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QUEST MEANS BUSINESS
U.S. GDP Drops To 2.4; Dow Begins To Plunge; But Good Consumer Sentiment Figure Could Calm Investors
Aired July 30, 2010 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS: It is an uphill battle. The U.S. economy may be growing, the slog is getting harder.
For companies it is a different story. Tonight, two chief executives tell me the future is bright.
And Spain may be out of recession, but a fifth of the workforce is out of a job.
I'm Richard Quest. It's Friday, and yes, I mean business.
Fears of that double-dip recession back in focus in the United States. As the latest numbers on economic growth showed more sharply a slowdown in the second quarter. Friday's official estimate shows the annualized rate of growth eased to 2.4 percent. We can say, at least, that the recovery is continuing for now. It has four successive quarters of growth starting in the summer of 2009.
There was a spurt at Q4 of last year. Look at that. Now, that number in Q4, 6.8, actually has been revised slightly downward. It is-that was a minus number, but if you look, as we go into Q4, there, you can see the U.S. GDP number was around 5 percent of growth. That was Q4, but it has trailed off ever since to the point where, in the latest quarter we are now seeing the number of just 2.4 percent. The pace slackening off has taken its-on the Dow Jones industrials, down 66 percent at the moment. Largely on the back of that GDP number and of course, concerns of corporate America. The Dow is comfortably, though, over 10,000. Brian Fabbri, my old friend, is the chief economist for North America at BNP Paribas.
I know, Brian, on a Friday less of the old and more of the GDP. This number, Brian, that 2.4 percent it is disappointing at best, but is it worrying?
BRIAN FABBRI, CHIEF U.S. ECONOMIST, BNP PARIBAS: It is somewhat worrying because I think not only has growth halved from the numbers that you just described, but I think we'll be lucky to have 2 percent growth in the next couple of quarters. So, therefore this slowdown will continue. And I think it will disappoint most people and frustrate policy makers in America.
If we look at that 2.4 percent, the devil really is in the details because first of all, huge inventory build up. Second of all, massive contribution came from government, federal and state, didn't it?
FABBRI: You know, there are a couple of statistics in there-you remember that this is a first estimate, so Commerce Department has an opportunity to revise this several more times. My gut instinct tells me that there is a number of the sectors that seem to have more growth than I would have assumed. For example, state and local governments, they are bankrupt and yet spending went up. Another one, commercial real estate; again, that showed a positive increase and frankly, there is nothing going on in the commercial real estate market at all. So, these are candidates for decline. And then, finally, residential investment. Look at how high that is. And what we now know is that market has slumped badly in June- well, really May and June. So when we start looking at third quarter residential investment, we're likely to see a much, much bigger decline.
QUEST: Can we put double-dip to bed, for good, now in the United States?
FABBRI: You know, if you asked me the probably of a double-dip recession I would tell you, in my judgment right now, it is 20 percent. If you had asked me six months ago I would have said 10 percent. So, indeed that probability and that worry is getting a little bit bigger. But there is enough upward momentum, particularly in corporate America. They are swimming in money and liquidity. They probably can continue making investment and that also probably means investment in employment.
QUEST: We've been talking, and on this program, we have the Q25 barometer, which gives balloons. And the greens showing better expected, are beating the reds at the moment, for corporate results. But at the same time, this earning season, despite the fact that 66 percent of S&P 500s have better performed, it is still, the outlook is poor.
FABBRI: Well, let's put it this way. The biggest gains in productivity, and therefore profitability, are probably behind us. As growth slows, as growth halved, as you just reported, it basically means profit growth, profit potential, is going to slow and as businesses hire more employees. That profit picture just diminishes. So, companies are flush with money. The cost of capital is the lowest it has ever been. And they're in good shape to keep the economy going, but not to the tune that they've enjoyed over the last four quarters.
QUEST: Brian, wonderful to have you on the program. Many thanks, Brian Fabbri. Have a good weekend in New York.
FABBRI: Thank you.
QUEST: Joining me from BNP Paribas.
We looked at the Dow. We had a little scintilla, a little titillation of what the Dow was doing. Down more than 60 points at the moment.
Carter Evans is at the New York Stock Exchange. And the GDP number was clearly the driver to start with in all of this. But as we look at the results that we're getting that factors in, too.
CARTER EVANS, CNN FINANCIAL CORRESPONDENT: Yes, the results factor in, and a couple of other things factor in as well. We got a better-than- expected reading on consumer sentiment today. And talking to traders on the floor, they are really excited about that. Yes, they were concerned about the GDP number, but it wasn't that much of a surprise. One trader I spoke with said, hey, that was three months ago. We're looking ahead right now, and this consumer sentiment figure while still not as good as June's number, it is better than expected.
The other thing that made them feel a lot better today was the Chicago PMI report, the report on manufacturing and business in the Chicago area. They say that is a really good one to keep track of. And it was much better than expected as well. And that helped buoy stocks in the early going, after we got that GDP report today. But again, it looks like the summer doldrums and lower volume may be taking back over here, and that is why we're seeing some of these big swings today.
QUEST: You see that-that is the crucial part, isn't it? It is very danger-you and I have been looking at this long enough to know it is very dangerous to take a Friday's trading session, in the summer, and try an extrapolate anything from it.
EVANS: You know, it is so funny you said that, because I was talking with one trader on the floor about resistance points today, and support points. And we were so close to one of their support points on the S&P 500. I mean, we were just a 100th of a point away. And he said, "Hey maybe we'll see a rally." And I said, "Are you kidding? On a Friday afternoon, at the end of the month?" And he said, "Well, we can hope, can't we?"
QUEST: Carter, I suppose the encouraging piece of news is even though it is 10 past 2, on a Friday in New York, you are still doing duty for us. Carter Evans, joining from the New York Stock Exchange. Although I'm probably gather that by 3:00 o'clock, who knows where he might be. Heading off for the weekend.
We'll do that in a little while, but before we go any further, we are going to do better in the competitive world of telecoms. Ben Verwaayen of Alcatel-Lucent tells me he can and will win the battle of the bottom line. He's next, in a moment.
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QUEST: Alcatel-Lucent shares, now there was a very strong performance today, surging 11 percent after the company which makes hardware for telecom networks, said it was standing by its annual earlier profit guidance. You have to look quite hard, underneath, to see the figures that made such a good impression. The bottom line, it stayed stuck in the red. Now, on the basis of that, you might have been disappointed. But the underlying result, excluding things such as restructuring and merger costs, swung from a loss to a $36-million profit.
And it is, frankly, when you are looking at companies, you have to look at the underlying performance. Ben Verwaayen, the chief exec of Alcatel-Lucent, joined me from Paris a short time ago. Now, I needed to know, as you look at those (AUDIO GAP) so interesting. That the markets gave them a 10 percent boost.
(BEGIN VIDEO CLIP)
BEN VERWAAYEN, CEO, ALCATEL-LUCENT: I think our numbers showed two things. Firs of all, that the world in telecommunications is becoming a very interesting world. People use all type of equipment in very different ways. They want the services wherever they want it. Whether it is on the PC, whether it is on their mobile, whether it is when they are at home or in the office, or wherever. They want it and they decide. And that means that the world is changing from the networks to an all IP reality, because that is the product that is used.
And second, what you see is that as a company we are really gaining some traction. We have benefitted this quarter from the strong situation in the U.S., but we have also very good order input from other parts of the world.
QUEST: If we take those numbers, are you-you are sticking by, from the comment I've read already, you are sticking by your "break even, this year" forecast?
VERWAAYEN: No, we are doing better than break even. We are saying that on the operating profit we'll do low single digits, and I think we are on our way to deliver that. It is a transition. It is a transition as a company. I think that we are making steps, every quarter is a little bit better than the previous one. And we have delivered. I think this quarter, truly and the market recognizes that. And that is nice, you know? Summer is coming so it is good to see that.
QUEST: I know you don't necessarily like to talk about the market, certainly when it is on the downside, but the market today has given you two thumbs up, hasn't it?
VERWAAYEN: The market has, let's say, on the low level that we are, giving us a lift, which is good. But let's be realists. We have to do a lot of further improvements, and we are determined to go and do that. This is a good company. We have great technology. We have a good spread in the world. We should do better and we are going to do better.
QUEST: Taking that idea of how you are going to do better, there comes a point, Ben, when you are going to have to shift the focus considerably from retrenchment and cutting and reforming, to the new products that you want to bring out and the new customers that you want to attract.
VERWAAYEN: Funny you say that, because I had today the similar idea. I said to the market, I want to show you, as of let's say, at the end of next quarter, what percentage of our revenue is related to the new stuff that we're doing? And I think that will be a nice surprise for the market. And you will see that we are gaining traction around the world. I'm pretty confident that as a company we understand what it takes to help our customers and it is recognized by the market.
QUEST: And if you-
VERWAAYEN: But let's see, when we have those numbers.
QUEST: And if you look at the telecom sector, which remains fiercely competitive, almost dangerously competitive, are you seeing the telecom operators, the IPSs, the providers, are you seeing them now saying it is time for larger cap-ex?
VERWAAYEN: Now, they are saying, wiser cap-ex, smarter cap-ex, so they are not saying more. I think they say wiser, they make their choices. They make their choices more sharp. You are absolutely right. This is a highly competitive market. But you know what? That is what a market is. So we had better perform in that environment.
QUEST: Ben Verwaayen of Alcatel-Lucent, talking to me from what looked like a gorgeous day in Paris.
IATA says the airline industry is making money. When we come back two major players say, never mind the red ink. We are ready for takeoff. We'll be back in just a moment.
QUEST: Two of Britain's biggest airlines announced steep losses. BA, British Airways, says it lost more than $190 million in its first quarter. The company's seventh consecutive loss making quarter. Chief exec Willie Walsh blamed a series of strikes by cabin crews and flight cancellations caused by the Icelandic volcano. BA says the combined cost, $390 million, and despite all of that, the shares closed higher as investors focused on the future outlook. BA still believes it can break even for the full year.
Richard Branson's Virgin Atlantic says that in the year, the end of February, made an operating loss of $205 million. The new financial year had begun well, sales up 10 percent, and it claims to be picking up a greater share of the premium market, by winning passengers from the competition.
The story of the airlines, at the moment, is really all about more passengers in premium cabins, who are prepared to pay higher fairs. I spoke to Virgin Atlantic's chief executive Steve Ridgway. We need to know, is the recovery finally underway?
STEVE RIDGWAY, CEO, VIRGIN ATLANTIC: It does seem to be coming through. And I think we are fortunate because we are a long-haul carrier. We only fly the major long-haul routes and I think we're seeing recovery in the business markets. Obviously, between the global capitals, which is where we fly. And we've seen a good performance from our leisure business. I think it held up particularly well last year, and so probably seeing even more from that.
QUEST: Are you now saying-are you now comfortable telling me that things are getting back to normal.
RIDGWAY: Well, I don't think we're quite back to normal yet, because obviously looking at a base of last year you can project lots of good number improvements, but I guess, you really need to go back two years to see where we are. So, I think we've had a very good first quarter. It is really pleasing to see what is happening there. I think are cargo numbers are-we are really encouraged by that, particularly ex-U.K.
QUEST: Let's talk about cargo, just one second.
QUEST: We tend to think of it as the Cinderella of the industry, in the belly of the plane, but it is an important part. And it is a good economic barometer. What are you seeing?
RIDGWAY: It is a fantastic barometer. We saw it fall off a cliff last year. I think U.K. exports from Heathrow, by value, it is the number one port, for example. So we have seen some really encouraging improvement in numbers, particularly out of the U.K. And I think at a time when we need to see the U.K. economy recovering. We know where the government is going and about what it expects from the private sector. But we have seen- I think David Cameron is in India this week.
RIDGWAY: Our first quarter cargo numbers, from U.K. to India, are up nearly 60 percent. We have seen China 80 percent. And overall, about a 30 percent improvement in tonnage, out of the U.K.
QUEST: So, is that-
RIDGWAY: Maybe the pound-maybe the cheap pound is working.
QUEST: Is that improving just in terms of tonnage, or is it improving in prices? Or a combination of both?
RIDGWAY: Revenues, a combination, obviously, of some recover in freight rates. Because it-it died last year. But part of it is tonnage. So, tonnage is up about 30 percent And so that is a kind of real number.
QUEST: And back over to the passenger side. What about yields, and you may be filling the seats and you're telling me that upper class is up 15 percent. But are you able to get any pricing pressure, yet, indo it.
RIDGWAY: Some of it is recovering. It is not so much that it is pricing pressure. I think it is just the fact that we took a lot of capacity out last year. Other airlines, Lake came a bit late to the game, took capacity out. So, you are seeing a better balance between capacity and the market. And that has improved the traffic mix. And of course, the overall feeds through to yields.
QUEST: If we look at, now, BA, American, this is our first chance to talk to you.
RIDGWAY: I'll bet, no, ah? (ph).
QUEST: I'll bet, no, ah? (ph).
This is my first time to talk to you. Now, they've got the deal. It is a done deal and now they are planning to put in place their alliance in the autumn.
RIDGWAY: Well, we fought a valiant battle for 14 years. I-we are still very annoyed and very sad that it went through. There was no reason for it to go through, there's no justification. But I think where we are now is we need to go on and fight a new battle. We have never been frightened of competition. And I think actually, in a way, the traveling public and particularly, corporate U.K., needs us more than ever now. Because British Airways and American are coming together not to be lovely and popular, they're doing it because they want to be stronger and more dominant, and it is up to us to provide that choice and keep everybody on their toes and give people that choice.
QUEST: Are you coming out with a plan later this year to try and counter the new threat?
RIDGWAY: Well, I think we're countering it all the time and certainly we've been ready and planning for this. We don't think it ever should have happened. It is an unfair tilting of the playing field. But we will be out there doing what we always do, and setting our store out. We are very proud of what we do and how we look after out customers.
QUEST: Can we expect, on the trans-Atlantic to the U.K., a price war, do you think, this autumn and winter?
RIDGWAY: I don't know. I hope not. I don't think so. There is more capacity coming on, particularly New York this winter. So we will see. But equally New York is performing well at the moment. We have grown out market share in New York, and on the West Coast, and we want to hang on to that.
QUEST: Steve Ridgway, chief executive of Virgin Atlantic.
Now, the Q25 index enters its final straight for this earnings season. The index that we've always had on this program that helps you make sense in trends of the corporate world. Twenty-five components span a range of industries. The green balloons, of course, if we like the look of the quarterly report and they're not warning. A red if we don't. Tonight is the last five balloons. And right now the greens outnumber the reds. But compared with previous quarters-well, let's go. Come over here. And I'll-join me in the library and I'll show you what I mean. This is Jim Boulden. We'll be with Jim in just a moment.
This is where we stand at the moment, with the Q25. As you-if you go back to Q1, you'll remember, we had many more-greens overwhelmingly won. But this time the reds have made something of a comeback. So, time for our final entrants tonight, in the Q25.
Let's start with British Airways, Jim.
JIM BOULDEN, CNN INT'L. CORRESPONDENT: Yes, British Airways, yields were up, costs fell. Willie Walsh saying that they think they can break even by the end of 2010. Even though we have seen-what did you say-seven quarters, of losses.
QUEST: So, does the loss-is it outweighed by the forecast and the yields and the premium dropping?
BOULDEN: It is. I think it is. I think, though, it is a grudging green, because they can't control what the unions do. And, of course, we have seen them loose a lot of money from the unions and from the ash clouds this year. And they can't control either one of those.
BOULDEN: So, a grudging green.
QUEST: A grudging green. He's never done this before.
BOULDEN: No, first time.
QUEST: Go on.
BOULDEN: Oh, you'll let me do it. OK.
QUEST: Yes, that's the green.
QUEST: There you are.
While we stay, just on there, Alcatel-Lucent.
QUEST: We have just heard from chief exec, Ben Verwaayen, he likes what he seeing. He likes-he says he's going to do well.
QUEST: I would say, I'm going for, and we have enough of them. Another green, what do you think?
BOULDEN: Well, they said they are going to have a strong second half. Some of the analysts said. It has had a-it's been a terrible three years for Alcatel Lucent, so they seem to be on the way up.
QUEST: That's two. EADS?
BOULDEN: Oh, you know, very poor first half, they said. Fantastic outlook for the second half. You and I were both at Farnborough. Of course, EADS owns Airbus. A lot of orders came through there. They keep raising their outlook for this year. And they say they're going to boost their sales forecast, and their earnings forecast for the full year. Next year, maybe not, because we are going to see a budget cuts coming. But this year, I'd say the outlook is good.
QUEST: They got great orders at Farnborough.
BOULDEN: Yes, exactly.
QUEST: They got $12, $14 billion or so.
BOULDEN: Yes, 133 for firm orders, from what I read.
QUEST: All right.
BOULDEN: Let's give it a green.
QUEST: It would be perverse if we gave EADS anything else at the moment.
QUEST: Merck, in the United States. Now, look, what was going on with Merck this time around, Jim?
BOULDEN: Well, you know, they said that analysts really thought that they would much better. Their revenue and sales worse than expected. They've got this big merger, of course.
QUEST: With Schering-Plough.
BOULDEN: Yes. They are trying to digest that. So, it depends on how you strip in, put in the numbers, and strip out the numbers. But cautious 2010, profit outlook, so I think that is going to be our red.
QUEST: Ah, thank you.
Last one for the Q25 this time, Chevron-Texaco.
BOULDEN: Fantastic numbers.
QUEST: Now, BP earlier in the week-
QUEST: I mean, Shell's numbers kicked them out as well.
BOULDEN: Three times earnings, tripled. They're earnings tripled. It was fantastic. Their refinery numbers are very good. They're numbers in gasoline were very good. They haven't seen much effect on the sort of moratorium in the Gulf of Mexico. So, for now, we have oil prices where they are they had a fantastic quarter. So, I would definitely be giving them a green.
QUEST: You can't wait.
BOULDEN: The last one.
QUEST: All right. That is the last of them. There are 25 in there in total. 1, 2, 3, 4, 5-7, 8. You won't be able to do it that way. As you can see, we are-
BOULDEN: I think 16 greens.
QUEST: 16 greens, 9 nine reds. The greens clearly-what does it tell us about the earning season?
BOULDEN: I think the markets and some people are being too pessimistic if you look at the earnings that are coming out of companies. They are telling us something. And even, they're telling us something about the previous quarter. Not telling us what is happening now. And there are some people who are saying things could be even better right now.
QUEST: So, not as good as Q1?
QUEST: Not as bad as it could be?
QUEST: The greens have it.
BOULDEN: They do, clearly.
QUEST: The greens have 16 to number 9.
Now, as we continue to factor all that into the markets the results, putting it into an economic perspective, there is one common theme we picked up on during the Q25. It is China. Many companies are seeing growth in Asia and the BRIC economies. Those with the most exposure are raking in the rewards. I spoke to Garry Evans, he is HSBC's global head of equity strategy. In terms of the equity for strategies, where is the balance?
GARRY EVANS, GLOBAL HEAD OF EQUITY STRATEGY, HSBC: I would still be buying equities. Because I think everyone is so bearish about the future of the world, that things can only be slightly better than the terrible outlook that everyone believes in. So, I think now some of the emerging markets look particularly interesting. So, Russia, you can buy on five times forward earnings, five times P/E. You can buy Brazil on nine times.
And what I would be playing, I think, is Chinese growth is still extremely good. I think there are a lot of stocks, a lot of countries around the world that you can get exposure to Chinese growth, not necessarily actually buying Chinese stocks. That is where I would be focusing on. Chinese can be leading global growth, you get exposure to that. I think you can make a decent profit still.
QUEST: And in the mature markets of Europe and the U.S., would you- they have to be part of your portfolio? They're the big companies?
EVANS: So, I think the U.S. gives you less risk. The downside risk in the U.S. is less. Growth, long-term trend growth is better than Europe. What I'd really be looking for, though, is this exposure to emerging markets. It is wrong to think that they only ways-only countries-the only companies making profits in places like China, are Chinese companies. There are lots of European and U.S. companies that do very well in China, too.
QUEST: Let's talk about the earnings season and the GDP numbers that we've just seen. Now, one thing that we have seen in our Q25 over the course of this season, is that where we have had a lot of greens before, some of them have now shifted into the red column.
QUEST: Companies, rightly or wrongly, are warning. They are saying watch out.
EVANS: They did the same thing in January, after the fourth quarter earnings season. So companies really don't know. You've had a softening of economic growth. Companies are not better at forecasting the future than you and me. So, they're being a little bit cautious. I think that is very typical of what you have in the second year of an economic recovery. Things can't go on at the same pace as they do in year one.
QUEST: But we're not fully out of year one, in the recovery. We maybe into the next quarter of growth, but the graph of growth is looking like that now. We've come down from 5 in the fourth, to 3 in the first, now we are at 2.4 in the second.
EVANS: That is my exact point. You can't keep growing at 5 percent. So, you know, if you had that initial impetus, and then, in the second year. And the recovery has started, the stock market bottomed in March last year. And in the second year it doesn't go at the same speed. It is not an unusual pattern for the cycle.
QUEST: But that would-if you are right, you are going to hope that there is a leveling out at 2.4, and that downward trend doesn't continue.
EVANS: So, there are a few things I think people are missing. One is, the U.S. last year passed the fiscal stimulus package, $800 billion. How much have they spent so far? You had a weekly data at 53 percent. And they're going to spend the rest of it in the run up to the elections in November. Obama needs to have that boost.
QUEST: Do you not think you are being too optimistic?
EVANS: There is a possibility. But I do think the markets-and most investors-are being too pessimistic. And that is why if you look at the valuations, the U.S. market has been cheaper than this, previously. And I looked at 130 years, only during the war, or in 1979, when interest rates were at 15 percent, or at the beginning of last year. It has never been cheaper. During the bottom-at the bottom in the Great Recession (sic), in the 1930s, it was the level it is at now.
So, there are a lot of risks. I don't deny it. I know all bout the structural issues in a global economy. My view is that they're priced in. Everyone knows those already. It is not a big surprise.
QUEST: Interesting stuff from Gary Evans of HSBC, head of global equity strategy.
Now, in a moment, in line for disappointment -- more people are cueing up for jobless benefits in Spain. And no one really knows when they'll be getting back to work.
We'll be in Madrid, in a moment.
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN.
And here, well, always, the news always comes first.
It's been a week of tragedy in Pakistan. A government official says 408 peopled have died in monsoon flooding across the country and 25 more in Pakistani-controlled Kashmir. Floodwaters swept away hundreds of homes in the Swat Valley and the districts of Shangla and Taka. And, of course, it all comes on the heels of Wednesday's plane crash outside Islamabad.
High temperatures are helping to spread deadly wildfires in Central Russia. The news agencies are now reporting 25 people have been killed and more than 1,000 homes destroyed. It's been one of the hottest months on record, as temperatures in Moscow reached 39 Celsius on Thursday. President Medvedev has ordered the military to help fight the flames.
Three Kenyans have been charged with terrorism and murder in connection with the Ugandan bomb attacks. The men have appeared in a Kampala courtroom today. Seventy-six people were killed as they watched the World Cup in the capital earlier this month. The Somali Islamist group, Al Shabab, claimed responsibility for the murders.
Military trucks are on the road tonight in Greece, as the government called out the army to help alleviate the nationwide fuel shortage amid a strike by truckers. The strikers, who have blocked most fuel deliveries since Sunday, have ignored a return to work order from the Athens government.
Spain today said unemployment has reached its highest level in 13 years. And I assure you, that's an extraordinary number -- 4.6 million people are now looking for a job. If you factor that as a rate and a percentage, then it starts to become truly extraordinary -- 20.1 percent in the second quarter. It's up by .5 a percentage point from the first three months of the year.
Spain already had one of Europe's highest unemployment rates and has for some time because of structural reasons within the economy.
CNN's Madrid correspondent, Al Goodman, assesses the damage from the Spanish capital.
AL GOODMAN, CNN CORRESPONDENT (voice-over): From last autumn through winter to spring and now summer, the seasons may change, but the long lines at Spain's unemployment offices haven't. Idle hands -- and not by choice. They come here hoping to not be completely empty-handed and to get some government jobless benefits. This man is in line for the first time.
JULIO EKMAN, UNEMPLOYED WAITER: I have a -- a business illustration BA in -- in management. And I've been working as a waiter for the last three-and-a-half years. And 15 minutes ago, I was -- I was cut off -- the place, the restaurant I was working at, just cut off. I've been working as a waiter due to the situation and the hard times we're going through. There's no way to find a job. I really don't know what's going to happen. I'm still looking. I'm thinking about leaving Spain and going somewhere else.
GOODMAN: As the doors open, the government releases the second quarter unemployment report -- more somber news. Unemployment rose to 20.09 percent, the highest rate in the Eurozone. A slightly higher jobless rate than in the first quarter, despite all the temporary jobs now in Spain's big tourism center, which usually brings the second quarter jobless rate down, analysts say. Not this time -- 4.6 million unemployed and no end in sight.
This Moroccan man came to Spain 10 years ago looking for a better life. He worked in construction, then as a cleaning man, but he's been out of work for a year.
UNIDENTIFIED MALE (through translator): No, we don't have hope. I might need to go to another country.
GOODMAN: But they can't all go somewhere else. Some 80,000 new jobs were created in the second quarter across Spain, but these people haven't gotten those jobs -- not yet.
Al Goodman, CNN, Madrid.
(END VIDEO TAPE)
QUEST: Now, we're back in just a moment.
The weekend weather forecast -- it should be good if you're in most parts of Europe. We will find out what it really will be in a second.
QUEST: The Spanish market, not surprisingly, reacting to the unemployment numbers and the worrying part of growth in the country, down 1.5 percent for the ibex 35.
The family of the former South African president, Nelson Mandela, is cultivating a new venture, literally -- the House of Mandela. And it's driven by Mandela's daughter and granddaughter. We'll explain when we hear from Robyn Curnow.
ROBYN CURNOW, CNN CORRESPONDENT (voice-over): Wine and song launched this newest venture from the Mandela family -- a trio of South African fine wines that are marketed under the label, "House of Mandela," which the family is selling in South Africa and hopes to launch in the United States by the end of the year.
CHIEF ZWELIVELILE MANDELA, NELSON MANDELA'S GRANDSON: We would like, on behalf of our family, to welcome you to the launch of the Royal Reserve fine wines. The House of Mandela is one of heritage, strong values and royalty.
CURNOW: Nelson Mandela's eldest daughter Maki and her daughter Taqini (ph), seen her at Mandela's 90th birthday celebrations, are spearheading the Mandela wine project.
MAKI MANDELA, NELSON MANDELA'S DAUGHTER: We want to say to people, you know, innocence, taste our story and tell yours by sharing this bottle of wine.
CURNOW: The three wines were hand-picked by the Mandelas and their wine consultants from some of South Africa's best vineyards in the Cape. They'll sell between $25 and $57 a bottle.
(on camera): So this -- so this is just basically the beginning?
UNIDENTIFIED FEMALE: Yes.
UNIDENTIFIED FEMALE: It's basically the beginning. This is just the beginning.
UNIDENTIFIED FEMALE: This is the beginning of great things to come.
UNIDENTIFIED FEMALE: Yes.
CURNOW (voice-over): But with a growing industry of tacky Nelson Mandela memorabilia, the family know they will face criticism for what some might see as a commercialization of the Mandela name.
UNIDENTIFIED FEMALE: I think...
MANDELA: I think...
UNIDENTIFIED FEMALE: -- that the Mandela name has been commercialized already by them. I mean, you look at all the people that have used my grandfather's name to benefit themselves, you look at my grandfather's (INAUDIBLE) and his face is on a cloth -- a piece of cloth; his face is on a gold coin; you know. And what we're saying is that that is not the true story and the true reflection of Nelson Mandela.
UNIDENTIFIED FEMALE: Yes. It's a...
UNIDENTIFIED FEMALE: It's a (INAUDIBLE)...
UNIDENTIFIED FEMALE: It's a small part. The people that can tell the story the real story of Nelson Mandela, about the House of Mandela, is us, his family.
MANDELA: It's our name and we had to use our name. And I think that if you look at the -- the history of the wine industry...
UNIDENTIFIED FEMALE: Yes.
MANDELA: -- most of -- of the wine industries are named after families. And the bottles are named after families.
MANDELA: And why can't we use our name in a responsible manner, in a manner that actually honors who we are and what -- how we -- how we've come to this place and say to people, share a bit of -- of us and tell your own story.
CURNOW: Robyn Curnow, CNN, Johannesburg, South Africa.
(END VIDEO TAPE)
QUEST: I'd like to hear them sing those high notes after they've sampled a few bottles.
Since Wednesday, well, as I told you, the heaviest rains in decades have inundated parts of Pakistan.
Pedram Javaheri is at the CNN World Weather Center.
Particularly extraordinarily bad and dangerous, deadly weather.
PEDRAM JAVAHERI, CNN METEOROLOGIST: Yes, any way you put it, Richard, it's -- we're talking about a lot of rainfall here in a matter of just a couple of days. And some of the components that come into play here, the Somali low level jet in the Western Arabian Sea. That's measuring in moisture. But, of course, typically, July, August -- you look at your calendar, we're right around that fringe here, where we get the moisture in place. But a lot of monsoonal rains working their way across parts of Pakistan. And we're talking about rainfall totals very impressive. Since Wednesday, nearly a half a meter coming out of Peshawar. Murree has picked up 414 millimeters of rainfall, Dir has come in with over 380 millimeters and Islamabad also pushing into close to 300 millimeters of rainfall.
And you take a look at the just some of the all time records we've set, a 24 hour total for Peshawar there, coming in with 274 millimeters. The old record now, going back to 1977, not even half that amount. A July average certainly nothing like that. And you can see, 24 hour rainfall totals in Islamabad have been almost 260 millimeters. The old record goes back to 2001 at 200 and the July average almost got that in just 24 hours. And this is what's been happening, as Richard was telling you, showing you some of the videos. But pictures also tell the story here, as we've had a lot of rainfall and flooding. Folks just literally standing there watching their homes being washed away and just devastated to see the kids there sitting in water, just trying to survive in a matter of just what's happened here the last couple of days.
But the good news in the forecast, take a look at the Pakistan. We're talking about clearing conditions here, with the monsoonal push not really quite reaching it all the way through Pakistan. Some parts of India getting some heavy rainfall. So if your travel plans are taking you out toward Mumbai, perhaps in the morning hours,. You're going to see some thunderstorms on Saturday. In the afternoon hours,. You're going to see them build up around there. So there's some -- some moderate delays in that region of the world.
And across Europe, we are talking about big changes in the forecast as far as some cooler temperatures for the Central Alpine Region and northerly flow around ports -- portions of Germany and also southern portions into Austria getting very mild readings, while to the east, in Russia, of course, we're talking about extreme temperatures -- Richard, I'll send it back to you.
QUEST: We thank you for that.
Have a good weekend.
We will see you next week.
JAVAHERI: Thank you.
QUEST: And that is QUEST MEANS BUSINESS for this Friday and for this week.
I'm Richard Quest in London.
Whatever you're up to in this weekend ahead, I do hope it's profitable.
Come back to me, please, on Monday.
In a moment, "MARKETPLACE MIDDLE EAST" is up next after a quick break.