Transcript: Nightly Business Report — July 14, 2015

NBR-ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Flashing yellow. Americans are not spending as much as economists expected and that key component of economic activity could make the Federal Reserve’s interest rate decision that much harder.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Landmark deal. Could the biggest winners from nuclear agreement with Iran come from corporate America?

MATHISEN: And finding financial security. Can the millennial generation avoid the mistakes of their parents? We explore that in the second part of our series “Millennials and Money” tonight on NIGHTLY BUSINESS REPORT for Tuesday, July 14th.

HERERA: Good evening, everyone. And welcome.

Things may have gotten a little tougher for the head of the Federal Reserve, after confirmation today that consumers aren’t spending as much as expected. Retail sales for June fell a seasonally adjusted 0.3 percent, well below expectations of a rise. Because consumer spending makes up a good chunk of economic activity if that piece of the economic puzzle is missing, some say it throws into question the potential September rate hike by the Federal Reserve.

And the batch of bad news comes just one day before Fed Chair Janet Yellen is set to appear before Congress.

Courtney Reagan reports.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: according to the latest government data, consumers aren’t spending enough to prop up economic growth. June retail sales posted the weakest reading in four months, and that’s not all the bad news. May retail sales were revised lower than previously reported.

With consumer spending fuelling 70 percent of the country’s economic growth, monthly retail sales are a key data point for those trying to forecast the Federal Reserve’s decisions on interest rates. And Fed Chair Janet Yellen addresses Congress in the two-day testimony beginning tomorrow.

AUSTAN GOOLSBEE, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF ECONOMICS: Just look at the retail sales numbers, look around the world. And tell me that you feel fully confident that we have turned the corner and we ought to raise rates. I just don’t think it’s there.

REAGAN: It’s hard to find bright spots in the data. Spending at service stations was up, but just slightly, reflecting the rise in gas prices. The electronics and appliances category saw sales gained 1 percent as more consumers divert discretionary spending towards gadgets and investing in their homes rather than on apparel and accessories. But the rest of the retail sales results are just so so, showing consumers are continually to allocate their hard earned cash.

UNIDENTIFIED MALE: I have cut back mostly on nonessentials, like clothing, bicycles, things like that.

UNIDENTIFIED FEMALE: Less on like travel, you know, shopping, but still we’re still spending only necessary on like food.

REAGAN: And many economists think the cautious consumer is here to stay.

GOOLSBEE: Consumers are not going to go back to the old days. And what’s embodied in the Fed’s forecast is things are about to get back to normal, that now that house prices are going back up, the stock market is high, we’re going to have a wealth effect, consumer spending is going to go back to the go-go days, I don’t think they ever are.

I think we’re in this perennial waiting for Godot that the consumer is going to come back and start leading us back to some V-shaped recovery. And that’s the part I think is wrong.

REAGAN: After today’s retail sales results, economist begun taking down their GOP forecast for the second quarter, which may not be a good sign for retailers going into the all important second half of the year, with both back to school and holiday seasons ahead.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Michael Feroli was one of the economists who took down his GDP estimates for the second quarter today. He’s chief U.S. economist at JPMorgan (NYSE:JPM), and he joins us now to talk more about what all this means for the economy and the Federal Reserve.

Michael, good evening. Welcome. Good to have you with us.

How much did you lower your GDP forecast for the full year based in part on these retail sales numbers today?

MICHAEL FEROLI, JPMORGAN: Not a whole lot. We took down our tracking of second quarter GDP from 2.5 percent to 2.3 percent. And for the year, as whole, it didn’t really affect things.

So, look, as you said earlier there’s not a whole lot good you can see in the number. It’s hard to sugarcoat it, but it is one month of a very volatile series. I think we have to take it in context and look at things on a quarterly basis.

And I think when you look at it that way, consumer spending certainly did pick up in the second quarter relative to the first quarter. It didn’t pick up perhaps as briskly as we thought prior to this morning, but there’s an improvement. So, things by no means are rocketing forward, but at the same time, we think consumer spending second quarter grew something like 2.6 percent annual rate, which in the context of the last few years is pretty good.

HERERA: What was worrisome to me, Michael, and weigh in on this, is the downward revisions to previous months. So, yes, this was not a good report. But now we have downward revisions to previous months which seem to weaken the overall trend of retail sales.

FEROLI: Right. That’s exactly right. That was actually probably the bigger impact in terms of our downward revision. So, June being a last month of the quarter didn’t have a big impact, but certainly the downward revisions did affect things.

You know, as we look at the monthly pattern this year, what you saw was consumers really pulled back in February when the weather was terrible, bounced back really strongly in March. And then since then have been kind of going back and forth at a kind of so-so pace.

MATHISEN: You know, Michael, I assume you heard Austan Goolsbee, former head of the Council of Economic Advisers, say that, boy, I don’t see a world out there in terms of retail sales or other measures that indicate that the economy has turned a corner and it’s time to raise interest rates. I wonder if you do or what if anything today’s number does for your view of when or whether the fed will raise rates in September say?

FEROLI: Right. So we continue to look for September and with a decent risk of December. Does this report change that that much? I don’t think so. We’ve got a lot of data between now and September, and including most importantly two jobs reports and a couple inflation reports.

If those jobs numbers keep coming in as strong as they have, I think that would swamp what one month’s retail sales would apply for the Fed. So, I think you have to look at this in a prodder context.

MATHISEN: So, you’d be comfortable with an interest rate rise as soon in September or maybe December unlike Mr. Goolsbee. Michael, thank you very much.

FEROLI: Yes, thank you.

MATHISEN: Michael Feroli with JPMorgan (NYSE:JPM), thanks again.

HERERA: On Wall Street, stocks notched their Fourth Day of gains as investors turned their attention away from global developments and back to earnings. And we’ll have more on that in just a moment.

By the close, the Dow Jones Industrial Average rose 75 points to 18,053. The NASDAQ gained 33, and the S&P 500 added nine points.

MATHISEN: After months of talks, Iran and six global powers reached a nuclear deal. The agreement designed to rein in Iran’s nuclear ambitions while allowing that country to continue its program for peaceful purposes. All this in exchange for relief from western sanctions.

Congress now has 60 days to review the agreement. Approval there is anything but assured, but the president has vowed to veto any resolution that disapproves the pact.

As for oil prices, they dropped early in the session only to reverse course once it’s became apparent that Iranian oil exports will not hit the market by any time soon. By the settle, West Texas Intermediate rose more than 1 1/2 percent to about $53 a barrel.

Jackie DeAngelis now takes a look at the implications for crude.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some are calling it the deal of the decade. And it has significant meaning on a global scale.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: This deal demonstrates that diplomacy can bring about real and meaningful change — change that makes our country and the world safer and more secure.

DEANGELIS: But it also could have a significant impact on the oil market. Analysts estimate that Iran has anywhere from 20 million to 40 million barrels including storage, 400,000 barrels per day of which could start coming to market by the end of the year if sanctions are lifted. It could also mean more production in the country. A small increase that could add to the more than 2.5 million barrels Iran now produces.

It doesn’t sound like a lot, but in an already oversupplied market where the U.S. and Saudi Arabia are producing at record levels, it could add more pressure to oil prices.

ANTHONY GRISANTI, GRZ ENERGY: Well, unless there’s an increase in demand coming from China or from some other developing nations, you’re going to see oil prices lower because the world supply or the world market can’t handle this additional oil.

DEANGELIS: There is an approval process for the deal, however. Congress has 60 days to come to a decision. Even if Congress rejects the deal however, the president does have veto power.

Oil prices were slightly higher on the day, but this is after oil has fallen more than 12 percent in the last month alone. It does raise the question, however, if demand doesn’t rise, can all the producers continue to keep pumping?

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: Well, while the leaders of both the U.S. and Iran were taking victory laps, the real winners of the nuclear deal could be in corporate America.

Morgan Brennan runs through the list of which corporations stand to benefit.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s far from a done deal. The Iran nuclear agreement is still months and several key hurdles away from sanctions being lifted. But a wide array of businesses could ultimately benefit, starting with energy companies. Iran has nearly 10 percent of global oil reserves and 18 percent of natural gas. BP, Royal Dutch Shell and ExxonMobil (NYSE:XOM) have all been taking steps to explore the possibility of doing business in the country.

Still, some CEOs say it will take some time for risks to subside.

DAVID DUNLAP, SUPERIOR ENERGY SERVICES: The long term that could be a good opportunity for us. But I think, in the meantime, we’d like to find places that offer a little bit better stability.

BRENNAN: Even so, more investment in Iran’s production would also boost oil field services companies. Names like Halliburton (NYSE:HAL), Weatherford International (NYSE:WFT) and Schlumberger (NYSE:SLB) which isn’t commenting.

It also brings the tanker market into focus. Citigroup (NYSE:C) analyst Chris Wetherbee says more oil production could ultimately be a net positive for large fleets, since many of Iran’s ships are older. Those stocks include Navios Maritime acquisition, Teekay Tankers (NYSE:TNK) and Scorpio Tankers (NYSE:STNG).

French companies like Peugeot will re-enter Iran as well. The automaker, which has a long history there, is reportedly in advanced talks over an Iranian car making venture.

Iran has about the same size population as Germany, almost 80 million people. Experts say that could present opportunities for a number of consumer companies.

ALIREZA NADER: Iran and Iranians in general love technology. So, Apple (NASDAQ:AAPL) is going to have a lot of opportunities in Iran, as well as Boeing (NYSE:BA). Iran’s passenger jets are very old. They need to be updated. And so, U.S. companies also have an opportunity to sell passenger jets to Iran in the future.

BRENNAN: Turkways (ph) Partners Rama Ravi (ph) also notes that leisure and hospitality companies could be the first to enter Iran.

Still, much needs to happen before sanctions actually get lifted so it’s hard to predict when and if this market will be fully open.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: To earnings in the blue chip Johnson & Johnson (NYSE:JNJ), it raised its earnings outlook despite the stronger dollar and increased competition. The world’s biggest maker of health care products reported better than expected earnings, but revenue did drop sharply in the second quarter amid disappointing sales of its medical devices and softer demand for its hepatitis C drug. That weighed on J&J shares. The stock finished lower by one half of a percent.

HERERA: Fellow Dow component JPMorgan (NYSE:JPM) also topped expectations. The bank reported improved profits but declining revenue, which it attributed to its mortgage banking business, as well as its investment banking business. But lower expenses helped the bottom line.

So, by the end of all of that, JPMorgan (NYSE:JPM) shares rose more than 1 percent in trading today.

MATHISEN: With the major indexes not far really very close to their all-time highs, what’s keeping the market afloat? Yesterday, we told you that half the stocks in the large cap Russell 1000 are down by 10 percent or more from the recent highs, correction territory.

Tonight, Dominic Chu looks at the stocks that are near their record levels and why these companies matter so much to the market.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Despite all of the negative headlines both here and abroad, the U.S. stock market continues to be one of the most attractive places to invest. And while pessimists are reporting to the large number of stocks that are currently in the downtrends, the overall market is a stone’s throw away from record highs. That’s because a handful of stocks are pulling more weight to the upside and having much more of a positive impact on the overall stock market.

Within the broader, large cap Russell 1,000 index, there are around 300 stocks that are at or within 5 percent of the highest levels over the past 12 months. Twenty of those stocks have market values of at least $100 billion. These biggest of the big cap stocks have much more influence on the overall market given their size. And they have been attractive places for many investors.

BILL STONE, PNC: One of the things that you, you know, most of the market thinks about is all of these macro events, the worries, whether it’s Greece or China. The one thing that may be a macro company or a large company gets you is really the opportunity to have a little bit more diversification.

CHU: You’ll recognize a lot of names on the list, like media and entertainment giant Disney (NYSE:DIS). Its 25 percent gain makes it worth $200 billion. Or drug maker Pfizer (NYSE:PFE) which is up 12 percent this year and is worth $214 billion. Or even Facebook (NASDAQ:FB), the social media company has gained 15 percent this year, making it worth a whopping $252 billion.

But not all mega cap stocks have participated and experts say you have to be choosy about where to invest.

MARK TEPPER, STRATEGIC WEALTH PARTNERS: The best opportunities are in large cap stocks that are just defensively oriented, that are generating their business domestically. So, when you look at the health care sector, the health care sector is very attractive, Especially hospitals in particular, since obviously they’re doing business domestically.

CHU: These very large and very valuable companies have done a lot to help the broader markets hold on to gains. But they aren’t immune to downside risk. Changes in investor sentiment because of things like Greece, China or the help of corporate earnings could all have an effect.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

HERERA: Still ahead, a Chinese company is reportedly ready to make a massive bid for U.S. memory chipmaker Micron. But what will the regulators do?

(MUSIC)

MATHISEN: The White House has lowered its budget deficit forecast, the new estimate falls to $455 billion by the end of the fiscal year. That is the lowest of Barack Obama’s presidency. The administration predicts 2 percent economic growth for the current year, rising to nearly 3 percent next year and says the unemployment rate should fall to 5.1 percent.

HERERA: Shares of Twitter spiked about 8 percent but quickly pulled back. And the reason has become all too familiar. A fake story about a potential bid for the company appeared on a Web site that was made to look like Bloomberg’s Web site.

Take a look at this. This is the fake website on which the story about a $31 billion bid for Twitter appeared and it does look similar to Bloomberg’s layout. The stock spiked a little after 11:30 a.m. Eastern Time, but then fell back. It’s just the latest market hoax designed to move the price of a stock.

MATHISEN: Intel (NASDAQ:INTC) downgraded to sell by a Wall Street firm, one day before it reports earnings. The independent research firm Bernstein now rates the Dow component an underweight because of growing concern over weakness in its data center business. The analyst there says softness in that business could be potentially more damaging than weakness in its PC business. The sell rating less common on Wall Street, shares of the semiconductor company closed a few cents lower today.

HERERA: Rival semiconductor firm Micron is reportedly the target of a $23 billion bid by a Chinese state owned company. Such a deal would be the largest takeover of an American company by a Chinese one. Micron shares rocketed higher on that report, closing up 11 percent but it comes at a time of increasing consolidation in the industry. If the offer is made official, it could face a great wall of regulatory hurdles.

Eamon Javers is following the story from Washington.

Good evening, Eamon.

And how might the recent cyber security news and the report that China was allegedly behind the big government hack play into all of this?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, Sue. That’s absolutely the context here for this. The U.S./Chinese relations are not at a high point here in Washington, D.C., and if this bid goes forward, it will face a very tough review from a group here in Washington called the Committee on Foreign Investment in the United States. The acronym is easy to pronounce CFIUS. That’s all what we all talk about here in Washington when we talk about that committee.

The folks I talked to who are CFIUS experts today say this is going to face a very tough review, because Chinese getting access to high-tech of any kind is very sensitive for the committee and particularly sensitive when it deals with anything that could be used for military applications. Remember, there are intelligence community representatives on that CFIUS committee, so they’re going to look at this very, very toughly. And the expectation here is that this is the kind of deal that might not meet with CFIUS approval.

MATHISEN: I would guess there’s a lot in political circles who would say if we’re going to let you come in and buy our companies, then you China need to let us go in and invest in yours more freely, right?

JAVERS: Right, absolutely. And that’s the kind of political gamesmanship you see at the very high level. CFIUS itself is really going to just focus on re-evaluating this particular deal, but this is a committee that has not let other deals in the past go forward. For example, in 2012, they blocked a wind farm deal which you would think would be kind of low tech, but they were worried that the wind farms that the Chinese company wanted to buy were near a U.S. Navy installation that presented spying concerns for CFIUS, so they blocked that deal.

So, if they blocked that one, this one would be a no go as well.

HERERA: All right. Eamon, thank you so much. Eamon Javers in Washington.

MATHISEN: CSX (NYSE:CSX) pops on a profit beat and that is where we begin tonight’s “Market Focus”.

The railroad company announced earnings that beat forecasts as productivity gains and lower fuel costs offset a drop in coal volumes and that weighed on revenue.

The chief financial officer said lower energy costs aren’t beneficial to all of the firm’s businesses.

(BEGIN VIDEO CLIP)

FREDRIK ELIASSON, CSX (NYSE:CSX) CFO: We think that over time, lower fuel prices should help the U.S. economy, but also impacts the other markets like crude by rail for example, where we are seeing some declines here as we look out to the rest half of the year.

(END VIDEO CLIP)

MATHISEN: Shares surged in initially in after hours trading, as you see right there. Before the close, the stock was a fraction higher. It finished at $32.07.

Yum Brands (NYSE:YUM) also managed an earnings beat today, but revenue missed estimates. The parent of chains like KFC and Pizza Hut also said a key metric of performance in China missed estimates. That’s been a problem spot for Yum. Shares surged, before reversing course, as you see there, in after-hours trading. Before the close, the stock rose about 1 percent to $91.99.

And Wells Fargo’s earnings matched estimates, but revenue was shy of forecasts. Higher interest rates crimped revenue from its mortgage banking business.

The company’s chief financial officer explained how that hit results.

(BEGIN VIDEO CLIP)

JOHN SHREWBERRY, WELLS FARGO CFO: We’re the largest servicer of mortgages so people tend to come in and refinance when rates move down. We’ll get most of that business compared to the rest of the market because we’re the biggest servicer. When that opportunity abates because rates back up a little bit and you’re back in more of a purchase market, then the competition will be a little bit more widely reflective.

(END VIDEO CLIP)

MATHISEN: Shares of Wells Fargo (NYSE:WFC) rose a fraction to $57.25.

HERERA: WPX Energy will buy privately help RKI Exploration and production for nearly $2.5 billion. The acquisition will increase WPX’s crude oil production and give the company access to the Permian Basin region. Shares popped almost 6.5 percent to $11.83.

Celgene (NASDAQ:CELG) will buy a company called Receptos in a deal worth about $7 billion. The acquisition will help expand Celgene’s inflammation and immunology portfolio. Celgene (NASDAQ:CELG) surged after the close by as much as 5 percent. Receptos was halted for trading initially after the report, but was up 5 percent in regular trading.

MATHISEN: Coming up, the one thing that is holding millennials back when it comes to long term investing. The second part of our series “Millennials and Money” is next.

(MUSIC)

HERERA: Here’s what to watch for tomorrow. Fed Chair Janet Yellen heads to Capitol Hill where she will deliver her semi-annual testimony on monetary policy. The producer price index is out, that’s a read on inflation. Also out, industrial production data, an important economic indicator.

And that’s what to watch for Wednesday.

MATHISEN: Back in 2013, the guidelines of who should be prescribed statins or cholesterol lowering drugs, was expanded vastly and according to a study out today, that is helping to save people money. The wider use of medications like Lipitor and Crestor will help to cut down tens of thousands of heart attacks and strokes and deaths from them. The study by two major cardiologist groups finds that even the small risk of side effects is well worth the expenditure on those statins.

HERERA: The U.S. is facing a $1 trillion pension short fall. That’s according to Pew Charitable Trusts. States are short nearly $1 trillion for their pension systems. That’s a more than $50 billion increase from the year before. The three states that have less than half of their pension programs funded are Kentucky, Illinois and Connecticut.

MATHISEN: Well, perhaps more teenagers are working than at any time in the last six years and they are more likely to work throughout the year, not just in a summer job. Summer job gains are actually lower than they were a year ago, but employment consultant Challenger Graham Christmas said that’s because teens ages 16 to 19 are getting more year-round jobs.

HERERA: Millennials and their money, yesterday, we told you about that generation’s massive student debt load. Today, our series continues with a look at how they invest. Millennials have become savers and long term planners than other generations have, but as Sarah Epperson tells us, they have one weakness holding them back.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Twenty-eight-year-old Colleen McCanna is living her dream.

COLLEEN MCCANNA, 28-YEAR-OLD: I wanted to move to New York. It was a dream of mine. (INAUDIBLE) being here and fell in love with the company.

LIESMAN: She’s paid off her student loans and landed a new job at an education technology company. Like many millennials, she’s now focused on how she will achieve financial security years from now.

MCCANNA: Kind of typical of start-ups. We don’t have a 401(k) here, so when I moved here that’s when I met with a financial adviser.

EPPERSON: McCanna has already saved over $26,000, a bigger nest egg than most millennials. But she wasn’t sure how to invest it.

MCCANNA: You have to be smart with your money. And we know we have got the baby boomers they’re trying to retire and figure it out. If they had a lot of them, the portfolios crashed, and then maybe they lost half of their money in 2008. So, we have gotten to witness that.

EPPERSON: Financial advisers agree it’s important for this generation not to repeat their parent’s mistakes.

Many millennials are doing well financially, but they’re not planning for long term growth. A recent survey by bank rate found that millennials who are generally between 18 and 34 are lagging behind older adults in terms of owning stocks and real estate.

The reason? Nine out of ten millennials say they’re distrustful of the markets and they lack investing knowledge, which makes them less confident about investing.

LAUREN LYONS COLE: Certainly when it comes to investing it’s not something they’re very familiar with, and so, they’re shying away from doing that. But it really can cut down on the amount of wealth they’re able to accumulate over the course of their lifetime.

EPPERSON: Rather than shy away, McCanna hired a professional.

MCCANNA: Helping me figure out where I’ll put all of my assets and how to allocate those funds, given my age and my profile, when I want to retire.

EPPERSON: For millennials who may not have the money or be willing to spend it on a financial adviser, there are lower cost options.

COLE: It can be a good idea to look at a roboadviser, look at the online options, which a lot of them are comfortable doing.

MCCANNA: There’s so many different kinds of platforms that you can do your own investments. It’s something great about my generation. We’ve got everything at our fingertips.

EPPERSON: Like many millennials McCanna knows that ultimately the responsibility for funding her financial future is in her own hands.

For NIGHTLY BUSINESS REPORT, I’m Sharon Epperson.

(END VIDEOTAPE)

HERERA: And what does retirement look like for the average millennial? The answer tomorrow in the final part of the series “Millennials and Money.”

And that will do it for NIGHTLY BUSINESS REPORT tonight. I’m Sue Herera. Thanks so much for joining us.

MATHISEN: And I’m Tyler Mathisen. Have a great evening, everybody. We’ll see you back here tomorrow night.

END

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.

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