BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Market trifecta. Interest
rates are rising, oil prices are climbing, and the dollar is strengthening,
and investors are trying to figure out what this means for their money.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: New hope for millions of
Americans after the FDA approved the first of its kind drug to prevent
GRIFFETH: Soupy sales. Campbell`s Soup is the latest iconic American
brand to struggle in this new economy.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Friday, May the 18th.
HERERA: Good evening, everyone, and welcome.
There is a proverbial cloud over Wall Street. Investors all week were
grappling with geopolitical concerns, along with rising interest rates,
higher oil prices and a stronger dollar. And today was no different. The
markets struggled to move with certainty in either direction. The Dow
Jones Industrial Average added one point to 24,715, the Nasdaq fell 28, and
the S&P 500 was off seven.
For the week, all of the major indexes were lower.
Dominic Chu takes a look at what`s worrying Wall Street.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: There are a lot of
risks to the market rally right now, but we wanted to kind of ask some of
the biggest investor minds and strategist minds out there, what they think
the biggest risks are to the overall market rally. So, let`s take a look
at some of these, because they`re all intertwined in some way.
First of all, Chris Rupkey, who was over at MUFG. He`s an economist there
he says the thing to watch out for is the fed. He says the biggest risk is
Fed policy. The market doesn`t tend to do well when the Fed is tightening.
Certainly something front and center on his mind.
Let`s take it to another level here, somewhat interrelated, also the rising
interest rate environment. This is Matt Maley over at Miller Tabak, who
says every time we see a meaningful rise in rates that exposes some sort of
malinvestment in the overall system, it doesn`t mean it will cause a major
crash but it could create the kind of scary environment or downdraft that
we saw in February. Rising rates also playing in his discussion as well.
Let`s take a look at another one here. This is from Blake Gwinn over at
NatWest Securities. He says its dollars strengthened emerging market
weakness, because it`s the top of the list because it`s probably the most
immediate and the current stress in a few countries like, say, Turkey,
Argentina or Venezuela could easily spill over into other emerging markets
and eventually start to impact develop markets like the U.S. and Europe so
something to watch out for there.
The next one here flows into that same dollar theme, this is Lori Calvasina
over at RBC Capital Markets, who says we`ve seen historically that when the
dollar strengthens too much, kind of like it is right now, earnings
revisions take a hit. The expectation for a weaker dollar has been
consensus among equity investors, so if this continues to go against it, it
might cause some real pain especially for companies that make a lot of
And we`ll finish with this one that kind of encapsulates all of it. This
is Ivan Feinseth over at Tigers Financial who says it`s all about revenue
and earnings growth anything that would derail that train would be the
biggest risk so anything that takes advantage or knocks down corporate
profits and sales could be a huge risk all things to watch out for.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
GRIFFETH: So with oil prices, interest rates in the dollar on the rise
it`s creating this trifecta of factors that one market expert says
investors need to keep an eye on. That expert is with us tonight. We
welcome back, Mohamed El-Erian, chief economic advisor at Allianz.
Mohamed, great pleasure to have you back with us tonight.
MOHAMED AL-ERIAN, CHIEF ECONOMIC ADVISOR, ALLIANZ: Thank you very much.
GRIFFETH: It is unusual to see those three asset classes move in tandem or
to trend in the same direction at the same time. Why do you think this is
EL-ERIAN: So, normally, you see two out of three either you see higher
interest rates and a stronger dollar because the Fed is on the move or you
see higher interest rate and stronger oils because the economy is moving.
Today, you see all three and you don`t see the negative relationship
between oil and the dollar in particular because people are worried about
oil supplies. They`re worried about Venezuela and they`re worried about
Iran reducing oil shipments after the U.S. exited the Iran deal. So, it`s
a supply issue, but we`re getting this very unusual trifecta.
HERERA: And do you expect that trajectory of all three to continue? And
if so, what is the impact globally?
EL-ERIAN: I do for interest rates and I do for the dollar. For oil, we`re
going to see more shale come in, so in the short term the trajectory will
continue, but over the long term, that supply is going to offset it. What
does it mean?
Well, if you`re in an emerging market and if you`re an oil importer, you`re
in trouble. You see this in Argentina. You see this in Turkey. Why? The
dollar means that you start suffering outflows, higher interest rates means
that your financial conditions tighten and higher oil prices means your
trade balance gets hit.
So, for the most vulnerable emerging economies, this is not good news and I
suspect that is — we`re not going to just talk about Argentina and Turkey,
they`re going to be some others we`re going to be talking about in the next
GRIFFETH: Now, for us investors looking at equity markets here
theoretically a higher dollar means tougher times or at least headwinds for
multinationals, for example. Same thing with higher interest rates, is
that how you view or where do you see opportunities in the U.S. equity
So, I think we`re going through a period of consolidation. Yes, we`re
treading water but we`re treading water after a really good performance
last year and in the first month of this year. So, I`m not overly worried
in fact I think long term investors should be welcoming this period.
Why? Because the market is getting is used to a higher volatility regime.
We`re going from unusually low artificial volatility to more normal
volatility, and that`s good for long term investment.
So, what do you do right now? I think you pick your spots. You clearly
want to be more domestically oriented because the U.S. economy is doing
better than the rest of the world. That`s — on the yield curve, be
careful. It`s going to start steepening again, meaning that longer-dated
bonds are going to see a higher increase in interest rates than shorter
dated ones from here, and the dollar — don`t show the dollar here. The
U.S. has both the growth and the interest rate differential in its favor.
HERERA: Does it change what the Fed does this year, with all three of
these factors moving higher?
GRIFFETH: So, ironically, Sue, the market has not only embraced very early
on what the Fed has announced for the whole year, which is three waits in
total, but a lot of the people now embracing for waits. I don`t think
that`s going to happen. I think we`re going to get three total interest
rates this year, means two more from here and the Fed is going to be very
The Fed is not going to disrupt this market in a major way. If it is
disrupted with a big F, with a big I and an F, it`s because of the rest of
GRIFFETH: The great Mohamed El-Erian with Allianz — always good to see
you again. Thanks for joining us. Have a good weekend.
EL-ERIAN: Thank you.
HERERA: Well, we mentioned those higher oil prices and as oil prices rise,
so do gasoline prices. And as Jackie DeAngelis reports, drivers are taking
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: A little over a
week before Memorial Day weekend, and gas prices are already up. The
national average for a gallon of regular gasoline higher by 57 cents from
this time last year, standing now at $2.91.
UNIDENTIFIED FEMALE: I think my tank is $5 more than it was before.
UNIDENTIFIED MALE: If the prices continue to go up and stay up for a
while, I`ll probably start thinking about how to economize a little bit
UNIDENTIFIED MALE: I don`t have much of a choice. I have to — you know,
you got to put the gas in the car.
DEANGELIS: The rise and pump prices comes alongside a spike in crude oil.
In the last three months, oil is up less than 17 percent. While higher oil
prices are good for producers, those companies using oil as an input could
suffer, and there`s a tipping point where oil too high can have a chilling
effect on consumers.
HELIMA CROFT, RBC CAPITAL MARKETS: This is a big issue for U.S. consumers.
There`ll be questions about, you know, what does this do potentially for a
recession. I think people will start to get worried as we move
significantly higher. But I was just in Abu Dhabi and the Indian oil
minister was there, and he said, look, these prices are starting to pinch
us now. So, for certain key consuming countries, China and India, I think
they`re going to be watching his rising prices.
DEANGELIS: Where do we go from here? Oil prices have more reasons to go
up and then down, geopolitics and reduction in Iranian exports, problems in
Venezuela, all while global demand forecasts are robust. What does that
mean for gasoline? Well, consumers could see very soon maybe even by
memorial which means there`s probably more pain to come since the peak of
the summer driving season doesn`t really hit until the Fourth of July.
For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.
GRIFFETH: Investors are also watching geopolitical developments,
especially when it comes to North Korea. In fact today, “The Wall Street
Journal” reported that training exercises involving U.S. bombers and South
Korean planes were canceled. That decision came after threats from
Pyongyang to withdraw from next month`s planned summit with President Trump
in protest of those scheduled training exercises.
HERERA: There is also uncertainty surrounding trade negotiations between
the U.S. and China, and they have been keeping investors on edge. And
today was no different.
White House economic adviser Larry Kudlow said China is meeting many of our
demands and that it offered to reduce their trade gap with the U.S. by more
than $200 billion. But the Chinese were swift to react to similar reports
Eunice Yoon is in Beijing.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: U.S. officials have
been quoted as saying that the Chinese have been preparing a package that
would help reduce the trade deficit by $200 billion.
Well, today, the foreign ministry said that the Chinese never said that.
The spokesperson said it is not true. According to what I know, the
relevant discussions are still ongoing and are going in a constructive
Now, he wouldn`t provide any other detail but those reports had claimed
that the Chinese would offer to buy more Boeing (NYSE:BA) aircraft and
natural gas and cut existing tariffs on agricultural products like pork and
Despite the lack of clarity, the two sides seem to be moving towards some
sort of deal. The commerce ministry today announced that it`s ending its
anti-dumping investigation into imports of U.S. sorghum. The ministry said
imposing duties was, quote, not in the public interest, because it would
negatively impact Chinese consumers.
That investigation was seen as one way the Chinese government was trying to
pressure president Trump by threatening us agricultural imports into China.
All this comes after President Trump met the Chinese delegation led by Vice
Premier Liu He at the White House.
Meanwhile, I spoke with people in the American business community here and
there`s concern about where these discussions are headed. Jeremy Waterman
of the U.S. Chamber of Commerce told me that he`s afraid that the Trump
administration is too fixated on the trade deficit and that structural
issues that the companies here face could be sacrificed.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
GRIFFETH: Meanwhile in Washington, the House today failed to approve a
sweeping $860 billion dollar farm bill. Members of the Freedom Caucus
voted against that bill after failing to get concessions on spending cuts
and a promise to call a future vote on immigration. Democrats also voted
against that measure.
The farm bill is generally viewed as a safety net for millions of American
farmers. It also includes the federal food stamps program. The Senate, by
the way, is also working on a separate bipartisan bill.
HERERA: It is time to take a look at some of today`s upgrades and
Advanced Micro Devices (NYSE:AMD) is rated outperform at Cowen in new
coverage. The analyst says AMD`s products are at an inflection point. The
price target is $18 a share. The stock rose 1 percent to $13 even.
Spotify is being rated a strong buy at Raymond James in new coverage. The
analyst says the company could double its subscriber base, expand gross
margins and generate material free cash flow. The price target is $190,
but it`s feeling the pressure from YouTube`s move into music streaming and
the stock as a result was off 5 percent to $150.80.
GRIFFETH: Marriott`s rating was raised to outperform from in line at
Evercore ISI. The analyst says that improving economic growth will work in
Marriott`s favor. Price target, $155. The stock closed at $138.52 today.
And Yelp saw its rating raised to buy from neutral at B. Riley. The
analyst expects the company to benefit from growth in its home services
business. Price target is now $58. That stock gained more than 2 percent
HERERA: Still ahead, as the market searches for direction, our market
monitor has a list of stocks he says could rise double digits over the next
HERERA: The Food and Drug Administration late yesterday approved the first
migraine drug in a new class of medicines. The drug is made by Amgen
(NASDAQ:AMGN), which saw its stock rise in trading today, but as with every
new treatment, there`s always the question of effectiveness and cost. Meg
Tirrell looks into that.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: As many as $36 million
people in the U.S. experienced them, debilitating headaches that can last
for hours or even days, migraines.
Now, the first of a new group of drugs has been approved in the U.S. to
DR. RASHMI HALKER SINGH, MAYO CLINIC HEADACHE NEUROLOGIST: I`m excited
because this is the first time in history we have a treatment for migraine
that`s based on what we know about what`s going on in the brain during a
migraine attack. It adds a little bit of validation to migraine as being a
TIRRELL: The drug is called Aimovig and it`s made by Amgen (NASDAQ:AMGN)
and its partner Novartis. It`s designed to be self-administered once a
month with an auto-injector similar to an insulin pen. In clinical trials
of patients with episodic migraine defined as between four and 14 migraine
days a month, patients taking Aimovig had one to two fewer days with
migraine than patients taking placebo.
SINGH: Migraine is not well-recognized and it seems that every day in
clinic, I`m telling someone that they have migraine, and they — this is
something that they didn`t know that they had.
TIRRELL: The drug is the first in a new class of medicines known as CGRP
SINGH: Everything else we`ve used up until now is something as designed to
treat a different problem, whether it`s blood pressure medicines,
antidepressants, anti-seizure medicines, that we`ve pulled into the
TIRRELL: One common treatment to prevent migraine, Botox, more commonly
thought of as an aesthetic treatment. The wrinkle busting drug was
approved for chronic migraine prevention in 2010, and now draws more than
half a billion dollars in annual sales from migraine treatment.
Wall Street sees big prospects for Amgen`s drug as well. It will cost $575
a month or just less than $7,000 a year. That`s lower than Wall Street had
expected. Pharmacy benefits manager Express (NYSE:EXPR) Scripts weighed in
on the price, calling it responsible, but noting not all migraine patients
will need the drug and that they see it as most appropriate for patients
who have already tried other therapies.
And while Aimovig is first to market, it won`t be alone for long. Three
other companies have similar drugs in development, Eli Lilly (NYSE:LLY),
Teva and Alder Biopharmaceuticals. So, some see a potential price war on
For a NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
GRIFFETH: A surprise departure at Campbell`s Soup today. CEO Denise
Morrison announced that she was retiring effective immediately. The
company then cut its profit forecast for the year and said it would begin a
review of all of its businesses.
As a result, shares plunged 12 percent, its largest one-day percentage
decline since 1999, and it is yet another iconic American brand that is
struggling in the current economy.
GRIFFETH: It`s still the Campbell`s Soup company, with roots dating back
to the 1800s, but Campbell is struggling to find its way in the 21st
century. Just listen to brand new interim CEO Keith McLoughlin trying to
steady the ship on today`s earnings call.
KEITH MCLOUGHLIN, CAMPBELL SOUP INTERIM CEO: We will undertake a thorough
and critical review of all aspects of our strategic and operating plans.
Everything is on the table. There are no sacred cows.
GRIFFETH: The company didn`t reveal any specifics, only that it hopes to
have some details by late summer, a plan of some kind aimed to reverse
three straight years of falling sales.
Outgoing CEO Denise Morrison did try to push the company beyond its
traditional brands like Pepperidge Farm, V8, Prego and Swanson, aiming to
bring it closer to today`s consumer, with forays into fresh foods and
organics. But she found only mixed results.
Campbell also announced it would buy Snyder`s-Lance (NASDAQ:LNCE), a snack
food company, for more than $6 billion in December, marking an even bigger
ANTHONY P. DISILVESTRO, CAMPBELL SOUP CFO: This is our largest acquisition
ever and it will meaningfully shift our portfolio towards the faster
growing snacking category. Snacking will become almost one-half of our
GRIFFETH: But our snacks and healthier foods the answers that Campbell is
looking for. Will they move a brand the baby boomers built into the warm
embrace of a growing millennial population?
Even if they are the answers, Campbell still faces a difficult economic
environment. It expects higher packaging costs due to steel and aluminum
tariffs, it`s worried about inflation pushing up prices for wheat and
vegetables, as well as for the oil and gas it needs to transport its
And while it`s targeting cost cuts as much as $500 million worth by 2020,
the question marks for Campbell`s Soup investors will linger.
GRIFFETH: And the news out of the company today rippled through the rest
of the food sector, dragging down the stocks like Kraft (NYSE:KFT) Heinz,
General Mills (NYSE:GIS), and B&G Foods.
HERERA: Deere raises its prices to keep up with rising costs. That`s
where we begin tonight`s “Market Focus”.
The farming equipment maker said higher freight and material costs caused
an earnings missed this quarter. But the company said it`s fixing the
issue with price hikes. Deere is also raising its profit forecast for the
year on strong demand for its construction and forestry products. Shares
finished up nearly six percent to $155.25.
The proposed merger between chip makers Qualcomm (NASDAQ:QCOM) and NXP is
reportedly looking more likely. “The Wall Street Journal” cited a Chinese
official saying he was optimistic that a deal would go through. The merger
has yet to be blessed by Chinese regulators due to ongoing tensions and
trade talks between the U.S. and China. Shares of NXP rose 4 percent to
$111.02. Qualcomm (NASDAQ:QCOM) shares were up about 1 percent to $57.51.
GRIFFETH: Meanwhile, a Chinese tech company Baidu (NASDAQ:BIDU) said today
it`s president and chief operating officer is stepping down for personal
reasons. The executive was hired by Baidu (NASDAQ:BIDU) to lead the
company`s efforts in artificial intelligence. Shares fell by 9.5 percent
And late last night, CBS (NYSE:CBS) board`s voted to dilute the voting
power of Shari Redstone, the company`s controlling shareholder. The vote
will not take effect unless it is approved by a Delaware court. And as
we`ve been reporting, CBS (NYSE:CBS) and Redstone are locked in a legal
battle over control of the company. CBS (NYSE:CBS) also postponed its
annual shareholder meeting which had been scheduled for today as a matter
of fact. CBS (NYSE:CBS) shares ended up marginally at $51.75.
HERERA: Time for our weekly market monitor. He has a list of stocks he
says could rise double digits over the next 12 months. The last time he
was on, he picked AT&T (NYSE:T), which is down 19 percent, Walmart, which
is higher by 5 percent, and IBM, which is down 2 percent.
Joining us is Chris Bertelsen. He is the chief investment officer at
Aviance Capital Management.
Welcome back, Chris. Nice to see you.
CHRIS BERTELSEN, CHIEF INVESTMENT OFFICER, AVIANCE CAPITAL MANAGEMENT:
Good evening, Sue.
HERERA: Let`s start with your first one. MasTec (NYSE:MTZ), one of — one
of the themes is very attractive valuations and you have a bullish horizon
for most of these stocks for one to two years. What do you like about
: Well, it`s all USA stock. So, not really affected by the dollar that
much, and it`s really an in situation where you buy one and you get one
free. Not only is it cheap and well-known for its engineering and
construction in the pipeline business and servicing and doing
infrastructure for unconventional oil services, that`s fracking and
But also, they`re huge player in the rollout of 5G, and 5G is simply faster
communications with your cell phone, more data through it and more —
everything that we use every day when we use cell phones and communication
So, they really have both sides of the equation as far as growth is
concerned. They beat both top line and bottom line and they raise their
expectations and you know short of a real economic drawback or recession.
I think this stock certainly has room to grow very nicely over the next 12
GRIFFETH: Then there`s Rio Tinto, which, of course, is one of the world`s
big mining companies. But if you`re looking for value, I guess you`re
finding it. They`ve been underperforming for years.
BERTELSEN: Absolutely, for a — Bill, for ten years and certainly for the
last five years, definitely. People really turned away from everything to
do with materials and mining and that whole area. And here you`re buying a
hundred billion dollar stock, you`re buying a stock that produces aluminum
and steel and even diamond.
So, it has all sorts of areas that a commodity-related and the stock is
trading at 11 times earnings with a five percent yield. So, my view on it
is that, we`re seeing growth now, particularly growth in the middle class
and more consumption of things, you know, copper, steel to the automobile
industry, whatever. And I think it fares very well been under performer
for years and now`s the time to take a look at it .
HERERA: Let`s quickly — very quickly, take a look at Western Digital
(NYSE:WDC), which is your third pick. Why do you like it?
BERTELSEN: Western Digital (NYSE:WDC) is really stupid cheap, seven point,
six times, 2.3 percent yield like with a about where a two-year is.
Everybody knows flash memory, they bought SanDisk (NASDAQ:SNDK), those
little chips you put in your camera and whatever, but the big part of it is
the disk business because everyone talks about the cloud. The cloud is
about storage, and nobody does the enterprise storage business better than
Western Digital (NYSE:WDC). It`s a huge growth business.
HERERA: Chris, thank you. Chris Bertelsen —
BERTELSEN: Thank you very much.
HERERA: — with Aviance Capital Management. To read more about his
picks, head to our Website, NBR.com.
GRIFFETH: Coming up, a royal wedding, a hefty price tag, and the queen`s
HERERA: The Vatican issued a harsh critique of the global financial
system, calling for more market regulation. The church says recent
economic crises have proved that the markets are not able to govern
themselves and an injection of morality and ethics is needed. The 10,000-
word document approved by Pope Francis attacked CEO compensation, the rise
of payday lenders, and referred to some complex securities contracts as,
quote, ticking time bombs.
GRIFFETH: Well, this weekend`s royal wedding will be watched certainly by
millions around the world and it`s going to cost a pretty penny. Some of
those costs are going to fall on the queen.
So, that got us wondering about the royal family`s wealth.
“Wilfred Frost is outside Windsor Castle for us tonight.
WILFRED FROST, NIGHTLY BUSINESS REPORT CORRESPONDENT: The royal wedding is
expected to cost as much as $45 million. The vast majority of which will
be going towards security that cost will be footed by the taxpayer and the
queen, but much higher portion by the queen, this time than compared to
2011, for the wedding of Prince William and Kate, which was a state
occasion. Tomorrow`s wedding is not.
But can the queen afford it. Here we take a look at her finances.
The queen`s total personal wealth is estimated at $490 million. That stems
from an investment portfolio of around $150 million and large amounts of
property, including Sandringham Estate in Norfolk and Balmoral in Scotland.
She doesn`t actually own Windsor Castle nor Buckingham Palace. They sit in
a charity called the Royal Collection Trust, along with the crown jewels.
The queen can use them but not sell them.
Most of the queen`s income comes from the crown estate which she also does
not own. It has a value of $16 billion, stemming from large amounts of
property in London and some 2 million acres outside of it. She receives
the sovereign grant each year which is roughly 15 percent of total income
generated by the crown estate. Last year, that came to $58 million. The
remaining 85 percent goes to the U.K. government.
She also gets around $20 million per year of income from the Duchy of
Lancaster, a private pool of capital that has existed for the sovereign
since the 1300s. Similarly, her son Charles, the Prince of Wales, gets his
own source of income of around $20 million per year from the Duchy of
It`s up to the Queen and the Prince of Wales how they disperse that income
among their children.
For NIGHTLY BUSINESS REPORT, I`m Wilfred Frost, outside Windsor Castle.
HERERA: Now you know.
GRIFFETH: You`re going to get up early and watch?
HERERA: Absolutely, with a hat.
GRIFFETH: I`ll watch the highlights.
HERERA: That does it for us tonight. I`m Sue Herera, thanks for joining
GRIFFETH: I`m Bill Griffeth. Have a great weekend. We`ll see you Monday.
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