Protests Spread Across India Over New Citizenship Law
RICHARD QUEST, CNN INTERNATIONAL HOST, QUEST MEANS BUSINESS: An hour to go before the closing bell and the story is clear to see. We are straight up and the market has stayed up throughout the course of the session, a good gain. We've got records on the major bosses, and those are the markets, and these are the reasons why. Stocks around the world are hitting record highs. It's a breakthrough in trade and Brexit that's fueling market optimism. A moment of reckoning for the 737 MAX. Boeing looks set to curb the planes production. And Hallmark writes an apology after it criticized taking down an ad featuring a same sex couple. We all are in the world's financial capital, a gray day. Cool and gray and snowy. I am Richard Quest. It is Monday, December the 16th. I am Richard Quest, and of course, I mean business. Good evening. Tonight, a wave of optimism sweeps across global markets. The trade breakthrough between the U.S. and China boosting the Dow, the NASDAQ and S&P all to record intraday highs. The Boris bounce continues in London on the heels of the Prime Minister's decisive victory and sent the FTSE 100 rising to a four-month high. Matt Egan is with me. Good to see you, sir. Why? Why is the market up?</s>MATT EGAN, CNN BUSINESS SENIOR WRITER: Well, what a difference a year makes? A year ago, we were sitting here talking about the worst December in U.S. stock market history since the Great Depression. And that's because there were these three big fears: Recession, overly aggressive Fed, and the trade war. And all three have gotten better. The trade war isn't over, but tariffs are finally for the first time, they're going down. Thanks to this preliminary trade agreement. The Fed has obviously gone from really hawkish to really dovish, and there's a recession right now, they look overblown. Manufacturing is certainly in a downturn, but the spillover has been pretty limited.</s>QUEST: Okay, but let's just take those reasons. So the trade tensions, they have abated. Phase 1 is coming. But we don't really know what it is. We've not seen any wording on Phase 1.</s>EGAN: But we do know that more shots are not being fired in the trade war and that is a positive. But to your point, there's certainly some fuzziness around the details. Basically, what's happened is the U.S. was supposed to impose more tariffs on Sunday and it's not, and China has agreed to whole buy a whole bunch more products from the United States, some of which it wanted to buy anyway.</s>QUEST: Okay.</s>EGAN: But there is some fuzziness over precisely what they've agreed to.</s>QUEST: So, now let's look at the Brexit aspect. So we -- the market likes the idea of certainty, and for the next year, because there will be a transitional period, there'll be no change in the relationship. But is the market being too optimistic about this?</s>EGAN: Probably, because there's going to be bumps along the way, whether we're talking about Brexit or trade. But there does feel like there's a little bit more certainty right now. I was intrigued by -- the Business Roundtable put out this quarterly CEO survey of U.S. executives and for seven straight quarters, their economic outlook had gone down. We've seen CEO confidence around the world take a big hit. So, the fact that Brexit has a little bit more clarity and the trade war is maybe getting a little bit better, those are all positives.</s>QUEST: I don't want to be a downer on the day that the Dow seems is going to hit a record, but we come back to a longer standing issue. If we go back to last year, everyone was talking about how the Dow is set from -- or the market for a massive fall. Too much leverage, too much borrowing. And companies are just out of all proportion. Have those fears gone away? No, they haven't.</s>EGAN: The fears have actually -- yes, the fears have gone away. The problem has not, right? The companies still have a ton of debt, and that is still a long term issue, and it will amplify the next recession whenever it strikes, but the difference is that the Fed went from hiking -- supposed to hike three times, maybe four times this year, it cut three times. The balance sheet went from shrinking to now it's growing really, really massively. And so that has made borrowing conditions easier.</s>QUEST: We'll talk more about it. Thank you, sir.</s>EGAN: Thank you, Richard.</s>QUEST: A raft of positive headlines. Investors, feeling particularly festive. After all, it is only a week before Christmas. Have you got all of your Christmas shopping done now? So for instance, the U.S. Trade Representative Lighthizer says that Phase 1 has been totally done on the trade front, although it's not been officially signed yet. In the U.K., Boris Johnson's victory is bringing much needed clarity and the promise to get Brexit done by the end of January, almost erasing uncertainty.</s>QUEST: And the Chinese economy is not as weak as investors feared. Industrial output and retail sales, both climbing higher over in November. So we do end this -- well, as you can see -- with a sparkling series of marketing highs. Tim Quinlan is the Senior Economist at Wells Fargo, and joins me now. And are we right to be optimistic? I mean, optimism at this time of year is always welcome, but are we right to be so cheery?</s>TIM QUINLAN, SENIOR ECONOMIST, WELLS FARGO: Well, I think there's some reason to be upbeat about the fact that this is the longest uninterrupted expansion on record, and if you go where we were saying in August of last year, when the yield curve was inverted and leading economic index was down, the ISN was in negative territory. People were kind of you know, getting ready for the bottom to fall out and, you know, with three rate cuts down, a little bit of steepness having returned to the yield curve. Well, due to the de-escalation in the trade front, you can make a case that prospects are looking a little bit better.</s>QUEST: But if you go deeper into the -- you know, I accept those points. But one of the other big worries has been the fundamental soundness at the moment of debt, the way in which consumers are leveraged, corporations are leveraged. And I realized it's not a crisis on this Monday in December, but the big issue is people like you are worried about it.</s>QUINLAN: Sure. So it depends which part you're most concerned about. If you want to talk household debt, all of the growth in household debt in this cycle has come from two categories, auto loans which are up about 60 percent and student loans, which are about 140 percent. So I think that's certainly a worrying dynamic and people will say, oh, well you know, the overall household debt as a share of GDP is down. And well, that's true of all the growth coming from these two sectors and the fact that these younger households are now having a much more difficult time staying current with that debt. I think that's a big concern. I think that's a fair point.</s>QUEST: We don't want to necessarily, you know, presage an event that's not going to happen, or be too gloomy about it. But there are still some of it out there. The Ray Dalio's of this world who do say, they feel uncomfortable about the state of the U.S. over the global economy. Are they right to be uncomfortable?</s>QUINLAN: Well, I mean, I can simultaneously be forecasting continued expansion for the next couple of years and still not necessarily be terribly comfortable about it. I mean, by any reckoning, we're closer to the end of this thing than we are to the start of it, and, you know, if when you point to areas of vulnerability, like, you know, debt, we talked about it in households, it's even worse in the government sector at least earlier in this expansion. We were on our way toward balanced fiscal budgets. You know, we've kind of given up on balanced fiscal budget now with almost a trillion dollars in the budget deficit. I think it's harder to make the case. There's reasons to be uncomfortable.</s>QUEST: Right. Now, let's just talk about that budget deficit aspect. Because what's the significance of it? A trillion dollars? I mean, I noticed, of course, if you look at it as a percentage of GDP, we are up towards five to six percent. That's way higher than anything that will be seen, you know, as being respectable within the</s>E.U. QUINLAN: Well, it's high relative to all the other advanced economies in the world. And it's also high relative to the U.S.'s own history. If you look back over the last 40 years and say, when else has the United States economy been running four and a half percent? Five percent deficits? It is at the height of recessions in earlier periods. So I think that that's a -- it's a well-founded point that you're making.</s>QUEST: Finally, and I noticed on the FTSE. FTSE is at a record or headed up that way. It's up two and a quarter percent. A stonkingly good session on the back of the election last week. Are we fooling ourselves about Brexit? Is this -- I mean, there's a transitional period, as you know, immediately after the date itself, but the risks on trade still remain.</s>QUINLAN: Every conversation I've had about Brexit in the last four years talks about this cliff moment that we're about to get to. And every time we get there, we build more land on the cliff. You know, there's -- hope springs eternal with prospects for what's going to happen and I'm delighted to see the FTSE up and delighted to see record highs across the U.S. But if you're asking whether or not there's a degree of skepticism around the euphoria priced in, in financial markets with the reality on the ground? I think you can make a case that there's some discrepancy between them.</s>QUEST: Tim, it's good to see you, sir. And whatever the markets are doing, have a Happy Christmas and a good New Year.</s>QUINLAN: Thanks very much.</s>QUEST: Good to see you as always. We'll have much more of you in 2020. Thank you. Boeing is facing a moment of reckoning. The MAX fiasco now look set to get deeper as Boeing probably has to stop production of the plane pending resolution. And it is QUEST MEANS BUSINESS. We are alive in New York.