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First Move with Julia Chatterley
U.S. Stocks Surge Premarket Following Monday's Plunge; Russia's Energy Minister Says The Door Remains Open To Future Output Cuts; Italy Announcing Countrywide Measures To Tackle The Virus Spread. Aired 9-10a ET
Aired March 10, 2020 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:07]
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR: Live from the New York Stock Exchange. I'm Julia Chatterley. This is FIRST MOVE and here is your need to
know.
Stimulus hope flows floats. U.S. stocks surge premarket following Monday's plunge.
An oil-live in branch. Russia's Energy Minister says the door remains open to future output cuts.
And total lockdown. Italy announcing country wide measures to tackle the virus spread.
It's Tuesday. Let's make a move.
Welcome once again to all our FIRST MOVErs around the globe, great to have you with us after a tumultuous day for global markets yesterday. We saw the
plummet on Monday, potential turnaround Tuesday. Guys, all I can really promise you here I think is more stomach churning volatility.
Take a look of what we're seeing for U.S. futures at this moment. We're pointing to what? A two and a half percent rise at the open, taking back
some of Monday's seven percent plus losses.
We were higher earlier though, so we've slipped even a little bit in the last hour or so. What we saw yesterday though, the Dow tumbling some 2,000
points. We barely escaped hitting bear market territory. So I'm talking 20 percent from recent highs.
It was the worst day, in fact for stocks since the 2008 financial crisis. Hopes that new stimulus measures seem to be driving some of this rebound,
as well as a firming up of the oil price.
Assuming we can hold on to that, of course, take a look at what we're seeing in oil as well. We're currently up some eight percent or so after
yesterday's plunge of almost 25 percent.
I'm also giving you a look at U.S. government bond yields as well. We're also a bit higher there, a sign perhaps, of some greater confidence here. I
mean, in this market, it's really tough to call particularly given stocks have been so beaten up.
The Russell 2000, the Small Cap Index in the United States, now, in bear market territory. It's a similar story for sectors like energy, transport,
the financials.
It's a story around the world as well. Europe, now down more than 20 percent from recent highs, though, as you can see, we're managing a bit of
a bounce today.
Asia, also rallied support, though. It has been the key, to be specific President Trump has said he will meet with congressional leaders today to
discuss a potential payroll tax cut and perhaps help for hourly workers. He promised substantial aid measures.
In Japan, they also unveiled an additional four billion support package -- $4 billion.
And Italy is set to approve a further $11 billion in emergency fiscal aid.
Today, it seems stimulus speaks.
Let's get right to the drivers. As I mentioned President Trump set to layout measures today. Richard Quest joins us on this.
Richard, great to have you, you're with us. I mentioned, hope and hope floating. It's also something to do with just simply getting so beaten up
yesterday that you've seen some kind of bounce, but I make no promises on what we see going forward and obviously promise, probably further
volatility here.
RICHARD QUEST, CNN BUSINESS EDITOR-AT-LARGE: You know, I was interested to hear what you're just saying there, Julia, because, excuse me since the
morning at one point, futures will limit up five percent for the S&P 500, so there was a lot of optimism.
But as we're getting closer to the opening bell, that optimism, I won't say it's evaporated, but it is evaporating.
And I'm not entirely sure -- well, you see right now, three percent on the futures or the S&P is in three and a quarter. But we are well off that.
And I think pause for thought, the idea of buy on the dips has probably not yet fully formed. But I think also, crucially, what is the administration -
- how does a payroll tax complicated bit of legislation that will give a little bit of money back to people over a long period of time through their
paycheck? It's not exactly sort of the big bazooka that you might want.
CHATTERLEY: Absolutely. And to your point, I didn't even mention the limit up quite frankly, because the way that we're jumping around, is skip the
details like that, quite frankly.
But, you know, I go back to what Ruchir Sharma was saying, from Morgan Stanley Investment Management and he said, look, if we hit a bear market,
the chances of a recession rise here and until we see a peak in the number of cases, we don't take away the uncertainty that's driving this
volatility.
So bond dips is a really tough call here, Richard.
[09:05:06]
QUEST: I think it's a tough call and it's even tougher if you're trying to hit the bottom, which of course is the true mug's game.
Now, let's just chat for a second, Julia, this idea of a bear market, I don't buy that just because you've hit 20 percent down, it's a bear market
by definition, as opposed to somewhat -- some pedants might argue that.
But I think you have to have a sustained period of losses at down more than 20 percent before one can fully say that the bear is in control. What do
you think?
CHATTERLEY: And no, I agree with you. I mean, his point was simply that it just raises the likelihood or the probability --
QUEST: Oh, yes, we're there. We are there.
CHATTERLEY: A bit of psychology -- it's the psychology here. Once we start talking about it, it's a self-fulfilling prophecy, or at least the
probability is higher, couldn't agree more with you. Richard Quest. Great to have you with us. I'll see you later in a couple of hours' time.
For now, to our next driver. Who blinked first? Russia or Saudi Arabia? Oil prices are rebounding, as I mentioned briefly earlier, but we do remain
down double digits over the last couple of days.
John Defterios joins me now. Who blinked first? Does the rally that we're seeing in oil prices today suggest that the market is anticipating that
some of these blinking here or does someone just have something in their eye? JD, what do we think?
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Well, I'll tell you what, Julia? Yes, well, it's interesting because we all know what that
cliff looks like and the cliff is $30.00 a barrel. We got close to it on Monday, we felt it and went into that territory in 2016. I can could tell
you, no one in the energy community likes it.
To Richard's point about the bouncing around that we see in the markets today, we were up eight percent in Asia for oil prices, then down with a
gain of two percent, then bouncing back up between seven and eight percent.
This is a market that's trying to find its footing, you say blinking, and I say there's a lot of energy bravado still in the market, and we're seeing
this firsthand sort of softening coming in from the Russians here and Alexander Novak, the Energy Minister saying the doors are not closed. We
can still have further agreements.
He's going to sit down with Russian energy CEOs on Wednesday. Yesterday, we heard from Rosneft, and they didn't like this idea of continuing to cut.
Now, a senior source that was sitting at the bargaining table last Friday said there was way too much emotion at the table and you have to take that
out of the picture.
He also said this -- and is fascinating -- that the long arm of the Crown Prince of Saudi Arabia, Mohammed bin Salman, could be felt from Riyadh into
Vienna, with his determination to get a cut of 1.5 million barrels a day, not through the second quarter, but all of 2020. That was a non-starter
with the Russians.
So you can see, they're easing their way over. Their target was 600,000 barrels a day to the end of the second quarter and said look, we need to
cut more. We can do so at the full meeting in June.
So there is some potential compromise, but we're not there yet.
CHATTERLEY: So there's so many questions here for me. I called it Clash of the Titans yesterday, to your point, the monumental egos. You could only
imagine what was going on in that room, quite frankly.
But when you're saying and we're hearing the Saudis say, look, we can step up production here. But at the same time, we're sort of watching what's
going on in the market and trying to gauge what's priced.
You have the U.S. Department of Energy coming forward and saying, hey, guys, stop manipulating the market and threatening our resources and our
output here. How do you bring everybody together here? What's the endgame if we don't see the cuts that we've got in place now hold beyond this --
the life of this deal -- this current deal?
DEFTERIOS: Well, I've seen us go to the wall many, many times before, so there's a never bridge that's too far, Julia. The gap can be closed, and I
go back to your point here on the Department of Energy from the United States suggesting that state actors are manipulating the market.
That was a message I think, primarily for Saudi Arabia, which is an ally of the United States. At the same time, we're seeing reports in the last hour
that the Saudis plan to dump two and a half million or slightly more barrels onto the market in April. They'd have to pull that out of storage
in which to do so.
And having said that, you can see the chart here, their breakeven price is $80.00 a barrel. So they're in deficit spending right now. They produce it
for $2.00 to $6.00 a barrel. But of course, the other OPEC producers have the same fate.
Now, the Russians have become more disciplined at some $40.00 a barrel because of the sanctions applied by the United States and Europe. They can
tough it out.
But I get very concerned Julia, when you have players like Saudi Arabia and Russia to your point saying, last year at $30.00 a barrel, I don't buy it.
I think they need to find some daylight here and have some compromise.
And the sources I'm speaking to today say they're burning the phone lines trying to rebuild relations because it got much nastier than I thought,
even when I was in Vienna on Friday. That's the word I'm getting.
CHATTERLEY: Yes, fascinating, less of the rhetoric perhaps here and the bravado and more getting down to business and action to the good of
everybody here. John Defterios, thank you so much for that.
[09:10:10]
CHATTERLEY: All right, let's move on to our next driver. Italy, now on country-wide lockdown. It means schools travel, public services have all
been shut down.
Ben Wedeman joins us on this. Ben, when I saw this headline flash, I thought, wow, extreme measures it seems to try and contain the virus. What
does it actually mean in practice for ordinary Italians?
BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, that's a very good question. This is "La Repubblica," the headline is "Shark treatment.
Everybody stay at home."
But as you can see, not everybody is staying at home. The piazza here in Bologna is emptier than it might normally be. But in fact, not everybody is
staying at home by any measure of that expression.
Now, according to the decree that came into effect at midnight to today, the restrictions that were in place in Lombardy and the 14 other provinces
are now in place throughout the entire country and country of 60 million.
This means that you can only travel, if you have an urgent reason, work, for instance, you're supposed to fill out this form from the Ministry of
the Interior.
We are seeing that in some places where people are traveling, they are being checked to see if they've filled out this form. But really, it comes
down to the decision of the law enforcement people on the ground whether to allow people to do this or to travel to move around or not. If they find
that the reasons are not correct, people can be imprisoned or fined.
Now the other measures that are going into effect, of course, is no more weddings, funerals, baptisms, schools, public and private sporting events
will all be canceled until at least the third of April.
Some Italian politicians who generally are united in support of these measures are saying perhaps it's time for even more extreme measures,
Julia.
They're talking about everything closing, except for supermarkets at the moment, bars and restaurants can stay open from 6:00 a.m. to 6:00 p.m., as
long as those inside keep a distance of a meter between one another.
But clearly, if the numbers continue to increase as they have been doing dramatically over the last few days, perhaps even more draconian measures
will have to be taken to stop the spread of coronavirus -- Julia.
CHATTERLEY: It's fascinating because I think the whole world that's dealing with the delayed onset of this is looking at what China did, is now
looking at what Italy is doing and thinking, is this ultimately what's going to have to be done elsewhere in the world?
We're also talking here in the United States about what support measures can be enacted? I believe the government is talking about a mortgage
payment holiday for the individuals that simply struggle to meet mortgage payments as a result of the impact of this.
WEDEMAN: Yes, they've decided that mortgage payments don't have to be made at the moment. There is this relief package that is being passed.
And of course, Italy has the advantage unlike for instance, the United States, it has a national health service. You can go to see a doctor for
free. You can go to the hospital for free.
And therefore, they have at least that comfort, but that system is under profound pressure as a result of this situation. All elective surgery has
been cancelled. People who even have a slight fever and perhaps have the symptoms of coronavirus are saying -- are being told to stay at home unless
the symptoms become extreme because the Intensive Care Units where the most extreme cases are being treated are at this point well beyond overflowing -
- Julia.
CHATTERLEY: Yes, it's the benefit and the drawback of a free offering of medical assistance here is that you go there and you ask questions later.
What a challenge.
Ben, great to have you with us. Thank you so much for joining us on that story.
To China now, where President Xi has visited Wuhan. It's his first trip to the epicenter since the outbreak of the coronavirus took place.
David Culver is in Shanghai for us.
Great to have you with us, David. The President is saying that the outbreak in China is now pretty much contained. That was the message that he wanted
to send it seems by heading to Wuhan, too.
DAVID CULVER, CNN INTERNATIONAL CORRESPONDENT: A message Julia not only to the folks here within the People's Republic of China, but also to the
world. I mean, this is an effort here to really show that China, according to state media, and officials has this now under a good amount of control.
[09:15:08]
CULVER: They're not going too complacent because even the World Health Organization has warned alongside with Chinese health officials, that when
you think, oh, you've got this beat, that's when we could see this resurgence in numbers.
So they're cautious in how they're characterizing it, yet they are confident at the same time that the extreme lockdown measures that China
put in place and I heard you and Ben talking about what Italy is doing, but the reality is what China has done cannot be replicated by many other
countries.
I mean, it's an extreme level that we saw within the City of Wuhan and within parts of the surrounding cities in the epicenter of the Province of
Hubei in particular, and you essentially stopped traffic altogether. You've kept people from leaving their homes.
Now, what we're hearing as of today is that there is some easing of those restrictions, which for some of the folks there is long overdue, but the
government is doing once again cautiously.
They're essentially saying that if you have a green barcode, which is something on the QR code that all of us here in China have, when they can
kind of track you and get an idea of what your exposure might be to this virus, that then you're allowed to leave within a certain perimeter and
move around a little bit more, have a bit more flexibility, if you will. If you've got a yellow or red, then you've got to stay put.
So those are the phases that they're going through right now and they determined that based on Big Data, and being able to track people, quite
frankly, going into certain hotels, going into perhaps even restaurants and shopping centers, where we scan our QR code to get an idea as to where we
are, and then they can know if there's any potential exposure from that place.
But overall, this is an effort to not only reassure the people from a healthcare perspective that China has this in good standing right now, but
also from an economic perspective.
I mean, you and I have been talking and from day one that we saw President Xi Jinping, and we should point out he wasn't out front right away.
In fact, a lot of folks questioned where he was, but from when he started to make his early appearances alongside some of the first responders and
people who were on the front lines of this, he stressed not only trying to contain this virus, but also, Julia, trying to stabilize the economy. And
that is now becoming more and more crucial, especially as people start to reopen and regain some sense of normality here.
CHATTERLEY: Absolutely. And that's the next challenge. But the key line for that IN what you just said to me was, it's simply not as simple for
other countries to enact the kind of lockdown that China did in order to contain this. It's such a great point.
David, great to have you with us. David Culver there in Shanghai.
All right, let me bring you up to speed now with some of the other stories that we are following around the world.
Families and loved ones of the 157 people who died with an Ethiopian Airlines Boeing 737 MAX jet marking one year since the disaster. It comes a
day after Ethiopian investigators again pointed the finger at the MCAS anti-stall system on the plane. It was the second deadly crash of a 737 MAX
in five months.
All the planes remain grounded around the world.
And here in the United States, six states are holding Presidential Primaries in the Democratic race for the nomination. Michigan is the
biggest prize for former Vice President Joe Biden and Senator Bernie Sanders.
Analysts say if Biden wins in Michigan, there will be fewer opportunities for Sanders then to reshape the race. We'll have much more on this later on
in the show.
All right, coming up after the break, with oil suddenly looking at relatively cheap, what are the implications for economies that rely on
producing it? We are live in Texas with more.
Stay with us. You're with FIRST MOVE.
(COMMERCIAL BREAK)
[09:21:46]
CHATTERLEY: Welcome back to FIRST MOVE. We are counting down to the stock market open this morning and we do see futures higher by some three to
three and a half percentage. You can see there, clawing back around a half of the seven percent plus losses that we suffered on Monday, the name of
the game continues to be volatility. That's all as I say, I can promise you.
Susan Schmidt joins us now. She's Head of U.S. Equities at Aviva Investors. Stomach churning volatility. Great to have you with us.
SUSAN SCHMIDT, HEAD OF US EQUITIES, AVIVA INVESTORS: Thank you. Good morning. A lot of volatility. It wakes you up. That's for sure.
There's a lot going on here. The market can't seem to settle on a direction and we're going to see continued flip-flopping back and forth, I think
throughout the day.
CHATTERLEY: I mean, some part of the rally today is down to stabilization in oil prices, in hopes for stimulus. What hope and expectation should we
have here that the White House can do something or should even do something?
SCHMIDT: Well, I think that's the conundrum of the market right now, is there is a lot of hope, and there's a lot of expectation that something
might get done.
There's also expectation that the coronavirus eventually will go away, but no one has a timeline for anything. So until we get something more
concrete, I think you'll continue to see the volatility in the market.
Nothing can really settle down because you don't know what the valuations are supposed to be. You don't have enough data.
CHATTERLEY: So that's a great point. So I've seen certain people, other people talking about perhaps now is the time to buy on dips. Clearly, it
depends on your time horizon as an investor here, but some part of the justification was that, look, we've already priced a U.S. recession.
How do we price a U.S. recession when we don't know the term? We don't know the depth? We don't even know if we're going to have one.
SCHMIDT: Right. Recession -- a technical recession or an actual recession, we might very well trip into a technical recession, just because we've got
this exogenous event suppressing GDP.
At the same time, how long is it really going to last? If this is a one quarter blip where we put the economy on pause, and then we're back in
action, it's not really a recession, we're back to normal operating.
CHATTERLEY: Define the difference between -- as quickly as you can -- between recession and technical recession? Because for some of our viewers,
they will be like, what's the difference?
SCHMIDT: Right. So remember that we can use the term recession anytime we see a negative revision, when we see a negative GDP growth and we might
actually get that. You can certainly see that in China. They froze their economy essentially for the first quarter. So that can happen.
That doesn't mean that the economy has actually ground to a halt. A real recession is when we have the economy slowing, we need some stimulus. We
didn't see any sign of that.
Oil didn't drop, because we saw demand slow. We haven't seen the market go down because we saw a weakness in business. It's because we have an unknown
event coming in that might cause a pause and we don't know how long that pause is going to last.
CHATTERLEY: So what are you saying to investors?
SCHMIDT: Look long term. This is when it's really important because no one can predict whether you're one quarter, two quarters out certainly, a week
out from now.
If you're doing that kind of trading, it's guesswork. For valuation and really investing, you need to look longer term. It is more important than
ever right now, because there's no clarity on that near term, and you need to really look out to 2021 and beyond to see what you think companies might
do.
It's very interesting. Look at yourself, have companies really lost almost 20 percent of their value in the last two weeks? Is the fundamental change
that much?
CHATTERLEY: It's such a great point. And the answer is --
SCHMIDT: Probably not.
CHATTERLEY: Probably not. Yes. Take a look at it. How much of your portfolio should be in cash?
[09:25:10]
CHATTERLEY: At this moment?
SCHMIDT: Oh my gosh. What's your risk tolerance? I find that, you know, retail investors, certainly when they meet this kind of market, they
suddenly find that they're very nervous and human nature is your own worst enemy in this kind of environment, because you tend to pull out cash.
There are a lot of people that did that in 2009, and were really unhappy with the results 10 years later.
So it all depends on risk tolerance, timeframe, and I think it's a good time to be invested. But that's what I do for a living and so I'm looking
to the long term and I think it's fine to be over that horizon. Don't think about it in short term timeframes.
CHATTERLEY: For anyone that's trying to look at the market movements today and saying this is sending me a message whether it's the oil market, which
looks pretty desperate, as far as the growth outlook is concerned, the bond markets which also look pretty desperate and then stocks are sort of caught
in the middle.
Is the ultimate message here, actually, you're not being given a message. It's noise and it's confusion. And it's uncertainty.
SCHMIDT: I think that's exactly right. It is noise right now. Remember that data isn't there yet for people to actually come to valuation
conclusion.
CHATTERLEY: They can't quantify it.
SCHMIDT: There's nothing you can quantify. So this is all emotion. This is knee jerk reaction. And there's a lot of moving pieces because people are
scrambling to chase after bits of data, hoping that it comes together to give us something concrete to go on.
CHATTERLEY: Yes. Data on the economics, but also data on the virus and the cases.
SCHMIDT: Exactly.
CHATTERLEY: It's everything. Great to have you with us. Thank you so much. I feel better now.
SCHMIDT: Thank you.
CHATTERLEY: Susan Schmidt there, the Head of U.S. Equities at Aviva Investors. Once again, I'll give you a look at the futures as we count down
to the market open.
Wow. It's a different story from what we were looking at, of course, yesterday. At this moment, we are looking at gains of some three percent
plus.
The question is, we'll wait and see what happens when the session opens and as we track these markets through the coming hours.
But for now, a turnaround, taking back some of yesterday's losses. Stay with FIRST MOVE. We're back with the open, next.
(COMMERCIAL BREAK)
[09:30:05]
CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange and the opening bell this morning.
Unlike what we saw yesterday, if you were with us, stocks are up and running following one of the most tumultuous days in Wall Street history.
At this moment, we are gaining back around half of yesterday's losses. You can see the Dow up some and 3.4 percent. The S&P 500 higher by more than
three percent, too.
A stronger oil price perhaps, the biggest market positive lending some stability to these markets after Monday's more than 20 percent drop
yesterday.
So taking about less than half in this market so that the plunge that we saw, it's giving a boost though to some of the big oil names that saw
significant drops as well in the session yesterday.
U.S. oil producers with high debt loads, the likes of Apache, Occidental, Marathon saw their share prices fall some 50 percent. You can see that in
front of you. Incredible. They are seeing a bit of a bounce back so far in this session.
The most -- the five most valuable tech firms also lost some $320 billion in market cap on Monday that includes Apple, which lost $100 billion alone.
Paul La Monica joins us now. I think, whiplash, quite frankly is the only way to describe what we've seen for the last several sessions, not only
what we saw in yesterday's session, Paul, and the bounce back today.
Some real hopes, I think here. I've seen some greater support for these markets in the form of fiscal stimulus. The question is, do we get it?
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, I think that the market was reassured by some of the comments from President Trump about the
possibility of more fiscal stimulus. I do think that that is what is heartening many traders today and why we're seeing this very solid rebound
at the open.
So hopefully, this rebound will, you know, maintain itself throughout the trading session and maybe even strengthen, but not to be the party pooper,
but I've been doing this a pretty long time, Julia and I remember vividly, 2008 in the midst of all those brutal selloffs we had, we had days like
this where stocks soared and the rally was not able to last for a long time.
And I'm a little worried that, you know, we're not out of the woods just yet.
CHATTERLEY: No, I couldn't agree more with you. And I think that dose of caution here actually is incredibly warranted.
We're still down, even at this stage some three and a half percent; plus, over the last two days, we've had session after session of up a thousand
points in the Dow, plus down a thousand points, Paul, I don't think you can really guarantee anything here rather than more volatility.
LA MONICA: Exactly. We're going to get more volatility. But what's an encouraging sign, as you pointed out, we are seeing oil rebound today after
the massive plunge yesterday.
Gold prices are retreating a bit. That's obviously a classic flight to safety fear trade. You're seeing bond yields tick back up.
So I think that shows that maybe a sense of normalcy is returning and then, you know, let's talk about earnings. I know that seems quaint in a market
like this, but Dick's Sporting Goods, big retailer, they reported some pretty solid results this morning. Their stock is surging, and it's kind of
Refreshing to see that there are companies where their stocks are going up because of corporate news and not just the macro trend.
CHATTERLEY: Paul La Monica, thank you for reminding us that the fundamentals do matter here. Wow. Paul La Monica, great to have you with
us.
LA MONICA: Thank you.
CHATTERLEY: We will get back there. I know, we will. Thank you for that.
All right, as Paul and I were mentioning there, oil rebounding after Monday's losses, but you can see how Brent in particular already under
pressure due to reduced demand expectations tied to the coronavirus outbreak.
Even before yesterday's price collapse, then came President Putin's decision to walk away from a deal that the Saudis had posed to reduce oil
output. Afraid that U.S. producers would fill the gap and steal further market share.
The Saudis then in response, cut prices and promised to increase output. As an oil glut is now expected, prices promptly nosedived.
Now, one consequence of low prices will be potential job losses especially vulnerable oil reliant economies, some of the big producers like Texas.
Joining me from there, Robert Jordan, former U.S. Ambassador to Saudi Arabia. Ambassador, fantastic to have you with us, as always.
I do want to talk to you about the geopolitical backdrop and get your thoughts here, but first, what conversations are you having with some of
the major oil players in your state and how concerned are they by the price moves and the tensions that we're seeing among the big oil players?
[09:35:10]
ROBERT JORDAN, FORMER U.S. AMBASSADOR TO SAUDI ARABIA: Well, all you have to do is look at the price performance of their stock to see how terribly
they have been hit by this. It may rebound slightly temporarily, but we also have to look at it in the context of dwindling demand worldwide,
certainly, accelerated by the coronavirus. But it was dwindling before this virus came forward.
So I think we've got to look at a somewhat stagnant demand situation. This hurts the oil companies and then with the Saudi-Russia price war, I think
it makes it very difficult for certainly, the shale producers in the United States, they have much more leverage than they did during the last supply
explosion in 2014 to 2016.
They survived at that time, but many of them now have less patient lenders and a higher profile of debt.
CHATTERLEY: The U.S. shale producers, they were forced at that point to get more efficient. They understood that they had to try and go into
survival mode in order to survive low prices, so they were taught a lesson there.
But what do you see playing out here, particularly between the United States officials. The Department of Energy sent a fair warning yesterday to
say stop manipulating prices.
But then you've got this battle of wills going on between the Saudis in particular here and the Russians. Who blinks first in your mind? Does
anybody blink?
JORDAN: Well, I think this might be a negotiating ploy for both of them to find a common ground. But they're still not going to be able to influence
production from the U.S. shale producers who of course, are not part of OPEC and would never be part of OPEC.
I think you've got a situation where the Saudis in order to make their budget numbers need $80.00 oil, the Russians need $42.00 oil. So that's a
huge imbalance and the ability to withstand a price fluctuation downward.
This is something that I think gives the Russians a little bit more leverage, a little bit more staying power.
Now, the Saudis also have these grandiose plans for Vision 2030, for a future IPO of Aramco, all of that, I think, is now in danger.
CHATTERLEY: I love that you mentioned that. I mean, if they need $30.00 a barrel to balance the books and fuel the spending, particularly the
spending commitments that they've already made here. The Saudi Aramco IPO, the flagship of the diversification of the Saudi economy, if all these
things are threatened, they can't do as they promised and exist at these low levels for "years"?
JORDAN: That's a real problem for them, and I think it also means that they may be able to -- may not be able to continue the massive subsidies
they provide to their population -- education, gasoline, utilities and so forth.
And if so, then they may start to see some real resistance in the population. This also, by the way, might account for some of the arrest
we've seen of senior Saudi officials.
CHATTERLEY: What's the end game here, Ambassador? Do you think in the end, everybody has to decide for the good of everyone else that prices do need
supporting, so in the end, the Russians come to the table and that the Saudis come to the table. They hope to leave egos at the door. And the U.S.
has to be part of that, too, because they have been grabbing market share.
JORDAN: Right. Well, it is going to be difficult for the U.S. to restrain the shale producers on market share, but I think the market may take care
of that.
With dwindling demand, you're going to see less investment in the United States in shale production. You're going to see job losses. The service
companies are going to be hit.
But I think worldwide, what we're likely to see with the Saudis and the Russians, especially, is an effort to balance the market. They don't want
too much demand. They don't want too little demand, and they need to balance the supply accordingly.
And I think they're going to have to perhaps get used to a new normal, at least over the next few years, which is somewhat reduced demand and a great
capacity for supply.
CHATTERLEY: The new normal. Ambassador Robert Jordan, fantastic to have you with us. As always, thank you so much, sir.
JORDAN: Thank you, Julia. Thank you.
CHATTERLEY: All right. We're going to take a break here on FIRST MOVE, but coming up, investors are watching six U.S. states as voters there head to
the polls in the presidential primaries.
Why today's outcome could be at the beginning of the end for the Bernie Sanders Campaign? That's coming up next. Stay with us.
(COMMERCIAL BREAK) [09:42:56]
CHATTERLEY: Welcome back to FIRST MOVE with a little look at what we're seeing for U.S. markets at this hour. Strong gains as you can see, more
than two percent, two and a half percent across the board. This follows seven percent plus losses that we saw on Monday.
I have to say though, we've slipped a little even in the last 15 minutes or so. We are seeing gains for some of the blue chips.
So I showed you the stunning drops in shares of some of the major oil firms in particular, losses of some 50 -- five zero -- I'm talking percent in the
session yesterday. They are bouncing back a little bit here.
I'll tell you what though, they were making stronger gains premarket, too. I'll reiterate, the only thing I can promise you in this session is ongoing
volatility.
But one other thing of course for investors to keep at least half an eye on today, politics, primaries and caucuses are taking place in six states
today including the crucial prize for the Democratic hopefuls -- Michigan. Bernie Sanders won the state in 2016. He is the underdog today.
For more on this, Jason Schenker. He's the Founder and President of Prestige Economics. Jason, I have so much to talk to you about. We'll talk
about markets. But I do want to talk about politics first.
Do you think the backdrop, the volatility here, the fears over the corona virus outbreak plays into voting patterns in the primaries today, and
actually pulls for Joe Biden rather than Bernie Sanders?
JASON SCHENKER, FOUNDER AND PRESIDENT, PRESTIGE ECONOMICS: Well, I don't know if it favors one candidate over another, but I think there could be an
impact in terms of the number of voter turnout, and if we were to see the coronavirus concerns get worse, then that could even impact what kind of
turnout we would get later this year with the presidential election.
CHATTERLEY: How so?
SCHENKER: Well, you know, if we get warnings that people need to stay home, if there are quarantines at some point, then you might get fewer
people who would go out and vote.
[09:45:01]
CHATTERLEY: So simply just lower voting rates at this stage. Who does that then favor?
SCHENKER: I don't know if it would favor one party over another, I don't think, but, you know, it just might be something that we need to be
thinking about. It could impact when they hold elections, whether they do a longer early voting period and all those kinds of things. More mail-ins.
There might be all kinds of things like that, that when they do the final vote counts could be impactful.
CHATTERLEY: You know, it's fascinating. There's so many uncertainties here and things for investors to keep an eye on.
I know one of the things that you have done a lot of analysis on his debt loads for corporates, and when we saw the oil price plunge yesterday, more
and more people talking about the credit market, the impact of higher borrowing costs on corporates.
What's your analysis not only on the sheer level of indebtedness for U.S. corporates at this moment, but also specifically in the energy sector here,
and the risk that lower oil prices present.
SCHENKER: Yes, this is a movie, unfortunately, we've seen a preview of before. In late 2015, the Office of the Comptroller of the Currency, the
F.D.I.C. and the Fed issued a joint warning about the risks to what's called the Shared National Credit from leveraged lending in oil and gas.
And the price of oil yesterday fell to the lowest levels we've seen since the early part of 2016. What all that means is that with low oil prices,
there's a risk to oil and gas debt, and especially if some of that debt is leveraged, and that can affect what's called the Shared National Credits.
And that's where you have credits to companies that are held by multiple institutions. There's been a big rise in debt in recent years. There's been
a big rise in again, corporate debt, and there's been a lot of leverage.
This has been something the Fed has been talking about for over a year as a major concern that we should be keeping an eye on. That's why the Fed cut
rates last week and it's why they might do more still at the meeting next week.
But if you were to see a spillover, if you were to see bankruptcies, defaults, you could see a credit crunch spread from oil and gas into other
sectors of the economy presenting a systemic risk to the entire financial system in the United States and globally.
CHATTERLEY: It's interesting. It's not exposed when markets are going up and when the economy is doing well. It's exposed when markets weaken and
when stock markets go down, in particular.
Jason, what's the likelihood though, that if we fast forward two quarters, three quarters, four quarters, markets -- stock markets -- end up actually
higher than where they are today? And we'll look back on this period and go, we were overdramatic. We were predicting recessions and debt bubbles
bursting, potentially.
And since we got ahead of ourselves and didn't focus enough on the fundamentals, the underlying fundamentals of the economy?
SCHENKER: Well, I think there's a couple of things. One is most people don't realize the last three quarters in the U.S., we've been in a business
investment recession.
The reason we didn't notice is because over 70 percent of the economy is people out there buying stuff. As long as people have jobs and they're out
there spending money, the economy goes on even if businesses are in recession.
So could we see a business investment recession in coming quarters carry on? That's possible, but for the overall economy, people have jobs, people
are spending money. That's good for the economy.
If we look forward several quarters, it has a lot to do with the questions we don't really fully know right now. Is the coronavirus seasonal? Because
if it is, then we might see much lower transmission rates and other things associated with it in the summer as we see with say the flu.
So we don't know if that's what's going to happen. But at this point, one of the other things to consider is, how strong were equity markets going
into this?
You know, if we look back, where are we today? We're roughly where we were 14 months ago in equity markets. We haven't retraced the last decade of
rises in equities.
So, you know, there is the opportunity it could go back up, but there's going to be a lot of uncertainty moving forward.
CHATTERLEY: Absolutely. And we see the uncertainty playing out on a daily basis. Jason, fantastic to have you with us.
Jason Schenker there and his point, of course, about the consumer, so important, particularly politically.
You can watch CNN's Special Live Coverage as Bernie Sanders and Joe Biden go head-to-head in a series of key U.S. Primaries.
Our coverage kicking off at 4:00 p.m. in New York, 8:00 p.m. in London right here on CNN.
For now, we're going to take a break. U.S. stocks rallying on stimulus hopes after the U.S. President promised "significant relief." What does
that look like? We'll discuss.
(COMMERCIAL BREAK)
[09:52:10]
CHATTERLEY: Welcome back to the show. Here's a look at the Dow 30. You can see just one loser there, Verizon down half a percent. But across the
board, we're seeing some -- what? Between one and four percent gains for these stocks.
Let's bring in Clare Sebastien now because some joy for some of these stocks bouncing from low levels yesterday, but for Delta and American
Airlines, yet more woes, they've cut more capacity. Talk us through it.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes. And some pretty ugly news from the airlines this morning, Julia.
Both the CEOs of those companies speaking at a virtual conference -- sign of the times there -- you can see their stocks are up. I think that's
partly to do with the sort of declines that we've seen recently.
American Airlines as an example, down some 50 percent since its January peak, but as you say, both of these airlines -- and they're not the only
ones, frankly, are taking aggressive cost cutting measures in the face of plummeting demand.
Americans say today that it is cutting capacity by 10 percent for the summer peak, and that's including 55 percent for Asia Pacific. It is
cutting domestic capacity by seven and a half percent.
Delta is cutting international capacity by 20 to 25 percent and domestic by 10 to 15 percent. They say that is based on demand alone, no safety issues
at all, and that really shows you the drop off in confidence that we're seeing among the flying public. That is really the issue.
It was interesting, the CEO of Delta said this is a fear event. It's more akin to what we saw in the wake of 9/11, than it is to 2008. So that was
super interesting.
But they are being very careful as well, Julia. I thought it was interesting that they say that they're deferring some CapEx, but they're
keeping -- for example, Delta, in their case, they are keeping projects like the expansion of LaGuardia Airport in New York. Things that will allow
them to continue to expand after this is over.
CHATTERLEY: Yes, that's quite fascinating. The price action there interesting perhaps being lifted with the broader markets here and bouncing
off very, very low levels, but also perhaps not confirming the worst fears that investors have been assuming here.
There's an interesting message in there. Clare Sebastian, great to have you with us. Thank you so much for that.
Now, before we go, CNN is partnering with young people around the world for a student-led day of action against modern day slavery. That's on March the
11th. We want to know what does freedom mean to you?
Here's what British popstar Ellie Goulding had to say.
(BEGIN VIDEO CLIP)
ELLIE GOULDING, BRITISH POP STAR: As a singer, freedom means being able to pursue exactly what I want to pursue with --with no barriers, with nothing
holding me back. Being able to live my life exactly as I want to live it within the realms of my job.
(END VIDEO CLIP)
CHATTERLEY: Tell the world what freedom means to you. You can share your story using #MyFreedomDay. We would love to hear from you.
[09:55:00]
CHATTERLEY: All right, we are wrapping up the show here, but I just want to give you a look at once again at what we're seeing for U.S. markets.
We are seeing gains of just shy of three percent for the Dow Jones at this moment. The NASDAQ gaining some 2.8 percent as you can see.
Remember, we saw more than seven percent plunge across the board for the U.S. markets yesterday.
So this is volatile. This is bouncing from low levels. There is expectation, I think, built in here for whatever President Trump says or we
hear from the White House today about possible support measures. That's one of the big unknowns.
We're also seeing a bounce in oil prices, of course, too, which is lending a little bit of stability to these markets. But wow, there is a long way to
go in this session.
We'll be back in a couple of hours' time for more on "The Express," 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
