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First Move with Julia Chatterley
Goldman Sachs Predicting Zero U.S. Earnings Growth In 2020 If The Virus Spreads; Coronavirus Controlled - That's The Message From China As Cases Outside Asia Rise; Questions Remain After President Trump Announces The White House's Plan To Tackle The Crisis. Aired 9-10a ET
Aired February 27, 2020 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
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.
A sober warning. Goldman Sachs predicting zero U.S. earnings growth in 2020 if the virus spreads.
Coronavirus controlled. Well, that's the message from China as cases outside Asia rise.
And viral confusion. Questions remain after President Trump announces the White House's plan to tackle the crisis.
It's Thursday. Let's make a move.
Welcome once again to all our First Movers around the globe. Great to have you with me as we try to bring you up to speed with the developments around
the world on the coronavirus outbreak.
For now, I'll bring it back markets as always at this moment and show you what we're seeing for futures and as you can see, no relief in sight at
this moment.
We're looking at premarket losses of more than one percent, adding to the losses that we saw yesterday. It was a mixed session though and I should
point this out, U.S. stocks were higher until we got word of a coronavirus case of unknown origin in California late in the day and that was enough to
take the Dow and the S&P closer to correction territory.
We're down around eight percent for most recent highs heading for the worst week of trading for U.S. stocks since the financial crisis.
I'm just looking at the numbers here and I think we could open actually in correction territory for the Dow if we open up like this, so down more than
10 percent from recent highs, not helped of course, all of this by more corporate warnings about the risks. Microsoft among the largest.
Also key today, as I've mentioned though, analyst at Goldman Sachs warning that we could see zero U.S. earnings growth in 2020. Their assumption to
make this point is that the virus will be widespread. We'll give you the context in just a few moments.
But I do think just to take a pause here, UBS made a very valid point today and they said fear is one of the main threats to economic growth at this
moment judging the appropriate response here for all businesses and individuals very difficult.
What about the European session? Well, I can tell you, it is painful. Germany and France stock markets, they are down over three percent.
In Asia, a contrast though. We did see some buying in China and Hong Kong, which stood out to me, but South Korea suffered. The Central Bank there
holding rates steady.
As we've discussed on the show already this week, when we've got rates so low already. Does it make sense to lower them further here or do
governments need to take action?
Let's get right to the drivers. I want to bring you up to speed with the latest developments.
A Chinese health experts saying the coronavirus in China will be under control by April adding that the outbreak peaked on February 15th.
Meanwhile, outside of China, cases continue to multiply sparking a range of emergency measures.
In South Korea, joint U.S. military drills have been canceled as both armies report cases. Japan's Prime Minister wants to close all schools
until April. In Saudi Arabia, they've suspended pilgrimages to Mecca and Medina.
Meanwhile, in the United States, as I mentioned, we've had a report of the first case of community spread. So a patient who has not been in a high
risk area or had known exposure to an infected person.
I'll bring it back to that warning from Goldman Sachs now, too. Analysts there saying corporate America's profit growth could be zero for all of
2020.
Clare Sebastian joins us now with all the details. A sobering warning here, Clare, but we are talking about growth in earnings, not outright. But what
else did they have to say and what are the assumptions -- the assumptions here that they're making to make this call?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia. I think the key to understanding this is that 2019 earnings were not that great. So 2020
was supposed to be a rebound year. That is some of the assumption that was baked into the recent rises in the market that we've seen. So Goldman Sachs
pouring cold water on that.
They acknowledged by the way, that they are head of the pack in doing this. They say in the report that consensus estimates still are looking at a
seven percent rise in earnings in the S&P 500 for the year.
But what is that base case scenario? Well, that is that the virus becomes widespread. They've also baked in a severe slowdown in economic activity in
China. Supply and demand factors, which we've seen reported by various companies. They say that U.S. economic activity will slow in the first
half, but should pick up a bit in the second half.
And one thing I think is really important to note, in their forecast, they also factor in elevated uncertainty that, as we know, can be corrosive to
business investment and to economic activity as a whole. So I think it's interesting that they noted that.
Now in their forecast, their baseline forecast, they're not saying that there will be a U.S. recession as of yet. If things end up being much worse
than unexpected, that is possible, but the baseline forecast is not for a U.S. recession and they are advising clients, Julia, to be defensive in how
they buy stocks, to move into things like utilities and consumer staples, and be a bit careful with how they act in the stock market at the moment. I
think that's reflected in the market activity that we're seeing.
[09:05:17]
CHATTERLEY: Yes, and it was quite interesting, as well as I was pouring over some of the details here, their prediction on the path of the S&P 500
here, near term pulling back to 2,900. But year end, they have got it significantly higher again at 3,400. Significantly on a relative basis, I
mean.
SEBASTIAN: Right, so I mean, they say as I said that the first half will be pretty bleak and then we should see a recovery in the second half. Don't
forget there are other factors in that which analysts have been pointing out to me that for example, the Boeing 737 MAX should return to the skies
in the second half.
But companies, Julia, are getting serious about this. We've had a number of warnings this morning and these are big companies. Microsoft became the
second trillion dollar company to warn that it was going to miss its revenue forecast. That is mainly driven by supply factors.
They say that that the factory activity when it comes to manufacturing, the Surface and Windows laptops is not returning as quickly as possible. We
will have -- we also have the world's biggest brewer, AB InBev saying this has already hit them in the first two months of the year.
We've got Marriott, the world's biggest hotel chain also warning, this is costing them a lot of money.
So this is hitting big, big multinational companies across a variety of sectors, and I think that is also equally sobering as these big, big number
reports from the likes of Goldman Sachs.
CHATTERLEY: Yes, we're certainly starting to build a picture here, and to your point, some of these big tech giants like Microsoft have been a real
pillar of support to markets here. So when they're revising lower their expectations and guidance, the markets take a hit.
Clare Sebastian, great to have you with us. Thank you so much for that.
All right, let's move on because in the United States, President Trump was playing down the risks associated with the coronavirus spread around the
world and into the United States.
In a press conference yesterday, he has also put Vice President Mike Pence in charge of tackling the operations here in the country. Here is Joe Johns
with all the details.
(BEGIN VIDEOTAPE)
JOE JOHNS, CNN SENIOR WASHINGTON CORRESPONDENT (voice over): President Trump downplaying the threat of coronavirus in the United States.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Because of all we've done the risk to the American people remains very low.
(END VIDEO CLIP)
JOHNS (voice over): Despite experts in the C.D.C. warning the threat will only get worse before it gets better.
(BEGIN VIDEO CLIP)
TRUMP: I don't think it's inevitable. It probably will, it possibly will. It could be at a very small level or it could be at a larger level.
Whatever happens, we're totally prepared.
(END VIDEO CLIP)
JOHNS (voice over): Surrounded by top health officials, President Trump again softening the warnings from those experts.
(BEGIN VIDEO CLIP)
QUESTION: And in just the course of the last couple of minutes, you have disputed some of what the officials that are working here administration
behind you have said about the risk of coronavirus and its spread. Do you trust your health officials to give you good information or do you trust
your instincts more?
TRUMP: I don't think I have. They've said it could be worse and I've said it could be worse, too. I also think --
QUESTION: You said, you also believe it's inevitable.
TRUMP: No, I don't think it's inevitable.
(END VIDEO CLIP)
JOHNS (voice over): Earlier Wednesday, Health and Human Services Secretary Alex Azar announced a 15th person tested positive for coronavirus in
California. And just hours after the rare White House briefing, the C.D.C. said that case could be the first in the U.S. of a patient who had not
traveled to the affected areas or had apparently not had exposure to another known patient.
The administration has come under fire this week after Cabinet officials received bipartisan grilling on Capitol Hill, arguing they are ill-prepared
to combat an outbreak in the U.S.
Still, President Trump appeared to claim partial credit for the limited number of confirmed cases in the country.
(BEGIN VIDEO CLIP)
REP. SEAN PATRICK MALONEY (D-NY): If you compare it to the response to previous situations like this, it's inadequate. And the most dangerous
thing is trying to happy talk a national health emergency because it suits some personal or political goal are because you're worried about the stock
market.
(END VIDEO CLIP)
JOHNS (voice over): The President also announced that Vice President Mike Pence will lead the administration's response. "The Washington Post" citing
five sources familiar with the situation, reports Azar was caught off guard by the announcement.
Sources tell CNN the President has privately expressed frustration with Azar blaming him for not keeping him updated enough.
It's unclear who's really in charge.
(BEGIN VIDEO CLIP)
ALEX AZAR, SECRETARY OF HUMAN AND HEALTH SERVICES: I'm still Chairman of the task force.
QUESTION: It looks like you're being replaced?
AZAR: Not in the least.
(END VIDEOTAPE)
CHATTERLEY: And the C.D.C. has confirmed the first coronavirus case of unknown origin. I want to get some explanation here though for you.
CNN's chief medical correspondent, Dr. Sanjay Gupta joins us now. Sanjay, great to have you with us. Thank you so much for being here.
I think a lot of people have will have walked away from that deeply confused and there is a fine line here between inciting panic, but also
making sure that people are aware and prepared. Can you cut through the noise for us? What do we need to focus on here and what needs to be done?
DR. SANJAY GUPTA, CNN CHIEF MEDICAL CORRESPONDENT: Well, you know, with regards to this 15th patient, part of the reason that is getting so much
attention, this patient is getting so much attention is because if you look at these other patients, the 14 patients, they had all contracted this
virus because of travel related or because they were the spouses of someone who was known to be infected.
[09:10:13]
GUPTA: Forty-five patients, they came from that cruise ship over in Japan. This 15th patient now, you know, 14 plus now this additional one 15th
patient, we don't know exactly how this patient contracted the virus.
There's no relevant travel history, there's no known exposure to someone who is carrying the virus. And Julia this means that this patient could
possibly represent community spread, meaning the virus is now in the community circulating among people.
Many of those people may not know that they have the infection. They may not have any symptoms whatsoever. That's sort of the definition of
community spread and then you have one person who transmits it to two or three other people and those people transmitted to two or three either
other people each and so forth. That's what community spread is.
So that was a really relevant point. And interestingly, it sounds like the health officials knew about this before the press conference, did not
mention it during the press conference, which, you know, would have been important to know, because it's such a significant development.
As far as cutting through the noise, the risks still, in places like the United States, where I am is still low. You know, you still have only
documented 60 patients, 61 patients now, who -- I'm sorry, 60 patients who have the documented infection.
But it is possible now, given this community spread, there could be more people out there who are carrying the virus. The vast majority of whom, 80
percent of whom may never have any symptoms or only have minimal symptoms. So that that's sort of the picture of things in many places now around the
world, including here.
CHATTERLEY: Yes, it's such an important context. I mean, President Trump also said yesterday, five of those 15 people have now recovered. Do we also
need to be talking about recovery rates here? And simply the fact that there are huge populations in all of these nations around the world and
we're still only, and I say it cautiously talking about 86,000 globally. Context here key, surely.
GUPTA: No question. I mean, we're starting to get a better picture of what exactly happens to someone who gets infected with the coronavirus.
And keep in mind we're talking about something that two months ago, two and a half months ago, we did have -- we had no knowledge of, never seen it
before in human beings.
So this is -- that's part of what happens with a novel virus. We're learning as we go along.
You know, Julia, part of the reason public health officials pay so much attention to a novel virus, it means that we have not -- our bodies have
never seen this virus before, and therefore, our immune systems don't really know how to fight it.
With most other pathogens, the flu pathogens, the common cold pathogens, we have some native immunity to that. Our body can sort of fight that off
unless we are already sick or have a compromised immune system.
With this virus, we really can't do that. Despite that, again, if there's some good news here is that the vast majority of people, even with this new
virus exposure don't seem to really get that sick. But about two percent of people do get sick and die from this according to some of the larger
studies.
With flu, which is something that people are much more familiar with, you get millions of people infected around the world every year, 0.1 percent of
those people will die a flu. With this coronavirus, thankfully, the number is much smaller, but two percent of people who become infected with this
will die of that infection. So that's a 20 fold difference.
And again, that's part of the reason public health officials really want to better understand the virus and obviously slow down the rate at which it
spreads.
CHATTERLEY: Dr. Gupta, great to have you with us. Thank you so much for your perspective here, much needed, I think.
All right, let's move on. Italy at the heart of the European outbreak that has spread to 11 countries there now. The government working on a recovery
plan to contain the economic fallout, too.
Melissa Bell is in Florence once again for us. Melissa, great to have you with us. What more do we know about this plan perhaps to support the
economy and further efforts to contain the virus spread?
MELISSA BELL, CNN CORRESPONDENT: Well, really here, Julia, we've heard from the Italian Health Minister speaking in front of the Italian
Parliament this morning about the fact that the government was working on this extraordinary plan to help contain the coronavirus and to support the
Italian economy, so we will await the details of that.
But in the meantime, of course, a great deal of anxiety here in Italy, especially in the touristic hotspots like Florence where I am speaking to
you from Venice.
This is an economy the Italian one, Julia that depends for 13 percent on tourism, nearly 13 percent. So the fallout of what is for now anecdotal
evidence, we've been speaking to hoteliers, people who are in the kind of restaurants that serve tourists in these cities, bar owners -- all of these
people who serve the tourism industry, they've been saying look, we're seeing a huge difference already.
And just to give you the timeframe, the first diagnosed case of coronavirus was a week ago today. We're on 528 today. The spread has been very quickly,
but the point is, Julia, that even faster than the virus itself is the fear of the virus. That is what spreads fastest of all.
[09:15:29]
BELL: And just going back to the point you were making a moment ago, the Italian government has been -- apologies, it's an ambulance passing by,
nothing to do with coronavirus, but extremely loud.
The Italian government has been at pains in the last few days to say look, there is no need to panic even as they try and contain the virus with both
the Italian authorities and the Regional Director of the World Health Organization who pointed out yesterday that four out of five people who
contract the coronavirus -- that is people who are actually infected, they either show symptoms or few symptoms and they recover.
So it is very low mortality rates that we're talking about, but it is that very contagious disease with that other point you were making about the
fact that it is so new, that we simply don't know enough about it. That is spreading so much panic.
So of course, Italian authorities have to try and keep it under control. But already, a great deal of criticism from those who depend on tourism who
are saying, look, right now we're just keeping people away and that is not a solution to this problem. We need people to carry on coming to Italy.
Those zones that needed to be locked down have been locked down and we really need to keep the economy afloat and bear in mind that this is
probably one of the European economies that was least able to afford this.
It is -- was even before coronavirus broke out here so spectacularly last week, teetering on the verge of what would be its fourth recession since
2008 -- Julia.
CHATTERLEY: Yes, it argues for a more coordinated response, certainly. Melissa Bell, thank you so much for that. Well-handled on the sirens in the
background there. Great to have you with us.
All right, let me bring you up to speed now with some of the stories making headlines around the world.
Health officials in India tell CNN at least 33 people have died this week amid violent protests in New Delhi. Clashes began Monday over a new law
that makes it easier for non-Muslims from neighboring countries to gain Indian citizenship. Opponents say the law is biased against Muslims and is
contrary to India's secular constitution.
Five people are dead in the U.S. State of Wisconsin after a mass shooting at a brewery complex. More than a thousand people were at work on Wednesday
afternoon when the shooting began.
Police say, the 51-year-old gunman was an employee of Molson Coors and later turned the gun on himself.
It was another night of CNN Town Halls in the U.S. State of South Carolina on Wednesday. Democratic presidential candidates made their last pitch to
voters with the state's pivotal primary now just two days away.
All of the candidates took shots at the Trump administration's handling of the coronavirus outbreak.
All right, we're going to take a break here on FIRST MOVE, but still to come, the coronavirus challenge. Apple's Tim Cook says the situation is
fairly dynamic while Microsoft warns sales won't meet targets. We take a look at the tech sector's exposure.
And buyers regret. The pharma giant's legal troubles following its Monsanto takeover aren't going away. I talks earnings, settlements and forecasts
with the CEO. Stay with CNN.
(COMMERCIAL BREAK)
[09:21:30]
CHATTERLEY: Welcome back to FIRST MOVE live from the stock exchange on the countdown to the market open this morning and I can tell you, futures are
at premarket session lows at this stage. All the major averages look set to drop more than one and a half percent adding to the six percent losses
we've seen on Wall Street or whether we could see the Dow fall into correction territory at the open this morning.
It's not just about the United States though, it's elsewhere. The Brazilian BOVESPA tumbled seven percent on Wednesday after the first case of
coronavirus was detected there.
In fact, the MSCI Index of Emerging Markets has fallen to 12-week lows. Bank of America, another analyst out this morning cutting their forecasts
for global growth to 2.8 percent today. It's the lowest growth rate since 2009.
Mona Mahajan is U.S. Investment Strategist for Allianz Global Investors, and joins us now. Great to have you with us.
MONA MAHAJAN, U.S. INVESTMENT STRATEGIST, ALLIANZ GLOBAL INVESTORS: Thanks, Julia.
CHATTERLEY: I want to talk about Goldman Sachs.
MAHAJAN: Oh, gosh, yes.
CHATTERLEY: Zero earnings growth in 2020 if the virus spreads.
MAHAJAN: Yes.
CHATTERLEY: Earlier -- last week, I was saying they were too optimistic in their forecasts. Now, I feel like we're a little bit extreme.
MAHAJAN: Yes, you know, it's interesting. We always thought the 10 percent growth number was high. It was very much back end loaded. Q3 and Q4 were
expected to be double digit plus.
CHATTERLEY: Which is what consensus is.
MAHAJAN: Yes. And I do think bringing that down to what we're saying, three to five percent might be more reasonable. The point that Goldman is
probably trying to make is that there's very much an unknown out there.
If this virus continues to spread in the U.S., we have downside from the consumer, which is the backbone of this economy? That's where I think the
risk is. So I see where the probabilities are falling out.
We're still in the three to five percent camp, but, you know, very much a big uncertainty and risk out there.
CHATTERLEY: You know, we've seen a number of risk events over the years in markets, and I think the analysts at UBS made a great point today too, and
they said the biggest or one of the biggest risks to the environment now to economic growth is fear.
MAHAJAN: Yes, yes. And I think you know, the old adage, markets do not like uncertainty and that's what we're getting right now.
So clearly in China, interestingly enough, the rate of cases has fallen and we've actually seen those markets stabilize a bit, but then you had the
spread to South Korea, to Japan, to Italy, you know, we cannot stop here in the U.S. Our borders -- we cannot stop, you know, those citizens from those
economies coming to the U.S. and perhaps spreading the virus here.
So I think very much so, people are in watch, particularly over the next three to four weeks if we get that spread or not.
CHATTERLEY: I mean to point, this while the Chinese are saying overnight that -- or at least in our time that the peak in in cases was in February
15th, assuming we trust the data and the announcements we're getting. So you do raise a good point here, but it's not even just about for markets.
For stocks, it's about consumer activity. It's about business investment, but was already weak as a result of broader tensions and issues here.
MAHAJAN: Absolutely. You know, I think it'll be interesting to see particularly the ISM data this Friday, you know, we've got that very weak
market manufacturing and services PMI data last Friday.
We have ISM for U.S. and China this Friday, and then we have that jobs report coming out next Friday. That will be critical with all of the
February data, have businesses you know, pulled back spending, have consumers pulled back as well, and we'll see the jobs and unemployment rate
as well. I think that'll be notable.
CHATTERLEY: I mean, we are seeing markets flirting or in correction territory now all around the world. I mean, Europe having steep losses
today. We could see the Dow open up in correction territory.
How much more downside could we see here? What kind of levels are you looking at?
MAHAJAN: You know, from a technical perspective we're looking at that 3,000 or 30 to 40, technically on the S&P. Keep in mind, we're down eight
percent since that February 18th peak. Today, it looks like we'll be down another two percent, so we're very much in that five to 10 percent
correction range.
Now, could we see further downside from here? I think historically back to SARS, where the S&P fell 12 percent, MSCI China fell 15 percent, and if
you're thinking that this may be worse than SARS, perhaps the correction is a little worse as well.
So reduce the downside in the near term until we get a little bit of an all clear here in the U.S. from the number of cases, as well as some of the
other economies outside of China. I think markets will be on edge and volatility sets.
[09:25:36]
CHATTERLEY: So what are you saying to clients here? Are you saying, look, if you're invested, stay with it. Don't necessarily look at opportunities
of getting back involved. Just be cautious and wait and see. Is that the message?
MAHAJAN: Yes, you know, it's interesting as we started the year, we had this barbell approach from investors really on one side, large cap tech had
performed well and then the other side you had the defensive sectors -- gold, treasuries, the U.S. dollar even, you know, REITs and utilities from
the S&P side.
That side of the barbell continues to work in our mind. We think you can be a little bit more defensive here, perhaps take some of that tech profit you
might have had, put it towards defensives.
At some point, we will get stability and there will be an opportunity to strike and really we've seen that historically over and over again with
pandemics, so keep that in mind as we're going through the next five or 10 percent downside.
Start getting your buying list out, but a little early yet, stick defensive but have that watch list ready.
CHATTERLEY: And I love that you mentioned some of the more defensive outside of stocks as well like gold and bonds and things.
MAHAJAN: Yes, absolutely.
CHATTERLEY: Great to have you with us. Mona Mahajan there.
MAHAJAN: Thank you, Julia.
CHATTERLEY: Some sage advice I think. The market open is next. It looks like a tough one. We're expecting steep losses. Stay with us. We've got you
covered. You're with FIRST MOVE on CNN.
(COMMERCIAL BREAK)
[09:30:00]
CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange and the opening bell of course there this morning.
As expected, another tough session to begin for U.S. stocks this morning. We are under pressure as you can see. I'm just doing the math here on the
Dow. We are in correction territory for the Dow at this stage. So we're talking 10 percent or more below recent peaks.
We've also got the S&P 500 down by some two percent though it is going to be volatile, I think for the first few moments of this session. I'll keep
an eye on it. This following through from a late date selling session that we saw in yesterday's trading following word of a U.S. coronavirus case of
unknown origin in California.
The Dow transportation sector, I'll just mention that that fell in correction territory earlier this week, too. Now the rush into the relative
safety of Treasuries continues today, too with the yield on the 10-year Treasury falling to a fresh all time low, below 1.3 percent. But it's not
just about bonds and equities.
What about the energy markets, too? Oil is tumbling. Brent crude down some three and a half percent. U.S. crude down 4.6 percent falling further below
that key level of $50.00 a barrel, of course, plenty more discussion on what we're seeing in the oil markets coming up later.
But for now, let me walk you through some of our big Global Movers. Shares of Gilead are up after the pharma company announced more trials for its
coronavirus drug.
Meanwhile, shares of AB InBev falling off the company said it lost $170 million worth of profits during the first two months of the year because of
the coronavirus. The world's largest brewer also forecast a 10 percent decline in first quarter income. Right now that stock down some eight and a
half percent.
Apple meanwhile is also under pressure after CEO, Tim Cook called the outbreak a challenge at the company's annual shareholder meeting. Like
there's any surprise there. Three and a half percent lower in the session this morning.
And shares of Microsoft also down some four percent after the company said it won't meet its revenue guidance for the current quarter because of the
coronavirus.
For more on the impact that we're seeing here on Microsoft and Apple and the broader tech giants, Dan Ives joins us now. He is Managing Director of
Equity Research at Wedbush Securities.
Dan, great to have you with us, as always. Microsoft warning today that they won't meet their -- surprise -- their guidance in the personal
computing segment, but everything else and I do think this is important, they left unchanged. Your views here. What do you think?
DAN IVES, MANAGING DIRECTOR OF EQUITY RESEARCH, WEDBUSH SECURITIES: Yes, I think that's really the view. I mean, no doubt on the supply chain, they
are a victim especially on the PC side about a third of revenue.
I think the most important telling thing is they could have easily taken overall guidance off the table. In terms of enterprise spending, Cloud they
didn't. That's why it's some bad news, obviously confirmation what we're seeing across the supply chain from Apple as well. The fact that they kept
guidance, the same for everything else. That's a positive and it speaks to that. That's really what the Street is focused on from a Cloud perspective.
CHATTERLEY: I mean, so a third of revenues, so we aren't going to be sensitive to forecasts and changes to guidance in this specific sector.
Just based on what you were saying there, Dan, do you think they are being too cautious here or not cautious enough by leaving everything else steady,
given some of the forecasts that we've had, particularly from the likes of Goldman Sachs today, because there's real caution coming from them about
the impact on U.S. companies.
IVES: Yes, I think it's a quagmire for these companies because they have to see it in terms of what they're seeing in their pipelines and their
supply chains and obviously, they're going to take off guidance, you know, if doesn't going to meet their forecast.
But I do think you have to separate what's going on here between the supply chain and demand. And ultimately, what we're going to see in terms of, you
know, core demand impacts for enterprise and for moving to the Cloud. Thus far, I could tell you even over the last week, we haven't seen any changes
in buying behaviors in terms of these larger tech companies.
And so right now for investors, it is no doubt there's a lot of fear going on here. But I think you continue to -- if you look at the winners, the
secular trends and if the demand doesn't change for the long term, you know, we continue to be firmly bullish on names like Microsoft and Apple.
CHATTERLEY: Yes, you make such a great point about the timing impact here for the supply chain. I know you're breaking it down. If we talk about
Apple now because I think this is going to be key for investors today, too, it comes down to what are we seeing in terms of getting the supply chain up
and running in March, in April or in May and the more staggering we see, the greater the impact.
[09:35:04]
IVES: Yes, I think I almost put it in a base best-worst case scenario. Best case, the supply chain really starts to get up and running by March,
end of March. At that point, 5G phone basically stay on target, you know, if you look at it.
If you look at base case, we're probably looking sort of early April, mid- April; worst case would be late May and at that point, that's where 5G phones would get pushed past holiday.
So right now, with the Street's laser focused on is the timing of the supply chain, getting back to where it is, a normalization pattern. And I
think if you start to get there in that March or early April timeframe, I think you'll see a bounce back in Apple because again, because again, it
comes down to our thesis, its supply chain driven, not demand driven for Apple even though obviously there are a lot of nervousness.
CHATTERLEY: At what point though to your earlier suggestion about separating the supply chain impact versus demand impact. Do we actually see
demand destruction for Apple?
IVES: Yes, I think at that point, it really comes down to the demand destruction. If you start to see this go on beyond a quarter outside of
China, that's where it really becomes a broader demand destruction.
Remember China, that's 20 percent really of their core iPhone market, and it really comes down to it. That's why they're really almost the poster
child for this situation yet again, you know, in terms of China, because it's not just supply chain, it is the demand.
So right now for investors, it's really folks on demand destruction in China. And we think at this point that's very contained in terms of demand
destruction, which is why we continue to view more timing, rather than what I would say that dent to the long term bull thesis for our 5G super cycle
for Apple.
CHATTERLEY: When I think of you, I think of a tech bull, medium term, longer term, you like the story and this has been one of the key pillars
for the broader markets and the rally that we've seen in these big tech giants.
Are you still underlying this comfortable sticking with these stocks and just riding out what is yet another exogenous shock and it's tough to gauge
how big the impact is going to be, ultimately? And at what point we go, you know what, actually, I'm really uncomfortable here. We need to take some
money out of this.
IVES: Yes, it's a great question. And I'd say it's a question I've been getting from a lot of investors. I can tell you, I've been covering tech
stocks 20 years in Wall Street, especially being very bullish over the last decade on tech names, a lot of exogenous events, you know, a lot of
Armageddon like events at the time.
We view it as, is there demand destruction? Does the thesis stay the same? And are the winners going to prevail on the other side? If that's all yes,
then ultimately to us, we stay bullish on it.
So that's why I continue to do obviously a lot of work in the supply chain demand. But to me, I view this still more as an opportunity to own the
winners and a hand holding exercise, rather than the start of what I view is a secular, you know, Armageddon, like negative view of these names and
we're definitely not on that area.
CHATTERLEY: Yes, it makes perfect sense to me, and actually, Dan, in your note, you pointed out that none of this takes away from the tragedy and the
human impact of this event and it brought it home to me once again, and I want to make that point, too, that we have this discussion, but we don't
want to detract from the tragedy that it is.
Great to have you with us. Thank you so much. Dan Ives there.
IVES: Thank you.
CHATTERLEY: Thank you. Let me just give you a look at what we're seeing at this moment for U.S. markets. We've bounced a little bit over the last five
to 10 minutes or so for the Dow, currently down some 1.5 percent as you can see. The NASDAQ though under pressure. We've just been talking about the
tech sector in particular, at this moment, down some 2.2 percent. Very different feel to what we saw in yesterday's session, but volatility, I'll
reiterate the name of the game here.
We're shaping up for a tough session. We've got you covered. We're back after this. You're with FIRST MOVE.
(COMMERCIAL BREAK)
[09:42:17]
CHATTERLEY: Welcome back to FIRST MOVE with a look at what we're seeing for the price action now in U.S. markets. Steep losses for all the majors
at this moment. Tech stocks leading the decline. We are off just over two percent.
The Dow and the NASDAQ have now tumbled into correction territory. What that means is that they have fallen some 10 percent or more from their most
recent highs. The S&P 500 actually just on the cusp of correction at territory, too.
I want to show you what we've seen in Europe as well because we've also seen steep losses in the session thereto. The French markets are
underperforming at this moment, but all of them as you can see there, off more than three percent for the majors
All right, let me bring you up to speed with today's Boardroom Brief. Apple CEO, Tim Cook announced the tech giant will open its first retail store in
India next year. Jumpstarting the iPhone maker's move, Cook said Apple will also start selling its products online in the country this year.
Previously, Apple sold its devices through stores in India run by local partners.
Startup Clearview AI sees its entire client list was stolen by hackers. The company compiles billions of photos from popular sites like Facebook and
Instagram and uses them for facial recognition technology.
The firm has been under criticism after investigations revealed their clients included law enforcement and police agencies.
Bayer, the German Agro-Pharma giant say selling assets or borrowing to cover the cost of litigation related to the weed killer, Roundup, a worst
case scenario. The company said settlement talks are continuing with thousands of plaintiffs who allege the weed killer causes cancer.
The legal issues were inherited from Bayer's $63 billion takeover of Monsanto.
Earlier today, I caught up with Bayer's CEO after they reported full year earnings and began by asking how close they are to a legal settlement.
Listen in.
(BEGIN VIDEOTAPE)
WERNER BAUMANN, CEO, BAYER: Well, Julia, we have been working quite diligently with the dual path strategy that we had embarked on. On one
side, of course, continuing to litigate the cases that we have lost in first instance, and on the other side, we continue to be very
constructively engaged in the mediation discussions under the leadership of Ken Feinberg.
And, you know, to the extent that you also hear that your people are working with each other, you can assume that negotiations continue to go
on. And as long as continuation of the negotiations is warranted, there's a chance to come to an acceptable result, I would say for us at the company.
[09:45:03]
CHATTERLEY: You've also acknowledged I think, for the first time that what we could see here is the need to sell assets, to sell fresh equity, even
borrow to cover the ultimate cost here.
I appreciate it's difficult to gauge at this stage, but is there anything that you can say here to allay investor's fears?
BAUMANN: Yes, I think it's very important to put the narrative that you just mentioned into perspective, that's part of our Annual Report and our
Risk Report. It has no bearing whatsoever when it comes to the current situation.
It describes, I think, what could be done even in cases that only have a remote likelihood of occurrence, but we have to describe the entire
universe of potential outcomes here and then activities that will be triggered by those outcomes.
CHATTERLEY: Your forecasts? Sales, earnings, free cash flow? You're expecting a rise in in 2020. Tell me where this is coming from, because I
do think we spend perhaps too much time focusing on the crop sciences business when a lot of the focus also needs to be played on what you're
doing in the pharma side, too.
BAUMANN: Yes, we've seen last year actually growth contributions of all of our businesses, we have reached a fairly nice growth of about three and a
half percent, which I think is quite good given the circumstances and you know, some of the market environments that our businesses are exposed to,
in particular in crop.
And for 2020, we look at just about the same growth rate across all of our businesses. So pharma is going to grow by just about three to four percent.
The crop business is going to grow at a similar pace, and our consumer health business has come back to pure growth a year ahead of our original
plans.
So top line momentum is good. And bottom line momentum is actually following to a greater extent due to the benefits that we are going to reap
from the contributions that come out of synergies, the contributions that come out of our structural measures.
So our earnings are going to grow quite a bit faster.
CHATTERLEY: What I think was quite surprising for many and I know it's tough to gauge at this stage is that your forecasts don't include
predictions and impact here for the coronavirus outbreak. Can I just ask what impact you're already seeing across global operations particularly in
China?
BAUMANN: Yes, that's a very, very good question. And we have been discussing about what to do and what is the best information that we can
give our shareholders, you know, and truth to be told, the situation continues to be very, very volatile.
The news of the day changes the perspective of the week, which is then a reflection of what is going to be, you know, the most likely outcome for
the month and it changes day by day.
The assets I would say are the following. We are -- in some areas, we will for sure see an exposure of our business to the coronavirus because we see
less traffic going into hospitals. But at the same time, we have actually resumed full operation of our manufacturing base in China, be it our pharma
business in Beijing or be it our crop operations.
So from that perspective, things are going well. We have only one single reported corona case in our workforce in China, and we'll see how things
are going to evolve over the next four weeks so that with our quarter one communication, we can give some specificity and something useful in terms
of guiding the remainder of the year based on the experience of the first quarter.
But right now is really too early. Yes, and on top of that, there's of course, some negative effects. There are also always some positive effects
that will help inform the view of the full year as well.
CHATTERLEY: Yes, I mean, it's interesting, as a leader of a global business, too, as we look at the spread of this around the world,
particularly into Europe now as well. Are you taking any precautions for workers, for supply chains at this stage? Or are you simply, to your point,
given the level of uncertainty here just waiting and watching?
BAUMANN: Yes. So as many other companies, I guess by now, most -- almost all companies, we have put together a Crisis Management Team that has been
in place for quite some time. Our Crisis Management Team is monitoring the situation, truth be told, right after your our chat, I will be sitting
together with our Board of Management and then discuss what to do going forward.
Also in terms of maybe stepping up how precautionary measures in particular due to the fact that you mentioned that the disease and the virus has now
come into Europe mostly through Italy, so there will be probably a few more things that we will put in motion.
(END VIDEOTAPE)
[09:50:25]
CHATTERLEY: Uncertainty, I take away, but also their Chinese operations are up and running. Worth reiterating there.
All right, let me give you a look at what we're seeing for U.S. markets early on in the session here. We are in correction territory. All three
majors now down 10 percent or more from their peaks.
It's not just stocks though, oil as well, firmly under pressure as you can see. Real global growth concerns here. WTI down more than five percent,
more analysis after this. Stay with CNN.
(COMMERCIAL BREAK)
CHATTERLEY: As we were discussing before the break, oil prices under severe pressure in the session. WTI down from 4.4 percent. Not helping
sentiment today. Goldman Sachs has cut its 2020 oil demand forecast in half.
Matt Egan joins us now. Matt, we were talking about Goldman Sachs earlier and their quite aggressive reduction in growth estimates for the U.S.
markets. What are they saying about the oil markets hereto? Give us more detail.
MATT EGAN, CNN BUSINESS SENIOR WRITER: Well, Julia, this is easily the biggest demand shock facing the oil market since the 2008 financial crisis.
There really is palpable fear right now that the coronavirus could spark a severe slowdown or even a recession in the United States and elsewhere
around the world, and so we're seeing that play out in the stock market, but also in the energy markets.
The U.S. oil price is down another five percent today, 13 percent on the week. They're down 25 percent just since the recent peak in January.
Now you mentioned Goldman Sachs. They are cutting their 2020 demand forecast. They now only see 600,000 barrels per day of demand growth for
2020, a really big decline from earlier.
But you know what? They actually are not the most negative here. FGE, the consulting firm, they say that they think there will be no growth in demand
for oil this year and I think that makes some sense, given what's happened here.
You know, whenever there's a slowdown or a recession, oil always takes a hit on the demand side, but the nature of coronavirus I think really
amplifies that.
I mean, let's remember this all started in China. China is not just the world's number two economy, but it's the largest importer of oil. It's
really the epicenter of demand growth, and the coronavirus shut down large parts of this economy. Flights have -- many flights have been canceled not
just to China, but Korea, also in Europe.
And so that means there's less demand for motor gasoline, less demand for diesel and of course for jet fuel.
So all of this is putting enormous pressure on OPEC to really come to the rescue when they meet next week in Vienna. The oil bowls are of course
hoping that OPEC and Russia they deliver really decisive production cuts.
[09:55:15]
EGAN: And in the past, OPEC's actions have been successful by putting a floor beneath oil prices. But Julia, we should remember though that this is
different. Unlike those other oil bear markets, this one is not about excess supply, it's all about demand destruction.
And those kinds of selloffs are much trickier to resolve because of the uncertainty involved.
CHATTERLEY: Oil very much at the heart of the butterfly effect here, to your point, transport, global growth, demand particularly from China. It's
a great point.
Matt Egan, great to have you with us.
A final look of what we're seeing for U.S. stocks at this moment. Correction territory for all three majors.
Plenty more to come in a couple of hours, but for now, you've been with FIRST MOVE, time to go make yours.
(COMMERCIAL BREAK)
[10:00:00]
END
