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First Move with Julia Chatterley

Fitch Downgrades U.S. Mortgage Giants' Ratings; Thousands Rally in Niger's Capital to Support Coup; Coup Leader Meets with Junta in Wagner- backed Mali; Trump to Appear in Court in Coming Hours; Two-time Champions Germany Knocked Out. Aired 9-10a ET

Aired August 03, 2023 - 09:20   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

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[09:20:00]

(COMMERCIAL BREAK)

JULIA CHATTERLEY, CNN HOST, FIRST MOVE: A warm welcome to "First Move". You've been watching CNN special coverage ahead of the arrest and

arraignment later today. A Former U.S. President Donald Trump is expected to plead not guilty to four criminal charges relating to his efforts to

reverse the 2020 Presidential election results.

The proceedings are set to begin about seven hours from now that's in Washington D.C. Now from Donald Trump's legal pie to more stock losses

inside Wall Street's major averages on track for a second down day. This follows Wednesday's sell off the saw the tech heavy NASDAQ for more than 2

percent.

Just for context, that's the worst session since February. European Stocks also lower after a weaker Asia handover too. Now the surprise us credit

rating downgrade from Fitch on Tuesday proving to be I think the perfect excuse to take profits after an incredibly strong run for stocks.

Then add to that an announcement from the U.S. Treasury that it's raising its borrowing estimates for this quarter to over a trillion dollars that

was higher than expected. And I think it was like salt in a Fitch induced wound, the combination helping boost bond yields with the benchmark 10 year

Treasury now yielding more than 4.1 percent.

Just for context. Again, that's the highest levels this year. And therefore rising yields are only adding to some of the pressure that we saw yesterday

on rate sensitive tech stocks. Now we're going to be speaking to Fitch's Co-Head of America's sovereign ratings, Richard Francis about the timing of

its decision to downgrade that credit rating and the message also important that it's looking to deliver.

That's coming up later on in the show. For now, there's lots of other market moving news this Thursday too. The Bank of England announcing its

14th straight rate hike a quarter of a percentage points this time around. We're also awaiting key earnings from the likes of Apple and Amazon as well

as the U.S. jobs report that's out on Friday.

[09:25:00]

For now though the focus remains on Fitch also downgrading mortgage giants Freddie Mac and Fannie Mae. Now they collectively guarantee around 70

percent of mortgages in the United States. And long story short, they can do so because they're backed by the U.S. government.

Clare Sebastian joins us now. Clare, that was an automatic domino fall, I think because they piggyback off America's credit rating. So that was set

to happen. As a result, what do you make of what we've seen over the last 24 hours? There were a lot of reasons, as I mentioned there for stocks to

fold and not all tied to this credit adjustment.

CLARE SEBASTIAN, CNN CORRESPONDENT: Yes, I think you know we have a big number for private sector jobs, Julia, which sort of weakens the argument

for the Fed to take a pause. Plus, that sort of double whammy as you talked about with the Fitch downgrade.

And then the increased estimate for borrowing from the Treasury for the current quarter, which of course, is nothing, you know, you have higher

borrowing and higher borrowing costs. And we already had an estimate, six months or so ago that by the middle of the century, the U.S. was going to

be paying more on interest payments on its debt than it is on anything else in the federal budget.

So that may well accelerate that path in terms of the markets. I think equity markets are reacting to all of that, I think it's worth looking at

the 10 year yield again, because this is now at a 10 month high. And as I said that does push up those borrowing costs and also, if we can switch as

well to the dollar because the dollar tends to be Fed by those treasury yields.

And the dollar has been rising. It's roughly now hovering around a four week high against the euro. But I want to bring in a quote for you from Kit

Juckes from Societe Generale on sort of how to interpret that dollar move. He says Fitch's decision to downgrade the U.S. from AAA to AA+ is dollar

positive.

For now it pushes us yields higher and the FX market understands that the actual risk of the U.S. not meeting its obligations is even smaller than

the risk of the dollar you losing its status as the world's dominant currency. He says the rating will only hurt the dollar if the U.S. tightens

fiscal policy enough to alter the path of Fed funds.

We know of course, the IMF has been pushing the U.S. to tighten fiscal policy. But I think you can see from how the debt ceiling debacle went down

several months ago that that is going to prove extremely difficult. And just for perspective, Julia, I want to show you the Fitch Ratings for all

of the G7 countries.

The U.S. has now lost the tough spot Germany is the only one left with A, I don't know if that's the right, the right graphic there. But maybe we can

bring it up Germany is the only one left with that top AAA rating their debt to GDP ratio is just a little over half of what the U.S. is at about

69 percent.

The U.S. now is on a par with Canada there. So that is something to look at all those still we should know the AA+ a very solid credit rating still

very much investment grade.

CHATTERLEY: Yes. And there are so many great points in that. But I think the message from Fitch is that America is not acting politically, nor

fiscally like a AAA credit rating but don't forget their superpower, which is the power of the dollar being used around the world and in a crisis.

What do you buy? You don't go to AAA rated Germany, you go to America and that hasn't changed. Clare Sebastian, thank you for that. Now, Fitches Co-

Head of America's sovereign ratings. Richard Francis, as I mentioned will join us later in the show to discuss all of this, in the meantime, more

foreign evacuations, in Niger.

The United States now, ordering some of its embassy staff and family members to leave the country in the aftermath of a military coup. The

President Biden also calling for the immediate release of the country's President saying the Nigerien people have the right to choose their

leaders.

Meanwhile, one of the coup leaders meeting with the junta of neighboring Mali, that's backed by Russia's Wagner mercenary group. David McKenzie

joins us now, David, the U.S. State Department actually said that the U.S. Secretary of State spoke to President Bazoum and talked to him about the

prospect of promoting the sanctity I think of the elected government.

How does that square with at least a number of individuals being now pulled from the embassy?

DAVID MCKENZIE, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, I think the critical bit of information there is that the Secretary of State of the

U.S. is able to speak to the President Erdogan, and we managed to get hold of an Former Adviser to President Bazoum, who is in regular contact with

the democratically elected President of Niger who has been disposed.

He said his morale is determined and optimistic that he has been able to speak to world leaders including President Biden and the French leadership.

And it shows that this isn't over the story. There's growing pressure from regional bloc ECOWAS, particularly from the Nigerian President and Nigeria.

[09:30:00]

A key trading partner of Niger to return the President to power, despite the moves by the hunter to try and gain support from neighboring military

leadership's like in Mali and in Burkina Faso. The President is with his wife and son, according to that advisor under house arrest.

Tellingly more than 100 people close to the President and government officials appear to have also been rounded up by the junta. It's a volatile

situation, but that pressure is certainly growing, Julia.

CHATTERLEY: Certainly, David McKinsey, thank you. Now security is tight outside the U.S. Federal Courthouse in Washington where Former President

Donald Trump will be arrested later today. What we'll see and what we may hear, next.

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CHATTERLEY: Welcome back to "First Move", in just a few hours' time Former President Donald Trump will appear in federal court in Washington, where

he's facing four charges relating to his alleged efforts to overturn the 2020 election, including Conspiracy to defraud the United States.

The indictment is the result of a month long investigation led by Special Counsel Jack Smith. Security has been ramped up across the nation's capital

and around the courthouse. And that's where we find our Katelyn Polantz. Katelyn, good to have you with us, what can we expect today?

[09:35:00]

KATELYN POLANTZ, CNN SENIOR CRIME AND JUSTICE REPORTER: Well, we do expect Donald Trump to be here in person for his initial court appearance to face

these charges that set for four o'clock today this afternoon on the East Coast. Right now he's not here. He's not in town yet.

He would be coming in from Bedminster, New Jersey, where he has been where he stays most of his time these days. And he'll be coming into this

courthouse, essentially not seen by the public assembled outside right now, there's not a huge amount of crowds here. There is a lot of press.

And there's a lot of security around the building, making sure that these grounds right here in the nation's capital, just a couple blocks away from

the capital building where that Riot took place on January 6, at after Donald Trump held his rally on the lips. We're very close to where that is.

But things are not crazy at this time. Because there is so much security, there's so much lockdown here. Whenever these initial appearance

arraignments happen this afternoon at 4 pm, Donald Trump will be driven into the building and you won't see him walk in like any other criminal

defendant coming here.

He will be taken into the courthouse he will be arrested, make sure he's in the system facing his charges. And then he'll be here before a judge, we

expect it to be a very short court appearance, one where he'll be essentially just read his charges or told what he is charged with.

He may not speak at all, there may be people from the Special Counsel's office not just the prosecutors on this case that perhaps the Special

Counsel himself Jack Smith, who oversaw signed off on this case against Donald Trump may be here in person as well.

And then the magistrate judge may allow Donald Trump to enter his initial pleading of not guilty, but there are no photos inside a federal

courthouse, no video inside the federal courthouse, there will be a lot of opportunity for hundreds of observers to watch the proceedings. But all we

will get to see if what happens inside the building are going to be courtroom sketches.

And then Trump will be out on his way back to New Jersey and then these kicks off this case to word trial. That could be quite a long road ahead,

but one that will be very intensely argued on both sides with legal arguments about whether the Justice Department is properly charging this

case, whether Donald Trump has protections around him under the First Amendment, the Constitution and even the presidency. A lot lined up for the

future for this courthouse.

CHATTERLEY: Yes, the latest trial. They're stuck in up Katelyn Polantz, thank you. And of course, stay with CNN all day for continuing coverage of

Former President Trump's court appearance as Katelyn was mentioning now scheduled for around 4 pm Eastern time around just under six and a half

hours from now.

OK, coming up here after the break the U.S. boring blues Fitch hoping perhaps its credit rating cut will be a wakeup call to American lawmakers.

But will Washington get the message which advance is one of the executives behind the judge's decision, joins us, next?

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[09:40:00]

CHATTERLEY: Welcome back to "First Move", U.S. stocks up and running this Thursday and it is as anticipated a lower open across the board with Fitch

U.S. credit ratings downgrade as well as nervousness I think ahead of Big Tech earnings and Friday's U.S. jobs report helping pressure the major

averages.

The Fitch decision to cut its U.S. credit rating from a pristine AAA to AA+ still reverberating through global financial markets and helping spark a

heated I'm let's see healthy debate over the unhealthy level of U.S. Federal boring. Just take a look at these stats and that perhaps explains

why Fitch decided America no longer warrants AAA rating.

America's debt ratio as a proportion of its economy size is over 2.5 times the average of nations that currently have AAA rating. Now, the repayments,

the interest costs and all this debt as a proportion of the money coming in, or revenues is 10 times the size of the average for other AAA rated

nations.

And it's not only Fitch that believes all of this is unsustainable longer term. Democratic U.S., Senator Joe Manchin today calling the U.S. debt

crisis, a fiscal runaway train. Meanwhile, Washington watcher Greg Valliere, a frequent guest on this show says more. U.S. credit downgrades

seem inevitable.

Now, Richard Francis joins us now he's the Co-head of Americas Sovereign Ratings at Fitch. Richard, welcome to the show. Oh, boy, you've had a week

this decision met with a mix. I think of anger, derision, ridicule even we prepared for that you and the team.

RICHARD FRANCIS, CO-HEAD OF AMERICAS SOVEREIGN RATINGS AT FITCH RATINGS: You know, I guess no government likes a downgrade. So I guess some of this

was not unexpected, kind of the statements by the U.S. Treasury, for example. So, you know, as I said before, and you just mentioned that the

numbers I think speak for themselves, you notice very, very high debt level.

We expected to continue to grow high deficits, again, expected to grow. And as you mentioned, the interest burden, especially with the higher interest

rates, and the high level of debt is set to grow as well.

CHATTERLEY: Would it have been different? And this was certainly pinpointed in the report, if the situation in Washington weren't so toxic, if you

fundamentally believed that both sides could come together and say, yep, we're overspending the debt levels are too high, we can address this. The

problem is you don't believe they can give them what we're seeing.

FRANCIS: Yes, I would agree with that. I think we've just witnessed the increasing political polarization that's made any kind of compromise

difficult. You look at the way that the ceiling debate was you know the resolution to it. And you know, it only marginally reduces the deficits and

kick the can only to January to 2025.

In terms of when we're going to hit that debt ceiling again, so, you know, it's a kind of a marginal improvement on the fiscal side. And, you know,

just kick the can only a year and a half in terms of having the debate yet again.

CHATTERLEY: I mean the problem is this decision seemingly is fueling the polarization that you're talking about. You have the hardliners, the

Conservatives and the Republican Party now saying this is exactly why we need to cut spending. And you've got the Biden Administration, blaming the

Trump Administration.

And their behavior and pinpointing January the sixth is an example which at this reports kind of fueled the polarization that you're concerned about.

FRANCIS: Yes, I think this just highlights our concerns. I mean, the fact that everybody's pointing fingers at everybody else just underscores the

level of polarization that we have in the U.S. right now, and the inability to really tackle the underlying fiscal issues.

CHATTERLEY: Now, it's not just the government that's criticized you big investors have also said that this is a ridiculous thing because it

undervalues America's superpowers which is that the U.S. dollar is the nation's the world's reserve currency that the bond market is the biggest

and then a crisis.

You don't go to AAA rated Germany you buy American debt.

[09:45:00]

Richard, did you give enough credit in this report to the fact that America is the backstop of last resort, and people will still buy American debt in

many cases they have to.

FRANCIS: Again, I think we recognize the two fundamental strengths of the U.S. One is its large diversified and dynamic economy. And second, the

unparalleled reserve status of the U.S. dollar as the world reserve currency, and the tremendous financing flexibility it gives to the U.S.

government.

These are key strengths and part of the reason we have AA+ rating at this is because of those strengths. What we're saying is, you know, the debt

level has it was under 60 percent, and 2007. Now, it's 113 percent. And as you mentioned, it's nearly three times larger than the AAA median.

And add on top of that these governance issues and the inability to tackle the situation. And we were just saying, we don't think these factors are

consistent with the AAA anymore.

CHATTERLEY: Yes, what you're basically saying is, if you didn't have the world's reserve currency and the biggest bond market in the world, you

wouldn't even have AA+ rating, correct?

FRANCIS: Correct, you'd be probably more likely to be into a category without those strengths.

CHATTERLEY: Yes, you said it. Are you also undervaluing something else, which is the dynamicism of the U.S. economy, the technology, the

innovation, the impact that AI is going to have, over the next five to 10 years, because that will surely mean stronger growth?

And that's an important part of the ratios that we're talking about here that are inconsistent with AAA rating, did that get enough credit?

FRANCIS: You know we didn't take this into consideration. Obviously, you know that the U.S. can skirt a recession, for example. And you know, but I

think in terms of the ratios and the numbers that we're looking at, these are more short term factors that are not really going to move the needed.

Even if the U.S. were to grow much stronger than we're expecting, we would still see deficits rising, we would still see debt to GDP rising. And we

still see the interest burden rising. So we didn't take into consideration is a strength of the U.S. But you know, again, doesn't move the needle

enough to keep the rating of AAA.

CHATTERLEY: You know, a lot of people at the time of this announcement were sort of scratching their heads and saying why now? The politics has been

crazy. We saw that a few months ago, the debt levels have been higher, the situation has been more uncertain.

The entitlement situation and that cliff are not new. Richard, what is the message on that? Is it why not now? You could have done it at any point

over the last, what, five years you just chose today -- ?

FRANCIS: Yes, I mean, honestly, we put the rating on watch the negative, back and at the height of the debt ceiling debate, when it was resolved, we

put out a press statement saying that we're going to, you know, keep the rate watch negative. And we're going to take her time and take a look at

the underlying situation.

So we really wanted to make sure that we took into consideration of the Fiscal Responsibility Act, the impact that would have on the fiscal

deficits and on the debt, and also revise our numbers and make sure that we you know, have a, you know, a good forecast.

And also kind of take stock of what just happened with the debt ceiling debate itself, and what the resolution means. And I think, in all those

areas, we decided, ultimately, that the U.S. is no longer AAA, but we took our time and we really had a healthy debate and discussion on the credit

worthiness of the United States.

CHATTERLEY: Do you think you could have saved yourself a lot of agro by rather than putting it on watch negative there actually just doing the

downgrade and saying look enough of this, because I think at that point, even the government perhaps would have had more understanding than waiting

a few months even for the benefit of doing more analysis to justify it, versus doing it this week.

FRANCIS: I guess there were, at the time, there was a kind of a range of possibilities, actually. I mean we were talking about, you know, probably

minimal risk, but that you could actually have a default in the United States. So it's kind of hard to capture, you know, just buy one notch

downgrade that kind of risk.

And so we want that I think the watch negative spoke to a range of what risks you know, one is just a one notch downgrade one is the possible

default or the United States. And one is if you got to the X date that might not be consistent with the AAA. So I think we were keeping our

options open with that watch negative honestly.

CHATTERLEY: To your point, be thankful you aren't going down to AA quite frankly, given the performance at that moment. Be careful agreeing with

that. I am going to thank you.

FRANCIS: Yes.

CHATTERLEY: OK. Exactly, Richard we'll speak soon, thank you.

FRANCIS: OK. Thank you very much.

CHATTERLEY: Richard Francis there, the Co-head of American Sovereign Ratings at Fitch. Thank you, sir.

[09:50:00]

All right, coming up on "First Move", the Woman's World Cup two tight matches with another shocking knockout which teams are advancing to the

round of 16 find out after this.

(COMMERCIAL BREAK)

CHATTERLEY: Welcome back to "First Move", another shock exit today at the Women's World Cup two time champions Germany are heading home after they

failed to beat South Korea who also now go home. It means Morocco advanced to the knockout stages in their first World Cup appearance along with

Colombia.

Patrick Snell joins us now well done to the Moroccan ladies but what happened with Germany?

PATRICK SNELL, CNN WORLD SPORT: Julia, look you know that just had another horrible moment for German football right you think back to what their

men's team did at the Qatar World Cup late last year going out in the group stages as they did also at Russia 2018. But this is a real shock for their

women's team.

They were European Championship finalists remember they lost the final at Wembley to England. But they never really recovered from the moment they

conceded very early on chose to Houston for South Korea putting them ahead after just six minutes.

And that was really just the what they did not once they did get back into the game on 42 minutes Alexandra park with a header for one at that point,

I think we thought they would just go on and get the when they needed to be sure of advancing to the round a 16.

But the chances came and went and 102 minutes there is a Sydney Lohmann with a sharp that just had to go in and it didn't. And you can see the

desolation there. At the full time whistle. Germany, two time champions of the world are out of the tournament and I think their players and their

fans are like in utter-utter shock.

Now, Germany did not get the win. But in stark contrast, was a moment for Moroccan football once again. They were playing Colombia, and they get the

one nil win the only goal of the match coming right at the end of the first-half stoppage time when Anissa Lahmari chucking away the rebound

after the initial penalty was saved.

And look at the scenes here because Morocco emulating the magnificent historic achievements of the men's team at Qatar last year. Well the men's

team made history by going to the semis who know what this Moroccan women's team could do? They also could do that incredible and this is a really

great storyline as well.

You can see the elation on the faces of those Moroccan players. We now have Julia, three African teams for the first time ever getting to the knockout

stages of the Women's World Cup incredible season. You can see that joy there because they had to wait for a few moments before they knew that

Germany result.

[09:55:00]

That was the outburst of emotion we just saw there. It's fantastic and look, who knows who knows what might now happen I'm just checking that

Morocco got France next, Nigeria, England and South Africa, Holland. Those are all matches that OK maybe you've made England favorites over Nigeria.

But look, they have nothing to fear against these big name opponents. And I do think it's just a wonderful storyline and here's another great nugget

just put a bow on it. If I may, we had 8 tournament debutantes at the start of this historic Women's World Cup, which is really living up to the Billy

Beane -- of the best ever right in tournament history.

We had eight tournament debutantes at the start of this World Cup, seven of them falling by the wayside. It is Morocco playing in their first ever

Women's World Cup, who are the last team standing and going superbly. What a story great storylines everywhere you look right at this tournament.

CHATTERLEY: We love it. Good luck to them rock ins. I may add another bow of my own kind. South Koreans may have gone home but I do believe they win

the best kit award that red and pink.

SNELL: Yes.

CHATTERLEY: -- and expecting that but I love that kit, good one.

SNELL: Yes. Just I can't get enough of this Women's World Cup is fantastic. Everything is coming to play. Don't ask me to pick a winner at least not

this week.

CHATTERLEY: Next week, somebody --

SNELL: Yes, -- .

CHATTERLEY: Patrick Snell good bye. Thank you. That's it for the show. "Connect the World" is up next. I'll see you tomorrow.

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