Transcript: Nightly Business Report- November 16, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Surprise rally. Why stocks moved sharply higher on the first day of trading since the Paris attacks, even as the manhunt for suspects continues in Europe.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Going dark. Did videogame consoles and cell phone apps help the Paris terror plot go undetected?

HERERA: And the money trail. How ISIS gets its revenue and funds its operations.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, November 16th.

MATHISEN: Good evening, everyone. And welcome.

Few expected a day quite like today. On Wall Street stocks rose sharply, and they did around the world, lifted in part by a rise in oil shares and defense stocks here in the U.S. the gains were, however, broad and across most sectors, not narrow. The Dow Jones industrial average rose 237 to 17,483. NASDAQ notched a 56-point gain. And the S&P 500 was 30 points higher.

Some say that time since the attack may have allowed for a less emotional response by investors. Meantime, as of this evening the manhunt is still under way for two suspects as France and the world continue to mourn the lives that were lost and develop a response.

Michelle Caruso-Cabrera is in Paris tonight.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: We’re here at the Place de la Republique, the Plaza of the Republic, which is serving as a gathering point for those who want to mourn the victims of Friday’s attack. It’s very close to many of the places that were shot at by the terrorists.

At the base of the statue, which is a symbol of liberty of France, thousands of people have been coming all day to place flowers and candles and mementos, homages to the people who died.

Just three blocks from here, the Cosa Nostra Italian restaurant. Bullet holes still visible in the window, and on the sidewalk where there used to be outdoor tables and chairs you can now see a makeshift memorial, a cross, flowers, candles, and on the window someone has painted a pink heart, and it says “courage”.

Our team spoke with the owner of this restaurant, Dimitri Mohammadi (ph). He told them that he sat outside on Friday night and watched a black Seat circle the block for more than an hour. It made him very nervous.

As the night grew colder, he went home. He received a call from one of his employees very panicked. When he came back, he discovered what had happened and he was horrified. Miraculously, no one at his restaurant died, but across the street, at a different restaurant, five individuals did.

In response today, French President Francois Hollande made an historic address to the nation from the palace of Versailles.

He’s asking for more power, a change to the constitution, so he says he can better execute the war against ISIS.

Hollande will meet with U.S. Secretary of State John Kerry tomorrow morning here in Paris. And during his speech today, Hollande said he would also meet with President Obama and the leader of Russia, Vladimir Putin, to see if they can come up with a concentrated response toward ISIS.

In Paris, Michelle Caruso-Cabrera, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: The market day began with moments of silence at the New York Stock Exchange and also the NASDAQ. Before the opening bell, both exchanges went silent to honor those killed and injured in France’s capital Friday.

And when stocks began trading, they did what few thought they would. They rallied.

Bob Pisani at the New York Stock Exchange explains why.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a surprisingly quiet trading day. After opening down 1 percent, all the European markets recovered, with most ending in positive territory. U.S. stocks were split right at the open, with defensive names like utilities and telecom leading.

But as oil rallied midmorning, the entire market lifted, with energy stocks taking the lead. Stocks ended at their highs.

Now, there are several likely reasons the market did not go into panic mode over the Paris attacks. First, stocks were very oversold. Global markets had a terrible week, with much of Europe and the U.S. down about 3 percent and big declines in energy and retail stocks.

Now, this morning when the European markets opened down 1 percent but then immediately recovered, it likely forced some participants who were short going into the weekend to cover their positions.

Second, many traders and strategists have come to believe that the economic impact of terrorist attacks is more muted than many expect. Prior attacks indicate that consumption is usually postponed rather than abandoned. So the long-term economic impact has been small.

Third, the European Central Bank is likely to continue its easy money policy. Indeed, the day before the Paris attacks, ECB head Mario Draghi hinted he may continue to buy bonds beyond the autumn of 2016 when the current program will expire.

Finally, and this is a delicate issue, one possible contributor is that as the frequency of terrorist attacks has increased, the emotional impact is diminishing as well. We’re just getting inured to these events. Look how fast even Paris is trying to get back to normal, reopening the Eiffel Tower.

For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: Defense stocks largely higher this day after western leaders said they would accelerate efforts to defeat the terrorists and French President Francois Hollande said his country is, quote, “at war” with ISIS. Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC), General Dynamics (NYSE:GD) all higher, along with drone maker AeroVironment (NASDAQ:AVAV) and thermal imaging manufacturer FLIR Systems (NASDAQ:FLIR).

HERERA: One of the questions being asked by investors is whether the attacks in Paris will keep the Federal Reserve from raising interest rates in December, something many have been predicting.

Steve Liesman tells us what has to happen to give the Central Bank pause.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The gruesome attacks in Paris have called into question whether the Federal Reserve will follow through on the market’s expectation of a rate hike in December.

The uncertainty centers on the question of how governments will respond militarily and how markets and the economy will react. If markets see the attack as a reason to exit risky assets like stocks and plow into risk-free assets like U.S. treasuries and buy the dollar, it could give the fed pause.

The strength of the dollar has been a major concern for many fed officials. As it rises, it pushes down prices for imported goods and hurts U.S. exports in manufacturing. Doves on the rate setting federal market committee could seize on another leg up in the dollar as a reason to pause.

DEAN MAKI, BARCLAYS: The dollar is certainly a factor in the Fed’s decision-making. So, if we saw a very sharp and abrupt move in the dollar, that potentially could give the Fed pause.

LIESMAN: So far, there have been only muted stock currency and bond market reactions to the Paris attacks, providing no reason to derail the December hike possibility.

The economics, though, could turn out to be more important than the markets. A Fed that’s concerned that European growth could weaken in the wake of the attacks would be less inclined to hike. It would fear the knock-on effects to the global and domestic economies.

While the history of such terror attacks is to undermine consumer confidence at least for a time, they seem to have little lasting economic impacts. What would be more likely to deter the Fed is large-scale military action that includes sending troops to the Middle East. But because of the optics and the surrounding uncertainty, the Fed would seem likely to delay a hike under such circumstances.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: The terror attacks in Paris have millions around the world rethinking travel plans to visit the French capital or Europe.

Those concerns pressured airline stocks today here in the U.S. They saw declines of 1 percent or more. But so far, there are only anecdotal reports of tourists canceling or delaying trips.

And as Phil LeBeau tells us, airlines say they are not seeing a wave of cancellations as many feared.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: At Charles de Gaulle Airport in Paris, there is heightened security as the French government makes moves to ensure there are no more terror attacks in the French capital. So far, there have been anecdotal reports of tourists canceling or delaying trips to Paris following the horrific events of last week.

But airlines flying into the city say most flights have remained on schedule, and in general the planes are full. The three largest airlines in the U.S., American, Delta, and United, all have several flights to and from Paris every day. While the carriers haven’t canceled flights or modified their schedules, all three are offering waivers to passengers who want to change their itineraries.

Still, airline stocks were under pressure for most of the day in anticipation that travel to Europe will eventually slow down, and because airlines remain a prime target for terrorist attacks.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Las Vegas, Nevada.

(END VIDEOTAPE)

HERERA: It was an unpredictable day in the oil market. Crude prices initially fell on concerns that the Paris attacks would slow economic activity by reducing travel in that region at a time when there’s already a 3 billion barrel global supply glut. But prices then reversed course as the market tried to make sense of what the Paris attacks and their aftermath might mean for crude.

So by the settlement, domestic crude oil rose 2 1/2 percent to $41.74.

MATHISEN: U.S. warplanes attacked the trucks that is uses to smuggle oil. It is one of the ways the terror group funds itself.

And today, President Obama said part of the strategy to fight ISIS involves cutting off the supply lines.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We have a military strategy that involves putting enormous pressure on ISIL through airstrikes, that has put assistance and training on the ground with Iraqi forces. We’re now working with Syrian forces as well to squeeze ISIL, cut off their supply lines. We’ve been coordinating internationally to reduce their financing capabilities, the oil that they’re trying to ship outside.

(END VIDEO CLIP)

MATHISEN: Eamon Javers joins us from Washington with more on how the terror group generates revenue.

Eamon, these were well-equipped perpetrators. That takes money. Where does ISIS get its money?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Tyler, ISIS gets its money from what we can tell from all sorts of bad activities throughout the area that it controls including things like extortion, kidnapping. We’re also seeing thefts from the Iraqi central bank of hundreds of millions of dollars and, of course, as you mentioned earlier, the sale of illegally produced oil outside of Syria.

So, they are able to refine and ship the oil and those A-10 Warthog strikes you talked about today are one of the first instances we’ve seen of the U.S. military moving against those oil convoys. Earlier, they’d been a little bit worried about civilian casualties, but apparently in this attack today, they were able to drop leaflets to warn the drivers of the convoys and potentially innocent civilians that they were coming. And that convoy was going to be destroyed.

That’s one way to limit ISIS’s ability to gather money. But this is an organization that has a rudimentary tax collection system inside the territory it controls, and that makes it unlike other terrorist organizations in that it has a state and it can hit up local businesses and individuals for tax money just like any other state government can do.

HERERA: But how can they transmit it around the world if they don’t have access to the global financial system? Do they use those smaller businesses to transfer the money for them?

JAVERS: Yes. It’s good old-fashioned smuggling is one way you can get the money around the world. You can send it with refugees or terrorists who are posing as refugees as they slip into Europe. And you can also do things in the digital realm that didn’t exist years ago.

There’s been a lot of concern among the U.S. military and terrorist financial watchers here in Washington that ISIS might be using things like bitcoin and crypto currencies in order to transfer values in a way that the U.S. financial system and global financial system simply can’t track.

MATHISEN: How do they get money out of the central bank in Baghdad? Do they control it?

JAVERS: Yes, often what you’ve seen is — in the past, you’ve seen problems at the central bank in Baghdad with corruption. Officials, Iraqi government officials have expropriated money for their own benefit. We saw right after the New York Fed started shipping money to the central bank of Iraq, we saw the prices of luxury real estate in Jordan skyrocket. The presumption there was that Iraqi officials were stealing the money and buying lavish villas with that money, that was driving up the market in Jordan.

So, we’ve seen a whole host of problems. But outright theft from banks in areas of Iraq that ISIS controls is likely one of the main ways that they’re stealing some of that money.

MATHISEN: All right. Eamon, thank you very much. Eamon Javers in Washington tonight.

HERERA: And still ahead, checking in. Why Marriott wants to buy Starwood Hotels and create the world’s largest hotel company.

(MUSIC)

MATHISEN: A disappointing report on manufacturing. A survey from the New York Federal Reserve shows activity in that industry contracted in November for the fourth straight month. Factories cut jobs and new orders fell as the strong dollar and slow overseas growth weighed on manufacturing.

HERERA: The world’s third largest economy is in recession. Japan’s gross domestic product shrank 0.8 percent in the most recent quarter. One reason for the decline in economic activity was worsening business confidence and reduced investment. A recession is defined as two consecutive quarters of contraction.

MATHISEN: Marriott will buy Starwood to create the world’s largest hotel company. The deal will combine familiar names like Sheraton, Westin, Fairfield Inn, Ritz Carlton and Marriott. Shares of Marriott rose more than 1 percent. Starwood Hotels fell more than 3 1/2 percent.

Simon Hobbs has more on the acquisition and the timing of this deal.

(BEGIN VIDEOTAPE)

SIMON HOBBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: France remains under an official state of emergency. But with the reopening of the Paris stock market, travel stocks exposed to any potential slowdown fell — airlines, rail, and lodging stocks. Marriott might like to have delayed the announcement that it’s buying Starwood, but its CEO says that would have been impractical.

ARNE SORENSON, MARRIOTT INTERNATIONAL CEO: It’s a $13 billion deal. Weeks have gone into preparing this, months really have gone into preparing this. You’ve got boards that are meeting to approve. And it’s big news. So, you can’t sit on this news and say we’re simply going to wait for a convenient day to come out and announce it.

HOBBS: Marriott’s planning to buy Starwood almost entirely with its own stock six months after its troubled rival put itself up for sale. Back in May, Marriott looked at a possible transaction and walked away. But over the summer, as Starwood failed to find a buyer and its stock underperformed Marriott by another 15 percent, Arne Sorenson says he was drawn back.

SORENSON: I think initially we were dissuaded. We thought the company was expensive. And we initially sort of backed away from it a little bit. But as the months went by, we saw a relative shift in the values of the company.

It made it more attractive economically. And we became more and more convinced there was value we could create by having the two companies pull together.

HOBBS: Marriott’s deal catching many in the industry by surprise. Many have thought that either the Chinese or Hyatt would do a deal to buy Starwood. As it is, Arne Sorenson at Marriott is paying what JPMorgan (NYSE:JPM) describes as a modest premium and ultimately, he’ll run the largest hotel chain in the world.

And since in this country, Starwood has only a 3 percent market share, to add to Marriott’s 10 percent, it’s not felt they’ll face competition problems.

SORENSON: We’re attracted to this deal in part because they accelerate our globalization. We have been obviously in the business a long time, but Starwood is more global than Marriott is, and we think it’s a good thing that we will have more sources from around the world.

At this moment in Paris, that may not be ideal, but when you look at potential performance of the euro in the years ahead, you look at growth in developing markets like China and India and elsewhere, I think we will see in the long term that that contribution is fabulous.

HOBBS: In the meantime, hotel owners will be asking how Marriott intends to juggle its portfolio of now 30 brands. In particular how it can reinvigorate Starwood’s all-important Sheraton brands, which has underperformed for so long.

For NIGHTLY BUSINESS REPORT, I’m Simon Hobbs.

(END VIDEOTAPE)

HERERA: We begin “Market Focus” with another retailer posting disappointing results.

Dillard’s (NYSE:DDS) saw its earnings fall, which it blamed on weak sales performance. The department store chain said demand was down in its men’s clothing and home and furniture units. Shares fell by nearly 6 1/2 percent to $72.52.

Liberty Global (NASDAQ:LBTYA) has agreed to purchase the Caribbean cable operator Cable & Wireless in a deal worth more than $5 billion. That move will help Liberty expand in the emerging market. Shares of Liberty Global (NASDAQ:LBTYA) fell nearly 3 percent to $44.10.

And the television company — media company Media General (NYSE:MEG) has rejected a nearly $2 billion buyout offer from Nexstar, but said it is still willing to engage in merger discussions with the firm. This comes after a nearly $2.5 billion bid from Media General (NYSE:MEG) from Meredith (NYSE:MDP) Corporation.

Media General (NYSE:MEG) fell a fraction to $15.38. Nexstar rose 1 percent to $58.63. And Meredith (NYSE:MDP) Corporation was nearly 2 percent higher to $45.87.

MATHISEN: Constellation Brands (NYSE:STZ) says it will buy ballast point for about $1 billion. The acquisition will give constellation a stake in the fast growing craft beer market. Shares rose more than 2 percent to $135.36.

Urban Outfitters (NASDAQ:URBN) is entering the pizza business. Go figure. The retailer will buy the Vetri Group. The company says it believe there’s cross-shopping potential between its stores and the pizzeria. This one eludes me, but whatever. Shares tumbled more than 7 percent to $22.67.

General Electric (NYSE:GE) Aviation says it has teamed up with Textron (NYSE:TXT) Aviation. The two firms will create a new turboprop aircraft and engine business. GE said the move is part of an effort that it expects will generate up to a billion dollars in annual sales by the year 2020. GE up a fraction to $30.36. Textron (NYSE:TXT) 3 1/2 percent higher. It finished at $42.44.

And the speech recognition software maker Nuance reported late results. This came in better than expected. Its revenue forecast was below some estimates, but investors overlooked that. Shares popped initially after the close. During the regular session, the stock was nearly 3 percent higher. It finished at $17.05.

HERERA: Investigators are trying to figure out how the planning of the attacks in Paris went virtually undetected by law enforcement. Officials tell NBC News that one theory is the increased use of technology and devices like video game consoles and iPhone apps that are highly encrypted.

NBC’s Jeff Rossen has our report tonight.

(BEGIN VIDEOTAPE)

JEFF ROSSEN, NBC NEWS CORRESPONDENT: Intelligence sources tell NBC News the French were caught completely off guard. Their agencies seriously weak at detecting terrorist chatter online. Today, investigators are honing in on this gaming system, PlayStation 4. ISIS has been known to use it.

This accused ISIS militant now in jail for downloading bomb plans on his PS4.

So, did ISIS use it to plan the Paris attacks too? Officials believe the plot may have been hatched in Belgium.

Just days ago, the interior minister spoke at a political forum.

JAN JAMBON, BELGIAN INTERIOR MINISTER: The most difficult communication between these terrorists is the PlayStation 4.

ROSSEN: Cybersecurity experts agree.

Why PlayStation?

LANCE JAMES, FLASHPOINT INTELLIGENCE: It’s a playground where you can hide in plain sight. You can literally put together a working group of members such as a terrorist organization, communicate on your plans and then dissipate and it’s gone.

ROSSEN: Let me show you how this works. I’m on a PlayStation right now and I’m inside of a game. I’m connected directly to the Internet, which means I can play live with anybody anywhere in the world privately. I have to invite them to the game or they have to invite me into the game.

And that’s not all. You can text on the PlayStation 2. My producer Stephanie is on another PlayStation in another section of the building.

Hi, Stephanie.

STEPHANIE: Hey, Jeff.

ROSSEN: All right. So, show me how this texting works.

STEPHANIE: All right. I’ll send you a message. “Hi, Jeff. How are you?” And remember, this doesn’t go through your phone company. OK. Sent.

ROSSEN: There it is. I just got it. And it’s literally that simple.

Sony (NYSE:SNE), the maker of PlayStation telling NBC News, “We take our responsibilities to protect our users extremely seriously, and when alerted to suspicious conduct, we are committed to taking appropriate action.”

And experts say it’s not just PlayStation. Terrorists can choose from any of the private messaging apps out there, apps including WhatsApp, Signal, and Silent Phone.

There’s also this app called Telegram. You go into it. And by the way, Stephanie and I have downloaded. You hit new secret chat. Then you click on this little self-destruct timer. You set it to — I’ll have mine self-destruct in five seconds. Done.

I write, “Hi Stephanie”. Send.

STEPHANIE: Got it.

ROSSEN: Count it down, five, four, three, two, one.

STEPHANIE: It’s gone.

JAMES: The secure privacy platforms they encrypt end to end, which means only the terrorists can see them. They self-destruct.

ROSSEN: What’s the takeaway here? What needs to change?

JAMES: Increased information sharing across our allies across the world.

(END VIDEOTAPE)

HERERA: That was NBC’s Jeff Rossen reporting.

And earlier today, Attorney General Loretta Lynch discussed the issue of encryption and said the Department of Justice has been in touch with the tech industry.

(BEGIN VIDEO CLIP)

LORETTA LYNCH, ATTORNEY GENERAL: For us, this is an issue in which we recognize not only the importance of encryption but the need to do everything that we can to protect the American people. And as we’ve stated, we are pursuing a number of options. We’re in discussions with industry looking for ways in which they can lawfully provide us information while still preserving privacy.

(END VIDEO CLIP)

HERERA: Lynch said her department is committed to doing everything within its power to help bring those responsible to justice.

MATHISEN: Coming up, stocks may have shaken off terror fears today but what about the longer term? Top strategist at Fidelity has some advice for your money.

(MUSIC)

HERERA: Here is what to watch for tomorrow. Dow components Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD) report earnings. On the data front, the consumer price index is out and also a report on industrial production. And that is what to watch for, for Tuesday.

MATHISEN: As we reported earlier, few expected a day like today on Wall Street or in markets around the globe in the face of the deadly Friday terror attacks in Paris. U.S. markets and global markets were pretty resilient.

Jurrien Timmer is director of global macro at Fidelity Investments, here to help with today’s activity into context and what it means for your money.

Mr. Timmer, welcome. We’re very happy to have you with us.

How do you explain the fact the markets dipped a little at the open and stabilized and ended so much higher? What was going on?

JURRIEN TIMMER, FIDELITY INVESTMENTS DIRECOR, GLOBAL MACRO: Well, sometimes investors expect the worst and then when the worst doesn’t happen the opposite happens. So, people were basically expecting the risk markets or the stock market to essentially open sharply down. And when it didn’t happen, especially after last week when the market was already down about 4 percent, maybe people were caught short and then the market starts to rally and all of a sudden, you have an up 200 day.

And so, for me, you know, as an investor obviously what happened in Paris is obviously very tragic on the human level, but from a market perspective, the question always is — is this a systemic event? Is this going to affect the economy over the long term? And if the answer is no, you can expect some short-term volatility, but then it’s sort of back to looking at the fundamentals driving the economy. And I think the market, you know, people collectively probably decided that this was not a systemic event, this was not going to affect the long-term fundamentals of the U.S. economy, and therefore the market sort of recovered fairly quickly.

HERERA: So, given that, what is key to this market? What do you think does have the potential to move the market longer term?

TIMMER: So for me, this is about the U.S. Federal Reserve and China. So, the U.S. economy’s doing pretty well. And the Fed wants to raise rates. And presumably it is going to do so starting in December.

But at the same time China — and actually, I was just there last week. The economy there has slowed pretty significantly. And the Chinese has sort of two almost seemingly opposing mandates to accelerate growth while reforming their key industries. And so, in China, the currency is essentially pegged to the dollar. It’s a de facto peg.

And so, if the Fed going to raise rates, then presumably that means the dollar’s going to go up and that puts the Chinese currency under upward pressure against all the other currencies, and that’s probably the last thing China wants to see because it needs to stimulate its economy and usually when countries do this, the U.S., Japan, Europe has done it through quantitative easing, that usually involves devaluing your currency.

And that I think is the pressure point that is sort of this battle between what China wants to do and what the Fed wants to do.

HERERA: All right.

TIMMER: And I think that’s what it comes down to.

MATHISEN: All right. Mr. Timmer, thank you very much. Jurrien Timmer with Fidelity Investments joining as tonight.

HERERA: All right. On this up day on Wall Street, that will do it for NIGHTLY BUSINESS REPORT for tonight. Look at that. The Dow up 237 points on the trading session, the NASDAQ up 56, and the S&P 500 up 30.

MATHISEN: I’m Tyler Mathisen. Thanks for watching. For Sue Herera, 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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