SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stocks tumble. Investors on edge one day before the key employment report, on a lack of a resolution in Greece and the recent route in the bond market.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Game of chicken.
OPEC meets tomorrow. And even with the world awash in oil, many expect the cartel standoff with the West to continue.
HERERA: Bottoms up. Why the bourbon industry is quickly becoming an economic force in the state of Kentucky.
All of that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, June 4th.
MATHISEN: Good evening, everyone, and welcome. Thanks for joining us.
A big selloff on Wall Street this day. And it wasn`t just one thing that caused investors to ditch stocks but a little bit of everything. Lack of a resolution in Greece. What will the country pay and when will they pay it. Concerns over the recent move higher in interest rates and its been a big one and a drop today in oil prices.
By the close, the Dow Jones Industrial was off 170 points to finish at 17,905, NASDAQ fell 40 points and the S&P 500 was 18 points lower. As for interest rates, they took a bit of a breather with yields falling slightly after they hit a seven-month high.
HERERA: What the investors care about is the Fed and when the data- dependent Central Bank may move on rates.
Today, the head of the International Monetary Fund said not so fast.
Christine Lagarde made it clear that she wants the Federal Reserve to delay raising the rates until next year. And she`s not alone. Other high ranking officials are also expressing some concerns about moving too soon.
Steve Liesman has more.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The International Monetary Fund not mincing any words today in urging the Federal Reserve to hold off interest rate hikes until the first half of 2016. The IMF said the Fed should wait until wages and inflation start to rise.
CHRISTINE LAGARDE, IMF MANAGING DIRECTOR: Muted inflation pressures suggest that interest rates hike can wait a little and that such interest rate hike would be better off in 2016.
LIESMAN: The comments here in line with remarks from some Fed officials like Fed Governor Lael Brainard who in recent days said that the economic weakness may be not all temporary. She cautioned in rate hikes.
And today, Fed Governor Dan Tarullo said the economy had lost momentum. Tarullo said he is uncertain about whether a weakness just temporary, but he said there were more questions about the economy now than there were this time last year.
Fed officials have said they are looking at two criteria to hike rates. First, whether the job market is improving, and second, whether inflation and moving back towards the 2 percent target. But recent economic suggests there is a third criteria. Officials seemed to be waiting to see if the economy can handle what they call rate normalization, or consistent march higher in rates toward a 3 percent to 4 percent range.
In fact, in a recent speech, Fed Chair Janet Yellen didn`t call it raising rates. She called it normalizing policy, as in more than one hike.
JANET YELLEN, FEDERAL RESERVE CHAIR: I think it would be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy. To support taking this step, though, I will need to see continued improvement in labor market conditions and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term.
LIESMAN (on camera): That explains why the Fed doesn`t just do a quarter point hike in rate. It`s a bit like a plane inspector, who doesn`t just certify the plane can fly at 5,000 feet, the inspector wants to know if the plane is capable of handling the cruising altitude of 30,000 feet.
(voice-over): Likewise, the Fed is not just judging if the economy can handle liftoff, it is trying to figure out if the economy can handle rate normalization before it acts. That`s a high bar and could lead to a policy mistake — the Fed staying too low for too long, which some believe it already has.
For NIGHLY BUSINESS REPORT, I`m Steve Liesman.
MATHISEN: The Fed also, of course, paying very close attention to the labor market and just today, we learned that jobless claims fell by 8,000 to a seasonally adjusted 276,000 last week, near a 15-year low. That`s a sign the job market remains firm. Tomorrow, the closely watched, highly anticipated government employment report for May will be released.
Economists look for the creation of about 225,000 jobs last month, with the unemployment rate remaining at 5.4 percent.
HERERA: So, let`s turn now to Mohamed El-Erian, to talk more about tomorrow`s highly anticipated jobs report, and what the move higher in the bond market may mean for the Fed. He is the chief economic adviser with Allianz.
Good to see you, Mohamed. Welcome back.
MOHAMED EL-ERIAN, ALLIANZ CHIEF ECONOMIC ADVISER: Thank you, Sue.
HERERA: Let`s start, first of all, with the jobs report. I also want to talk about the unusual move by the IMF. But as we are awaiting the jobs report — ideally, what would you like to see tomorrow?
EL-ERIAN: Ideally, I would like to see three things. One is job creation in excess of 200,000 for the month. Two, is higher wage growth, above 2 percent annualized. And the third is some pickup in labor participation without a sharp increase in the unemployment rate.
That is the dream team if you like out of the report tomorrow, because that would point to a broadening economic recovery.
MATHISEN: Let`s talk a little bit about the IMF statement today, Christine Lagarde. There`s been a lot of tut-tutting about this, who are they to tell us what to do with our interest rates. What do you make of it? Was it all that for the IMF to speak out this way? What do we think?
EL-ERIAN: Yes, Tyler, it was unusual. And it was unusual because the IMF was extremely specific and explicit about a very delicate policy issue which is, when should the Fed rate interest rates? It is very unusual for them to be that specific.
It is also unusual for them to say this when everybody acknowledges that there is tremendous fluidity in the economic data. That different series are getting different signals about what lies ahead.
And finally, the Fed has worked really hard to reduce the market obsession about the timing of the first rate hike. What they want us to focus on is a very shallow path that is conditional, so they could stop, they could continue, and importantly, a terminal point that`s lower than historical averages. So, for the IMF to put back the timing front and center is something that, of course, contributed to significant market volatility today.
HERERA: Does it also indicate that perhaps Ms. Lagarde has concerns about whether the global economy can withstand the rate hike by the Fed?
EL-ERIAN: So, I suspect three motivations.
One is exactly what you just said, Sue, which is they want to bring in the international context. And it`s not a very solid one. They are worried about Europe. They are worried about the emerging world and they don`t want a U.S. interest rate shock to derail the rest of the economy.
So, they want to bring in the international perspective.
They`ve also been more assertive in the discussion with the European Union on Greece, they`ve taken a pretty tough position.
And thirdly the only signal to the rest of the world that they are even-handed. That they are willing to speak to the larger shareholder, the same way that they are speaking to smaller ones. So, I think it`s a combination for all three, Sue.
MATHISEN: So, what`s next for interest rates, Mohamed, and when?
EL-ERIAN: So, what`s next on market interest rates is volatility.
U.S. rates are unusually driven by what is happening in Europe.
Europe is being subjected to the impact of very large ECB large-scale purchases versus a change in paradigm with inflation. So, the German interest rates, which is going to be very volatile, that is going to translate across the Atlantic to us. So, the one thing for sure is interest rate volatility, which is going to mean also foreign exchange volatility, commodity volatility, and yes, equity volatility.
In terms of what the Fed is about to do, it`s not just about employment and inflation. Its` but it is also what I want to talk about is how do you balance the risk of policy mistake versus the risk of a market accident.
EL-ERIAN: And they are concerned about risk taking. They are concerned that artificial rates have led to asset allocations that are no longer consistent with fundamentals. And what they`re going to do is they`re going to try to normalize. So, I still expect them to raise rates this year.
HERERA: All right. On that note, Mohamed, always a pleasure to spend time with you.
EL-ERIAN: Thank you.
HERERA: Mohamed El-Erian with Allianz.
MATHISEN: More in the situation in Greece that rattled markets today.
That country said it won`t make its payment due to the IMF due tomorrow.
The International Monetary Fund says Greece plans now to bundle four payments into a single one, 1.6 euro, that`s a lump sum due on June 30th.
Bundling is allowed under IMF rules but is rarely used.
HERERA: Oil prices dropped for a second day ahead of tomorrow`s OPEC meeting. West Texas Intermediate fell nearly 3 percent to $58 a barrel and despite concerns of a global supply glut, many investors expect OPEC to maintain current production levels.
Jackie DeAngelis has more.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The oil market awaiting tomorrow`s OPEC meeting to see if it will cut production to stem the glut of oil flooding the market. According to an exclusive CNBC survey of prominent oil analysts, strategists and traders, the majority believe there will be no production cut at this time. But nearly half think that supply and demand dynamics are the key factor driving oil prices right now.
ALAN HARRY, SPARTAN COMMODITIES FUND: We still have a lot of production in this country. We still don`t have a lot of use for it yet, although global demand looks like it`s picking up a little bit. I think we come off a little bit after the OPEC meeting.
DEANGELIS: Meantime, the supply glut grows. Saudi Arabia is at peak production. OPEC as a whole is producing over its 30 million barrel per day quota and here in the United States, another production bump last week moves the needle closer to 9.6 million barrels per day.
(on camera): OPEC`s goal in enduring low prices has been to squeeze out U.S. shale producers, but it hasn`t been working. And as we know, production is rising. The survey respondents had no consensus on what they think about U.S. production. A third said they think it will rise, a third said it would flat line, and a third said they think it will fall.
HARRY: I think we are going to start seeing lower levels in crude oil. I also am looking at another thing that`s coming into the market and that`s Iran. So, we`re going to have another supplier into the market, along with OPEC producing, and along the U.S. producing.
DEANGELIS (voice-over): To cut or not to cut. That`s the question for OPEC, if the cartel doesn`t act now. About a quarter of those surveyed believe they will have to act next year and that is the game of chicken continues.
For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.
HERERA: Still ahead, the federal government suffers a massive security breach. Details next.
HERERA: The FBI is investigating what some are calling one of the largest thefts of government data ever. A vast amount of information about federal employees held by the Office of Personnel Management was accessed.
The government agency says 4 million people by the breach, including current and former employees. According to “The Associated Press”, citing a U.S. official, the hack could potentially affect every single federal agency. U.S. officials reportedly suspect hackers based in China are behind the attack but it`s still being investigated.
MATHISEN: An update now on a story from last month. Securities regulators have sued a firm that calls itself PTG Capital, and several others, for allegedly making bogus takeover offers for Avon products and two other companies. The suit alleges that the fake regulatory filings were attempts to fraudulently drive up the share price.
HERERA: Dish Network is reportedly in merger talks with T-Mobile.
According to reports, the discussions are in the preliminary stages.
Still, shares of both Dish and T-Mobile rose in trading today.
A potential deal would be the latest in a string of consolidations happening in the industry.
Julia Boorstin takes a look at the changing telecom landscape.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: If Dish Network and T-Mobile can agree to the terms of a deal, the combination of the fourth largest wireless carrier and the second largest satellite TV company would create a ne giant in both communications and TV distribution, better positions to face rivals. This comes as T-Mobile`s rival AT&T
(NYSE:T) gets bigger, closing in on the $49 billion acquisition of Dish rival DirecTV. And it sets the stage for more consolidation for other telecom giants.
KEVIN SMITHEN, MACQUARIE: We think the market is becoming more competitive. AT&T (NYSE:T) is becoming more competitive with DirecTV. T- Mobile could become competitive with Dish, and Softbank has a lot of fire power and potential partnership with cable and Google (NASDAQ:GOOG) down the road. And we think that leaves Verizon (NYSE:VZ) in a very, very vulnerable position.
BOORSTIN: Those satellite and telecom companies are teaming as they look for more scale in the face of charter and Time Warner (NYSE:TWX) Cable deal. Distribution giants are working to grow their subscriber their numbers as they adapt to the spike in mobile usage and digital content consumption.
Analysts say a Dish/T-Mobile marriage would speak to the two company`s strength. Dish brings billions of dollars in wireless spectrum. T-Mobile, the cellular network, and fast growing subscriber base.
SMITHEN: So, I think T-mo, particular with Dish, will have the opportunity to target the suburban and rural customer bases that today it doesn`t address and we think that is where the revenue synergies could come from in such a transaction.
BOORSTIN: The question for all of the mergers in the works, regulatory approval. Though none of the ongoing deals should face as much opposition as Comcast (NASDAQ:CMCSA) (NYSE:CCS) and Time Warner (NYSE:TWX) Cable did.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
MATHISEN: Sales continue to slide at Lands` End and that is where we begin tonight`s “Market Focus”.
The retailer reported a nearly 10 percent decline in first quarter revenue as the company continues to struggle with a weak retail environment and foreign currency impacts. Shares off 4 1/2 percent to $27.39.
J.M. Smucker out with mixed results today. The food company behind brands like Folgers coffee and Pillsbury, reported weak quarterlies and a disappointing outlook for full-year earnings. This as higher costs and shifts in consumer eating habits are weighing on performance there. Shares off almost 4 percent to $113.75.
HERERA: Navistar reported a decline in revenue, even as cost-cutting helped to narrow its loss. The commercial vehicle company has been struggling to gain market share despite red-hot demand for commercial trucks in North America. Shares tumbled eight percent to $24.82.
Rite Aid (NYSE:RAD) saw same-store sales rise 2 percent in May, led by growth in its pharmacy section. But analysts were expecting a bigger increase. So, shares fell nearly 4 percent to $8.34.
MATHISEN: The Fortune 500, it is the annual list of the 500 largest companies in America and this year, their combined annual revenue hit a record. In the top spot for the third year in a row is Walmart, ExxonMobil
(NYSE:XOM) number two, and fellow energy company Chevron (NYSE:CVX) came in at number three.
Joining us from Washington is a familiar face to all of us, Susie Gharib, senior special correspondent at “Fortune” and an NBR contributor.
Susie, welcome. Great as always to see you.
What is the significance of the Fortune 500? Why do investors care?
SUSIE GHARIB, FORTUNE: Well, first of all, I just want to point that these are very iconic companies. This is, Tyler, like the Oscars, the Academy Awards for corporate America. And everyone is looking, you know, who is number one, and as you said, it`s Walmart. But also, these 500 companies, not only are they iconic, and American household names. But they are the powerful engine of not only the U.S. economy but also the global economy.
And you just mentioned that their comb revenues hit a record. As a percentage of GDP, it`s something like 72 percent. So, they have huge economic clout and that`s significant at a time when we are talking about start-ups and the jazzy companies and entrepreneurial companies out of Silicon Valley.
HERERA: So, Susie, where there any surprises this time on the list.
GHARIB: Always. You know, it`s interesting what happened if you look at the top ten. First of all, with all, you know, the plunging oil prices that we`ve seen recently, fascinating that Exxon held on to number two spot. And you mentioned Chevron (NYSE:CVX) and Phillips also in the top ten.
But the other one that`s kind of surprising is CVS (NYSE:CVS) — CVS
(NYSE:CVS) Health is now in the top ten. Go figure. I mean, here this company has become a powerful player in health care. It stepped over AT&T
(NYSE:T) and another energy company to get into the top ten.
MATHISEN: I know you spent a lot of your time these days talking to the CEOs of Fortune 500 companies. There was also a survey that went along with this. The 60th iteration of it. What did the survey find?
GHARIB: Well, the top question was what — to the big companies, what is the biggest threat that you`re facing? And it is fascinating. It wasn`t cyber security, that came in number two. It was technological change. A rapid technology change is a big issue for big companies and they say they`re going to change more in the next five years than in the past five year.
Separately, in terms of the questions that I`ve been asking CEOs, we`re fixated in the media about what the Fed is going to do next. Most CEOs are pretty chill about it. They feel as if interest rates go up, it means that the U.S. economy is no longer in a crisis, and that things are doing better. And over all, they are pretty positive about the economy even though it`s struggling a bit.
MATHISEN: All right. Susie, great to see you.
GHARIB: Great seeing both of you, too.
MATHISEN: Susie Gharib in D.C. for us tonight.
Coming up, the bourbon boom. Why some say this is the best time to be in the bourbon business since prohibition.
HERERA: It is the worst outbreak of bird flu this country has ever seen. And now, its impact is being felt beyond the farm and all the way to your local grocer.
Morgan Brennan has more on the nation`s egg shortage.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Consumers are starting to feel the pinch from this year`s record outbreak of bird flu.
UNIDENTIFIED MALE: Well, shopping is more expensive.
UNIDENTIFIED FEMALE: I`m probably going to a couple of stores before I make my decision and buy certain product.
UNIDENTIFIED MALE: I will change what I have to eat.
BRENNAN: Grocery stores across the U.S. are beginning to notify customers that a national egg shortage is cutting into inventory levels and pushing prices higher. The USDA has now confirmed more than 200 cases of bird flu, affecting 45 million chickens and turkeys. The vast majority:
Nearly 12 percent of the country`s layer hen population is being put down. Commodity research firmer Urner Barry says it`s pushed egg prices to record levels.
BRIAN MOSCOGIURI, URNER BARRY: We`re looking at about 270 percent increase to egg product pricing in terms of the breaking egg cost. And now, the egg purchasers have had to go out in the open market and compete for any and all shell eggs.
BRENNAN: According to Urner Barry, over the past six weeks, the wholesale price of a dozen Midwest large shell eggs, the kind consumers buy at the store, have prison 120 percent. Supermarkets are beginning to push that cost out to their customers.
In New Jersey, one Wegmans grocery store has posted notices about the situation in its dairy and baked good departments. The availability at some Lunds & Byerlys stores is limited due to shortages in the twin cities market.
Restaurants are also beginning to feel the pain. Regional fast food chain Whataburger has had to curb its breakfast hours after its primary supplier became infected. McDonald`s (NYSE:MCD) confirms that one of its suppliers was impacted as well, though contingency plans are preventing any disruptions.
Other chains including Dunkin` Donuts, Starbucks (NASDAQ:SBUX) and dineEquity`s IHOP say they haven`t been affected, but are watching the situation closely, which experts warn may still get worse.
MARO IBARBURU, ISU EGG INDUSTRY CENTER: We certainly didn`t anticipate an outbreak that big. So, we`re going through unchartered waters now.
BRENNAN (on camera): But there have been winners if reluctance we call that. Analysts note top egg producer Cow Main whose operations are largely in the South and Southwest may benefit from increased demand, sending the stock soaring.
Archer Daniels Midland is fielding more increase for the egg substitute products at manufacturers, as a start-up Hampton Creek.
(voice-over): And earlier this week, the USDA green-lighted the importation of pasteurized egg products from the Netherlands to help companies make up for losses.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
MATHISEN: From eggs to bourbon, Kentucky bourbon. The industry growing fast, adding jobs, generating revenue for the stake, leaving an economic mark on the local economy.
Dominic Chu got the lucky assignment in Loretto, Kentucky.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Welcome to the commonwealth of Kentucky, home of America`s native spirit.
We`re talking, of course, about bourbon whiskey.
Now, it`s not actually a requirement for bourbon to be from Kentucky, but for all intents and purposes, it is. Ninety percent of the world`s bourbon supply is made right here, and for good reason.
FRED NOE, MAKER`S MARK MASTER DISTILLER: The limestone water that we get from the ground is iron free and clean. Great water for making whiskey.
JIM RUTLEDGE, FOUR ROSES MASTER DISTILLER: We have about as many hot days as cold days during the course of the year, which is perfect for the aging process of the barrels.
CHU: In order for whiskey to be considered bourbon, a number of requirements need to be satisfied. Among them, it needs to use a grain mix of at least 51 percent corn, and be aged for a minimum of two years in new charred American white oak barrels. And of course, be made in the USA.
Some industry insiders call this the best time to be the bourbon business since prohibition. Thanks to booming demand both domestically and abroad, production has been ramping up and that`s helping to give a boost to the local economy.
According to the Kentucky Distillers Association, the number of distiller in the state tripled over the last two years, and nearly 7,000 additional jobs were created.
NOE: We`re drawing well over 100,000 visitors a year here to Claremont, to come visit our distillery and take a tour and see where Jim Beam is being made.
CHU: Bourbon`s run mate continue to have legs as some industry watchers point to growing popularity among millennials. That might be one big reason why bourbon sales grow, even as beer sales have stalled.
NOE: Ninety-five percent of the world`s bourbon is made here in Kentucky. I think all of the good is made here and I don`t know where the other 5 percent comes from, but I wouldn`t drink it.
CHU (on camera): And just think about this — there are currently one million more barrels of bourbon aging in the state of Kentucky than there are people living in the state.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu, Loretto, of Kentucky.
MATHISEN: They need to get busy on those barrels.
To read more about the impact the bourbon industry is having on Kentucky and its economy, head to our Web site, NBR.com.
HERERA: Well, Dom got a great assignment.
MATHISEN: Isn`t that nice? Yes, good for him. I hope he brings some back.
HERERA: Wouldn`t that — that would actually be excellent. We`ll see. We`ll let you know.
That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
And we like to remind that this is the time of year your public television station seeks your support.
MATHISEN: I`m Tyler Mathisen. Thank you for your support. Have a great evening, everybody. And we hope to find you right back here tomorrow night.
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