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First Move with Julia Chatterley
U.S. Stocks Plummet Premarket As Bonds Point To A Looming U.S. Recession; Trade War Averted?; Chinese And German Data Disappointing Today; Flights Resume At Hong Kong's International Airport. Aired 9-10a ET
Aired August 14, 2019 - 09:00 ET
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JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR: Live from the New York Stock Exchange. I'm Julie Chatterley. This is FIRST MOVE. And here's your
needs to know.
Yield curve inverted: U.S. stocks plummet premarket as bonds points to a looming U.S. recession. Trade war averted, maybe. Not soon enough for the
global economy. Chinese and German data disappointing today. And protests diverted. Flights resume Hong at Kong's International Airport. Is it only
Wednesday? Yes, it is. Let's make a move.
Welcome to FIRST MOVE once again, where, what did I call it yesterday? August angst turned into Christmas in August, as the President delayed
fresh tariffs on China or at least half of them. But that glow didn't last very long at all. Take a look at what we're seeing for U.S. futures right
now, sharply lower in premarket trading, taking back most of yesterday's 1.5 percent to two percent gains here for U.S. stocks.
I point out a couple of things. One, the question is does this delay in tariffs really help facilitate a deal or simply make the Chinese here
bolder? A lot of people saying Trump blinked here. And of course in the interim, the global economy is simply weakening.
Fresh Chinese data overnight disappointing and Germany's economy contracting in the second quarter, too, and now we have the U.S. bond
markets indicating or at least pointing to a looming U.S. recession just a few hours ago.
Let me give you a look at this. The U.S. on the U.S. 10-year Treasury dipped below the yield on the two-year note for the first time since 2007
in what we call a yield curve inversion. This, as investors continue to pile into the relative safe haven of U.S. bonds, and it's not just in the
United States.
In the U.K., the yield curve inverted for the first time since 2008 today, too. Ten-year yields now sitting at their lowest level since mid-2016. We
also saw the longer bond, the 30-year falling to record lows today, too.
Yesterday, I was asking on this show at what point do bonds look overbought? Well I can tell you the answer today is not right now. Former
Fed Chair Alan Greenspan saying that he wouldn't be surprised to see U.S. rates at zero percent or lower. Is that alarmist? Or is it simply a
reflection of the sheer quantity of global uncertainties right now that are going on?
Let's get to the drivers on this note. A form of reprieve on around 50 percent of those tariffs set to hit Chinese imports here in the United
States. But global markets are saying, the trade war still remains a huge problem for growth.
John Defterios joins us on this. John, plenty of people here are saying that President Trump blinked in the face of stock market pressure here.
You've got the Federal Reserve cutting rates perhaps amid pressure from the markets, too. It feels like the only people in control there are investors
and the broader markets. What do you say to that?
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: I think that is a fair point. It's hard to ignore all the red lights flashing from Wall
Street right now and from the bond market, Julia, whether you're in the White House, the Treasury Department or the marbled halls of the Federal
Reserve.
It is interesting, Donald Trump doesn't mind talking about the stock market when it goes up. And that's what he did 24 hours ago when he made his
announcement and blinking, as you suggested, with Beijing, but not today or the sell-off that we saw on Monday.
I think it's really interesting to point out again, he says that the trade war with China is not having an impact on the U.S. economy or the global
economy. They are just collecting $60 billion worth of tariffs. But don't tell that to Macy's, which is now put out a forecast warning because of
slower sales going forward and premarket trade down better than 10 percent on the stock.
Donald Trump didn't want to serve as Scrooge for Christmas toys in the season going forward. That's why he waited until December 15th. But the
bond market is pointing to risk right now. And I know it sounds anecdotal, but when I was in California, I spoke to a very large commodity trading
group that went long on pork at the end of 2018. And in 2019, thinking that the man from China is going to be very strong.
We see a slowdown in China, but not to the levels that their order books would suggest, which makes me believe that China is making political
decisions here, wants the White House to feel the pain of the trade dispute and cutting orders on foreign products, which is a political hot button for
Donald Trump going forward as well.
CHATTERLEY: I couldn't agree more. I mean, that's anecdotal, but we know what they've done over agricultural purchases, too. They are incredibly
strategic going for voters for President Trump and making sure they feel the pain of this trade war.
[09:05:08] CHATTERLEY: The funny thing about this is and it's not funny, but it is poignant, I think at this moment. If you look at some of the
Chinese data that we got overnight, you could argue that this is precisely the moment that President Trump should be pressing home his advantage here,
instead of which he has backed off.
DEFTERIOS: Well, think of the two major players at the poker table, Julia. Donald Trump on one side and Xi Jinping on the other. Donald Trump did
blink when it came to giving the breathing room until December 15th.
But look at the data coming from China, as you're suggesting here. We watch industrial production very carefully in the second largest economy in
the world. It has had a 17-year low. That number to the rest of the world looks pretty decent at 4.8 percent. It is awful for China, 6.3 percent the
month before. Retail sales again, for the rest of the world, 7.6 percent sounds very good. But we were spoiled seeing China, with retail sales up
9, 10, 11 percent during the heyday of eight and nine percent growth.
We don't see it right now. Mizuho Bank was telling our friends here at CNN Business Digital, perhaps these numbers are so alarming that China will go
to the bargaining table and be a little bit more flexible.
I take a different view, I think President Xi Jinping is President for life potentially here. He has $3 trillion of Forex reserves. If he wants
Donald Trump to feel the pain, they'll get back to the bargaining table. But I don't expect China to be that flexible when it comes to some of the
key points that they're pushing for.
CHATTERLEY: Yes, one heck of a poker game here. That's what it is. John Defterios, thank you so much for that. Now, it's not only the Chinese
economy, the global economy that's weakening. Germany, too. We have growth numbers that show a contraction for the second quarter. A number of
analysts coming out this morning and saying perhaps Germany already in technical recession. Clare Sebastian joins us on this story.
These guys, another country, export heavy, caught in the crosswinds of the trade war. Auto weakness, Brexit -- you name it. Germany is facing it
right now.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: ... it was seen as the engine of growth in the Eurozone, now underperforming in the Eurozone. For
those of us who've covered the Euro crisis over the last five to ten years that really is a very unusual situation.
But as you say, external factors are a big part of this. Germany's economy, heavily dependent on exports, and we have them caught right in the
middle of this trade war. The U.S. is their biggest export market. China is third. So the prospect not only of tariffs, but also of slowing growth
in both those countries has really hit Germany, plus the situation with autos.
China's auto sector has been slowing. Volkswagen, for example, made 40 percent nearly of its sales in China last year. So, this is a very crucial
market for Germany's automakers.
So it's a lot of factors. Brexit as well, that could hurt if we have a no deal that could hurt Germany's exporters even more. So a lot of factors at
play here. And it's not just about the tangible effects of trade and external factors, Julia.
We talk about this a lot with the U.S. economy. This is about uncertainty. We've seen business confidence dropped to its lowest level since 2011, and
we're starting to see weakness in consumer sentiment as well. This is corrosive to an economy like Germany.
So I think now the question is, they've had one quarter of contraction, how do they avoid a second quarter?
CHATTERLEY: It's such a great point, and remember, it's hard to believe that we're talking about what's long been called the engine of growth here
for the Eurozone, the largest, the strongest economy for a decade or more - - Germany. The question is, and does this provide a license to ease here for the European Central Bank? Because it's the Germans that have been
most resistant ultimately to further monetary stimulus to bond buying in Europe? Does this green card the ECB for more here, Clare?
SEBASTIAN: You know, I think the ECB was poised for action anyway, Julia. They are very much open the door to further easing. Not they have much
room to do that. At their last meeting, rates already a negative. They could cut rates further into negative. They could ramp up QE again. That
could be a problem for banks.
We know that Germany's banks are weaker. Lower rates tend to hurt bank's profits. So there has been some suggestion that the ECB could introduce
some kind of tier-ing rate system where the banks don't have to pay quite as much to park their money at the ECB.
But I think it's not just a question of what the ECB does about this. I think it's a question of what Germany does about this. Mario Draghi has
made it very clear that this isn't -- that monetary policy isn't the only game in town when it comes to boosting Europe's economy.
And I think, you know, we've heard from the German Economy Minister, he says they're going to try to act to stop another quarter of recession. He
suggested back in June, they might do things like investing in roads and research. I think we should be on the lookout for some kind of fiscal
measures from Germany as well as they attempt to shore up their economy.
CHATTERLEY: Yes, that's what's needed. Monetary policy aside. Clare Sebastian, thank you so much for that.
We're going to head to Hong Kong now where flights have resumed at Hong Kong's International Airport after we all watched the violent protests last
night in Hong Kong. Some protesters now expressing remorse for the violence. Paula Hancock's joins us from there.
[09:10:10] Paula, you and I were talking and made what then became sporadic pockets of quite graphic violence. But if you've now got
protesters that are saying, "Look, we're sorry for ultimately what happened," and we're only talking pockets, do you think protesters are
realizing here that those that have been violent perhaps have undermined the greater cause here?
PAULA HANCOCKS, CNN INTERNATIONAL CORRESPONDENT: I think some protesters, Julia, are certainly realizing that. I don't think all protesters are.
There are still those who will continue this kind of protest and scuffles with the police that we did see last night.
Now there's still maybe a couple of dozen protesters in the airport. It is very small. They are just sitting down very peacefully, and they have
posters saying they're sorry about what happened overnight.
The security has got better at the airport. This is why now with we're seeing a lack of protesters and the fact that these flights can start to
get back to normal. People are being asked for their passport and their boarding pass before they are allowed into the airport. And there's more
of a police presence as well.
We don't know whether that's also to sort of allay any concerns that passengers have that they can see a visible police presence within the
airport. But this is like a completely different airport to what we saw overnight, last night. It's been completely cleaned up. All the graffiti,
all the damage, all the rubbish has been cleaned away really within hours of the scuffles and those protests. But it is not going to end here. I
mean, these protests will continue.
The Hong Kong Police has said the airport is not the place to do it, and we are also seeing that in other areas of Hong Kong, one in particular
tonight, there are protesters that are still out on the streets.
So the momentum as far as we can tell at this point is still there, just not here at the airport -- Julia.
CHATTERLEY: Yes. Paula, what's your sense of people that are managing to come in or tourists because I was looking at social media and there were
leaflets being handed out in Chinese, in English, all sorts of different languages, French, German trying to explain to tourists or those coming
into to Hong Kong, look, this is why we're doing it. Are they sympathetic, or are they frustrated with the protests here?
HANCOCKS: Well, I have been speaking to passengers over the past couple of days, there is definitely frustration. One or two have said they
understand that the protesters feel they have to do this, that they haven't been inconvenienced too badly.
I just spoke to an older Australian couple who said that when they arrived on Monday night, they got caught up in some of the protests. They say that
they were scared, that they thought that they were going to be injured in some way. Although, they did say a couple of protesters were trying to
help them, but they said the body of the protests really was quite scary.
And they said they've been to Hong Kong a number of times. This is the last time they will come. They are adamant they are not going to come
again.
So there is no doubt that the past couple of days has damaged Hong Kong when it comes to tourism. A couple of people have said that they have no
intention of coming back.
CHATTERLEY: Yes, clearly having a chilling effect. The question is how long does it last? Paula Hancocks, great to have you with us on the show.
Thank you so much for that.
All right, let me bring you up to speed now with some of the other stories making headlines around the world. A service has been held in the Italian
city of Genoa to mark a year since 43 people died when a motorway bridge collapsed.
Mourners observed a minute of silence after the name of every victim was read out. The Morandi Bridge, which was built in the 1960s came down
during a torrential rainstorm.
The fallouts at the prison where Jeffrey Epstein died while awaiting trial on sex trafficking charges continues. The warden has been reassigned and
two other staff have been suspended. According to a source, guards should have been checking on Epstein every 30 minutes, but didn't carry out any
checks for hours.
A short time ago, a Swedish court delivered its verdict in the trial of American rapper, A$AP Rocky. It's a case that might have seemed
unremarkable except for the fact that the U.S. President got involved. Hadas Gold is standing by with the details on this. So, found guilty here,
Hadas, I believe. But he has escaped a jail sentence. Talk us through the details. What next?
HADAS GOLD, CNN BUSINESS REPORTER: Yes, Julia. He and two of his co- defendants were found guilty of assault but they won't be serving any jail time though they could have served up to two years of jail time.
The prosecutors had asked for six months, but the fact that A$AP Rocky was actually sent back home to the United States a few weeks ago gave an
indication that he likely was not going to be serving any jail time; otherwise, they likely would have kept him in the country.
However, though he is not spending any jail time. He is placed on pretty much what's called a conditional sentence. It's like a two-year probation.
He also has -- he and his co-defendants also has to pay the victim about $13,000.00 in damages and also have to pay legal fees to the state, about
$8,400.00.
This as you noted would have been just -- maybe an unremarkable case except for people in the entertainment industry, except of course President Donald
Trump got very involved, tweeting about it after he spoke with rapper Kanye West who advocated on behalf of A$AP Rocky, and he even tweeted to the
Prime Minister of Sweden asking him to get involved.
[09:15:19] GOLD: He even actually sent the Special Envoy for Hostage Affairs to observe one of the court sentences and get involved as well.
This -- it's not clear whether that work, whether that had any effect on this sentence. The Swedish officials always said that the judicial system
is completely separate from any influence from any politician influence and now A$AP Rocky's lawyer has said that they are still deciding whether to
appeal the verdict. They said though they are disappointed in the guilty verdict -- Julia.
CHATTERLEY: Yes, watch this space. Hadas Gold, thank you so much for that update there. All right. We're going to take a quick break here on FIRST
MOVE, but still to come, the Trump card. Did the U.S. President show his hand with Monday's tariff delay? We will discuss amid a broader sell-off
in global markets and real concern out there.
And Jay-Z partners with the NFL and in the process, treads on some pretty controversial turf in the U.S. culture war. All the details next. You're
with CNN.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE as we count down to the market open this Wednesday morning. Take a look of what we're seeing for U.S. futures
under some real pressure here as you can see, taking back some of the gains that we saw in yesterday's trading session.
Renewed global growth fears of course, but a lot of questions being asked about whether that delay in tariffs announced by the U.S. Treasury
yesterday ultimately means whether we see a great facilitation towards a trade deal, I am not quite sure it does.
We also have Germany and China both releasing weak economic data overnight and this morning, too, sparking a further rush into safe havens like U.S.
bonds, and what that is doing is creating fears about future recession. The yield on the 10 year-U.S. Treasury falling below the yield on the two-
year today. That so-called yield curve inversion.
[09:20:10] CHATTERLEY: Parts of the global rush into Treasuries that we've seen for months now, some $15 trillion worth of debt around the world
trading at negative yields, that's also fueling a push into safe haven currencies like the Japanese yen.
The Swiss franc posting strong gains today. As you would expect, as well, gold, also rising in the session today. Let's talk this through. Lindsey
Bell is Investment Strategist at CFRA Research. Great to have you with us, Lindsey.
LINDSEY BELL, INVESTMENT STRATEGIST, CFRA RESEARCH: Thanks for having me.
CHATTERLEY: What do you make of what's going on? The reaction yesterday was delayed tariffs is better than Fed rate cuts, quite frankly, for
fueling a market rally, not so much today?
BELL: Well, those are the two things that are really driving trade in the last couple of weeks. It's between the yield curve and trade, and you see,
depending on what the headlines are, which is driving the market today. It's obviously the yield curve, potentially inverting that 10 versus the
two, which you mentioned.
And a lot of that do -- that has to do with overseas -- what's happening in the overseas markets. So while it has historically been an indicator of
recessions, not all recessions. All recessions are preceded by a yield curve inversion, but not all yield curve inversions lead to a recession.
CHATTERLEY: And this is the critical point, do listen to the message that the bond market is giving you or don't you? Because I made the point
there, but you're also making it hereto in a more clean way that the real concerns about the international economies is allowing a flood of
investment into Us bonds, and it is creating a picture perhaps that's not true if the underlying fundamentals of the U.S. economy.
BELL: And that's what a lot of analysts or economists would point to as being this time is a different moment. But also this time is different,
because we have the trade situation. And if that escalates like it potentially could over the next several months that could be a major
problem.
We're already seeing a slowdown in economies around the world. Like you mentioned, the German economic data that came out. China is very much
slowing. Eight of the six Asian countries are showing manufacturing data in contractionary territory.
So there is a slowdown occurring and everyone is expecting the Fed and Central Banks around the world to save the day.
CHATTERLEY: The question is, can they? And I think, again, what we've been asking already in the show is will this facilitate a trade deal, or as
many are saying here, the President just showed his hand here and suggested that pressure on the markets is so deeply uncomfortable for him that he
will back off here, in which case China perhaps could be in a weakened position with their growth numbers and the numbers that we're seeing right
now, but actually look at this and go, "Maybe we've got more leverage than we realized."
BELL: Well, that's the exact question there. There are two sides of the table here, and we don't know who is going to win, because China is
certainly feeling the pain. And then obviously, Trump does not like to withstand a big fall in the stock market.
So we're going to have to -- this is just going to be like a back and forth, I think for several months now. And the unfortunate part of this is
we're over a year into this trade dispute with China and the U.S., and companies actually have to make plans, operational plans, and there's so
much uncertainty in the market right now.
They're making changes to their supply chain. So some of them are moving out of China. The question is, are they going to move their entire
operations out of China? Because this is clearly impacting the overall relationship between these two major countries.
So if you're a CEO, or a CFO, it's really difficult times right now, where are you going to spend your capital? Are you going to spend capital?
You're seeing a slowdown. If companies stop spending, they stop hiring, then the whole thing falls apart, and we do go into recession.
CHATTERLEY: Let's bring it back to the consumer because we did have Macy's earnings, and they've lowered their outlook here obviously in the last 24
hours, they decided on what they were going to say. And then we got a delay in consumer facing tariffs that could have seen prices rise perhaps
into yearend. What do we make of earnings revisions?
Because even you were saying into this quarter, look, you know, we've got the potential for these tariffs to hit come September, perhaps forecast
needs to be revised lower, perhaps they don't know? Like, where do you stand on that?
BELL: Why, I still think just knowing how management teams operate, they are always going to be more conservative than they need to be because the
game is to beat the expectations. Right?
CHATTERLEY: Lower them, lower them, lower them.
BELL: Exactly. But Macy's, I think, also is a one-off situation, a very company specific situation where they're trying to relate to the consumer,
again, where consumers are going online into smaller boutiques and different places.
So they're trying to rebuild their business and the e-commerce to have a bigger presence there. So there's a lot of things that they're working on.
There are other retailers that are doing better, but they also have more exposure to China than some of the other retailers.
CHATTERLEY: It's such a great point to make, just -- if we see the retail sector under pressure today, don't take this as gospel. The consumer in
the United States remains a significant growth engine and remains strong.
BELL: Exactly. And you're saying wages go up three percent for more than 10 months now, unemployment at a 50-year low. The consumer is feeling
confident and they're spending. You did see that in the Q2 GDP report which is a little bit weaker than Q1. But it was -- the consumer has been
the engine of this economy, we expect them to continue to be.
Of course, this delay in tariffs is going to bode well for the holiday selling season --
CHATTERLEY: As the President suggested.
BELL: Exactly. But we'll see what happens coming into next year.
CHATTERLEY: What should investors be doing at this moment? Because we're talking about a flood of money into the bond market. Prices continue to go
up. Gold prices are going up. Do you or don't you buy equities? Where do you go as a relative safe haven here? How do you cherry pick and how do
you make those decisions?
BELL: Well, it depends on how nervous you are, what your timeline is, and things like that. But we do believe you should still be exposed to the
equity markets.
In one sector that we got a little more bullish on earlier this year has been healthcare. Of course they have their issue with the election cycle,
but this is a sector that has been undervalued. Earnings growth is accelerating for healthcare. It is one of the sectors that actually does
well when they yield curve inverts, and the Fed actually starts reducing rates that actually is the best performing sector.
And if you look at the second half of last year where we saw a lot of volatility in the market, the S&P 500 declined eight percent, healthcare
was only one of two sectors that saw positive performance. So, this is a sector we think that people should consider.
CHATTERLEY: Even with the noise around the politics right now.
BELL: Exactly.
CHATTERLEY: Healthcare, the relative safe haven here in the United States. Fantastic to have the on. Lindsey Bell there, Investment Strategist at
CFRA Research.
All right, we are counting down to the market open this morning, expecting to see a weaker open, as we just discussed. Also keeping an eye on the
bond markets right now, which do seem to be leading us at this moment.
We're also going to be talking in more detail about Hong Kong. What next there? Are we seeing a petering off the protest? Or is there still more
trouble to come? Stay with FIRST MOVE. Plenty more to come.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE. We are live in the New York Stock Exchange. The U.S. Coast Guard ringing the opening bell this
morning. Red is their color and unfortunately, red is what we're seeing across the board now.
Stocks tumbling in early trading, just one day after stocks posted strong gains on the President's U.S. Treasuries announcement that most of the
tariffs, around half of the tariffs set to hit in September will be delayed until December.
Tech stocks though are taking the biggest hit today. We've had a weak day that we've discussing throughout the show from Germany, from China sparking
fresh flight into safe havens. What we're really focusing on though are the signals being sent by the bond markets.
We've got 10-year and 30-year yields currently down. The most closely watched here is the yield curve. The twos, tens, -- two-year over 10-year
inverting today. I mean, the 10-year yield dropping below the two-year yield traditionally sending a signal that perhaps a recession is looming.
Not just the United States of course, through the U.K. yield curve. Brexit fears there. Also seeing back that curve invert, too.
We've also got gold making a strong move higher here, up around eight tenths of one percent. We're still sitting around those six-year highs.
All right, let me walk you through our global movers. Perhaps no surprise in light of what we're seeing in the bond markets. We've got the likes of
Bank of America, Citi, both under pressure in this session. Lenders here in the United States leading the decline as the stocks drop following that
recession this morning from the U.S. bond market. Fears about ultimately how these banks make money with this kind of moves.
Macy's -- over to the retail sector now -- also under fears. The company slashing its full year forecast, now posting a 48 percent drop in profits.
Clearly, questions swirling about the U.S. consumer at this moment. The retailer has been discounting heavily to move inventory down, some 16
percent right now, but as you heard Lindsey Bell say just a few minutes ago, this is a specific story for this retailer, so don't necessarily take
the cues for the broader retail sector.
Luckin Coffee under pressure. The Chinese company reporting worse than expected quarterly loss figures in its first earnings as a public company.
It invested heavily to take on Starbucks and opening new stores in China sending costs soaring. Right now, we are down from 12 percent in the U.S.
session.
All right, what about Hong Kong? Cathay Pacific shares regaining some lost ground after dropping more than four percent over the past two days. The
airline has increasingly found itself caught in the crossfire between Hong Kong protesters and Beijing of course, too. Calm has been the restored for
now at Hong Kong's International Airport following five days of occupation by protesters and of course, sporadic violence as we were watching
yesterday.
Victor Gao, the Vice President of the Center for China and Globalization told CNN, no one can afford the current chaos. Listen in.
(BEGIN VIDEO CLIP)
VICTOR GAO, VICE PRESIDENT, CENTER FOR CHINA AND GLOBALIZATION: I think between the Hong Kong government and the central government in Beijing,
something needs to be done very soon to restore law and order in Hong Kong because it is an international hub and no one can afford the siege of the
airport and the disruption of all major traffic in the city. Something needs to be done. We are reaching a tipping point.
(END VIDEO CLIP)
CHATTERLEY: Joining us now, Allan Zeman. He is Chairman of Hong Kong property developer, the Lan Kwai Fong Group and he comes to us from Hong
Kong. Allan, fantastic to have you with us. Do you agree with that sentiment there? And would you see Chinese -- Mainland Chinese involvement
here actually, as a worst case scenario, to quell protests and to prevent further violence?
ALLAN ZEMAN, CHAIRMAN, THE LAN KWAI FONG GROUP: Well, Julia, hopefully, it's not going to happen. The police have been doing their best to try to
contain this violence. The violence must stop.
You know, most of the protests have been peaceful, in general. The people are marching. Many of the young people feel very aggrieved for many, many
reasons. But then it started with the bill and then suddenly moved over to -- morphed over to all the problems that Hong Kong people are facing. And
many young people don't see upward mobility.
And so the biggest thing is, we must stop the violence. That is number one. Then the next step would be to sit down and talk to these young
people.
You know, the property prices have been so high in Hong Kong. It is the highest in the world at the moment, and many of the young people just see
no hope, no future for themselves. And so of course, they blame China, they blame the government.
[09:35:12] ZEMAN: And, you know, Hong Kong, 56 percent of Hong Kong people own their own house. In Singapore, 91 percent own their own house. And so
that's the big disparity. And I think that if we can make those young people happy, they have to live with their parents. They get married.
They can't afford a house. They have to move in with the parents once they're married. And that's the biggest problem.
So hopefully, we can quell this so-called riot or protest that have continued to escalate. They started off very peaceful, and then there's a
handful of radicals, probably about 700, who -- many stories, some say they're paid, some say they're not.
Last night at the airport was just -- it was very, very, very painful to watch. Because what was supposed to be a peaceful demonstration really
turned out to be violent, and really stopping passengers from going, leaving the country, wanting to fly home, innocent passengers that was very
painful.
CHATTERLEY: Allan, the problem here is, though -- Allan, the problem here is though, and forgive me for interrupting is that there's a trust problem
now.
I know you said that you want a broad investigation now into the Executive's handling of the situation of the protesters, perhaps police
brutality here. Is that what happens? Because so far, the authorities have refused to do that. They've refused to formally reject the
Extradition Bill and take that off the table. Who moves first here ultimately? Because trust feels like it's broken.
ZEMAN: I think that the important thing, as I say, is to stop the violence, then I have called for a transparent investigation, where we can
investigate not just the police, but also investigate the bill, the government, potential foreign interference, all the things that have caused
this disturbance.
And I think that's something that can only be done after we stop the violence. Because at the moment, no one wants to wants to talk and the
other problem is, it is leaderless. So you really don't know who to talk to.
You know, and now they have something called "Be Water" where the groups splinter off into different groups for a while and, you know, the media
makes it look like Hong Kong has really turned upside down, but basically during the week, it is business as usual.
Usually the weekends is when things heat up a bit, only daytime. This Sunday, there's supposed to be another protest. And as long as it is
peaceful, I mean, Hong Kong has always been a city of marchers. Every Saturday, Sunday, people march very peacefully. This was the first time
that this really happened like this.
And of course, it's really causing havoc with the economy, especially with the trade war, which started it and this is on top of the trade war. It's
really causing many companies. I think, people will be losing jobs, a potential recession coming, because you have a double whammy.
And I think that that's going to be a real hit when many people who now are in favor of these young protesters might turn on them. And as a matter of
fact, as of last night, watching last night, many people who did support that are now turning against them, because I think people really want peace
and really want just for all this to stop, and so we can move on and make Hong Kong the great city that's always been. The airport lost its huge
reputation.
CHATTERLEY: I think many people would agree with you -- agree with you, sir. I want to talk specifically about the business impact. What kind of
chilling effect is it having on your business? And are you having to make perhaps decisions over suspending investment decisions, over hiring, over
what you're going to do going forward here?
I mean, we look at the stock market. We look at the Hang Seng and I think more than $50 billion worth of value has been wiped from property stocks.
What decisions are you making here? And could it mean job losses?
ZEMAN: I think -- I think many SMEs, many small medium enterprises, we ourselves are looking at rental reductions for tenants that we have. You
know the problem is, about 700 -- the tourism business is almost non- existent at the moment. It is down but 40 to 50 percent because of the violence that people see on the TV.
[09:40:05] ZEMAN: And about 700,000 people in Hong Kong are employed by the tourist industry. And this is very, very bad. Retail shops, F&B --
almost every industry, hotels, airlines -- everyone is being affected by this.
And if it continues the way it's going, you're going to start to see many small companies closing up because they can't afford the rents. The rents
are very, very high. They can't afford to keep the staff, and so many people will be losing their job, and that'll be the next big problem.
So this is really something that the GDP will, you know, will really evaporate overnight, because it's dropping tremendously at the moment. The
trade war obviously doesn't help as well, because Hong Kong is huge and the exports to the United States.
CHATTERLEY: It's a double whammy. Allan, fantastic to have you on the show. Come back and talk to us soon, please. Allan Zeman, the Chairman of
Lan Kwai Fong Group.
ZEMAN: Pray for peace.
CHATTERLEY: Thank you so much. All right. Let me give you a look at what we're saying right now. For the U.S. markets, as you can see, we are under
pressure. More context. We will continue to keep an eye on these. But for now, we're back in two. Stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE. Let me give you a look at what we're seeing for the U.S. major stock markets at this moment. We are under
pressure as you can see, 1.7 percent down for the NASDAQ right now. The Dow off some 1.6 percent, all down stocks in fact are low right now except
for Coke. Look at banking, the technology stocks, energy -- all the hardest hit sectors right now are the cyclicals. Those are most sensitive
to a sharp, slow down.
We're very much watching what's going on in the bond markets of course as we've been talking about throughout the show. What about what's going on
in Europe though as well.
As you can see, we've got the Xetra DAX underperforming. Germany's stock market off more than two percent on news that their economy contracted in
the second quarter.
[09:45:07] CHATTERLEY: Cristina Alesci joins us now. Cristina, great to have you with us. Signals being sent from the bond market, too about
recession fears despite the news from the U.S. Treasury yesterday of a delay in tariffs. The bottom line is, the trade is hurting and it's
hurting globally right now.
CRISTINA ALESCI, CNN BUSINESS POLITICS AND BUSINESS CORRESPONDENT: That's right, investors are coming to terms with that and seeking cover in the
safest part of the market, to your point, which you've been covering all morning.
What happened yesterday was a knee jerk reaction. Investors got overly optimistic that perhaps the delay in tariffs meant that President Trump
wanted to do a deal with China before the election. Investors waking up this morning and realized, maybe not. Not only will that not happen, but
perhaps -- well, it may not happen, but perhaps we need to take a closer look at the economic impact of the tariffs that will go into effect in
September.
Remember, there's still about $100 billion worth of goods that will face those new Chinese tariffs. That is going to make it difficult for CEOs and
business leaders to plan. Period. Full stop.
So it's not like fundamentally for anyone that's running a business. Yesterday's announcement really changed a whole heck of a lot. The
consumer will be a little bit protected, and perhaps still continue the trend of spending and helping U.S. GDP. But the fundamental business
environment, which tends to be a leading indicator is still flashing signs of caution. Investors are catching on. And they're very nervous, unclear
what will sell them down at this point.
CHATTERLEY: And there was a lot of discussion yesterday that this was a de facto blink from President Trump. Maybe President Trump now would rather
do a deal than not, quite frankly. But what does this mean for the Chinese? Yes, their data is weakening, but do they perhaps recognize that
they have a stronger hand than they realized and decided to play hardball hereto?
So you can argue it both ways, and that's part of the problem here as well, the sheer uncertainty of this situation?
ALESCI: I think you're absolutely right. I think the Chinese realized that they can hand Trump a victory, or they can deny him of that victory
before the election. So they, as we get closer to the 2020 election, we cannot discount the fact that the Chinese may have more leverage, not less
leverage. So the balance of power is going to shift.
The Chinese have a very long term perspective here, and President Trump, he is just looking at the next 17 months, which for the Chinese is an
extremely short amount of time. Why not wait it out? See who they're dealing with in 2021 and proceed from there.
CHATTERLEY: Yes, and stock market investors are ultimately in the driving seat here because everyone reacts to that. Cristina Alesci, thank you so
much.
ALESCI: Of course.
CHATTERLEY: All right. Let me give you a look at today's "Boardroom Brief." WeWork, or "WeCompany" as it's now calling itself just revealed
its IPO filing. The New York based company offering co-working spaces in more than 100 cities could hit the market as soon as September. WeCompany
wants to raise more money after burning through almost $2 billion last year.
Chinese tech giant, Tencent has turned it around after a run of disappointing results. It says profits in Q2 jumped 35 percent, that's
$3.5 billion. The company is weathering the disruption caused when the Chinese government stopped approving new games amid concerns about online
gaming addiction. Right now, as you can see, that stock off some four percent.
All right, up next, a gift from the U.S. President Trump delays Chinese tariffs to save the festive season, at least some of them, but has showing
his softer side given Beijing the upper hand. We will discuss. Stay with us.
(COMMERCIAL BREAK)
[09:50:56] CHATTERLEY: Welcome back to FIRST MOVE. Driving the fears of a recession is a trade standoff between China and the United States. Let's
discuss what the likelihood of this is.
Joining me is David Adelman. He was the U.S. Ambassador to Singapore under President Obama. He also worked at Goldman Sachs in Hong Kong. He is now
a partner at Reed Smith. Ambassador, fantastic to have you with us.
DAVID ADELMAN, FORMER U.S. AMBASSADOR TO SINGAPORE: Good morning, thank you.
CHATTERLEY: What do you make of the current situation? I mean, in the last 24 hours, an easing of at least some of the potential tariffs on
additional Chinese goods? Do you perceive that as a blink? And do you think it changes the calculus here on the likelihood of a trade deal?
ADELMAN: Clearly it does. This was a case of President Trump blinking in the face of almost certain consumer product pricing rising in the run up to
the Christmas buying season. He doesn't want to take the political risk that American consumers will finally realize the trade war takes a bite out
of their family budgets. Whether it means anything in the longer term, of course remains to be seen. The Trump trade policy has been wildly
unpredictable.
CHATTERLEY: Since, convoluted. We'll use that term.
ADELMAN: For sure. For sure.
CHATTERLEY: What do you think it means to China? Because all the things that you just mentioned, and actually, perhaps strategic choice that the
President made, you said it was blinking, I didn't. Also across China at this point to and the recognition that China has been very strategic all
the way along.
No longer buying agricultural products in the United States, for example. Going into the farming ballots. Do you think China is more or less likely
to do a deal now as a result?
ADELMAN: Well, President Xi has many options. There are many ways he can respond, I think pretty effectively to the Trump trade policy, which is
very narrow.
President Trump and his team seem to be using tariffs to prosecute all of their grievances around the world. You mentioned they could shift
agricultural purchasing to places like Russia. They could go so far as to really declare a national boycott of American products. The Chinese are
becoming the largest consumer market in the world.
CHATTERLEY: Yes.
ADELMAN: I think the most important point, Julia is that these two economies need each other to grow. They represent almost 40 percent of
global GDP. So a deal ultimately, an important deal is in the interest of both countries. And I think President Xi and the White House have to see
it that way eventually.
CHATTERLEY: Eventually. Let's move on, because I want to weave in what's going on in Hong Kong and the relative importance of that, not only for the
international community here, but clearly, the handling of it from a Chinese -- a Beijing perspective specifically.
As someone who spent a time in Hong Kong, what do you make of it? And do you see a path here to a resolution? And if so, what does it look like
here?
ADELMAN: Well, President Xi has a very delicate balancing act here. While Hong Kong is not as important to China as it was, let's just say in 1997,
it still remains very important. It's got a very deep capital market.
For so many of global businesses, it is the gateway to Mainland China. And the protests, which are very much grassroots protest driven by young
people, for the most part have been peaceful. And I think what we saw this weekend have been quite effective.
So the way Beijing reacts to this, I think will tell us a lot about how President Xi feels about the importance of Hong Kong in the long term, and
about how secure President Xi feels in the face of what will undoubtedly be international criticism should he move in a very strong handed way against
the protesters?
CHATTERLEY: I mean, this is the crux of the issue. I think, for anyone who remembers Tiananmen Square and what happened. That we had a way of
sort of uniting the world against China and sentiment in China, which he never really recovered, I would argue to where it was before.
Is that the risk can perhaps that particularly with a broader issue of the trade war going on here. That action here from Beijing has the results in
uniting the world?
[09:55:10] ADELMAN: You're right. It's 30 years after Tiananmen Square and in many ways, it's still fresh on everyone's memory, including the
memories in Beijing.
CHATTERLEY: Right.
ADELMAN: I don't think there's much chance that it will be that type of violent move to put down the protesters in Hong Kong. Qualitatively,
what's going on in Hong Kong is very different, and remember, unlike Tiananmen Square, this is still One Country, Two Systems.
CHATTERLEY: And the protesters are kind of -- are questioning that right now, but shouldn't.
ADELMAN: Yes, and that's -- inherently there's a challenge here. The tension of doing One Country and Two Systems I think is finally coming out
in the form of these protests. While we're still 25 years away from the ultimate handover, Hong Kong is becoming a much more anxious place, and
ultimately, it's going to affect decision making in boardrooms.
CHATTERLEY: And we'll continue to watch that.
ADELMAN: How much to invest in Hong Kong is becoming an important question.
CHATTERLEY: Ambassador, fantastic to have you with us. All right, the market is under pressure. I'll be back in a couple of hours' time to track
the progress, but for now, you've been watching FIRST MOVE. Time to go make yours.
(COMMERCIAL BREAK)
[10:00:00]
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