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effectively a two-man race. Donald Trump cancelled the debate with Fox
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[16:00:10]
ELENI GIOKOS, HOST: U.S. markets got a boost from Janet Yellen and the Fed when trading closed an hour ago on Wall Street. It's Wednesday, March the 16th.
(BEGIN VIDEO CLIP)
GIOKOS: Tonight not so fast. The Fed says don't expect too many rate rises this year. The force awakens London and Frankfurt agree on a giant market merger. And GOP dropouts. Fox News is forced to cancel its Republican debate because the candidates don't want to take part.
(END VIDEO CLIP)
I'm Eleni Giokos. And this is "Quest Means Business."
Well, a very good evening to you. And tonight, all eyes on Washington as a series of events there reshaped the political and market landscapes. For the residents of the nation's capital, though, the focus is underground. The city's metro lines have shut down for emergency inspection so workers have been forced into buses and cars to shuttle between events.
(BEGIN VIDEO CLIP)
GIOKOS: First stop, the Supreme Court. President Obama has thrown down the gauntlet to Republicans and announced his pick for the highest court in the land. Next stop, the White House. After a series of victories on Tuesday, Donald Trump and Hillary Clinton are one step closer to the presidency. At the end of the line, the Federal Reserve fears of an economic slowdown have prompted the Fed to slow the pace of rate hikes this year.
Now the Fed expects to raise rates two times this year instead of four. It also kept rates unchanged as investors expected. Janet Yellen spoke shortly after the decision was announced. And she warned the future is uncertain and the Fed could change its mind again.
JANET YELLEN, FEDERAL RESERVCE CHAIR: You should fully expect that forecasts for the appropriate path of policy on the part of all participants will evolve over time as shocks, positive or negative, hit the economy that alter those forecasts.
(END VIDEO CLIP)
GIOKOS: Well the Fed believes that the U.S. economy is going to grow by 2.2% this year.
(BEGIN VIDEO CLIP)
GIOKOS: That's down slightly from the last estimate made in December. The Fed placed blame for the slowdown on, "the global, economic, and financial developments." The Fed also warned prices will rise more slowly than expected. It's predicting inflation of 1.2% this year. That's well below the Fed's 2% target. Investors welcomed the news of gradual rate hikes and the Dow spiked after the Fed's announcements. As you can see there it closed the session up around 74 points. And the gulf price rose more than 2% in the session.
(END VIDEO CLIP)
GIOKOS: Joining me now is John Authers and he's a Senior Investment Commentator with "The Financial Times." thank you very much, John, for joining us. And it's just not about traditional monetary policy anymore. It's about the impact it would have on the global economy. It's about the prognosis about the strength of the financial economic landscape as well. So what did you expect today? Are you surprised that we won't see that many rate hikes down the line?
JOHN AUTHERS, SENIOR INVESTMENT COMMENTATOR, THE FINANCIAL TIMES: No, not at all. What we got, what we heard from Janet Yellen today was pretty much what had been expected after the swoon in international markets back in January, largely by China but there were other factors involved there as well.
(BEGIN VIDEO CLIP)
AUTHERS: It was obvious the fed couldn't possibly go ahead with another rate hike as soon as this month. That was no surprise at all. You've seen this dramatic mismatch between what the Fed has been saying it's going to do and what the market is expecting. You needed to see that to come down a little. That is what we got.
What did surprise me somewhat is how dove-ish, how lenient Janet Yellen was about the kind of expectations she was trying to form. And the other thing that was quite intriguing to me was that the market immediately took what she was offering and asked for more.
(END VIDEO CLIP)
AUTHERS: So at the beginning of the day, the chances that they were going to raise rates by another two times this year, which is what the Fed is now suggesting is most likely, the market was putting that at a 40% chance immediately after Janet Yellen told the market, yes, that's what I'm going to do, they scaled that back down to only 20% chance. So the game between the markets and the Fed continues.
[16:05:00]
GIOKOS: Absolutely. And it's not only about what is happening here in the U.S. You've got to look at the impact it's had on emerging markets, as well currency volatility. You know a move that Janet Yellen makes reverberates around the world as well. What do you think the world economy needs right now from the Fed? We talk about normalization of rates, but perhaps you know we're not ready for that as yet.
AUTHERS: What the world economy needed very urgently, in most of the cases, was a dollar that wasn't going to get too strong. When you're looking across the emerging world, across the fears that we were going to have another true emerging market crisis, that comes because they have debt denominated in dollars and it becomes that much harder to repay it if the - if the Fed starts raising rates attracting money into the U.S. and strengthening the dollar, that makes it all the harder for countries like Brazil to repay the debt.
So in terms of heading off the risk of crisis in the emerging markets which is what had a lot to do with the turmoil we saw back in January and early February. That is what was needed. What is also important to mention is that in the case of Canada and Mexico, those are both countries that are very dependent on oil and other resources, which tends to do worse when the dollar is strong.
Plainly both of those are very important trading partners for the U.S., they're two big neighbors. That's also a reason why it's not a directly U.S. factor but it was still very important for the Fed to act on them. What is more - what is more intriguing and what could yet lead to some kind of an unraveling, we'll have to see, is in the case of the euro.
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AUTHERS: The European Central Bank has been trying very hard to weaken the euro. It failed last week. Janet Yellen successfully talked things down today. Last week Mario Draghi failed to talk things down in the Eurozone.
(END VIDEO CLIP)
AUTHERS: the euro has strengthened against the dollar significantly again today on this latest news. That could be a problem for the ECB, we have to see whether that will provoke a reaction. A weaker dollar is inconvenient for the Eurozone at the moment.
GIOKOS: All right, thank you very much, John, for those insights.
And investors have also been fascinated by the Fed's rate projections; the so-called dot plot. Clare Sebastian is here to help us read the tea leaves.
CLARE SEBASTIAN, CNN INTERNATIONAL CORRESPONDENT: Absolutely Eleni. Well this is dot plot, this is what investors are fascinated by, they obsess over it.
(BEGIN VIDEO CLIP)
SEBASTIAN: Now you said that we're going to see two rate rises, that's the median projection over the course of this year. This is how we know that. This is where rates are now, between 0.25 and 0.5%. And this is the medium projection so two quarter percent rises over the course of 2016. This is what in fact - this is what Fed members believe right now.
But let's go back to December just to compare. This was the dot plot from December, and you can see this is the pattern that emerged for 2016. So a much taller, much more optimistic pattern there. The minimum that anyone expected back in December was two rate rises over the course of 2016.
The maximum, as you can see, one very optimistic Fed member believed there would be seven rate rises over the course of 2016. So keep that in mind, we're going to go back to March. Here you see this rather more squat pattern, the changes here quite significant. One Fed member has actually revised down, they only think one rate rise is going to happen over the course of 2016. And the maximum anyone expects is four.
Now in historical context, this will mean if there's only the median amount, two rate rises over the course of 2016, a very slow tightening cycle by historic standards. The last one we saw between 2004 and 2006, there was a rate rise a quarter percent rise at every single Fed meeting over the course of 24 months.
But the question everyone is asking is should we really place that much store by the dot plots. Should we obsess over it the way we do? So I went right back to the source, the man at Dartmouth University, A professor called Andrew Leven, who was actually an adviser to the Fed board between 2010 and 2012, he was the one who designed the layout of the dot plot and he told me why we should not be looking at this so closely, what it does not show us, take a listen.
ANDREW LEVIN, FORMER ADVISOR TO FEDERAL RESERVE BOARD: The dots are point forecasts, which means each participant is supposed to write down what they think is the most likely level that will be appropriate for the federal funds rate at the end of this year. Just a single number. But of course we all know the economy doesn't always proceed according to plan. There's lots of uncertainty, different types of events can be important in shifting the trajectory of the economy, and the dot plot does not convey those contingency plans at all.
(END VIDEO CLIP)
SEBASTIAN: So there you have it. The key to all this is that things can change. This is a survey frozen in time, what the Fed members think will happen. Right now it does not take into account changes in the economy which is why we need to proceed with caution.
(END VIDEO CLIP)
GIOKOS: Clare, well thank you very much for that. And of course just watching what some of the commentary has been on the dot plot, perhaps it's not as credible as initially anticipated.
[16:10:05]
So now, moving on, it's a merger of equals that will create a European financial market giant.
(BEGIN VIDEO CLIP)
GIOKOS: We speak to the CEO of the London stock exchange about its proposed tie-up with Deutsche Boerse. That coming up next.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
GIOKOS: Welcome back. Now Europe is about to get a new financial markets giant with the scale to compete with U.S. rivals. London's stock exchange has agreed to join forces with Deutsche Boerse in a deal billed as merger of equals.
(BEGIN VIDEO CLIP)
GIOKOS: Now the new company will be based in London and it would build a powerful bridge between Europe's biggest financial centers. The CEO of Deutsche Boerse Carsten Kengeter will run the newly combined company. And there's also still a chance that rival bidders could make a last minute bid for the LSE New York Stock Exchange operator. Intercontinental Exchange said earlier this month that it was considering making an offer.
(END VIDEO CLIP)
GIOKOS: Now the CEO of the London Stock Exchange will step down on completion of this deal. A little earlier today I spoke to Xavier Rolet who stressed to me that this was not an acquisition by the German Stock Exchange. He told me that the customers of the exchanges were at the heart of this deal.
(BEGIN VIDEO CLIP)
XAVIER ROLET, CEO LONDON STOCK EXCHANGE: That is exactly the right questions that need to be asked. What are the benefit to customers. And I'll start with that because ultimately the customers are the ones who support our businesses and offer our shareholders the growth that we've been able to deliver in the last six to seven years.
GIOKOS: What is the risk of a "Brexit?" What is the risk of this merger happening and basically we see financial equity integration, essentially, but on the sidelines we're talking about Britain leaving the European Union?
ROLET: We've said two things. Prior to the announcement of that transaction we've already explained that the London Stock Exchange group is a widely diversified, globally present organization with about a quarter of our revenues in the U.S., a quarter in the U.S., a quarter in the Eurozone, and the rest in Asia, China, and the collection of emerging markets.
So if there were any outcome of the referendum, that motivated our clients' decision to move some of their businesses from one geographical location to another, we could certainly follow them. But we do not have any geographical preference or policies in our business. We simply operate our regulated platforms close to our clients and even closer to our regulators.
The second point I would like to mention is this transaction is not conditioned on the outcome of the referendum. Whether the British people vote to leave or to stay in the European Union, this transaction will go forward. It is a transaction underpinned by client savings, benefits to our customers. It is a project to create the premier global financial infrastructure company. It is driven by shareholder and commercial objectives to benefit our customers, not by political choice that may or may not be made in the coming months.
[17:15:00]
GIOKOS: We know that when Carsten Kengeter takes over as CEO there is still a concern that the shift of power, the power is going to shift to London. What is your prognosis on this, what are you expecting to occur by way of power sharing between Frankfurt and London?
ROLET: I think that's a very good question. First of all, let me remind your listeners, this is not an acquisition of the German side by the British side or of the British side by the German side, as I've seen printed erroneously. This is a textbook case of a merger of equals. It matches all the technical description of an MOE. It is an MOE. And the regulatory structure will be maintained.
Exclusive regulation of regulated entities by the national regulators as well as the colleges that already exist for the regulation of our clearinghouses. So the regulatory framework globally is going to remain unchanged. There is no plan, there was never any discussions of moving businesses from one side of the pond or one side of the channel to the other. This is simply not the way that we operate. Our businesses operate together with management, technology, marketing, product innovation, close to our customers.
(END VIDEO CLIP)
GIOKOS: Britain's finance minister says the country is well-prepared to handle a dangerous cocktail of economic risks. George Osborne gave that warning as he delivered the country's budget. He also announced this year's growth forecasts have been cut to just 2%. Mr. Osborne insisted that the government remained on track to meet its goal of returning to surplus by 2019. He also said his budget made the U.K. economy stronger.
(BEGIN VIDEO CLIP)
GEORGE OSBORNE, U.K. FINANCE MINISTER: Five years ago we set out a long term plan because we wanted to make sure that Britain never again was powerless in the face of global storms. We said then that we would do the hard work to take control of our destiny and put our own house in order. Five years later, our economy is strong but the storm clouds are gathering again. Our response to this new challenge is clear. We act now so we don't pay later.
(END VIDEO CLIP)
GIOKOS: And storm clouds gathering again, it sounds like it's time for a drink. And actually that's what he warned, he said that the U.K. economy is facing a dangerous cocktail of risks. So let's take a look at some of those key ingredients as we put this cocktail together.
(BEGIN VIDEO CLIP)
GIOKOS: We're talking about financial markets that are turbulent. The market volatility has calmed recently but many of the major markets are still down for the year. So a shot of that. The Chancellor also warned productivity growth across the waste is just too low. So we're mixing that in as well. Britain is a standout in Europe, but across the E.U. growth remains quite sluggish. And it's not just the waste, the outcome for the global economy remains weak and the impact of China's economic slowdown is still being felt across the world. And of course no cocktail would be complete without a bit of sugar or perhaps the lack of it thereof.
George Osborne announced a new tax on sugary drinks in an attempt to tackle childhood obesity. It will come into effect in two years giving the industry time to find ways to reduce the sugar in soft drinks.
(END VIDEO CLIP)
GIOKOS: Now a little earlier today I spoke to the British Economic Secretary to the Treasurer, Harriet Baldwin and I asked her how those risks were already impacting the U.K.'s growth prospects. She told me there is cause for optimism.
HARRIET BALDWIN, U.K. ECONOMIC SECRETARY TO THE TREASURY: The world economy is growing. And of course the U.K. economy was the fastest major growing economy in 2014, it was just behind the U.S. as the second fastest in 2015. And the OECD is forecasting this year that is going to be the fastest growing. But it's a slower pace and the whole world is gross at a slower pace. And particularly we're seeing a slowdown in economic growth in some of the faster growing emerging markets. You know that's not going to be any surprise to your viewers.
I think what we have to do here in the treasury is make sure that we're being very prudent in terms of our public spending, and also welcome the fact that as of today, the U.K. have further good economic news in terms of employment. We've got a record employment rate in this country, a record number of people and work. And we want to just make sure that we secure that strong recovery and continue to be prepared for whatever the world economy may have in store for us.
GIOKOS: Chancellor Osborne was also talking about the economic risks that we're seeing coming through from the notion of "brexit," as this debate rages on. Could you quantify that for us? How important is the E.U. and economic integration?
BALDWIN: Well, of course the U.K. has been in the E.U. now for decades, and we're very closely integrated with the rest of the European economy.
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[17:20:05]
BALDWIN: That's been a problem, when the Eurozone, for example when Eurozone countries were going through difficult times, and it's something that you know we're very pleased in this country that we have a special best of both worlds deal where we have our own currency the pound sterling, and can take decisions independently as far as monetary policy is concerned. So that's really, really important in terms of withstanding some of the economic shocks.
(END VIDEO CLIP)
BALDWIN: But it's also of course an economy that attracts a lot of foreign direct investment from around the world, a lot of people investing in this country invest here because we're in the E.U. so it is the government's view, and one borne out by almost all independent commentators, that there would be an economic shock if the U.K. were to decide on the 23rd of June to leave the E.U.
GIOKOS: And minister, a new tax on sugary drinks, and the money collected from that tax is also set to be reinvested into schools and childhood development. And in fact this is in aim, in a bid to try and tackle obesity. Tell me a little bit about this move.
BALDWIN: Yes, it's a very interesting development because we do have a problem with obesity in children. We have a significant increase in terms of obesity while children are in primary school. And the single most important source of that obesity has been found by both the British Medical Association but also our chief medical officer to be sugar added to drinks. So this is a very specific levy. It's specifically on sugary drinks and the producers of those sugary drinks. They have a two-year wait until it comes into force in which time we would hope they would reformulate those drinks and reduce the amount of sugar that's contained in them. And by doing so, we would hope that children will be consuming far less sugar in their diet, and it would be tackling childhood obesity.
GIOKOS: Sponsors were quick to drop Maria Sharapova last week after she admitted to failing a drug test at the Australian Open.
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GIOKOS: The CEO of one of those sponsors, Tag Heuer tells us why his company has only suspended and not terminated their deal with the world's highest paid female athlete. Stay with us.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
GIOKOS: Welcome back, I'm Eleni Giokos. Now the Chief Executive of Tag Heuer says his company has suspended and not terminating its relationship with Maria Sharapova, and that's an appropriate stance for sponsors to take.
Last week the tennis champion admitted that she took a banned drug but said she didn't know it was banned at the time.
Now Jean-Claude Biver is also the CEO of luxury watch maker Hublot and he joined me from the Basel World Watch Expo in Switzerland and started by explaining his plans for growth going forward.
(BEGIN VIDEO CLIP)
JEAN-CLAUDE BIVER, CEO OF TAG HEUER AND HUBLOT: We want to be an accessible luxury brand. An accessible is very important for us. So we revised our first price range. We see the price range between $1,000 and $2,500.
[17:25:03]
BIVER: Then we aimed to a new customer base. We aimed to the new generation. And to aiming to the new generation, we focused very much on social media. We partnered with new ambassadors. We sponsored new events. And last but not least we also changed the product, the desirability of the product. We made the product a little bit more sexy. We have very dynamic, ambitious plans for 2017 and 2018 for our connected watch, which is the connected watch as it is today on the market is still more or less in stone age. Wait 'til what you will see from the connected, from the wearable s in three or five years. It will be a revolution.
GIOKOS: Sir, let's take a look at your sponsorships with the likes of Maria Sharapova.
(END VIDEO CLIP)
GIOKOS: In fact the deal with Maria Sharapova came to an end last year. You're currently looking at renegotiating. The announcement then derailed that. How do you feel about what happened with her?
BIVER: I feel bad for her. I feel bad for her, because I know her, she's a very honest person. She's very -- has a lot of generosity. She has a lot of children.
(BEGIN VIDEO CLIP)
BIVER: She always was ready with us to do events, to do charities. And I'm just sorry that something like that happened.
(END VIDEO CLIP)
BIVER: But on the other hand, while it happened, we have just stopped our negotiation. It's not that, as you said, we didn't cancel the contract, the contract was already finished, the end of the year. But we were analyzing how can we go for one more year and this negotiation is now on standby.
GIOKOS: Sir, do you think the criticism towards sponsors that they're being too harsh on female athletes I mean has any grounding?
BIVER: You know, I cannot judge what are the conditions and what do other people do. For me, when an ambassador is suspended by his federation, I think it makes also sense for the sponsor to suspend its relation. But suspending a relation doesn't mean you terminate it. I think people are just waiting until they know what is happening. Will she be banned three or five years? Will she be banned one month? What will happen? And I think it's very normal from my point of view that the sponsor has the right, when something like this happens, to say I don't cancel my contract, i put it in suspension to wait what is happening, because she might be very well innocent. So we cannot take a final decision to say we stop. We say we suspend it.
GIOKOS: Having only one participant makes for a very awkward Republican debate. First there were three. Then there were two.
(BEGIN VIDEO CLIP)
GIOKOS: And in the end, only Ted Cruz wanted to debate next week. We'll explain, next.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
[17:30:00]
(COMMERCIAL BREAK)
[17:31:36] ELENI GIOKOS, CNN ANCHOR, CNN MONEY AFRICA CORRESPONDENT: Hello, I'm Eleni Giokos. There's more QUEST MEANS BUSINESS in a moment, when Yum!'s chief executive tells me there are some tasty opportunities in China. And he's in it for the long-haul. It's time for Richard's eight- hour overnight flight in his round-the-world on low-cost airlines challenge. First, a look at the news headlines this hour.
President Obama has nominated an appeals court veteran to the Supreme Court. If successful he would replace Antonin Scalia who died last month. Obama warned the Republicans that if they made good on their vow to block his nominee, the reputation of the Supreme Court would suffer.
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BARACK OBAMA, U.S. PRESIDENT: I simply ask Republicans in the Senate to give him a fair hearing. And then an up or down vote. If you don't, then it will not only be an abdication of the Senate's constitutional duty. It will indicate a process for nominating and confirming judges that is beyond repair.
(END VIDEO CLIP)
GIOKOS: Donald Trump has told CNN there would be riots at the Republican convention in July if he doesn't get the nomination. Trump pulled even further ahead on Super Tuesday after winning in Florida, Illinois, and North Carolina.
(BEGIN VIDEO CLIP)
DONALD TRUMP, REPUBLICAN CANDIDATE FOR U.S. PRESIDENT: If we're 20 votes short or if we're, you know, a hundred short, and we're in 1100 and somebody else is at 500 or 400, because we're way ahead of everybody, I don't think you can say that we don't get it automatically. I think it would be -- I think you would have riots.
(END VIDEO CLIP)
GIOKOS: Clinton took big wins in a number of Super Tuesday states, including Ohio and Illinois.
Two female suicide bombers disguised as men have killed 22 people in a mosque in Northeast Nigeria. The first bomber struck inside the building as worshippers rose for morning prayers. The second bomber then targeted survivors trying to flee the attack.
Four people have been arrested in Paris on suspicion of planning a terror attack, according to the French interior minister. A source close to the investigation told CNN they were overheard discussing a possible attack. The police have not recovered evidence of a concrete plan.
The U.S. Federal Reserve says it now expects to raise rates twice this year instead of four times. The Fed cited weaker economic growth and market volatility. Janet Yellen warned that the future is uncertain and the Fed could change its mind again.
(BEGIN VIDEO CLIP)
JANET YELLEN, CHAIR, FEDERAL RESERVE: You should fully expect that forecasts for the appropriate path of policy on the part of all participants will evolve over time as shocks, positive, negative, hit the economy that alter those forecasts.
(END VIDEO CLIP)
GIOKOS: And the results of Tuesday night's primaries have left just three men standing in the race for the REPUBLICAN nomination for president. Donald Trump, Ted Cruz, and John Kasich. Now, after Donald Trump said he was too busy to take part in next week's scheduled debate.
[17:35:00] It has been cancelled and the debate was supposed to be hosted by Fox News. Earlier this week, Trump told supporters that after 12 debates, he thinks it's enough.
