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First Move with Julia Chatterley
Global Stocks Fold, Gold Prices Rise As Investors Assess The Coronavirus Spreads; Finance Ministers From The World's Wealthiest Nations Vow To Act If Needed; India's Prime Minister Modi Rolls Out The Red Carpet For The U.S. President. Aired 9-10a ET
Aired February 24, 2020 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:21]
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE. And here's your need to
know.
Risk off. Global stocks fold, gold prices rise as investors assess the coronavirus spread.
G-20 meets. Finance Ministers from the world's wealthiest nations vow to act if needed.
And Namaste, Trump. India's Prime Minister Modi rolls out the red carpet for the U.S. President. It's Monday. Let's make a move.
A warm welcome once again to FIRST MOVE this Monday. Great to have you with us, not looking so great however, is the current mood across global
markets.
We are looking at steep losses for global stocks, a flight to safety to quality and bonds, gold and the U.S. dollar. That's the picture, as you can
see, down, red arrows here across the board.
Let me walk you through it. We've got U.S. futures indicating a more than two and a half percent pullback at the open. That would then add to
Friday's one percent losses.
The Dow could give back the entire year-to-date gains at the open of the session today, but it's a global picture as I've mentioned.
In Europe, Italy, capturing global attention this weekend. Now reporting the highest coronavirus cases outside of Asia.
The FTSE and MIB in Italy down some five percent pulling back from 10-year highs hit in just last week's trading. This feels like a classic knee jerk
reaction as investors simply trying to gauge what the longer term economic impact of the coronavirus outbreak will be.
In Asia, Japan was on holiday. Chinese stocks, bucking the trends, they fell just slightly, but South Korea once again, taking the heat. The KOSPI
there tumbling more than seven percent over the past five sessions.
We've been asking if investors have simply been too complacent about the risk of the spread here and the impact of reduced travel, of supply chain
disruptions on economic growth.
Plenty of companies like Apple, if you remember last week have warned already. Last week as well, Goldman Sachs also talked about the risk of a
correction here for stocks. Today, we're seeing classic risk off. Stocks lower, oil lower, gold higher, bond yields down. That's the picture we'll
discuss this throughout the show.
But also some context hereto, important. Investor Warren Buffett said earlier today that the long term outlook, the business has not
fundamentally changed despite the tragedy going on with coronavirus.
He says he is a stock buyer on balance. Important context. For today though, it's the short term uncertainty that's driving the price action.
Let's get to the drivers and the latest on this story.
Italy scrambling to contain the first major coronavirus outbreak in Europe. Confirmed cases spiking over the weekend to more than 200 in the country.
Five patients have lost their lives so far. Officials have yet to track down the first carrier of the virus.
Melissa Bell is in Venice with the latest. Melissa, and of course the carnival yesterday and over the weekend being cancelled there. Quite
dramatic steps here to try and contain it. What more do we know?
MELISSA BELL, CNN CORRESPONDENT: That's right, Julia. It was meant to last another couple of days and although here on St. Mark's Square, you can
still see some people coming out in full costume.
On the whole thing, for this time of year at Carnival time, this is a very quiet St. Mark's Square. The Carnival is due to last until Tuesday. It
ended in fact last night over those fears of the spread of coronavirus.
I think one of the things that's perhaps most worrying for Italian authorities is the speed of that spread. You mentioned those 219 cases
confirmed a short while ago by Italian authorities. The fact is, Julia that we were on less than five at the end of last week. So it's been very fast,
a very sharp rise.
And what we've seen as well is Italian authorities taking it extremely seriously. Venice is still open for business, still very much tourists,
although on a lesser scale in terms of numbers going about their business, most of them without masks remarkably.
There are at least 11 towns or villages in Northern Italy that have been entirely locked down and I think this is an important test as well for it
is the first time that a Western liberal democracy has to take these kind of lockdown measures to try and contain the spread of the virus.
So it is an important test for Europe, all the more so, Julia because of the openness of the borders. France, Austria -- all the countries around
Italy keeping a very close eye on what's happening here.
[09:05:05]
CHATTERLEY: Yes, you make a great point. I think it's the suddenness of this and the sharp spike that suddenly had everybody afraid.
In addition to the lockdown measures, the quarantine measures in Northern Italy that you mentioned. But we can see what appears to be tourists around
you, even if your point, it is perhaps far quieter than it would have been. Life does go on. And I do think it's important to give that kind of context
in this situation, too.
BELL: I think one of the things we've been hearing also from people around here, especially many of the people who work here in the tourist center,
the people holding cafes and restaurants and so on, they're saying, in fact, that they haven't had enough information.
So yes, tourists are coming and going. No one quite knows whether they should be wearing a mask or not. And the fact is, you made an important
point earlier, Julia, the fact that patient zero has yet to be tracked down is important for a number of reasons.
It means that we don't know exactly how the virus got here. We don't know how fast it is spreading and Italian authorities, although they've put the
number 219 for now, simply don't know exactly how far it has spread.
So the next few hours and days will be extremely important as authorities try and figure out exactly who patient zero was, how the virus got here,
and exactly how far it's gotten even as they try and contain it -- Julia.
CHATTERLEY: Yes, I'm just on the quarantine measures, Melissa. I read over the weekend that schools -- schools in Milan or in the northern part of
Italy and Lombardi have been canceled. Can you tell us exactly what details are happening with things like schools and events such as that?
BELL: That's right. I mean, I mentioned a moment ago, the Carnival being brought to a close two days ahead of time, but places like this, the
Basilica in St. Mark's Square closed, all of the museums in the Veneto region of Italy have been closed as well.
Schools, museums, and then of course, those quarantined areas. We're talking about some hundred thousand people that are directly affected by
these quarantines.
So people who all of a sudden have found themselves in those 11 towns and villages, unable to leave in a sense in a sort of open prison and I think
It's going to be extremely interesting to see how that pans out over the coming days. Have food supplies been properly organized? How comfortable
are they in their quarantine zones? How long will it last?
These are questions that for the time being given the suddenness of all this remain unanswered.
In the meantime, of course, a sense of things being shut down, the Carnival, the museums, but also sporting events. A number of soccer
leagues, I'm sorry, events have been canceled, soccer game.
So there is a sense of things grinding to a halt, but yet some uncertainty of how bad it's going to get -- Julia.
CHATTERLEY: Yes, until we get to patient zero. We've got to take serious precautions. So it is clearly what the authorities are doing.
Melissa, great to have you with us. Melissa Bell there. Thank you so much for that.
Now, to Asia where South Korea is reporting over 830 coronavirus cases, representing the largest number of cases outside of China.
Meanwhile, the World Health Organization says China is right to start thinking about getting back to business in certain parts of the country.
David Culver is live in Shanghai with the latest. David, great to have you with us again.
This is an important point to make, I think from the World Health Organization. They said this could be with China, with the world for months
to try and get back to business, get back to some degree of normal life here is important, too. It's a very important point to make, I think at
this moment.
DAVID CULVER, CNN CORRESPONDENT: Julia, you get a feel for that just walking around, realizing how slow it's been getting back to business here
at what is the business beacon, if you will of China, Shanghai.
I mean, we've noticed it's kind of trickled back and starting to come back to life, if you will, but the World Health Organization to your point, they
had just wrapped up a news conference just a few minutes ago, really.
And it was interesting to see how much they praised the Chinese government for their handling of this, what they consider to be bold efforts and what
some considered to be an extreme lockdown and containment effort.
And it almost seems that they would suggest that if this were to be applied to other places like where Melissa was in Italy, that perhaps that could
then curb that growth and spread of this virus.
Now, the Chinese efforts have been rather tense in some places. They've caused folks to stay in their homes, to not be able to lead in many of
localities. I mean, you're talking about hundreds of millions of people really, who are impacted by this.
But hearing what the World Health Organization said, it seems like this will be the start to stopping the spread of this virus and they believe
that China has really turned it around.
I mean, the words were quite an endorsement. I am going to read you a few things that were said in that. One of them being that China essentially has
allowed for this decline and that the number of cases going down is real.
They go on to say, this is falling, and it's falling because of the actions that are being taken.
Now, one of the things that we look at is going back to business, and that is something that is crucial to the Chinese economy, and hence, social
stability here, Julia. You can't ignore that the two are not mutually exclusive in all of this, and that's something that President Xi Jinping
himself has echoed from the first time that he went on the front lines if you will two weeks ago today.
I mean that was something he was out saying not only do we need to stop the spread of this virus, but we need to stabilize the economy.
[09:10:10]
CULVER: It is certainly top of mind for them, and one of the things that they're hoping will happen here, and it seems that they're hoping the World
Health Organization will be part of the endorsement effort, and that is having other countries around the world loosen restrictions on trade and
travel.
No doubt they're speaking in part, and perhaps primarily to the United States, because after the United States implemented their strict travel
restrictions, several other countries followed suit and that angered, in fact, it made the Foreign Minister here furious, because they felt like
that essentially, it was a globally imposed quarantine on the Chinese Mainland.
And they have since tried to come out of that and they're still feeling the economic crunch under that, and so they're hoping that in the next weeks,
they even warned, as you point out months to get back to normalcy, that things will start to loosen up and that businesses will start to come back
online -- Julia.
CHATTERLEY: Yes, I remember the Chinese authorities saying that the U.S. response have been excessive and that precipitated a greater degree of fear
elsewhere in the world.
David, what about the efforts to start relaxing some of the quarantine measures in Wuhan? Because there seemed to be some confusion over whether
there had been the greenlight given by the central government in in Beijing. What are we actually seeing and hearing from Wuhan now?
CULVER: There was confusion. And my team and I here in Shanghai, we're monitoring that and one of the things we saw early on in the day was, oh,
perhaps they are easing some restrictions. And the initial suggestion was that they were going to allow some folks who were not residents of Wuhan,
who deemed to be healthy to leave.
That was quickly revoked, and they said that should not have been released. And so it seemed to have kind of been countered pretty quickly.
However, what we do know, Julia, in other parts of the country, they are starting to lower the level of global health risk, if you will, that
they've assessed the emergency level that they've put in kind of a provincial level, the localities themselves.
And by doing that, it essentially allows them to have a little bit more autonomy, a little bit more flexibility when it comes to allowing
businesses to reopen.
So it's all interconnected, and it starts then at the local level. But they also -- the World Health Organization that is -- acknowledged that by doing
this, by coming back online, you're also opening up the possibility of more risk.
That is to say that by getting back to normal, you could potentially allow for a little bit more of a surge of the spread of this virus to come back
on board.
So what's being done to stop that? Well, here in China, the World Health Organization points out, they are still rapidly constructing capacity and
healthcare systems for more beds and making sure that hospitals have that space to accommodate what could potentially be another surge in this.
CHATTERLEY: Yes, it's such a great point, David, the theory of getting back to business perhaps is far easier than seeing it in practice and
calibrating that shift.
David Culver, thank you very much for that report there.
All right, well, investors grapple to understand the economic implications of the tragic outbreak, the toy industry is already seeing an impact on its
supply chain.
In fact, 84 percent of all toys sold in the United States actually come from China.
Clare Sebastian joins us live from the New York Toy Fair. Clare, what are companies there saying to you about the implications and how they're trying
to manage the supply chain impact that I'm sure they've already seen.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia, there's no doubt this is a heavily exposed industry. That statistic that you just said, I
think it bears repeating, 84 percent of every toy sold in the U.S. comes from China. You only have to look at the labels on half the toys.
Everything says made in China.
People are worried, they are saying that, you know, the same thing we're hearing across a number of industries that factories are struggling to get
back up and running. Workers are struggling with the travel restrictions.
Even when the factories do get back up and running, sometimes they don't have the inputs, the materials that they need.
So I asked the CEO of The Toy Association, Steve Pasierb just how long they've got until this becomes really critical for the industry.
(BEGIN VIDEO CLIP)
STEPHEN J. PASIERB, CEO, THE TOY ASSOCIATION: This is literally a day by day case by case basis. We're in a short window here where it's not doing
too much harm. If this continues into April, they'll begin to affect summer deliveries of summer toys. And then of course, if it goes farther than
that, then we're talking about the holidays.
Most of the Christmas toys end up on the ocean during the summer, late summer, arrive here in the fall, end up in the Walmart and Target
warehouses and things like that right after.
(END VIDEO CLIP)
SEBASTIAN: So this, as an industry, Julia that as you know has already been buffeted by the closure of Toys 'R Us, by the threat of tariffs and some
actual tariffs throughout last year. That threat then lifted slightly through the Phase 1 U.S.-China trade deal, only then to be hit by this
virus.
They say that they're okay for the next month. After that, we might start to see delivery and shipments being hit and then it starts to trickle down
to the consumer.
CHATTERLEY: Yes, I mean, it's quite fascinating. It feels like we've only just passed Christmas, but they're already having to analyze and take steps
ahead of next Christmas just to understand what the impact is going to be.
I mean, you said they've got a month there before they really have to start worrying.
[09:15:10]
CHATTERLEY: When we're talking about 84 percent of toys in some way touching China as part of the supply chain, what's the ability to even
redirect and perhaps get pieces or source goods and materials, toys from other places?
SEBASTIAN: It's difficult, Julia. As we hear across multiple industries, the CEO of The Toy Association told me that, sure, they can diversify, but
it would take a decade at some of the other countries where we've seen, you know, manufacturing ramp up like Vietnam. They already, he said, hitting
capacity when it comes to toys.
And other countries like India that also manufacture toys. They're already seeing struggles when it comes to finding the right materials and inputs
that many of them come out of China.
So it's the same story, diversifying is great. Lots of people want to do it. Lots of people already started, but it takes time. You can't just
reverse the sort of two decades of manufacturing that we've seen in China ever since they joined the WTO.
And I think that's the challenge here, is that this, we don't know how long this is going to last. It could be a short term problem. Do businesses
really want to take those kinds of decisions? To shift production only then to find that everything gets back up and running a little sooner.
CHATTERLEY: Yes, this is just one sector. We've heard it now across the board -- shoes, toys, apparel, technology, huge supply chain links between
these two nations and beyond, of course. Clare Sebastian, thank you very much for that.
All right, let me bring you up to speed now with some of the other stories that are making headlines around the world.
U.S. President Donald Trump touched down in India's capital of New Delhi a few moments ago on his first official visit to the country.
A short time ago, he and Indian Prime Minister Narendra Modi were cheered by more than 100,000 people at a Namaste Trump rally at a Cricket Stadium.
The President then headed to Agra where he and the First Lady posed for pictures at the Taj Mahal, a 17th century monument to love.
Kevin Liptak joins us now on this. Kevin, great to have you with us. Fascinating images. What a huge reception for President Trump as well in
India? He certainly like that beyond the broader strategic perhaps challenges that the two nations have to discuss.
KEVIN LIPTAK, CNN WHITE HOUSE REPORTER Yes, today was really a lot about the style, not so much about the substance yet. One of the main reasons
that President wanted to come to India was because Prime Minister Modi actually guaranteed that there would be these huge crowds to greet him up
in the northwest part of the country, which is actually where Modi himself is from, and that actually came true.
When the President touched down, there were cheering spectators who lined his motorcade route as he went from the airport. He visited the Ashram that
Mahatma Gandhi lived at for a while.
He was barefoot as he watched Gandhi's spinning wheel be used. That's kind of an incongruous image for a person like President Trump.
He went from there to this largest Cricket Stadium in the world. And the reception was really sort of the scale, it was something that the President
will have really appreciated. And in a lot of ways, it was very reminiscent of the political rallies that the President holds back home.
The soundtrack that the viewers were treated to as they were waiting for the President was the exact same thing that they play at the Trump rallies
in the United States.
The one thing that was different was how closely the President stuck to his script. There was no ad libbing and he didn't mention the Democrats back
home or his political rivals.
So it was very kind of a statesman like speech and you could hear the sighs of relief from some of the President's advisers who wanted this speech to
go well, because they're so desperate to show that President and Modi as this sort of inseparable pair trying to cast the United States and India as
this inseparable Alliance.
And you could see that as we were driving around here in New Delhi, you see pictures of Modi and Trump on nearly every signpost. There are big signs
that say "Two dynamic personalities, one momentous occasion."
Of course, the two men are aligned in a lot of ways. They're both sort of nationalist populist leaders. There are some differences on trade, of
course. Those don't seem like they'll be resolved on this trip. But so far, the images are certainly something to look at -- Julia.
CHATTERLEY: Yes. I was going to ask you very quickly, actually about trade. President Trump suggested that Prime Minister Modi is a tough negotiator.
And even he said it's not happening really before 2020. And that's what we assume here surely.
LIPTAK: Yes, and the President was kind of downplaying the prospects for a big trade deal even before he got here to India. The two sides seem just
kind of too far apart for now. And the President will eventually have to turn his attention to campaigning.
Listen to a little bit of what the President said about trade in his speech earlier today.
(BEGIN VIDEO CLIP)
DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: We are in the early stages of discussion for an incredible trade agreement to reduce barriers
of investment between the United States and India and I am optimistic that working together, the Prime Minister and I can reach a fantastic deal
that's good and even great for both of our countries.
[APPLAUSE]
TRUMP: Except that he's a very tough negotiator.
(END VIDEO CLIP)
[09:20:21]
CHATTERLEY: Probably not going to happen before the 2020 election. Kevin, great to have you with us. Kevin Liptak live from Delhi there.
More to come after this. Stay with FIRST MOVE.
(COMMERCIAL BREAK)
[09:23:36]
CHATTERLEY: Welcome back to FIRST MOVE where global stock market weakness is the name of the game. We are bracing for a tough open as you can see
there.
All of the U.S. majors, the futures here indicating down more than three percent right now.
The German Xetra DAX off some four percent. Milan and Italy, they're down some 5.8 percent. Important to mention here, I think that simply what we're
seeing here is the pricing in of the coronavirus impact. But we have seen that going on in certain sectors for more than a month.
Brent crude already down six and a half percent since mid-January, gold at seven-year highs. I can tell you, U.S. bond yield fallen more than 35 basis
points. That's 0.35 percent. Let's get some context.
Max Kettner is a multi-asset strategist for HSBC. Great to have you with us.
MAX KETTNER, MULTI-ASSET STRATEGIST, HSBC: Hello, good morning.
CHATTERLEY: This is classic risk off. Are you unsurprised or surprised?
KETTNER: Not really, because we've been -- so we've been in our multi-asset allocation, and we've been actually pretty cautious two months really. And
let me tell you what? We've been bashed quite a lot because, you know, you reach one all time high the other.
But I think what people are really missing and what they've been missing for months really, even if you exclude, let's say the last two or three
sessions. Actually treasuries have had a phenomenal run, right?
So even if you were not investing in equities, but you were overweight in treasuries such as we were, you were actually making very decent money.
CHATTERLEY: This is really important. We've seen bond prices rising, bond yields coming down and we've been saying weeks as well, how can stocks be
making fresh record highs when the bond market is saying, I'm really worried about growth?
[09:25:06]
KETTLER: I think, look that's one misconception right now. Actually, there's a lot of people in markets right now saying the two markets are
pricing something completely different. I don't think that's the case.
There's also a misconception that, for example, 2019, a lot of people were saying, oh, the correlation between bonds and equities has been so much on
the rise. It's actually been pretty steady. What has changed is the sensitivities.
So what that means is like, if the S&P went down a percent, actually bonds were rallying big time. Right?
CHATTERLEY: Right.
KETTLER: Whereas if we got one all-time high after another in equities, bonds weren't really selling off that much.
So what he did have is like you have the most perverse form of a Central Bank putt, basically the market is saying, you know, what, if there's a bit
of a dip in equities, we are going to absolutely flock into treasuries because we know the Fed is going to save us.
CHATTERLEY: Because the Federal Reserve or other central banks, which are already stimulating will cut rates or will make the right noises and that's
been the assumption.
KETTLER: Yes.
CHATTERLEY: Has anything changed about that?
KETTLER: Not really, not really.
CHATTERLEY: No.
KETTLER: Actually when we look at these and when we look at these sensitivities, that's still the case. It's still the case. Look at the last
four weeks, really. Look at the first initial risk of wave with corona. That week, you know, Treasury yields were down 30 basis points. The week
after, you had equities all the way up in Treasuries.
CHATTERLEY: So in that vein, and very quickly because we'll come back to you after the market open. Is this just a temporary thing? Do you think we
get buyers coming back in? Or could we be in for a more sustained pullback here in your view?
KETTLER: I think there will be -- I think the selloff has a bit of legs. I'm quite concerned that all I've heard so far this morning is, oh buy the
dip.
CHATTERLEY: I know.
KETTLER: This is overdone. You know, I've only heard really things that comfort us. I haven't heard anyone who is saying, look you know what, we're
hoping to assume a V-shaped recovery. Maybe that's not going to happen. I haven't heard that so far.
CHATTERLEY: Well, we're going to hear it after this when we get to the market open. Max is going to stay with us. The opening bell is next. Stay
with us. We're back after this.
(COMMERCIAL BREAK)
[09:30:00]
CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange this morning and the opening bell this morning, not a pretty
picture.
As expected, we can see steep losses for the U.S. majors. We've got the Dow off some 2.8 percent early on in the session. The S&P 500 now losing some
three percent early few minutes of course in the session, but right now, we are seeing significant weakness adding to the losses that we saw on
Friday's session.
We were also talking about the safe havens as well earlier on in the show. The U.S. dollar rallying some three tenths of one percent. That's the
dollar index that you're seeing, trading now at four-month highs. Another check of Treasuries, too.
We were just discussing the shift that we've seen in bond markets. It is a big drop in yields right now. We've got the 10-year bond yield at 1.37
percent, 30-year yields falling to fresh all-time lows there.
A brief look as well as some of the stocks getting hardest hit earlier on in the session. As expected, you've got to look at the supply chain names.
Apple down some 5.8 percent, big exposure, of course to China. Micron Technology, off almost seven percent.
The airlines, the travel industry. American Airlines down some seven percent as well, and ExxonMobil energy, the oil prices are also under
pressure today. So the energy names also getting hit.
HSBC's Max Kettner is back with me now. You were saying earlier classic risk off. You were also saying, you could perhaps see a further pullback
here for the stock markets in particular.
KETTNER: Look, I think what markets don't like and don't like the most is uncertainty, right? And all we can say right now is that we know pretty
much nothing. We know that activity in China hasn't returned to normal when we look at all of these high frequency indicators -- migrant worker
movement, coal production -- all this kind of stuff.
CHATTERLEY: Electricity use.
KETTNER: Yes. All of these kind of like daily data. We know this is much, much more subdued than it should be for this time of the year, right?
So we know that the assumption of work is much, much, much more slowly than we actually would have thought. The problem is now is the uncertainty
channel, the confidence channel, that's not something that you can just put into a statistical model and then there you go, there's a number coming
out. And you know, you can say, it's the effect of X present.
CHATTERLEY: I mean, many analysts were coming out in the beginning of this process and saying, look, the likelihood is we can compare with SARS.
There'll be a V-shaped recovery.
This situation already in terms of numbers is worse than SARS and the importance of the Chinese economy is that much bigger.
KETTNER: No. Look, I was very -- I was -- early on, I was very, very opposed against actually comparing it to SARS. If you think purely
statistically, if you ever run a model, if you ever run a regression model on one single data point, let me tell you what, the output won't be pretty,
right. It just doesn't work.
I mean, you can't take one single data point from more than a decade ago and just use it as a template where, you know, as you said, China is
completely different.
CHATTERLEY: Lots of things have changed.
KETTNER: The world economy is looking different, the state of the world economy is different.
CHATTERLEY: Do we also need to separate though, the short term, the medium term, and the longer term here because the World Health Organization was
saying even today, look, China does need to be looking at getting back to work, because this is something perhaps we'll all be dealing with for many
months. You can't just stop.
KETTNER: Yes. I mean, if we -- just from a market perspective, if we sort of separate the short term from the long term perspective, you know, the
problem is, the more bonds rally, the more that sensitivity that we were talking about early on, right?
CHATTERLEY: The message that that sends.
KETTNER: The more that drags on, and the more that drags the yields lower. That basically means the more attractive equities get, right, from a
relative perspective, because you just can't buy those bonds anymore.
Look in Europe, right? You can't just keep buying bunds at minus 60 than at some point, from a longer term perspective. You need to discern here from
the short term perspective. If you think about, you know, bunds having still another leg lower 20 to 30 basis points over the next couple of
weeks. That's still a very decent trade.
It's the thing that treasuries, but longer term, that's a different picture.
CHATTERLEY: That's what brings buyers back in. But your message right now to at least those that are dipping their toes in shorter term is just be
very, very, cautious.
KETTNER: Yes. Absolutely. For me, it's really something where I'm saying like this is an uncertainty that we cannot detect at the moment. We cannot
put a number on at the moment.
And the problem is, it is coming exactly at the point of time, where we thought, oh, now we see all this financial condition easing from 2019
working its way through to activity in 2020.
Remember, that was the idea that we had all this easing in 2019 and in early 2020, that will help activity to sort of propel higher, right? And
that's what's happening here.
CHATTERLEY: What about the impact of the strength of the U.S. dollar as well? Because that has global implications for money invested in emerging
markets, for emerging market bonds, for emerging market stocks. Just talk us through that linkage and how worried you are by that.
[09:35:03]
KETTNER: What we found and it does mean that when the dollar is strengthening and strengthening massively as such that it has in the last
couple of weeks, it really puts a lid on risk assets. It puts a lid on any kind of reflation trades, right? Because it is disinflationary for the U.S.
economy. It puts a lid on the reflation trades. It puts a lid on the risk on trades.
As you said, it puts a lid on EM against the DM trades, right? It puts a lid --
CHATTERLEY: Emerging versus developed markets.
KETTNER: It puts a lid on emerging market currencies, for example.
CHATTERLEY: You said massive and I just want you to give some context. We are seeing the dollar at four and a half month highs. Is that massive, or
you just mean it's risen a long way over a short period of time.
KETTNER: Yes, that's what I -- I think that's what -- I wouldn't necessarily talk too much about the level. What I would be thinking about
is the change. So if you think about what's been happening over the last two months, right, not necessarily just where the dollar sits right now,
right? We're not talking just about the level --
CHATTERLEY: Exactly.
KETTNER: But what's been happening over the last two months is a pretty strong strengthening.
CHATTERLEY: You know, we've also -- if I bring it back to the United States, we've had guests on saying look, actually lower interest rates,
mortgage rates based off a 30-year rate are all-time lows. Energy prices are coming down. These are all good things for the U.S. consumers.
So there will be a -- I don't want to use the word V-shaped recovery -- but there will be a positive kicker.
KETTNER: It will come at some point. I think you're completely right, and I think that's where consensus is also right.
It will come at some point, but that would probably be then following a much, much deeper move down first, right.
CHATTERLEY: Right.
KETTNER: Because we can't have it both ways. We can't say on the one hand, you know what, if yields go down, that's really great for the consumer. But
actually, if bonds sell off and yields go up, that's actually also really great because, you know, it signals that the consumer and the economy is
doing great.
We can't have it both ways, right? So you have to have a bit of a leg lower, probably more panic, more selling in equities, in risk assets in
general. And at some point, that yield cushion will cushion the downside of them all.
CHATTERLEY: I'm going to put you on the spot here because we are down -- what -- just shy of three percent for the Dow here. We lost around one
percent on Friday, so we're about four, four and a half percent away from record highs.
Even if within that, many stocks weren't hitting record highs. How much more downside do you think we could see before people go, okay, maybe we've
priced enough, worry here.
KETTNER: Yes. So I think just putting a number out there, like I could -- it could be another five percent, right? Just give it take.
CHATTERLEY: Yes.
KETTNER: But I think the more important picture is that it's just what you asked again, right? It's like, oh, yes, when do people start thinking about
buying that actually, like we've been talking before, that's what people already are talking about. Right?
We've got two weak days, and all people are concerned about is oh, my God. That's a dip.
CHATTERLEY: I'm going to miss a rally.
KETTNER: That's a dip. I need to get back in. That's probably not the right time right now.
CHATTERLEY: Yes, I know. Be cautious. And of course, we don't want to take it away from the tragedy of the broader outbreak of course, as well by
talking about this, but great to get your perspective, Max.
KETTNER: Thank you so much.
CHATTERLEY: Fantastic to have you on. Max Kettner there of HSBC.
All right, we're going to take a break. Plenty more to come though on the show.
Up next Uber, and Careem are now a team with plans after Uber put down more than $3 billion to buy its Middle Eastern rival. The founder and CEO of
Careem tells us why his company is worth the price tag on what their ambitions are. Stay with us. We're back after this.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE. Let me give you a look at what we're seeing once again in the early part of the trading session this
morning in New York.
We are seeing a significant selling pressure on the Dow, the S&P and the NASDAQ. Right now, we are off some two points, eight percent but we're
oscillating as you can see at the lows of the session, down some 2.9 percent for the Dow, 830 points so far. Significant fears in light of the
spike in cases over in Italy. Huge pressure on the European session as well.
The German market is off more than five percent, with the Italian markets, a similar story. There's some real fears permeating in global stock markets
as a result of just trying to assess the economic impact of the coronavirus outbreak.
We will continue to keep an eye on those markets. For now ride-hailing app, Careem has reached the destination that many would envy, a $3 billion deal
with Uber that Careem says this is just the beginning of the journey and plans to become the region's everyday super app.
Mudassir Sheikha is CEO and co-founder of Careem and he joins us now. Fantastic, sir, to have you with us on the show.
We will talk about your ambitions and your plans for Careem going forward. But I just want to ask I appreciate that actually, in the Middle East,
you've been relatively insulated so far from the coronavirus outbreak. Are you seeing any impact on consumer sentiment just in terms of the numbers at
this stage?
MUDASSIR SHEIKHA, CEO AND CO-FOUNDER, CAREEM: So as you mentioned, Julia, we operate from all the way to Morocco to Pakistan in this larger region
that we call the Greater Middle East, North Africa. And so far, we've been relatively insulated.
Fortunately, our captains, our customers and our colleagues are fine. The only one softness that we see is in an emerging business that is providing
delivery services to e-commerce companies in the region and due to some disruptions of global supply chain, we're seeing some softness in the
business. But otherwise, it's largely on track largely fine.
CHATTERLEY: Yes, we have to continue to watch that. I know you're in an evolutionary phase, as you mentioned, ride hailing app across many
different countries in the Middle East, but your focus is now looking at retail delivery. It's about payments in particular.
And when I was in Dubai and in Abu Dhabi, we were talking about the low credit card penetration in particular. So for me, payments for you as an
option for the company looks pretty lucrative. Talk to me about how you're developing that as a focus going forward.
SHEIKHA: Yes, so as you rightly pointed out, credit card penetration in the region is very, very low. And if you look at just our own data, we do 90
percent of all the transactions that we do daily on cash, as inconvenient as it is, as the challenges that exists with cash.
So it is largely cash based economies and this large cash domination is preventing the growth of digital services in the region.
So, if you look at what we have built with Careem over the last eight years, we've built a ride-hailing business, we have built a food delivery
business, we've built a bicycle sharing business. We've built a bus business in almost hundred plus cities in the region. And we've been able
to overcome some of the shortage or, you know, lack of digital payment options.
And the infrastructure that we have built to conduct our own business is now being packaged into something that we can offer other businesses in the
form of a super app, where we allow other businesses in the region to come on to our super app and leverage the payment capability that we have built
in this larger region that is able to convert cash, collected by our captains, by our drivers in the region into digital payments that can then
be used for purchases online on digital platforms.
[09:45:13]
SHEIKHA: So that is the first step of what we're doing with what we're calling Careem Pay. The next step is once we've done payments, then start
offering financial services in an accessible way to the 35 million customers that are using our platform and provide them a platform that
allows them to become financially inclusive, and become a part of this global economy and become a part of this digital global economy that is
growing fast.
CHATTERLEY: Yes, if I think of a similar thing in Southeast Asia, Grab, offering financial services initially to their drivers and then looking to
expand. I know you provide medical insurance to drivers in Pakistan, which is an example I think perhaps of growing that and supporting your drivers
and then moving beyond.
Is the aim then to be a sort of equivalent challenger bank in the region in the Middle East, and who is your competition? Because I'm kind of
struggling to think of how it would be.
SHEIKHA: Yes, the opportunity, Julia is actually much, much bigger than a digital bank. If you look at this region that we operate in from Morocco to
Pakistan, the consumer spend in this region is $1.8 trillion and only two percent of that spend goes online today.
And we all know living in this region that offline commerce is full of challenges and there are basic challenges, when you go to a store to buy
something, the basic trust doesn't exist for you to know that the product has been given to you is the right quality, is being offered at the right
price.
And we actually believe that the larger opportunity that we can go after being literally the only large scale digital player in this region, as the
largest consumer internet opportunity in the region.
And the way that we go after this opportunity is by leveraging this platform that we have built on the back of ride-hailing, on the back of
food delivery in this region to start bringing all of our services on a single app called a super app, and then basically open up the super app to
anyone else that wants to offer services to their customers digitally, and provide them with all of the logistics and payment capabilities that are
required to deliver services to people digitally.
So the opportunity in our mind is a lot larger than just a bank. It is a larger consumer internet opportunity moving off -- from moving from offline
to online and all the capabilities required for it.
CHATTERLEY: It's incredibly exciting, but it also takes investment and a huge shift just the evolution that you're talking about as a business and
the timing.
I mean, we're just watching the Dow today down some -- what -- 2.7 percent. There's a greater sensitivity, I think, particularly for unicorns, post
WeWork, to focus on profits and to talk about when you're going to get the business to a point where you are showing profitability.
Are you more focused on that today than perhaps you've ever been? And what does the path to profitability look like for Careem here?
SHEIKHA: Yes, so if you may allow me, we started the profitability journey a little bit earlier than some other companies that may be based in other
parts of the world, just because the funding environment for companies like us in this region was never that great.
So we have a DNA that is very frugal, that is very focused on efficiency, and already, some of our largest markets are already profitable in the core
ride-hailing business. And that journey continues.
That journey continues with us focusing on profitability in the remaining markets, through more efficiency in dispatching, more efficiency in
automation, through also a better focus on growth in a more sustainable way.
And the super app that I spoke about earlier also allows us to acquire customers onto the platform once and then offer multiple services to that
customer.
So in our view, the super app is not just a growth story and a way for us to grow and expand into this big market. But to sort of achieve sustainable
growth. The same customer can be offered multiple services. And we have seen based on some initial testing, that as they start to use multiple
services from us, their retention level goes up, their engagement with the platform goes up. Their trips or orders per week on the platform go up.
So we actually believe that the super app and the evidence is there already can actually allow us to grow and capture this large consumer internet
opportunity on a sustainable basis.
CHATTERLEY: It's going to be great to watch. Sir, come back and talk to us again soon, please. The CEO and co-founder of Careem there. Thank you for
that.
All right. Let me give you a quick look of what we're seeing once again for markets. Significant pressure across the board, picking up the thread. It's
a global story.
Pressure on stock markets, a flight to safety in things like gold and in bonds. Right now, as you can see, the Dow off some 2.6 percent. The NASDAQ
underperforming, off three percent. More to come. Stay with FIRST MOVE.
(COMMERCIAL BREAK)
[09:52:06]
CHATTERLEY: Welcome back to FIRST MOVE. The G-20 nations signaling readiness to act on the coronavirus amid growing fears over the global
economic impact. John Defterios is in Riyadh and with those leaders for us. John, great to have you with us.
Clearly, global markets today really showing a degree of nervousness about what the impact can be. What were the G-20 lead has been saying today?
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Well, you know, Julia, I was looking at the numbers that you were talking about there, what
we're seeing on Wall Street, but it seems to be four is the unlucky number, right?
We have had a loss of nearly four percent in South Korea, that's telling us something. And we're seeing losses in the commodity market, a better than
four and a half percent, for example, for oil and I have to say, being on the ground here, the mood has changed radically in the last 24 hours.
And what do I mean by that? On the arrival here in Saudi Arabia, you see health authorities with a mask on, with gloves, taking Asian passengers off
the flight and setting them aside.
We have not seen that in the Middle East because of the alarm we're seeing from Iran. And we have to think in the context at the G-20, Asia matters.
It represents a quarter of the membership overall.
And I think they influenced the communique by the close of business Sunday night. For example, the host country, Mohammed Al-Jadaan is the Finance
Minister. And as you suggested in your lead in here, he said if necessary, we are posed to pounce, basically to take multilateral action if needed.
Let's take a listen.
(BEGIN VIDEO CLIP)
MOHAMMED AL-JADAAN, FINANCE MINISTER, SAUDI ARABIA (through translator): And we all agreed that all countries and all states would be ready to
intervene as needed to face these risks and it will be a multilateral intervention, including the World Health Organization, of course to monitor
these risks and be ready to use the relevant policies as needed.
(END VIDEO CLIP)
DEFTERIOS: Mohammed Al-Jadaan once again, the Finance Minister of Saudi Arabia, and circling back again to Asia, we had the Finance Minister of
Japan saying, look, if you have room to provide stimulus in your budgets right now, I say don't wait for multilateral action, I'd say act now was
the message from Taro Aso.
So it's interesting to hear the Asians saying they're at the front end of the storm right now, Julia, and let's not wait to see this play out in
Europe and in the United States. Let's get ahead of the curve, not behind it.
CHATTERLEY: Yes, it's interesting, isn't it? You and I have been debating the need for greater coordination and action here or synchronicity at
least. We've discussed that we've already got two thirds of the world's Central Banks providing stimulus here.
I guess the question is, as we watch global assets weaken hear, even from record highs to your earlier point, John, whether some degree of noise is
required from Central Banks again to step up here and say, look, we remain ready to take action, if we deem it necessary.
[09:55:02]
DEFTERIOS: Well, you know what? I think it's important for us at this stage with the selloffs that we're seeing right now, Julia, to read between the
lines and just take the managing director of the International Monetary Fund, Kristalina Georgieva. She was in Dubai exactly a week ago said, the
crystal ball is clouded right now, but she's expecting that V-shape recovery from China.
Now, the briefing in Riyadh here during the G-20, she said that the growth in China could slow down to 5.6 percent from six percent this year. That is
a dramatic change over the week before.
And then there's this nationalist tendency that we're hearing right now from Bruno Le Maire, for example of France saying we've learned a lot from
this crisis in China that we're overly dependent on the second largest economy in the world when it comes to aerospace, Big Pharma and technology.
That is the big concern we see today. It is taking out positions -- Julia.
CHATTERLEY: Yes. You raised such a great point and the World Health Organization of course, saying try and get back to business to some degree
because you're going to be dealing with this for many months. John Defterios, thank you so much for that.
A final look of what we're seeing for U.S. price action, weakness across the board. A flight to quality and safety.
We'll be back in a couple of hours' time with more. Stay with us. You're with CNN.
(COMMERCIAL BREAK)
[10:00:00]
END
