Transcript: Nightly Business Report – April 3, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Getting closer.  The U.S.-China trade deal is reportedly 90 percent done, but the last 10 percent could be the toughest.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Capping costs.  Cigna lowers the cost of insulin for some consumers as pressure from Washington grows.  

HERERA:  Crumbling infrastructure.  A new report says it will take 80 years to fix all of the structurally deficient bridges in America.  
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Wednesday, April 3rd.  

GRIFFETH:  And we do bid you a good evening, everybody, and welcome.  
Wall Street finished with just modest gains today, but don`t let that fool you.  The stock market`s major averages are very quietly closing in on new all-time highs.  In fact the S&P and the Nasdaq have now closed higher for the fifth straight day as investors continue to be cheered by reports that a U.S.-China trade deal is here even as they brush off more and more soft reads on the economy.  

Today, the Dow rose just by 39 points.  We`re now at 26,218, the Nasdaq added 46 and the S&P added 6.  

Bob Pisani takes a look now at this slow, yet choppy march to new highs.


BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The early gains were fueled by higher hopes for this week`s U.S.-China trade talks.  China`s vice premier meets with officials in Washington today and reports are saying the two sides are getting close to a deal.  We`ve heard this before.  

The markets don`t necessarily need to see a done deal to rally higher, they do need to see clear signs of concrete progress happening.  Technology and material stocks led the way higher, there were a whole bucket of semiconductor names that rallied on this China trade talk optimism.  So, you have names like Advanced Micro and Nvidia and Broadcom

(NASDAQ:BRCM), they all had a nice pop today, and they all had heavy revenue exposure to China, most, about half, their revenues come from China.  Broadcom (NASDAQ:BRCM) is the most heavily exposed of that group.  

The Dow, S&P and the Nasdaq are less than 2 percent from all-time highs.  It`s not just a major averages that are inching closer to record territory.  The sectors are as well.  So, technology and consumer discretionary stocks are 1 percent or 2 percent away from this year`s high and health care is just about 4 percent away from the mark.  But a couple of key catalysts could turn the tide in the coming days, including the March jobs report, that`s out on Friday and the official start of the earning season.  

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


HERERA:  As we mentioned, those trade talks between the U.S. and China are nearing a conclusion and at least one business leader characterized it as 90 percent complete, but as Kayla Tausche reports, what`s left is the hard part.  


KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Chinese Vice Premier Liu He met today with the U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin as trade talks enter a critical phase.  

National Economic Director Larry Kudlow told reporters negotiations are making good progress.  

LARRY KUDLOW, NATIONAL ECONOMIC COUNCIL:  I think the Chinese have acknowledged these problems for the first time.  They were in denial.  And — 

REPORTER:  Which?  

KUDLOW:  All of them.  All of them.  The I.P. theft, forced transfer, the lack of ownership, the cyber hacking, they`ve acknowledged it.  Before that, they wouldn`t acknowledge it.  

TAUSCHE:  While the deal is near the finish line, the toughest issues have yet to be resolved, tariffs and enforcement.  The U.S. has put tariffs on at least $250 billion in Chinese goods and wants to keep some of those in place until China makes changes.  
The U.S. also wants to be able to put more tariffs on China in the future and not have China be able to retaliate.  That`s not sitting well with Beijing.  

WENDY CUTLER, FORMER ACTING U.S. TRADE REPRESENTATIVE:  The negotiation will center around how much of those tariffs stay in place or is China able to convince the United States to lift all of them and maybe snap back the tariffs if China doesn`t live up to its obligations.  

TAUSCHE:  If the two sides are able to reach an agreement in the coming weeks, the big question is how it would be implemented from there.  U.S. officials have said any agreement is just the beginning.  

GRIFFETH:  Elsewhere, a new report shows the private sector hiring fell to an 18-month low last month.  Private payrolls increase by $129,000 in March well below the 173,000 that was expected.  Economists say the report could be a sign the job market is running out of steam since gains slowed significantly across industries and company sizes.

HERERA:  A separate report showed that growth in the services sector fell more than expected in March.  According to the Institute for Supply Management, activity hit a 19-month low weighed down by a drop in new orders.  The services sector accounts for the bulk of U.S. economic activity.  

GRIFFETH:  Homebuyers rushed to refinance their mortgages last week.  It is something we told you was likely to happen given the recent sharp decline in rates and today we got the proof.  A new report shows that mortgage application volume rose to a 2 1/2-year high.  
Diana Olick has more.  


DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  No question lenders were busy last week as mortgage applications surged thanks to a steep drop in interest rates.  Applications to refinance a home loan jumped 39 percent in just one week and were 58 percent higher than a year ago according to the Mortgage Bankers Association.  
This as the average rate on the 30-year fixed fell sharply at the end of the month to just over 4 percent.  At the start of March, it was just over 4.5 percent.  That dropped meant 4.9 million borrowers could likely qualify for a refinance and reduced their interest rate by at least three-quarters of a percentage point, according to Black Knight.  That`s a nearly 50 percent increase who could benefit in a single week.  
Potential homebuyers did not rush to lenders and purchase mortgage applications rose 3 percent for the week, but were 10 percent higher than the same week one year ago.  And in the category of “you snooze, you lose”, rates popped back up to start this week and could make their next big move on Friday when the all-important monthly employment report is set for release.  

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

HERERA:  Two Dow components out with news tonight.  Verizon (NYSE:VZ) is rolling out its 5G network earlier than expected.  The next generation wireless service will hit Chicago and Minneapolis first and then the plan is to bring it to 30 other cities.  
The CEO explained the benefits of being first to market.  


HANS VESTBERG, VERIZON CEO:  The team has been working relentlessly to give our customers this fantastic experience in 5G and actually, our test is going so well.  So why wait when you have good news for customers?  So, we decided to turn it on today.  We are selling the Moto 5G phone.  The Z3 is in the stores.  

HERERA:  Shares of Verizon (NYSE:VZ) were up a fraction in today`s trade.  
And fellow Dow component Boeing (NYSE:BA) said its CEO joined test pilots aboard a 737 MAX to demonstrate the update software.  The company says the update worked as designed.  

GRIFFETH:  Well, first quarter earnings season kicks off in earnest next week, but not without some concerns.  According to “The Wall Street Journal” investors are worried that rising wages and energy costs have been eating into corporate profits.  
Rebecca Felton joins us tonight.  She`s senior portfolio manager at Riverfront Investment Group.  
Rebecca, it`s always good to see you.  Thanks for joining us tonight.  


MANAGER:  Thank you so much for having me.  

GRIFFETH:  And in fact, first quarter earnings may actually overall be negative this time around, right?  

FELTON:  Right.  You`re looking perhaps at about a 3.5 percent decline in earnings year over year.  That`s about the fact that consensus at this point which would be the first time in three years that we`ve seen that type of decline.  

HERERA:  So how much of this is already in the market?  We know that, you know, wages and labor costs have been going up.  We saw some pressure on oil prices, yet the market keeps approaching new highs.  Is most of this already in the market?  

FELTON:  I think folks are looking ahead into the next three quarters of the year, arguably Q1 will be most depressed, if you will.  And interestingly enough, I think there`s evidence that folks are willing to look through it when you observe that energy, materials and tech are some of the best performers year-to-date, yet their earnings will be some of the poorest, relatively speaking in Q1.  

GRIFFETH:  How about the trade tariffs, the trade battle we`ve been having with China and elsewhere, how much of that is eating into that, as well?  

FELTON:  Certainly, you saw companies` management`s guide last year, right, for potentially being impacted by the trade wars.  So, any positive news on that front is likely to lift shares higher that from a valuation standpoint, it perhaps could keep a ceiling on the market or the S&P at these levels.  

HERERA:  What areas of the market or what sectors of the market do you think will outperform on the earnings front?  

FELTON:  Well, I mean, tech has been a solid performer year-to-date.  So, it`s hard to gauge.  You know, momentum could carry it and valuation may not mean as much and we should see good news out of the health care services, even some of the REITs utility, some of the more boring types of sectors may have the best earnings year over year.  

GRIFFETH:  And on the other side, what are you wringing your hands over?  

FELTON:  Well, again, I would have told you that the three sectors I mentioned earlier, the materials, energy and maybe even tech shouldn`t have had the year that they`ve had.  So I think that in order for them to have a poor response to an earnings announce, you would have to see company guidance go lower, i.e., you know, perhaps higher labor cost, and input cost that you mentioned and so far we`re not seeing too much of that.  

GRIFFETH:  Very good.  
Well, the floods start next week.  We`ll see what happens.  
Rebecca Felton with Riverfront Investment Group — again, thanks for joining us tonight.  

FELTON:  Thank you for having me.  

HERERA:  It is time to take a look at some of today`s “Upgrades and Downgrades”.  
Caterpillar (NYSE:CAT) was downgraded to hold from buy at Deutsch Bank.  The analyst says synchronized global growth has collapsed.  Caterpillar (NYSE:CAT) is viewed as the bellwether for the global economy.  The price target is $128.  The shares closed at $139.26. 
Dunkin Brands was downgraded to market perform from outperform at BMO Capital.  The analyst cites the stock`s valuation which is up more than 25 percent over the past year.  The price target is $75, Dunkin shares below that mark today to $74.62.  

GRIFFETH:  Intel (NASDAQ:INTC) was initiated with a buy rating in new coverage at Nomura.  The analysts there cited intel`s leadership in microprocessors and artificial intelligence and autonomous driving.  Price target now, $65.  Intel (NASDAQ:INTC) crept 2 percent closer to that target today, closing at $55.48.  
Urban Outfitters (NASDAQ:URBN) was upgraded to buy from neutral at D.A. Davidson.  The analyst cited fewer markdowns on items and overall stronger pricing and fundamentals.  Price target there now $36 and shares finished up more than 3 percent today to $31.77.  

HERERA:  Still ahead, looking for the big fix.  Why it will take a lifetime to repair all of America`s deteriorating bridges.  

HERERA:  The Massachusetts Gaming Commission questioned Wynn Resorts (NASDAQ:WYNN) executives in day two of the hearing that could determine whether Wynn holds a gaming license in that state.  At issue are allegations of sexual misconduct made against founder Steve Wynn and whether there was an internal cover-up.  
Today, board member Patricia Mulroy was asked about an employee`s claim whether the board was aware and if enough was done.  


PATRICIA MULROY, WYNN RESORTS BOARD MEMBER:  The board was frozen in place.  They were — and was it a mistake?  Was it something that the board should not have done?  Yes.  Trust me.  I absolutely agree with you, but I — they didn`t.  They did not conduct a full investigation.  

HERERA:  Founder Steve Wynn has denied all allegations.  The company is scheduled to open its $2.6 million resort outside of Boston in June.  

GRIFFETH:  In Washington, Senator Elizabeth Warren today unveiled a bill that would make it easier to jail executives who have been accused of wrongdoing.  The measure would widen criminal liability to include what they called negligent executives with corporations of more than $1 billion in annual revenue.  Executives could face up to a year in jail for the first violation and up to three years for a second.  Separately, Senator Ron Wyden is proposing an annual tax on unrealized capital gains.  That plan would treat the increased value of long-term investments like income although many analysts say the proposal has little chance of becoming law.  

HERERA:  Key House lawmakers have reached a bipartisan agreement to move forward on legislation aimed at lowering drug prices.  The measure increases competition from cheaper generic drugs by banning pay for delay agreements between branded and generic drugmakers.  As you know, pay for delay is when drug companies pay generic companies to delay the introduction of their competing medicine.  
GRIFFETH:  And a big focus of the debate on Capitol Hill over rising

drug prices has involved insulin in large part because so many people need it and some have to pay a lot for it.  Well, today, Cigna said it is capping what some consumers will have to pay out of pocket for insulin.  
Bertha Coombs has the details.  


BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Cigna says it wants to help its 7,000 diabetic members on commercial health plans get more affordable insulin.  It is now dropping co-pays to $25 for a one-month supply from an average of $41.  Executives at Cigna`s pharmacy benefits unit Express (NYSE:EXPR) Scripts says the move comes after negotiating from insulin producers.  

DR. GLEN STETTIN, EXPRESS SCRIPTS:  It really wasn`t until probably the last couple of years that we really started hearing about issues of people rationing their insulin because of high out of pocket costs and from our standpoint that kind of snuck up on people.  
COOMBS:  But why now?  Insulin prices for patients with type 1 diabetes have doubled since 2012, according to the Healthcare Cost Institute, and that`s become a key focus on the drug price debate in Washington.  In the last two months, congressional committees have launched probes specifically looking at insulin prices.  

LES FUNTLEYDER, E SQUARED CAPITAL:  When it becomes a more discreet, concrete problem it`s something that people respond to versus the macro, drug prices are too high.  So — but when you specify which one, then there are actions that either the government can take, the pharmaceutical manufacturers can take or the payers can take, or all three.  

COOMBS:  Last month, the nation`s top insulin producer Eli Lilly

(NYSE:LLY) launched a half price generic version of its blockbuster drug Humalog.  Consumers will benefit if others follow Lilly and Cigna says University of Pittsburgh`s Inma Hernandez.  

INMACULADA HERNANDEZ, UNIVERSITY OF PITTSBURGH:  It doesn`t necessarily have to be this type of co-payment reduction, for instance when we think that instead of lowering co-pays, they could just lower prices because that could also benefit patients and probably the one that struggled the most because of high insulin prices.  

COOMBS:  Cigna says the insulin makers are picking up most of the cost of the co-pay reductions, but it will still be up to employer and group plan customers to decide whether they`ll implement the program for their members.  


HERERA:  Signet tries to regain its sign and that`s where we begin tonight`s “Market Focus”.  
After quarters of declining sales, the jewelry chain reported better than expected earnings and revenue, but sales at stores open at least a year fell 2 percent from a year ago.  The company plans to improve its e-commerce operations and close some stores as part of its turnaround plan.  


VIRGINIA DROSOS, SIGNET JEWELERS CEO:  We`re year one of a three-year transformation.  We call it Path to Brilliance, three key strategies for Signet: customer first, building an omni-channel experience and building a culture of agility and efficiency.  I say we`re making progress.  We certainly aren`t there yet, but we set a strong foundation for bolder and faster action this year.  


HERERA:  Signet was up a fraction to $27.80.  
Acuity Brands (NYSE:AYI) topped profit estimates while sales for the quarter missed.  The CEO of the lighting and building management company says there`s some concern about the impact of tariffs and higher prices, but for the most part, demand has not changed.  Acuity Brands (NYSE:AYI) jumped nearly 9 percent to $134.79.  
The drugmaker Roche said its plan $4 billion takeover of Spark Therapeutics is still on track even though the acquisition is being scrutinized by regulators and only 30 percent of Spark shareholders have voted to support the deal so far.  Spark fell 1 force $112.90.  

GRIFFETH:  T-Mobile said today it`s going to offer Viacom (NYSE:VIA) channels to its 80 million cell phone customers.  The content distribution deal allows T-Mobile to bring together live feeds, as well as on-demand content for networks like MTV and nickelodeon.  Shares of those company went in opposite directions.  Viacom (NYSE:VIA) was up nearly 2 percent to $29.35, T-Mobile was down 1 percent to $69 even.  
And hundreds of millions of Facebook (NASDAQ:FB) user records were recently found without password protection on Amazon (NASDAQ:AMZN) cloud servers.  The cybersecurity firm says the way the records were stored allowed them to be downloaded by the public.  We should point out that the records did not contain sensitive data like passwords or credit card numbers.  Nonetheless, Facebook (NASDAQ:FB) did acknowledge the issue and said that those databases have since been taken down.  Shares of the company were off a fraction today to $173.54.
And Constellation Brands (NYSE:STZ) is selling 30 of its brands to Gallo Winery for $1.7 billion.  Constellation hopes the deal — help it accelerate its growth by allowing it to focus instead on its premium wines and spirits.  The stock fell initially following the announcement after the bell tonight, but finished the regular session up more than 1-1/2 percent today to $176.69.  

HERERA:  There is a new report from the American Road and Transportation Builders Association, which says that more than 47,000 bridges across the United States are in crucial need of repair and it will take more than 80 years to fix all of them.  
Alison Perma Black conducted the study.  She joins us now to discuss her findings.  
Welcome, Alison.  Nice to have you here.

ALISON PERMA BLACK, AMERICAN ROAD & TRANPORTATION BUILDERS ASSOCIATION:  Thank you very much for having me.  A pleasure to be here.

HERERA:  It`s a pretty shocking report, and we`re going to break down some of the states that have the most exposure to deficient bridges in just a moment.  But what struck me is the fact that some of these issues are being addressed but at such a slow pace, only a 1 percent net reduction of the deficient structures.  Why is that?  

PERMA BLACK:  It really is.  So, every year, bridges are repaired and they`re taken out of that structurally deficient category which means one of the key structural elements of the bridge is in poor or worse condition.  But as conditions deteriorate on other bridges after the inspections, they fall into that category.  
So, overall, we`re moving in the right direction, but it`s extremely slow and even despite increases in investment, it really has not been enough to move the needle in a very meaningful way.  

GRIFFETH:  So which states are we talking about that have the biggest problems with the deficient bridges?  

PERMA BLACK:  There are two different ways we can look at this.  The first is the states where they may have the most sufficient bridges, but it`s a large part of their inventory.  So, states like Rhode Island, West Virginia, maybe the smaller states that have challenges there.  
The second way we can look at this are states where just the large number of deficient bridges can be high and we do see some more Midwestern states, especially areas which have some challenges with smaller, rural local bridges that top that part in the list.  

HERERA:  So at this point, does deficient mean unsafe and how do you break that down?  

PERMA BLACK:  Right.  It doesn`t mean unsafe.  What it means is that with the last bridge inspection which usually those are done by state DOTs or professionals, there is some national bridge standards that are followed, that in that last inspection, one of the key structural elements of the bridge, usually either the deck, the super structure or the sub structure below, one of those elements was rated in poor or worse condition.  

GRIFFETH:  So that`s the problem.  What about a solution?  You`ve aggregated this altogether to about $171 billion is about what it would take to fix all of these deficient bridges.  Is there a role for the private sector in this at all, do you think?  

PERMA BLACK:  Absolutely.  I think it`s going to take the private sector.  It`s also going to take state, local and federal investment and certainly we have seen state and local governments really step up the last few years, a number of states have raised their own gas taxes or user fee revenues.  We are really looking to Congress, as well to address the federal side.  
It`s no — it`s not surprising, infrastructure has been a big issue in this Congress and we really need some political will to get something done.  The federal piece is very important in this.  It drives about half of all state, highway and bridge capital spending.  

HERERA:  On that note, Alison Perma Black with the American Road and Transportation Builders Association — thanks very much.  

PERMA BLACK:  Thank you.  

GRIFFETH:  Coming up, a food fight with a twist.  


RAHEL SOLOMON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Whole Foods announces cuts to hundreds of products.  It`s the latest round since Amazon (NASDAQ:AMZN) brought the grocery chain.  
I`m Rahel Solomon for NIGHTLY BUSINESS REPORT in New York.  Coming up, will this time be different and help attract new customers to Whole Foods?


HERERA:  WeWork, the shared office leasing company, is buying a company called Managed by Q, which runs a platform for hiring services like cleaning crew, receptionists or I.T. support staff.  
And if all of this sounds familiar, it should.  NIGHTLY BUSINESS REPORT profiled that company back in 2015 as part of our monthly bright ideas series.  The financial terms of today`s deal were not disclosed, but reports say the price tag was about $250 million, which would make it WeWork`s largest U.S. acquisition.  And you can watch our profile of Managed by Q on our website,  

GRIFFETH:  As you saw, Whole Foods is cutting prices and, as you know, the grocer is owned by Amazon (NASDAQ:AMZN) and the decision has some investors, even shoppers wondering what exactly Amazon

(NASDAQ:AMZN) is after.  
Rahel Solomon is in New York City for us tonight.  

SOLOMON:  There`s a food fight in Aisle 3.  Amazon (NASDAQ:AMZN) today slashed prices at its Whole Foods stores around the country, about 500 products and mostly produce and meat will be on average, 20 percent cheaper, and perhaps the broadest that we`ve seen since the e-commerce giant bought Whole Foods in 2017.  

CHARLES O`SHEA, MOODY`S RETAIL ANALYST:  Walmart sells over $250 billion worth of grocery equivalent through the store network every year and Amazon (NASDAQ:AMZN) is less than 10 percent of that.  Kroger (NYSE:KR) is about half of Walmart.  

SOLOMON:  And when comparing Whole Foods to its competitors, it`s most expensive.  The recent analysis by Morgan Stanley (NYSE:MS) found a basket of 60 items from whole foods costs $198, that`s about 20 percent more expensive than Kroger (NYSE:KR) and Sprouts, and 15 percent higher than a conventional grocery store.  
And Amazon (NASDAQ:AMZN) prime members have not been willing to pay up.  So, to get those 100 million customers in the stores, Whole Foods is cutting prices on things like on wild cod, blueberries and those honeycrisp apples.  

O`SHEA:  I think what`s happening with Whole Foods is they`re just trying to expand the base and they don`t have to expand it that much.  They`re trying to draw a new shopper and trying to hang on to the existing shopper.  

SOLOMON:  Existing shoppers we spoke to had mixed reaction.  Some didn`t even notice the new deals.  

SHARIF FAJARDO, WHOLE FOODS SHOPPER:  They might come into shop in a few other places, but I don`t see the difference in the lower prices.  

SARAH KAUFMAN, WHOLE FOODS SHOPPER:  I like shopping at Whole Foods anyway, when I can, and that would just motivate me more to go.  

SOLOMON:  Whole Foods is also announcing additional incentives for those Amazon (NASDAQ:AMZN) prime members, twice as many items on sale with the group as before and an additional 10 percent off store wide sales items.  Yet, despite this move, industry leaders and analysts remain skeptical that this will attract new customers to Whole Foods.  

For NIGHTLY BUSINESS REPORT, I`m Rahel Solomon in New York City.  

GRIFFETH:  Before we go, here`s a look at the final numbers on Wall Street.  The Dow rose 39 points, Nasdaq added 46, and the S&P 500 was up six.  
And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks for joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have a great evening.  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 of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2019 CNBC, Inc.

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