Transcript: Nightly Business Report – December 6, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Head-spinning market. Stocks
rebound after a steep selloff. The key questions remain about equities,
interest rates and trade.

Seismic shift. There is a big change under way in the market. And long-
term investors are trying to figure out what to make of it all and what to
do about it.

Delayed decision. What did not happen at the meeting of global oil
producers and why it may elevate Russia on the world oil stage.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
December 6th.

Good evening, everyone. And welcome. Bill Griffeth is off tonight.

The drama on Wall Street was kicked up a notch today. Stocks staged a
late-day comeback after being down sharply most of the day. Trade and
interest rate concerns dominated the trading session until a report in the
“Wall Street Journal” said the Fed may be shifting its way of thinking.
And the buyers stepped right in.

The Dow Jones Industrial Average finished the day down 79 points to 24,947.
But it had been down more than 700 points midday, the Nasdaq rose 29 and
the S&P 500 fell 4.

But as Bob Pisani reports, the markets may not be out of the woods just
yet.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets bottomed
this morning right at the November lows, down 700 points and rallied 600
points, a very positive bounce off of deeply oversold conditions.

Now, the Atlanta Fed`s Ralph Bostic said interest rates are within shouting
distance from neutral. Great news. The IMF`s Christine Lagarde said the
fears about a global slowdown was overdone and the U.S. was not heading for
a recession anytime soon.

Then, towards the close, “The Wall Street Journal” ran a story saying the
Fed officials were becoming less positive at how fast and how far the
Central Bank will need to go.

All of these comments were very helpful bringing the markets off of the
lows. But the rally still looks tentative, even with the Dow down 1,500
points in two days at the lows this morning. Buying interest though seems
kind of muted. There is good reason for everybody to be cautious still.
The markets have had four big worries, most are not resolved.

Now, the Fed raising rates aggressively is looking less likely. That`s
good news. That`s one, though. But worries about a global oil glut
haven`t been resolved by this recent OPEC meetings. We`ve had tariffs and
trade wars. They`re even worse with the arrest of Huawei CFO in Canada.

And despite what Lagarde said a potential economic slowdown is the big X-
factor that`s making it very hard to figure out 2019 earnings estimates.
The debate on the street today is very simple. Do we want a good jobs
report or a bad jobs report tomorrow?

A bad jobs report will only get the people screaming that there is an
economic slowdown already under way. But a bad jobs report will also
decrease the chances of more Fed hikes. That would remove a prime obstacle
to a bottom. That would be good news.

So what do we really want? We don`t know.

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

(END VIDEOTAPE)

HERERA: And earlier today, another Federal Reserve official said the
outlook for the economy has grown cloudy. And he too is urging patience.

(BEGIN VIDEO CLIP)

ROBERT KAPLAN, FEDERAL RESERVE BANK OF DALLAS PRESIDENT: I think at this
stage, you`re going to hear me be much more cautious and counsel patience.
I think there is more uncertainty, global growth is decelerating. I`m
seeing interest-rate sensitive sectors showing some weakness.

It`s too soon to say what to make of it. But I think this — one of the
key tools we have as central bank is patience. And I think we ought to be
using that tool.

(END VIDEO CLIP)

HERERA: The market has not lowered the probability of interest rate
increase when the Central Bank policy makers meet later this month. Not
that long ago, a December rate hike was a virtual certainty.

So, what can investors expect from the Fed, the economy and rates?

We`ll talk more about that now with Craig Dismuke, a chief economist at
Vining Sparks.

Great to have you with us, Craig. Welcome.

CRAIG DISMUKE, CHIEF ECONOMIST, VINING SPARKS: Hey. Good evening, Sue.

HERERA: All right. Despite what we just heard, you do expect the Fed to
continue to raise rates at least for this month, correct?

DISMUKE: I do. I expect they`ll hike in December. And I think where you
start to get some question about it will come in 2019 and what they do
then.

HERERA: Now, why do you think that they will go ahead and raise rates,
given the background of what we have seen today? Trade concerns and
inflation and the like.

DISMUKE: Sure, well remember the Fed has to look at a very big picture.
We tend to get caught up in the daily movement of the markets. And, you
know, we see stocks down almost 800 points in a day. And we think, you
know, is this a turning point or whatnot?

The Fed has to look at the big picture, which shows unemployment is still
at 3.7. Inflation is near 2 percent. Wage growth is at its highest level
this cycle. And the economy is still growing at a pace that`s faster than
what they think is sustainable longer term.

So, when you look at that picture, I think they still want to go ahead and
tighten policy. But I do think it`s about time for them to start to be a
little bit more patient as Kaplan said.

HERERA: Yes. Well, the market is obviously worried. But Main Street may
not be. Take a listen to what we heard this morning from JPMorgan
(NYSE:JPM) Chase CEO Jamie Dimon. Here`s what he had to say about the
economy and the consumer.

(BEGIN VIDEO CLIP)

JAMIE DIMON, JPMORGAN CHASE CHAIRMAN & CEO: We still have a strong
American economy. So, you speak to most of the CEOs and they say, the
order books are good. Consumer balance sheets are good. The economy is
growing.

Wages are going up. They`re still hiring people. Unemployment may very
well hit 3.3 percent this year. That`s all good.

RANDALL STEPHENSON, AT&T (NYSE:T) CHAIRMAN & CEO: All of the CEOs that are
around here, we all talk and we say things feel pretty good in the U.S.

DOUG MCMILLON, WALMART CEO: We believe the consumer is in good shape. We
hear the news. We have the same concerns that you guys talk about all the
time. But as it relates to the consumers, we`re in good shape.

(END VIDEO CLIP)

HERERA: You know, so, Craig, I`m kind of struck by the disconnect between
what we`re hearing from those major CEOs and what the market seems to be
anticipating. Are they looking ahead? Things are pretty good now, but
maybe not in the future.

DISMUKE: Well, I think they are focused specifically on the consumer.
When you look at the consumer, the consumer is in great shape from a debt
standpoint, from unemployment, wage growth, et cetera.

The bigger challenges right now are coming from external factors, things
like the slowing global growth, the risk that business investment, you
know, remains slow because of the fear of trade tariffs. These are factors
that could affect the consumer and especially if you start to see stock
prices fall as a result of that, that could affect consumer confidence.
So, right now, the consumer is in great shape. I agree with those CEOs.
But if you see things start to slow down, that could change very quickly.

HERERA: All right. Now, we do have a key economic report out which will,
as Bob Pisani so aptly put it, either disappoint some people and excite
some people, because it depends — it may influence where the Fed goes with
this. What are you looking for tomorrow?

DISMUKE: We`re looking for fair job growth. We`ve had better than
expected job growth almost all year. So, we expect to see job growth near
170,000. The big key is going to be earnings. If we see average hourly
earnings rise above that 3.1 percent, then it could put more pressure on
the Fed to hike.

However, it hasn`t proven inflationary yesterday. Remember, inflation is
just a little bit below the target. And so, I think they can be patient.
But if you see wage growth really ramp up, that makes it more difficult for
`em.

HERERA: Craig, thank you very much. Appreciate it.

DISMUKE: Thank you.

HERERA: Craig Dismuke with Vining Sparks.

Well, the Fed may have lifted stocks off the lows. But investors will
rattle most of the day by trade, and concerns over an emerging economic
Cold War between the world`s two largest economies. As Bob mentioned
earlier, tensions between the U.S. and China escalated when it was learned
that a top Chinese tech executive was arrested in Canada at the request of
the U.S. government.

Eunice Yoon has more on this new front in the trade dispute.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Many Chinese are
seeing the arrest of Huawei CFO as political. Meng Wanzhou was detained on
the same day as trade talks between President Trump and President Xi.

And Meng isn`t just any senior executive. She`s the founder`s daughter.
So, most believe the Trump administration did this on purpose to pressure
the Chinese as the two sides head into negotiations, and expert known to be
close to the commerce ministry posted his take on social media, saying the
arrest shows that China shouldn`t expect the U.S. to keep its word and
instead be fully prepared for a long-term confrontation.

The Chinese government has expressed outrage over the arrest. The embassy
in Canada called it a serious violation of human rights. And the foreign
ministry has demanded her immediate release.

Huawei put out a statement about Meng, saying the company has been provided
very little information regarding the charges and is not aware of any
wrongdoing by Ms. Meng.

Some American business executives told me that if this is a pressure
tactic, it could back fire. They say that President Xi Jinping isn`t going
to want to appear weak. So, they worry about tit-for-tat treatment and
that the negotiations between the two sides is going to get that much
harder.

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

(END VIDEOTAPE)

HERERA: So, will those trade tensions between the U.S. and Canada get
worse from here and what that might that mean for investors?

We are joined now by John Rutledge chief investment officer at Safanad.

Nice to have you here, John. And you do think this is an escalation.

JOHN RUTLEDGE, SAFANAD CHIEF INVESTMENT OFFICER: Well, I do. And like the
person who was just speaking, you know, my eyebrows are raised over this,
specifics of this thing. Arrested almost at the exact time Xi and Trump
were having dinner in Buenos Aires and held under arrest. Hearing is not
until tomorrow.

She was arrested. The story was just kept under wraps until today. So,
this has got politics written all over it. The Chinese — Xi — you know,
her father is an FOX, friend of Xi, and friends of Xi. Xi will lose face
in China if they don`t do something to smack us back for this. It`s almost
guaranteed to do that.

HERERA: All right.

RUTLEDGE: What I would worry about is U.S. business people in China.

HERERA: And what do you mean by that? Obviously, there are a number of
very large scale companies that — that do business in China, have
relationships with Chinese companies there. What might the Chinese do?
And what do you mean by you`d be worried about personnel?

RUTLEDGE: Well, the people have talked about how we are in a good trade
position because we can tax all of their exports to us and they can`t put
tariffs on so much of ours. That`s baloney. U.S. companies have a huge
presence in China. They are actually in China producing products for
Chinese middle class consumers. And those companies are subject to all
sorts of what I would call messing around by government officials, anywhere
from permits to run the smoke stacks to open their doors, to do you name
it.

U.S. business leaders in China have complained about that treatment the
last two years. And this is going to make that worse. But they are going
to do something visible to make sure that we don`t — this doesn`t happen
accidentally.

HERERA: What about if you are a long-term investor and you may hold some
of those companies that do business in China? That you have just referred
to? What do you do?

RUTLEDGE: Well, I think when you see days like today where the prices
collapse, I`m a buyer of that today at the bottom. Which companies, I
don`t own very many Chinese companies. I own some Alibaba. No Huawei.

But U.S. S&P earnings are just about half offshore. And a large chunk is
in China or greater China, one way or the other. So, our earnings here are
very vulnerable to things happening in China.

HERERA: All right. John, thank you very much. John Rutledge with
Safanad.

RUTLEDGE: A pleasure.

HERERA: We often use Boeing (NYSE:BA) shares as a barometer measure of
trade representations with China. The stock fell once again and was the
worst performer in the Dow index. Today, the CEO explained why China is so
foreign to his company.

(BEGIN VIDEO CLIP)

DENNIS MUILENBERG, BOEING CEO: I think what you see is local volatility
again in the market because of some trade uncertainty. And we`re hopeful
coming out of the G20 summit we are on a path to fining a trade agreement
with China that`s productive for both the U.S. and China. It`s an
important marketplace for us. If you think about aerospace, it`s an $8.19
trillion marketplace the next ten years.

The world needs about 43,000 new commercial airplanes over the next 20
years and 7,700 of those are in China. It`s the fastest growing market.
So, very important to us.

(END VIDEO CLI)

HERERA: From trade to oil, prices fell today over growing concerns that
the world`s major producers will not reach agreement to reduce output.
Domestic crude dropped more than 2.5 percent to settle at $51 a barrel
process.

And as Brian Sullivan reports from Vienna, the drop was due to an unusual
move by members of OPEC to delay their production decision.

(BEGIN VIDEOTAPE)

BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The building is
clearing out and the podium behind us remains empty here at OPEC
headquarters in Austria because what was expected to happen did not. For
the first time in many, many meetings, OPEC ended their day without a press
announcement regarding a production cut.

What the oil cartel was expected to do was come out and make a deal to cut
oil production to provide a floor and firm up prices. Oil prices have
fallen in November, the most in a decade. But either because any could not
reach a deal or more likely, they are waiting for Russia to arrive
tomorrow, OPEC ended their day on Thursday with no deal.

The question is this. Not only how much will they cut, but how the cuts
are distributed across all the different OPEC members and what is Russia`s
role? It`s largely expected that OPEC will come up with a number, probably
1 million or 1.5 million barrels of oil, but they would like Russia to
agree to that deal. Russia is not an OPEC member but is one of the world`s
biggest producers, has outsized influence on where the price of oil is
globally.

So, we will gather back here in Vienna tomorrow, when the Russians come in.
Hopefully, OPEC will be able to reach a deal. Russia will bless the deal
as well and perhaps Vladimir Putin becomes more powerful on the global oil
stage.

For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan, Vienna, Austria.

(END VIDEOTAPE)

HERERA: It is time to take a look at some of today`s “Upgrades and
Downgrades”.

Facebook`s rating cut to hold from buy at Stifel Nicolaus. The analyst
cites concerns that the company`s management team has created too many
adversaries, including politicians, regulators, consumers and employees.
The price target is $150. Sharps rose more than 1 percent to $139.63.

Macy`s was downgraded to underweight from neutral at Atlantic Equities.
The analyst says expectations are too high and questions the retailer`s
ability to deliver better than expected earnings and sales. The price
target is $28. The stock fell a fraction to $32.37.

Activision Blizzard (NASDAQ:ATVI) was upgraded to overweight from neutral
at JPMorgan (NYSE:JPM). That analyst cites a long-term opportunity in the
stock. The price target is $66. Shares rose 3-1/2 percent to $48.15.

Still ahead, the rise in stock market volatility is not stopping car buyers
from borrowing record amounts for a new ride.

(MUSIC)

HERERA: A number of reports today gave investors some new insight into the
economy. We`ll start with trade. The deficit hit a 10-year high in
October. This as soybean exports fell and imports of consumer goods rose.
Factory orders recorded their biggest drop in more than a year in October.
That report showed softness in business spending and also decline in demand
for a range of goods.

And private payroll growth slowed in November. According to ADP, the
economy added 179,000 private sector jobs, which was below expectations.
Economists say, however, a slowing is not out of the ordinary given the
tightness of the labor market.

In Washington, tech executives visited the White House to discuss emerging
technologies. Among those in attendance was Safra Catz of Oracle
(NASDAQ:ORCL), Satya Nadella of Microsoft (NASDAQ:MSFT) and Google
(NASDAQ:GOOG) CEO Sundar Pichai. The meeting focused on the industries of
the future like 5G, robotics and artificial intelligence.

Also in Washington, General Motors (NYSE:GM) CEO Mary Barra was there,
where she met with lawmakers who wanted to know more about GM`s
restructuring plans. After the meeting, Barra explained why the company is
closing plants and laying off workers.

(BEGIN VIDEO CLIP)

MARY BARRA, GENERAL MOTORS CEO: The industry transforming. It`s important
for General Motors (NYSE:GM) to make necessary but incredibly difficult
changes to make sure that we can be in a leadership position so General
Motors (NYSE:GM) is strong to provide jobs, to provide manufacturing and to
provide leadership in the transportation industry as we move forward.

(END VIDEO CLIP)

HERERA: She met today with Michigan lawmakers and she spoke with two
senators from Ohio yesterday.

Fiat Chrysler plans to open a new the plant in Detroit. The company will
manufacture Jeep SUVs and has reportedly already chosen a site. The
facility will be the first new auto assembly line to open in Detroit in 27
years.

Though there are concerns about the outlook for the economy, we`ve been
reporting that parts of the economy remain very strong, and that includes
auto borrowing. New data shows monthly auto loan payments are higher than
ever, with a growing numbers people borrowing at least $50,000 to buy a new
vehicle.

Phil LeBeau reports.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: America`s growing love
affair with bigger trucks, SUVs and crossovers means we are now buying more
vehicles with higher sticker prices. So, we`re borrowing more and spending
more each month, repaying those loans.

In the third quarter, the average auto loan hit a record of just under
$31,000, with the average monthly payment for a new vehicle climbing to an
all-time high of $530. And the average used vehicle loan payment also hit
a record at $381.

MELINDA ZABRITSKI, EXPERIAN: If you`ve been out of the market for five or
six years, then these numbers can be surprising but for the average
consumer who seems to come back into the market every, you know, 35, 36
months, they`re still higher than what they saw previously. And they`re
certainly not going to go down.

LEBEAU: One reason car prices stay high is because demand remains robust.
Auto sales are on pace to top 17 million vehicles for a fourth straight
year, the best stretch of sales ever in the U.S. So auto makers can and
will charge higher prices, especially for hot models like pickups and SUVs
with the latest features and technology, which explains why Experian says
one out of five borrowers is taking out a loan for at least $50,000.

ZABRITSKI: They don`t represent a huge portion of the market. But they
are definitely the area we see the most growth. You know, these loan
amounts that are over 50 and even over $70,000. You know, again, small
part portion but definitely growing.

LEBEAU: Who is borrowing $50,000 or $60,000 to buy a new vehicle? Those
with prime or super prime credit scores, the high end of the credit market.
It`s also one of the fastest growing parts of the auto loan industry.

By comparisons, loans to those with the poorest credit scores have dropped
to an 11-year low.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Signet loses its sparkle and that`s where we begin tonight`s
“Market Focus”.

The jewelry retailer reported a wider quarterly loss when compared to a
year ago. That overshadowed the company`s better than expected outlook for
a key sales metric. Shares plunged 18 percent to $41 even.

Kroger`s profit margin is getting pinched, this as the company ramps up its
online investments to better compete with companies like Amazon
(NASDAQ:AMZN). But investors focused on better than expected earnings and
revenue in the most recent quarter. And as a result, shares rose 3 percent
to $29.56.

After the bell, Ulta Beauty said it picked up market share across all major
categories this quarter, and that led to stronger than expected profits.
But the cosmetics retailer did give disappointing guidance for the holiday
season and that sent shares initially lower in afterhours trading. They
ended the regular day, though, up a fraction to $292.92.

Also out after the bell, Lululemon gave a weaker than expected quarterly
outlook. The guidance overshadowed an otherwise solid quarter at the
athletic apparel company. Both earnings and revenue grew above
expectations helped by increase in same store sales. Shares were volatile
in the afterhours but they finished the regular day down more than 1.5
percent to $131.44.

Coming up, there appears to be a massive shift happening in the market.
And it could change the strategy of long-term investors.

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow.

As we reported, the government releases its monthly employment report.
Wage growth and its implications for inflation will be in focus. A number
of Fed officials are expected to speak on the economy. The Business
Roundtable is scheduled to release its CEO economic outlook survey. And
that is to watch for on Friday.

The government will avoid a partial shut down at least for the next two
weeks. Congress approved a temporary spending bill that provides funding
to several federal agencies through December 21st. But lawmakers remain at
an impasse over whether to fund the president`s $5 billion border wall.
Democratic leaders are expected to meet with President Trump next week to
discuss that funding.

Mortgage rates continue to fall this week as increased volatility in the
market sent investors into the safe havens like government bonds. Freddie
Mac said the average rate on the benchmark 30-year fell to 4.75 percent,
which is a two-month low.

There has clearly been a massive shift in the market some call it seismic.
Stocks have been swinging wildly over the past few days and weeks. But
what does that mean for long-term investors?

Tonight, we are joined by Kara Murphy, chief investment officer at United
Capital.

Welcome back, Kara. Nice to see you again.

KARA MURPHY, UNITED CAPITAL CHIEF INVESTMENT OFFICER: Thanks for having
me.

HERERA: What do you see behind the shift? Because, clearly, things are
changing and things are different than they were less than a month ago.

MURPHY: So, the market is grappling with a couple of different issues that
have been brewing for some time. But have reached a head at the same time.
And we have talked about both of them. Number one is trade wars. So we
have had saber-rattling for a number of months. We`ve had actual tariffs
in place for a number of months.

When you look at actual dollar value relative to economic activity, it`s
fairly small. So, the bigger risk with continued trade wars is the impact
on overall company activity. So, once you start to have CEOs say putting
off building the next factory or not hiring the next worker, that`s where
you start to see the knock on impact and the negative impact overall on the
economy from trade wars. So, as President Trump and Xi are meeting, the
stakes for the meetings go higher.

The other one we have talked about, which is the Federal Reserve.

GRIFFETH: Uh-huh.

MURPHY: The Fed has been raising rates for a number of years now. They`ve
been very slow, very methodical about it. So, none of that is a surprise.
But as rates ratchet up, we have seen expectations for global growth coming
down.

And as to those two things, they are reaching a bit of a tipping point
where the market has started to be concerned that the Fed is pushing too
hard.

HERERA: Right.

So what is the long-term investor supposed to do with all of this? Because
we`re also hearing positive comments from CEOs that have their — you know,
their finger on Main Street on the pulse of the economy. If you are a
long-term investor, how do you handle the volatility and the shift that we
are seeing in the market?

MURPHY: So, I think the most important thing to remember is as you said,
the economy is actually fairly strong right now. It`s definitely
decelerated over the last couple of months. But even looking into 2019, we
think companies are going to continue to grow earnings. Wages are
continuing to increase. So, though, there are warning signs flashing, we
don`t see the prospective 2019 growth changing all that much.

Now, the other thing I would say is 2017, we saw volatility very, very low.

HERERA: Right.

MURPHY: 2018 volatility has ticked up.

HERERA: Indeed.

MURPHY: That is alarming, but that doesn`t mean that you change your
strategy. It`s important to stay focused on the long term, not to be
reacting to each of these headlines on a day to day basis.

HERERA: And you`re recommending health care and insurance.

Kara, thank you very much for joining us. Kara Murphy with United Capital.

MURPHY: Thank you.

HERERA: Before we go, here`s a look at final numbers from Wall Street. A
volatile session. The Dow finished down 79 points to 24,947, the Nasdaq
rose 29, the S&P 500 fell four.

And that will do it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
Thanks so much for joining us. Have a great evening, everyone. And we`ll
see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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Business Report is not and should not be considered as investment advice.
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