Transcript: Nightly Business Report – June 27, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Rally fizzles. Stocks soared at the opening bell but the optimism faded as investors have a hard time making sense of this market.

president`s crackdown on Chinese tech investments was less harsh than
expected, but questions about the economic impact remain.

HERERA: Labor setback. The Supreme Court deals a blow to unions in a
decision that could have far reaching implications.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
June 27th.

GRIFFETH: And we do bid you good evening, everybody.

Call it the moody market. Stocks soared out of the gate this morning on
word that the Trump administration had decided not to limit or block
investment in U.S. base tech companies that had substantial Chinese
ownership, but the morning`s euphoria did not last long and for whatever
reason around midday, technology and financial stocks suddenly turned lower
and turned this rally upside down.

By the close, the Dow had a gain of 285 points midday but by the close it
was down much more than that. A loss of 165 points to 24,117. The Nasdaq
was down 116. That`s where the technology stocks live and the S&P 500 fell
by 23.

Bob Pisani has more on today`s topsy-turvy day.


strong, but the rally fizzled out with the Dow whipsawing in 350 points
trading range. Traders are having a tough time making sense of why I call
the yoyo stock market.

The White House backing off some of those harsh measures to restrict
Chinese investments in the U.S. That did help prop up stocks early on, but
the reality is trade issues and a potential trade war, they`re far from
over. Tech stocks wasted no time rolling over, so semi-conductor names
that would be influenced by trade wars like Nvidia, Applied Materials
(NASDAQ:AMAT), they fell 2 percent to 3 percent on a day, the defensive
sector like utilities, consumer staples, they all closed higher.

Bank stocks haven`t budged. The XLF, which is a big basket of financials
is down 13 days in a row. That`s a record. Goldman Sachs (NYSE:GS),
Morgan Stanley (NYSE:MS), they`re down 20 percent from their recent highs.
They`re in bear market territory.

These banks are getting hammered by fears of a flattening yield curve. A
short term interest rates continue to inch higher. Energy did provide some
relief today. Oil is over $72. But remember, oil is a much smaller sector
than banks and technology.

Finally, we`re coming up on the end of the month and, of course, the end of
the second quarter. Pension funds and other groups are likely moving
around a lot of money. They`re having to rebalance their holdings, some of
them and lighten up on certain stocks that have raised higher all year
especially technology.

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


GRIFFETH: And, by the way, today`s strange market was just another example
of what has been an unusual year for stocks.

Mike Santoli has more on a little later on the program — Sue.

HERERA: Bill, the initial spike in stocks followed the Trump
administration`s decision, as we mentioned, to soften its stance towards
Chinese tech investment in the U.S. Many investors viewed that as a de-
escalation of tensions between the world`s first and second largest

Kayla Tausche has more on the latest White House position on trade.


decided to expand an existing tool to review foreign deals in the U.S.
instead of writing new rules just for China.

and I think hopefully that will get straightened out.

TAUSCHE: The move marks a significant de-escalation in a trade fight with
Beijing. House lawmakers passed a bill Tuesday that gives the Treasury
more power to review inbound investment that`s might pose a risk to
national security. Commerce is now studying outbound transactions.

Treasury Secretary Steven Mnuchin says China will not be singled out.

STEVEN MNUCHIN, TREASURY SECRETARY: We`re going to treat China the way
we`re going to treat other people, and to the extent that we were worried
about transactions, we will block them. But we are not going to on a
wholesale basis discriminate against China as part of a negotiation.

TAUSCHE: It`s a hard right turn from the White House`s recent approach to
China announcing tariffs on up to $450 billion in goods just two weeks ago
as trade tensions heated up. The president`s economic adviser Larry Kudlow
told reporters today there is communication between the two countries and
today`s move should solve the problem.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.


GRIFFETH: So, what exactly is the existing review process that the
president plans to use when making some key trade related decisions?

Michelle Caruso-Cabrera takes a look for that tonight.


who are worried about a trade war got some good news today. The White
House announcing that it will use its current tools with some enhancements
that have bipartisan support in Congress to restrict Chinese investments
that they think threaten national security. This legislation amplifies the
mandate of an organization called CFIUS, which stands for the Committee on
Foreign Investments in the United States. Up until now, CFIUS was narrowly
focused on foreign buyers of U.S. companies with the focus of protecting
U.S. technology.

In the past, CFIUS has rejected several tech deals including Broadcom`s
attempt to purchase semiconductor maker Qualcomm (NASDAQ:QCOM) and a bid
for Lattice Semiconductor (NASDAQ:LSCC) from a group of Chinese investors.
Now, among other things, the administration can also look at joint
ventures, both here in the United States and overseas.

The treasury secretary is always the head of CFIUS and today, he said China
will be singled out simply because the U.S. has a very large trade deficit
with that country. There`s wide bipartisan support for this legislation.
Just yesterday, the House voted 400-2 in its favor.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.


HERERA: So what is the potential impact of today`s announcement and the
ongoing trade back and forth on the economy and what happens if we make it
harder for countries to buy our goods?

Diana Swonk is the chief economist with Grant Thornton and she joins us
from Chicago.

Always good to see you, Diane. Welcome back.


HERERA: I guess it must be hard to model this economically because there
are so many — the positions are changing as they work through the system
in Washington. But net-net, what do you think?

SWONK: Well, I do think this is a good first move. Unfortunately, we know
we don`t have a lot of staffing at Treasury, so we don`t know what the
staffing will be. We already know the issue of trying to get exclusions
for the steel tariffs, there`s 21,000 applications where some companies
only get a foreign kind of steel that is no longer made in the United
States and they`ve not been able to get through the bureaucracy of commerce
because there`s no staffing.

And so, I think part of the uncertainty out there is you can say that
you`re de-escalating but it may not make a difference in terms of what the
real outcome is because the decisions maybe consolidated down to too few
people with too little information and we still don`t know that means.

GRIFFETH: But at the same time, globally, we`re now seeing a domino
effect, Diane. Canada and the E.U. both fear Chinese will dump their steel
there that they would have dumped here in the United States. They want to
impose tariffs. Where is this going, do you think?

SWONK: Well, this escalation, it`s interesting, because many people said,
oh, well, good, they`re all finally getting coordinated efforts. And I do
think it is good to have a coordinated global effort to deal with China.
That said, some of the problems with both European steel and Canadian steel
is that it was coming through and getting into the U.S. through without the
tariffs before the tariffs were on and being dumped here by going — via
different routes.

And so, the idea was how do they delineate it once it gets there? And so,
even though they`re putting tariffs on it, it`s a bit way to protect to de-
escalate with the United States and have the United States take the tariffs
off. I think one of the problems is you see — we would like just to sort
of this be an end to problems and a drop in tariffs. Unfortunately, we`re
going to see much more tit for tat. This is more like a bad divorce where
people keep upping the ante and hurting each other, and at end, they`re
both losing money and they`re hurting their kids.

So, I just — you know, there`s not a real easy clean way to get out of a
situation like this where you start escalation.

HERERA: And so, if that is indeed the case, when do we start to see the
impact on some of the monthly and quarterly reports that we get from the

SWONK: Well, the good news is the U.S. economy is so strong right now,
we`ve not seen a lot of impact, although we have begun to see it in the
things like PPI, which is also accelerated quite dramatically. We`ve also
heard the commerce secretary comment about how we`ve gotten ahead of
ourselves, that prices of steel and aluminum were already running very,
very high, they`re 50 percent higher in the United States and other our
competitors are now on steel, 80 percent higher on aluminum. And that`s
because we`ve got markets front-running the fears of tariffs.

And this is what more tariffs down the road — and this is where I think
the complication comes as when I try to model it, you get very small
incremental effects, you get inflationary effects, your roads and
purchasing power. But you don`t get the full out recession until you start
adding all these additional things that are hard to get your hands around

HERERA: Well, it`s a good thing you get to do that and we don`t. We`ll
talk to you again soon, Diane. Thank you very much.

SWONK: Thank you.

HERERA: Diane Swonk in Chicago.

GRIFFETH: Speaking of the economy, the trade deficit in goods narrowed in
May, according to the government`s so-called advanced report. The deficit
stood at nearly $65 billion. That`s well below what was expected around
$69 billion. The trade gap in goods excludes services and the advanced
report is viewed as an accurate reflection of trade patterns because the
services sector does not change much month to month.

HERERA: And orders for long lasting goods fell for the second straight
month. Softer demand for cars and aircraft sent durable goods ordered in
May down 0.6 percent. Despite the decline, though, the result was better
than economists had expected.

GRIFFETH: Potential home buyers took a step back from the pricey and
competitive housing market last month. Fewer contracts to buy existing
homes were signed and that sent pending home sales down 0.5 percent. The
expectation was actually for a gain. Sales have now fallen on an
annualized basis for five straight months.

HERERA: Raising interest rates too quickly is a major risk to the economy,
so says the president of the St. Louis Fed. James Bullard told “The Wall
Street Journal” that aggressive monetary policy could pose a problem,
adding that he is trying to push against faster rate hikes.

GRIFFETH: And oil prices rallied today to their highest levels since 2014
on supply concerns. A report from the government today showed that crude
inventories notched their biggest weekly decline of the year so far. Some
traders are also concerned about threats to sanctioned countries that do
not stop importing oil from Iran by November. The price of domestic crude
settled above $72 a barrel today.

HERERA: The Supreme Court today issued its final decision of the current
term. The ruling was a blow to labor unions that could result in a loss of
members and money.

Eamon Javers reports tonight from the Supreme Court.


decision today in a blow to public blow unions in the case of Janus versus
AFSCME. This is a case that`s all about whether public employee unions
have the right to require nonmembers who work for that public sector entity
to pay union dues, even though they might not want to.

Mark Janus, an Illinois state employee, decided he didn`t want to pay $45 a
month out of his paycheck for that union and decided to take that case all
the way to the Supreme Court. Today, the Supreme Court siding with Mark

The court deciding that 1977 precedent doesn`t apply any more saying we
conclude that the public sector agency shop arrangements violate the First
Amendment and Abood erred in concluding otherwise.

The court also going on to sympathize with the unions who will suffer an
enormous loss of revenue potentially as nonmembers decide not to pay those
union dues. They say: We recognize that the loss of payments from
nonmembers may cause unions to experience unpleasant transition costs in
the short-term and may require unions to make adjustments in order to
attract and retain members. But we must weigh this against the
considerable windfall that the unions have received under Abood for the
past 41 years.

Ultimately, the Supreme Court here saying Abood was wrongly decided and is
now overruled. So, a significant victory here for federal employees who
don`t want to join a union and don`t want to pay union dues and a defeat
now for federal employee unions.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers at the Supreme Court.


HERERA: And also at the Supreme Court, Justice Anthony Kennedy announced
plans to retire, giving President Trump a chance to reshape the high court.
Kennedy was the swing vote on a number of key decisions and authored
landmark rulings on gay rights, the death penalty and campaign finance.

GRIFFETH: Time to take a look at some of today`s upgrades and downgrades.

And we begin tonight with General Electric (NYSE:GE) which was upgraded to
perform from underperform at Oppenheimer. The analyst here cited the
company`s plan to spin off segment which we reported yesterday. The firm
also says that GE strategy could unlock value and diminish liabilities.
The stock rose more than 1.5 percent today. It closed at $13.96.

Meanwhile, Yum Brands (NYSE:YUM) was upgraded to buy from neutral at BTIG.
The analyst cited recent stock weakness and the potential benefits from its
investment in Grubhub. Price target now $92. That stock fell more than 1
percent to $78.87.

HERERA: Teva Pharmaceuticals is being added to cities U.S. focus list.
The analyst cites a favorable risk/reward profile and the prospects for
increased earnings. The price target is $27. The stock rose a fraction to

Bank of America (NYSE:BAC) raising its price target on Netflix
(NASDAQ:NFLX) to $460. The analyst is predicting that Netflix
(NASDAQ:NFLX) will reach 360 million subscribers by the year 2030. The
firm maintains its buy rating on the stock despite the price target,
though, the stock fell 2 percent to $390.39.

GRIFFETH: Still ahead, sticker shock. Why Toyota (NYSE:TM) is warning
that the price of every vehicle it sells here in the United States could


HERERA: The Justice Department has approved Disney`s proposed $71 billion
acquisition of 21st Century Fox`s assets. The deal does come with some
strings. Disney (NYSE:DIS) has to sell off 21st Century Fox`s 22 regional
sports networks as a condition for the green light. Disney (NYSE:DIS) has
been locked in a battle with Comcast (NASDAQ:CMCSA) (NYSE:CCS) over those
assets and Comcast (NASDAQ:CMCSA) (NYSE:CCS) has reportedly been exploring
partnerships with private equity firms just in case it needs to raise cash
for a possible higher bid.

Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of CNBC which
produces this program.

Today, 21st Century Fox rose, while Disney (NYSE:DIS) and Comcast
(NASDAQ:CMCSA) (NYSE:CCS) were down on the day.

GRIFFETH: First, it was North Korea`s Kim Jong-un and now it is Vladimir
Putin. The White House announced today that President Trump will meet with
the Russian leader in a one-on-one summit in an attempt to work on
relations between the two countries. The exact date and location is to be
expected to be announced some time tomorrow.

HERERA: Toyota (NYSE:TM) has a warning for investors, consumers and the
White House. The automaker today said that a 25 percent tariff on
automobiles would increase the cost of every vehicle sold in the U.S. Now,
that echoes a statement from the auto industry that we told you about
yesterday. The alliance of auto manufacturers which includes both American
and foreign automakers says a trade war will lead to widespread job cuts
and price spikes in showrooms.

Phil LeBeau has more.


shock? The auto industry says 25 percent tariffs on imported vehicles will
lead to buyers paying a lot more. The average price will jump about $5,800
according to automakers. They warn sales will plunge by up to 2 million
vehicles, which could ultimately lead the industry to cut 195,000 jobs.

MIKE JACKSON, AUTONATION: This will unleash if it comes about a real trade
war because the numbers are just so much bigger.

LEBEAU: For the auto industry, tariffs could kill one of the longest, most
successful periods it`s ever experienced. GM and Fiat Chrysler have gone
from bankruptcy to record profits and auto manufacturing jobs in the U.S.
have rebounded to precession levels, thanks in part to a record number of
autos being exported. Still, President Trump wants Europe and China to
lower tariffs on the models being shipped overseas or the 7 million cars
and trucks being imported to the U.S. could be slapped with hefty tariffs.

JACKSON: It`ll raise prices dramatically for consumers in the United
States. It will be uninflationary. Ultimately, it will slow down sales.

LEBEAU: Right now, those buying a new car or truck are paying on average
just over $32,000, which brings up the question, how much more would
Americans be willing to pay for a particular model if the price suddenly
spiked due to a border tax? A couple thousand dollars, $5,000?

It`s a guessing game the auto industry is hoping it won`t have to play.



GRIFFETH: General Mills (NYSE:GIS) is cutting jobs and that`s where we
begin tonight`s “Market Focus”.

The maker of Cheerios cereal said it`s going to eliminate more than 600
jobs by next spring as it looks to cut costs while sales of his Yoplait
yogurt continue to struggle. A company did report an increase in overall
sales in its fiscal fourth quarter but earnings fell and General Mills
(NYSE:GIS) did give upbeat guidance for the next fiscal year in 2019.
Still shares fell by 33 cents to $45.73.

Dell (NASDAQ:DELL) said that rising jet fuel prices are likely to add about
$2 billion in its expenses this year. A few weeks ago, the airline slashed
its second quarter profit outlook, blaming rising fuel costs. Today,
shares altitude, if you will, falling more than 2 percent to $49.89.

And we told you last night that the company`s were in advance talks and
today Conagra did indeed confirm that it is buying Pinnacle Foods for just
about $11 billion. The deal between healthy choice owner Conagra and
Birdseye parent Pinnacle creates the nation`s second largest frozen foods
company behind only Nestle.

But the announcement left a bad taste in shareholder`s mouths. Conagra was
down 7 percent to $35.45. Pinnacle was off 4 percent to $64.95.


HERERA: Bill, shares of World Wrestling Entertainment (NYSE:WWE) took off
after announcing new multi million dollars TV deals with two networks. The
five year deals to air the company`s flagship wrestling shows are with
Comcast (NASDAQ:CMCSA) (NYSE:CCS), NBC Universal (NYSE:UVV) and 21st
Century Fox`s Fox Sports, and they`re more than triple the size of WWE`s
current contract. WWE shares were up more than 6 percent to $70.85.

And after the bell, Bed, Bath & Beyond said earnings beat Wall Street
expectations. Same store sales did not. Same store sales fell more than
half of a percent in a quarter while the street was looking for a slight
gain. Shares initially fell afterhours, wiping out a fractional gain from
the regular session where they close at $20.18.

GRIFFETH: So, here we are nearly halfway through 2018 and the year so far
on Wall Street has been anything but usual.

Mike Santoli takes a look now in what has been a strange year for stocks.


year has taken an extraordinary route for a pretty routine destination.
First, the extraordinary part, in the first three weeks of 2018, the S&P
500 rush to its best January in 31 years. Then it suffered the fastest 10
percent drop from an all-time high in 90 years.

This dramatic reversal has been followed by an unusual long and labored
recovery process which is lasted nearly four months and is so far recouped
a bit more than half of the winter time tumble. Yet, with all that drama,
the S&P is sitting on a slight gain for the year and with dividends, it`s
on pace to deliver an annual return somewhere around 6 percent, just short
of the market`s long term yearly average. And that`s after a gain of 20
percent in 2017.

Perhaps the market`s modest progress has seemed like more of a struggle
because of the economic and corporate news has been so good and hasn`t been
fully embraced by investors. Corporate earnings are on pace to grow 20
percent and U.S. GDP has a good chance to expand at 4 percent annual rate
this quarter. Restraining stocks from reflecting such a positive backdrop,
rising interest rates, threats of an all-out trade war, sharp slowdown in
overseas economies and fears that this year`s growth could represent a tax
cut sugar high followed by rude payback in 2019.

There`s also some unease about how uneven the market action has been. Only
two major industry sectors, technology and consumer discretionary, have
appreciably outperformed the broad market and stock markets in the rest of
the world have lagged badly. If there`s good news in the U.S. markets in
the first half of this year, it`s the way stock valuation have come down
from lofty January extremes. With few leading signs of recession visible,
this period could be seen as a helpful reset in valuation and investor
expectations that could help extend the life of the bull market even if it
feels a bit less exciting and more treacherous than it did just five months



HERERA: Coming up, can a quintessential American brand ride out a
political storm?


Missouri, I`m Morgan Brennan. It`s an American icon in the crosshairs of
the bigger global trade debate. We look at the rough road for Harley-


HERERA: Listen to this: a six-figure salary in San Francisco is now
considered low income. That`s according to new figures from the Department
of Housing and Urban Development. The threshold to qualify for low income
assistance for a family of four is now $117,000, the highest in the nation.
And in May, the median home price in the Bay Area hit a record $935,000.

GRIFFETH: Lyft is beefing up to better compete with the likes of Uber.
The ride-hailing company has now raised $600 million in new money from
investors and — get this — that now values that company at $15 billion.
That is double the value from just a year ago. Uber, as you know, plans to
go public sometime next year, but Lyft`s ideal plans — they are less
certain right now.

HERERA: Harley-Davidson (NYSE:HOG) has come under fire from President
Trump after announcing plans to move some production overseas. One plant
in Kansas City is set to close this year with union reps saying plant
operations will move to Thailand, a move that so far Harley has denied.

Our Morgan Brennan went there for us today.


BRENNAN: Harley-Davidson (NYSE:HOG) is rare company. They produce a truly
iconic American product largely made in America that global consumers want
to buy. When the E.U. wanted to retaliate against U.S. tariffs on metals,
they slapped a tariff on Harley`s imported motorcycles from the U.S.,
because, it`s an American icon.

Now, Harley`s announcing it will move the manufacturing abroad due to those
tariffs. The decision drew the ire of President Trump including a tweet
today to criticize the move. Harley-Davidson (NYSE:HOG) should stay 100
percent in America, where the people that got you your success. I`ve done
so much for you and then this.

The news has pressured shares of Harley this week and stoked reactions from
other officials as well as including Treasury Secretary Steve Mnuchin.

MNUCHIN: I listen to the president talk about tariffs on motorcycles and
he`s been a big, big advocate of Harley-Davidson (NYSE:HOG) and American
products, so I don`t know why Harley-Davidson (NYSE:HOG) would come out and
now say they`re moving production. We`ve been fighting to go lower their
tariffs all over the world.

BRENNAN: Harley`s troubles started before this trade spat. Sales in the
U.S. has plunged as Harley`s core riders, baby boomers, have gotten older
and as newer generations haven`t shared the same zeal. So, it sets sights
abroad, to help spur a turnaround. It`s also added manufacturing in
markets where demand is growing, Brazil, India, and later this year,

Meantime, here in Kansas City, the factory behind me is scheduled to close
next year due to the need to consolidate amid those falling U.S. sales.
Eight hundred employees work here and some of those operations will be
shifted to Pennsylvania, but only 400 jobs will be added there.

Employees here are sorry to see the work and the Harley-Davidson (NYSE:HOG)
name leave town.

know. They`re supposed to be built here and everything. And so, really,
we should just continue, you know, regardless of how much money they can
save because you know what? When you`re number one, that`s all that

BRENNAN: Harley-Davidson (NYSE:HOG) tells us that the closing of the
Kansas City plant and the opening in Thailand are not related. And that
the production shift overseas is simply to avoid tariffs imposed by the
E.U. on motorcycles it sells specifically into that market. Regardless of
why the move to produce more overseas had manifested, for hundreds of
employees here, the closure of this plant will mean not working for an
American icon that`s long been beloved.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan, in Kansas City, Missouri.


GRIFFETH: And before we go, a look at the topsy-turvy day on Wall Street
one more time. A 285-point gain in the morning turned into 165-point
decline for the Dow in the afternoon. The Nasdaq was down 116, the S&P
down 23.

HERERA: That does it for us tonight. I`m Sue Herera. Thanks for joining

GRIFFETH: I`m Bill Griffeth. We`ll see you tomorrow.


Nightly Business Report transcripts and video are available on-line post
broadcast at The program is transcribed by ASC Services II
Media, 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
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Business Report is not and should not be considered as investment advice.
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