ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: D.C. drama. Infrastructure talks break down and that has some wondering if a key deal on the debt ceiling might be harder to reach.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Bright spot. Target (NYSE:TGT) hits the bull`s-eye with its online sales even as rival retailers flounder.
HERERA: Hollywood backlash. Georgia has become a production powerhouse, but now a loss of who`s who is threatening to boycott that state.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Wednesday, May 22nd.
GRIFFETH: And we do bid you a good evening, everybody. And welcome.
Fixing our nation`s crumbling infrastructure was the one issue that virtually everyone in Washington could agree on, but today, the latest round of infrastructure talks crumbled. A meeting at the White House between President Trump and Democratic leaders ended before it began. The get together was supposed to be the second official sit-down on that issue. First, as you recall, ended with an unofficial agreement to spend $2 trillion, but the president says that`s off the table.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I want to do infrastructure. I want to do it more than you want to do it. I`d be really good at that. That`s what I do, but you know what? You can`t do it under these circumstances.
(END VIDEO CLIP)
GRIFFETH: The circumstances he`s referring to are the investigations being led by the House Democrats.
Speaker Pelosi expressed her disappointment at today`s development.
(BEGIN VIDEO CLIP)
REP. NANCY PELOSI (D-CA (NASDAQ:CA)): For some reason, maybe it was lack of confidence on his part that he really couldn`t match the greatness of the challenge that we have. He just took a pass.
(END VIDEO CLIP)
GRIFFETH: Eamon Javers is following the story for us from the White House tonight.
Eamon, one Wall Street trader said that investors want to see infrastructure improvements get done. In fact, many of those infrastructure stocks fell on this development today.
What are you hearing? Any chance of this still happening?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, those investors are not going to see any infrastructure spending in Washington any time soon after today`s meeting, Bill. I`m told that what it was that set the president off today is Nancy Pelosi going on television earlier before the meeting, just about an hour or so before the meeting was set to happen and accusing the president of engaging in a cover-up because he was refusing to comply with subpoenas for information and documents that House Democrats want. That angered the president and that, aides tell me, is when the president decided he simply couldn`t work with them and suggested in a hastily called Rose Garden session that he wasn`t going to work with Democrats on much of anything, including drug price legislation, infrastructure and a number of other issues, saying you can either investigate — you can either investigate me or you can legislate, and you can`t do both at the same time.
So, the president saying ultimately, Washington is going to come to something of a halt here.
HERERA: Eamon, you mentioned that investigate versus legislate. What does that mean in particular for the debt ceiling and the budget? They`re critical to the economy and also to Wall Street.
JAVERS: Well, we spent some time trying to figure that out because the president didn`t specifically say which negotiations he`s walking away from and which he`s going to continue. A senior administration official texted me late this afternoon and said that the president is not walking away from negotiations around government spending and the debt ceiling. That`s an important one for Wall Street. A senior administration official saying those are must-pass items and not included in the president`s walking away from negotiations here at the White House.
But the White House is not saying what is included. They`re not saying what exactly it is he walked away from today, but he very visibly and very audibly walked away and we`ll see whether they can patch up this relationship any time soon.
GRIFFETH: Eamon Javers at the White House for us again tonight — thanks, Eamon.
JAVERS: You bet.
HERERA: Also in Washington, the Federal Reserve released the minutes of its last meeting, and it shed some light on two critical issues for the market, inflation and interest rates.
Steve Liesman has the details.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Minutes of the Fed`s April-May meeting show the Central Bank is ready to be patient with its policy of patients when figuring out what to do next with interest rates. The minutes say members of the Fed`s rate-setting Open Market Committee believe a patient approach is appropriate, quote, for some time and it`s the first time they characterize the time period around their patient`s language.
Committee members believe the most likely outcome is a continued economic expansion, strong labor markets and inflation rising back towards its 2 percent target. Inflation running below that target and the question is whether officials are concerned enough to cut rates. The answer in the minutes: not yet, but maybe soon.
Some officials say the downside risk has increased and several said they`re worried that if inflation doesn`t head back up in coming quarters they`re worried that average Americans will start to doubt the Fed really means it when it said it wants 2 percent inflation.
The implication: if inflation doesn`t rise 2 percent in the coming quarters, the Fed could well be thinking about a rate cut perhaps around the end of the year. All that said, there`s a small wing of the committee that worries about the other side. They said if the economy evolves as they expect, they can see hiking rates.
On the economy, the general view is that growth would slow this year from the 3 percent pace of 2018, but a better first quarter meant that it wouldn`t slow as much as originally thought.
The meeting took place before President Trump imposed new tariffs on China, so it won`t be until the next meeting in June before markets will get a full view of how the tariffs will change the committee`s outlook on growth, inflation and rates.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.
GRIFFETH: And on Wall Street, a decline in tech stocks and the semiconductor sector in particular once again weighed on the broader market. The Dow Industrial Average dropped a hundred points to 25,776. The Nasdaq was down 34. The S&P lost eight.
Now, the semiconductor maker Qualcomm (NASDAQ:QCOM) was down more than 10 percent today after a judge ruled that it violated antitrust laws, and that is what put that group at the center of today`s tech decline.
Deirdre Bosa has more for us tonight from Toronto.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Qualcomm (NASDAQ:QCOM) is a titan of the mobile industry. Its chips powered many of the world`s smartphones, from Samsung to Apple (NASDAQ:AAPL), while its extensive patent portfolio covers many of the technologies used in those devices.
But now, its entire business model is being challenged and a federal judge ruling that it has abused its position to harm competition and inflate licensing fees for cell phone makers. It`s a decision that could also shake up the smartphone industry.
PATRICK MOORHEAD, MOOR INSIGHTS FOUNDER: What that`s going to do is that`s going to benefit only the larger handset makers. So, the smaller handset makers are going to have a lot harder time. This actually is going to lower competition for decreased competition for the handset makers because it makes their life a lot more difficult.
BOSA: Meanwhile, some industry experts say the government is sending mixed signals challenging Qualcomm`s market power while at the same time trying to ensure that the U.S. is at the forefront of the next generation of technologies, from 5G to artificial intelligence.
JAMES PETHOKOUKIS, AMERICAN ENTERPRISE INSTITUTE: The administration has sort of figured out what it wants to do. They`re sort of this perception that we`re behind.
Certainly, at the core of this is the belief that U.S. companies should be taking the lead and that companies like Qualcomm (NASDAQ:QCOM) really should be, you know, spearheading our effort.
BOSA: Qualcomm (NASDAQ:QCOM) disagreed with the judge`s conclusion. It argues that the cellular market is healthy and competitive and says it will seek an expedited appeal.
For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa, Toronto, Canada.
GRIFFETH: Meanwhile, some investors are asking what might happen to Qualcomm`s recent legal settlement with Apple (NASDAQ:AAPL) that saw Apple (NASDAQ:AAPL) pay Qualcomm (NASDAQ:QCOM) about $4.5 billion. Well, one expert says the answer is still unclear because that deal is independent, but he does describe the deal as rock solid.
HERERA: And now to those simmering trade tensions with China which also weighed on the broader market. Today`s concern stems from a report on the “South China Morning Post” which said China may rethink its entire economic relationship from the U.S. and is considering dropping natural gas purposes.
GRIFFETH: Add to that, comments today from Treasury Secretary Steve Mnuchin who said he has not yet scheduled a trip to Beijing for further trade negotiations. During congressional hearing today, Mnuchin was also asked about the impact of tariffs on the prices that consumers pay for things like baby products.
(BEGIN VIDEO CLIP)
STEVEN MNUCHIN, TREASURY SECRETARY: I can tell you I am monitoring the situation very carefully. I was on the phone with the CFO of Walmart, which is obviously one of the biggest sellers of the items that you`ve described, to specifically understand from Walmart what things they can source from other areas and what items they can`t. You know, I would say we haven`t made any decisions yet but we will be especially sensitive to the consumer items.
(END VIDEO CLIP)
GRIFFETH: Other retailers are figuring out how to get around those 25 percent tariffs. Home Depot (NYSE:HD), for example, says it`s opening a new sourcing office in Vietnam, Urban Outfitters (NASDAQ:URBN) is looking to cut its exposure to China, and Target (NYSE:TGT) says it is working to mitigate the impact of those tariffs.
HERERA: And in fact, the tariffs had no impact on Target`s bottom line. The company easily beat Wall Street sales and profit expectations, thanks to more modern stores and a revamped digital strategy, and that gives the stock a pop, making Target (NYSE:TGT) a bright spot in an industry that`s struggling.
Rahel Solomon has more.
RAHEL SOLOMON, NIGHTLY BUSINESS REPORT CORRESPONDENT: For Target (NYSE:TGT), investing its stores and providing customers more delivery options is paying off in a big way, including a 42 percent increase in online growth?
CHARLIE O`SHEA, MOODY`S INVESTORS SERVICE: You will leverage stores with your online business. It`s a tough model to compete with. And, you know, for Target (NYSE:TGT), this is a bull`s-eye quarter. I mean, this validates everything that the company said it was going do a couple of years ago.
SOLOMON: Target (NYSE:TGT) executives say more than half of its digital growth was driven by same-day delivery options like in-store or curbside pickup and also their program Shipt which offers same-day delivery for a fee of $99 per year.
BRIAN CORNELL, CHAIRMAN & CEO, TARGET: Our ability to offer the same-day services which is the high-level sanction is a result of the strategy to put stores at the center of fulfillment. In fact, our stores handled more than 80 percent of the first quarter digital volume, including all of our same-day options combined with the digital ownership directly from stores to those homes.
SOLOMON: Using stores at fulfillment centers might not be new to Target (NYSE:TGT). The shipping wars have ramped up. In the last month, the world`s biggest retailer Walmart and e-commerce giant Amazon (NASDAQ:AMZN) have announced plans to offer next-day delivery. Though the competition is fierce, these companies and the rest of the retailers share one common worry.
CORNELL: We`re concerned about tariffs because they lead to high prices on every day products for American families.
SIMEON GUTMAN, MORGAN STANLEY RETAIL ANALYST: First 10 percent, I would say pendulum swung in the favor of the retailer. They were able to push back on suppliers. They were able to maybe modestly make some tweaks to their portfolio of product approach. The next 25 percent, the consumer is going to have to feel that in some way or another. I don`t think there`s enough in a supply chain to absorb that hit without it going to the consumer.
SOLOMON: Despite the uncertainty of trade talks, the retailer maintains its outlook for the full year, expecting profits to be right on target.
For NIGHTLY BUSINESS REPORT, I`m Rahel Solomon.
GRIFETH: And sticking with retailers, Amazon (NASDAQ:AMZN) hosted its annual shareholder meeting today, and it tried to head off a rebellion over how it uses facial recognition software.
Aditi Roy is in Seattle.
ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Outside Amazon (NASDAQ:AMZN) shareholder meeting in Seattle, groups of protesters are speaking out on everything from the tech giant`s impact on homelessness to its carbon footprint.
EMILY CUNNINGHAM, AMAZON EMPLOYEE/SHAREHOLDER: We`re using our Amazon (NASDAQ:AMZN) Web Services on technologies to help fossil fuel companies expand and extract oil more quickly and that is obviously very much at odds with being a climate leader.
ROY: Inside the meeting where cameras weren`t allowed, CEO Jeff Bezos answered questions from shareholders on issues including climate change. Among the most closely watched issues debated, Amazon`s view is the facial recognition technology. Shareholders voted against both proposals on the company`s recognition program. One would have prohibited the company from selling its software to government agencies, and another would have led to an independent review of the program. Shareholders we spoke to were split.
MAURICE BP-WEEKS, A.C.R.E. CO-EXECUTIVE DIRECTOR: We certainly support the folks who are pushing forward the two proposals on the recognition system. It`s a huge concern and it`s a company that has so much reach and so much data and being able to surveil in that way.
JIM COCHRANE, RETIRED CPA/AMAZON SHAREHOLDER: I need to know more about it, but I`m not adamantly opposed or adamantly —
ROY: Amazon (NASDAQ:AMZN) has faced increasing criticism over facial recognition from civil liberties groups like the ACLU.
ELIZA PAN, FORMER AMAZON EMPLOYEE/CURRENT SHAREHOLDER: I think there does seem to be a recognition that the tech companies need to be held to a better standard because they haven`t been.
ROY: Amazon (NASDAQ:AMZN) says its facial recognition technology is, quote, a powerful tool for business purposes, but just as importantly for law enforcement and government agencies, adding new technology should not be banned or condemned because of its potential misuse. But it`s not just Amazon (NASDAQ:AMZN). Other tech companies including Facebook (NASDAQ:FB), Twitter and Alphabet also face shareholder proposals on issues like privacy.
Industry watchers say the trend marks an inflexion point for all companies.
VALERIE GRANT, ALLIANCEBERNSTEIN: Responsible investing has become so prevalent that I think you`re going to see it across companies of all market capitalizations, small, mid and large.
ROY: Lawmakers are taking notice, as well. The House just held a hearing on facial recognition technology and just last week, San Francisco banned the use of facial recognition technology at city agencies.
For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Seattle, Washington.
HERERA: Time to take a look at some of today`s “Upgrades and Downgrades”.
Anheuser-Busch was added to the new “best idea” list at Guggenheim Securities. The analyst cites its growth outlook and the strong product pipeline. The price target $103. The stock rose 2 percent to $82.62.
Expedia (NASDAQ:EXPE) was downgraded to hold from buy at Argus. The analyst cites slow booking growth at its VRBO unit. The firm also warns of increased spending on marketing and technology upgrades. Shares fell a fraction to $116.71.
Activision Blizzard (NASDAQ:ATVI) was downgraded to equal from overweight at Stephens. The analyst sees near-term risk amid reports of development issues with its popular “Call of Duty” franchise. The price target is $52. The stock was down more than 1 percent to $42.91.
GRIFFETH: Still ahead, the so-called Hollywood of the South has a growing headache.
GRIFFETH: The European Union has launched an investigation into Google`s privacy practices. The watchdog wants to determine whether Google`s collection of online advertising data breaches that bloc`s rules. This comes as many tech companies face heightened regulatory scrutiny around the world.
HERERA: Georgia has become a Hollywood production powerhouse, thanks to generous tax incentives. But now, many in the entertainment industry are threatening to leave because of a new controversial law.
Here`s Julia Boorstin.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Georgia has become one of the biggest production hubs in the country.
BOORSTIN: But now, its new law banning abortion after a heartbeat is detected is sparking boycotts from Hollywood that could put that massive business at risk. The state`s up to 30 percent tax credit drew over 450 film and TV projects last year, driving over $4.5 billion in wages at a $9.5 billion economic impact, according to the Georgia governor`s office.
Recent projects include AMC`s “The Walking Dead,” Netflix`s “Ozarks”, plus Disney`s “Black Panther” and “Infinity War”.
GREG BLUESTEIN, ATLANTA JOURNAL-CONSTITUTION: The direct economic impact is well into the billions in the state, and it doesn`t just help Metro Atlanta`s economy, but you also think about the smaller cities all over Georgia that are home to rural settings and farmland and other areas that film producers love to use to shoot. So, it`s sort of diffused impact throughout the state.
BOORSTIN: But now, a number of Hollywood producers and stars say they won`t work in Georgia with a new law, pressuring the state to repeal it. Just this week, a new Amazon (NASDAQ:AMZN) show, as well as a Lionsgate movie starring Kristen Wiig canceled shoots set to start in Georgia.
Alyssa Milano is leading a petition to boycott the state, drawing support from a range of Hollywood names including Ben Stiller, Don Cheadle and Alec Baldwin.
But it`s complicated. The Motion Pictures Association of America representing the studios and some filmmakers argue that taking work from locals doesn`t effectively fight the state`s laws and just hurts workers.
Jordan Peal and J.J. Abrams among others pledging to donate fees from Georgia productions to fight the anti-abortion bill in court.
BLUESTEIN: There are studios built and sound stages and editing bays, all the infrastructure built over the last year or so, they`re saying don`t abandon Georgia. Stay and fight. Donate to abortion rights causes, donate to political campaigns, but don`t just leave the state. Stay and fight.
BOORSTIN: Now, a California lawmaker is offering tax breaks to productions relocated with states with restrictive abortion bans, looking to use Georgia`s controversial law to lure production back to Hollywood`s home state.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
GRIFFETH: Lowe`s slashes its forecast, and that`s where we begin with tonight`s “Market Focus”, with the home improvement retailer reporting earnings below estimates, and it cuts its full-year forecast amid profit margin pressures. But same-store sales were above analyst expectations and, in fact, it outpaced rival Home Depot (NYSE:HD). Shares of Lowe`s fell nearly 12 percent today to $97.94.
VF Corp posted better than expected earnings and revenue due to strong demand for its North Face clothing line and its Vans footwear. But the apparel maker company issued full-year guidance that was below expectations and that stock was down just about 2 percent as a result to $90.33.
Advance Auto Parts (NYSE:AAP) beat expectations with its latest results as same-store sales rose. The automotive parts retailer also reaffirmed its full-year guidance. Shares rose about 3 percent to $166.29.
HERERA: Brazilian cosmetics maker Natura Cosmeticos which owns the Body Shop is now buying Avon, in an all-stock merger valued at more than $1.5 billion and creates the world`s fourth largest cosmetics company. It also ends Avon`s run of more than 130 years as an independent company. Avon spiked after hours following the news and rose 9 percent in the regular session, in anticipation of the deal, closing at $3.49.
Semiconductor maker Analog Devices (NYSE:ADI) beat earnings and revenue estimates, with the company issued guidance below expectations because of government restrictions on what it called, quote, a large communications company, end quote. Despite the forecast, analog devices rose 1.5 percent to $101.44.
Ambarella which makes chips for processing images and video took a hit today because of trade tensions between the United States and China. A Morgan Stanley (NYSE:MS) analyst put out a note saying the company`s clients that are Chinese video surveillance technology firms may be blacklisted and banned from buying American products. Ambarella dropped more than 11 percent to $39.20.
We often talk here about the private sector`s space race that`s going on in the U.S. led by companies like SpaceX and Blue Origin. But a number of start-ups are also going on in China.
Eunice Yoon is in Beijing for us tonight.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The U.S.-China tech war isn`t only limited in planet Earth. China wants to become a leader in the final frontier, too. It was only a couple of years ago, when Beijing unveiled its Made in China 2025 tech development program, the government introduced a new policy to encourage more private investment in space activities, a realm that is largely dominated by the military.
That sparked a wave of space start-ups like the one I`m at now. This is LinkSpace. The company`s founders say they`re creating a link to space and their focus is building a reusable rocket that can travel to space multiple times to bring the cost of space flight down.
So far, they`ve carried out two tests for a sub-orbital rocket which they believe will be commercially available as early as next year. They also hoped to unveil a rocket that can reach orbit, pitting them against established players like SpaceX.
This is what the CEO told me.
CHU LONGFEI, LINKSPACE CEO: Our two recent tests filled a void for us and for China. As everyone knows, only a few U.S. firms including SpaceX and Blue Origin are working on reusable rockets. But we think the potential is huge.
YOON: The ultimate plan would be to launch shoe-box sized satellites the way SpaceX and other American rivals can, creating constellation of satellites to boost communications on Earth for the Internet of Things. And with the government support, China now has more than 100 startups in this field. They get access to state labs, use of launch pads for a fee, and can swap research with the military.
Despite the government policies, LinkSpace says that it doesn`t get funding directly from the government. It does get some government projects, but says that most of its money is from private V.C.s.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
HERERA: Coming up, a mega mansion with a major price tag and a look inside.
GRIFFETH: Here`s what we`re watching for tomorrow. We`re going to find out how many new homes were sold in April. The FAA will convene a summit of global aviation regulators to discuss the status of the Boeing (NYSE:BA) 737 MAX, and we`ll get more retail earnings. Best Buy (NYSE:BBY) and B.J.`s Wholesale are on tap for tomorrow.
HERERA: Ford is ready to deploy robots. The automaker, along with its partner Agility Robotics, aims to put a robot in self-driving vans to deliver mail. These robots could arrive at your doorstep as early as next year. But Ford says that a firm timetable won`t be established until more research is done.
GRIFFETH: Bel Air, California, of course, is known for its pricey real estate. But one prominent doctor has taken the mega mansions trend to a whole new level and some say it`s turning a building boom into a bubble.
Robert Frank takes us inside.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: As a plastic surgeon to the stars, Dr. Raj Kanodia has worked on everyone from Kim Kardashian to Jennifer Aniston. But his latest project, a 34,000 square foot mansion in Bel Air, has an uncertain future.
Kanodia built the home in hopes of flipping it for a big profit.
DR. RAJ KANODIA, PLASTIC SURGEON: The beauty of architecture is like the beauty of the face or a human being. And so, using that desire to create, that`s what started me to want to create a house.
FRANK: But as it grew in size and cost, Kanodia struggled to find lenders and investors. His real estate friends told him he`d made a big mistake.
KANODIA: They said, you are way out of your league. It became more and more challenging and for me, if I have a vision, I want to fulfill that.
FRANK: When it was finished, Kanodia listed it for $180 million. But like many high-end communities today, Bel Air has an oversupply of mansions, many built on specs or speculations to sell. Prices and sales are falling and the modern white mansions have become the empty white elephants of the housing market.
There are over a dozen homes for sale in L.A. for over $100 million. The spec home built right next to Kanodia`s was asking $250 million and just got a $100 million price cut.
ERNIE CARSWELL, DOUGLAS ELLIMAN: The ones that has had to drop prices by dozens of millions or even $100 million, that`s already a disappointment. But perhaps, it was originally overreaching. This market we`re entering is going to shake all of that out.
KANODIA: Really beautiful.
FRANK: Kanodia beams like a proud father as he toured the home`s exotic gardens, three kitchens, eight bedrooms, state of the art gym and spa, and infinity pool overlooking the best views in L.A.
It`s still for sale. Kanodia says he would consider offers of over $120 million and he will rent it for $1.5 million a month. If all that fails, he hopes to live there himself if he can afford it.
KANODIA: In Las Vegas term, it`s called all in, like all in times million. Sometimes you learn as you go along, and yes, it could be a mistake, but in my heart and in my soul, I think it will all work out.
FRANK: For NIGHTLY BUSINESS REPORT, I`m Robert Frank in Bel Air, Los Angeles.
HERERA: Before we go, let`s take a look at the final — day`s numbers on Wall Street. The Dow Jones Industrial Average dropped to 100 points to 25,776. The Nasdaq fell 34 points and the S&P 500 lost eight.
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. We`ll see you tomorrow.
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