ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Hope springs eternal. But two new reports on the housing market are raising some concerns at a critical time of the year.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Historic settlement. The maker of OxyContin has agreed to pay a hefty fine after the state of Oklahoma accused it of helping fuel the opioid drug epidemic.
HERERA: Tech transformation. McDonald`s (NYSE:MCD) makes its biggest acquisition in 20 years, joining other fast food companies who are betting big on the digital future.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, March 26th.
GRIFFETH: And we do bid you a good evening, everybody, and welcome.
Stocks finished higher today despite those continued concerns about the
slowing global economy. But as it happens, much of this day`s news
centered around the consumer, and we begin tonight with the Fed and the
increasing possibility that the central bank could lower interest rates
later this year. At least that`s what the markets are signaling right now.
And it could affect everything from your mortgage to your auto loan to the
amount of interest that you receive on your savings account.
Steve Liesman takes a look now at the rapidly changing outlook for monetary
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Up until a few days
ago, the idea of the Federal Reserve cutting rates was a minority review
and was a remote possibility for next year. Now, the market has shifted
dramatically. Pricing in a rate cut maybe as soon as September of 2019.
The Fed fund futures market which bets on what the fed Israel do is pricing
in a 50 percent chance of a quarter point rate cut in September and those
odds rise to 64 percent by December.
What happened? First, the Fed last week signaled lower interest rates than
the market had expected. Second, some key economic data from overseas,
already weak, came in even weaker than expected. And then in the past few
days, two Fed officials suggested rate cuts could be a possibility.
Speaking in Hong Kong, Chicago Fed President Charles Evans said on Monday,
quote, if activity softens more than expected or if inflation and inflation
expectations run too low, then policy may have to be left on hold or
perhaps even loosened.
A rate cut would be a sharp reversal for a Fed that just hiked in December,
and that move is increasingly criticized.
JEREMY SIEGEL, WHARTON PROFESSOR OF FINANCE: They made a mistake of
raising it and then made a terrible mistake in the statement that came out
that sort of implied they wouldn`t keep on raising in 2019 which they
walked back immediately when the markets collapsed. But the move itself
was a mistake. If they had known the long bond was 2.40 in March, they
would never have raised it.
LEISMAN: Has the market gone too far? It`s worth remembering at its
meeting last week, the Fed emphasized it had shifted policy into neutral,
neither leaning towards a hike nor a cut. The market has taken that a step
further, taking the minority view of a cut and making it the odds-on bet
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
HERERA: Lower interest rates could mean lower mortgage rates. But there
is more to the housing market than just that. Today two important reports
are raising some questions about the critical spring selling season.
Diana Olick has the details.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home builders pulled
back in February, which was a surprise, given the strong demand for housing
and the big drop in mortgage interest rates. Single family housing starts
fell more than 10 percent annually, and building permits were down as well.
The average rate on the 30-year fixed rose through much of last year,
peaking at just over 5 percent last November, and that caused sales of both
new and existing homes to drop dramatically.
But rates began falling in December and have now plummeted to the lowest
level in more than a year. That should have prompted builders to be more
optimistic about pouring more foundations, apparently not.
RICK PALACIOS, JR., JOHN BURNS REAL ESTATE CONSULTING: I think there`s a
lot of caution from builders coming out of the pretty abysmal Q4 that they
had. And so, people have been holding back on adding more inventory into
OLICK: Single family home construction is still climbing out of the crash
that hit a full decade ago, and starts are still well below historical
averages. Builders did put up more speculative homes or homes without
buyer contracts on them recently and are now sitting on a six-month supply.
PALACIOS: I wouldn`t say it`s a great time. I would say it`s a better
time than a year ago. You know, with the rise in speculative inventory
that builders have seen the past three or four months, yes, they have had
to start discounting on that.
OLICK: Price gains have been shrinking for ten straight months in the
existing home market, falling to just over 4 percent depreciation in
January, according to S&P Case Shiller. All of these are mixed signals for
the housing market this spring, which will depend as much on housing
affordability as it will on overall confidence in the economy, especially
for the growing number of millennials who will make the decision whether or
not to jump into ownership or stay on the sideline.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: So, let`s talk about what`s wrong with the housing market right
now. Joining us now is Nela Richardson, investment strategist at Edward
Welcome back, Nela.
NELA RICHARDSON, INVESTMENT STRATEGIST, EDWARD JONES: Thanks for having
GRIFFETH: I mean, Diana pretty much laid it out there. You get less
inventory which could mean higher prices, and that`s an affordability
problem for a lot of — especially those first-time buyers, right?
RICHARDSON: Right. So, on the demand side, affordability is the key
issue. And we`re at a state demographically where we`re seeing the largest
generation in history for the United States, the millennials, move into
peak home buying years. So, the demand is there and it has a strong
tailwind. The problem is we don`t have the inventory to match the demand
that is coming.
HERERA: That`s been a problem for some time now, especially for first-time
home buyers. Do you see that dynamic changing at all?
RICHARDSON: It`s going to change very slowly. And we`ve seen that. We`ve
seen single family housing struggle to get to prior historical norms, even
though there is this demand.
And the reason is there are several headwinds on the supply side. We have
still the difficulty of finding buildable lots. It`s still hard to find
labor, so labor shortages are a factor. Tariffs are a concern for building
costs like lumber. And then there`s regulation and zoning.
So, these are persistent things and are not going come and go with just one
cycle or one decrease in rates.
GRIFFETH: So, do you like the home builders here as investments?
RICHARDSON: You know, I am long-term bullish on real estate because
basically demographics are destiny and we see the demographics very
positive. And then there`s all these short-term factors that will build
momentum for housing. One, wages are the strongest they have been in the
ten-year expansion, so that`s good for housing. We`ve seen mortgage rates
come down as Diana alluded to.
And so, all these things. We`ve seen prices coming down, helping with
affordability. All these things are additive for momentum and for builders
to meet that demand, but it is going to be a game of inches because of the
supply headwinds still.
GRIFFETH: Indeed. Very frustrating if you`re trying to find a home to buy
Nela Richardson with Edward Jones, again, thanks for joining us tonight.
RICHARDSON: Thank you.
GRIFFETH: And now to trade and reports that top Chinese officials have
softened their tone on certain issues. It could signal that negotiators
are getting closer to a deal, one that could get rid of some of the tariffs
that have hit both business and consumers. But there`s another trade
matter that still needs to be resolved, and that is the new NAFTA. It has
not yet been ratified by Congress and now the White House is looking to
build support on Capitol Hill and beyond.
Kayla Tausche has the details.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nearly four months
since the U.S., Canada and Mexico signed a new trade deal, the White House
is now making its pitch to lawmakers to pass the agreement. Republicans
meeting today at the White House to air their concerns. President Trump`s
top trade official meeting with Democrats to shore up their votes, and
using hearings on other topics to sell the deal.
ROBERT LIGHTHIZER, U.S. TRADE REPRESENTATIVE: If USMCA doesn`t pass, I`ve
said this before, it would be a catastrophe across the country.
TAUSCHE: To avoid that outcome, the administration has enlisted outside
help. Trade Works for America is led by GOP strategists, a multimillion
dollar marketing blitz with employee outreach, thousands of calls to
lawmakers, and TV ads in vulnerable districts.
AD ANNOUNCER: The USMCA is a trade agreement that will protect auto jobs
and energize our economy.
TAUSCHE: Michigan is one of the handful of states where polling shows
potential support for the deal and battleground districts that supported
Trump in 2016 but elected Democrats last November.
Phil Cox who leads Trade Works for America says they`ll eventually target
PHIL COX, TRADE WORKS FOR AMERICA SENIOR ADVISOR: Those are the areas that
we`re probably going to be targeting the most because we`re going to need
Democrat votes to pass the House. We want to know how people in those
districts view USMCA. Most of them don`t really have an opinion. So we
have a great opportunity to sort of define what this agreement is.
TAUSCHE: Cox`s group found that 72 percent of voters in four sample swing
districts supported the deal after hearing upbeat messages about it. The
biggest jump, among women and Democrats.
COX: What folks respond to in the polling is not the technical aspects of
the deal, but the fact that this is good for farmers, it`s good for
TAUSCHE: The sales pitch will kick into high gear in April when text of
the deal and the report on its economic impact will be sent to lawmakers.
Vice President Mike Pence will take the lead on the White House`s public
effort in hopes of passing the deal by August, when lawmakers leave
Washington and the 2020 election season begins.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
GRIFFETH: On Wall Street, stocks did finish the day higher thanks to a
rise in energy shares and a stabilization of the yield of that 10-year
treasury. By the close, the industrial average was up 140 points at
25,657. The Nasdaq added 53. The S&P gained 20.
HERERA: Concerns of weaker global growth did not dampen demand for oil.
Prices rose as traders focused on OPEC`s supply cuts and forecasts lower
U.S. inventories. Domestic crude settled just under $60 a barrel. And,
believe it or not, oil prices are up about 30 percent so far in 2019. And
as you may have noticed, that is lifting the price that you pay at the gas
Here to talk more about oil and gas prices is Dan McTeague, senior
petroleum analyst at GasBuddy.com.
Nice to have you here, Dan. Welcome back.
DAN MCTEAGUE, GASBUDDY.COM SENIOR PETROLEUM ANALYST: Good to be here, sue.
HERERA: This is kind of a push and pull situation between the fundamentals
like the supply and demand, and what traders are willing to do in the oil
MCTEAGUE: Yes. It looks like we have really two markets at play here.
We`ve gone through three days where we`ve seen losses on the energy
markets. Now, we see a bit of a reversal.
You know, really at play is a concern about recession, Brexit, concern
about the trade deal, which the previous piece had alluded to between the
United States and China. And, of course, the sort of stuff we heard last
week, kind of an odd sort of circumstance. The yield curve, basically
meaning that there are indications that a recession is in the offing.
Whether that`s true or not, I mean, I`ll leave that to the economists.
But all of these things have the pessimists really saying, hey, you know
what, we don`t want oil prices to go too high. On the other hand, we have
— those who are dealing with the supply issue are saying, wait a minute,
we have a tightening of supply across the world.
GRIFFETH: Dan, Saudi Arabia would like to see $70 oil, at least on North
Sea crude. Do you think they`ll get it?
MCTEAGUE: Yes. I mean, they`ve come down from $80 down to $70. It
wouldn`t have to go very far on the Brent, North Sea crude. I mean, it`s
trading today at $67, $68, a couple more dollars. Maybe we`re finding a
happy medium somewhere, but we know that crude has gone up over 30 percent
since the beginning of the year.
Gasoline shot up, what, 42 cents a gallon since the beginning of January.
So, you know, those prices look a whole lot more like what we`ve seen, say,
in the last couple of months up to October of 2018. We`re back to the high
prices. But this may very well soften over the next several weeks.
HERERA: Well, how much higher do you think gasoline prices specifically
could go, $3, $3.25? What`s your forecast?
MCTEAGUE: You know, we think $3 is achievable. It was attainable last
year. We saw it Memorial Day, long weekend, it hit $2.99 as an average.
And then, of course, it slowly climbed down, didn`t quite hit that point.
But I think there is upside momentum, especially given the tightness in
supply. We`ve had a number of critical problems with some of the
refineries across the country. Of course, we saw the evidence from Deer
Park and the Houston Channel bringing vessels in and out that have been
sort of disrupted.
All of these are real factors. But strong demand for gasoline continues to
be a big issue right across the country. And for that reason I think we
can certainly see $3 before Memorial Day.
HERERA: All right. On that note, Dan McTeague with GasBuddy.com, thanks
so much for joining us.
MCTEAGUE: Thanks for having me.
GRIFFETH: Time to take a look now at some of today`s “Upgrades and
We begin with shares of Nvidia. They were initiated with an overweight
rating in new coverage of Piper Jaffray. The analyst there cited a
potential for significant margin expansion at the company. The price
target is now $200. That stock rose more than 1.5 percent to $176.87.
Allegiant Travel (NASDAQ:ALGT) was upgraded to outperform from neutral at
Macquarie. The analyst cited the strength in leisure fares lately. Price
target $149. Shares were up more than 1 percent to $124.01.
And Vertex Pharma was upgraded to outperform from market perform at William
Blair. The analyst cited strength in the cystic fibrosis market following
recent data from competitors. The price target now $222. That stock
gained 3 percent to $189.91.
HERERA: Still ahead, a settlement in the opioid crisis. But it`s not over
GRIFFETH: The acting head of the FAA will reportedly tell a Senate panel
that Boeing (NYSE:BA) 737 MAX jets will return to service only when
analysis indicates that it`s appropriate. According to “Reuters”, Dan
Elwell, who is scheduled to testify tomorrow is expected to say the
agency`s oversight approach must evolve in his words following those two
fatal crashes since October. The FAA, as expected, received the final
version of Boeing (NYSE:BA) software update later this week for evaluation.
Separately, Lufthansa said today it has not lost trust in Boeing (NYSE:BA).
The German airline plans to expand its fleet next year but it has yet to
decide if it will buy Boeing (NYSE:BA) or Airbus jets.
HERERA: Smaller health insurers that have exposure to Medicaid came under
pressure today. This after the Department of Justice said that a Texas
district court`s decision that the Affordable Care Act is unconstitutional
should be affirmed. Molina and Centene (NYSE:CNC) are the most exposed.
WellCare has some exposure.
And there are reports late tonight that Centene (NYSE:CNC) and WellCare are
in takeover talks. That sent shares of WellCare higher in after-hours
GRIFFETH: Congress went back to work in Washington today and there are a
number of policy issues that need to be worked out, as usual.
Ylan Mui is following that story for us tonight.
And the — so, now, what`s on the agenda now that the Mueller investigation
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, there are two big
issues that dominated the discussion on Capitol Hill today. And the first
one was health care.
As you mentioned, Democrats came out with new legislation today that they
said will protect people with pre-existing conditions. It will also lower
the cost of premiums. But President Trump was on Capitol Hill meeting with
Senate Republicans today and he said that Republicans should be the party
of health care, so that is one issue that we can expect to see a lot more
focus on in the weeks and months ahead.
Also today, the Senate took a vote on the Green New Deal. That is the
sweeping proposal to address climate change. It didn`t advance in the
Senate, but Democrats are determined to continue to talk about this, even
though it didn`t move forward. That is another area where they say
Republicans are playing politics and Republicans say that Democrats need to
decide whether or not they are actually going to support this controversial
HERERA: On the health care issue, is this a pivot for lawmakers,
MUI: Yes. So, Democrats would say they have been focused on these kitchen
table issues all along. That`s one of the reasons they say that they won
during the midterm elections back in 2018. I think that Republicans right
now are trying to regroup and try to press their advantage right now
politically. The end of the Mueller investigation was a big win for them,
and so they are willing to perhaps push forward with some bolder
legislative and policy proposals that they may have shied away from
GRIFFETH: Ylan Mui in Washington, as always, keeping her eyes on things in
Congress — thanks for joining us tonight.
MUI: Thank you.
HERERA: Carnival (NYSE:CCL) cuts its profit outlook and that`s where we
begin tonight`s “Market Focus”.
The cruise ship company is blaming higher fuel prices and a stronger dollar
for its soft outlook, but carnival topped earnings and revenue estimates in
the most recent quarter. And the CEO says the fundamentals are strong.
(BEGIN VIDEO CLIP)
ARNOLD DONALD, CARNIVAL CEO: We see no weakness. We have capacity
increase, bookings have been strong. In fact, we have less, you know,
volume to book now same time as last year as we did last year and that`s
with capacity increase. So, we`re ahead on bookings. We`re doing very
(END VIDEO CLIP)
HERERA: Shares of Carnival (NYSE:CCL), though, fell nearly 9 percent to
Activist investors are calling on Bed, Bath and Beyond`s CEO to step down
and they want the entire board replaced. The two investor groups own a
combined 5 percent stake in the company. They are also pushing for a
review of options, including a sale of all of Bed, Bath and Beyond`s
noncore brands. The shares rose 22 percent to $16.92.
GRIFFETH: McCormick (NYSE:MKC) reported better-than-expected earnings but
sales came up short thanks to weakness in its consumer business. The CEO
of the spice and seasoning maker said that the company continues to execute
successfully on its strategies. McCormick (NYSE:MKC) was up 1 percent
today to $145.36.
KB Home (NYSE:KBH) reported better-than-expected earnings after the close
of trade, but the home builder`s revenue was shy of estimates.
Nevertheless, the CEO says he anticipates strong demand during the spring
selling season. Shares initially rose following the news, adding to a
fractional gain during the regular session today where they closed at
HERERA: The maker of prescription pain killer OxyContin settled a closely
watched lawsuit with the state of Oklahoma for about $270 million. Purdue
Pharma has been accused of playing a role in the nation`s deadly opioid
And as Aditi Roy reports, this settlement will not be the last.
ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: A settlement announced
today aimed at the heart of the nation`s opioid crisis. The agreement
resulting from a suit against OxyContin maker, Purdue Pharma, by Oklahoma
Attorney General Mike Hunter. The majority of the money will go towards
the National Addiction Center at Oklahoma State University.
ATTORNEY GENERAL MIKE HUNTER (R), OKLAHOMA: It is going to save countless
lives and it`s going to keep families together. And it`s going to be the
tip of the spear in terms of leading the nation out of the addiction
epidemic that has claimed just this past year 70,000 lives.
ROY: Oklahoma`s suit claimed Purdue and other drug makers powered the
opioid crisis through aggressive marketing tactics which downplayed the
harms of the opioids. The deal avoids what would have reportedly been the
first trial for Purdue over the drug crisis. So, two members of the
Sackler family, which founded the company, will not have to testify in
In a statement, members of the Sackler family said while the agreement
announced today is not a financial model for future settlement discussions,
the establishment of a national center is a unique and important step that
we hope will save lives.
But today`s deal could be just the beginning for Purdue. The company
reportedly faces up to 1,600 opioid lawsuits from states, cities and
counties over prescription painkillers. And Oklahoma is reportedly one of
37 states to sue Purdue since 2017.
Earlier this month, Purdue`s CEO said the company is looking at a possible
bankruptcy as a result of these claims. The company has denied wrongdoing,
saying labels for its painkiller carried warnings about the risk of abuse
From 1999 to 2017, nearly 218,000 people have died in the U.S. from
overdoses related to prescription opioids, according to the Centers for
Disease Control and Prevention. OxyContin came on the market in 1996. But
some argue that pharmaceutical companies are not the only ones to blame for
PETER PITTS, FORMER FDA ASSOC. COMMISSIONER: I think as a society lately,
we`re always looking for bad guys. It`s rarely that simple. There are a
lot of people, the FDA and physicians and drug developers an insurance
companies that can really play a role in making things better.
ROY: Today`s settlement only involves Purdue leaving claims pending
against Johnson and Johnson and Israel-based Teva Pharmaceuticals.
For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.
GRIFFETH: Coming up, how artificial intelligence will change the way you
order fast food.
HERERA: Former Nissan chief Carlos Ghosn received an unusual perk from the
automaker. According to Bloomberg, Nissan paid the college tuition of all
four of his children who attended Stanford University. The total cost,
about $600,000. Nissan did not respond to a request for comment.
GRIFFETH: Uber is buying Middle East rival Kareem for a little more than
$3 billion. This acquisition is Uber`s largest ever. It will help the
ride-hailing company push further into that region that has about 400
million people. And the deal also ends a rather costly battle between the
two companies over market share.
HERERA: Lyft is expected to price its shares above the targeted range when
it goes public. That range was between $62 and $68 a share. According to
“The Wall Street Journal”, there`s strong investor demand ahead of the
initial public offering, but the price is unlikely to be as high as $80.
Shares are expected to price late Thursday.
GRIFFETH: And for those consumers who enjoy fast food, the entire industry
is undergoing a technological transformation. And today, McDonald`s
(NYSE:MCD) made its biggest acquisition in 20 years, buying artificial
intelligence start-up Dynamic Yield. The stock rose nearly 1 percent on
And tonight, Kate Rogers (NYSE:ROG) takes us into the company`s digital
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: McDonald`s (NYSE:MCD)
spending some $300 million on the startup, according to people familiar
with the deal. Dynamic Yield uses technology to help personalize the
customer experience. McDonald`s (NYSE:MCD) will deploy this first in its
drive-thrus on digital menu boards, which will show food based on time of
day, weather, current traffic, in stores and even trending menu items. It
will also enable McDonald`s to display additional items that customers
might like just based on what they just ordered.
The plan is to roll this out into U.S. restaurants this year and into top
international markets. This as the company continues to modernize and
update restaurants around the globe. McDonald`s (NYSE:MCD) isn`t alone
with its focus on technology as consumer preferences change, relying more
on convenience and speed.
Chipotle is focusing on digital, seeing its digital sales skyrocket about
65 percent in the fourth quarter. The company is currently testing out
Chipotle lanes, focused on digital order pickups in addition to pickup
shelves in stores.
Dunkin` Donuts rolled out a drive-thru solely for mobile orders at its next
generation concept store in 2018, part of its $100 million blueprint for
growth to update locations and offerings through 2020.
And just last week, Starbucks (NASDAQ:SBUX) announced it would focus on
investing in and potentially partnering with food and retail startup
technology companies through a new fund.
As customers demand quick access, customization and easy ordering, more now
than ever before, restaurants are banking on technology to get them into
stores, at drive-thrus or even ordering from the comfort of home.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).
HERERA: And before we go, here`s a final look at the day on Wall Street.
The Dow was up 140 points to 25,657. The Nasdaq added 53. The S&P 500
And the price of domestic crude settled just under $60 a barrel today.
Believe it or not, oil prices are up about 30 percent so far in 2019.
And that will do it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera,
thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll definitely see
you tomorrow. END