Transcript: Nightly Business Report – September 18, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Stock surge. Investors
take this new phase of the trade war between the U.S. and China in stride,
hoping for a quick resolution, even as big business sounds the alarm.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: $1 billion tax. That`s what
the latest rounds of tariffs could mean for housing, resulting in higher
costs and even higher home prices.

GRIFFETH: New competition. Audi is now charging up and taking on Tesla
with an all-new luxury electric vehicle.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Tuesday, September the 18th.

HERERA: And good evening, everyone, and welcome.

Well, few predicted that the market would rally. But that`s exactly what
it did. Investors shrugged off the new tariffs and China`s retaliatory
move at least for today.

Now, some say the $200 billion in additional tariffs on imports of Chinese
goods were not as bad as feared. Others say that since the new tariffs
will be staggered, that gives the two countries more time to talk and
potentially reach an agreement.

When all was said and done, the Dow Jones Industrial Average advanced 184
points to 26,246, the Nasdaq was up 60, and the S&P 500 added 15.

GRIFFETH: But the trade war between the world`s two largest economies is
real. Today, the president left the door open for more talks but he also
said he is ready to escalate this fight further if necessary.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We may make a deal at some
point. But right now, we just imposed $200 billion at 25 percent. We just
went on — it actually kicks in January 1st to 25 percent. It starts off
at 10 percent, but shortly thereafter goes to 25. And if there is a
retaliation against our farmers and our industrial workers, our ranchers,
if any of that goes on, we`re kicking in another $257 billion, and that
will be also at 25 percent, which we don`t want to do but we probably will
have no choice.

(END VIDEO CLIP)

GRIFFETH: Now surprisingly, China did immediately strike back, announcing
billions of dollars of its own in retaliatory tariffs on mores U.S. goods.

Eunice Yoon picks up the story from there tonight for us from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China had made good on
its promise to hit the U.S. back with tariffs. The tariffs would cover $60
billion worth of American goods and kick in one minute after the U.S.`s on
September 24th.

Now, the number of items hasn`t changed from the original list. But the
rates are lower in the range of 5 percent to 10 percent to match the
U.S.`s. Items that were supposed to be hit by a 25 percent tariff like LNG
will now face a 10 percent tariffs, but China said if the U.S. raises its
taxes to 25 percent as the White House has promised, then China will match
h the rates.

The list includes small aircraft, drug ingredients, wheat and LNG. The
government explained its move this way. This is a forced response to U.S.
unilateralism and trade protectionism. China hopes that the U.S. will stop
trade frictions.

There has been speculation that the move by President Trump would kill off
planned negotiations in Washington. The man supposed to go was the vice
premiere, Liu He. Liu is the point person dealing with the U.S. on trade.

However, there is a widespread feeling that this latest decision by
President Trump has made it politically difficult for him to visit with the
U.S. treasury secretary because it could potentially risk having another
failure. “The Wall Street Journal” is now reporting that the Chinese may
instead downgrade the delegation by sending the vice commerce minority who
only visited D.C. a few weeks ago.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: And as that trade war heats up, China`s holdings of U.S.
treasuries cooled off, falling to a 6-month low in July. According to the
Treasury Department, the Chinese ownership declined to $1.71 trillion. The
Trump administration first activated tariffs on $34 billion of Chinese
goods on July 6th. China is the largest foreign creditor to the United
States.

GRIFFETH: Now, with all of this back and forth, the business community is
having a hard time determining what comes next? Will this trade fight be
relatively short or will it be long and drawn out?

Bob Pisani did some digging for us.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Trade tensions continue
to rise for both the U.S. and China, firing a new round of salvos this
week. But investors are still trying to figure out what kind of trade war
we`re in exactly.

The markets appear to believe that many of President Donald Trump threats
are just posturing ahead of the November midterm elections and that the
trade war will dissipate and that we`ll all be back to business as usual.

There`s a similar optimism that spilled out from the c-suite recently.
Just listen to what Apple (NASDAQ:AAPL) CEO Tim Cook had to say on trade.

TIM COOK, APPLE CEO: I`m optimistic because trade is one of the things
it`s not a zero-sum game. You know, you and I can trade something and we
can both win. And so, I`m optimistic the two countries will sort this out,
and life will go on.

PISANI: But what happens if the markets come to believe that we are in a
much longer term conflict with China? Alibaba`s founder Jack Ma said he
thinks we could be underestimating the trade frictions and that it could
create a mess for all sides.

JACK MA, ALIBABA`S FOUNDER: This thing will last long if you want to have
a shot at solution. There is no shot at solution. China, U.S. and trade
last for 30 — 30, 40 years becomes such a big size, there is no problem
that seems impossible. There are big problems, it is very essential (ph).

PISANI: And at a Recode conference, Macy CEO Jeff Gennett told CNBC that
he expects even more tariffs to come into play and that will start to
affect apparel and department stores in a bigger way.

JEFF GENNETTE, MACY`S CEO: We do expect that, you know, there`s going to
be more tariffs and it`s going to start to affect, you know, a department
store retailer more significantly because of the apparel pieces that are
going to be part of it. So, what I can say we`ve been working with our
supply chain. We`ve been looking at our private brands, and we prepared
for this.

PISANI: Also, Bank of America (NYSE:BAC) just released a new global fund
manager survey showing that trade war is still the number one concern for
investors. That`s a fourth straight month. Second on the list is a China
slowdown, followed by the Federal Reserve raising interest rates too
quickly.

One thing is very clear: the markets are not prepared for a decades-long
trade war.

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

(END VIDEOTAPE)

HERERA: The CEO of FedEx (NYSE:FDX) weighed in on the trade fight, making
it clear he doesn`t like it. On a conference call with analysts, Fred
Smith said this is something everyone is worried about because it could
potentially slow economic activity.

(BEGIN VIDEO CLIP)

FREDERICK SMITH, FEDEX CEO: History is very, very clear that countries
that pursue the most open markets are the one that prosper the most and
whose citizens` income increases the most. Mercantilism does not work.
There is example after example of it. People that try to manage economies,
particularly worldwide economies from a centrally managed perspective
cannot do so.

(END VIDEO CLIP)

HERERA: FedEx (NYSE:FDX) does not do much business with China. But the
U.S. China shipping accounts for 2 percent of FedEx`s total sales.

GRIFFETH: Given the enormous sides of the latest tariffs at $200 billion,
some economists are now saying these will be felt directly in the wallets
of consumers.

Steve Liesman breaks the potential economic impact.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Most person
Americans have been able to avoid the trade war — but maybe not anymore.
The imposition by the Trump administration of $200 billion new tariffs on
China, the biggest so far, could bring the trade war home literally.

About 20 percent of the tariffs are directly on consumer goods, according
to Moody`s investor services. That includes computers, furniture, lamps
and food products. That means higher prices, and when prices rise, people
tend to buy less so growth declines.

While economists debate the magnitude of the tariff impact, nearly all
think it will be negative for GDP. That could be lessened if the tariffs
are temporary and breaking down Chinese trade restrictions. Some peg the
potential growth decline at just a couple points of GDP.

One forecaster said all the U.S. Chinese tariffs combined with Chinese
retaliation could shave more than a half point off growth next year. Some
even warned of recession. Moody`s wrote, quote: In stress scenarios of a
material fall in asset prices and hits to confidence, recession outcomes in
the U.S. are possible.

But not all economists were so concerned. Wells Fargo (NYSE:WFC) said, the
U.S. economy will be able to continue weathering trade related uncertainty
so long as business sentiment and consumer sentiment remain positive. This
outcome would be supportive of risk assets.

How much it hurts depends on how fast the U.S. economy grows. If it grows
at 4 percent, a couple tenths won`t matter much. If you go back at the
prior rate of 2 percent, a couple tenths or a half point will matter a
whole lot more.

And then consumers will really feel the negative tariff effects both in
higher prices and in slower growth.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: The National Association of Manufacturers which represents both
big and small operations wants China to end its anti-competitive behavior.
But the head of the group also said he`d rather see the two sides talk and
not levy tariffs.

(BEGIN VIDEO CLIP)

JAY TIMMONS, NATIONAL ASSOCIATION OF MANUFACTURERS CEO: Our issue, of
course, is that tariffs drive up the cost of goods here in the United
States, driving up the costs for consumers. For manufacturers we want to
see the administration successful bring China back to the table for
negotiations. We have been calling for a rules based bilateral trade
agreement for many months now. And we want to see that done.

(END VIDEO CLIP)

HERERA: Those concerns are being echoed by a major manufacturer in
Huntsville, Alabama, and that is where we find Brian Sullivan tonight.

(BEGIN VIDEOTAPE)

BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the Polaris
factory in Huntsville, Alabama, the assembly lines are humming as
production of its Ranger off road vehicle continues nonstop. But as good
as things are right now, there is concern that a trade war and its tariffs
could slow things down. Because even if a company like Polaris wanted to
source everything from American companies, it likely can`t.

Some of the steel and aluminum parts going into each of these have to be
sourced overseas. They simply aren`t made here. And if those parts come
from China, well, the tariffs add at least another 10 percent to their
costs.

CEO Scott Wine says that the combination of the two tariffs and domestic
price increases have made things more expensive, that he is worried about
the impact on sales.

SCOTT WINE, POLARIS CHAIRMAN & CEO: Even though we source most components
here in North America and here in the United States, we do buy a reasonable
amount from China. And there is a 10 percent, now, going to 25 percent
January 1st tariff on all the goods that we import from China, and that`s
driving up the cost of our vehicles and ultimately over time as our prices
go up reducing demand.

SULLIVAN: Any of these Rangers and other Polaris products that are sold
into China are slapped with their own 40 percent tariff there. So, Wine
agrees with the president that China is not playing on a level field and a
new trade deal needs to get done. He just wants it to get done quickly.

WINE: Go fast. Just get this done quickly. The opportunity for America
to be better off on the other side of this is great. The impact in the
short term of Polaris specifically sis too big for me not to want this to
happen real quickly. We need to get freer and fair trade as fast as we
can.

SULLIVAN: Companies like Minnesota based Polaris have made Alabama a
manufacturing success story but the state`s manufacturing base is also home
to major companies based outside of the U.S., like Mercedes, Hyundai and
Honda, who employ thousands of Alabamans and much of what they make is sold
to China. Alabama Republican Congressman Mo Brooks supports the
president`s agenda, but he wants to make sure that his manufacturing base
in Alabama stays strong.

REP. MO BROOKS (R), ALABAMA: Anything we can do to try to force more
manufacturing in the United States of America, the more you are seeing the
foreign automotive countries decide to operate and manufacture in the
United States of America rather than in their home countries.

SULLIVAN: Polaris is doing what many other companies are doing to offset
higher cost, eating some of them themselves, passing along others in the
form of higher prices. Right now, the American economy is strong enough to
withstand it, but Polaris and no doubt other U.S. companies are hoping that
this trade fight doesn`t become the very thing that slows it all down.

For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan, Huntsville, Alabama.

(END VIDEOTAPE)

GRIFFETH: In the meantime, the trade talks with Canada are once again set
to resume tomorrow. The two sides still appear to be far apart in some
areas. And today, Canadian Prime Minister Justin Trudeau said his
government will walk just away if necessary. The U.S.-imposed deadline to
get the deal done is now set for October 1st.

HERERA: It is time to take a look at some of today`s upgrades and
downgrades.

Facebook`s price target was cut to $195 a share from $205 at JPMorgan
(NYSE:JPM). The analyst says rising expenses will reduce its earnings.
The firm also lowered its earnings per share estimate for next year. The
stock fell a fraction to $160.30.

Walmart was given outperform rating and new coverage at BMO Capital. The
analyst cites the potential for long-term e-commerce profitability. The
price target is $110, the stock rose slightly to $95.43.

GRIFFETH: United Continental was downgraded to neutral from outperform at
Macquarie. The analyst there cites the stocks valuation which is up more
than 30 percent just since the start of the year. Price target now $95.
That stock fell by 5 cents today to $90.11.

Discovery was downgraded to sell from hold at pivotal. The analyst cited
the stock`s 20 percent gain without meaningful change to fundamentals.
Price target, $26. That stock fell more than 1 percent today to $31.58.

HERERA: Still ahead, does tariff trouble loom for the housing market?

(MUSIC)

GRIFFETH: Wall Street salaries have come full circle. According a new
report, compensation in the financial industries climbed more than 10
percent last year. The average salary and bonus is now just over $422,000.
That`s the highest it has been in a decade. About the time when Lehman
Brothers collapsed.

HERERA: McDonald`s (NYSE:MCD) workers stage the first #MeToo strike.
According to workers rights group Fight for 15, hundreds of employees held
demonstrations across 10 cities. Protesters are calling for more respect
in the workplace, better training, more transparency and also
accountability.

GRIFFETH: Back to trade now. Aren`t you glad? The housing market this
time, rising home prices and the lack of affordable housing has been an
ongoing challenge for many home buyers. And as more tariffs are slapped on
Chinese goods that go into the homebuilding industry, that pain could get
even worse.

Diana Olick has our story.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Demands for house is
red hot, but consumers can`t buy what they can`t afraid. Prices for new
homes are especially high as builders are faced with rising costs for land,
labor and especially materials. New tariffs on Chinese goods will only
make that worse.

Of the 5,700 products listed in the latest tariffs from the Trump
administration, a preliminary look by the NAHB found about 600 products
either connected to home construction or to tools used to build apartments
or homes. That represents $10 billion in goods which at a 10 percent
tariff rate puts a $1 billion tax on housing. This includes appliances and
other kinds of home furnishing products.

Home builder sentiment was unchanged in September on the National
Association of Home Builders index. Still positive but the builders say it
could be higher if it weren`t for rising costs.

Taylor Morrison CEO Sheryl Palmer said those costs will inevitably be
passed on to already stretched consumers.

SHERYL PALMER, TAYLOR MORRISON CEO: Ultimately, we are in the same place
taking the same increases if you try to absorb it. But at some point,
depending on the extent of it, yes, the consumer ultimately will pay for
it. Our margins will go down initially, but at some point, it really
depends on market, how the consumer is feeling, all the other things.

OLICK: One of those other things, rising mortgage rates. After sitting
tight for several months, the average year on the 30-year fixed is now at
7-year high.

That puts home affordability now at a decade low and even for those who
decide to stay put and remodel their current homes, the new tariffs will
increase those costs as well. From kitchen cabinets to countertops to the
saws and nails that put them all in place.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: Sales growth disappoints at General Mills (NYSE:GIS). That`s
where we begin tonight`s “Market Focus”.

The maker of a Cheerios and Haagen-Dazs ice cream blamed weaker demand in
the U.S. for its snacks and yogurts for its revenue miss. Margins were
also pressured by a rise in freight cost. Shares finished down 7 percent
to $44.13.

Cracker Barrel said fewer customers visited its restaurants this quarter,
but the ones who did spent more. But it wasn`t quite enough to grow
earnings at the rate that Wall Street expecting. So, the stock fell 4
percent to $143.80.

AutoZone (NYSE:AZO) said it sold more car parts this summer in the Rust
Belt and also saw improved performance in the commercial business. While
earnings topped expectations, same store sales rose less than expected. So
shares of AutoZone (NYSE:AZO) were off nearly 2 percent to $732.76.

And Visa (NYSE:V) and MasterCard (NYSE:MA) have joined a number of banks in
agreeing to pay more than $6 billion to settle a years-long class action
lawsuit over card swipe fees. Merchants bought the class action suit
against the credit card giants back in 2005, alleging the companies
violated antitrust laws by forcing retailers to pay swipe fees. The
settlement is the largest ever of an antitrust case. Visa (NYSE:V) shares
climbed nearly 1 percent to $147.63, shares of MasterCard (NYSE:MA) rose
more than 1 percent to $220.05.

GRIFFETH: “The New York Post” is reporting that Athenahealth (NASDAQ:ATHN)
has now extended its deadline for receiving takeover bids after the hedge
fund and shareholder Elliott Management backed away from its offer to pay
$160 a share for the cloud-based health technology company. But another
report by CNBC says that the delay was merely because a new potential
bidder has entered the picture. Shares of Athenahealth (NASDAQ:ATHN) fell
more than 5 percent today to $135.27.

Viking Pharmaceuticals said today its experimental liver disease treatment
has performed well in a study. The small cap biotech said the therapy was
effective at lowering cholesterol levels and liver fat in patients. That
news sent shares of Viking up more than 85 percent today to $19.46.
Meanwhile, Madrigal Pharmaceuticals which is developing a competing drug
saw its shares dive by 9 percent to $207.30.

And the California Department of Insurance is suing AbbVie, alleging that
the drug maker gave illegal kickbacks to health providers in exchange for
prescribing the company`s blockbuster arthritis treatment Humira, which by
the way happens to be the world`s bestselling drug. The suit alleges
AbbVie offered a number of incentives and free services to push that
medication. The company has denied those charges. AbbVie shares fell 3
percent today to $92.61.

And medical marijuana producer Tilray said today it has received approval
from the U.S. government to supply researchers at the University of
California in San Diego with marijuana that will be used in a clinical
trial to test its effectiveness at treating a nervous disorder. Tilray is
the first Canadian company approved to import medical marijuana here into
the United States. And, boy, did shareholders like the news. Shares
jumped 29 percent today to close at $154.98.

HERERA: President Trump is expected to head to North Carolina tomorrow, to
visit the area`s affected by Hurricane Florence and to assess the damage.
His trip comes as economists try and tally the costs. But the estimates
keep changing and in part because of all the flooding and the rising
rivers.

Contessa Brewer is in Fayetteville, North Carolina, for us tonight.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: In Fayetteville,
the city is bracing for the Cape Fear River to crest.

GINA V. HAWKINS, FAYETTEVILLE, NC CHIEF OF POLICE: The previous hurricane
hit 58 feet. It`s on track to be 61.5. So, we are constantly monitoring.
We have the drones up seeing what communities are affected.

BREWER: I want to show you the rail line. This is a CSX (NYSE:CSX) rail
line that runs through town. And you see all the debris that has been
pushed by this raging river up against the trestle of the railroad. To
give you a perspective of how high this water is, let me show you the light
post that is typically on the side of the river.

The river is expected to crest tonight at 59 feet right now. Flood stage
starts at 42 feet. It`s way, way above its flood stage. And one of the
reasons why this is such a problem, just a few minutes ago this bridge was
crowded with onlookers hoping to just see what was happening in their city
and what the danger might be. Now, you can see the police officers from
Fayetteville have moved everybody off.

This is still a real threat to this town. And it`s a situation that`s
playing out around north and South Carolina today as people are still
trying to move supplies, resources, those who evacuated are trying to get
back to their homes. And stores and restaurants and gas stations are
trying to open up.

MAYOR MITCH COLVIN (D), FAYETTEVILLE, NC: There are not a lot of resources
for businesses. And so, we are thankful the administration early on came
out and gave the emergency declaration. We`ve been in contact with them.
And so, any areas that we can do to help business get up and running, we
are for that.

BREWER: But the flooding remains a major, major threat. We will keep our
eye on it from here in Fayetteville. I`ll send it back to you in the
studio.

(END VIDEOTAPE)

GRIFFETH: All right. That from Contessa Brewer.

Coming up, how Audi is charging up the electric car market.

(MUSIC)

HERERA: The outlook for the global auto industry remains stable as sales
rise in China, India and in Europe. But Moody`s suggests the threat of
tariffs, rising interest rates and higher fuel costs could hurt the
industry next year. In a new report, the credit rating agency said the
threat of slowing sales comes as automakers spend a lot of money on new
technology and alternative fuel vehicles.

GRIFFETH: Tesla is now facing a criminal probe. The Justice Department is
investigating public statements made by the company`s CEO, Elon Musk, about
going private. Musk you might recall made those comments on Twitter in
early August.

And when he said that he had secured funding for the deal, carmaker has
since backed off those statements and decided to not go private. But Tesla
says it received a voluntary request for documents and it is cooperating.
That report sent shares down by more than 3 percent in today`s trade.

HERERA: And Tesla not only has an investigation to worry about, but now
also some new competition. Audi is the latest automaker to unveil an all
electric model called the E-Tron.

Phil LeBeau is in San Francisco tonight where the luxury electric car
battle is heating up.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Audi E-Tron is not
just another SUV. It`s the latest in a wave of vehicles putting a charge
into the luxury EV market.

UNIDENTIFIED MALE: We have created something special, truly special — our
first fully electric car, the Audi E-Tron.

LEBEAU: With a range that is expected to be well over 200 miles when fully
charged, the E-Tron will start at just under $75,000. Pricey? Yes, but in
the ball park as Teslas, which have become popular with high-end buyers.

SCOTT KEOGH, AUDI OF AMERICA PRESIDENT: Frankly, to me, it`s simple.
Launch a really cool car, that`s what they want in the luxury market. This
is a super cool car. I`m convinced we`re going to see the growth there.

LEBEAU: In fact, global sales of luxury electric vehicles are expected to
skyrocket by 2025, charged up by new electric models from Jaguar, BMW,
Mercedes-Benz and others, all expected to cut into Tesla`s dominance of the
luxury electric vehicle market.

JEFF SCHUSTER, LMC AUTOMOTIVE: In a lot of ways the increased competition
for Tesla really has increased availability of models, especially models
that have the same amenities or luxury offerings that are available in the
Tesla products.

LEBEAU: For the foreseeable future, Tesla will remain the leader when it
comes to luxury electric vehicles, but Elon Musk knows the competition is
coming.

And it starts with new models like the E-Tron, which goes on sale in the
spring of next year. But Audi says, it`s already seeing strong
reservations and plenty of interest for its first electric model.

Phil LeBeau, NIGHTLY BUSINESS REPORT, San Francisco.

(END VIDEOTAPE)

HERERA: And that`s that does it for us tonight. I`m Sue Herera. Thanks
for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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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) 2018 CNBC, Inc.

 

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