BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Help wanted. May turned out to be the best month for private sector job growth since January. Was today’s data, though, a warm up for Friday’s big report?
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Bond market breakout. Yields took their highs of the year but stocks didn’t get souped. Tonight, the man who runs the largest asset manager offers advice on where to invest now.
GRIFFETH: Coming soon. Why a Department of Justice investigation could be this summer’s big blockbuster.
All of that and more tonight on NIGHTLY BUSINESS REPORT for this Wednesday, June 3rd.
And we bid you good evening, everybody. I’m Bill Griffeth, in tonight for Tyler Mathisen.
HERERA: Nice to have you with us.
GRIFFETH: Thank you.
HERERA: I’m Sue Herera.
We begin with the labor market and a new report showing the companies added workers in May than the prior month, a sign that job growth is recovering from a rough winter. According to payroll processor ADP, the private sector created more than 200,000 jobs, the most in four months.
And while the number was pretty much in line with expectations, this report is considered a warm-up act, if you will, to Friday’s big government jobs report. And it’s something investors are watching closely for clues about when the Federal Reserve may start hiking interest rates.
Steve Liesman has more.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): As the market braces for Friday’s big jobs report, two economic data points today giving a mixed picture of the economy. The ADP payroll company showing 271,000 private jobs created in May, a bit below expectations, and a bit below the 225,000 expectations for the Friday job report. Jobs have slowed from the lofty levels earlier this year but still remains at a strong clip, enough to bring down the unemployment rate.
MARK ZANDI, MOODY’S ANALYTICS: We were at 250k to 300k at start of the year. Now, we’re probably 200k to 250k, which is still very solid at 200k to 250k. That’s double the rate you need to absorb the working age population. So, you know, if we just maintain this growth, you know, by almost every estimate, we’ll be back to full employment by this time next year.
LIESMAN: Meanwhile, a closely watched survey of the service sector coming in a bit below expectations, but still showing growth and a key component indicating strength in services employment.
(on camera): Amid an avalanche of data this week, overall economic reports have come in better than expected with the economy bouncing back from the first quarter’s contraction, but not all that convincingly. The latest estimates see first quarter growth contracting by half a percent, and the second quarter rebound at 2.7 percent. Average the two together and the first half growth is on track for an anemic 1.1 percent growth level.
(voice-over): The Fed would like to see economic momentum confirmed heading into the third quarter to have enough confidence to hike rates.
For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.
GRIFFETH: And there was more evidence that the U.S. economy is improving modestly. According to the Federal Reserve’s Beige Book, that’s the report that provides an anecdotal look at the economy, it described modest to moderate growth in most of the central banks regional districts, housing and retail industries rebounded while the strong dollar continued to hurt manufacturing.
HERERA: Chicago Fed President Charles Evans says he thinks it’s unlikely the economy, though, will be ready for higher rates before next year. Speaking to reporters, the Fed official said the hurdle of raising interest rates is pretty high at the moment. Evans cited some of the recent weak economic data. And he also that if rates do increase this year, it’s important that increase be very shallow.
GRIFFETH: The trade deficit declined sharply in April as imports fell and the exports rose modestly. The trade deficit, which of course is the difference between imports and exports tumbled by 19 percent to a seasonally adjusted $40.9 billion in April after that surge we saw in March. The report supports the notion that the U.S. economy has recovered somewhat from that very weak first quarter.
HERERA: It was a choppy trading session in Wall Street. Stocks rose following the positive jobs session but then pulled back from session highs. By the close, the Dow Jones Industrial Average was higher by 64 points to close at 18,076. The NASDAQ was up 22 points and the S&P 500 rose four points.
The solid employment report also lifted treasury yields. In just three sessions, believe it or not, the 10-year yield has soared, capping its biggest three-day increase since June of 2013. It now sits at 2.36 percent.
GRIFFETH: Well, optimism over Greece also contributed to the rise in stocks today. International creditors now look ready to make some sort of compromise despite a warning from Greece that it may have to skip an IMF loan payment due later this week. Greece’s prime minister, Alexis Tsipras, agreed with both Germany’s chancellor and the France’s president on the need for a solution to Greece’s debt problems. Mr. Tsipras is meeting with European officials right now to hear the terms of the plan that they’ve drawn up by the European commission, the IMF and the European Central Bank.
HERERA: Speaking of the European Central Bank, its president, Mario Draghi, pushed for a deal with Greece at the ECB’s policy meeting today. The governing council also addressed the recent volatility in the bond market.
Julia Chatterley has more from Frankfurt.
JULIA CHATTERLEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The strongest message coming from Mario Draghi at the European Central Bank meeting today was about volatility, the volatility that we’re seeing in the bond markets and as far as he’s concerned his investors was — get on with it.
MARIO DRAGHI, ECB PRESIDENT: We should get used to periods of higher volatility. At very low levels of interest rates, asset prices tend to show higher volatility. At very low levels of interest rates, asset prices tend to show higher volatility. And in terms of the impact that this might have on our monetary policy stance, let me tell you that the governing council was unanimous in its assessment that we should look through these developments and maintain a steady monetary policy stance.
CHATTERLEY: So, for investors who thought that the European Central Bank bringing forward the bond purchases over the next couple of months was a sign that actually they were going to try to hold yields down and manage the volatility, they likely got out today, had a huge shift higher in German bond yields and some of the countries like Ireland, like Portugal and like Spain.
The other focus, of course, of this meeting was on Greece. Mario Draghi very tight lipped about the negotiations, but we’re still waiting to see whether the creditors and their proposal will be met and accepted by the Greeks, of course, and that very much an open question.
Mario Draghi saying, look, this needs to be a strong deal and it ultimately needs to include social fairness. Well, I think the Greeks would argue it is a long time waiting for that, five years in fact. We just have to wait and see if whether they will agree to this deal. But for now, the ECB very much supporting the banks and will continue to do so while hopes of a deal remain alive.
Julia Chatterley for NIGHTLY BUSINESS REPORT, in Frankfurt.
GRIFFETH: So, what do Greece and the spike in yields mean for the equity markets and your money?
Let’s find out tonight from Rob Kapito. Of course, he’s president of BlackRock (NYSE:BLK), the world’s largest asset management firm with $4 trillion under management.
In fact closer to $5 trillion every day. Good evening, Rob. Good to see you again.
ROB KAPITO, BLACKROCK PRESIDENT: Good to see you, Bill.
GRIFFETH: You’re among those who feel that Europe presents a better opportunity investment wise in the United States, even with what’s going on in Greece. Why is that?
ROB KAPITO, BLACKROCK PRESIDENT: Well, I’m bullish overall on the equity markets because the same type of stimulus and the help you’re seeing that the U.S. market is getting. You just heard how the ECB is continuing to help the stock market in Europe, and you’re also seeing how the Bank of Japan is helping the stock market in Japan.
So, I’m bullish on equities over all, but I’m also bullish for another reason. And that is I think it has been pretty telegraphed and the last time we spoke, I talked about it a year ago, companies are continuing around the globe to buy back their stock and raise their dividends rather than investing in the future. And what is happening, quite frankly, is that there is less stock available that is not being replaced by IPOs.
So, when we talk a lot about the valuations, quite frankly, it’s not as relevant when you have to be in the stock market, you have to buy stock. So, with less stock outstanding, this has become a pretty big technical issue.
HERERA: So, if —
KAPITO: Now, you can say the same thing on the bond side because you have a lot of the essential banks that continue to buy bonds and you see where rates are, so you actually have a situation where they’ve taken duration out of the market place.
So, if you take all of the economic statistics that you’ve saw today and you think about $11 trillion sitting in bank accounts in the U.S. and $18 trillion sitting in Banks in Japan, this money has to be invested somewhere.
HERERA: Right. And there is no place else to go, many people say.
KAPITO: So, this confluence of situation which drives the market, no matter what the data is.
HERERA: So, you obviously do not feel, from what you just said, that valuations are too rich here in the United States. But do you go for the growth companies or do you look for dividend plays to replace some of the income that perhaps investors aren’t getting elsewhere, Rob?
KAPITO: Well, I think income is very, very important. So, again I would go back to the large cap companies that are raising their dividends so that people can participate in income. Some can use that as a surrogate for the bond market right now which is really not giving you any income.
If you need to be in the bond market, I would certainly be in the high yield area and in a very diversified way. High yield funds are up about 4 percent this year, the S&P is up about 6 percent and, you know, always love the muni market. I think there’s opportunities there for income as well.
But let me just tell you, sue, that one of the biggest issues that is facing us today is that 63 percent of all the household money is sitting in cash. And the surveys that we have tell us that half of the people we talk are going to add more cash to that. And that is a problem, because if they are not spending that money, that will affect all of the growth numbers and if they are not spending that money, and we know that people are living longer, they haven’t saved enough for retirement. So sitting in cash is the worst thing to do.
And this has been the last three years this cash buildup is happening —
KAPITO: — and they keep missing opportunities to time — to be timing in the market, instead of timing the market.
HERERA: Right, exactly.
KAPITO: People have to get some of this cash working. And every year, they just sit here and they are waiting and building up this stockpile, and they are having this nest egg mentality which we have to get people out of.
KAPITO: They have to get some of this invested in the markets today.
GRIFFETH: Think about it as an investor. Always good advice.
Rob Kapito of BlackRock (NYSE:BLK), good to see you, Rob. Thanks for joining us tonight.
HERERA: Thanks, Rob.
KAPITO: Thanks for having me.
HERERA: Still ahead, why the Department of Justice may be coming soon to a theater near you.
GRIFFETH: Yahoo (NASDAQ:YHOO) has struck a very interesting and exclusive deal with the National Football League. The tech company will be the first to host a free live global webcast of a regular season football game. The October match-up is part of the NFL’s international series. This game between the Buffalo Bills and the Jacksonville Jaguars will be played in London at 9:30 a.m. Eastern Time. Yahoo (NASDAQ:YHOO) says the deal is a great opportunity for the company.
(BEGIN VIDEO CLIP)
ADAM CAHAN, YAHOO SVP MOBILE & EMERGING PRODUCTS: One of the things that’s really exciting for us is the global reach here. We think the NFL and football, especially the fact this is happening in London will really bring a global audience. So, you know, we have that scale of a billion reach and I think that’s the opportunity for us.
(END VIDEO CLIP)
GRIFFETH: And the NFL said there is plenty of consumer and advertiser demand for this type of agreement. Terms of the deal, though, were not disclosed.
HERERA: Big movie theater chains are under investigation by the Department of Justice. Those investigators want to know if Regal Entertainment, AMC and Cinemark used a strategy to keep movies out of competing locations.
Julia Boorstin has more.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): As the summer movie season heats up, the three largest movie theater chains have received inquiries from the Department of Justice. The issue, a practice called clearances, deals that the chains strike with movie studios to secure exclusive rights to play certain films in a particular market.
ERIC HANDLER, MKM PARTNERS: The DOJ is trying to look out now for, you know, the mom and pop type of small business owners. So, the independent theaters are often much smaller than the three largest exhibitor chains in the U.S. So, this is an issue that they’re going to look into.
BOORSTIN: Cinemark disclosing Tuesday that the DOJ contacted it related to an antitrust probe after Regal Entertainment and AMC, the nation’s two largest chains received a civil investigative demand looking into whether they violated federal antitrust law.
The concern is that those agreements prevented smaller chains from showing the biggest movies which delivered the biggest payday. The DOJ is also investigating certain AMC joint ventures.
(on camera): All three companies said they did not believe they violated any laws and they are cooperating with authorities. The theaters have said such agreements affect a small percentage of their locations. The Department of Justice had no comment.
(voice-over): If the DOJ finds these clearance practices violate antitrust laws, theater chains may have to compete less on which movies they’re saying, and more on the quality of their theater.
HANDLER: AMC, Cinemark, Regal, they’ve all been engaging in improving the quality of the screens in the theaters, with mechanical reclining seats, expanded concession sales, bringing in beer and wine, reserve seating.
BOORSTIN: So, with the big chains making all those investments, Handler says it is still be hard for independents to compete even if the DOJ takes action.
For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin, in Los Angeles.
GRIFFETH: We begin tonight’s “Market Focus” with a big buyback from Wendy’s.
The fast food chain is going to purchase up to $1.4 billion in shares by the end of 2016. The repurchase will also include shares from activist investor Trian Group, as that firm is trying to cut its stake in the company. Also, Wendy has hiked its long-term earnings growth target. After all of that, shares were up 3 percent to $11.47.
Meanwhile, disappointing results from Vera Bradley (NASDAQ:VRA). The accessories maker, known for its quilted handbags, swung to a loss in its first quarter and slashed its earnings guidance for the whole year, as sales have been falling. The stock down 14 percent today to $12.16.
HERERA: A merger in the construction materials space to tell you about. Stock Building Supply is combining with a privately held company called building materials holding to form a company with about $3 billion in revenue. The move is an effort to expand in the fast-growing south and west regions of the U.S. Shares of Stock Building Supply surged 13.5 percent to $20.54.
Late earnings from Five Below topped estimates. The discount retailer reporting a 20 percent increase in profit and a strong outlook for the second quarter and the full year. Shares popped initially after the bell. Before the close, the stock was up 2.5 percent to $35.10.
GRIFFETH: Meanwhile, applications for home mortgages dropped sharply last week according to the Mortgage Bankers Association. Applications for both purchases and refinancing fell by about 7 1/2 percent. Higher mortgage rates are being attributed to that decline.
HERERA: Tech companies like Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) may be building glitzy campuses of the future but lots of other tech firms are looking to older office buildings, and these companies are transforming that sector and the buildings right along with it.
Diana Olick has the story from Chicago.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It is a behemoth of a building, old and unremarkable on the outside, but go inside Yelp’s new office space at Chicago’s Merchandise Mart and it’s a brave new world. Open spaces, bright, inviting and entertaining, just what the more than 300 millennials working here demand.
The same is happening on another floor where tech incubator 1871 has lured young tenants.
NIKKI KERN, JLL CHICAGO: We definitely are seeing a big push for class B space from tech users.
OLICK: Older so-called class B buildings with fewer amenities may as well be the new A for tech. Cheaper rents are just what they want. The glitz, not so much.
IRV SHAPIRO, DIALOGUE TECH: Historically, you want glitzy spaces because you want to impress your customers. Well in our business, in a high tech ours, our customers never visit us.
OLICK: So, in a prewar building on West Adams, Dialogue Tech, a call tracking software company re-imagined an old space. Irv Shapiro busted out the walls and ceilings and added garage doors for resize conferences. The kitchen and social areas, the main draw, ping pong, pinball, basketball, just keeping the millennial minds happy.
But what really stands out in all these spaces is wiring, miles of it.
SHAPIRO: We can spend dollars on the things that matter. So what matters to the people working for us? They want the best computers they can get. They want high speed Internet access. They want space. They want a lot of space.
OLICK: It is also happening in slightly newer B level buildings where tech and tech wannabes are modeling their spaces the same way.
ANDREW LIMOURIS, MEDIX CEO: The average age is 26 so we have the same zest for that young talent. So when people walk in to interview at Medix, they have to feel and understand that we are moving in the direction to be a talent technology company, so we want to absolutely look the part.
OLICK (on camera): The irony, of course, is that tech loved the low rents and what it afforded. But all these tech demand is now pushing the class B rents higher. Not just here in Chicago but across the nation where re-imagined spaces are reinvigorating prices.
For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Chicago.
HERERA: And to read more about the tech industry love of quirky old buildings, head to our Web site, NBR.com.
GRIFFETH: Coming up, will the future of banking include fewer bank fees? Why the financial industry could look a lot different in just a few years than it does today.
HERERA: The Los Angeles City Council voted today to increase its minimum wage to $15 an hour, a dramatic increase from the current $9. The ordinance requires one more procedural vote and the mayor’s signature. When all is said and done, businesses with more than 25 employees will be required to gradually increase wages year over year to meet that $15 pay level by the year 2020. Smaller businesses have an extra year to comply.
GRIFFETH: Imagine your corner branch in the palm of your hand. That’s what the future of finance looks like for the people trying to change the way the industry works. And for consumers, it could mean an end to those annoying fees.
Bob Pisani has more from New York.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): There were plenty of robots looking for business.
AUTOMATED VOICE: Can I help you find something?
PISANI: But the purpose of the exponential finance conference was to examine how technology like artificial intelligence and big data was interrupting the banking and financial industry.
JAY SIDHU, BANKMOBILE CEO: It’s extremely antiquated industry which doesn’t believe in innovation. Innovation to them is having dog biscuits in a bank branch or having more glass.
PISANI: Jay Sidhu is a veteran banker, CEO of Customers Bank Corp, and recently, the founder of BankMobile, a mobile banking company that he said is the wave of future. And to open a bank account, all you need is a driver’s license and a mobile phone.
SIDHU: We offer anything and everything you can get from a bank branch in the palm of your hand. People — consumers can get checking account, savings accounts and higher interest rates, and then financial advice, payments they want to make for their landlord to anybody directly from their cell phone.
PISANI: Brett King, the founder of mobile banking app Moven has an even more radical approach. His company doesn’t even have a bank charter. They don’t have branches, checking accounts, savings accounts or CDs, but you can easily move money around using this app.
BRETT KING, MOVEN CEO: We sit on top of the MasterCard (NYSE:MA) rails. So, it works just the same as your debit card today. It’s encapsulated within that mobile app.
PISANI: As for the future, King says there will be very few bank branches around several years from now, nor does he miss them.
KING: You won’t go to a bank branch to get a bank account in the future. That’s just ludicrous. You just download it to your phone. Now, you use Apple (NASDAQ:AAPL) Pay to pay. We can send money. Moven is this bank account in an app. You just download the app. It takes you two minutes to sign up. That’s it.
PISANI: One big advantage of the new mobile banking world Jay Sidhu says is much lower costs.
SIDHU: So they have been feeing customers to death. Just in the first quarter alone, the top three banks in the United States charged a billion dollars in overdraft fees. Last year, banks together charged $32 billion in fees on which they have charged less than a billion in interest. That’s $31 billion of excess. That’s more than what Americans spend on vegetables.
PISANI: And that’s money that will go back into the pockets of consumers.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani.
GRIFFETH: Finally tonight, Harvard University has received its biggest gift ever. It happened today.
Hedge fund manager and billionaire John Paulson donated $400 million to the Ivy League University that he attended, to support its engineering and applied sciences school. Harvard, as you may know, has the largest endowment of any university in the country. It’s valued at over $36 billion and it just got $400 million bigger.
HERERA: Bigger. He has been very philanthropic. He made a big grant to Central Park in New York City. Whatever he studied at Harvard, which, of course, was economics and business —
GRIFFETH: It worked out.
HERERA: It worked out well.
That does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera.
And we want to remind you that this is the time of year your public television station seeks your support.
GRIFFETH: I’m Bill Griffeth. Thank you for your support. And have a great evening. We’ll see you tomorrow.
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.