's case, it would reduce the profits
dramatically.
And I just think it's a matter of time until society recognizes that you have to make the people who create cost, pay them. It's not fair to make
society pay all those costs.
CHATTERLEY: You know, in the end, if you want to take antitrust action, you have to prove that the consumer has been hurt. And at this stage, I'm
not sure whether the consumer would want to see action. You know, we love ridesharing. Amazon has revolutionized our lives and made shopping easier.
Wherever I look here, I see utility benefits. Facebook, it's free, it's a utility value, it's a communication tool. That's a problem for me.
MCNAMEE: So, Julia, and here's the thing, I think the questions you're asking are right on. I think there are two points we really need to
explore here. The first is relative to products like Facebook and Google and some of Microsoft products, they aren't actually free. It's a barter
of a service for data. And what's going on is that the value of that data is rising much more rapidly than the value of the service.
So in fact, consumers are being harmed in the form of a higher price to them. So in antitrust terms, there really is an issue here. But the
second thing we want to remember is that the deal you're doing here is not the one you think is going on, right? Most of us think, we give up a
little personal data in exchange for a service we love. And that was certainly true until five years ago, but it's not true anymore.
Now, they're collecting data everywhere and they are manipulating us. They're manipulating the choices that are available to us. There is no
reason we're going to have to give up the things we'd like. It's really obvious that all these services are valuable and --
CHATTERLEY: Roger, I have to stop you there because we've got the market open, we will get you to talk about this more.
MCNAMEE: I understand. My pleasure. Thank so much, Julia.
CHATTERLEY: Thank you so much. Every time I speak to you I think we should be buying tech. It's not happening anytime soon. Regulation not happening
anytime soon. Roger McNamee, the Managing Director and cofounder of Elevation Partners. Sir, thank you for joining us. The market open is
next.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange. That was the opening bell for the final time this week and
a positive open for U.S. stocks this morning, taking back some of the losses that we saw, of course, in yesterday's trading session better than
expected growth numbers from the United States for the second quarter this morning, significantly lower than the first quarter of course, but better
than expected and that was the last piece of economic data -- key economic data -- before the Fed meeting next week.
We've also got more earnings of course, Apple on tap and trade talks, Steven Mnuchin and Trade Representative Bob Lighthizer heading to Beijing,
so plenty to watch next week, too.
What about for our global movers right now? I can tell you, we've got a number of them in focus. Twitter, second quarter earnings beating
expectations, they reached 139 million monetizable daily active users. That was a 14 percent increase year-over-year. It's the first report of
course not to disclose the monthly active users, so it changed there in how they report revenues. Meanwhile, up some 18 percent year-on-year.
Starbucks, the coffee chain's quarterly earnings beating estimates. They raised their full-year earnings and revenue guidance as well. Sales at
U.S. stores open for at least a year grew some seven percent boosted by three percent to traffic growth. It comes after months of struggling to
improve that traffic. Sales at stores in China open at least a year jumped six percent. That's good news for the company, too. That despite the
broader economic growth concerns over there and competition from arrival Luckin Coffee.
What about Intel, too? Apple buying the chipmaker's smartphone modem business for some $1 billion. It had been rumored, the deal is expected to
close later this year.
Ahiza Garcia joins us now on this story. This is an interesting one for me. Smart from Apple because it gives them diversification. Obviously,
they were switching between Qualcomm and Intel here when they want to buy their chips. Now, Intel in-house.
AHIZA GARCIA, CNN BUSINESS TECH WRITER: Yes, the deal is really a good move for Apple because it gives them access to about 2,000 new employees
from Intel who will now join Apple. It gives them access to intellectual property, as well as leases and equipment.
And it's a crucial time right now because Apple has reported iPhone sales are slumping as people are not as quick to replace phones. They're lasting
longer. And so this gives them more control over the entire smartphone ecosystem. And they're able to bring that in-house and kind of maybe
counteract some of the kind of hurt that they're feeling from those slump in sales.
CHATTERLEY: What does this mean for Qualcomm of course? Because we know and we've talked long talks about the battle that Apple was in with
Qualcomm over chips, where does this leave Qualcomm now?
GARCIA: You know, I think it'll still shake out, we'll still have to -- it remains to be seen kind of how that will impact their bottom line in the
end. But obviously, it's not good news for them. Their stock was down when the initial reports of the potential deal between Apple and Intel were
first reported.
So again, it remains to be seen, they may be able to pivot, partner with some other big smartphone maker. And there are other ways to kind of get
involved in the 5G ecosystem beyond just smartphones. So, maybe there's room for that, as well. But, you know, we'll continue to see those
impacts, I'm sure as the deal is finalized, if that happens, and then, you know, kind of moving forward as 5G rolls out across the world, essentially.
CHATTERLEY: Yes, it's interesting. It's interesting for me for Android and for what Google does here, because suddenly they don't have the option
of Intel chips now either. So, it could be quite interesting for Qualcomm here because literally Android phones now are purely reliant on them. I
wonder whether they might be quietly cheering at this stage, too. Ahiza, great to have you with us. Ahiza Garcia there.
All right, we're going to take a quick break, but still ahead, going negative: Wall Street debates the effects of this stimulus and the
effectiveness of stimulus as the Fed begins its policy debate; and more government yields to negative. What does this all mean for investors? We
will be asking. Stay with us.
(COMMERCIAL BREAK)
[09:37:40] CHATTERLEY: Welcome back to FIRST MOVE. U.S. stocks still higher in early trading. Tech stocks are the outperformers, thanks to
strong results from the likes of Alphabet, Intel and Twitter as we've mentioned. In the meantime, shares are higher in Europe, too, and it was a
pretty mixed day in Asia. Tons of debate in both regions about the effectiveness of further stimulus with bond yields deeply in negative
territory, in fact, 25 percent now, I believe globally of sovereign bonds in negative territories and negative yields.
In Europe, German bunds have traded at record lows this week of minus 0.42 percent. Switzerland and Denmark have seen their entire yield curves go
negative. France is now selling 10-year bonds with negative yields and yields on Greek government debt have been trading below two percent for the
first time ever. What does this all mean?
Joining me now Steven Englander is the Global Head of G10 FX Research at North American Microstrategy at Standard Chartered. Fantastic to have you
with us.
STEVEN ENGLANDER, GLOBAL HEAD OF G10 FX RESEARCH AT NORTH AMERICAN MICROSTRATEGY, STANDARD CHARTERED: It's always a pleasure.
CHATTERLEY: And Happy Friday. Let's talk about the GDP numbers, the second quarter GDP numbers because there are components in that which do
send signals to the Federal Reserve, particularly inflation signals.
ENGLANDER: indeed, and I want to actually pay attention to the GDP output number, what was important is that they did five years of revisions to GDP
data. And the big outcome is that inflation is lower than we thought. The market based core PCE for Q2 was 1.5, the regular core PCE is 1.8, the
market was expecting 2.
CHATTERLEY: And this is something that the Federal Reserve very much pays attention to here.
ENGLANDER: Well, it gives a lot of ammunition to the doves who are saying, "Look, we've got to worry that not only are we missing our targets, we're
sort of ..."
CHATTERLEY: We're moving away from it.
ENGLANDER: We're missing our targets and getting closer to the zero bound. So you know, I think that 50 would be under discussion. Had they not kind
of had that kerfuffle last week, and then sort of come out and saying we're doing 25, don't worry about it.
CHATTERLEY: Oh, interesting.
ENGLANDER: It doesn't mean that would have been done, but it certainly would have been discussed.
CHATTERLEY: So you think it has basically been rolled out because they simply don't want to further confuse.
ENGLANDER: Well, how much do they want a surprise and how -- you know, how important is it doing, say 25 and say 25 versus doing 50? I don't think
it's important that I don't think that they think it's important.
CHATTERLEY: Yes, you were saying how important is it at this stage to cut by half a percentage point versus doing it one now and another quarter
point cut later on then this year. Is there a benefit? Because you know, we've had the discussion on this show, Ellen Zentner of Morgan Stanley said
there is a benefit. The data shows that if you cut fast and furious, starting out early, you can actually save yourself cuts going forward.
[09:40:25] CHATTERLEY: And when we're talking about so many bonds around the world with negative yields, and simply not seeing inflation coming up.
You kind of have to save ammunition, don't you? So if you can do more early and save yourself later on, you should do it.
ENGLANDER: Well, I'd say most of the models that they have, and kind of the evidence that we have is that what matters is how low and how long kind
of the cumulative ease that you have there? Surprising by 50 now, but then holding back in two months, it makes a very small difference in terms of
what actually happens. Temporarily, there could be a signaling effect, but what really matters is how far you take it and how long you keep it there.
CHATTERLEY: What I said on the show earlier was that it feels like there are two U.S. economies. There's the consumer side, the jobs market that
looks incredibly strong. And then if you look at trades, you look at manufacturing, you look at business investment in particular, it's kind of
recessionary with a material slow down feel to it. Would you agree with that?
ENGLANDER: Well, it's certainly the case. I mean, we've been seeing, manufacturing PMI as kind of slowing and you know, services PMI is looking
okay. Employment is great. Claims are super low yesterday. I think the - - you know, the core of the economy is a service based economy that keeps on hiring and where you're just not seeing a lot of wage and price
pressures.
And that's like, you know, 80 percent, 85 percent of the economy, the manufacturing component is --
CHATTERLEY: Tiny.
ENGLANDER: Relatively small. And, weirdly enough, employment and manufacturing has been doing very well, despite -- you know, but certainly
by historical standards, despite the concerns about manufacturing production and where it's headed.
CHATTERLEY: So, if we're talking about borderline concerns, not only about low inflation, but perhaps softening inflation at this stage, what should
investors be looking at? You made the point before we came on air that it's an argument for buying gold here?
ENGLANDER: Yes. Look, you know, there's so many fixed income assets with negative yields, and low yields. You know, gold we think is under owned.
We just published a piece, my commodities colleague who -- there was a survey that suggests that Central Banks are kind of ramping up or thinking
they're going to be ramping up their gold buying. Retail seems to be lagging.
Gold looks attractive. We think emerging markets, all the guys who had funding issues last year, because U.S. rates are going up, literally, this
is Christmas in July for them.
CHATTERLEY: Where does this all end up? Where do we end up when we're talking? And just so our viewers understand, when you're talking about
negative bonds here, you're talking about, as an investor, or a buyer of those bonds, effectively paying the government, they then borrowing money
from you. I mean, it's bonkers.
ENGLANDER: It is. I think what it reflects is the political failure of being able to bring fiscal to bear when it's currently needed.
CHATTERLEY: Why?
ENGLANDER: And I think ultimately, what's going to happen is that the ECB and the other Central Banks with negative rates, they'll do one more round
of cuts and turn to their Finance Ministers and say, "Look, you know, the cupboard is empty."
CHATTERLEY: Time to spend.
ENGLANDER: There's nothing left, you know. We did a round that we actually didn't think was going to work and it didn't work. You have to do
fiscal and I think if you look at Draghi at Central when it was speaking for himself, and Draghi yesterday, when he was speaking for the ECB, he was
most enthusiastic about fiscal and he's -- he didn't seem that convinced himself that the other measures were going to work.
CHATTERLEY: Yes, I've been to many of these meetings over the last few years and he has always reiterated the need for governments to do more and
yes, in short supply. Steven Englander of Standard Chartered, thank you so much for coming on.
ENGLANDER: Always a pleasure.
CHATTERLEY: I must say, buy gold. All right, let me bring you up to speed with today's "Boardroom Brief.' Chinese state media reports that Beijing
officials suspect FedEx of holding back more than 100 packages that tech firm Huawei was trying to deliver to China.
The Chinese government opened a probe nearly two months ago after Huawei said FedEx had diverted China bound packages to the U.S. No response from
FedEx as yet.
Shares in French luxury fashion house Kering were sharply down. It follows the slowdown in sales at its Gucci brand. Gucci accounts for more than
half of Kering's revenues. Total revenue still rose from 15 percent in the first half, and shares are up 14 percent year-to-date.
And there was a sweet treats for Nestle which is marking sales boost for the first half of 2019. Strong demand in the U.S. and Brazil pulling
growth of around a 3.6 percent in sales making 2019 the food giant's highest top yearly sales in four years.
[09:45:09] CHATTERLEY: All right, when we return, an extremely lucrative business whose sole purpose is helping others. Sound impossible? I
promise you it's not. My conversation with the CEO of Not Impossible Labs, next.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE and straight into the "Chatt Room." There's a California based tech company that's making the impossible
possible. It's called Not Impossible Labs. It's an innovation lab and storytelling studio focused on developing technology for social good.
Their business model is simple, find a problem and fix it.
So, they set up a 3D printing lab in war-torn Sudan to help those who've lost limbs and created wearables that allow the deaf to experience music
through vibrations. I sat down with the founder and CEO, Mick Ebeling and asked him how he got started.
(BEGIN VIDEOTAPE)
MICK EBELING, CEO AND FOUNDER, NOT IMPOSSIBLE LABS: I'm the luckiest person in the world because I get to look at these real world absurdities
that exist. When you see something and you go, "Okay, that shouldn't be that way. That doesn't make sense."
And then we dog pile on it with our team and makers and programmers and technologists and hackers, and we solve that problem for one person. And
that's really -- that's part of our design process. We solve it for one person, then we tell the story of that solution for one person.
And in doing so, our corporate partners, the Intel's or the Zappos, or ABnet or these companies who are really passionate about this, they take it
and they help us amplify the story, which that's this beautiful cycle. They have this incredible outpouring of support for their companies and
their brands and it helps scale the solution so more people can be helped.
So, I think it's such an important distinction. Right now, companies are realizing that doing good is not relegated to the big charities, the
responsibility and Larry Fink wrote about it in his Davos letter this year, it's about corporations saying, "Wait a second, we can go do good and we
can do more good than sitting back and letting charities do it." And it's good for our business. Business improves.
People want to work for your companies, it's easier to retain them. Companies grow faster when they do good; so, that's this cycle of our
business. We're not a nonprofit, we're a business and we're really proving that.
CHATTERLEY: Yes, this is not charity. Even though you're solving a problem for one person, it's scalable to some degree, but it's the social
good. It's the benefit of the business. It's hiring talent. It's -- we're in an era I think more and more where young people want to go work
for a business that's doing good, and so there's a business reason for businesses to be involved in this kind of thing.
EBELING: And isn't that beautiful when businesses say, "Wait, I mean, we're sitting on the New York Stock Exchange," when businesses say doing
good is actually going to help my share price, my stock value, and then the world gets helped and more people want to work for that company, then
you've got this cycle where now the world is actually advancing because of business.
[09:50:10] EBELING: And I think that's a beautiful, beautiful thing.
(END VIDEOTAPE)
CHATTERLEY: Ebeling says much of Not Impossible's success comes from working closely with its partners to find fresh world absurdities to solve.
And the innovations they create, often end up helping in more ways than one. Ebeling told me that's one of the things he truly loves about his
work.
(BEGIN VIDEO CLIP)
EBELING: I love what I do. I love what I do. I love partnering with our partners, because they wield this really big sword that we can then use to
go and slay dragons to that are actually advancing the world. And so it's just -- yes, we're pretty lucky at Not Impossible. We get to make the
impossible not impossible. I mean, how much luckier can I be?
CHATTERLEY: You're a music producer? And you spotted a problem, an artist with ALS, and you were like actually, how can I help him continue to create
his art? How is an entrepreneur do you go from doing one job to spotting a problem, as you say, and going actually, "I can turn this into a business
actually, it's not a charity." As you said, "I can make this work."
EBELING: The first time -- the very very first thing that we did was we created the eyewriter, which we spotted. We were introduced to a paralyzed
street artist who had ALS, and was lying motionless in a bed for seven years, unable to talk to and unable to communicate, and didn't have access.
This was the discovery that I hung on and he did not have access to the Stephen Hawking machines that I thought were ubiquitous. And we said,
well, that's not right. Let's hack a solution together and make it so he has that access to communication.
And that was a total fluke, it was a total accident. But that ended up becoming "Time" magazine's top 50 inventions of the year. And it made us
say, "Okay, wait a second, this whole using technology to help people, there's this energy. There's meat on the bone there, maybe we should keep
doing that." And that was kind of the birth of Not Impossible Labs.
CHATTERLEY: Are you profitable as a company?
EBELING: Very profitable. Because we're able to create things that we incubate. We incubate in the most frugal and smart way and then our
corporate partners come on board and help us amplify that message to then do good. So, not only do we make money in our partnerships, but then the
devices that we create have lives on to themselves.
(END VIDEO CLIP)
CHATTERLEY: I have to say, I speak to a lot of entrepreneurs and a lot of new companies and it's very rare that when I ask one like that, if they're
profitable, they go, absolutely. But maybe that's a measure of the man here and the individual that's built this.
Anyway, in assistive technologies, it could be a $26 billion industry by 2024. That's according to the research firm, Coherent Market Insights. A
lucrative opportunity, perhaps then to lure potential investors. Ebeling also noted, however, that people are simply living longer today, too, and
as a result is company is coming up with new inventions and innovations to extend the quality of that extended life. Listen in.
(BEGIN VIDEO CLIP)
EBELING: We just created what we consider to be one of the world's lowest cost lightest modular mobility devices. Why is that important? We're
living longer. People don't want to be driving around in these ugly little carts and really want to be driving a Tesla. So, we made this -- we made
this sexy mobility device that is now light and modular. So now -- and it's also what's key to everything we make is it has to be accessible. So,
it's the cheapest thing on the market.
CHATTERLEY: Are you looking for investors?
EBELING: Absolutely.
CHATTERLEY: Direct money to scale up?
EBELING: Absolutely. And not only in launching these absurdity projects that we do where we incubate the technology, but after we've created these
things, people coming in and saying, "Okay, that was amazing. That's an amazing -- it has amazing potential. We want to invest and scale this
bigger."
CHATTERLEY: Okay.
EBELING: Our principle is help one, help many. We help one by incubating this technology to help a person but the many is where we truly see kind of
leaving our impact on the world when more people can have access to low cost inexpensive solutions that have true business principles underlying
them.
CHATTERLEY: And you can operate internationally or around the world.
EBELING: Absolutely. Good, doesn't have a border to it.
CHATTERLEY: No, it doesn't.
(END VIDEO CLIP)
CHATTERLEY: That was Mick Ebeling there, the founder and CEO of Not Impossible Labs. All right, we're just about wrapping up the show here.
But let me give you a look at what we're seeing right now for US markets. We are in positive territory.
The NASDAQ of course, as you can see, outperforming there, a whole deluge of earnings, managing it to lift us higher, of course, Alphabet one of the
key ones there that are adding to the markets at this stage. And now more than taking back yesterday's losses in the session, too.
Plenty coming up. Apple of course is going to be the one to focus on next week and trade talks as well.
[09:55:02] CHATTERLEY: What about some of the movers that we're watching as well? Twitter, adding to some of the gains that we're seeing here.
Some seven -- Q2 earnings beating expectations with 139 million monetizable daily active users. They're up nine percent as you can see. They're up
more than $41.00
Starbucks also having a great session as well lifting us here too, up some six and a half percent. Quarterly earnings beatings estimates, but it was
all about the forecast. They're raising their full-year earnings and revenue forecast and strength in China. Remember, we spoke to you at
Luckin Coffee. The CFO over there. Increased competition from a rival, a Chinese-based rival there over in China, but Starbucks still managing to
bring it, too.
And Intel, of course Apple buying the chipmaker's smartphone modem business for a billion dollars. I made the point. Of course, it could be
interesting for Qualcomm now that Android Google phones are purely reliant on Qualcomm going forward. That's an interesting one.
I'll be back in in a couple of hours' time on "The Express" to track the movements of these markets. But for now, that's it for the show. I'm
Julia Chatterley. You can also listen to our podcast at cnn.com/podcast. But for now, you've been watching FIRST MOVE, time to go make yours and
have a happy Friday.
(COMMERCIAL BREAK)
[10:00:00]
END
