TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: NYSE interrupted.
For an unprecedented 3 1/2 hours today, no stocks traded on the big board because of a software malfunction. What happened? Why? And how vulnerable are investors like you in the age of electronic trading?
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Not even a long trading haul could give stocks any relief today. The Dow, NASDAQ and S&P 500 all suffered stiff losses as China`s shares plunge again and Greece`s debt debacle rolls on.
MATHISEN: A growing number of American workers are quietly kidnapped overseas every year. In the second installment of our series on the business of ransom, we show what it`s like to be taken hostage.
All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, July 8th.
And good evening, everyone. I`m Tyler Mathisen.
HERERA: And I`m Sue Herera, coming to you tonight from the New York Stock Exchange, where something happen today that has happened only a few times before. Trading stopped for nearly four hours and it came at a time when events in Greece and sharp declines in China already have investors on edge.
And while there was no activity here at the NYSE, stocks were able to trade on other exchanges. The NYSE made it clear, wasn`t a cyber breach but rather a technical problem that caused the suspension of trading. And the Department of Homeland Security confirmed, there was no sign of malicious activity.
Bob Pisani has more on what it was like at the big board when trading came to a screeching halt.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: What started as a day concerned about Greece and China turned into a waiting game, waiting for the NYSE floor to reopen.
The NYSE experienced what they call connectivity issues at the open, meaning issues communicating orders between their customers. It was quickly resolved and didn`t appear to affect overall trading.
But then at 11:32 Eastern Time, the NYSE shut the entire floor down for what they called a technical issue, trading on Archipelago, the NYSE`s electronic trading platform, continued as usual, as did trading in NYSE listed stocks on other exchanges, including NASDAQ.
Trading resumed at 3:10 Eastern Time and the all important close came off uneventfully.
So, what happened? The NYSE has declined to name a specific cause yet, but it`s possibly a software issue from the night before that caused the initial problems at the open. However, the process of fixing that issue may have caused other software problems that eventually shut the entire NYSE floor down.
Now, this has happened several times before on other exchanges as well. Though, this is the most serious of those outages if it`s indeed a software problem.
Now, it wasn`t a good day for the NYSE. But considering there are 11 exchanges and over four dark pools with literally trillions of pieces of data that move between them each day, it`s remarkable this doesn`t happen even more often. The last serious problem with this type occurred in 2009 when the NYSE was shut down for roughly 30 minutes.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: So, how concerned should investors be when something like this happens?
Kenny Polcari joins us. He works on the floor of the exchange. He is the director with O`Neil Securities.
Good to have you on NBR, Ken.
KENNY POLCARI, O`NEIL SECURITIES DIRECTOR: Nice to be here with you.
HERERA: So, how concerned should the retail investor be when we have a three and a half hour trading halt?
POLCARI: Well, listen, it`s certainly was unprecedented. But the retail investor need not be concerned because as Bob pointed out, there are now 11 exchanges. So, the market, there`s not just the New York Stock Exchange the way there used to be years ago, you know, with modern technology and after event in 9/11, the whole structure of the market has changed. So, it`s actually very important, and what investors and retail investors should know is that there were other venues to pick up, you know, the slack where we were unable to perform.
And in that case, it performed beautiful. The markets didn`t melt down. The markets didn`t get nervous. Actually, a retail investor, if he didn`t — if he wasn`t watching the news or didn`t pay attention, he would have no idea this was even happening because the transition was just so smooth. So, in that sense, it was very, very good.
When we and investors shouldn`t be that concerned, it was specific to the New York Stock Exchange. It didn`t affect any other venues so therefore, it continued to work.
MATHISEN: So, Kenny, if I wanted to buy 100 shares of Ford or sell
100 shares of Alcoa (NYSE:AA) today, I could have done it at exactly the same price I would have got if this malfunction hadn`t occurred, right?
POLCARI: Of course, because there is a thing called NBBO. And brokers are forced, as they should be, to send or to float to the national best bid, national best offer. So, in this case, most of the time it is here at the New York Stock Exchange. And today, because we couldn`t function, the other exchanges — they step up, volume trades, liquidity is there. Certainly, there was no — there was no loss of liquidity in the market.
So, a retail investor wouldn`t have any such idea even that there was an issue.
HERERA: And it`s important to note when the New York Stock Exchange did reopen for trading, it was orderly and the close was orderly.
POLCARI: Right, and that was the key part. When they finally got through the problem, we just did a resume trade. And so, you pick up and start trading where they`ve been trading. Where they had been trading in the other venues and we just jump back into the fray again. Wonderful start being tracked (ph), and then the closing auction went off without a hitch and I think that was key.
HERERA: That was key.
MATHISEN: So, Kenny, if I look at the price of my ETF or my mutual fund or the value of the Dow Jones Industrial average tonight, I am not going to know this glitch happened.
POLCARI: You wouldn`t have any idea because as I said, trading went all day long and it went on uneventfully. And then the closing auction happened here. So, mutual funds, ETFs, everyone was priced off the primary markets closed, in fact, the primary market close with no issues. So, yes, you wouldn`t have any idea. Actually, that`s a benefit to the retail investor in this country.
HERERA: All right. Kenny Polcari of O`Neil Securities, thank you so much for joining us.
POLCARI: Thank you.
MATHISEN: Well, Sue, that software failure at the New York Stock exchange was not the only one that happened today. Not by a long shot.
Early this morning, a computer issue at United Airlines grounded its planes worldwide for more than an hour — 4,900 flights affected, 400,000 passengers. And that caused a prolonged ripple effect of heavy delays throughout the day at United hubs in Chicago, Denver, Houston, Newark among others. The airline blamed a router malfunction.
And for a while, “The Wall Street Journal`s” homepage, that`s what you saw, an outage, though other sections of the Web site did continue to work
HERERA: Well, while on Wall Street, stocks fell hard, dropping at the open and staying lower until the closing bell. Concerns about the pace of global growth after a sell-off in Chinese stocks spilled over into the U.S.
At the close, the Dow Jones Industrial Average fell 261 points to close at 17,515, the NASDAQ fell 87 points, and the S&P 500 was off 34.
MATHISEN: As Sue just said, Chinese stocks took another plunge today and it was dramatic, despite that country`s regulators taking fresh steps to bolster the market. The Shanghai Composite fell another 6 percent overnight, making that index`s total decline over the past month about 30 percent. That translates into more than $550 billion worth of losses.
And the recent plunge hasn`t gone unnoticed by U.S. Treasury Secretary Jack Lew.
(BEGIN VIDEO CLIP)
JACK LEW, TREASURY SECRETARY: I think the concern that is a real one, is what does it mean about long term growth in China? I think that that — I would break it into two pieces. One is, how do China`s policymakers respond to this, and what does it mean by the core condition of the economy? I think the first is quite critical.
(END VIDEO CLIP)
MATHISEN: Eunice Yoon in Beijing tonight, reports on a bubble bursting.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chinese regulators warned of panic sentiment and irrational sell. And today, we saw plenty of both in the stock market.
We went down to a brokerage amidst all this and the mood was fearful, panicked, emotions were running high. The focus was mainly on this mass trading halt that we had here and what the Chinese media had described as the biggest ever in the country`s stock market history.
Now, more than 50 percent of the listed companies in China have had their shares suspended. Ostensibly, this is to stop some of the volatility and also to protect the companies from falling prices. But it`s actually had the opposite effect and it`s really hurting sentiment, a lot of investors just selling whatever they can.
The anger was directed mainly at the government. A lot of investors, one in particular was complaining to us saying that the government got them to buy a lot of these shares and now they`re all falling into an abyss.
And that really gets at the heart of why the government is behaving the way it is with such unusual moves and throwing everything including the kitchen sink at the problem, because the concern is that the stock market issue could become a social stability issue here.
The government came in with other measures, saying that it was going to continue with its liquidity assistance via the central bank. Also, government authorities called on state owned enterprises not to sell their shares. More than 100 have now pledged not to sell their shares and to actually even buy shares. And other companies and executives have said they`re taking up what they describe as a patriotic fight in order to buy its shares and save the stock market.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
HERERA: That drop in China`s stock market comes at a time when there are increasing signs the economy in that country is slowing. In fact, the new report shows auto sales have dropped for the first time in two years.
And that could be a big blow to U.S. automakers.
Phil LeBeau has our report.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is what automakers have been fearing for years: China, where .25 percent of the world vehicles are sold, appears to be slowing down.
The China Passenger Cars Association, which this tracks retail sales at dealerships, says sales dropped 3.5 percent in June, the first monthly decline in two years.
Exactly why Chinese consumers are pulling back is unclear. But it coincides with a plunge in the Chinese stock market of 30 percent in the last month. For U.S. automakers like ford which has been aggressively responding in China, a drop in demand is a concern as it is for GM, which is in the midst of pushing its Cadillac brand in client.
Still, G.M. CEO Mary Barra is confident her company can do well even if China`s car buyers pull back.
MARY BARRA, GENERAL MOTORS CEO: We see an opportunity. You know, we`re at a point of launching new some vehicles that are coming out, you know, shortly. So, I think that will be an opportunity.
LEBEAU: As the second largest automaker in China, General Motors
(NYSE:GM) could be hit hard if sales there continue to fall over an extended period of time. But it`s not just General Motors (NYSE:GM).
Almost every major automaker has a presence in China and all of them are counting on consumers to continue buying cars and SUVs.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
MATHISEN: And as Phil just mentioned, it is not just GM that has exposure to China. Our next guest today says there are lots of other companies that may have to reset their expectations as well if China`s economy slows markedly.
He`s Chad Morganlander, portfolio manager at Stifel Nicolaus.
Chad, welcome, good to have you with us.
You know, we like in the media to attribute many of the day`s U.S.
stock market losses to worries about what`s going on over in China. But as a long term matter, is what`s happening in China really going to be a material driver of U.S. stock values?
CHAD MORGANLANDER, STIFEL NICOLAUS PORFOLIO MANAGER: Well, it will be a material driver in global growth which has a feedback loop into the markets here in the United States.
Keep in mind that China`s GDP is roughly 15 percent of global GDP.
So, therefore, we do have to keep a careful consideration to global as well as economic friends within the Chinese economy.
HERERA: Chad, how worried are you about what`s happening with the Chinese stock market and the Chinese economy, especially in light of the fact the central bank seems to be throwing in everything but the kitchen sink at it and it`s not working?
MORGANLANDER: So, let`s — Sue, let`s break this into two parts. The Chinese economy is decelerating. Several years ago, it was growing roughly about 10 percent. Our expectations are for about a 6 percent growth in 2015. And then, of course, a shift lower in growth to 4 percent over the course of the next three years.
Now, that said, that is something that will affect the U.S. financial markets. But when we look at the equity markets within China, the equity markets, we`re not very concerned about. The markets there are up 15 percent year-to-date, still with this massive sell-off on a 12-month basis, over 50 percent. And the majority of the investors in the Chinese market are Chinese citizens and they`re the retail investor.
It`s very difficult for portfolio investors to invest directly into the Chinese markets.
MATHISEN: Chad, if those Chinese retail investors are feeling their holdings wither away, go down by 30 percent or 50 percent, that would suggest they won`t — by the wealth effect, they won`t spend as much, and that could depress imports into that country from other economies like ours.
MORGANLANDER: Without a doubt, and it`s not only the United States but also the largest trading partner for China is the Eurozone. And they need a much needed economic benefit.
One thing to consider, the sectors here in the United States that will be most vulnerable like you said, and mentioned in the last segment, autos as well as oil and gas complex will be affected because Chinese growth deceleration will also move the demand curve down. Hence the reason why autos, oil as well as commodities are feeling the brunt of the selloff.
MATHISEN: Chad, thanks for explaining the transmission there.
MORGANLANDER: Thank you.
MATHISEN: Chad Morganlander with Stifel.
HERERA: And, Ty, according to Morningstar (NASDAQ:MORN) and Lipper Research, these are the three mutual funds with the great exposure to China
— Fidelity Emerging Asia, Principle Origin Emerging Markets A and Templeton China World A. For a longer list, you can go to our Web site, NBR.com.
MATHISEN: And now to the other big concern for the market these days
— Greece. As we reported last night, that country has until Sunday to strike a deal with creditors or else they suggest it won`t be able to stay within the Eurozone.
Michelle Caruso-Cabrera, in Athens, reports on what may happen next.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: After last night`s disastrous meeting, today, Greece`s new finance minister submitted yet another letter asking for a bailout. This one softer, less strident in tone and he promised by tomorrow, he would submit a list of detailed reforms that would satisfy Greece`s creditors.
Still, the endless delays led to scathing criticism of the country`s prime minister, Alexis Tsipras, as he attended a meeting of the European parliament in Strasburg, France.
GUY VERHOFSTADT, PARLIAMENT MEMBER/FMR. BELGIAN PRIME MINISTER: You are talking about reform but we never see the Greece proposals of reform.
I am angry because we are, already five years we are sleepwalking towards a Grexit. Already, five years we are sleepwalking, with the help and with the support — you hear them? — of the people of the extreme right at the end. And not only we are sleepwalking, the last months, we are I have running to a Grexit, I have more the impression. But it is not you and it is not we who ourselves pay the bills. It`s going to be the ordinary Greek citizens who are going paying the bills of a Grexit of 30,
NIGEL FARAGE, UK INDEPENDENCE PARTY LEADER: You cannot have your cake and eat it. They will give you no more, these people. They can`t afford to. If they give you more, they`ll have to give other Eurozone members more.
So, your moment has come. And, frankly, if you got the courage, you should lead the Greek people out of the Eurozone with your head held eye.
Get back your democracy. Get back control of your country. Give your people — give your people the leadership and the hope that they crave.
CARUSO-CABRERA: Here in Greece, the population and particularly the business community is growing increasingly concerned that an exit from the euro is the most likely outcome.
For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, Athens.
HERERA: Federal Reserve policymakers also expressed concern about Greece and China, and their possible effects on the U.S. economy at last month`s meeting.
Hampton Pearson has more on what was discussed and what hints, if any, were given about a potential rate hike.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: when Federal Reserve policy monetary makers met in mid-June, they were looking for more signs of a stronger U.S. economy and concerned about the continuing Greek debt crisis, as well as signs of an economic slowdown in China.
International and domestic concerns are on the Feds` radar screen and appear to be the keys to the timing of when Janet Yellen and her fellow monetary policymakers will begin raising key short term interest
KRISHNA GUHA, EVERCORE ISI CHIEF ECONOMIST: I think it is encouraging to see they were on the ball. That they could recognize that there were risks outside the U.S. that could still present a material threat to the U.S. outlook.
PEARSON: The economy is getting closer to achieving the dual mandate of full employment and inflation stability. But in mid-June, policymakers judge conditions for a rate hike have not yet been achieved. Many expect labor markets could be absorbed by the end of the year and the Fed wants more evidence inflation is moving back towards target levels.
And policymakers are still worried about the lingering effects of bad weather earlier this year and the slowdown at West Coast ports at economic growth for the rest of the year.
GUHA: The committee clearly remained a bit under easy about the weakness that we see in the early part of this year, particularly the consumer piece of it which was more puzzling than the idea that the energy sector was reducing its capex or exporters were having a harder time because of a strong dollar. The puzzle was in the consumers.
PEARSON: Next week, Fed Chair Janet Yellen reports to Congress on monetary policy and the economy. To be followed at the end of the month by the next FOMC meeting.
For NIGHTLY BUSINESS REPORT, Hampton Pearson in Washington.
MATHISEN: Still ahead, did the first big company report earnings this season knock it out of the park or strike out? Alcoa`s results next.
MATHISEN: Mixed results from Alcoa (NYSE:AA) after the bell marked the unofficial start of the earnings season. Earnings came in at 19 cents a share. That was 3 cents below analysts` estimates. While the revenue topped estimates and was higher than last year. The company`s chief says business is strong despite commodity volatility.
(BEGIN VIDEO CLIP)
KLAUS KLEINFELD, ALCOA CEO: The commodity business has faced a lot of headwinds, but here, we see, the aluminum business performed the best first half since 2007, and the primary metals business show real resilience in face of all these headwinds.
(END VIDEO CLIP)
MATHISEN: Shares were slightly higher at Alcoa (NYSE:AA) in initial after-hours trading.
HERERA: Ty, Microsoft (NASDAQ:MSFT) will cut thousands of jobs and that`s where we begin tonight`s “Market Focus”.
The tech giant announcing it will slash nearly 8,000 positions, with most of those cuts coming from its phone business. The firm will also take a charge of nearly $8 billion related to its acquisition of Nokia`s handset business. Shares were off slightly today to $44.24.
Sales of the Apple`s watch have plunged 90 percent since opening week.
Separately, a “Wall Street Journal” report out today says the company is preparing for a record initial production run of its next iPhone by the end of the year. Shares fell 2.5 percent to $122.57.
MATHISEN: Barclays` chief executive, Antony Jenkins, is out — the victim of a board that had grown impatient with what it viewed as Jenkins` plodding steps to make the bank leaner and less-focused on investment banking. Chairman John McFarlane will take over as CEO. Shares were off at Barclays 1 percent to $15.79.
And Southwest Airlines (NYSE:LUV) reporting an increase in traffic capacity and load factor from last year. The airline also saying, though, that a key passenger revenue metric is expected to decrease in its second quarter as compared with last year. Shares of Southwest off 3 percent on this down day. They finished at $32.36.
HERERA: The town of Sun Valley, Idaho, is beautiful and it`s known for two things: skiing and the coming together of media moguls and tech titans who are looking to possibly strike a deal at the exclusive annual Allen and Company Conference.
Julia Boorstin is there with all the buzz.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: From Disney
(NYSE:DIS) CEO Bob Iger to Tesla and SpaceX CEO Elon Musk, from Amazon`s Jeff Bezos, to Apple`s Tim Cook, Allen & Co gathers billionaire investors, media moguls and tech titans to spark conversation and deals.
BARRY DILLER, IACI: There`s always consolidation. Consolidation is the nature of things.
DAVID ZASLAV, DISCOVERY COMMUNICATIONS: We`re always looking for acquisitions.
BOORSTIN: Attendees here in Sun Valley are buzzing about Elon Musk who took the stage on Wednesday morning, along with the LinkedIn
(NYSE:LNKD) founder and chairman Reid Hoffman. Musk talking about the potential to grow Tesla with its new SUV, which is in the works, as well as SpaceX, needing to overcome the recent explosion of one its rockets, which he calls a setback.
ELON MUSK, TESLA AND SPACEX CEO: We want to look at, of course, what was wrong, and also take a thorough review of the data and see if there are any near misses, could there have been something else that might have been wrong? And what we need to do to fix that?
Our goal is to have the most reliable rocket ever. Because this is going to be launching astronauts in a couple of years. So, it needs to be super, super reliable.
BOORSTIN: While attendees here talk about Musk`s comments about space and head out on their white water rafting trip, they`re watching out for the next wave of deals. Last year, Verizon`s $4.4 billion acquisition of AOL (NYSE:AOL) hatched at Sun Valley. The prior year, it was Jeff Bezos` purchase of “The Washington Post (NYSE:WPO)” that took root.
We`ll be watching these heavy hitters for the next big deal.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Sun Valley, Idaho.
HERERA: Coming up, what to do if you final yourself in a situation no one ever wants to be in.
The second part of our series, “The Big Business of Ransom”, is next.
MATHISEN: Companies that operate in the multimillion-dollar ransom industry are busier than ever. As we reported last night, an increasing number of American workers are being kidnapped overseas.
Tonight, Dina Gusovsky gets a simulated look at what it`s like to be taken hostage in the second part of our series on “The Big Business of Ransom”.
UNIDENTIFIED MALE: Get down, get down!
DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT: It may look like a scene out of a movie, but the threat of kidnapping ransom and extortion is real. There are company who may get their business if it happens, you get out alive.
I went through one of their kidnapping training sessions.
MARK STANSFIELD, PILGRIMS GROUP: We give them a little taste of what it might be like and hopefully you take those lessons forward if that was for real.
UNIDENTIFIED MALE: It needs to be quick, violent, without causing too much damage to you as individuals.
GUSOVSKY: And with terrorist organizations like ISIS, Boko Haram, and Haqqani Network.
STANSFIELD: Business has increased massively. You know, people want to be protected.
We initiate what`s known as the shock of capture. And that is a erupting violent action, lots of noise, lots of chaos.
GUSOVSKY: From check points like this.
UNIDENTIFIED MALE: It looks like it`s expires. Step out of the car.
Who else is in the car?
UNIDENTIFIED MALE: Got a lady here from CNBC.
GUSOVSKY: To a kidnapping situation, being taken hostage, interrogated.
UNIDENTIFIED MALE: Who do you work for?
UNIDENTIFIED MALE: Doing what?
UNIDENTIFIED MALE: You can`t report back to CIA?
GUSOVSKY: No. We don`t work with the CIA.
UNIDENTIFIED MALE: Don`t lie to me!
GUSOVSKY: And finally the rescue.
STANSFIELD: Well, the rescue is one of the most dangerous times for a hostage.
GUSOVSKY: And what about the smoke?
STANSFIELD: The smoke is deployed to hide the movements and the actions of the rescuing force.
UNIDENTIFIED MALE: We put (INAUDIBLE). Some of them don`t know what`s going on.
GUSOVSKY: In a war zone, one false step and this could happen.
So you`re essentially using the same tools as the U.S. military and the British army.
STANSFIELD: Yes, sure.
GUSOVSKY: But all this will cost you.
STANSFIELD: It`s a two-day course preceded by some learning, around
$2,500 per person.
GUSOVSKY: There is a growing need for companies like this. The most kidnappings go unreported, the estimated number about, 50,000 to 85,000 per year, with estimated annual ransom payments of upwards to $2 billion.
STANSFIELD: Employees need to be safe. Their employers and the company want their workers to be able to live and work and operate in these countries.
GUSOVSKY: That`s why companies like this don`t have to worry about losing business any time soon. For NIGHTLY BUSINESS REPORT. I`m Dina Gusovsky in Westchester, New York.
HERERA: And that`s NIGHTLY BUSINESS REPORT for tonight. Thanks for joining us.
MATHISEN: And I`m Tyler Mathisen. We`ll see you tomorrow. Thanks for being with us.
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.