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First Move with Julia Chatterley
President Trump Announcing A 10 Percent Tax On All Remaining Chinese Imports; South Korea Hits Back As Japan Removes Its Trusted Trade Partner Privileges; The American Economy Adding Thousands Of Workers, But The Pace Of Growth Is Slowing. Aired 9-10a ET
Aired August 02, 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 is
your need to know.
Tariff man returns. President Trump announcing a 10 percent tax on all remaining Chinese imports. Waging economic war: South Korea hits back as
Japan removes its trusted trade partner privileges. And U.S. jobs: The American economy adding thousands of workers, but the pace of growth is
slowing.
It's finally Friday. Let's make it move.
Welcome to FIRST MOVE. Never mind, finally Friday. It's a fast paced Friday and 24 hours of pain for the global economic outlook with trade
tensions galore. Not only that, of course, U.S. jobs are front and center this morning, too. We've just had those numbers. So let's get into those
first.
The U.S. economy adding some 164,000 workers last month. Wage growth also ticking up by some 0.3 percent, which is good news. The slight caveat here
is some revisions to the prior two months. We'll have all the analysis coming up shortly for you. For now though, we are set to lose a bit of
ground here for U.S. stocks adding to losses in yesterday's session.
As I mentioned, President Trump threatening to apply a further 10 percent tariffs, this on the additional $300 billion worth of Chinese goods
starting in September. The Dow and the S&P dropped around one percent yesterday. The S&P falling over at half a percent. It was first back-to-
back one percent drop for the Dow in fact this year.
Now, if these tariffs actually hit, it will mean then that most goods entering the United States from China are facing some form of tariff.
This means consumer products in particular now and they could therefore get more expensive in the United States. As a result, Apple stock falling some
two percent yesterday. Nike, falling over three percent. The electronics retailer Best Buy falling by almost 11 percent -- all of them down
premarket yet again today.
The pullback is global. We saw Asia stocks get hit. European stocks under pressure today. And as you would imagine, bond prices rising as investors
sought safe haven assets.
Take a look at the 10-year Treasury yield falling to its lowest level since 2016. The bond market is now 94 percent sure of a September rate cut.
You'd have to wonder on the timing of this announcement and I do.
Would it have been made this week, had we seen a half a percentage point cut from Jay Powell. I am just saying.
Let's get to the drivers. Trump also held a rally last night and after announcing those tariffs, and he said he's got no plans to stop them until
a deal is made.
(BEGIN VIDEO CLIP)
DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: And until such time as there is a deal, we will be taxing the hell out of China. That's all there
is.
(END VIDEO CLIP)
CHATTERLEY: Catherine Rampell, CNN contributor joins us now. Catherine, great to have you on the show. Clearly, we don't believe that anything was
expected with the talks this week, and they clearly didn't go very well. What do you make of the decision and the timing here from President Trump?
CATHERINE RAMPELL, CNN CONTRIBUTOR: I think it's bizarre in the sense that the economy is basically the only good thing that he has going for him, the
only thing that is keeping him politically afloat, and a day after the Fed Chair that he chose, told the world multiple times that the single biggest
risk to the U.S. economy and to the global economy would be tariffs, of course, Trump added or announced anyway, another round of tariffs.
Look, it's possible that he got the wrong message from the rate cut, which obviously that same Fed Chair, Jay Powell also oversaw. But if so, that
was completely a wrong takeaway.
CHATTERLEY: Yes, the argument here is that he knows that Jay Powell and the Federal Reserve will cushion the blow here as far as the economy is
concerned by cutting rates. So, it gives him some support here.
I guess the question is, how does China retaliate now? And what impact does that have? Because we know that their economy also is under pressure
here.
RAMPELL: Right, right. So, their economy is under pressure. There is a great worry about the ongoing slowdown within China. China is limited in
its ability to impose more tit-for-tat retaliatory tariffs just because they buy many fewer American goods than we buy of Chinese goods.
But they have plenty of other tools at their disposal, right? I mean, they can up the number of inspections of American companies that are operating
within China. They can deny licensing deals. They can do a lot of other things to make life quite unpleasant for U.S. companies that have a
presence in China.
[09:05:10] RAMPELL: They can turn away goods, they can have more inspections of cherries and other produce at their ports, for example,
until they rot. We saw that happen, actually last year, when trade tensions were similarly high.
So there is a lot at risk here, not only for U.S. consumers, which several research reports have already shown are bearing the burden of the trade war
already. But of course, also for American manufacturers.
CHATTERLEY: Absolutely, actually, that's only set to accelerate if we do see these tariffs apply because it puts consumer goods front and center
this time around.
To your point, if this is playing to the base, and we saw that in that rally last night from President Trump. There's an offset here, the pain
that consumers, that farmers particularly in the United States, and manufacturers continue to feel versus the political win of taking a really
hard line stance with China here. He is kind of putting the politics before the economics right now.
RAMPELL: Well, that's assuming he is getting the politics correct. The latest round of tariffs that he has announced will be much more salient to
consumers, because as you point out, it's on consumer goods. It's on iPhones, clothing, toys, shoes -- all sorts of things that people actually
buy at the store, right? So they are much more likely to notice and to kind of connect the dots here.
The other issue is, even if those particular tariffs are not so salient, maybe I'm wrong on that point, the enduring uncertainty that the President
has caused and continues to cause even if he ultimately decides not to levy this additional round of tariffs, is causing companies to delay investment,
to say, "Maybe I'll wait off on hiring, on opening that new plant, et cetera." And that could weigh on the economy.
As I said, the economy -- the strong economy -- is basically the only thing keeping Trump afloat here. The Fed can only do so much to cushion the blow
and if he risks the ongoing recovery, which has now broken records for how long it's going, if he puts that at risk that obviously puts his political
career at risk as well.
CHATTERLEY: Yes, the Fed can only do so much. Catherine Rampell, thank you so much for that. All right, let's talk that through. Because all
those points are exactly what I think what investors were saying to themselves over the last 24 hours.
Global tech stocks like the chipmakers, in particular U.S. retail names, as I've mentioned, the likes of Best Buy also coming under pressure. Anna
Stewart has been looking at the globe for us and looking at reaction here. Talk me through it, Anna, because obviously, a lot of big questions are
being asked here once again.
ANNA STEWART, CNN REPORTER: And one of the biggest ones is about Huawei, because of course the President mentioned that there could be a reprieve on
his Huawei ban. That was in June and it's been very much a wait and see attitude from investors. Of course, they're not waiting anymore.
We saw a huge reaction yesterday, States side also now, Asia as well. Take a look at some of the big Huawei suppliers and how they are now performing.
We have Sunny Optical Technology, AAC, BYD -- all really far down and we hope we can bring those up for you because they're down 6, 5, 7 percent
roundabouts there. And it's not of course, just limited to the stocks in China. There is a global ripple effect here.
And of course the American chipmakers you're looking at there and tech companies, software companies all very much in the crosshairs -- Alphabet,
Microsoft, Qualcomm, Broadcom -- we are expecting further falls today.
And you know, we've just had some of their earnings out of course. Qualcomm, their revenues were down 13 percent just in the last quarter
compared to the year before and Huawei and the risks around it was a big element of that, and a Bank of America analyst recently said that actually,
we've not even seen the real impact of the Huawei ban yet because there was so much stockpiling ahead of the announcement.
So plenty more pain to come, plenty more to look for in the outlooks of these companies.
CHATTERLEY: Absolutely and turning to Samsung there as well. Their chip business coming under real pressure as well. What about in Europe, though,
Anna, too? Because I think it's quite interesting to see in particular what's going on in the bond market and the flight to safety that we saw in
German bonds, too. Talk me talk to me about the reaction in Europe as well.
STEWART: Yes, Julia, you and I love a good German bund story day. They have been in negative territory for so long, the 10-year that is. Further
negative territory hit a new low record, in fact, and now the 30-year also down. It's the whole yield curve now in negative territory. That is
extraordinary.
And the expectations that we're seeing for further stimulus from Central Banks all around the world having such a huge impact when you consider this
is really quite a historical moment.
Also stocks, I mean, the global selloff really spread to Europe today. We're seeing the FTSE 100 that opened down one and a half percent. I
believe, it's deepened its losses since then, yes, you see it slightly further down and look at the Xetra DAX and the Paris CAC 40 both fail just
over two percent at the open. They've not come back since then.
So, we are seeing this global spread and probably more to come as the U.S. opens. Happy Friday, Julia.
[09:10:07] CHATTERLEY: Yes. I know. Happy Friday. You make the point, but I just -- I can't emphasize this enough when we're talking about
negative bond yields. This is effectively a government borrowing. As an investor, you're paying the government for the privilege of them borrowing
money. It's nonsensical.
STEWART: It boggles mind, Julia.
CHATTERLEY: Those prices rise. I know. Yes. We'll keep talking about it. Anna Stewart. Thank you so much for that. And yes, Happy Friday.
Not so Happy Friday, because we're onto another trade war worry as well.
Japan has removed South Korea from its list of trusted trade partners, South Korea's President has vowed to retaliate. Sherisse Pham has the
story.
SHERISSE PHAM, CNN BUSINESS REPORTER: There's another trade war brewing that could have global consequences for tech companies and smartphones.
Japan dropping South Korea as a preferred trading partner, removing it from the so-called whitelist. That means big headaches for Japanese companies.
Exports to South Korean companies now need more screening to make sure they're not being used for weapons or military applications. Japan
defending the decision.
(BEGIN VIDEO CLIP)
HIROSHIGE SEKO, JAPAN'S INDUSTRY MINISTER (through translator): This move was approved to revise Japan's export controls appropriately and was not
intended to hurt Japan-South Korea relations or to crack countermeasures.
(END VIDEO CLIP)
PHAM: South Korea's President calling the move reckless and promising retaliation.
(BEGIN VIDEO CLIP)
MOON JAE-IN, SOUTH KOREAN PRESIDENT (through translator): Japan even though it has great economic spring attempts to harm our economy, then the
Korean government also has countermeasures with which to respond.
(END VIDEO CLIP)
PHAM: A short time later, a government official said South Korea was taking steps to remove Japan from its whitelist. Moon's Democratic Party
putting it bluntly saying in a tweet that "Japan's decision is an all-out declaration of economic war on our country."
The trade spat between the two countries started last month when Tokyo placed export restrictions on three chemicals used to make high-tech
products like display screens and memory chips.
The materials are vital to South Korean companies, including the world's biggest smartphone maker, Samsung.
Seoul sees Tokyo's restrictions as retaliation for a series of disputes dating back to the early 20th Century when Japan occupied Korea. Japan has
denied that's the case.
Investors were already worried about President Trump escalating the U.S.- China trade war. Now, this dispute between South Korea and Japan just adding more fuel to the fire.
Japan's Nikkei fell more than two percent. South Korea's KOSPI ending the day down about one. Sherisse Pham, CNN, Hong Kong.
CHATTERLEY: All right, let's talk U.S. jobs now because the U.S. economy added some 164,000 jobs in July. The unemployment rate holding steady at
3.7 percent.
Christina Alesci has the story. Just step break down the details for is, Cristina. Great to have you with us because as much as we're seeing in
line numbers for this month, revisions to the prior two and the pace of job growth is clearly slowing here.
CRISTINA ALESCI, CNN BUSINESS POLITICS AND BUSINESS CORRESPONDENT: That's right Julia. A solid number from my headline perspective, no doubt. And
it looks like some other metrics like the labor force participation rate is pretty good, holding steady, and wage inflation is pretty solid as well.
It looks like people are coming off the sidelines joining the labor force. Those are all positives, a solid jobs report. But you're right, revisions
downward in May and June seems to be causing a little bit of concern and also, I would point out politically for Donald Trump, the manufacturing
jobs number is very important. And we've seen that essentially flat over the last couple of months. So that's something that people are going to be
paying attention to.
Look, fundamentally the economy is pretty strongly. The only overhang on this economy is Trump himself, and I was talking to sources yesterday who
told me, "Look, we had a lot of pushing, maybe a year ago for some bad decisions. But we are in a razor's edge right now." Investors are very
skittish and anything could -- there is basically a low margin for error, which is why there's so much speculation that Trump escalating the trade
war to basically corner the Fed into cutting rates again.
It is a risky move, because as I said, investors, CEOs, C-suite types see that there's very little margin for error here, so Trump taking a gamble
for political gain, but it's unclear how this is going to play out.
CHATTERLEY: Yes, such a great point and consumer-facing industries are already saying these tariffs will cost U.S. jobs. So any analysis kind of
just went out the window. Cristina Alescia, you make good points. Thank you so much for that.
All right, let's bring you up to speed now with some of the other headlines from around the world. The U.S. is reportedly aiming for a major troop
drawdown in Afghanistan.
[09:15:05] CHATTERLEY: Sources says troop numbers would go down from 14,000 to between 8,000 and 9,000 over the coming months. Washington is
hoping the reduction will be made possible by reaching a peace deal with the Taliban.
Washington has officially pulled out of a landmark nuclear arms agreement with Russia called the INF Treaty. It marks the end of decades' long
agreement restricting the use of land based missiles, with a range of 500 to 5,500 kilometers. The U.S. blames Russia for violating the treaty, but
Moscow has denied that.
Getting your passports without a male guardian's permission will no longer be off limits to Saudi Arabian women. The Kingdom says women will be able
to apply for passports and travel on their own by the end of the month. Until now, women had to get the okay from a male guardian to obtain travel
documents. That's good news.
All right, coming up on the show, President Trump is tweeting on new tariffs caught both markets and China by surprise. Now, China threatens to
retaliate. The question is how.
And American shoe retailers say President Trump's latest tariff threat could cost U.S. jobs. We have all the details. That's up next. Stay with
CNN.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE, live from the floor of the New York Stock Exchange for the final session this week and I'm just looking at
Us futures right now and I do think we've pulled back a bit of the earlier pressure.
Right now, the Dow futures now are trading almost flat. So, it'll be interesting to see how we open up. We've had the new trade threats of
course, from President Trump against Chinese imports.
We've also had U.S. jobs numbers to digest. The U.S. adding some 164,000 non-farm jobs last month in line with expectations, though losing, paring
back, revising downwards the prior two months by some 41,000 jobs.
[09:20:05] CHATTERLEY: Also watching a statement from the President on E.U. trade later today. So it's all happening.
The speculation that he will announce an agreement to open up European markets to U.S. beef. So, some good news among the more concerning.
Let's talk it all through with Leland Miller. He is the CEO of China Beige Book and joins us now. Great to have you with us.
LELAND MILLER, CEO, CHINA BEIGE BOOK: Great to be here.
CHATTERLEY: What's going on here? Because clearly, President Trump is thinking that further pressure can be applied to China here perhaps to
bring them to the table. Miscalculation or a good calculation?
MILLER: Well, he is right, insofar as nothing was happening constructively in the trade talks. But you know, the expectations shouldn't have been
very high, because you didn't have a deadline, it was anywhere in the near future.
So, because of the October event, the 70th Anniversary of the People's Republic of China in October, nothing was really going to happen in
September-October.
So, any of the real heavy lifting, if there was an agreement this year, maybe in November-December. So it's not surprising the Chinese didn't come
substantively to the table this time, still the President didn't like that they didn't.
CHATTERLEY: So they've got other things going on to your point. What do they do now? Because again, you have this bold statement from the
President ahead of another pivotal event in China. How does China respond at this stage, given that they simply don't import as much as the United
States imports and therefore they can't slap equal and opposite tariffs on to their goods?
MILLER: Well, that's exactly right. One of the questions we always get from clients is, is this the final straw? Did this finally break the
camel's back? Look, the Chinese don't like to be humiliated like this. This is not good for them. But at the same time, they've got a lot more to
lose, and they don't have any levers to push back.
So, they will announce some things. They've got a few small -- they can have small tariffs. They can harass U.S. firms. They could cut a Boeing
order. They can add to an unreliable entity list that they're building up.
But the reality is, they can't really fight back right now. What they're trying to do is bid for time, and then hope that they can stretch this out
as long as possible either to get President Trump out of there, or so they can really we solidify the economy even more in order to push back harder.
CHATTERLEY: And that's the key here, because to your point, how damaging is tariffs on $500 billion of goods? What are companies in China saying,
as they're having conversations with U.S. purchases here as well?
Sort of perhaps saying, "Look, we're going to have to shift our supplier, our production to other countries in Asia," perhaps the likes of Vietnam,
because we're already hearing noises.
MILLER: Right. It's tempting to think of this as just another addition of tariffs. But, you know, the beginning when President Trump started
layering on tariffs, the Chinese were able to counteract that through backdoor subsidies, through front door subsidies, through devaluation of
the currency.
It's been getting harder and this last tranche of tariffs, if they go to 25 percent on everything, this is going to be major pressure on the Chinese
economy that they really can't fight back very well again.
So, they're hoping it doesn't happen. There would be a bad effect to the United States as well. I mean, this would hit consumers without question.
But this could be really damaging for China, which is another reason that they don't really want to stay in this game, but they're going to be very
inclined to do so.
CHATTERLEY: This is the point, and this is the approach, I think that President Trump is taking because he is making the gamble here that
ultimately, China will come to the table.
The question is -- and we asked this a long time ago, and I'm going to ask it again -- what would be a win here for President Trump because he kind of
needs to work out what he wants from China here. Because if it's longer term structural reforms, and it looks like he's not going to get it, but it
doesn't mean a deal of some sort can't be reached.
MILLER: Right. He cannot get structural reforms. That wasn't on the table before, it won't be in the future. However, I think his goal is
going to be dependent on who the Democratic candidate is.
So if he is going against an arch-protectionist, someone like Sanders or Warren or someone he thinks is going to try to outflank him from the left
on the protectionist side, then coming to a deal will be very difficult. If it's somebody else like Joe Biden, it'll be a lot easier.
And so I think he is creating as many options for himself as possible. If he wants a baby deal, he wants to increase purchases, he can do that. But
it won't be anything substantive. And so I think he is biding time, putting more pressure on China and try to have it both ways for as long as
possible.
CHATTERLEY: What are you seeing in terms of the data in China when you said, it's getting tougher and tougher, but you know, we've had you on as
well, and you said, they're being targeted about stimulating the retail sector?
So, if you compare what we saw for the growth numbers, and we know we raised a few eyebrows when we get those growth numbers from China, if you
compare that to what's going on regionally, Singapore, for example, I mean, their exports are really struggling? You can see that there's this real
sensitivity there. There's a contrast between the two. So, what actually are you seeing in China?
MILLER: Right. Well, we don't look at the growth numbers, because what the Chinese don't announce when things are really bad, so they can announce
a recovery. And what you had is really bad growth in the fourth quarter of last year and a recovery in the first quarter and even a little better
second quarter.
This is not what the official numbers said. So you've actually seen a strength in economy. It hasn't been beautiful, but it's been better than
people think. Now, this last tranche of tariffs, if it goes into effect, we'll put that to the test.
But overall, I think we're seeing a little bit stronger economy, which is why the Chinese have gotten cockier in the trade negotiations.
CHATTERLEY: What does this mean for Xi as well when he goes into this meeting in the final quarter of this year? Does he go, "Look, you can see
what President Trump is doing here. It's impossible for me to negotiate. This is what I'm dealing with guys." In a way does it help him?
MILLER: I think it does. I think that this is actually a very, very positive event for President Xi going into the Beidaihe Leadership Retreat,
because people are going to be looking around and saying, "This guy, Trump can't be managed. He can't be controlled, you're doing what you can. It's
sort of hard to fault you when there's no one in the world who can actually control this guy."
So I think that this helps him. I think that this will unify the Chinese leadership to some degree around a response, and it puts the Chinese in
probably a better place than they were several weeks ago.
CHATTERLEY: What's the end game here? If you had to guess, what's the end game? Whether it's the economics on both sides, the politics on both
sides? What do you think the end game is?
MILLER: If they want a baby deal, they can get it. But I think we're getting closer and closer to the point where neither side wants that deal.
They'd rather string us along for a little bit longer and then play politics on both sides and this thing falls apart.
CHATTERLEY: And meanwhile Jay Powell cuts rate.
MILLER: While Jay Powell could get very actively cut rates, we may even see QE early next year.
CHATTERLEY: Really? Wow. And very quickly, do you think we would have seen this announcement this week if Jay Powell would have cut rates by half
a percent?
MILLER: You know, I don't. I've been arguing this with a lot of people. I think that had Jay Powell cut by 50 basis points, Trump would have said,
"I told you so. Look at this beautiful stock market rise. Everything looks better," and he would probably have pushed off this announcement on
China.
CHATTERLEY: Game theory. Leland Miller, always a pleasure to have you on. The CEO of China Beige Book there.
All right, more analysis to come. We are counting down to the market open for the final time this week. Muted open. We'll see how it shapes up.
Stay with us. You're watching CNN.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE. That was the opening bell for the final time this week and another long week it's been. Right
now, the stock markets are losing a little bit of ground here.
But the Dow losses that we're seeing far less than we were initially fearing a couple of hours ago. Obviously, the focus today, the fresh Trump
trade threats against China, tariffs on the additional $300 billion worth of goods potentially coming in September.
We've also had the jobs report, of course. The report coming in line with expectations, 164,000 jobs added in July, but the three-month average is
the weakest it's been in around two years.
As we were discussing earlier on in the show, the pace of jobs growth is slowing here. What about for the U.S. dollar, of course, pulling back
after hitting two-year highs.
It's down right now against the major currencies a little bit, but up over a half a percent against the Chinese Yuan, one of the potential levers, of
course that China could pull here. The question is, that has complications of its own.
Beijing has warned though of retaliation in the wake of Trump's tariff threat saying, quote, "We are open to talk but we are not afraid of a trade
war." Matt Rivers has all the details.
MATT RIVERS, CNN INTERNATIONAL CORRESPONDENT: Well, Julia, we know that Donald Trump has proclaimed himself a tariff man and it led up to the
billing on Thursday announcing new 10 percent tariffs on $300 billion worth of Chinese imports to the United States.
And if you're saying to yourself, "Well, wait, didn't he do that already?" Well, yes, sort of.
He had previously authorized 25 percent tariffs on $250 billion worth of Chinese imports. So, take that, add on the new $300 billion worth of
tariffs, and where does that leave you?
Well, that leaves you with nearly every single product America imports from China now facing tariffs. That's everything from toys, to iPhones, to
furniture, basically, a lot of the goods that ordinary consumers buy. And retailers in the U.S. are not happy about this with the Vice President of
the Retail Industry Leaders Association, saying in a statement, quote, "American families shouldn't be a pawn in this trade war. Today's
announcement only moves us closer to consumers bearing the brunt of the pain."
They say that because the tariff is essentially a tax on the company in the United States that wants to import things from China. So now, for example,
when a retailer buys a baseball glove from China, it costs more because of the tariff. That cost is often then passed on to the consumer.
But it's not just consumers that will feel the pain from this. It's also American companies that export goods to China and American companies that
need access to the Chinese market for their bottom lines.
Now, China has already put tariffs on a lot of American imports and they'll likely increase those in response to Trump's latest move, and they could
also make life harder for American companies by restricting access to China's market.
Look, in the end, a lot of people agree that China has engaged in unfair trade practices for a very long time. Things like stealing intellectual
property or forcing American companies to transfer technology to their Chinese partners. And there are a lot of people who are applauding the
Trump administration for taking concrete action to try and change those behaviors in a way, frankly, that previous administrations, both Republican
and Democrat didn't.
But where there is disagreement is on whether tariffs are an effective way to get China to change its economic ways; because ultimately, tariffs can
hurt American consumers and American companies.
And Julia, you and I both know that pain will only increase the longer this trade war goes on -- Julia.
CHATTERLEY: For both sides. Let's talk this through, Darius Dale, Managing Director and Partner at Hedgeye Risk Management, he joins us now.
Great to have on the show.
DARIUS DALE, MANAGING DIRECTOR AND PARTNER, HEDGEYE RISK MANAGEMENT: Always a pleasure.
CHATTERLEY: What do you make of the latest tariff threats? And of course, the potential impact?
DALE: Yes, well, definitely, it's a continuation of the same. And the reason the markets are having such a negative response to this is because
investors came into the week basically long of two call options; one, powerful easing cycle by the Fed, which they did not get based on Jay
Powell's commentary, and obviously more resolution on the U.S.-China trade front that could obviously ameliorate the concerns on the global economy,
which obviously, as we saw last night, not so much.
CHATTERLEY: No. We were having that conversation early on in the show about whether or not had Jay Powell cut rates by half a percent, whether
the President would have made this announcement.
DALE: Well, there's some chatter going around the street that Donald Trump is using trade tariffs to gain what he actually ultimately wants is much
more rate cuts out of the Federal Reserve?
CHATTERLEY: Yes.
DALE: We definitely think that's going to come, but we do think there's a black hole developing here over the next two to three months with the U.S.
economy continuing to slow the outlook for corporate profits continuing to deteriorate that could be a black hole for stocks and credit over the next
couple of months in that context before you get those rate cuts.
CHATTERLEY: Define black hole?
DALE: I mean, I think investors remember May and I certainly think that most investors remember December of last year, that's the kind of black
hole we think is the ultimate market risks forming now.
[09:35:08] CHATTERLEY: What starts that? Because we had really low expectations coming into earnings season. The usual percentage of
companies have beaten, lowered -- significantly lowered expectations. So if we get to a point now, where we have the threat of the tariffs from
Trump, we're looking at the situation right now. But we're still an aggregate only one percent to 1.5 percent from record highs here. What
triggers that? The fact that you were talking about.
DALE: Well, it starts -- if you think about crises, you always need to talk about the vulnerabilities and the triggers.
CHATTERLEY: Right.
DALE: The vulnerabilities of the U.S. -- the global economy has been slowing for two years now. Pick your spot. The U.S. economy has been
slowing for 12, almost 18 months now, pick your sector.
And now the trigger is that investors have come into this year, most professional money managers behind their bogey, their year-to-date bogeys,
and they're chasing stocks into these highs, hoping that earnings recover, hoping that there's a trade -- amelioration on trade concerns. And when
those things do not happen, let's look at below.
CHATTERLEY: So we have to be very careful even from today, basically, with the kind of nervousness that we're seeing in the markets right now.
DALE: Absolutely. Absolutely.
CHATTERLEY: Where do you go as an investor? And what does this mean for bonds? Because again, we were talking earlier on the show, you are seeing
more and more of global bond yields going below negative. Prices are incredibly high. Can they go even higher right now and what does this mean
for bond proxies, too?
DALE: It's always -- it's always about the cycle. So, if the cycle continues to slow in growth and inflation terms domestically and globally,
which we have -- our model suggests it's going to continue at least in the third quarter, then yes, bonds can go higher.
I mean, again, I was on your show a little less than a year ago, in September. We said, "Where do you go?" If the cycle slows, go buy bonds.
If you look at the return, the total return of 20-year Treasury paper, up 18 percent since then. What's the total return for the S&P 500 since then?
CHATTERLEY: Yes.
DALE: After today, it might be flat.
CHATTERLEY: Yes. It is so important to understand the difference. Okay. So, we've talked about bonds. We've talked about equities here. You also
had a great call on emerging markets. You've got it bearish at the right time. What does it make you --
DALE: Last year, last January.
CHATTERLEY: Yes. What does it make you feel given what we're seeing right now if we're talking about potential for Jay Powell to cut rates further?
If we're seeing softness?
We know he is very sensitive to shifts in stock markets as well in the United States, if not whatever else is going on in the world.
DALE: Absolutely.
CHATTERLEY: So what does it mean for your views right now in emerging markets, because a lot of investors have piled in this year?
DALE: Yes, so a lot of us have piled in. We've been on the sidelines, we continue to remain cautious in emerging markets. We think our currency
debt should continue to perform as interest rates continue to lower in the developed world.
But more importantly, in emerging markets -- we have a bearish emerging markets in --
CHATTERLEY: Yes, you have.
DALE: We're now kind of on the sidelines. But we do think by the fourth quarter of this year, once you get past quad flow, once you get past this
black hole risk developing in the U.S. equity and credit markets, then you can actually start to allocate assets to EM recovery, because China by the
end should start to stabilize. Europe by then should start to stabilize.
We haven't seen in the data yet, in fact, all the most recent data continues to suggest we're a trough towards those in eight years. But by
the end, you transpose those three, four or five months from now, emerging markets would be a fantastic buying opportunity.
CHATTERLEY: Okay, China because the gamble that President Trump is making here is that look, China wants to do a deal. China needs to do a deal,
threaten more tariffs, it will eventually bring them to the table to do some form of deal.
I know you're laughing. What's your sense from the data that you're seeing? Whether it is trade partners of China, whether it is China itself?
How necessary do you think it's the time to do a deal here and the probability that we do see some form of deal?
DALE: Well, I think you have to separate how us, Westerners view China and the necessity for a deal versus the data. So, the data suggests they need
to do a deal. You look at Chinese manufacturing, PMI's third month in contraction, you know, some of these things that can actually correlate to
the rest of the world and the global economy.
Exports for all key China's partners down double digits. You look at South Korea, Brazil, Hong Kong, all these countries. So it seems to suggest that
China needs a deal.
But when you talk to the guys in Beijing and you read their local press. It says they're ready to dig in and hold their ground. They're not going
to be bullied around. Listen, China is a rising power and this is the long game. They're playing the 2025, 2050 game against Donald Trump who's got
an election next year.
So if you ask me who really needs a deal? I'll tell you, I'll take a look at the spires and I'll tell you what color they are. And I'll tell you, if
it's red, it's Donald Trump.
CHATTERLEY: Darius Dale, always great to chat with you. Darius Dale, Managing Director and partner at Hedgeye Risk Management.
All right, we're going take a quick break here. But when we come back President Trump's tariffs step on the toes of American shoe retailers. We
will step into their shoes, too, as I speak to the CEO of the Footwear Distributors and Retailers of America. That's after this and I'll tell
you, they're not happy.
(COMMERCIAL BREAK)
[09:42:37] CHATTERLEY: Welcome back to FIRST MOVE. President Trump's tariff talk could come at the cost for some American retailers. While
President Trump has suggested that this of course may resonate with his own base, U.S. shoe retailers are worried that they could be hurt by the
additional 10 percent tariffs on $300 billion of Chinese made good.
Matt Priest is the President and CEO of Footwear Distributors and Retailers of America, and he joins us now from Washington. Matt, fantastic to have
you with us once again.
You said you're incredibly dismayed at this announcement. Talk us through what this is going to mean ultimately for those who represent, but also for
U.S. consumers.
MATT PRIEST, PRESIDENT AND CEO, FOOTWEAR DISTRIBUTORS AND RETAILERS OF AMERICA: Yes, thanks for having me on, Julia. It's great to be back with
you. Our big concern is that now the President has launched these new tariffs on every single item that comes from China. And that's going to
hit pocketbooks of every single American, which includes footwear.
And as we talked about before, footwear already has very high duty rates. We paid $3 billion in duties last year, and we know for a fact that as
prices go up, the consumer will be hit.
And so if you think about the consumer being hit on every single consumer good, this will be a death by a thousand cuts for American consumers here
at home.
CHATTERLEY: I mean, just to be clear, 70 percent of shoes sold in the United States come from China, and they already have a 67 percent of duty
applied to those shoes. Can you give us a sense of just what kind of increasing costs we're potentially talking about if this is passed on?
PRIEST: Yes, so it just depends on the rate. So if we stick at 10 percent, the 10 percent rate will take a pair of canvas sneakers and will
instantly jack up the price $10.00. So if you have a $50.00 pair of sneakers, it'll be $10.00 an added cost. It's a $60.00 pair of sneakers
out of the gate.
Particularly we're heading into the holiday season. This is terrible timing, but then it spreads across everything. It is electronics, its
books, paper products, apparel, toys, you name it. This is going to be hitting consumers just as we get into the Holiday Season, and they're not
going to be able to avoid it. Consumers will not be able to hide from these price increases.
CHATTERLEY: Does it going to mean that we see U.S. companies who ultimately are paying a higher price to import these goods go, "You know
what? We simply can't hire the same amount of people or continue to hire them same amount of people," because you've suggested it's going to cost
U.S. jobs. Is that the case?
[09:45:06] PRIEST: That is the case because you've got to think of tariffs as a cost to an American company. It's touted by the President as a cost
the Chinese are paying and maybe it is dampening demand for Chinese goods, which impacts the Chinese manufacturing sector.
But at the end of the day, the U.S. government tallies that duty at the border on American companies. And if those American companies have
increased costs in the form of a tax increase, in the form of a duty, they have less money to invest and either reduced prices for consumers or in
jobs here at home or an R&D, development, design and distribution, all the things that go into the 21st Century supply chain -- footwear supply chain.
And so that's a cost that goes away.
And this is essentially one of the largest tax increases in American history. It's not talked of as much by the administration in those terms.
But is it a tax? It is a tax increase. There's no mistaking it.
CHATTERLEY: Yes, the President has argued all the way along though that he wants to see those jobs and the production that's taking place outside of
the United States brought back into the United States.
How easily can U.S. companies that have manufacturing operations over there or buy from Chinese companies switch? Let's say they go to Vietnam or
somewhere else? How easy is that for U.S. firms with operations or supply chains elsewhere?
PRIEST: Yes, that's a great question, Julia. It is very difficult. Footwear is still very labor intensive. Its capital intensive. It takes
years to establish manufacturing capacity in countries and at the end of the day, if you flee China, because there's a 10 percent added duty on top
of what we already pay, and you go to a place like Vietnam, there's a spike in demand in Vietnam. That's driving up costs.
And so you're not going to save flat out 10 percent or if the duty rate ultimately is 25 percent on top of current duty rates, you're not going to
save that by just moving to Vietnam or moving to another supplier, because it takes time. Labor rates are different. Their demand has gone up.
Anecdotally, we're hearing price spikes in Vietnam.
And so again, the consumer will be impacted whether the product is made in China or is made in Vietnam or elsewhere. These cost increases will
reverberate throughout the supply chain and the American consumer will pay that increase.
CHATTERLEY: We know what's going on here to some degree, it's an effort to reach a trade deal and improve conditions with China. Do you see this as
the White House putting politics perhaps before economics here and the American families, the U.S. consumers kind of getting caught in the
crossfire?
PRIEST: That's what it does feel like, Julia. And at the end of the day, it seems that the administration the President himself is trying to apply
pressure as the two sides again meet here in September, at least according to published reports.
And so, are they looking to have added pressure and more kind of a sense of urgency with these discussions in September because the President seems to
be getting antsy about the need to have a deal? The longer this hangs out there, the harder it will be on the economy, particularly if we're heading
into a softer economic period. The uncertainty is driving companies crazy.
And so it might be a political attempt to try to put pressure on the Chinese to force them to want to do a deal. But it seems as your recent
guest just said that the Chinese are digging in.
Published reports in Beijing are talking about the need to continue to kind of rope-a-dope, it seems like there's a collective rope-a-dope on both
sides happening, which makes us think that this trade spat, this trade war is not going to be over anytime soon.
CHATTERLEY: Yes. Matt Priest, President and CEO of Footwear Distributors and Retailers of America. Sir, thank you so much for joining us on the
FIRST MOVE today.
PRIEST: Thank you, Julia.
CHATTERLEY: All right, more to come. You're with FIRST MOVE.
(COMMERCIAL BREAK)
[09:50:54] CHATTERLEY: Welcome back to FIRST MOVE and a look at our global movers today. Apple shares under pressure once again. The stock fell
sharply after President Trump announced a 10 percent tariff on $300 billion worth of Chinese goods. Tariffs are set to start in September.
Of course, the company warned in June that tariffs could affect all of Apple's major products despite suggesting that they were seeing some
consolidation of course in the earnings this week.
Exxon and Chevron are both high today. Exxon's second quarter earnings beat estimates that despite the broader trade war concerns and fears of
crude oversupply. Exxon ramping up production in the Permian Basin far more than it had previously revealed.
Chevron also beat expectations citing strong Permian Basin production, and it banked a $740 million breakup fee after Anadarko walked away from an
agreed merger.
Also in line with these, guys, oil prices moving higher today, up around some three percent recovering a fraction of yesterday's losses following
President Trump's latest tariff threat against China.
Brent slumped by more than seven percent yesterday while U.S. crude fell nearly eight percent, its biggest drop in more than four years.
To break all this down for us, Matt Egan joins us now. Matt, great to have you with us. We've got supply issues, we've got demand issues here. And
it is and does feel like the demands, the global economic outlook is still the greater weight here. Also a challenge for some of these oil majors,
but they're handling it pretty well.
MATT EGAN, CNN BUSINESS LEAD WRITER: Julia, don't blink because otherwise you might miss a crazy move in the oil market. Now, clearly sentiment in
energy right now is very fragile when you look at that eight percent drop yesterday in U.S. oil prices.
As you mentioned, it was the worst one-day decline in four and a half years. I mean, that's pretty incredible when you think about it. I mean,
that's worse than anything we saw last December, which was a crazy month, obviously in financial markets; worse than Brexit, worse than those
thousand point drops in early 2018.
And so clearly the energy market -- the oil market -- is sending a message here now while oil prices are back up this morning that really only gives
back just the chunk of yesterday's losses.
I think all of this is just a fresh reminder to exactly what you said that energy is very, very vulnerable to any perceived shifts in demand.
Obviously, these threatened tariffs, if they went into effect, I mean, even if they don't go into effect, it's already a negative for growth, because
it's creating uncertainty.
If they do go into effect, it's going to raise costs and increase more uncertainty if China can retaliate. So, all of that is definitely a
negative for the energy market.
And just one other point I would make, Julia is that, you know, the energy market -- the oil market was pretty weak coming into this. You think about
all these potentially seemingly bullish factors that oil didn't really rally on, everything from the tensions in the Strait of Hormuz to the
sanctions on Iran, the sanctions on Venezuela didn't really move oil prices all that much. But right now, it's all about the trade war.
CHATTERLEY: Absolutely. And what about for some of the majors than the earnings giant because we had Chevron and we had Exxon today reporting, it
looks at both results beat expectations.
EGAN: That's right. And what I was most intrigued by is Exxon was talking about how their oil production really increased year-over-year and that is
because they've invested a lot of money back at home in the United States.
I mean, these oil majors were really -- they missed the shale boom, even though it happened in their backyard. They were doing what they always do,
which is invest overseas in these really long-term projects that only companies with the strongest balance sheets can do.
But now they've shifted, both Chevron and Exxon are really plowing money into Texas, into the Permian Basin, and that already has paid off for
Chevron which has seen production growth. And now Exxon as well is seemingly moving in that direction.
So, all of this is a reminder that there's a lot of oil coming from the United States right now.
CHATTERLEY: Yes. Pumping out that. Matt Egan, great job. Thank you so much for that.
[09:55:02] CHATTERLEY: All right. Let me bring you up to speed now in today's "Boardroom Brief." The biggest name in online video gaming, Tyler
Blevins, also known as "Ninja" is leaving streaming giant, Twitch.
Ninja has over 14.7 million followers on Twitch and will be moving to a rival called Mixer. In a Twitter video, Ninja says he wants to move back
to his streaming roots.
Burger King is moving firmly in on the meat substitute market. This time next week, it introduces plant based Whoppers across the United States.
It's the biggest rollout so far for Impossible Foods, which makes the veggie patties. The CFO of Impossible told CNN's Richard Quest, being
available in restaurants like Burger King is as important as getting the product into stores.
(BEGIN VIDEO CLIP)
DAVID LEE, CFO, IMPOSSIBLE FOODS: When a meat eater goes into a restaurant, they want something new. They look for the special of the day,
and they can know within an instant everything they can purchase because they look at the menu whether it's a counter menu, or it's a sit down menu.
That the same meat eater in a grocery store. They have a bias against plant-based products because up until now no one has really delivered on
taste. We think both are important. We think the retail channel and the food service channel are important.
(END VIDEO CLIP)
CHATTERLEY: All right, and that's it for the show. I'm Julia Chatterley. You can also listen to our podcast cnn.com/podcast. For now, you've been
watching FIRST MOVE. Time to make yours. I'll see you in a couple of hours.
(COMMERCIAL BREAK)
[10:00:00]
END
