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Earnings Fall Short; EU Toughens Taxes for Multinationals. Aired 5-6p ET - Part 1>
Dos Santos, Maggie Lake>
prices. Amazon earnings fall short of expectations. EU tax stance on
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Amazon; European Union>
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MAX FOSTER, HOST: Another swing for the Dow as stocks closed higher on Wall Street. It is Thursday, the 28th of January.
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FOSTER: Tonight, Russia gasps for breath in a world drowning in oil, production cuts could be on the way. Google's tax deal in Britain raises some eyebrows in Brussels. And Facebook shares soar 15%.
Now it's Amazon and Microsoft's turn to impress investors. Their earnings are due out any minute.
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FOSTER: I'm Max Foster, This is "Quest Means Business."
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FOSTER: Good evening. Tonight, oil prices are rallying on signs that there could finally be a breakthrough in the global price war.
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FOSTER: Both Brent and Light Sweet Crude are up nearly - or more than 3.5% if you can see down there. The cause, reports that Russia may be trying to broker a deal to cut oil production.
If oil-rich nations do cut production, it would be a major turning point in the price war between OPEC nations highlighted here in yellow and the rest of the world there. OPEC is split into two camps; those who want to keep driving the price down to force out rivals and those who don't. The lighter shaded countries in the Gulf, Saudi Arabia, Qatar, the UAE, and Kuwait, are actually quite happy for prices to stay low. The ones in red, say enough is enough now, it's time to cut production. They include Venezuela and Nigeria, which have both tried to get OPEC to hold an emergency meeting without any success.
But now Russia may be taking matters into its own hands. According to state news agency, the country's energy minister says oil producing nations could meet as early as next month to discuss cuts of up to 5%. So could this potential meeting finally see an end to divisions within OPEC? Our emerging markets editor, John Defterios has more.
JOHN DEFTERIOS, CNN MARKETS EDITOR: Well it seems that the Russians are willing to negotiate at this stage. The Energy Minister of Russia, Alexander Novak is suggesting that non OPEC and OPEC members are looking at a cut of 5% in the production right across the board perhaps as early as February.
Now a Russian ministerial source told me no formal invitation has been sent to Russia, nor any formal offer is on the table. But I spoke to a senior gulf source here in the region suggesting that all options are now on the table and they're willing to consider a cut as early as February.
Now we know that the pressure within OPEC itself is coming from the higher cost producers such as Algeria, Venezuela, and Nigeria, and you can include Angola in that group. But so far we've seen the four major gulf producers led by Saudi Arabia resist that call.
I think this drop Max to $27 a barrel we saw last week while we were covering Davos was a global wake-up call and it now has the two largest producers in the world, Russia and Saudi Arabia, considering cuts. Now it is early days. No formal offer but you can see the parties behind the scenes are beginning to talk.
FOSTER: And that would be a big move. Particularly for Saudi Arabia wouldn't it? Because always been concerned about losing that market share.
DEFTERIOS: It has been a battle for market share ever since December 2014. In fact, back then, the Energy Minister of Saudi Arabia Ali al-Naimi, told me they'll never cut again, were his words.
Now as recently as last week at the World Economic Forum, Khalid Al-Falih, who is the Chairman of Saudi Aramco suggested that Saudi could live with a low price for a very, very long time.
But at the same time Max, it was very interesting, he left the door open for cooperation. Saying if others are willing to stabilize the market, we may consider doing so.
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DEFTERIOS: So lo and behold, we see background discussions taking place. It appears at the very highest level perhaps with Saudi Arabia and Russia. We know there's a group of OPEC producers reaching out to non-OPEC players. No meeting called just yet.
FOSTER: And just from the reaction of what we've heard so far, even if it doesn't go as far as 5% it would have a big impact on the market if this did go ahead, right?
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DEFTERIOS: Well, we saw the spike up to 35, even $36 a barrel for the international benchmark today. So this is a market that's looking for a deal. But we've seen Russia go to Vienna, to the OPEC headquarters, twice in the last couple years Max, talking about a potential deal. They sat down for hours with ministers also from Mexico and other non OPEC players. And no deal was struck. So the markets very excited to see perhaps an agreement trying to find a low for this market last week and perhaps moving higher from here.
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FOSTER: John Defterios there. Well, for some countries, any recovery in oil prices might be too little, too late. Take Azerbaijan; once a rising star amongst emerging markets. Now with oversupply in the oil industry and the possibility of Iran adding to that glut, the nation has taken a very big hit.
Azerbaijan has just received a visit from the International Monetary Fund and is considering an emergency loan of $4 billion. European Central Bank for Reconstruction and Development has already invested more than $2.5 billion in Azerbaijan. It's chief economist told me that whilst Azerbaijan has been severely impacted by the falling oil prices, it could still have an easier ride than its Russian neighbor.
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SERGEI GURIEV, CHIEF ECONOMIST, EBRD: Azerbaijan and some other oil countries are feeling the shock. We see protests. We see major de- appreciation. The reason is Azerbaijan is even more dependent on oil, something like 95% of exports are oil. The sovereign wealth fund is also built on oil revenues and in that sense, Azerbaijan does need loans now.
The difference between Azerbaijan and Russia is that Russia is under sanctions, Azerbaijan is not. Azerbaijan can talk to international financial organizations and we already see the IMF and the World Bank dispatch a mission to Azerbaijan.
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FOSTER: At the moment, there's a worrying amount of inflation in Russia, isn't there, because there's so much pressure on the economy. But that is also directly linked to the oil price.
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GURIEV: Russia has several economic issues that are result in negative GDP growth, in recession. First, is the poor investment climate and lack of structural reforms. Second, sanctions and third, which is very important, low oil prices.
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GURIEV: But it is definitely true that oil prices are the primary cause for concern regarding the budget deficit, regarding the lack of fiscal revenues. Which already resulted in tightening belts for the budget and will probably result in further austerity already during this year. So it is a huge concern. Oil prices are very important. Of course sanctions reinforce the impact of the lower oil prices and lack of structural reform is also important. Yet if oil price recovers, then budgetary problems, fiscal problems, will be less painful.
FOSTER: And they can avoid some capital controls which some economists suggesting should be on the agenda there in Moscow.
GURIEV: Yes, we think everything is now on the table. Because currently Russian government is facing a very difficult situation regarding budget deficit. If oil prices at $15 per barrel on average during 2016, there is enough reserve in that money, the reserve fund, to pay for this year, but probably not for next two years.
But if there is a drop to $35 or $30, then the reserve fund will probably be completely exhausted before the end of this year and further cuts or tax increases might have to be undertaken.
FOSTER: Well adding to Russia's challenges is growing public anger over the state of the economy. Some people have even stormed banks saying mortgages they took out based on the dollar are now too expensive to pay back. Matthew Chance has more.
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MATTHEW CHANCE, CNN INTERNATIONAL REPORTER: They're victims of Russia's economic crisis, determined to be heard. Protests like this one against crippling dollar denominated mortgages have been erupting nationally. Indebted homeowners storming banks demanding the harsh terms of their homes be reviewed.
Across Russia, there are tens of thousands of people that took out dollar mortgages thinking they would be cheaper. But because of the plunging oil price and the devaluing ruble, they've all been left in desperate straits now with repayments that they're quite simply unable to afford and they're furious about it.
Furious but (inaudible) helpless too in the face of ever rising repayments.
UNIDENTIFIED MALE: My payment was about 32,000 rubles per month. And the highest payment per month, which was during this crisis, was 120.
CHANCE: 120,000? From 32,000
UNIDENTIFIED MALE: Yes. Nearly four times. Yes, exactly.
CHANCE: Incredible.
So far, the kremlin appears unmoved. President Putin's popularity remains sky high and his official spokesman has dismissed the problems that those stung by dollar mortgages.
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CHANCE: But as Russia's economic crisis continues, there are growing signs patience is running out. Matthew Chance, CNN, Moscow.
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FOSTER: Well, the U.S. stocks ended the day with solid gains fueled by a rise in oil prices. The Dow climbed around 125 points, 0.8%. As crude oil prices jumped 4%. Facebook shares gained 15% on Thursday as the company reported earnings that smashed Wall Street expectations.
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FOSTER: Now the backlash over Google's tax deal is growing. And now other companies are being called into the fray. We'll have some details on that coming up.
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FOSTER: New numbers coming in to CNN. Amazingly Amazon earnings have fallen well short of expectations.
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FOSTER: Net sales increased 22% over the year in the fourth quarter but shares are down sharply in afterhours trading. Microsoft faring slightly better, its profits and earnings topped expectations. Analysts will be paying particular attention there to the health of Microsoft's cloud business.
Let's go to Paul La Monica to break this down.
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FOSTER: And a really bad response to those amazon results.
PAUL LA MONICA, CNN DIGITAL MONIES CORRESPONDENT: Yes, definitely Max. It really is stunning.
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LA MONICA: I think everyone was really expecting Amazon to blow away forecasts. It's the holidays after all. Even though Facebook and Amazon aren't really in the same market at all, they often get lumped in together. And Facebook had really great results last night. Amazon stocks surged today for no real good reason. You would think people would be a little nervous heading into these results. So to miss on sales and, you know, during the holidays, I think that's inexcusable for a momentum stock like this so it is tumbling hard after hours.
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FOSTER: It's doing business it just isn't making money, is that right?
LA MONICA: No, they are actually making money now. That used to be the main knock on Amazon, that they weren't profitable. But they've got a cloud business that is very lucrative, that is helping to lift profits.
I think the problem with Amazon wasn't that they lost money, they just didn't make as much as the expectations were. And this is a very, very hyped stock with an extremely high valuation.
FOSTER: And it's the one company that's meant to be doing well in this environment when a lot of the big retailers aren't.
LA MONICA: Definitely. I mean Amazon has really put the squeeze on companies ranging from Walmart to Target, Best Buy, Staples. There are so many American retailers that have been hurt by the emergence of Amazon. And make no mistake, Amazon still reported very solid growth in the fourth quarter, more than 20%. But Wall Street was expecting around 25% or so. And you know like I said before, when you're a stock with this much momentum on your side, you know, you really have to not just meet earnings estimates and sales, you have to beat them. And that's what Facebook did yesterday. That's why Facebook surged today.
FOSTER: It's all about expectations isn't it. And that's where Microsoft seemed to have done well as well after the bell.
LA MONICA: Definitely. Microsoft is a fascinating company in transition.
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LA MONICA: After Steve Bolmer left the company, and Satya Nadella became the CEO, Nadella quickly move to really make Microsoft into a more cloud first type company, and it seems to be working. So Microsoft obviously not relying as much on the old software model of selling Windows and office updates in a store to consumers buying new pcs. They're doing a lot of it online and that has helped them.
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LA MONICA: The Xbox business is something that has been you know, a nice win for them. And their internet services division, MSN and Bing that had long been a money losing proposition for Microsoft and that's been profitable for them lately as well. So Nadella is doing a really good job at Microsoft.
FOSTER: So what do we learn at the end of this week of tech results? Apple at the beginning of course.
LA MONICA: Yes, I think we've learned that the worst case fears regarding Apple, you know, have come true. Apple is slowing down. They're going to need something beyond the latest iPhone to get people excited again.
Mark Zuckerberg I think he rules the world. Facebook just dominant right now in social media particularly on mobile. Amazon good but not as good as hoped. And hey, don't count out old tech at all, we see that with Microsoft.
Next week will be even more interesting as we get Google and Yahoo, talk about two different stories there. Google doing extremely well, Yahoo, Meyer, fighting for her job and whether or not that company stays independent.
FOSTER: We know you'll be watching closely. Paul La Monica, thank you very much.
LA MONICA: Thank you.
FOSTER: Indeed. Now the backlash over Google's so-called sweetheart tax deal is growing. The internet giant agreed to pay $185 million to cover unpaid taxes after an audit by British authorities. That left a sour taste though in the mouths of very many.
The Chancellor of the Exchequer, George Osborne has held firm though, he has said getting Google to pay any tax is a victory. His boss David Cameron distanced himself from the deal. The Prime Minister also tried to pin some of the blame on the labor government that preceded him.
News Corp. chairman Rupert Murdoch slammed the deal on Twitter, and called for new laws to prevent tax avoidance. Google's troubles may not end at the English Channel either. The European Competition Commissioner has said she may examine the deal as well.
Now officials of the E.U. have come down hard on multinationals. And as Nina Dos Santos now reports they are preparing new measures now to end the tax avoidance issue altogether.
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NINA DOS SANTOS, CNN CORRESPONDENT: The European Union is getting tough on taxes for big multinationals.
PIERRE MOSCOVICI, EU ECONOMIC AFFAIRS COMMISSIONER: (As translated) we will be coming forward with concrete proposals to stop companies from transferring their profits to tax havens. And we will be working to make sure they can't exploit the differences in national tax systems, differences which allow them to reduce their taxes.
DOS SANTOS: So far, $1.36 billion has been clawed back in taxes from across the union in the last few months. In October, the block ordered Starbucks and Fiat to fork out $65 million of unpaid dues. Starbucks has said that the ruling has errors and Fiat denies any wrongdoing.
Then in January of this year, Belgium was told to recover $763 million from 35 different multinationals. At the same time, individual governments have also been taking action.
In December, Apple settled a $346 million tax bill with Italy. And just this week, Google agreed to pay almost $186 million to the U.K. government. A deal that has been deemed inadequate by trade unions and tycoons like Rupert Murdoch. But, Britain's Prime Minister is promising he won't let the industry off the hook.
DAVID CAMERON, BRITISH PRIME MINISTER: We have put in place the diverted profit tax that means that this company and other companies will pay more tax in future.
DOS SANTOS: As the E.U. pushes for further action on taxes that creates a real dilemma for governments at a time when their economies are just getting back on their feet. If the rules are too strong, well they could deter firms like these from investing and hiring. If they're too weak though, they risk alienating votes.
But before more firms pay up, all 28 member states need to sign up. And since some of the worst offenders are from outside of Europe, the success of this scheme hinges on getting the rest of the world on board too.
Nina Dos Santos, CNN, London.
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FOSTER: Now as the Zika virus spreads, world health officials plan to take action.
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FOSTER: We are live in Switzerland for you and Brazil with the very latest on the outbreak including the economic concern.
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FOSTER: The World Health Organization will hold an emergency meeting on Monday over the Zika virus which it says is spreading explosively.
The agency is facing a backlash for not mobilizing funding quickly enough to tackle the mosquito borne disease.
International diplomatic editor, Nic Robertson joins us from Geneva. A huge amount of concern about the pace of change and spread.
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: Oh, absolutely. They're saying it's moving at an alarming rate, that it's -- that it is, you know, their consideration now when they call an emergency meeting on Monday is to see whether this is of a public health emergency of a global scale. 24 countries affected, this in a relatively short space of time.
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ROBERTSON: They say that this is because of the spread of the mosquitoes already. And their concern now is the gaps in data that they don't have. There's a lack of information at the moment about how it has - how it has spread so much so fast.
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ROBERTSON: About how to stop it in the future and right now, the WHO says the priority is to get a vaccine in place, Max.
FOSTER: That's going to take a while to do though obviously so what's the short-term solution here? What sort of ideas are they discussing?
ROBERTSON: Well, they say that they're working with governments in the affected countries and part of that process is to gather more information so they're better informed.
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ROBERTSON: To better understand how the virus is connected is widely expected and believed connected to the childbirth deformities and to various neurological diseases. So that's a priority as well.
It's the gathering of information which is made harder by the fact that people can have the virus without showing symptoms, that makes it very hard for them to effectively track it.
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ROBERTSON: What they want to do is to track - is to track where this disease spreads to, how quickly it spreads there, why it's spreading there and they hope through having better information that the governments involved that are affected by this can make and take better decisions about should they close borders, should they stop travel.
The concerns are they want the affected governments to make decisions that don't have a negative impact that would allow this to expand further, faster and quicker. So it's really the WHO in its emergency meeting hopes to be able to sort of initiate an assessment of how big and how bad it is but prioritize taking action to better understand it Max.
FOSTER: OK, Nic, thank you very much indeed.
Well Brazil is considered the epicenter for this virus. For an already struggling economy, Zika is only making things worse.
Shasta Darlington has been following the story from the city that has seen the deepest impact really Shasta. And just describe what it's like in the worst place in the world, as many people view it.
SHASTA DARLINGTON, CNN INTERNATIONAL CORRESPONDENT: Yes, that's right Max. I think it's interesting, you know the world is sort of waking up to Zika right now as the WHO investigates what the link is between Zika and these birth defects.
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DARLINGTON: But here in Brazil they're really - they're really living it. Right here in (inaudible) in particular, where the (inaudible) of course. It's night now but this is where babies are coming in every day who have been born with microcephaly. Since the Zika virus was discovered last year, more than 4,000 babies have been reported born with microcephaly. And there have been more in this hospital than any other place in Brazil.
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DARLINGTON: So we've talked to the doctors who are encouraging and urging women to put off getting pregnant if they can. We've talked to the mothers, many of them teenagers, coming from really very poor backgrounds.
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DARLINGTON: So we've seen a lot of the emotional burden that this is putting on people but also the financial burden.
Of course Brazil is scrambling to put together programs that would involve early stimulation for the babies born with microcephaly, physical therapy, psychologists for the families. But in reality, it's not clear how these families again from such poor backgrounds are going to be able to have the time to take a baby every day to get this kind of treatment when they have to basically have jobs to feed the rest of their family.
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DARLINGTON: So we've got a long slog ahead. And remember, in 80% of the cases, Zika is asymptomatic. So we may have more pregnant women, more expectant mothers who don't even know they may already be infected and they may too have -- we may see more babies with microcephaly, Max.
FOSTER: In an area which is more used to this illness. As you say, they don't have symptoms, so what are people doing to try to work out if they've been affected or those around them?
DARLINGTON: I think the major - the major effort right now Max, is on prevention.
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DARLINGTON: So the government has announced that 200,000 troops are going to be going door to door, really searching for that standing water under plants in water tanks where the mosquitoes breed.
They're also going to be educating families about using repellent, about wearing clothes that cover their bodies, especially pregnant women. And then in the case of pregnant women, they're going to be - they're going to be coming in for more checks.
They can't rely on just the idea well I never had any symptoms for Zika so I never had Zika. No, they have to come in, they have to get the sonograms. They have to really have the head of their baby monitored has to be constantly monitored. That's the main symptom of microcephaly.
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DARLINGTON: But you're going to -- what we've already seen is increased prenatal care and really stepping up the fight against the mosquito in the hopes they can contain it there, Max.
FOSTER: What about the impact on the economy? Obviously people are starting to get concerned about traveling to Brazil, that's a reality isn't it? There's no advice against travelling to Brazil at the moment, but what sort of impact is being felt there?
DARLINGTON: Well, I think that's interesting. Obviously, looking ahead, there could very well be a long-term impact. The CDC has warned that pregnant women should put off travel to countries that are affected. The Olympics are expecting half a million visitors.
But right now the impact really isn't being felt for a curious reason. The dollar is so expensive for Brazilians that all those tourists that we saw going to - Brazilian tourists who are going to Miami, going to the Bahamas, going to Europe, well they're staying home. So any lack of -- or loss of foreign tourists is really being more than made up for by domestic tourism.
In fact right here in Recife, really the epicenter of this epidemic, they're saying it's their best carnival season in years because Brazilians are traveling inside Brazil, Max.
FOSTER: Okay, Shasta, thank you very much indeed.
Now, the Iranian President has channeled his inner businessman in Rome.
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FOSTER: Now Hassan Rouhani is in Paris and the deals just keep on coming. We'll have the latest details on that next.
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[16:30:40] MAX FOSTER, CNN ANCHOR AND LONDON CORRESPONDENT: Hello, I'm Max Foster in London. Coming up in the next half hour here on "Quest Means Business," all revved up is the world's biggest car companies. Get ready to enter Iran. We visit one of the country's biggest car parts suppliers, excited about the new business opportunities. And we join a DJ school in New York where aspiring musicians are learning how to scratch out a career. Before that, though, these are the top stories this hour at CNN. In France police have arrested an armed man who was trying to enter hotels at Disneyland Paris. They say 28-year-old - the 28-year-old man - was carrying two guns and a box of ammunition inside his luggage as well as a copy of the Quran. Police are still looking for a woman who had been with the man that they arrested. The World Health Organization will hold an emergency meeting on the Zika virus on Monday. The group says the virus is, quote, "spreading explosively through the Americas." Zika is linked to dangerous and sometimes deadly birth defects. The W.H.O. thinks millions of people could become infected.
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SYLVAIN ALDIGHIERI, W.H.O. OFFICIAL: If you start with the total number in the Americas of 2 - more than 2 million - cases transmitted reported of dengue per year, with a virus which is already circulating for/four (ph) years, you can come up with a figure between 3 and 4 million cases of Zika in the Americas.
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FOSTER: Donald Trump is standing firm on his decision to skip Thursday's Republican presidential debate in Iowa. Fox News which is hosting the debate says no advertisers have backed out and its ad breaks have completely sold out. Trump had claimed that ad rates would plummet if he skipped the debate. The "The Washington Post" reporter who was held prisoner in Iran for 18 months said his jailers insisted the U.S. government wouldn't help him. Jason Rezaian has spoken publically for the first time since his release which was part of the prisoner swap between Iran and the U.S.
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JASON REZAIAN, JOURNALIST HELD IN IRAN - "THE WASHINGTON TIMES": -- the 18th months I was in prison, my Iranian interrogators told me that "The Washington Post" did not exist, that no one knew of my plight and the United States government would not lift a finger for my release. Today I'm here in this room with the very people who helped prove the Iranians wrong in so many ways.
