SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Monetary bazookas. The European Central Bank enters a new era, committing more than a trillion euro to revive the eurozone economy. But could it be a massive misfire?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Investors react. The Dow soars more than 250 points, the S&P 500 erases its losses for the entire year so far, and European stocks take off — as the global markets digest the ECB`s historic move.
HERERA: All that and more tonight —
HERERA: Let`s say it in unison, on NIGHTLY BUSINESS REPORT for Thursday, January 22nd.
MATHISEN: Good evening, everybody.
And on this day, maybe we say (SPEAKING FOREIGN LANGUAGE), because today was all about Europe and a massive new stimulus program unveiled by the European Central Bank designed to help jump start the region`s sputtering economy.
Now, starting in March, the European Central Bank will buy upwards of
$70 billion worth of government and private bond, every month for at least the next year and a half, or as long as it`s needed.
Now, that aggressive stimulus that could total more a trillion dollars was even more than global investors expected and helped stock here and around the world move higher today.
On Wall Street, here are the numbers, the Dow soared 259 points, with the utilities index setting an all time record high. Today`s 83 points gain in the NASDAQ and 31 points for the S&P 500 were enough to wipe out all of January`s losses with those indexes.
Steve Liesman now with a closer look at what`s in the ECB`s bond- buying plan and how it will work.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The European Central Bank finally put its money where its mouth has been for the past months, way back in July of 2012, ECB President Mario Draghi promised —
MARIO DRAGHI, ECB PRESIDENT: The ECB is ready to do whatever it takes to preserve the euro.
LIESMAN: Today, amid declining inflation and growth, Draghi sat before the world`s cameras and announced a sweeping $1.2 trillion program of bond-buying or quantitative easing designed to shock Europe out of its spot.
DRAGHI: Taken together, these factors should strengthen demand, increase capacity utilization and support money and credit growth, and thereby contribute to a return of inflation rates towards 2 percent.
LIESMAN: At the heart of the plan is the purchase of 60 billion euros or $68 billion a month of bonds, mostly the of the 19 member governments and it will last for at least 18 months. But Draghi, harkening back to his “whatever it takes” promise said it could last longer until the ECB is sure it`s on the path to its 2 percent inflation.
DRAGHI: Looking ahead, today`s measures will decisively underpin the firm anchoring of medium to long-term inflation expectations. The sizable increase in our balance sheet will further ease the monetary policy stance.
LIESMAN: Draghi has managed to execute a plan over the objections of the ECB`s biggest economy, Germany, which worried about the inflationary effects of such large purchases, and German Chancellor Angela Merkel, moments before Draghi even announced his plan, cautioned European neighbors that the ECB`s program wouldn`t let them off the hook for acting important structural economic reforms.
Despite telegraphing the move for us, Draghi even managed to surprise markets. The euro fell to an 11-year low and Italian ten-year bond yields dropped 16 basis points to just 1.6 percent.
(on camera): Stocks soared around the world, but there`s skepticism.
The ECB has been habitually a day late and a euro short. If indeed Draghi and ECB are out front, it will be the first time since the financial crisis began.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
HERERA: Reaction tonight to the European Central Bank`s decision, from Athens, Greece, Davos, Switzerland, London, England. But we begin where that decision was made, in Frankfurt, Germany, with Annette Weisbach.
ANNETTE WEISBACH, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was an historic day for the European Central Bank. For the first time ever, they have announced the much awaited quantitative easing program. Of course, that program is meant to spur inflation in the eurozone, which is currently in negative territory and also to help the euro zone in its economic recovery.
The volume was a little bit more than markets had expected, and also but positive, heard from the European Central Bank today is that there is a notion of open-endedness in that program, so that means it could run longer than September 2016.
So, overall, it`s hard to surprise the European Central Bank even though critics are saying quantitative easing will not work as well as in the United States because in the eurozone, banks are more important to the finance the real economy than in the United States.
For NIGHTLY BUSINESS REPORT, I`m Annette Weisbach in Frankfurt.
HERERA: And now to Michelle Caruso-Cabrera in Athens, Greece.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is a massive rally for the Sarissa Party of Greece. This is the party of the radical left. The leader of which, if the polls are right, could very well be the next prime minister of Greece after the election held on Sunday.
This rally occurs on the same day the European Central Bank announces that Greece will not participate in the massive quantitative easing program, at least not at first. The head of the ECB, Mario Draghi, has said that Greece has to be in compliance with its bailout program and right now, it`s not. And the leader of this party said he doesn`t want the program. He wants to change and even want the ECB to reduce the amount of loans they`ve already extended to Greece.
It is going to be a showdown of massive proportion that could lead to large volatility in the market and it`s not clear whether or not these people here at this rally understand what is at stake.
For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, Athens, Greece.
MATHISEN: Seema Mody has reaction now from London.
SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here in London, the financial capital of Europe, investors cheer the European Central Bank`s massive stimulus move and we saw that play out in the markets — investors rotating out of European bonds and into equities. In fact, investors sending the FTSE 100, an index of 100 stocks listed on the London Stock Exchange, up by around 1 percent.
But what really had market participants in London talking was the big move and currency market. The British pound climbing to its strongest level in about seven years against the euro. The strengthening pound is something that the Bank of England is watching closely since it, along with plunging oil prices, have capped inflation in the U.K. well below its central bank target of 2 percent.
So, what is a weaker euro versus a pound mean for the consumer here in London as well as the U.K.? Well, it means goods in Britain from the euro area will be less expensive, perhaps making them more attractive — another boon for the U.K. consumer which is already enjoying low unemployment and a recent pick-up in wages.
For NIGHTLY BUSINESS REPORT, I`m Seema Mody in London.
MATHISEN: And Geoff Cutmore now with reaction from the World Economic Forum in Davos, Switzerland.
GEOFF CUTMORE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The reaction to the European Central Bank`s announcement here at the World Economic Forum in Davos has been broadly positive. I spoke to the chairman of Alby (ph) who said it would help them do greater business in the United States a market they`re particularly keen to tap into. When I spoke to the head of UniCredit said he hoped it would stimulate growth not just in Italy but Europe as a whole, even though it may put some pressure on their net interest lending margins.
So, the business community here at the World Economic Forum that Mr.
Draghi has delivered on his promise to provide more liquidity to the euro zone and lower interest rates.
This is Geoff Cutmore for the NIGHTLY BUSINESS REPORT in Davos, Switzerland.
HERERA: And now let`s turn to Mohamed El-Erian for his analysis on the ECB`s move today. He is chief economic advisor with Alliance.
It`s always good to have you with us, Mohamed. Welcome back.
MOHAMED EL-ERIAN, ALLIANZ: Thank you.
HERERA: Let`s start, first of all, we`ve kind gone over the European reaction to the ECB`s move. But here in the United States, what`s the significance to individual U.S. investors here at home?
EL-ERIAN: Stock investors are better off today because of what happened. This is a confirmation that central banks is the market`s best friend not by choice but by necessity, and this injection of liquidity is going to be good for the equity market. It`s going to help contain interest rates through a low level.
The people should worry are the currency traders because this is going to cause further volatility in the currency market. We already saw the euro move by almost 3 percent since before the announcement to the end of the day. So, the currency market and U.S. businesses set abroad will find that it`s harder to maintain and grow market shares.
MATHISEN: Mohamed, for Europe, is this palliative, or in any sense curative? And will it work?
EL-ERIAN: If the question is, will it work in its ultimate objective of promoting economic growth and stopping the deflationary risk? No, it`s not enough. It`s not sufficient.
Will it work in its intermediate objective, which is boosting financial markets in the short-term? Yes, it will.
But ultimately, if you want to get Europe out of its funk, you`re going to need a much more holistic policy response that involves the politicians and not just the central bank.
HERERA: What are the odds of that, though, Mohamed, even though it is the eurozone and it is supposed to act as one, they`re all those he individual countries and they all have their own self-interest? And we have seen very little progress on policy reform.
EL-ERIAN: Yes, absolutely right. And Michelle`s segment from Greece is really instructive — 6 1/2 years after the global financial crisis, people within the euro zone cannot agree on the past and present of the crisis, let alone the future. So, it`s going to be the hard.
But what the ECB wants to do is it wants to hold things together, buy time for the political system to iterate to some common vision.
MATHISEN: Can it hold it together? Will the euro be around in five or 10 years?
EL-ERIAN: I think the euro will be around, whether all the members will still be in the euro, that`s the decision that the Greek voters have to decide.
I think the big test is going to be the currency market. I`ve said this before. Whenever you move the major currencies in a major way, you tend to break something. We`ve seen this with Switzerland. We saw how close Denmark got to breaking something there.
So, worry about whether the system can support major moves in the currency market. That is the key. If it can, then the ECB has bought the equity market, longer one way than it can enjoy. If it can`t, then volatility will come back.
HERERA: For U.S. investors who may be holding bank stocks overseas or banks that have large currency operations and we saw what happened the other day to some of them when the Swiss franc made its move, should they lighten up on those holdings perhaps, or avoid those type of stocks, if indeed the currency volatility that you`re describing is back? Some are calling it a currency war.
EL-ERIAN: Yes, so, if you`re holding — if you`re holding that sort of exposure in Europe, rotate into exporters. You heard about how excited the Audi CEO, and he should be. He`s become much more competitive now than he was six months ago.
So, if you want exposure in Europe, focus on those companies that have large export activities, because they are benefitting enormously from what has been a dramatic move in the Europe.
HERERA: Mohamed, thank you so much once again for joining us this week. We appreciate it.
EL-ERIAN: Thank you.
HERERA: Mohamed El-Erian with Allianz.
MATHISEN: Well, the ECB was not the only central bank taking big steps to juice a local economy. Denmark cut its main interest rate for the second time this week, in an effort to defend its currency against the euro. And not to be left out, the People`s Bank of China injected $8 billion into that nation`s money markets today, keeping its commercial banks flushed with cash after China`s economy grew the slowest rate in more than two decades last quarter.
HERERA: More international economic news today, but this time from Cuba, where talks kicked off today between U.S. and Cuban officials aimed at normalizing relations and opening up commerce.
Eamon Javers has more from Havana.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A historic day here in Havana as the highest level of American delegation arrives on the island in 38 years. They`re talking about normalization of relations between Cuba and the United States and possibly reopening the U.S. embassy which was closed in the early 1960s.
So far, we`ve seen positive statements from both the Cuban side and from the U.S. side.
The Cubans spoke on camera. Here`s a little bit of what they had to say.
GUSTAVO MACHIN, CUBAN MINISTRY OF FOREIGN RELATIONS: The talks had been carried out in a very respectful, flexible environmental way. I would foresee that we will continue to work in the same spirit.
ROBERTA S. JACOBSON, U.S. ASSISTANT SECRETARY OF STATE: This first round of talks has been a positive and productive dialogue. We just got real and concrete terms, the required steps for the reestablishment of diplomatic relations between our countries.
JAVERS: As you might expect, fairly positive and upbeat signal from both sides here but fairly vague on the specifics of what exactly has been agreed to as of now.
One of the big issues, of course, in the U.S. for people coming to Cuba has been what, if anything, are you allowed to bring back to the country? There are new rules in place as of last week on that. One of the things American visitors to Cuba will now be allowed to do is bring back Cuban rum and Cuban cigars only up to $100 worth. But a lot of the visitors that we`ve been talking to here in Havana have said that that`s going to make a real difference for them and family and friends back home.
In Havana, I`m Eamon Javers for NIGHTLY BUSINESS REPORT.
MATHISEN: And still ahead, Google (NASDAQ:GOOG) reportedly plans to offer a wireless phone service. But why would it want to enter an industry that already is under pressure?
MATHISEN: Two Dow components out with earnings before the opening bell today and the results were polls apart. Profits rose at the insurance company Travelers because fewer catastrophic claims meant fewer payouts to customers.
Meantime, Verizon (NYSE:VZ) reported a net loss of more than $2 billion, getting slammed by pension and severance cost even though it did add many more wireless and Fios Internet subscribers.
Shares of Travelers among the biggest gainers in the Dow today. They were up 3 percent. Shares of Verizon (NYSE:VZ) however went the other way, down about 1 percent.
HERERA: Another concern for Verizon (NYSE:VZ) is Google (NASDAQ:GOOG), after reports that the search giant plans to begin its own wireless phone service, potentially disrupting the entire telecom industry.
Josh Lipton has more on how it would look.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Google (NASDAQ:GOOG) could be the next player in wireless service. The Internet giant has cut deals with Sprint and T-Mobile to offer mobile phone plans directly to consumers according to published reports. The established carriers would still own the networks but lease a piece under a Google (NASDAQ:GOOG) branded name. Some small wireless carriers already function as these so-called mobile virtual network operators.
Google (NASDAQ:GOOG) would set its own prices and deal directly with customers but it wouldn`t have to take on the expensive time consuming task of building and maintaining a network.
Piper Jaffray`s Gene Munster said that`s ideal because he doesn`t see this as a long-term play for Google (NASDAQ:GOOG).
GENE MUNSTER, PIPER JAFFRAY MANAGING DIR. SR. ANALYST: We believe the big goal for Google (NASDAQ:GOOG) is to motivate existing wireless providers like Verizon (NYSE:VZ), AT&T (NYSE:T), to lower the price of data. If data prices go down, Google (NASDAQ:GOOG) wins because people consume more data like YouTube and do more Google (NASDAQ:GOOG) search.
And the way that this initiative can influence data pricing is they can go in and influence and start to come out with plans that are lower cost.
LIPTON: Analysts say Google (NASDAQ:GOOG) can attract wireless customers by offering lower cost plans, if it`s willing to lose money. It also could gain some market share based on its brand name.
Sprint and T-Mobile are the third and fourth largest wireless carriers in the U.S. by subscribers, according to fierce wireless, behind Verizon
(NYSE:VZ) and AT&T (NYSE:T), which may recollects them the logical partners for Google (NASDAQ:GOOG).
MICHAEL MCCORMACK, JEFFERIES MANAGING DIRECTOR: T-Mobile and Sprint have a lot of capacity unused in their network. Sprint more specifically loses customers every quarter. So, for them, you know, any incremental customer on board drops almost straight to the bottom line. So, they have very little to lose in this situation.
LIPTON: Sprint lowered the risk by the right to renegotiate the deal if Google (NASDAQ:GOOG) gets a lot of customers according to “The Wall Street Journal.”
(on camera): Google (NASDAQ:GOOG), Sprint, and T-Mobile are talking about these reports, leaving a lot of questions still to be answered: where Google (NASDAQ:GOOG) would offer the service, how much it would charge and when it would be available?
In Mountain View, California, I`m Josh Lipton for NIGHTLY BUSINESS REPORT.
MATHISEN: We begin tonight`s “Market Focus” with late earnings from Starbucks (NASDAQ:SBUX).
The coffee chain reported earnings and revenue that matched Wall Street`s estimates, caf‚ traffic stronger in the holiday season, but its full year guidance came in a little bit light. Still, shares did pop initially after the close. Before the close, the shares were up nearly 2 percent to $82.74.
Union Pacific (NYSE:UNP) saw its shares rumble after it reported fourth quarter earnings that chugged past estimates on higher prices and strong freight volumes. The railroad operator said crude volumes increased, despite oil`s price plunge. Shares rose almost 5 percent there at Union Pacific (NYSE:UNP) to $119.83.
HERERA: Three airline stocks soared after reporting strong results today. United Continental, Southwest and Alaska Air all benefited from lower fuel costs. Southwest`s results beat on both the top and bottom lines. Alaska Airlines saw its profit nearly double and it hiked its dividend by 60 percent. United`s results actually missed, but it gave a bullish 2015 outlook.
So, shares of all three airlines popped. Southwest rose the most, up
8.5 percent. United and Alaska up about 4.5 percent.
Shares of Avon Products (NYSE:AVP) spiked on reports of deal talks.
The door-to-door cosmetics company held talks with a private equity firm about a possible transaction, that`s according to that report. This speculation comes after a six-year investigation into whether or not it bribed local officials in China. The stock was 14.5 percent higher to $8.66.
Shares of Lands` End, though, went the other way after the apparel retailer said that fourth quarter profit and revenue would come in below estimates. It blamed disappointing sales of cold-weather apparel during its peak holiday season. The stock plunged, down more than 17 percent to $41.97.
MATHISEN: There`s a new stock, Sue, that`s expected to begin trading tomorrow. It`s the Cloud storage provider Box. But what is Box and how does it make money?
Julia Boorstin explains.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Box charges companies monthly fees for its Cloud storage sharing collaboration and security tools. Since Box launched in 2005 when CEO Aaron Levie was in college, Cloud storage has been commoditized. Competitors Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), even rival startup Dropbox, which focuses on consumers, have moved into Box`s business.
But Levie says Box is distinguished by its collaboration tools.
ARIK HESSELDAHL, RECODE: Box`s basis premise is storage should be easy and be able to share those files with the people you work with, should be very easy. But from there, they now want to become sort of like a development platform.
BOORSTIN (on camera): Box has a premium business model. Basic tools are free, but it also has a premium service for which it counted over
44,000 companies as paying customers at the end of the third quarter, that includes nearly half of all Fortune 500 companies with a total of 32 million registered users.
Box`s client list includes General Electric (NYSE:GE), which is in the process of rolling the product out to 300,000 employees, plus companies as diverse as Procter and Gamble, DirecTV, AstraZeneca, and Gap (NYSE:GPS).
To better serve its wide range of clients, Box offers custom tools in three industry verticals. Health care, one of its fastest growing sectors, as well as retail, and media and entertainment, with more categories in the works.
HESSELDAHL: Having these specific delineated relationships in the industry, it can add an extra layer of value and then it can start charging more money for the extra layer of service, going the extra mile for the health care industry, for the media industry. That`s basically Box`s play.
BOORSTIN: With all those clients, Box grew its revenue 80 percent to
$154 million, the first three quarters of last year. But one concern for investors, the cost of that revenue isn`t really shrinking, with net losses of $121.5 million in the time period, just a hair lower than a year earlier.
One reason, Box is investing aggressively in sales and marketing for its new custom-vergence for those industries, and the Box local collaboration tool rolling out this year.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
HERERA: Coming up, gridlock. No, not in Washington, but at the nation`s West Coast ports. And some business owners find themselves stuck in the middle.
HERERA: Some good news about jobs today. First time jobless claims fell for the first time in a month last week, down by 10,000, backing away from a seven-month high just the week prior. Most of those claims stem from seasonal hires being laid off after the holidays.
MATHISEN: And finally tonight, an update on the six-month labor standoff at West Coast ports, with talks between unions and management stalled, there`s container gridlock from San Diego all the way up to Seattle. So, which side is right and is there any end in sight?
Jane Wells has more now from the port of Long Beach.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It was a banner 2014 for the nation`s largest port complex with a surge in traffic. The problem is getting all that cargo onto trucks.
TONY SCIOSCIA, SCIOSCIA MANAGEMENT: The terminal since early November has been operating with 60 percent of the people they need because the operators are not being dispatched.
BOBBY OLVERA, ILWU 13 PRESIDENT: We had over a thousand members checked in to work last night and the employer only ordered 200 jobs.
We`re here to work.
WELLS: West coast contract talks between management, the Pacific Maritime Association or PMA, and labor, the Longshoremen, have gotten increasingly bitter and congestion has gone so bad in L.A. and Long Beach, the PMA has ordered no unloading of ships at night until things clear out.
The PMA says dock workers are intentionally providing only half the normal labor. Dock workers say the opposite, that management is refusing to order enough crews.
OLVERA: I can tell you as a matter of fact the ILWU stands ready to work every vessel that`s called into this port.
WELLS: The problem is that once those vessels are unloaded, you need more crews to move containers on to trucks.
SCIOSCIA: We`re getting less than half of what we need to operate the facilities today, and those that are working are working at a less than normal pace.
WELLS (on camera): To help relieve congestion and get more ships unloaded, the port of Long Beach offers an empty lot, capable of holding thousands of containers. But management says, what`s the point? The point isn`t to find more storage, it`s to get the cargo move out of here completely.
JOHN SEMSHKI, GROWER/CCH PRESIDENT: This is literally an international incident.
WELLS (voice-over): Stuck in the middle is John Semshki, one of the largest exporters of citrus. He`d like to get his oranges to China in time for the Chinese New Year but delays are rotting some fruit.
SEMSHKI: We actually have a huge mess. Customers are upset and want us to pay the recondition fruit and pay for fruit that was lost.
WELLS: The fear is there will be another lockout like the ten-day action which crippled West Coast ports in 2002.
ARMANDO PORRAS, ILWU LOCAL 13 VICE PRESIDENT: The rumors are flying around this port, around these docks. And that gets to be stressful for our men and women of the waterfront.
WELLS: But progress on a new contract appears to be slow as the traffic here.
SCIOSCIA: We`re just going to be in gridlock here, and we`re not going to be able to operate.
WELLS: For NIGHTLY BUSINESS REPORT, Jane Wells, San Pedro, California.
HERERA: What a mess.
MATHISEN: Yes, it really is.
HERERA: I feel sorry for the business people that are caught like that, that grower. That`s really a terrible situation for them. Let`s hope they resolve it very quickly.
HERERA: That will do it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for watching.
MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great evening, everybody. And we hope to see you right back here tomorrow night
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2015 CNBC, Inc.