ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Reverse course. Stocks bounce back on reports that trade talks between the U.S. and China are still on. And investors exhale — for now.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Turning point? Stocks, bonds, and commodities are suddenly volatile. So what`s next for some of the most widely held asset classes?
HERERA: New questions: Did Boeing (NYSE:BA) wait to alert airlines and regulators that a safety alert wasn`t working? A new report suggests it did.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, May 6th.
GRIFFETH: And we do bid you a good evening, everybody, and welcome.
Well, the trade talks are on. Reports late this afternoon said Chinese negotiators are now still planning to come to Washington this week to continue hammering out a deal with the U.S. That gave stocks a lift after they had already suffered steep losses this morning when investors were concerned that the Chinese were thinking about pulling out of the talks. The initial selloff was sparked by a tweet from President Trump in which he threatened to impose additional tariffs on Chinese goods this Friday. He said progress was moving too slowly and he accused China of trying to renegotiate parts of a deal that had had already been agreed to.
Those comments caught the global markets off guard. Shanghai fell more than 5 percent overnight. And after a very rocky start this morning, the indices here in the U.S. were down but well off their lows. The Dow was down 66 points at the close. It had been down more than 400 at the lows. The Nasdaq dropped by 40 and S&P 500 down by 13.
And then very late this afternoon, there was a meeting at the Trade Representatives office in Washington. Our Kayla Tausche was there.
And, Kayla, you found out there is a timetable now for the restart of the talks and for the tariffs, right?
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: That is correct, Bill.
The Chinese vice premier is expected to be in Washington for talks Thursday evening and Friday. So, the show will go on. But this round of negotiations, the 11th round between the U.S. and China will be shorter and perhaps a little bit more tense considering that the U.S. trade representative, Ambassador Robert Lighthizer said these heightened tariffs will go into effect at the end of the day Thursday, 12:01:00 a.m. on Friday. Those tariffs go up to 25 percent from 10 percent on $200 billion of goods imported from China.
HERERA: Kayla, last week, when leaving Beijing, the treasury secretary said the meeting was productive. So what happened to precipitate this kind of breakdown?
TAUSCHE: The treasury secretary acknowledged this afternoon to reporters that the meetings have been productive and that both negotiators felt there was substantial progress that had been made through these rounds. But he said over the weekend, the U.S. negotiating team was given new information by China where they reneged on previous commitments and that there was a significant erosion in what China was willing to put on the table. The treasury secretary said that it was very clear that the language that was change would have the potential to change the deal dramatically. He said the president was willing to hold off on increasing tariffs so long as there was progress. And once China backtracked on that, they didn`t feel there was.
GRIFFETH: So what you are hearing? What`s the likelihood of a deal either this week or at all?
TAUSCHE: Well, the treasury secretary said there is a potential for talks to get back on track. It does appear that U.S. negotiating team has lost faith in China, that they felt they had certain things that had been agreed to that were underpinning the deal, certain commitments from China that at this very late stage of the game, China is willing to back out of. That certainly gives U.S. negotiators pause, that they are cautiously optimistic that there could be some resumption of talks even if not a deal this week as expected.
GRIFFETH: Kayla Tausche in Washington for us tonight — Kayla, thanks again.
HERERA: On Wall Street today, it was all about Washington. As we mentioned, stocks moved in lock step with headlines about trade.
Bob Pisani witnessed all of the day`s ups and downs from the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks sold off very early on, but we quickly rebounded off the day`s lows. In fact, the low print of the day was right at the open. It was mostly up from there.
So, right away, we saw the usual knee-jerk reaction of selling trading sensitive names, semiconductors and large global industrials like
Caterpillar (NYSE:CAT) or Cummins (NYSE:CMI). But even that selloff is half hearted. We met with buying by the middle of the morning. The additional tariffs, they sound pretty serious. But the market reaction indicates that traders don`t believe that an all-out trade war is imminent.
Stocks bottomed out in the morning and they ended right around the highs for the day, indicating initial sellers were not met with any waves of additional selling in the middle of the day. Why is this? Well, traders believe that despite this speed bump, a trade deal will ultimately get done.
We`re not sure about the details, but President Donald Trump is going to continue to do everything to prop up the market ahead of next year`s presidential election. That`s just what the market tends to believe. Just look at what happened with the VIX today, that`s the volatility index, Wall Street`s so-called fear index. That spiked to almost 19 overnight but fallen back down to 19 by the close, indicating option traders are not feeling the need to go out and buy more protection, because that`s what reflects, that VIX.
But don`t kid yourself. If a real trade war were to develop, the market is very vulnerable. It is expensive right now, and the trade war will definitely reduce global growth and earnings prospect.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: And billionaire investor Warren Buffett acknowledged today that a dangerous game is being played by the world`s two biggest economic superpowers. Mr. Buffet made his comments during a wide-ranging interview on CNBC today with Becky Quick when she asked him about the potential for an escalation in trade tensions.
(BEGIN VIDEO CLIP)
BECKY QUICK, CNBC REPORTER: What do you think about the potential for trade tariffs coming back on and what that might mean for the trade talks?
WARREN BUFFETT, BERKSHIRE HATHAWAY CEO: Well, I can`t gauge both sides and how they`ll play the game. And there are always — some people negotiate in different ways. And if we actually have a trade war, it will be that for the whole year and could be very bad depending on the extent of the war. But there are times in negotiations when you talk tough.
The one thing you can`t do is you can`t shake your fist and shake your finger later on. I mean, that is not a technique that works well.
(END VIDEO CLIP)
GRIFFETH: Mr. Buffet did not try to put odds on how the trade talks would turn out or whether President Trump whop follow-through on his tariff threat.
But that threat has economists crunching numbers to figure out the impact of tariffs on the economy.
Steve Liesman has that part of the story.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump`s tweet that he would slap tariffs on $200 billion of Chinese goods threatens the U.S. economy with deeper and longer negative impacts from the trade war. Economists estimate a modest impact from existing tariffs, saying it would shave about 20 points off of GDP this year. It`s a small amount. But about half of the estimated positive impact of the tax cuts.
Economists thought the negative infects would go away in 2020 but they may have to go back into the forecast and with 25 percent tariff potentially on tap, downgrade the forecast even more.
DEREK SCISSORS, AMERICAN ENTEPRISE INSTITUTE: Those kinds of tariffs are going to have macroeconomic impact here. They`re going to hurt American consumers if we really went to 25 percent on all Chinese imports. It`s going to make some products in the U.S. more expensive that are used by industry.
LIESMAN: There is also a negative impact on business confidence and on global growth that could hurt the U.S. economy. Barclays estimates that the tariffs could reduce Chinese growth by 0.3 to 0.5 percent.
If there is upside, it only comes after several years of terrorists, economists say, when and if U.S. companies can replace the more expensive foreign goods.
Other negative impacts to come from lower stock prices. A recent CNBC Fed survey showed 77 percent of market respondents thought there would be a U.S.-China trade deal this year. Analyst would have to recalculate earnings of U.S. companies who use more expensive Chinese components and make other adjustments based on if and how China might retaliate.
Like with most wars in a trade war, economists believe no one really wins.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
GRIFFETH: And the president of Philadelphia Fed said today that the trade war uncertainties are weighing on business and the economy. Patrick said he wants to see fair trade but that all of the talk about tariffs was not healthy for the overall economy. He added that the biggest issue many firms now face is policy uncertainty.
HERERA: So what might those renewed concerns over tariffs and trade mean for everything really from stocks to bonds to commodities?
Here to talk about that is Ben Phillips, chief investment officer with Event Shares to talk about the equity markets. Collin Martin is director of fixed income at the Schwab Center for Financial Research. He`ll focus on bonds. And Scott Nations covers commodities. He is president of Nations Shares.
Gentlemen, welcome to all of you. Thanks for joining our roundtable tonight.
Ben, I`m going to start with you. I know that you and a lot of other people think that basically a lot of this trade war talk is already in the market. And the market thinks we will get a deal. But the comments late this afternoon seem to suggest that things are not moving quite as smoothly as the market thought. What do you think?
BEN PHILLIPS, EVENTSHARES FOUNDER & CIO: I think that`s right that the market has been pricing this in and it`s a big driver of the rally year-to- date in our opinion. And so, I think you`re right on that assessment.
But I think the market is also looking at today and saying this is part of Trump`s negotiating style. He is a little bit of a brinkmanship person. He is saying this is something that I need to talk about. I need to address.
I think there is talk about him caving over the weekend. He doesn`t like when people say that he is a caver or anything or anything like that. So, I think we`re in a position where he`s trying to show a stronger hand and that he`s very serious about these negotiations.
GRIFFETH: Colin, fixed income is seen as the safety trade. And, of course, yields went down today. But at a time when the Fed last week signaled no rate cut any time soon, so yields went up. So you`re getting real mixed wins, you know, crosswinds here for the fixed income markets. Where do you think rates are going with all that`s going on right now?
COLLIN MARTIN, SCHWAB CENTER FOR FINANCIAL RESEARCH: Well, with tariff concerns which can potentially slow global growth and lead to lower investor confidence, you know that, can help pull yields lower as well as stock market declines when there are periods of volatility and investors, flock to the safety that U.S. treasuries provide, and that demand pushes price up and pulls the yields lower. So, this just supports our case at Schwab that yields are likely to stay low.
GRIFFETH: Aren`t they already pretty low at this point though?
MARTIN: They`re pretty low, but the threat of tariffs opens the door for a potential rate cut. You know, the Federal Reserve last week did send a relatively positive outlook. But if we do see slower growth both domestically and abroad, and if we see tighter financial conditions, that could lead to a cut by the Fed. Now, that can be a good thing for investors who own bonds because lower yields can push up their prices.
MARTIN: But it still makes it more difficult for investors looking for yields.
HERERA: Scott, handicap the reaction in the various commodity markets that you watch. I know that we would see reaction in copper, in oil. But the agricultural markets have been very sensitive and very volatile given this negotiating period.
SCOTT NATIONS, NATIONS SHARES PRESIDENT & CIO: Very much, Sue. And we could expect agricultural commodities like soybeans to really take on the chin today. And they did.
But you mentioned copper. I would also look at crude oil, both of those probably give us the best window into what is going on here, because China manufacturing economy uses so much of both. And as you would expect with cooper and crude oil had really ugly opens, but they came all the way up and more. And cooper went up nearly 1 percent, crude oil up at least 1 percent.
And so, what does that say? That says that market which has mind of its own does believe that the trade deal is still on track and that we`re likely to get a deal, because both of those commodities would market lower if we really had to throw in the towel on a trade deal.
GRIFFETH: Ben, we have a list of the companies that are the greatest revenue exposure to China. We`re going to show the top five. I`m struck by the fact that four of those five are technology related. In fact, they`re chip related.
And if we broaden this out to the top 10, eight out of the 10 are computer chip related. I mean, it doesn`t get more basic than that to technologies exposure to these trade talks right now, right?
PHILLIPS: That`s right. The tech companies are the greatest exposed. That`s why you see in the premarket and the open, they were the worst performers. But they clawed their way back too.
So, some of them did come back. And we`re looking at Xilinx (NASDAQ:XLNX) and Skyworks, those two names that we own, and those are names that, you know, we recently just started building position on them and more progress on the trade talks. So, you know, we`re waiting to see if this goes down further. We`ll potentially look at an opportunity to buy.
HERERA: If I can stay with you, Ben. You also say that the individual investors should maybe get a little defensive in health care and other sectors like that. What names on the defensive side do you like?
PHILLIPS: So, with health care, you know, this is again different policy, not China trade. But we like health care overall. We liked the manage care. So, we like Anthem there. We like United Health, for example.
And so there is some of the managed care providers and health care. We own Teledoc. So, we like the health tech companies as well. Those are the names in health care that are attractive in our view.
GRIFFETH: And, Scott, before we let you go, you talk about cross winds, the crude oil market. You got Saudi Arabia and the rest of OPEC that would like to seat price of oil go higher. And yet, if you get the trade tensions here in the tariffs go in, you are going to get a slowdown that`s going to push oil prices lower.
What do you do in here?
NATIONS: I think that when you look at crude oil, you have to look at the fact that big producers oversees have done a really good job of moderating their production. That is they scaled back their production a little bit. And that`s why we see crude oil prices higher than they were at the end of last year. I think they`re going to continue to do that within reason. They realize they have to answer to the American people and President Trump. So they`re not going to get ahead of themselves, Bill. I would expect that they`re going to continue to be disciplined when it comes to production. I think prices are likely to stay about where we have seen and maybe get near $70.
HERERA: On that note, gentlemen, thanks so much for joining us tonight.
Ben Phillips with EventShares, Collin Martin with Charles Schwab, and Scott Nations with Nations Shares.
GRIFFETH: Time to take a look at today`s “Upgrades and Downgrades”. Actually, a couple of upgrades tonight.
Sinclair Broadcasting was upgraded to buy from neutral at B. Riley FBR. The analyst calls the company`s recently announced deal to acquire 21 regional sports networks a home run. Price: $57. That deal was announced late Friday. And today, the date stock off, soaring by 34 percent to $60.48.
And Dish Network was upgraded to neutral from underperform at Credit Suisse. The analyst predicted that video subscriber losses will start to decline in the second half of this year. Price target now $34. Shares finished right at that level of $34.71.
HERERA: Still ahead, what did it know and when did it know it? It`s a question that has been asked before and now it is being asked about Boeing (NYSE:BA).
GRIFFETH: There are new reports tonight that Boeing (NYSE:BA) may have waited several months before notifying airlines and regulators that there was a problem with a safety alert system on the 737 MAX. That news and the increased trade tensions between the U.S. and China pressured that stock in today`s session.
Phil LeBeau has more for us tonight.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Shortly after Boeing (NYSE:BA) delivered the first 737 MAX in 2017, the company discovered a safety alert on the plane was not working. The alert involved the angle of attack indicators, a vein on each side of the MAX nose that measures the flight angle and alerts pilots if the plane is in danger of stalling. And for some airlines, if the data from those indicators do not match up, there is a disagree alert to notify pilots in the cockpit.
Boeing (NYSE:BA) now admits it waited months until shortly after the Lion Air crash to tell airlines the disagree alert was inoperable. Boeing (NYSE:BA) says the absence of the AOA disagree alert did not adversely impact airplane safety or operation.
There is no indication the lack of an alert caused either the Lion Air or Ethiopian Airlines Max airplanes to crash. And Boeing (NYSE:BA) says the senior management was unaware of the issue until late last year. That`s when the company told some airlines like Southwest about the MAX alert not working, while it waited until earlier this year to tell other airlines like United.
Even the acting head of the FAA didn`t know about the issue until late April when he saw a press report about it. The FAA says Boeing`s timely or earlier communication with operators would have helped to reduce or eliminate possible confusion. After public outcry about the lack of alerts for some 737 MAX pilots, Boeing (NYSE:BA) now says it will make angle of attack disagree alerts standard in all MAX cockpits.
All of this has some asking, what did the CEO Dennis Muilenburg and the Boeing`s board know? And why didn`t the company act sooner to notify airlines and regulators?
As those questions mount, the company has moved its chief legal counsel into a new position advising Muilenburg and the Boeing (NYSE:BA) board about the crisis.
Meanwhile, airlines continue to believe the 737 MAX will once again be flying some time later this summer. All of that is contingent upon the FAA and regulators around the world approving a software fix for the plane.
Boeing (NYSE:BA) has yet to submit that fix for regulatory approval.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
HERERA: Kraft (NYSE:KFT) Heinz will restate more than two years of earnings results. That`s when we begin tonight`s “Market Focus”.
And internal investigation revealed employees fabricated transactions that increase the cost of products sold. The company said it will restate results as far back as 2016. Warren Buffett who is Berkshire Hathaway (NYSE:BRK.A) is Kraft (NYSE:KFT) Heinz`s largest shareholder, said the company has his confidence. The shares were up a fraction today to $32.77.
Bausch Health reported better than expected earnings and raised its full year outlook. The drug maker formerly known as Valiant recently had its dermatology business receive an FDA approval for its lotion to treat flack psoriasis, which is a chronic skin condition caused by an overactive immune system. The company did miss on revenue, but investors didn`t seem bothered by that. The shares jumped more than 8 percent to $25.48.
Tyson foods posted better than expected results but warned African swine fever could impact the industry on a level never seen before. Tyson also voluntarily recalled nearly 12 million pounds of their frozen ready to eat chicken strips over concerns that they might contain pieces of metal. The shares were up more than 2.5 percent today to finish at $77.05.
GRIFFETH: And then after the bell tonight, AIG beat analyst estimates as the finance and insurance company saw notable rise in net interest income. This report also broke a six quarter streak of misses by AIG. The stock initially rose after hours and was unchanged in the regular session. They closed at $47.11.
Occidental Petroleum (NYSE:OXY) has increased the cash portion of its offer for Anadarko Petroleum (NYSE:APC). Occidental CEO says that she`s working closely with Anadarko`s management. She believes that upping the offer will remove any uncertainty about closing a deal. Occidental, of course, is trying to derail Chevron`s agreement to buy Anadarko. The stock rose 1 percent to $58.77.
HERERA: Warren Buffett, as you may know, recently made a $10 billion investment in Occidental Petroleum (NYSE:OXY), backing its bid to acquire Anadarko. Today, in that same interview with Becky Quick, he described his thinking behind that investment.
(BEGIN VIDEO CLIP)
BUFFETT: You bet on oil prices over the long term more than anything else. It`s also a bet on the fact that the Permian basin is what it cracked up to be all and that sort of thing. But oil prices will determine — will determine whether almost any oil stock is a good investment over time.
(END VIDEO CLIP)
HERERA: Buffet`s investment is Occidental is contingent upon Occidental being successful in purchasing Anadarko.
GRIFFETH: Coming up, super heroes have speed and strength and Avengers have both when it comes to raking in the money.
HERERA: Disney`s “Avengers: Endgame” has gone where few films have gone before, marking yet another milestone for the film and the entertainment industry.
Julia Boorstin has the details.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: “Avengers: Endgame” continues its record run with about $2.2 billion in ticket sales. Never before has a film generated such a high box office in such a short period of time. It`s only the fifth film to gross over $2 billion worldwide. Now, “Avengers: Endgame” is the second biggest film ever behind “Avatar (NASDAQ:AVTR)”. It drew $2.8 billion in worldwide ticket sales back in 2009.
Bolstered by end game, Disney (NYSE:DIS) is dominating the box office, responsible for 29 percent of all tickets sold in North America this year. And its dominance expected to continue with live action “Aladdin” and “Lion King” films due out this summer, along with “Toy Story 4”.
And “Endgame” has been a big win for theaters. Drawing back a broad audience to the big screen after the box office had declined by double digits earlier this year. One advantage of getting audiences back, the opportunity to show trailers, to get them excited about upcoming films, including “Spiderman: Far From Home” hitting theaters in July.
For NIGHTLY BUSINESS REPORT, I`m in Julia Boorstin in Los Angeles.
GRIFFETH: David Heger joins us right now to talk more about “Avengers” milestones, Disney (NYSE:DIS) dominating at the box office, and by the way, they`re reporting earnings on Wednesday. What should we be expecting?
He`s a media analyst at Edward Jones.
Have you seen the movie?
DAVID HEGER, EDWARD JONES MEDIA ANALYST: No, I haven`t myself. But my daughter has been dragged to it by her boyfriend already.
GRIFFETH: These results won`t be in Disney`s earnings on Wednesday. But it certainly going to be pretty good for them down the road, don`t you think?
HEGER: Sure. Certainly for the June quarter, it`s going to be a big positive for the studio part of the business. But interestingly, looking at the March quarter, the studio business may be having a little bit of a tougher comp just with having had “Black Panther” come out a year ago and bringing if a strong result. And certainly the “Captain Marvel” movie this quarter had a solid impact, but could make for a little bit of a tougher comp in the studio part of the business.
HERERA: What about the overall pipeline of content, though, David? I mean, they seem to be in the sweet spot, even taking the Marvel franchise out of the equation.
HEGER: You know, certainly looking through the current calendar year, it looks like Disney (NYSE:DIS) could have a strong late of movies coming up. Obviously, beyond “Avengers” we have the next edition of “Toy Story” franchise. There is another addition of the “Frozen” franchise coming up. And then finally, in December, we have the next episode of “Star Wars” coming out. So just a few of the many movies that Disney (NYSE:DIS) has on what appears to be a very strong slate this year.
GRIFFETH: But, briefly, you do have some concerns about some of their media networks and some of the other divisions within the company, right?
HEGER: Yes, certainly in looking at the march quarter, it will be interesting. This is still just Disney (NYSE:DIS) without any of the impact that Fox in the picture and as you said, the “Avengers” movie is not in the quarter. And so, the rest of the business, media networks will be looking for hopefully loss of subscribers to continue to moderate. It did slow down a little bit in the December quarter.
And then certainly in the theme parks, looking for steady growth although there could be some seasonal impact with the way that the Easter week this year falls into the June quarter rather than in the March quarter as did it a year ago.
GRIFFETH: Quickly, do you like the stock? Would you buy it here?
HEGER: Yes. Very positive on the stock. We feel positive about the Disney (NYSE:DIS) Plus online service that`s going to be rolling out. And the breadth of content that we feel that Disney (NYSE:DIS) can offer on that service with its own library plus the Fox library coming into the picture as well.
GRIFFETH: Very good. David Heger with Edward Jones, thanks again for joining us tonight.
HEGER: Thank you.
HERERA: Here`s a look at the final numbers on Wall Street today. The Dow closed down 66 points, 26,438. But it had been lower by more than 400. The Nasdaq dropped 40 and S&P 500 slid 13.
And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herrera. Thanks so much for joining us.
GRIFFETH: I`m Bill Griffith. Have a great evening. Cough.
HERERA: After we get off.
GRIFFETH: All right. We`ll see you tomorrow.
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