TYLER MATHISEN, CNBC BUSINESS NEWS: Low Growth World a leading international group warns that the global economy risks falling into a trap and it is urging world policy makers to act now.
SUE HERERA, CNBC BREAKING NEWS ANCHOR: Tapping the Brakes. Americans did not buy as many cars last month as they have been as the auto industry undergoes a big shift.
MATHISEN: Storm surge threat, 7 million homes are in harms way resulting a potential damage of a $0.5 trillion as hurricane season officially begins.
Those stories and more tonight on “Nightly Business Report” for Wednesday June 1st.
HERERA: Good evening everybody and welcome. Stocks made a big you turn start the month of June. We’ll have more on that in just a moment. But we begin tonight with the global economy which the organization for economic cooperation and development says is vulnerable to another deep down turn and warns that urgent government action is needed.
Those global growth concerns were evident in the latest data out of China; the world’s second largest economy reported lingering weakness in its manufacturing sector. And here in the U.S., well things are better. The economy isn’t yet firing on all cylinders.
Steve Liesman explains.
STEVE LIESMAN, SENIOR ECONOMICS: This low global growth is set to continue this year and next unless governments around the world stop relying on central banks and low interest rates and start acting themselves.
That was the main message in a report today from the organization for economic cooperation and development. It’s a global group that put us together, market and non market economist.
In his latest forecast, the OECD says global growth will remain just 3 percent this year or the same as 2015 and rise only margin to 3.3 percent in 2017.
Growth is seen weakening in the U.S. to below 2 percent and there was a little change in the sub part over to Europe and for Japan.
The OECD even slashed its forecast for China but it nearly a half a point to 6.5 percent. The OECD calls it a low-growth trap.
CATHERINE MANN, OECD CHIEF ECONOMIST: The reason why we’re in a trap is because there’s an insignificant aggregate demand. In other words, business investment says, “Well I’m not going to invest and hire people and give them wages because I don’t see any demand out there”. And then of course since they don’t hire and they don’t generate wages, in fact, there isn’t. So it’s low-growth trap.
LIESMAN: The EOCD concluded that low interest rates of central banks are not enough to break out of the trap. They urge governments to barrow, spend and invest.
MANN: We have to bring in the second policy instrument which is fiscal policy and we know that countries now have the opportunity to borrow at very, very low interest rates. So they should do that, engage in the types of infrastructure projects that they put on hold for the last eight years.
LIESMAN: Those policies are controversial in many countries where there’s concern about deficits and paying back the debt and paying the interest on the debt ones rates rise.
There’s also widespread doubt about the effectiveness, is it borrow and spend policies to spark growth. But some say, they could break the trap.
JOE LAVORGNA, DEUTSCHE BANK CHIEF U.S. ECONOMIST: So if we structure the physical plan in a way that caused the economy to grow more in line with this historical record, there is a case to be made that those debt figures would look a bit less because instead of growing 3 percent to 4 percent nominal we’re growing perhaps 5, even maybe 6 percent nominal.
LIESMAN: Here in the U.S. the data has been a bit better than perhaps suggested by the OECD.
A key manufacturing index came in better than expected by Wall Street though it still suggest only modest growth.
At constructions spending fill more than expected. The Feds days look indicated modest growth across the country but some pick up in hiring and wages. Most data has pointed to a stronger second quarter and markets are bracing for the Friday jobs report which could give a green light for a Federal Reserve red hike later this month.
For “Nightly Business Report”, I’m Steve Liesman.
MATHISEN: On Wall Street concerns about the global economy pressured stocks at the start but the afternoon the loss is gone and stocks closed up. The first trading day of June with small and I do mean small gains. But Dow Jones Industrial average rose a wapping two points. That’s — what is that 1100 of a percentage, it had been down as much as 122 earlier in the day. There is you turn we talked about.
And the NASDAQ added four points and the S&P added two.
HERERA: Well, the auto industry hit a bit of a speed bump in May.
Sales at some of the world’s biggest auto makers came in below expectations.
GM sales in the U.S. were down 18 percent last month. Ford dropped nearly 6 percent while the Chrysler sales did rise but only about 1 percent.
Despite the pullback, the overall pace of sales remains relatively healthy. But it’s fill about reports, there’s one type of vehicle that’s no longer in demand.
UNIDENTIFIED MALE: Make no mistake America’s appetite for new vehicles is shifting.
May auto sales for the major automakers slumped compared to the same month a year ago. One reason, cars are no longer in demand.
Low gas prices have hit hybrid like the Toyota Prius. But other cars like the Dodge Dart are finding it hard to compete against crossovers, SUV’s and pickups which are red hot. How hot? Last months beyond Chrysler sold three times as many jeeps as it did all of its cars combined.
This has become a double-edged sword for auto makers. They make more money selling trucks and SUV’s. While those models are more fuel efficient than in the past, there is the concern about what happens if gas prices spike higher and the Americans quickly move back to wanting cars.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Against this back drop, the over all rate of auto sales remains relatively strong. Those slightly below the record pace the industry set last year.
For “Nightly Business Report”, I’m Phil Lebeau.
HERERA: Meantime Ford is recalling more vehicles for potentially defective air bags. It’s all part of a nationwide expansion of the ongoing Takata air bag recall. Ford’s move covers nearly 2 million vehicles in North America and focuses on the passenger side, front air bags inflators.
MATHISEN: Some of the world’s largest oil exporters will meet in Vienna tomorrow. There is renewed hope that OPEC will revisit a cup on production. Even the possibility of production crude is helped crude prices shed most of their declines today and they settle down just 0.2 percent.
And this Brian Sullivan reports from Vienna.
Investors are hoping the meeting brings answers to their many questions.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT, VIENNA AUSTRIA: Heading into the first of its two annual meetings here in Vienna, Austria. There are three big questions that OPEC must answer. Number one, will the run back to $50 for oil be enough to satisfy many of the most cash-strapped OPEC members such as Venezuela, Nigeria and Angola.
In the media scram on the way into his hotel earlier today, the Angolan Oil Minister suggested that 50 might be enough but 60, maybe.
BOTELHO DE VASCONCELOS, ANGOLA OIL MINISTER: Depending (ph) — its okay, but maybe $60 per barrel.
SULLIVAN: The second big question is whether or not Saudi Arabia and Iran can put aside their long simmering political and religious differences and come to any kind of a deal on either limiting or cutting output.
Both have been engaged in a fierce market share around the world particularly in China. And remember, the Saudis will be sending a new oil representative to OPEC for the first time in 25 years. It is a big wild card and the man is largely seen is just a proxy but the King of Saudi Arabia’s son.
The third question is will OPEC survive as a cartel. Many are saying that their inability to strike any kind of a deal over the last few years means that the cartel has been dramatically weakened.
We’ll see tomorrow if they can reassert their dominance because what happens here in the building behind us will impact the price of oil, which means it will impact the price that you pay at the gas pump.
For “Nightly Business Report” in Vienna Austria, I’m Brian Sullivan.
HERERA: In a CNBC survey more than 70 percent of those polled say there’s a view low chance of a production freeze at tomorrow’s OPEC meeting. But the analysts and traders and major energy funds who were surveyed also say that no action from OPEC could have an adverse effect on the market.
MATHISEN: The Gulf Coast region home to the nation’s oils rigs by the way as well as Atlantic cost are getting ready for hurricane season. It officially kicks off today.
Forecasters say it will be slightly more active than normal. The risk to coastal real estate is already high, and according to a new report, rising. Diana Olick explains why.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT, WASHINGTON: The sun is out now but storms will surely be brewing over the next few months and nearly 7 million homes are standing in harm’s way, according to new report from CoreLogic.
The numbers are rising because builders keep building and buyers keep buying. These homes represent a collective $1.5 trillion in potential reconstruction costs.
The risk to homes with that causative water view is highest in Florida, Louisiana and Texas where the coast lines are longest.
Louisiana is particularly susceptible to flooding because of its low lying flat lands to stretch England. The risk to cities relies on density and home values. Sixty seven percent of the nearly 7 million homes at risk are in just 15 metro markets. They account for 68 percent of the costs to rebuild. Those costs can vary dramatically depending where you are.
Take Miami for example, with 780, 000 homes at risks. The total cost of reconstruction comes in at $144 billion. New York City has fewer homes at risk but the cost of reconstruction is nearly twice that of Miami because of the value of those properties and the high density of where they are.
It all begs the question, why do we keep building houses that are in clear danger of destruction? The answer is more it psychology than reality. Hurricanes don’t hit in the same place every year and people tend to get hurricane amnesia even just a few years after a big storm.
The jersey housing market is hotter than ever this summer, Sandy after all with nearly four years ago.
For “Nightly Business Report” I’m Diana Olick in Washington.
HERERA: Still ahead under pressure, why the treasury department is cracking down and further cutting off one country from our banking system.
MATHISEN: A congressional committee has launched an investigation into the Federal Reserve Bank of New York. The panel wants to know more about how the New York Fed handled the heist of more than $80 million from accounts it maintains for the central bank of Bangladesh.
The committee also wants to know what oversight the Fed has conducted of this so called swift system, a messaging system used by banks across the globe.
HERERA: North Korea, the country that may have a link to that Fed hack is being further cut off from the international financial system. The treasury department today declared North Korea a primary money laundering concern and is further isolating that country from access to U.S. banks.
Eamon Javers is following the story for us from Washington. Good to see you Eamon. So what are these new restrictions that the treasury department is using?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT, WASHINGTON: Well, this isn’t finalized yet. Its’ called a section 311 determination by the U.S. treasury department and if it is finalized it will mean ultimately that U.S. banks have to do additional due diligence on any transaction that might in any way interact with North Korean finance.
They say that the reason they are doing this right now is because of a determination that North Korea is involved potentially with international financial transactions that back up weapons of mass destruction transfers and proliferation around the world.
So, that’s the concern that’s being cited today but it also comes amid this other discussion of who actually did this bank of Bangladesh hack that hit the New York Fed for $81 million.
MATHISEN: And sort of why now with respect to North Korea. I think you kind of answered that but do we know anything more about who really was behind that hack into the Bangladesh bank?
JAVERS: We don’t. I mean, what we know right now is there is some investigators are circling around the idea of some kind of North Korean involvement here. The reason being is they found particular software code inside the Bangladesh system they say was similar to software code that was used in the Sonny hack. And of course the U.S. government said it was North Korea that did that one.
But, and this is a big “but” here, all of this can be purchased out on the black market. There are cyber gangs for example that North Korea could have hired to do the Sonny hack and not done it directly themselves.
So who exactly it is that got into the bank of Bangladesh and stole that $81 million is still a big global who done it Tyler.
HERERA: I find it interesting they have access to the financial system at all, all right.
JAVERS: Yeah, that’s right.
HERERA: Eamon, thank you so much. Eamon Javers in Washington.
MATHISEN: That income at U.S. banks declined for the first time in two years the reason energy loans FDIC chairman says low energy prices have led to sharp increases in non-current loans to oil and gas producers.
He added that the full impact of those loans remains to be seen. Overall net income in the first quarter for banks fell to about just 39 billion.
HERERA: A wave of innovation has turned the banking industry on its head. Financial technology is changing the way the people transfer, lend and borrow money not just here but around the globe.
And as Eunice Yoon reports from Beijing, a dark cloud is forming over parts of this fast growing business.
(BEGIN VIDEO CLIP)
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Protests like this one in Beijing are increasingly common in china. Enraged investors demanding compensation and justice after losing their savings in a failed peer-to-peer lending company called Ezubao.
This alternative investment which match investors and borrows online have exploded in China but so have the scams casting a shadow over industry players like Sheng Jia who hope unconventional financing will still be a bright spot in a country slowing economy. Sheng runs peer-to-peer lending company NCF group, a Chinese financial technology or Fintech firm.
SHENG JIA, NCF GROUP CEO: I think because of scandals have been — especially since the second part of last year. They are scams. They just happened to be happening in this Fintech time that did affects the confidence of the consumer and it also it did affect the attitude of the regulators.
YOON: Regulators here have been tightening rules on P2P lending, one type of financial technology. In China, with funding from state banks out of reach from many smaller companies this open common sector has ballooned into a multibillion dollar industry. Despite the potential Sheng expects 2016 to bring uncertain times as regulators wearily eye this new entrance to the country’s financial world.
JIA: Regulation just started to come into play in this market but it take some time for the players and also the regulators to come to some sort of harmony while the regulator, it’s very often that regulator didn’t understand at the beginning when they understand all these, think they understand they will over regulate. So when they over regulate, the industry or the growth will be slower. That was basically wrong.
YOON: The former Google employee believes no company will be immune. Even the most famous brands like Apple Pay.
JIA: I know that Apple Pay is coming to China, it’s a huge Apple fan space and I’m using Apple Pay, but actually I don’t know. Anyone who wants to enter the financial — the finance sector in China, the first thing I think they need to talk to, regulator first. It’s very hard, not only financial players but any internet or technology companies to try to operate here in China, its different rules.
YOON: As for Sheng, he’s bracing for an industry shake out that he hopes will bring stability to the industry longer term.
JIA: After this half year regulation, more people, some people may be scared or may be have lost their confidence at the beginning but they are coming back or they are shifting from those shaky platform to a more repeatable, more renowned platforms. It’s better to face this problem earlier than later.
YOON: As long as he can survive any potential surprises along the way. For Nightly Business Report I’m Eunice Yoon in Beijing.
(END VIDEO CLIP)
MATHISEN: Strong demand for handbags and accessories helped lift results of the luxury goods maker Michael Kors and that is where we begin tonight’s market focus. At demand helped the company top sales and profit targets, it also raised its full year earnings forecast. The retailer says it plans to focus on selling at full price and expanding in Asia. Shares of Michael Kors rose more than 6.5 percent to 45.55.
Aggressive discounting, promotional offers weight on results meantime at Lands’ End, the apparel maker reported a nearly $6 million loss as well as the steep decline in sales. The CEO called those results disappointing. Shares fell more than 5.5 percent to $15.81.
The Cloud Computing company Salesforce will buy business software company Demandware for more than $2.5 billion. The merger expected the increase, Salesforces yearly revenue by up to $120 million. Salesforce CEO, Marc Benioff, spoke about the opportunities the deal presents.
(BEGIN VIDEO CLIP)
MARC BENIOFF, SALESFORCE CHAIRMAN & CEO: Our customers were trying to connect with their customers in a whole new way. You know that, in sales, in service, in marketing, building communities, analytics, AP Realty. Well, now, they also want to go to create their own stores as well. Online stores, physical stores, the commerce cloud. That’s where we’re going to create with demand where it’s been amazing.
(END VIDEO CLIP)
MATHISEN: Shares of Salesforce off a fraction to 83.45, Demandware soared a mere 56 percent to finish at 74.81.
HERERA: Number of analysts were bearish on Nike. Concerns over increased competition and a slowdown in retailer’s spending caused Morgan Stanley and Bank of America to downgrade the athletic apparel company stock. But, shares of Nike didn’t really react all that much to that. They were off about 0.5 percent to 54.93.
It was a good quarter at Cracker Barrel as the restaurant chain posted better than expected quarterly results. The company is raising its full year earnings forecast. And if that wasn’t enough Cracker Barrel is raising its quarterly dividend 4.5 percent and issuing a one time special dividend of 3.25 of share. As a result, the stock was up more than 8 percent to 164.22.
Lululemon’s founder and largest shareholder is calling for a board shakeup at the athletic apparel company. Chip Wilson who resigned from the board last year issued an open letter to shareholders expressing dissatisfaction with the company’s performance.
(BEGIN VIDEO CLIP)
CHIP WILSON, LULULEMONS FOUNDER: Vision is what’s really missing. So if you see what Lululemon’s doing, they’re just rolling out stores but they’re not morphing in to anything new and they’re not — they say they’re doing their — they’ve got technology. They say they’re doing innovation, but I might be the number one person in the world to understand that and I don’t see it anywhere.
(END VIDEO CLIP)
HERERA: Shares nonetheless rose more than 1.5 percent to 66.17.
MATHISEN: They are visionaries, they are innovators, and today top tech executives are talking about the future and the growing role digital technology will play in our day-to-day lives.
Julia Boorstin reports from the code conference in Rancho Palos Verdes, California.
JULIA BOORSTIN, CNBC SENIOR MEDIA & ENTERTAINMENT CORRESPONDENT: Cutting edge technology driving conversations of the code conference about the challenges and opportunities in the next generation of tech. Sheryl Sandberg bringing on the importance of constant innovation.
SHERYL SANDBERG, FACEBOOK COO: Facebook remains the best place in the world to get the largest audience of teens. And we’re proud of that. But we also know we need to execute. We need to continue to work hard, invest, build products over a three to five and 10-year time frame which is very long view that keep our audience and the people engaged.
BOORSTIN: Artificial intelligence is a huge topic among all of the executives here. Sandberg and Facebook’s CTO Mike Schroepfer talking about the big role that A.I. will play in Facebook’s future. Google’s CEO, Sundar Pichai, saying they’re just at the beginning of building out the transformative power of artificial intelligence.
SUNDAR PICHAI, GOOGLE CEO: In some ways, you know, our vision of this is the — we think of this as building each user their own individual Google with. So we want this to be user centric. And I think part of building this moderate system over time is to be able to understand users and be that assistant for them, be that friend for them, and I think it’s going to take us time to figure this out.
BOORSTIN: Amazon’s CEO, Jeff Bezos, also talking about his massive investment in artificial intelligence with more than 1000 employees working on the Amazon Echo device and Alexa software which he says is just a tip of the iceberg. He also said, “It’s just the beginning of how Amazon will invest in content, originals and licensed shows as part of a bigger retail strategy.”
JEFF BEZOS, AMAZON CEO: From a business point of view for us, we’re — we get to monetize that content in a very unusual way because when we win a Golden Globe, you know, it helps us sell more shoes.
BOORSTIN: And Amazon is also using artificial intelligence to sell more shoes with custom recommendations based on user’s buying history as technology plays an ever larger role in consumer’s lives. For “Nightly Business Report,” I’m Julie Boorstin in Rancho Palos Verdes, California.
MATHISEN: They even know whether I’ve been naughty or nice. And still ahead, the ultimate man cave where Ferraris are included and they’re on a turn table.
HERERA: All right, let’s look ahead. Here is what to watch for tomorrow. As we reported OPEC will make its decision on whether to freeze oil production. The European Central Bank is meeting to discuss monetary policy and jobless claims and ADP’s report on private payrolls are due out and those are the last labor market reports ahead of Friday’s key employment report. And that is what to watch for, for Thursday.
MATHISEN: And finally tonight, the man cave most or at least many men want one, a place, all their own where they can relax on a recliner or a big screen T.V. or sex. Robert going to takes us to one in Orange County, California that’s like none we’ve ever seen before.
(BEGIN VIDEO CLIP)
ROBERT FRANK, “NIGHTLY BUSINESS REPORT” CORRESPONDENT: In this super rich neighborhood in Orange County, California, when the guys get together for poker night bragging rights are on the line. But they’ve figured out a way to up the ante.
JASON VOORHEES, CANTARA PRESIDENT: There’s a competition among the home owners here to build the most amazing space for the poker game.
FRANK: The owner of this mega mansion went all in and built a massive one of a kind man cave, stacking the deck with all the essentials like a full bar, wine cellar, pool table and more than a million dollars worth of electronics. He hired tech wizard Jason Voorhees to make sure all of these high priced and complex equipment works like aces.
VOORHEES: The automation system that we have installed in this home is the same system that’s installed in every Disney theme park in the world that runs every single ride.
FRANK: But what raises the stakes in this luxury fantasy land are the homeowner’s ride, lots of them.
VOORHEES: Right now we’re spinning around in the car cave.
FRANK: And what a garage it is. This is the ultimate full house. Two Aston Martins, including a DB5 also known as the James Bond car, a 1927 Bugatti, a 1930 Austin and these, six super rare pre-1970s Ferraris, each worth millions. All 4000 square feet of the car cave is covered in cobblestone. The walls and ceilings are made of limestone. And when the owner wants to show off their collection, thanks to Voorhees, he can set the mood in an instant.
VOORHEES: The lights are the perfect museum setting. The music is usually playing ’60s classic rock, like, Steppenwolf’s “Born to be Wild,” things like that.
FRANK: The music is digital but the star of the show is spinning on the turn table, a 1958 Ferrari, 250 GT toward their front. This one has European racing history which jacks the value up to nearly $10 million and the entire jackpot is worth more than $20 million, which means for this homeowner, there really are no limits. For “Nightly Business Report,” I’m Robert Frank.
(END VIDEO CLIP)
MATHISEN: Boys and their toys.
HERERA: I’m kind of speechless.
MATHISEN: Yeah, that was just astonishing.
HERERA: Would you ever take it out? No, I would be afraid to take it out.
MATHISEN: No. No, my gosh.
HERERA: That’s the problem. All right. Well, we will never have that problem.
MATHISEN: No, we don’t have to worry about it.
HERERA: That does it for us tonight. Thanks for joining us. I’m Sue Herera.
MATHISEN: I’m Tyler Mathisen. And thanks from me as well. Have a great evening everybody. We’ll see you back here on the turn table.
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