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First Move with Julia Chatterley
Another Day Of Whiplash As Futures Point Sharply Lower; OPEC Ready To Cut Oil Output By One And A Half Million Barrels A Day; IATA Says The Airline Industry Could Lose Up To $113 Billion. Aired 9-10a ET
Aired March 05, 2020 - 09:00 ET
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[09:00:25]
JULIA CHATTERLEY, CNN BUSINESS ANCHOR: Live from the New York Stock Exchange. This is FIRST MOVE. I'm Julia Chatterley. And here's your needs
to know.
Yoyo markets. Another day of whiplash. Futures point sharply lower.
Less is more. OPEC ready to cut oil output by one and a half million barrels a day. But will Russia agree?
And travel turbulence. IATA says the airline industry could lose up to $113 billion.
It's Thursday, let's make a move.
Welcome once again to all our FIRST MOVErs around the globe. Great to have you with us. I'll tell you what. V though is for virus. V is also for
volatility.
Wall Street bracing for another session of sharp price swings. Take a look at what we're seeing at this moment for futures, down sharply, retracing a
whole chunk of the four percent gains that we saw in Wednesday's session. That, in fact was the Dow's fifth straight day of seeing a one percent gain
or loss. Yoyo markets as I've already called it.
The majors actually exited correction territory yesterday as a result of that rally, for now though they're down less than 10 percent from most
recent highs. So I think as it is, our year-to-date stock check is probably worthwhile.
For all the volatility and the choppiness that we've seen, the S&P 500 is down just three percent so far this year, and I say just.
The NASDAQ still up, in fact, half a percent in 2020. It begins the session above at 9,000 once again. Not bad considering all the coronavirus related
uncertainty.
Now, as I said if V is for virus, S is for stimulus. The U.S. House passing an $8 billion emergency funding package yesterday. Now the Senate, of
course, needs to vote on it.
China, in the meantime said it is stepping up funding measures and the IMF and the World Bank announced a $50 billion aid package for developing
nations, too.
Now, we've argued many times on this show that perhaps stimulus here -- that kind of spending is superior to rate cuts when they're already so low
and that's what we're seeing.
The announcements giving the Asian session and the stock markets there a boost overnight. Stocks in China and Hong Kong rallied some two percent.
But I'll tell you what, it's Europe that is setting the tone right now, as you can see down around two percent across the board at this hour.
Let me bring you up to speed with the latest on the coronavirus development. The latest numbers are such, more than 95,000 cases have now
been reported, over 3,300 deaths.
A state of emergency has been declared, meanwhile, in California after a 71-year-old patient with underlying health conditions died. The cruise ship
on which he traveled is being held off the coast.
In the U.K., the top medical adviser says community transmission is now highly likely in cases that link to Italy that have gone global in India,
Iceland and South Africa.
In Bosnia, Poland and Switzerland, all have reported their first infections. Now Iceland and Spain, in fact seeing spikes.
To New York now where a thousand people are being asked to self-quarantine, 13 cases have now been confirmed.
As I mentioned though, there are efforts being made to combat the coronavirus outbreak. The U.S. Senate now poised to vote on that emergency
funding bill committing over $8 billion to the efforts.
The IMF, as I mentioned, too, earmarking $50 billion to tackle the crisis.
Christine Romans joins us now. Christine, a whole lot to get through. But I think at the core of it here, if we bring it back to markets for a moment,
it's the sheer volatility. We're reacting to every second, every other headline here and it's up one day, and it's down the other, and I think we
should prepare for more.
CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: I think you're right, seven down days, and then one big up day, and then one big down day, and
then another big up day.
I mean, that's what we faced just the last 10 sessions, and I think election year unpredictability is going to remain the story.
Now one thing interesting about yesterday, 24 hours ago, you and I were talking about the Biden bounce, and then we got a bipartisan boost to that
with that $8.3 billion emergency coronavirus funding that Congress so -- the House actually so easily passed in the Senate as expected, too, as well
because the President is behind it.
Inside of that, you see a coordinated effort to try to make sure there are tests. There's vaccine funding. That there's emergency funding for state
and local authorities who need the money for public health services, for community health programs.
[09:05:18]
ROMANS: So you see the money being deployed, the stimulus as you so rightly put it being pushed out in terms of the coronavirus.
You've seen some positive developments on the same front in terms of money and stimulus around the rest of the world. So that was the tone yesterday;
and then this morning, a stumble again, a pullback again, just because -- you just can't get two up days in a row together here and this is a story
of a very volatile election year market. No question.
CHATTERLEY: Absolutely. Sheer level of uncertainty here and it continues. We had a guest on FIRST MOVE yesterday saying that he believes the
coronavirus crisis actually fueled some of the voting for Joe Biden here which I thought was an interesting comment to make on Super Tuesday.
But one of the other things we're dealing with here is lack of information and misinformation, and that goes right to the top here in the United
States.
We have the President of the United States contradicting the World Health Organization over the likely death rate here. And he pointed out that we
may not be recording all the cases. So he may ultimately have a point here, but we simply don't need it when there's this level of uncertainty.
ROMANS: You're so right, and I think -- and I really do think that is a subplot in the market reaction and the market disarray of the past week or
so, this idea that they want to know there's coordinated and responsible response, even with all of the uncertainties.
We don't know how far this virus will go. We don't know exactly how long it will take when the peak would eventually come to United States, how many
people will be sick, and then you have the President calling into a Fox News host show and saying it's his hunch the W.H.O. numbers are false
numbers.
That's exactly not -- not -- what people who want a steady hand in this crisis like to hear.
CHATTERLEY: Yes, facts first, data first, please. No hunches. Christine Romans, great to have you with us. Thank you so much for that.
Now, the costs to the airline industry mounting up, too. The IATA, the international travel organization suggesting that the costs could amount to
$113 billion in a worst case scenario. Anna Stewart joins me now.
Anna, I reiterate, it is the worst case scenario here. But it's a significant revision from the earlier estimates of cost, which were what?
Around $30 billion. Tell me why they're citing now significantly higher costs.
ANNA STEWART, CNN REPORTER: An absolutely huge jump, as you said there. It is their worst case scenario, but with no signs of the virus being
contained, it's a scenario that airlines may well have to face.
Now, just to put it into perspective, global airlines losing $113 billion in lost revenues this year equates around 19 percent of airlines business.
Now, there is the direct impact of the coronavirus, of course, those routes to, from, within Mainland China that had to be canceled. There's also of
course the indirect impact of the virus.
We can show you some pictures of Hong Kong Airport just to show you a collapse in demand for flights. Hong Kong Airport usually a bustling
airport, looking absolutely desolate.
You've got to consider that major expos and events all around the world have been canceled. The Mobile World Congress in Barcelona this week, I
should be at the ITB Travel Conference in Berlin.
Corporates telling their employees, they will not be allowed to do any business travel and this is absolutely essential.
So worst case scenario, you can see how that drop off in demand all around the world will impact these airlines. The CEO of IATA saying this is a
crisis.
CHATTERLEY: Yes, for all airlines, this is a challenge. It's about now trying to reduce capacity to save costs. For one particular airline that
was already embattled Flybe. They've gone into administration.
STEWART: Yes, they collapsed in the early hours of this morning. This is a regional U.K. airline, more than 2,000 jobs at risk there. No surprise as
you said, it's been on the brink of collapse since the beginning of the year when the Flybe was in discussions with the U.K. government for
potential bailout options.
However, in a statement, the airlines says that their financial challenges have been compounded by the coronavirus, which they say in the last few
days has resulted in a significant impact on demand.
Now, there are some specific issues that this airline competition in the U.K. regional market was very strong. Some say they were over ambitious in
their strategy looking towards Europe a few years ago, but they also faced the same headwinds that loads of airlines face -- rising fuel costs,
falling demand even before the coronavirus.
And if IATA's dire warning was to come to fruition, we can only expect that other airlines may find themselves in the coming months in a very similar,
very troubling position -- Julia.
CAHTT Yes, for the most weakest, it's a real strain, and that's not just about the airline industry, of course, it's all across all sectors here.
Anna Stewart, great to have you with us. Thank you so much.
Now that of course, and the reduction that we're seeing in global travel well and truly feeding into our next driver here and that's reduced oil
demand, not only forecast but what we're already seeing.
[09:10:09]
CHATTERLEY: OPEC in the interim, agreeing that they need to cut output here, cut capacity. They're currently meeting in Vienna and John Defterios
joins us now. Great to have you with us, John. You've been predicting this for weeks. OPEC is saying, look, we are ready. We are prepared to cut oil
output here. The question is, can they bring Russia on board? And what does the compromise here perhaps look like?
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Well, that's the multibillion dollar question and that's literally the case, Julia. You
know, they're not new to crisis here within OPEC itself, especially because of the Middle East producers, but that demand erosion here because of the
coronavirus is radical, we're looking at four million barrels a day in the first quarter.
And houses like IHS Market and Goldman Sachs adjusting, it will be over a million barrels a day last throughout 2020. So it is for real, and I have
to say, the OPEC response is pretty radical at 1.5 million barrels a day through the first half, basically the second quarter of 2020.
You ask, will the Russians sign on? It's interesting. Going into the meeting, I caught up with the UAE Minister and the Nigerian Minister, and
they both said we're not going to leave Vienna without a deal. And it won't be a deal splitter within the OPEC Plus Agreement. We will have Russia on
board.
What's the compromise? We hear that Russia is willing to agree to one million barrels a day. The Saudis set the bar high at 1.5 million barrels a
day. Do they do something in between, or do the Saudis as a swing producer override, yet again? That's what happened in December by the way. The
Russians signed on at the very last minute, but the Russians, I'm told and this has been very senior sources who are saying, they don't like to give
up ground to the shale producers.
U.S. at 13.1 million barrels a day in the latest quarter, Julia. They're still rising, and Russia feels like, why are we giving this up? We have new
big projects on the line here that we can produce at $40.00 a barrel and still make money.
CHATTERLEY: Absolutely. And you've still got the likes of the United States, Norway and Brazil producing as much as they like.
So the conundrum there is clear for all of these guys. It is going to be interesting to see if we see some disappointment. But John, I actually want
to ask you about the atmosphere there, the environment and how they're actually managing to hold this meeting.
You put a picture on social media of the flight that you took to Vienna, and the plane was basically empty. How are they managing it amid the
coronavirus outbreak?
DEFTERIOS: Yes, and that flight from London to Vienna, every time there's an OPEC meeting, it is jam packed, whether it's Austrian Airlines or BA or
some of the other carriers. It was only 10 of us on that flight, which is pretty surprising.
We have a video here of the foot shake, if you will. This is the Secretary General of OPEC. This was also on social media with the Russian Minister,
instead of shaking hands, trying to create an atmosphere of lightness, but the situation is quite severe.
And what do I mean by that? We can't go into the meeting because they didn't want to have too many journalists in the basement without windows.
They limited the size of the delegations as well, but they recall 2016. It is very fresh in their minds, Julia, when we went down to $30.00 a barrel,
they're not interested in seeing that, again. 2008, we are at $147.00, it went down to $30.00 a barrel. They worked hard to get the OPEC Plus
Agreement, which was formulated 2016-2017.
And also behind the scenes -- and this is something that's real -- as a result of the OPEC Plus Agreement, they've signed lots of deals between
Russia, the UAE, Saudi Arabia, into Africa, going in together. Do you want to throw it away because you don't agree on a half a million barrels a day?
I would say the answer is absolutely not.
So I think the OPEC Plus Agreement lives, very strange with the coronavirus. The destruction is radical, and Saudi Arabia is saying let's
send a signal to the market.
But I think the interesting response here is, after that announcement, we didn't see the market move higher. And the market is questioning whether
Russia will indeed sign on and that's a big question tomorrow.
CHATTERLEY: We didn't see it move lower, either, John, and that's the key. But I love your point about the incentives here and it's about far more
than just the optics of being in a meeting.
Always great to have you.
DEFTERIOS: Yes.
CHATTERLEY: And actually, to John's point there, we've got an analyst coming up on the show who believes we could see $30.00 a barrel in oil, so
watch this space for that.
And in the meantime, if you are confused and want more information, facts, and to address some of the fears about the coronavirus, we have got you
covered. CNN will be hosting a Global Town Hall. That's Thursday night at 10:00 p.m. Eastern Friday morning at 11:00 a.m. in Hong Kong.
Please stick around and watch that. It's hosted by Anderson Cooper and Dr. Sanjay Gupta, too.
All right, let me bring you up to speed now is some of the other stories that we are following around the world.
Russia's President Putin and Turkey's President Erdogan are meeting in Moscow today to discuss the future of Syria. They're hoping to hammer out a
ceasefire. The meeting is being seen as an opportunity for the two leaders to thaw their relationship.
Arwa Damon joins us now from Turkey. Arwa, delicate balancing act here I think particularly for the Russians caught between the Syrian leadership
and trying to give attention to that relationship with Turkey here. What hopes really for a ceasefire?
[09:15:16]
ARWA DAMON, CNN SENIOR INTERNATIONAL CORRESPONDENT: That is going to be very much one of those, let's wait and see what they've managed to
negotiate, if anything.
As far as where we are, Putin and Erdogan have already met. Now, the delegates -- their delegations are meeting and that we're expecting some
sort of a press conference.
And look, the relationship between Russia and Turkey has always been very interesting in the sense that both countries' leaders are fairly capable
for the most part of compartmentalizing their differences when it comes to ensuring that they're advancing areas in the areas where they do continue
to cooperate in things like trade and in defense.
But Syria has really tested their relationship especially since they are on such complete and total polar opposites of this war that has really
condensed itself into what is taking place inside Idlib right now.
The Russians, of course backing the Syrian regime want to see all of Syria back under Damascus's control whereas the Turks most certainly do not want
to see that happen for a number of reasons.
But pretty high on the top of that list is the fact that they don't want yet another humanitarian crisis along their border, which is still closed
with Syria.
What kind of an agreement can these two leaders hammer out? How will the various fighting parties on the ground take to that? Agree to that? That we
don't know.
Worth noting also, that it is hardly the first time that they have negotiated a ceasefire or a safe space or a safe zone of sorts? This has
been happening specifically with regards to Idlib for the last two years. Every single agreement has been broken, every single ceasefire has been
shattered.
The population inside Idlib, we were just there, Julia, they say that it doesn't matter what they negotiate, because at the end of the day, it will
be broken.
But if we look at the violence that we've been seeing, especially since the beginning of December, around a million people displaced, having to stay
out in the open without sufficient humanitarian aid, with the bombs coming in, despite the fact that Turkey has become more militarily involved in
Syria.
Yes, that has not done much to sort of stop the bombardment of the civilian population. So suffice to say, there is a lot at stake. But at the end of
the day, serious future is not being negotiated by Syrians. It's being negotiated by Russia and Turkey.
CHATTERLEY: Yes, and Arwa, you've done some incredible reporting on that humanitarian crisis. So thank you for being there and bringing the story to
us. Arwa Damon there in Turkey.
All right, let's take a break here on FIRST MOVE, but coming up, the South by Southwest Tech Festival is still on, that, despite the coronavirus
threat, and two major names canceling.
And China rolling into the European electric car market with this super slick SUV. Let's take a look. Stay with us. We're back after this.
(COMMERCIAL BREAK)
[09:21:19]
CHATTERLEY: Welcome back to FIRST MOVE where we are counting down to the market open this session and we are on track to see pretty significant
losses when these markets open up.
As you can see, we've lost a bit of ground even in the last 10 to 15 minutes or so. This of course follows four percent gains in yesterday's
session, driven in part by healthcare stocks. We saw double digit gains in fact, yesterday. Look at that. Wow.
This after Bernie Sanders' Primary momentum slowed. Of course, he said, he'd tackle healthcare in particular. A monster spending, of course, too on
full healthcare for American citizens. The likes of United Health, Anthem, Cigna, and Humana were among the outperformers, but they are all lower
today premarket.
What about the airline stocks as well? We also saw big gains -- recovery, let's call it -- on Wednesday's session, too, but those are also sharply
lower in premarket trading after that fresh revenue warning from the industry group, IATA, of course, too.
Let's talk through what we're seeing. Stuart Kaiser joins us now. He is Head of Equity Derivatives Research at UBS. Great to have you with us.
STUART KAISER, HEAD OF EQUITY DERIVATIVES RESEARCH, UBS: Good morning, thank you.
CHATTERLEY: It's a rollercoaster ride, on a daily basis, up one day significantly, down the next -- set to hang around for a while, this level
of volatility?
KAISER: That's our view. Even on Monday, when you saw the VIX come down quite a bit, volatility priced three to six months out didn't budge. So I
think what the market was telling you is yes, the markets rallying a bit here, but we're still quite concerned about what the medium term outlook is
going to be.
CHATTERLEY: That's interesting. The VIX is the stock market measure of volatility, and you're saying even if the figure that we normally look at
on a daily basis for the VIX, if what you saw in terms of future volatility still stays it's going to hang around.
KAISER: Yes. Hundred percent. So the VIX term structure, which goes out about nine or 10 months, essentially, the front move down, the middle
stayed dead flat where it was. And then yesterday, it was actually up.
So relative to Monday, that three to six-month range is actually higher than it was when the week started. So we do think the market is still -- as
expected to bouts of volatility.
CHATTERLEY: That's also normal historically, when we go through periods, bouts of volatility does tend to hang around for several weeks. So the idea
that we keep asking, have we seen the worst? Have we seen the lows here for the market?
Your view here is simply based on the level of volatility we're seeing, it is too tough to predict.
KAISER: Yes, we don't think the lows are only for the market. You know, we think the volatility market is telling you they're not -- if you look
across asset wise, you know, gold, the yen, the 10-year Treasury which are very defensive assets, volatility is elevated there.
And frankly, we still expect some domestic headlines that are going to are going, you know, stress test the market here, but we don't think it's there
yet.
CHATTERLEY: Okay. How much more downside then for stock markets potentially -- I'm sorry -- the million dollar question?
KAISER: I think that that is the million dollar question. If you look at periods when the VIX has gotten above 30 in the past, the range of
drawdowns for the S&P in the next month is sort of five to 20 percent. We got down 15, so we're sort of at the lower end of that already.
You know, we don't think this is a 2008 situation yet. So we're not going to go in that direction. But I think, yes, there is the potential for
still, you know, another five to 10 percent downside relative just to historical kind of context.
CHATTERLEY: You know, there will be a lot of people here saying, I just heard you mentioned some of the obvious safe havens, the Japanese yen,
gold, and yet volatility in those is very elevated to your point, too.
So are they real safe havens? Do we just have to sort of hang on here and stick with them and see them as a safe haven, despite the fact you are
getting chopped around? It's tough.
KAISER: I mean, that's our view. I mean, the 10-year is below one percent. So, clearly, people are kind of hanging out there as it is.
You know, the typical active portfolio manager has been pretty defensively positioned for the last couple of years. You know, even within an
aggressive sector, like tech or materials, they're owning kind of the safest stock they can find within those sectors.
CHATTERLEY: Right.
KAISER: They are owning a low volatility stock, a safe earnings growth stock, and stock with some dividend yields.
[09:25:00]
CHATTERLEY: Such as? Like what sectors should we be looking at here?
KAISER: The defensive parts the market had been leadership. So that's been software. You know, that's been a very defensive part. Pharma has been a
very, very defensive part of the market.
CHATTERLEY: And we're just showing some shocking price rises.
KAISER: There's some election risks kind of we have to deal with there as well.
CHATTERLEY: Yes.
KAISER: But I think it's at the sector level. So within software and large cap tech that's has been very, "safe." But across sectors, people are still
selecting the safest stock they can find within that sector as well.
CHATTERLEY: What's the good news here? I feel like we've scared our viewers to death here. Is there good news? There are good takeaways from
here.
I mean, a few weeks ago, we were talking about things like low oil prices being a boon to the consumer. I mean, that's something that's provided a
great deal of support, not just in the United States, but elsewhere.
KAISER: I mean, oil lower would be a good news medium term, but you know, oil has been sort of not responsive to this as much as you might have
expected.
I think the good news is you've got Central Bank stimulus. You've got various governments talking about forms of fiscal stimulus. The Chinese
government has been very aggressive about it.
And for the U.S. perspective, if you want to take a positive, it's we've had some lead time here, right? It's sort of maybe surprised Chinese
authorities to some degree, but at least the U.S. has had time to digest this and hopefully prepare for what is ultimately going to --
CHATTERLEY: And very quickly because we have around 30 seconds. Stimulus, fiscal spending better than lower rates here.
KAISER: You know, it's a good -- this has always the big test, right? The ECB has been arguing this for years that they can only do so much and I
think that the Fed and Chairman Powell the other day sort of alluded to that as well.
We're doing what we can do, but we do need some sort of fiscal support. That's always harder to push through especially in a very sort of partisan
arena that we're in, but you know, ideally you would like some fiscal at some point.
I think the question for both the Fed and for fiscal is, is this the right time for that? You know, when the market is so volatile and we have so
little visibility into what the impact is going to be, you know, perhaps fiscal -- like in Italy, fiscal has been very targeted. It hasn't been
large, but it has been targeted. So maybe that's ultimately how we can find our way out.
CHATTERLEY: Timing is everything. Stuart, fantastic to have you with us.
KAISER: Thank you.
CHATTERLEY: The market opens next. Stay with us.
(COMMERCIAL BREAK)
[09:30:00]
CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange. State Street Global Advisors ringing the opening bell this
morning and the fearless girl behind me on all the displays as you can see.
A bit of fear still in these markets though, we are looking at a weaker open across the board, a pullback after Wednesday's four percent gains
during the U.S. session.
European stocks also retracing their gains made, too. Germany, France and British stocks now down nine percent or more since the start of the year.
The European banks are close to bear market territory, too. So that's a stark contrast, of course to what we were discussing earlier on the show
for the U.S. losses year-to-date.
What about the bond markets? Let's take a look at that, too. U.S. bond yields hovering near record lows once again. The U.S. 10-year firmly below
that one percent level. Investors are now seeing a 60 percent chance of yet another Fed rate cut at the meeting this month.
Oil markets also mixed after OPEC members agreed to cut oil output by one and a half a million barrels per day. OPEC though, not OPEC Plus. The key
now is to get Russia on board in that meeting tomorrow.
Brent has fallen more than 20 percent since mid-January on those coronavirus fears.
All right. Let me walk you through some of our big movers in the session. Our Global Movers in focus. Well, I can tell you we're seeing sharp losses
for all the major U.S. carriers today. That, after that stark revenue warning from the industry group, IATA.
It says the coronavirus outbreak could cost airlines worth $113 billion in lost revenues this year. As you can see, steep losses.
What about retailer, BJ as well? The wholesale club sharply lower, actually now, we're tilting slightly to the top side after reporting weak same store
sales.
We've also got two rival, Costco, reporting earnings out late today so watch that, but earlier, it was lower; right now, we are relatively
unchanged.
What about Ciena Group? The telecom networking equipment company is out with better than expected profits and revenues. A down touch in this
session so far today as you can see. Relatively unchanged, let's call it that. The key focus today of course on the U.S. airlines.
Now, Netflix and Facebook are also in focus. Why? Because they've pulled out of a major tech music festival blaming the coronavirus outbreak.
South by Southwest is a huge event held in Texas next week. Clare Sebastian joins us now on this story.
Big decisions by some of the big tech giants here, simply to say, look, we're going to put our employees first and we're simply not going to send
anybody. We'll have to wait to see if others follow here, Clare.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes. And others, you know, beyond the names that you mentioned, we've had Twitter, we've had Apple,
we've had Intel all pulling out of this event, citing directly coronavirus fears.
Now the Austin authorities -- this event is held of course, in Austin, Texas -- they say, this is still going ahead. They don't have enough
evidence yet that there's good reason to cancel it.
They say that even if they did cancel it, people would still come but they wouldn't have the structure and organization around it and the ability to
try to keep people safe. So that is still going ahead, they say.
But look, it's easy to dismiss these events as sort of a corporate jolly, they sort of pale in comparison to the public health crisis that we could
be facing.
But look at it this way, South by Southwest last year, funneled about $350 million into Austin's economy, about 400,000 people attended the various
conferences and music festivals and things like that.
Products are launched, movies are launched, networking opportunities. You know, if an event like this is canceled, you never really know what you're
losing in terms of economic activity going forward.
So I think that's why this is a decision not to take lightly, and especially eight days before it's supposed to start.
CHATTERLEY: Yes, I mean, this is the huge challenge, isn't it? The tough decisions that big companies and smaller companies are having to make here.
What about one of the biggest events set to be held this year, of course, the Olympics in Japan?
We heard from the Olympics Minister overnight, to say, look, we're still going ahead here. This is a tough decision for the Japanese government as
well.
SEBASTIAN: Really tough, Julia. They've been working on this for the best part of seven years; now, not to mention all of the athletes who have been
training for their whole lives.
Japan is saying they're still going ahead working towards the launch as planned on July 24th. We also had from the head of the International
Olympic Committee, Thomas Bach, who struck sort of a defiant tone. He said that at the IOC board meeting on Wednesday, the words cancellation and
postponement didn't even come up.
So clearly the message both from Japan and from Olympic officials is that this is still happening as planned. But they already, Julia, are seeing
some disruption there.
Several Olympic qualifying events have already had to be postponed or even canceled. The IOC President did say that in some events, they might
actually have to move to quota systems to decide which athletes can take part, but he didn't elaborate on how that would work.
So they are still going ahead as planned as such, but not immune to the disruption even, you know, a few months out from it.
[09:35:33]
CHATTERLEY: I mean, just all of the effort that's gone into that, to point. Well, for now, it remains on. Clare Sebastian, great to have you
with us. Thank you for that.
To China now. China, as we know, makes and buys the most electric vehicles in the world. It's also home to a startup called AIWAYS, which has just
unveiled this all electric crossover concept called the U6.
It chose to display the car in Germany on paper, at least, because the car itself didn't make it of course due to the virus outbreak, but that is
significant because its U5 model is going to be the first Chinese electric car to go on sale in Europe.
However, that's been delayed as I mentioned because of the impact of the coronavirus on its Shanghai plant. It's also had a setback by only getting
a three-star Euro NCAP safety rating, but the company is working on improvements.
Samuel Fu, AIWAYS Founder and President discussed.
(BEGIN VIDEOTAPE)
SAMUEL FU, FOUNDER AND PRESIDENT, AIWAYS: Some of our suppliers, they are located in Hubei Province and they influence the area.
So if we really would like to restart the production line, we should have the consistent supply, otherwise that makes no sense.
Manpower is also an issue for us because some of the workers, they cannot really come back to the workplace on time.
CHATTERLEY: There is excitement about the U5 car in Europe as the first Chinese car to get approval for sale. Tell me about the U5 and what it will
cost.
FU: The development team, they have a very strong and very, very good background of the European market and they know the market, and we know
there will be a booming market for the EV cars in Europe.
I think that the car will be very affordable compared to the existing peers in the Euro market.
CHATTERLEY: How competitive versus European cars? How much cheaper will it be? Can you give us a sense?
FU: 40,000 euro.
CHATTERLEY: And finally, I want to ask the question about safety. There have been some concerns about safety of your cars. Will they be equally
safe as a European electric car?
FU: We designed and developed this car based on the Europe standard, we are aiming high to achieve a high level of safety.
But I think in the first wave, NCAP, we haven't achieved in general a good score, but the Passive Safety Score, star five. That's very -- I think
that's a very acceptable score, so far as a startup company from China.
(END VIDEOTAPE)
CHATTERLEY: Interesting. Significantly cheaper than Tesla. It's going to be interesting to see what demand looks like there. That was Samuel Fu,
Founder and President of the Chinese electric car company, AIWAYS.
Meanwhile, GM is also unveiling electric cars powered by a new battery marking a historic shift for the manufacturer. GM of course investing more
than $3 billion a year in electric vehicle research and development over the next five years.
The new battery will hold enough energy to potentially power a car for 400 miles or more on a single charge. That also slightly better than Tesla.
The battery cells will be used in several of its new fully electric models including the self-driving electric cruise, Origin and a new version of the
Bolt EV later this year.
Coming up on FIRST MOVE, as the OPEC heavyweights meet, we dig into how they're responding to the unprecedented challenge of coronavirus and can
they get the Russians on board?
Stay with us. We're back after this.
(COMMERCIAL BREAK)
[09:42:53]
CHATTERLEY: Welcome back to the show. Members of the oil-producing nations known as OPEC are ready to cut oil output by 1.5 million barrels a day.
This comes as the coronavirus outbreak threatens to suppress global growth and oil demand. Prices down are some 20 percent since the outbreak began.
Joining me on this is, is Francisco Blanch. He is Head of Global Commodities Research at Bank of America Global Research.
Francisco, always a pleasure to have you on the show. OPEC members, it seems all ready to cut all output. The question is can they get the plus
members on board? Will Russia agree to one and a half million barrels worth of cuts or will the compromise be lower?
FRANCISCO BLANCH, HEAD OF GLOBAL COMMODITIES RESEARCH, BANK OF AMERICA GLOBAL RESEARCH: Hi, Julia. Thanks for having me. Look, I think Russia and
OPEC have the same objective which is to stabilize the oil market.
Unfortunately, they have very different macro setups. Remember, most of the core OPEC members are working with fixed exchange rates and have a little
lower debt. In the case of Russia, they have a floating exchange, the ruble, and they have barely any lower debt.
So that makes a compromise difficult to reach because Russia cares more about volumes, and the Middle East cares more about price.
So we'll see. I mean, I think Russia ultimately will come in and provide support, at least verbally, but I wonder how much they're ready to cut
because there is a big difference, beyond the actual macro setup is the physics of it.
The Saudis have very flexible fields, they can run them up and down very quickly. Not so easily done for Russia here. They have way many -- we have
many more fields that are way more spread across the country, so it's harder for them to engage in rapid production curtailments, which is what
this virus ultimately requires.
CHATTERLEY: Interesting. So you're saying just in terms of infrastructure, it's far more difficult for Russia simply to turn off the taps.
BLANCH: Right.
CHATTERLEY: And also in terms of the economics, they are far more comfortable with an oil price that is between $50.00 to $60.00 versus some
of the Middle East players here?
BLANCH: Correct.
CHATTERLEY: What does that mean then? What's the risk that actually we see further downward pressure on oil prices, even in just in the short term?
[14:45:14]
BLANCH: Well, absolutely. So just to be clear, where we stand ourselves, we have put out an average of $48.00 per barrel on Brent on the second
quarter. We changed our forecasts a week ago, and the idea here is -- again second quarter, we think that prices will dip.
We will have lower -- we will build inventories very quickly. We think that oil in the 30s for a brief period of time is possible, and as those
inventories build, the spot price will come down quickly relative to floor prices, which we think for oil will still be anchored around $50.00 a
barrel -- $50.00 plus dollars a barrel.
But I think the spot could come down quite sharply, and then OPEC will have to take out more and more barrels off the market and restrain output and
rebalance the market higher.
Another group of producers that could actually help into rebalancing is the U.S. shale producers, which as you know, have been under a lot of pressure
in the last couple of years, and we could see a curtailment of supply also coming out of the U.S. that may take also quite a long time. But I do think
that the lower prices will also support our rebalancing.
So our expectation is prices come down hard in the next few weeks, and then eventually we find the floor, we rebalance going to the end of the summer
or into the summer and prices rebound there if the viral charges drop and we get our usual seasonal rebounding in travel activity by June-July.
That's our baseline scenario right now -- Julia.
CHATTERLEY: I was going to ask you what's the risk here of a significant spike in prices in the back half of the second half of the year, simply
because to your point, low prices forces some of the shale players to reduce.
You've got the cuts coming in from OPEC and OPEC Plus. And then if this is just a one to two-quarter crisis here with the coronavirus, suddenly demand
comes back and we then have a problem in the oil market.
BLANCH: Absolutely, I think -- I think that's the challenge we are facing here. There's a little uncertainty as to how long it is going to take for
demand to get back to normal.
And by the way, we don't even know how deep demand is going to go down. We've seen some airlines in the last couple of days, curtailing the number
of flights, international, domestic in Europe and in the U.S.
We are going to see people in quarantine. So we're seeing them in some parts of Europe. Some sections of the U.S. are starting to ask people to
stay home. So, I think all of that is going to have a meaningful impact on transportation demand, which is I think what OPEC is trying to kind of put
a floor on when it comes to oil prices.
Now, unfortunately, we don't know the extent. Is it going to be a week? Is it going to be a month? Is it going to be several months?
And if you look at Chinese data, it looks like activity is starting to come back in China. But you've had the entire country pretty much on quarantine
for about two months. You've had almost a billion people in quarantine.
So huge impact on oil demand there. We don't know what things are going to look like in Europe and the U.S. over the course of the next couple of
months.
So that's the challenge and that's why I think, it is such a difficult decision for OPEC today and tomorrow, so we think they're going to at least
cut a million barrels a day. The word out there is they may be cutting a million and a half if Russia joins in, but we're going to have to see some
pretty meaningful cuts in the next few weeks.
And beyond that second half of the year, I think all of these monetary policy is saying, if the viral charges drop, it will lead to higher prices.
To your point, we will have a push up in inflation because this is essentially a supply shock when it comes to labor. It is a supply shock
when it comes to factories producing stuff.
And then of course, people are hoarding goods. So that's going to have an upward pressure on inflation, which I think the commodity markets will like
in the second half, assuming that the virus starts to fade.
CHATTERLEY: Makes sense. Francisco, very, very quickly because I'm running out of time, I want to pivot and talk about gold. Is there more upside
potential as we see flight to safety in gold prices here? What's your prediction?
BLANCH: Yes, absolutely. We think gold could go a little higher. Under the case of a global pandemic, we think gold could be as high as $2,000.00 an
ounce. And again, the reason here is pretty straightforward.
Central Banks are cutting rates very quickly. We saw it this week with the Fed, 50-basis-point cut. Our rates staying the same. We could see another
50 basis points in the next three months.
Central Banks are reacting very aggressively. But remember, if you have a supply shock because you have no labor and you have -- factories are shut
down. Remember, they are not just shut down because of the coronavirus. They're also shut down because of the trade war last year that had a bad
impact on industrial activity.
And then you add money to the mix. Well, guess what? That's higher prices. And that's exactly the environment that gold likes. Low interest rates or
falling interest rates and rising prices -- or rising inflation expectations, so my sense is that gold could go a little higher
Again, it depends very much on the path of the virus and how quickly markets normalize, but if equities go down here, we continue to see Central
Banks cutting rates around the world. Yes, gold has got some room to keep moving higher.
[09:50:22]
CHATTERLEY: Francisco, always great to have you on. Francisco Blanch there.
BLANCH: Thank you.
CHATTERLEY: Head of Global Commodities Research at Bank of America Global Research. Thank you once again.
All right, up next, video conferencing company, Zoom jumping again as the coronavirus means more teleworking. We've got analysis after this.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to the show and a look at today's Boardroom Brief.
Fleeting tweets. Twitter is the latest social media giant to start experimenting with disappearing content. The new feature is called fleets.
Fleets will be available for 24 hours, it appears by clicking the avatar icon and cannot be retweeted or liked.
Starbucks meanwhile, suspending the use of personal cups in its stores to help prevent the spread of coronavirus. It will still honor the 10-cent
discount for anyone bringing in a cup of their own even if they can't use them. The coffee giant says it's hopeful it's a temporary situation.
Amazon and Facebook are encouraging employees in Seattle, Washington to work from home after workers for each company tested positive for the
coronavirus.
Facebook has closed its facility for the rest of the week, and both tech giants are pushing telework options through the end of the month.
Very much related, stocks in video conferencing firms Zoom is now having been down around 10 percent premarket. The rocky ride follows an earnings
beat from the company.
Paul La Monica joins me now. And they talked about record numbers of people teleconferencing rather than attending meetings. This outbreak has the
unfortunate benefit of being good for this company.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, I think you're right, Julia. The CFO and CEO both touting the fact that people can work from home using
video conferencing tools, like Zoom, and this is something that should benefit them, at least in the short term.
And Zoom like many of its competitors, such as Google Hangouts, Microsoft Teams and Cisco's WebEx, they're having some limited time free offerings
for users, particularly those in China to try and entice more people to try these services out and not be on the financial hook in the, you know, in
the short term for using them.
And I think that's a smart move because, obviously, a lot of people in China and now across the globe are thinking more about working from home if
they don't have to come into the office.
CHATTERLEY: Absolutely. We're just showing a longer term price chart here and it zoomed higher since the beginning of this year.
Paul, I mentioned the volatility in just this specific stock premarket, but it's the whole market quite frankly and cross asset, a sheer level of
volatility here based on the uncertainty.
[09:55:10]
LA MONICA: Yes, exactly. I mean, we had the so-called Biden bomb for the market yesterday and that's quickly given away to more coronavirus
concerns, and I think volatility is probably here to stay.
Because, as we know, the problem with this crisis is it is biological, it is not necessarily financial. So even though the Federal Reserve, for
example, just cut interest rates, you know, a couple of days ago and may do again, sometime soon -- it's got a meeting coming up in just two weeks --
this is not something that you know, people can solve with more money.
CHATTERLEY: Yes, we just have to count the cases and that's just going to take time and weeks to see how this develops. Paul, great to have you with
us.
LA MONICA: Thank you.
CHATTERLEY: Paul La Monica there.
That is it for the show. We're back in a couple of hours' time, but for now, you've been watching FIRST MOVE, time to go make yours. We'll see you
tomorrow.
(COMMERCIAL BREAK)
[10:00:00]
END
