Transcript: Nightly Business Report – September 6, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Heating up. A flurry of deals helps lift the market and sends the NASDAQ to a record close.

Cracks in the economy. A new report adds to the     string of soft data. How concern should investors be about pace of economic growth?

And, made in space. How one company is bringing the digital future to the final frontier?

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Tuesday, September 6th.

Good evening, everyone. I’m Sue Herera. Tyler Mathisen is off this evening.

Call it Takeover Tuesday. Germany’s Bayer is sweetening its offer for Monsanto again and it’s now prepared to pay $65 billion in cash for the seed company, creating a huge conglomerate that would include everything from pharmaceuticals to pesticides. The new bid means the biggest takeover offer the year just got even bigger. Shares of Monsanto, however, fell in trading today.

And while that potential convention may have a big price tag, it wasn’t the only merger news. Danaher, a science, health care and technology company, says it will buy medical diagnostics firm Cepheid for about $4 billion. This is the first major acquisition since spinning off a large portion of its business. Shares of Cepheid soared 52 percent. Danaher dropped 2 percent.

And then there’s the oil pipeline deal. Enbridge, Canada’s largest pipeline company, is buying Spectra Energy for $28 million. The combination will create the largest North American energy infrastructure company. Shares of both Spectra and Enbridge rose.

Jackie Angelis has the details of this energy industry get-together.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Truly a megamerger announced today in the energy space. This deal speaks volumes to the kind of consolidation that we’re seeing in the industry and can continue to see as companies look to reduce costs, diversify assets, and streamline their businesses.

Now, obviously, pipelines get oil from point A to point B. What people don’t realize is that the infrastructure in this country is just as crucial as getting the product out of the ground. Even with the fracking boom, if domestic crude can’t efficiently be moved around, we will still need to import foreign oil, which defeats the purpose of pumping our own products.

Not only did Enbridge and Spectra Energy get a boost today, but other pipeline names popped, too. Shares of Kendra Morgan, J.P. Energy and Williams Companies saw some of the most notable gains in the space. These are seen as some potential candidates for acquisition as well.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: The oil and gas industry in Oklahoma coming under renewed scrutiny after an earthquake this week. Some scientists are blaming the process of fracking.

And as Morgan Brennan reports, that could have a potential impact on production in that region.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The powerful 5.6 magnitude earthquake that rattled Oklahoma is the strongest in the continental U.S. so far this career. It took place near Pawnee, 55 miles northwest of Tulsa. No one was seriously injured.

But officials suspect the tumbler could be linked to the oil and gas industry. State regulators ordered at least 37 waste water injections wells to be shut down. The concern: the wells which are used to dispose toxic waste water from fracking could have triggered the quake. That’s because the wells are drilled more than a mile into the earth, where the increased pressure could cause existing fault lines to shift.

The U.S. Geological Survey has linked a dramatic surge in seismic activity in Oklahoma and other energy producing states like Texas and Kansas. To dispose of wells drilled too deep.

In Oklahoma, there were 809 3.0 magnitude quakes last year versus just one in 2005.

The wells are crucial to the fracking process, raising questions about the state’s oil output, which is nearly 5 percent of the country’s declined since less wells could mean less production.

JOHN KILDUFF, AGAIN CAPITAL FOUNDING PARTNER: There could be a potential environmental catastrophe if the storage tanks, which will literally fail or rupture as a result of an earthquake. You’re talking tens of millions of barrels of crude oil, which much are exactly where they would go, but the impact would be monumental, rivaling I’m sure Exxon Valdez and other of the major spills we’ve had in the country.

BRENNAN: Again Capital’s John Kilduff says the area’s major producers using injection wells include Sandridge Energy, Chesapeake Energy, and Range Resources.

Another factor has experts concerned — the tumbler struck 25 miles from Cushing, one of the biggest oil hubs on the planet. Enbridge, Magellan Midstream and other tank farm and pipeline operators report no damage. But with 64 million barrels of cruel oil currently stored in Cushing, the worry is an earthquake doing damage there would have far-reaching implications.

KILDUFF: This not the first earthquake. It is one of many. It’s one of the biggest in several years and people are getting shook up about it in a big way. And for the first time, you’ve seen a response from the government there against the industry.

BRENNAN: Due in large parts, ejection wells and manmade seismic activity, the USGS say some parts of Oklahoma are now as much of an earthquake risk as California.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

HERERA: The world’s largest oil exporter, Saudi Arabia and Russia, said that they would work together to stabilize the global energy market, but traders expressed skepticism that the major producers would be able to reach a deal to freeze production. OPEC and non-OPEC producers will hold informal talks at the end of the month. Domestic crude settled higher to more than $44 a barrel.

Energy shares rose helping the broader market, but the NASDAQ was the real winner today closing in at an all time high. And traders also closely watched the latest economic data that came in weaker than expected. We’ll have more on that in just a minute.

So, by close, the Dow Jones Industrial Average gained 46 points to 18,538. NASDAQ rose to a record 5,275. And the S&P 500 added six.

More now on the weak economic data. The services sector of the economic, that includes health care and retail, grew at the slowest pace in six years. The Institute for Supply Management said it’s non-manufacturing index was much weaker than expected and export orders fell and new orders and hiring grew more slowly last month. The survey covers businesses that employ the vast majority of U.S. workers.

So, the soft showing of the services sector follows Friday’s disappointing jobs report. Those weak reports are lowering the odds of an interest rate hike later this month. And while that may make sense to some, economists, the relationship between the market and the Fed is a bit more complicated.

Mike Santoli explains.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Are the markets effectively daring the Feds to raise interest rates? Most economists feel the economic evidence has been too ambiguous to force a Fed rate hike this month. But the resilience of financial markets after several shots early this year could embolden Fed officials who want to lift rates sooner than later.

Compared to last December, when the Fed push rates up for the first time in nine years, stock indexes are higher by 9 percent. And a corporate credit market looks healthier. Global market volatility has also come down after the U.K.’s vote in June to leave the European Union.

Of course, many would argue the markets had been so strong because investors expect the Fed to stay idle for a while longer. In this view, once Fed Chair Janet Yellen clearly signals a plan to tighten policy, markets would weaken in response, which in itself could put the Fed back on hold.

While this has been the frustrating pattern for some time now, Fed officials have suggested recently that enough progress has been made under employment goals to make each meeting a live one for possibly rate moves.

Still, it’s unclear if today’s firmer market conditions alone create much urgency on the Fed’s policy committee. For one thing, the treasury market is not priced for an imminent hike and the Fed prefers not to blind-side investors.

And the economic data have been mixed. For the softer than expected jobs gain for July and some weakness in manufacturing. The election, too, offers one more excuse to defer action.

Perhaps, once again, the Fed won’t have all the ingredients in place at once for clear move. Also you’d expect the next rate bump in December, but who knows how markets or the economy will look a whole three months from now.

And so, nearly nine months after the Fed began trying to normalize interest rates, it remains unclear when Yellen might dare to take the next step.

For NIGHTLY BUSINESS REPORT, I’m Mike Santoli at the New York Stock Exchange.

(END VIDEOTAPE)

HERERA: So, what is this recent string of weaker economic data telling us about the pace of growth for the U.S. economy?

Michael Feroli joins us. He’s chief U.S. economist at J.P. Morgan, to talk more about his take on the economy.

Good to see you, Michael. Welcome.

MICHAEL FEROLI, J.P. MORGAN CHIEF U.S. ECONOMIST: Thank you.

HERERA: Let’s start, first of all, you know, we kind of set the stage with some of the weak data including the ISM report. But are you worried about the phase of growth in the U.S.?

FEROLI: Well, I think you know, this morning’s report in isolation, you don’t want to overreact to it, but it comes on the heels of some softer details and last Friday’s employment report, and we have seen a string of manufacturing reports that also look a little on the soft side. So, you know, we’re not raising alarm bells or ringing alarm bells here, but perhaps we are seeing a little bit of slowing and momentum as we get to the latter part of the third quarter.

So, it does — I think there’s some information content there that we don’t want to ignore.

HERERA: So, if we don’t want to ignore, what more do we need to watch for? What are the data points that are going to be important or perhaps more important than they would have been previously to you?

FEROLI: Right. So, next week, we’ll get a look at August retail sales. The consumer has really been the strong part of the economy. I think we need to see that continue.

We’d also like the see there’s weekly jobless claims numbers not move up and I think that would signal that, you know, last month, slightly disappointing labor market report. It’s nothing to get alarmed about or may be it is.

HERERA: Right.

FEROLI: If markets move up

So, those are some of the things I think we want to keep an eye on.

HERERA: Do you view the unemployment report that we got on Friday as kind of a lagging indicator as some do? Others say that it’s accurately reflects the growth of jobs in the U.S. and some people do think that it lags a little bit.

FEROLI: I mean, I think temporarily, it does lag and so that’s why I think we want to pay attention to some of these, you know, business surveys that we talked about earlier.

You know, one of the details within the employment report is the length of the average workweek and that did move down in August. So, that sometimes, that cane leading edge of when business turns more cautionary. It gets turn back hours rather than overall employment. That’s another thing we want to keep an eye on in terms of looking at the labor market next month.

HERERA: Do these latest data points change your outlook for what GDP will look like?

FEROLI: So, we are looking for 2 percent growth in the third and fourth quarters. We already have some data in hard regarding third quarter GDP and it does look like it’s shaping up to be certainly better than first half growth, when GDP growth average 1 percent.

I think the question is, does that momentum carry on into the fourth quarter. And right now, that’s really an open question. I think some of the latest reports, again, made that more of an interesting question.

HERERA: Right. Where does this put the Fed? Because there’s a divide in the street as to whether or not they’re going to make a move for higher interest rates in September, or does this weak data give them the opportunity to take a step back and say, you know what, maybe we do it in December?

FEROLI: Yes. Our best guess is that they wait until December and opt not to do anything in September. In addition to all the things we talked about, in terms of, you know, some indications of growth momentum weakening. We’ve also got to keep in mind that the inflation data hasn’t looked particularly hot over the past three to six months. So, I think that may be another factor, to pass on the next meeting.

HERERA: OK, Michael, we’ll leave it there. Thanks for joining us tonight.

FEROLI: Thank you.

HERERA: Michael Feroli with J.P. Morgan.

Still ahead, the brand that’s no longer just a game, but a year round phenomenon.

(MUSIC)

HERERA: The parent company of FOX News will pay former anchor Gretchen Carlson $20 million to settle a sexual harassment lawsuit. 20th Century Fox also issued a public apology. In July, Carlson sued former Roger Ailes, alleging that he made unwanted sexual advances while she worked at the company. Ailes denied the acquisition, but resigned as chairman shortly thereafter.

A for-profit college is shutting down. ITT Educational Services is abruptly closing all of its schools. The move will impact 35,000 students currently taking classes on campuses and online. Last week, the Department of Education barred the school from allowing any new students to use federal loans. The school then stopped new enrolment. ITT is blaming the closure on the federal government, though it has been the subject of investigations for years over its recruitment tactics and its job placement figures.

Lawmakers are back in Washington and the to-do list is long and it includes a few key items. The first thing is funding for Zika. Last week, the head of the CDC warned that his agency would run out of resources to fight the virus by the end of this month.

The second, government funding. Congress is expected to consider a short-term bill that would keep the government from shutting down October 1st. And the third, EpiPen pricing. There will also likely be hearings on the rising cost of that life-saving medication that we’ve been telling you about.

But Washington will be dominated most likely politics and the upcoming presidential election.

Eamon Javers is following the final stretch on the road to the White House.

Good to see you, Eamon. We’re seeing some polls that appear to be kind of all over the map. So, which one should we trust?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, they really do. We saw this CNN poll which is out just over the past 24, 48 hours, in which you see Donald Trump leading by two over Hillary Clinton. But then we see this NBC News Survey Monkey online survey in which Hillary Clinton is up by six points. So, the question is, which one do you trust?

And I think ultimately, what you have to do is not look at any one poll. They’re all just snapshots, but look at the overall trend and what that seems to be telling us is that Hillary Clinton’s lead did grow after the conventions but since then it’s been tightening a bit. How much is going to be the question November.

HERERA: Well, that begs the question, is this a tight race then or perhaps not?

JAVERS: Well, it’s definitely tightening. The question is, how tight is it going to go and how tight is tight? You talk about the poll difference or 2 percent or 4 percent or even 5 percent, but in the Electoral College, that can be a very different picture.

Take a look at these stats that we poll together from 2008, which shows you the Barack Obama win that year in 2008. Look at the spread between Obama and McCain that year in popular vote. A couple of percentage points there. There are significant margin, but in the Electoral College, that’s a blow, 67.8 percent to 32.2 percent.

Similar picture back in 2012 if you put up those numbers, you see again, the Obama, Romney, you know, fairly close, just over three points separated them in the popular vote. Electoral College, though, a very, very big difference.

So, these tighter polls that we’re seeing don’t necessarily mean the election itself will be tight. That depends on the state by state breakdown and that’s why we all watch all those individual state polls as well as national averages.

HERERA: Absolutely. Now, as we go into the final stretch, you know, Donald Trump has made some big changes to his campaign. His tone has changed somewhat. How — does the race tend to tighten the closer we get to the election or —

JAVERS: It does. It feels like that’s a natural default point. We also see the candidates bringing in some different issues. Donald Trump just over the past day or so bringing up the question of the Federal Reserve and its role in the economy, interestingly enough, saying that we basically have a false economy right now, because the interest rates have been kept so low. Trump saying those have been kept low in order to help Barack Obama in his last few months in office.

Hillary Clinton today came out and said, you know what, that shows, those comments show Donald Trump should never be president because presidents shouldn’t be talking about the Fed. So, we’re seeing new issues every day, Sue.

HERERA: We sure are, Eamon. Thank you. Appreciate it.

JAVERS: You bet.

HERERA: Eamon Javers in Washington.

EOG Resources inks a deal to buy Yates Petroleum, and that’s where we begin tonight’s “Market Focus”.

The energy company said it will acquire privately owns Yates for nearly $2.5 billion. The merger will allow EOG to expand its presence in the coveted Permian Basin. Shares of EOG surged more than 6.5 percent to $94.83.

Strong demand for storage and networking products helped Marvel Technology turn a profit. The chip maker did post a drop in sales, which came in shy of estimates. The company also gave lower than expected guidance. Shares finished the day down just fractionally to $12.94.

The Food and Drug Administration has given Sage Therapeutics’ post-partum depression medication breakthrough therapy status. The biotech company said there are currently no approved treatments for that condition. The news sent shares soaring 12 percent to $40.92.

Investors had a chance to react today to a “Financial Times” report published over the weekend saying Liberty Media may take a large position in the car racing series Formula 1. According to the report, the TV distributor has entered into talks with the parent company of Formula 1 to discuss buying a 10 to 15 percent stake. Shares rose 2 percent to $17.56.

Video game maker Activision Blizzard closed at an all-time high. The stock rose more than 1 percent to finish the session at more than $43 a share. Some are attributing the stocks rise to its “Call of Duty” franchise, which has clearly become more than just a video game, following a sold-out three-day fan festival. It’s also very big business.

Julia Boorstin has more.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Activision Blizzard’s “Call of Duty” has already sold $15 billion worth of games and the brand is getting even bigger as it continues to expand beyond being just a game that hits stores once a year into a year round phenomenon.

Tuesday, Activision launched more digital content pack for “Call of Duty”, gamers paying between $15 and $50 for bonus content for last year’s game. Over the Labor Day weekend, more than 10,000 fans paid between $50 and $200 for access to “Call of Duty” XP, watching teams compete in the Call of Duty World League Championships for $2 million prize pool. Along with performances by Snoop Dogg and Whiz Khalifa.

JASMIN GUTIERREZ, “CALL OF DUTY” FAN: This is like my personal Disneyland.

BOORSTIN: Attendees also got to preview the upcoming “Infinite Warfare”, which goes on sale November 4th. Reviews of the game are so positive that Mizuho analyst Neil Doshi just raised his price target on the stock and reiterated his buy rating, saying new features of the game removed a selling on how much players can spend.

NEIL DOSHI, MIZUHO SECURITIES: They’re now adding something called micro transaction. So, you can buy small things within the game for $2, $5, $10. And so, it’s not only are you paying $60 for the actual game, but now, if you want a new weapon or you want a better outfit or a costume, or you want to advance to a higher level, you can actually pay a little bit of money.

BOORSTIN: Now, analysts are bullish that new consoles from Sony PlayStation, as well as Microsoft Xbox, will help bolster Activision’s game sales, as well as its rival EA.

Helping Activision rebound from declines in disappointing Q4 results. Shares are up 38 percent over the past six months.

DOSHI: We think that the new consoles will actually be a net positive, because more people will upgrade their console, and as a result, they’ll start to buy games for these new consoles.

BOORSTIN: Doshi and other analysts are also bullish on the types of competitive gaming feature at this past weekend’s event called eSports, saying it could not only generate billions of dollars in incremental for Activision, but it would also have the added benefit of getting gamers even more engaged year round.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: Coming up, out of this world, how a new and fast growing technology has its sight set on the final frontier.

(MUSIC)

HERERA: Here’s a look at what to watch tomorrow. The Federal Reserve releases its Beige Book, which is an anecdotal look at the economy across the country. Some Federal Reserve officials are scheduled to testify in front of Congress, on the central bank’s governance and how it relates to monetary policy. Apple is expected to unveil its next iPhone and that’s what to watch for on Wednesday.

General Motors has settled two cases involving its defected ignition switches for an undisclosed amount. The two had been slated for trial later this year and were considered bellwether cases, which means they would set settlement patterns for some of the remaining personal injury and wrongful death suits. More than 2.5 million older G.M. cars were recalled in 2014 because of faulty ignition switches that could cut power to the engine.

Volkswagen is planning to buy a minority steak in Navistar. The deal gives the automaker a foothold in the U.S. and expands its global truck market operations. VW plans to invest about $250 million in Navistar, and we’ll have the right to appoint two directors to Navistar’s board. The stakes sent shares of Navistar soaring 40 percent on the trading session.

And more buyers with excellent credit are buying pre-owned cars, not new ones. According to Experian, 43 percent of super prime customers financed a used vehicle in the second quarter. That is a 10 percent increase from the previous year. The move may be due to the rise in car prices. Experian says consumers are looking for ways to control costs and as a result, are buying used vehicles.

General Electric is making a big push into 3D printing. The Dow component is buying Sweden’s Arcam and Germany’s SLM Solutions. The combine transactions are valued at nearly $1.5 billion. GE says the move will help the company become the premier digital industrial company.

The aviation industry was one of the early adopters of 3D printing technology, which can help cut waste of expensive factory materials. And 3D printing is also playing a key role in the new, more modern and increasingly digital space race.

Aditi Roy tells us about one company going where few have gone before.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: 3D printing isn’t new, but it’s used in space. Two years ago, Silicon Valley-based company Made in Space launched its first ever 3D printer to the International Space Station. It let astronauts print a tool they needed instead of waiting for a shuttle to bring one from Earth. The process takes just a few hours and makes living, working and building in space a lot cheaper and a lot more efficient.

ANDREW RUSH, MADE IN SPACE CEO: If we want to actually colonize space, you know, if we want to go permanently live, you know, in orbit, in the moon or Mars, we need to take the ability to manufacture. Just like the settlers, when they came out west, they took tools to build industry.

ROY: But Made in Space is thinking bigger, with plans to manufacture goods in space and ship them back down to earth. Their newest project partners with Thorlabs in printing high quality optical fiber in a zero g environment.

The end product is ten times faster than the fiber made on earth and only slightly more expensive, which means huge opportunities for communications, health care and manufacturing companies, where high speed can mean high margins.

RUSH: If we can lay long on telecommunication lines that are c bland (ph) rather than silicon fiber, that’s going to dramatically increase the bandwidth that’s available to you and I.

ROY: Made in Space also plans to launch a free-floating 3D printer which they’ve named Archinaut. The printer will be used to build large scale structures like a building up in space.

PHIL SMITH, TAURI GROUP: The beauty of that is that it can be, as I said, computer controlled, so you don’t necessarily need a considerable amount of human involvement. That means you could have these things built beforehand and then people can use these facilities at later time.

ROY: Made in Space says these technologies aren’t that far off. The first round of fiber is set to launch in late 2017. The company recently signed a contract with NASA to start working on Archinaut over the next two years.

For NIGHTLY BUSINESS REPORT, I’m Aditi Roy in Mountain View, California.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us. Have a great evening. And we’ll see you right here back 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) 2016 CNBC, Inc.

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