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First Move with Julia Chatterley
U.S. Central Bank Expected to Raise Key Rate by 75 Percent; Almost 100 Million People Under Heat Warnings in U.S.; Sharma: The U.S. Economy has been Relatively Resilient; Beauty Giant L'Oreal Shrugs off Inflation Fears; L'Oreal CEO: We are trying to navigate the Future of Beauty; K-Pop Superstars BTS Promise to return after "Hiatus". Aired 9-10a ET
Aired June 15, 2022 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
(COMMERCIAL BREAK)
JULIA CHATTERLEY, CNN HOST, FIRST MOVE: I'm Julia Chatterley, wishing you a warm welcome to "First Move". This Wednesday or as we're renaming it,
Monetary Marathon Day, a whole cornucopia of Central Bank action taking place today the main event of course, a rate hike decision from the Federal
Reserve and Chair Powell's news conference later on.
No preview required really because the Fed strategically told a few select reporters earlier this week exactly what they were thinking and now a rate
rise of three quarters of a percent is all priced in and fully expected. So the big question is what happens in July and September? And what do they
say about those months?
So the Fed's forecasts are going to be key to watch today, though not to be outdone, we have an ECB OMG moment with the European Central Bank
announcing an emergency meeting, that it will "Apply flexibility" and is working on an instrument to address rising bond yields in some member
countries.
I have no idea what that means? Well, we'll discuss it very soon brought on of course, by its decision to begin raising interest rates. Some serious
yield yikes in play Italian bond yields surging to over 4 percent this week, rising yields equals higher borrowing costs. And that's a huge
concern when your debt to GDP ratio is around 150 percent. Just to mention Italy no other countries as well plenty of challenges there.
The ECB's predicament is clear, they want to raise rates to tackle inflation, but not at the cost of bond market instability especially if
that instability heightens the risk of recession all the more reason of course too to watch the behavior of consumers wherever you are in the
world.
Well just released numbers show U.S. retail sales falling three tenths of a percent in May, we were expecting a slight increase the consumer clearly
stressed by rising prices and we're starting to see it now as you can see in the data.
For now, U.S. Futures are pointing to a higher open with tech in the lead. You can see the NASDAQ there Europe also solidly higher too, but of course
the day is young. The main event the Feds upcoming information overload still a few hours away.
And Rahel Solomon joins us now, Rahel, as we mentioned, no point issuing a preview today because superior to anything that any analyst can provide a
reporter is the fact that asymmetric information the Fed already provided what they intend to do. So the real surprise would be if we didn't get
three quarters of a percentage point rate increase today, the key is their forecasts, what is it going to take to bring inflation down and that's the
key?
RAHEL SOLOMON, CNN CORRESPONDENT: Yes, I think that's a great point. And look, I think, with no signs of inflation easing, the Fed clearly had to
throw out its playbook, which is why we sort of got that messaging, as you alluded to earlier this weekend reporting that the Fed was considering
actively considering 75 basis points.
Take a look at CPI just to sort of start from there, right, just start to get a sense of where we are. If you look at CPI, from January 2020, you
could see why Powell himself has called inflation unacceptably high. So what happens now?
Well, we know that 75 basis points are on the table three quarters of a percent. But Julia, there's a lag in terms of monetary policy. So that's
not likely to be seen or felt in the economy in terms of slowing demand and sort of hopefully cooling inflation for months to come six to nine months.
But what we might also see is signaling, messaging that the Fed has inflation under control. There has been a real concern amongst some in the
investment community that the Fed is behind the curve, that it's too slow that it really is letting inflation just run rampant.
Take a look at this tweet put out yesterday by Bill Ackman, a Hedge Fund Manager here in the U.S. and a very prominent investor saying look, the
Federal Reserve has allowed inflation to get out of control. Equity and credit markets have therefore lost confidence in the Fed. Market confidence
can be restored if the Fed takes aggressive action with 75 basis points tomorrow and in July.
[09:05:00]
SOLOMON: So the Fed funds rate standing right now at about 75 to 100 basis points about 1 percent. Julia, the expectation is that it heads toward 4
percent over the next 12 months into 2023. So what that means is that even if we do see three quarters of a percent today, there are likely many more
rates to come many more rate hikes to come in the future, but signaling and messaging is going to be very important today.
CHATTERLEY: Yes, so important and we're committed to this. And actually, that was a great tweet by Bill Ackman too, because it was about the
commitment to keep going, irrespective of the consequences and the volatility in the market.
I think one of the things that he's going to be asked today is whether they would consider doing a full percentage point rate hike and his answer to
that is going to be so important too to your point about credibility and perhaps having a situation now that's out of control, and trying to get it
back under control. Rahel, we shall see you're going to have an exciting day. Great to have you with us, thank you for that.
Now, not to be outdone, the European Central Bank says it will "Apply Flexibility" to ease the turmoil we're seeing in the bond market, the ECB
held a surprise meeting Wednesday to discuss the sharp sell-off, which is bought back unpleasant memories of the region's debt crisis.
Clare Sebastian joins me now. And therein lays the key Clare, because they have this situation where they like many other central banks want to get
inflation under control? But they also don't want to create such a degree of instability in the bond markets that perhaps they push some nations like
in Italy, for example, into recession at the same time, challenging.
CLARE SEBASTIAN, CNN CORRESPONDENT: Yes, and in particular challenging Julia, when you have 19 different countries with 19 different debt levels.
CHATTERLEY: Right.
SEBASTIAN: This is the big worry that we're seeing this was the same, you remember it well, 2011, 2012 the worry was what they call fragmentation,
when you have very divergent borrowing costs among different members.
This is the backdrop to what happened today. We had the ECB meeting last week, where they for the first time in 11 years said that in July, they
were going to raise rates and there would be more rate raises to come after that. They're also going to end their bond buying program.
So at that point, bond yields across Europe, Germany, Italy even start to go up. Because many in the markets believed that they hadn't given enough
detail. They hadn't given a timescale, any threshold for what they were going to do to try to tackle this issue of fragmentation.
So we continue to see the bond yields go up the difference between German and Italian yield, in particular, and then they call this ad hoc meeting
today, they say, to discuss current market conditions as to what they've done.
Well, it's really sort of something old and something new, there's something new that they say they will accelerate now is to design, what
they call a new anti-fragmentation instrument that will then need to be approved by the ECB Governing Council.
Could this be something reminiscent of what we saw in 2012, it was called the OMT, where the ECB will be able to buy bonds from more distressed
countries, as long as they signed up to certain reforms that was actually never enacted to talk about it was enough to calm things down.
And then there was something old that they said as well, they're going to continue to show what they call flexibility when reinvesting funds from
bonds that have matured under their pandemic era bond buying scheme.
So that is something they'd already flagged that means that they could use that money to again to tackle more distressed areas of the Eurozone. Is it
enough? I think the jury's still out. And markets are sort of behaving a little bit strangely around this Italian bond yields came down again, and
then came up again, at the Eurozone - the Euro seems to be giving up some of the gains that it made earlier in the day that Julia.
CHATTERLEY: Yes, it's fascinating, isn't it? Because the idea here is that you go to a country like Italy, you buy their bonds, you support the price,
you bring the yield down and perhaps equal and opposite. You sell German bonds, for example, and you bring those yields down, and you stop that
difference being created between them between the bond yields. That sounds like easing to me, Clare in an environment where they're trying to tighten
and to bring down inflation.
SEBASTIAN: Yes, you know Julia I was thinking about this is really the crux of this, I think how difficult it is, after 11 years of either rock bottom
or negative interest rates to bring them back up again? The Euro is only been around for 20 years, and most of that time has been spent with these
rock bottom or negative interest rates.
So this is really tricky and of course, the backdrop in Europe is a little different to the United States. Inflation is like in the United States,
very high, but they are more vulnerable to shocks to these energy shocks coming from the war in Ukraine.
You know, we've seen the gas cut off to Poland and Bulgaria, just this week, we saw that Gazprom has reduced the supply of gas through the Nord
Stream Pipeline. So these shocks are sort of coming in quite a degree of frequency to Europe, inflation is perhaps more unpredictable in this area.
And that's why I think another reason why the ECB has to be quite varying and has to tread very carefully here.
CHATTERLEY: I mean it's like that for the U.S. Federal Reserve as well for the first time in decades. In that case, they have to say, look, we can't
be the ultimate backstop really; we simply can't because we have to get inflation under control. And yes markets don't like it. Clare Sebastian,
thank you so much for that.
[09:10:00]
CHATTERLEY: Now difficulties and challenges that's what the Chinese government says it's facing as its economy recover from lock downs and
supply disruptions. Retail sales are down 6.7 percent in May from a year ago, while the youth unemployment rate is at a new record high of 18.4
percent.
Selina Wang joins us now on this. Selina, let's talk about that retail sales because you were talking about the risk yesterday that consumption
spending among consumers remains depressed simply because there's a consent to go out there and for three months in a row now the retail sales suggests
that's the case.
SELINA WANG, CNN CORRESPONDENT: Exactly Julia, I mean three consecutive months of suppressed retail sales and it's no surprise because COVID
lockdowns means people are sealed. They're in their homes, fewer opportunities to spend money, and also less income in their pockets, as
there have been many job cuts.
And so what we're seeing from this may data is that China, the worst of its economic fallout from this recent COVID lock downs may be over. But this
recovery is going to be slow and bumpy. The only real bright spots that we saw from this economic data were a slight increase in fixed asset
investment, as well as in that industrial production.
But going back to those retail numbers, we pretty much saw consumer spending down in every single category especially cratering, catering
sales, this is the restaurant sector down more than 20 percent car sales, also down 16 percent.
So the reality is that even if businesses are able to restart well, consumers are still staying cautious and the economy is still hostage to
these COVID lock downs that can reappear at any moment, even when there is just one COVID-19 case.
Analysts, they are still predicting that China's economy could actually contract in the second quarter some economists are calling this the biggest
economic challenge for China in the past 30 years, Julia.
CHATTERLEY: I mean, I can add another one in there. It's difficult always to judge. And you have to look at the data with some degree of caution. But
when the government's admitting an 18.4 percent unemployment rate among 16 to 24 year olds, I'm incredibly alarmed. We've seen this in other countries
to go back to Europe and the Eurozone debt crisis. What are they doing with these young people? How do they provide work?
WANG: Yes Julia, that is a record high youth unemployment rate more than 18 percent as you say, this is the worst ever. And part of that reason for the
big hit is that the services sector getting hit very hard by these COVID lock downs that is a big driver of youth unemployment.
On top of that, you've got the regulatory crackdown of the tech sector that has long been a source of well-paying jobs for young people. And of course,
small businesses, which are a major driver of China's economy, also, getting hit hard by these COVID, lock downs.
So it is a very bleak job market for these more than 10 million young graduates that are set to graduate in the coming months. And that
frustration we are seeing from these young people it is spilling onto Chinese social media. We've even seen some rare protests at prestigious
Chinese universities over these COVID-19 protocols.
And unfortunately, Julia a lot of the focus of stimulus from Beijing, it is not focused on increasing income for people and helping people who've lost
their jobs. It's more focused on stimulating businesses, increasing loads to these businesses. So a lot of these young people, it's not hard to see
why they are stressed. They've dealt with years of on and off lock downs during their prime college years, and now they're seeing their jobs
disappear, Julia.
CHATTERLEY: Yes, I mean, you hope that that investment in businesses trickles down and they re-employ people or employ more people. But yes,
challenging and it's to your point very challenging for these young people too Selina, great to have you with us thank you Selina Wang there.
OK, let me bring you up to speed now with some of the other stories making headlines around the world. As defense leaders from Ukraine and nearly 50
other nations meet in Brussels today. A top adviser to Ukraine's President warns Kyiv is severely outgunned by Russia. He's pleading for more weapons.
The Head of NATO says more help is on the way.
(BEGIN VIDEO CLIP)
JENS STOLTENBERG, NATO SECRETARY GENERAL: We are extremely focused on stepping up providing more support more advanced weapons, and also to do
that in the best possible way for the Ukrainians because we support them in their fight against the brutal Russian invasion.
(END VIDEO CLIP)
CHATTERLEY: But Former Russian President Dmitry Medvedev gave an ominous warning. On telegram he posted "Who said that in two years Ukraine will
even exist on the world map".
Now in the United States, nearly 100 million people are now under official warnings of excessively hot weather; temperatures near records across the
Midwest and Southeast with heat indices surpassing 38 degrees Celsius. Many people have to do without cooling off the storms damaged electric power
grids earlier this week.
[09:15:00]
CHATTERLEY: In other parts of the world India and Pakistan are dealing with more record breaking heat after reporting their hottest march on record
too. Pakistan's Climate Ministry says the country jumped from winter to summer this year without experiencing any spring.
Meanwhile, Spain is grappling with its earliest extreme heat wave in 41 years, France and the U.K. also both on high heat alert.
OK straight ahead on "First Move" when markets hang off the cliff on the edge of a cliff is the only way down. Ruchir Sharma weighs in, plus
glossing over inflation CEO of L'Oreal tells us why was still wanting to look good, even with a smaller wallet. That's up next stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move"! And what a week already crypto prices tumbled due to a Celsius marketplace freeze. The feds up next Powell
not yet ready to appease their plans for aggressive rate hikes the market clearly sees and as for the bear market tumble we ask when will it ease?
Well, the good news this morning U.S. Futures currently on track for a higher open this after five straight losses for the S&P 500 that pushed the
benchmark index firmly into bear market territory nice 21 percent below recent highs.
And investors also bracing for an afternoon of frenzied fed action too, the U.S. Central Bank set to deliver a three quarters of a percentage point
rate hike may also prepare markets for a similar move next month. But of course, rate hikes have consequences.
The ECB dealing with market reaction to its hawkish policy pivot last week, announcing it an emergency meeting today as we've discussed that it's
working on a "Instrument to address rising bond yields brought on by its decision to begin tightening policy".
Much to discuss I'm pleased to say Ruchir Sharma Chairman of the Rockefeller International and Author of "The 10 rules of successful
nations" joins us now. Ruchir always great to have you on the show. Let's talk about the Federal Reserve first.
If you look at what the Fed whispered as it's known to the market earlier this week, the message was look, we clearly have to do more. Three quarters
of a percentage point rise expected today but the markets priced a couple more virtually over the next few months. The messaging today from the Fed
is going to be vital to either approve of what it sees or perhaps push back in some way. What are you expecting?
[09:20:00]
RUCHIR SHARMA, CHAIRMAN OF ROCKEFELLER INTERNATIONAL: Yes, I think Julia as you said that the Fed is so far behind the curve here which is that if you
look at past tightening cycles we've never had so much tightening, anticipated and priced this far forward, right, which is that the Fed funds
rate today is still very low pricing in the rate virtually tripled over the next year, year and a half or so.
So that is a very unusual development. So it just tells you that how far behind the Fed are? So no matter what the Fed does today, it's going to be
very difficult for the Fed to be in control here or send the message that it is ahead of the game so that's how far behind the Fed has left itself.
And that's the real problem.
Now, the good news is this in a way, that what's also really unusual about this tightening cycle, is that there seems to be a lot of political
consensus. In the past, if you recall, when we had tightening cycles, a lot of politicians would bicker about it.
The last time Fed raised rates by 75 basis points was in 1994. And there were a lot of politicians who were very upset about it this time, because
they all recognize that inflation is such a big threat, even to their own approval ratings, that even on the Democrat side, who have in the past been
big supporters of easy money and low interest rates, even there, the opposition to low interest rate seems to have disappeared, and they're all
lining up accepting the fact that the feds got a lot to do here to get inflation back under control.
CHATTERLEY: You could argue that they've got nothing to lose either, because they're being blamed, in many respects for the higher prices. And
if the Central Bank steps in and makes things more painful in terms of higher interest rates, higher credit cards, more expensive loans, and
that's the central bank's fault, not the government's fault.
So there's perhaps invested interest in here too. I guess the big question is how much is enough Ruchir? And what's worse for consumers that the pain
of higher prices or the risk perhaps that to your point about them being so far behind where they need to be and having to accelerate and do this so
quickly, that the risk of creating a recession is also that much higher?
SHARMA: Well yes, but I think that currently, the choice is very clear, which is the fact that the economy has been relatively resilient. Yes,
there are some indicators which are turning down, but the economy has been relatively resilient, and interest rates are still way too low in terms of
compared to the inflation rate.
So currently, the Fed has no choice but to keep embarking on this. And so many excesses have been built up in this bull market, you know, which
really dates back to 2009, we had that sharp, but very short lift declined during the pandemic. But this is a bull market, and an economic expansion
that dates back for all practical purposes to 2009.
So it's really been a very long cycle of nearly 13 years, with just a minor interruption in the middle at least from a market standpoint, because there
are so many excesses out there that they needed to be weeded out. And so that's all part of the process. That's what a bear market does.
And even recessions, you know, like, as ugly as they may sound, but why do we have recessions? The U.S. has had a dozen recessions in its post-World
War II history, because they act as a sort of cleansing mechanism.
When the excesses get built up, to clean out a lot of the excesses, whether it's got to do with inflation, or excessive wealth creation based on paper
money, all those kinds of things get cleaned out, and then you get a new cycle that begins.
So yes, a recession is painful, but it's a normal part of a business cycle and not something that we should fear as to be avoided at any cost,
particularly when the tradeoff is that we will get rid of some of these excesses that got built up due to very easy money policies of the last
decade or so.
CHATTERLEY: Yes, it's interesting you - we digress and take me back to my economics degree where I think one of the first questions I asked is why do
we have to do boom bust? Is it not suggest that policies just inefficient though we're allowed to go too far one way and then we push ourselves back
in the other direction.
But that's a whole other conversation Ruchir because our conversation back in January, you called it "The Everything Bubble" to your point about
excesses. And we'll come back to some of the popping of bubblets which you also predicted and now we've seen but you also say that for financial
markets, we're in the first act. And then there's a period of intermission and stabilization.
And then the next act is triggered by Central Bank moves like the Federal Reserve and what we see and actually, the next act could be equally
uncomfortable, if not more. Just describe intermission into next act and what that's going to look like for financial markets?
[09:25:00]
SHARMA: Yes, I looked at the past you know financial markets over the last century or so and it showed the following pattern which is that you
typically get the first leg down when the Fed begins its tightening cycle and that first leg down tends to be 15 to 20 percent.
And then after that, we typically get some sort of a pause, which lasts for a few weeks, sometimes even up to three to four months. And then we get a
second leg down, which is driven normally by a recession or an earnings slowdown.
So what we've seen so far is the first leg down, which has been driven entirely by the Fed's action with no revision at all, to the earnings
growth of the economy, you know that people still expect the economy and earnings to hold up. And when the tightening begins to bite, we get the
second leg down when even the earnings fall off quite sharply.
And the end of a bear market comes when the Fed typically signals that it's done that its tightening cycle is over, it's now willing to call it a day,
and even possibly move to an easing cycle. So that's what is the template that I have described in my writings off late?
So there are two indications we should be looking at, to know when this bear market comes to an end.
One when the Fed declares that it is close to being done with this tightening cycle. And two, if you just look at the historical titles, it's
the magnitude of the decline. The average bear market in the U.S. over the last century has been about 35 percent or so in terms of the decline from
peak to trough, which means the S&P 500 is the benchmark being closer to about 3000 to 3200 or so. Now, these are just broad averages.
But these are the two broad indications that I would look at to suggest that the bear market is coming to an end. And it doesn't seem as if the Fed
is anywhere close to being done, for the reasons we discussed at the top of the show.
And secondly, also the magnitude of the declines so far, as I said, it's about half of what we have normally seen a little over half now after the
action of the last week. And this tends to play itself out over a 15 month time horizon or so and we are just you can say in the first six months of
it. So it seems like we have a while to go.
The only silver lining here is based on averages now; we may be in the second half of this. And so soon enough, there will be an opportunity to
get back in the market. And here I'll make one very important point, which is that a new bull market will eventually begin, but the leadership will
change.
What led the last bull market was technology, the fangs, those kinds of stocks. Every bull market history teaches us that when a new bull market
begins, the leadership changes the old leadership ties. So I'm not going to be putting any capital to work in the fang stocks or any of the big cap
tech stocks or even the tech sector in general. I'll be very wary of it. Because once a bear market comes in, that leadership gets crushed and
doesn't return for at least a decade or so.
CHATTERLEY: I have about a minute left Ruchir and have million more questions to ask you very quickly Bubblets, crypto you said to me last time
over a 12 month horizon when these things pop the average price drop tends to be around 70 percent from the peak over a two year horizon. That was our
discussion in January that argues the crypto still has more downside. Is that your view? You have about a minute?
SHARMA: Yes, that's it as far as publics are concerned, you know, these are good ideas gone too far. So in 2020, I was bullish on Crypto and Bitcoin
and then I felt that it had gone way too far. And I coin this framework of Bubblets. And so I think that Crypto, you know, like, it's close to being
done, it's now down nearly 70 percent from its peak so most Bubblets are close to being deflated.
But as I said that it takes typically a two year process. So I'd say from now it's more going to be like a time rather than a price decline. And so
for the next year or so will be a difficult environment for these Bubblets, including Crypto, but in price damage terms, I'd say that, you know,
somewhere close to 10,000 this could be done enough good. That's a very painful decline. It's a full round trip. But that's how Bubblets are? I
mean, and that's what bubbles are in the past. That's what the NASDAQ did back in 2000, 2001 as well on a peak to trough basis. So yes, we're close
to being done on the Bubblets but we still have some time and possibly some more price decline to go.
CHATTERLEY: Yes, I guess yesterday said to us winter is coming and it's going to be an 18 month period now where not a lot happens to your point
that fits exactly with your time horizon. Ruchir great to chat to you as always, Ruchir Sharma Chairman of Rockefeller International and Author of
10 Rules of Successful Nations. We'll speak to you soon sir, thank you.
[09:30:00]
CHATTERLEY: All right, coming up after the break, rising prices aren't stopping consumers from putting on a brave face with a beautiful face.
L'Oreal says its profits still have a healthy glow the CEO up next.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move". And truly a Central Bank of Bonanza this Wednesday as we await Fed Chair Powell's policy power moves
later today. And digest the ECB's promised us power tools of its own to deal with rising sovereign bond yields.
In the meantime, U.S. stocks are higher in early trade. Here is the picture that's a nice bounce the tech heavy NASDAQ rising for a second straight
session ahead of the Federal Reserve's decision a three quarters of a percent rate hike already baked into the markets here.
But remember, this is a day when the Fed members project how far rates may have to rise in future to contain inflation to brace for more surprises to
come. In the meantime President Biden under intense political pressure to tame prices and ease record high gas prices in particular Biden writing to
the major U.S. oil companies today like Exxon and Chevron demanding that refineries produce more to help ease the price shock hitting consumers.
Biden blasting what he calls historically high refinery profit margins, calling them not acceptable and with inflation casting a shadow over so
many sectors of the economy international beauty giant L'Oreal is shrugging off the fear and carefully applying a brave face.
We're all asking them what's going on beneath the surface. The world's number one cosmetics group has 36 brands 88,000 employees, and reported
growth of 16 percent in a year way outpacing the rest of the beauty market.
But what about the bottom line here? Offering a glimpse into the future of our faces and our bodies? L'Oreal has a number of new innovations to help
us look and smell our best. Nicolas Hieronimus is L'Oreal CEO and he joins us now.
[09:35:00]
CHATTERLEY: Nicolas, fantastic to have you on the show. And I can hear how noisy it is behind you. So bear with us, please. Firstly, I just want to
get your global sense. You have an enormous global business, and there is a lot going on in the world that's concerning and challenging. How worried
are you?
NICOLAS HIERONIMUS, L'OREAL CEO: Well, you know, Julia for some, they are very happy to welcome you here from VivaTech, where we are showing our how
becoming a beauty tech leader.
But just to answer your question on the state of the world, it's very clear that it has become much more complex to navigate, the world is more -
volatile, uncertain, complex and ambiguous than ever. But, you know, at L'Oreal, we remain pretty upbeat, because we do not see any slowdown in
consumption of the beauty category. And very clearly, we continue to outpace that market. And I will be more than happy to elaborate about the
reasons behind these two facts.
CHATTERLEY: Elaborate, please?
HIERONIMUS: Yes. Well, you know, first of all, I think the beauty category has always been proven to be very resilient, in times of economic
expansion, as much as in time of trouble because it is a category of indulgence where people when they are facing tough times, go back to have
some good moments.
And I must say that if you add this to the fact that people have been locked down and deprived of social life for over two years, we are now in a
moment of true Carpe Diem. And I think we can say that Carpe Diem trumps inflation all around the world, we see no slowing down or trading down on
beauty products.
And on the contrary, in some of the most social categories, such as fragrance, or lipstick, are actually exploding right now. And of course, as
the worldwide leader of this industry, making sure that we offer products at the right price points to every type of consumers from our mass market
brands to our very premium luxury brands, we managed to cater to the needs of all consumers around the world and continue to win market share.
CHATTERLEY: Yes, it's fascinating, isn't it to your point, because I look at some of your competitors, both at the in the higher margin products and
more of the middle range. And they're cutting forecasts. They're citing supply chain pressures, pricing pressures.
So it's quite fascinating to me that you're managing somehow to avoid some of these challenges, to your point about consumers wanting to get back out
there to live to look good and to take care of themselves, even if prices rise.
How much the prices have to rise, just based on your experience before consumers do start to make choices. Like how much more room have you got?
HIERONIMUS: Well, you know, first of all, I have to say we are facing the same challenges as our competitors, but we are managing through them. And
as far as prices are concerned, we are - price increases on most of our brands are adapting our promotional strategy.
And so far, we haven't seen absolutely any slowdown of our business. If I look at our first quarter results we grew as you know, by 13.5 percent 1/3
of this was volume and 2/3 was value which showed that you can - of course to a certain extent, and continue to grow in volume.
And our whole strategy is to have a wide pyramid of price levels, starting from our mass market divisions to our luxury brands. And we have you know,
creams that starts at eight Euros or $8 and creams that sell at 400 Euros. And so there's a good product for everyone.
But in the end, what really matters is that this is an offer driven market and if we come up with innovations, and we launch lots of innovations,
every quarter of every year these innovations are tempting enough for consumers for them to be willing to pay the price. And that's part of the
recipe behind the dynamism of the market and the capacity of L'Oreal to over perform that market.
CHATTERLEY: You know I'm so excited to talk about some of your innovations and what you're presenting there. But I have one more question because I
think China today again, topical with the fall that we saw in their retail sales, lockdowns, and challenges.
Nicolas, how were you achieving the growth and the sustained growth that you've seen, particularly over the last few years there? And what
challenges are you facing there and how are you getting around them? Does it come down to digital?
HIERONIMUS: Well, first of all, you know we've been in China for a very long time. Our brands are loved by Chinese consumers and the rising middle
classes of China love L'Oreal Paris, number one brand in China. Lancome number one luxury brand in China and clearly we've developed a pretty
strong e-commerce know how in China with partnerships with the - and the JDS and our teams there.
[09:40:00]
HIERONIMUS: So we have both enjoyed a great growth in brick and mortar as well as in E-Commerce. And clearly in the recent periods when most of the
stores were closed, of course, particularly in Shanghai, we could continue to engage with consumers online. And April was a very tough month for
everybody.
But if I look at our May results in sell out, the marketing, ecommerce went back to gross, whereas the brick and mortar remain negative. But when the
market was around plus 5 percent, in May, in E-Commerce, we were at plus 30.
Because we know how to tempt our consumers, engage them with nice offers, not promotions with just great new products. And that's I guess, what we're
going to be doing in June where's is a big advance of school - which is a big beauty moment for Chinese consumers.
And the early days of that festival are very promising. So we are confident in the short term. But more importantly, China is a long term growth
engine, because the middle classes are going to increase by 300 million people between now and 2030.
Because Chinese want love beauty and because L'Oreal is their favorite brand there, so I guess you can count on L'Oreal and China to continue to
deliver growth.
CAHTTERLEY: Yes, fascinating as well, the power of your brand, even given the backdrop and some of the challenges between China and the United States
on a political level. That's a whole nether conversation that we will come back to I hope you'll come back and talk to me about.
We have to talk about tech. And I could talk about all sorts of things, your digital profile NFTs.
Because I know you're involved in that as well and engaging in web three operations. But actually, it's the Sense Station that did catch my
attention is in store experience for measuring a consumers reaction two cents talk us through this because this is fascinating to me, too?
HIERONIMUS: Yes. Well, it's very fascinating, you know, here at VivaTech, we are trying to present what we think the future of beauty is going to be.
And we are here to write the future of beauty as leaders of this category.
And amongst the many things we're presenting here on innovations, there is this famous Sense Station, which was developed with a startup called
"Emotive" and the whole idea was to help consumers navigate in the thousands of fragrances that are available and find the one that's right
for them in a personalized way rather than the one that the beauty advisors wants to sell.
And that's why we developed this tool, which is based on a questionnaire and a measurement with a helmet that measures consumer's emotions, when
they smell different accords. And we see their emotions, whether it's pleasure, whether it's energy, whether it's stress on the negative side,
and thanks to this measurement, after smelling like six different chords, if I'm correct, they will get a recommendation of what is the fragrance
that makes them feel the best.
And we've tested it here but more importantly in Dubai Mall a couple of weeks ago, and we had 96 percent accuracy. So consumers left with a
fragrance that they knew they would live well with. And that's, you know, when you make your consumers happy, that's the recipe of success and have
ongoing success. So I'm very, very excited about this project.
CHATTERLEY: That's - I mean and that's just one of the innovations actually, that you're looking at, though I'd rather have 10 people around
me with those helmets on and to measure how I smell because not just about me, it's how it's presented to everybody else.
But I'm sure you're working on it. Very quickly, because we have around a minute, the showerhead that helps you wash your hair, rinse your hair, but
uses 61 percent less water. Just one minute the selling point of this. I mean, it speaks for itself. But this is great innovation too?
HIERONIMUS: Yes, I think it's a very important innovation. As you know, we are the worldwide leaders of the professional industry and in hair salons
even before talking about people's homes in house saloons they were using thousands of liters of water to rinse shampoos or hair colors.
And we found and work with these great startup called - which designed this showerhead that actually reduces the use of water by reducing by 10 times
10 X the size of water droplets that allows you to rinse whatever you need to rinse using 60 percent less water and of course having to heat up 60
percent less water.
So it's a major contribution to our L'Oreal for the future sustainability trajectory. And we are just beginning to roll it out. We've put it in 4500
saloons, we're planning to extend it to 100,000 and hopefully and I know they're working on it right now.
Maybe bring it to people's homes because if we can also bring that to people's home and maintain the pleasure of a shower but the reduction of
water consumption that will be again a major contribution to a better planet and to creating beauty that moves the world.
CHATTERLEY: Yes and far less water heater to your point too if there is an energy consequence there as well. Nicolas fantastic to chat to you today
thank you so much and please come back soon and enjoy the event I know you're going to have fun there.
[09:45:00]
CHATTERLEY: Great to chat to you, the CEO of L'Oreal there.
HIERONIMUS: Thank you very Julia. I'll talk to you soon.
CHATTERLEY: Great to chat bye! We're back after this stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move". And how about this there's some Crypto consequences? El Salvador embrace Bitcoin, like no other country
even going as far as adopting it as legal tender. And the government has amassed more than 2300 Bitcoin since September of last year.
At one point with $103 million that investment of course now was significantly less as prices plunge. But the country's Finance Minister
says the fiscal risk is "Extremely minimal". Patrick Oppmann joins us now, Patrick unrepentant I think is the way we could describe the President?
I saw he tweeted you're telling me we should buy more Bitcoin? I suppose it's caught averaging in I believe in market terms. What are the financial
consequences Patrick, though? How material are they?
PATRICK OPPMANN, CNN CORRSPONDENT: It was just about a year ago Julia, you and I were talking about this--
CHATTERLEY: Yes.
OPPMANN: --a bold bet by El Salvador's President Nayib Bukele on Bitcoin and it's impossible to look at it any other way that this was a very bad
bet because not only was purchasing on the Bitcoin, it was essentially rebranding his country as a Bitcoin country giving all the citizens a
digital wallet trying to entice Bitcoin entrepreneurs to come and live in El Salvador and saying they wouldn't have to pay taxes talking about
building this futuristic Bitcoin city.
And it has not worked out according to plan whatever El Salvadoran officials want to claim they've lost a lot of money on this a lot of
prestige, and it continues to look like the situation will get worse and worse.
Despite Nayib Bukele claiming that they are going to continue to buy the dip as he has over the last several months the problem has been they have
not bought the dip the prices continued to fall and so much of their image or economy is tied into Bitcoin right now.
So the even if it's not a large portion of their budget is having other impacts in terms of their credit rating, their ability to repay debt. And
Nayib Bukele continue to double down but unless the price takes a very different turn here.
This situation is not going to improve for him and it is looking more and more like he has bet a lot of this country's future on Bitcoin and is not
paid out, at least not yet.
[09:50:00]
CHATTERLEY: Yes, I mean, the loss is not crystallized until you sell it. However, to your point perhaps the credibility here is an even bigger loss
and the challenge is not yet over. Patrick we're going to talk about this in the next hour, much to discuss. I'll speak to you soon. Thank you so
much for that report for now Patrick Oppmann.
OK, after the break a K-Pop bubble bursts; BTS say they're taking a break, but does that mean they're gone for good details next?
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move". Korean Boy Band BTS saying BRB that's we'll be right back. They came in like dynamite but now they're
taking a break from blowing up the music charts.
This evil group was very careful to call this break a hiatus. They say they want to explore solo projects and one of them did admit they were going
through a "Rough patch" right now. So what is going on?
Paula Hancocks joins me from Seoul. This story is huge, and I've seen the fan fallout which is, I think best described as devastation. Interesting
the leader though said that he felt guilty and afraid to ask for the rest that he needed. So Paula, what's going on and what has the fallout been?
PAULA HANCOCKS, CNN CORRESPONDENT: Well Julia, certainly you can see many fans are bitterly disappointed that they are taking a break but other fans
understand as well. The online responses have really been quite varied. They have a massive following around the world. The fans are known as the
army and they are extremely loyal to this group.
So this all came about at an anniversary dinner their ninth anniversary which was uploaded to their YouTube channel? And they discussed for more
than an hour the fact that they were going to take a break from the group that they were going to pursue their solo careers.
Now hype that management group that owns of BTS and that manager BTS, their shares actually dropped about 25 percent today well after this, this news
clearly a bit of a shock for the markets as well as for the fans themselves.
They are an extremely successful band. In fact, that's a bit of an understatement. They are the first group since the Beatles to have had
three number one albums on the billboard 200 chart, nominated for two Grammy Awards and the list goes on.
Now one of the things that many of them were saying was that they needed a break. They needed a rest. They felt that being part of the K-POP industry
did not give them a chance to mature or they're one of them did point out that they are concerned for their fans.
(BEGIN VIDEO CLIP)
RM, BTS MEMBER: Right now we've lost our direction. And I just want to take some time to think and then return but that just feels rude to our fans and
like I'm letting down their expectations.
(END VIDEO CLIP)
[09:55:00]
HANCOCKS: Worth pointing out they all have military service coming up as well by the age of 30. The group is between the ages of 24 and 29 Julia.
CHATTERLEY: Yes not been given at least yet the exemption that sports stars for example receive. Well, we wish them well on their hiatus. Paula
Hancocks, great to have you with us thank you for that!
And finally, on "First Move" most of us remember this South Korean Series Squid Game is grisly, but gripping. Well, the makers aren't done with it
yet. They're turning it into a reality TV show with the largest prize in TV history of over $4.5 million.
Good grief. But don't worry, we promise no one dies in "Squid Game: The Challenge". And there's better news fans of the original drama are being
promised a second series. I think someone needs to call the insurers on that one to be honest.
That's it for the show. If you've missed any of our interviews today, they will be on my Twitter and Instagram pages. You can search for
@jchatterleycnn. I'll be right with you in a few moments time "Connect the World" in just a moment stay with us.
(COMMERCIAL BREAK)
[10:00:00]
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