Transcript: Nightly Business Report – June 3, 2019

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


SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Tech a target?  Shares of big  technology names fell hard on reports the government may be looking at more  antitrust investigations.  


BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Time to cut?  More and more  on Wall Street are convinced an interest rate cut needs to happen soon, and  one Fed president seems to agree.  But more ominous, the street also thinks  we might be headed for a recession.  


HERERA:  And the plane truth.  Another problem for Boeing`s 737 including  the MAX, but the company stands by its word that it is making progress  fixing the plane.  
All of that and more tonight on NIGHTLY BUSINESS REPORT for Monday, June  3rd.  


GRIFFETH:  And we do bid you a good evening, everybody, and welcome.  
It was a back-and-forth kind of day on Wall Street, a tug of war between  the outlook for interest rates and the prospects for technology.  The  Nasdaq was especially hit hard today on reports the government is looking  at possibly targeting some big tech names with antitrust investigations.  


It started with a “Wall Street Journal” report saying the justice  department is getting ready to take on Google (NASDAQ:GOOG).  Facebook  (NASDAQ:FB) then got hit when “The Journal” said the FTC would look into  how the social media giant affects digital competition.  “The Washington  Post (NYSE:WPO)” then jumped in and said the FTC might look into Amazon  (NASDAQ:AMZN).  And not to be outdone, “Reuters” said the justice got the  jurisdiction to investigate Apple (NASDAQ:AAPL) and their practices.  
And late in the day, a House committee said that it was going to launch a  bipartisan investigation into competitiveness in the digital markets.  
It`s too early to say whether any of these stories are going to pan out,  but the stocks were hit and they were hit hard in today`s trade.  


HERERA:  So let`s bring in John Freeman to discuss what regulation could  mean for some of these big companies.  He`s an equity analyst at CFRA  Research.  
Welcome.  Nice to have you here, John.  


JOHN FREEMAN, CFRA RESEARCH EQUITY ANALYST:  Well, thank you very much.   Thank you for having me.  


HERERA:  It`s a diverse group of companies.  They`re all in the tech space,  of course, but they all do very different things.  So, how would regulation  apply?  


FREEMAN:  Well, you know, looking at historical perspective the way it  applied to Microsoft (NASDAQ:MSFT), there are certain remedies, you know,  the fines and so forth.  Those are really immaterial, but for Microsoft  (NASDAQ:MSFT) the big one was, of course, debundling the browser from the  operating system, Windows, which actually didn`t really affect, you know,  that much in my opinion.  But the real one was keeping Microsoft  (NASDAQ:MSFT) in a box in terms of M&A.  Couldn`t use all of its profit and  market caps here to acquire companies to expand into adjacent markets.  


So, fast forward to now, I think that kind of similar but with Google  (NASDAQ:GOOG), for example, it`s very strange.  I mean, how do you, you  know, debundle a search algorithm?  You would have very strange unintended  consequences.  I don`t think — I don`t think it`s really even possible.  


Facebook (NASDAQ:FB) as well.  I kind of scratch my head, obviously you can  break it up into Instagram and Facebook (NASDAQ:FB) I suppose.  
GRIFFETH:  Right.  


FREEMAN:  But the big thing is that all of these companies will be in an  M&A box.  They won`t be able to use their market cap and their cash to buy  companies to get into adjacent markets.  
So, Apple (NASDAQ:AAPL) — 


GRIFFETH:  Apple (NASDAQ:AAPL), there are those who feel that Apple  (NASDAQ:AAPL) has had a stranglehold on the app market with its App Store  and how much it charges and how much it does not allow some companies in  with their developments.  But just today with their announcement, it seems  like they`re starting to change the way they`re going to deal with that.  


FREEMAN:  Yes, it`s very interesting.  Apple (NASDAQ:AAPL) is definitely  getting ahead of this regulation I think in a smarter way than the others.   However, the App Store, you know, at this point I don`t think that the app  store, you know, is a huge — that the bundling of the App Store — if they  opened up the App Store to third party providers, I don`t think at this  point it would really affect, you know, sales of iPhones or tablets.   Matter of fact, it might even enhance it at this point.   So, for Apple (NASDAQ:AAPL) I don`t think it`s going to be —  


HERERA:  OK.


FREEMAN:  — as big of a deal.  The thing really intriguing about the House  Judiciary, you know, press release or announcement was the third point that  they made, that they were going to look at the regulations themselves, the  antitrust regulations themselves, to see —  
HERERA:  OK.


FREEMAN:  — if there are changes that could, you know, impact — that  would basically keep the monopolistic power of Google (NASDAQ:GOOG) and  Facebook (NASDAQ:FB) and so forth in check.  
HERERA:  We watch that —  


FREEMAN:  I think that`s the dark horse and a scarier thing.  
HERERA:  OK.  John Freeman with CFRA Research, thank you.  
FREEMAN:  Thank you.  


GRIFFETH:  Now to interest rates.  St. Louis Federal Reserve Bank President  James Bullard said today that a rate cut may be warranted soon.  That`s a  quote.  Bullard cited global trade tensions and weak inflation in the U.S.,  and many on Wall Street seemed to agree.  The interest rate futures market  may have already priced in several cuts this year.  
But as Steve Liesman tells us, the street is also looking at something far  worse.  
(BEGIN VIDEOTAPE)


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Several forecasters  are now convinced the U.S. economy is headed for recession as a result of  existing and threatening tariffs from the Trump administration.  
Citing rising trade protectionism, forecasters responding to a new survey  from the National Association for Business Economics, put the chance of  recession next year at 60 percent, up from just 15 percent this year.   Morgan Stanley (NYSE:MS) wrote in a report, quote, if trade tensions  continue to escalate, we believe the global cycle will be in recession in  three quarters.  
Even the president`s own economic adviser, Kevin Hassett, indirectly said  the new tariffs would hurt the U.S. economy.  


KEVIN HASSETT, COUNCIL OF ECONOMIC ADVISERS CHAIRMAN:  I can say if folks  are tuning up their models to work on it today, I think one of the things  you see especially in the near term, the impacts are much larger on Mexico  than the U.S.  And I think the intent of this is to solve a very, very  important problem that the president is focused on.  


LIESMAN:  And the consensus has quickly changed from no interest rate cuts  this year from the Federal Reserve to general agreement to multiple cuts as  bond yields have fallen sharply.  


ROGER ALTMAN, EVERCORE EXEC. CHAIRMAN:  You look at the ten year, 2.10 in  round numbers.  You look at the obvious reversal of the outlook for the Fed  in terms of market expectations, those are all bear signs.  


LIESMAN:  Altman`s company said in a report, we now see a base case in  which the fed will reluctantly cut ties three times in November.  Market  prices priced in a rate cut as soon as July and agree with Evercore that  multiple cuts are on the way.  


The question is whether they`re ready to cut interest rates so soon as  saying it`s on hold for an extended period.  If it does, markets have to  wonder if rate cuts are the height economic answer to tariff hikes.  
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
(END VIDEOTAPE)


HERERA:  Adding to those concerns, trade tensions.  Steve mentioned the  tariffs and Mexico, and over the weekend, China issued a so-called white  paper outlining its positions in its dispute with the U.S. 
Eunice Yoon is in Beijing with more.  
(BEGIN VIDEOTAPE)


EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  China released its  white paper, its second policy paper on the trade conflict with the United  States, and it listed the three things that it wants to see before Beijing  will come to the negotiating table.  First, the U.S. needs to remove all  tariffs imposed since last year on Chinese goods, be realistic about the  size of Chinese purchases of U.S. products and ensure there is balance in  the text of the deal.  Otherwise, the white paper was highly critical of  the U.S.`s tactics and put all of the blame for the failed talks on  Washington.  
In the meantime, Beijing says it will fight the trade war to the end.   Tariffs on American goods kicked in this weekend.  Beijing outlined its  criteria for its unreliable entity`s list, the black list for foreign firms  and individuals, and state media said Federal Express (NYSE:EXPR) is under  investigation from mishandling packages for Huawei, the Chinese company  banned by the U.S. government.  


FedEx (NYSE:FDX) is under attack by state and social media here.  The  Communist Party`s “People Daily” ran a commentary saying: FedEx (NYSE:FDX),  no one can help you if you break the law.  
Another communist party paper, “The Global Times”, today posted a report  guessing which American companies met the first two criteria to be on the  black list, companies that cut ties with Huawei and violate market rules  for non-commercial purposes.  It`s suggesting Intel (NASDAQ:INTC), Qualcomm  (NASDAQ:QCOM), Broadcom (NASDAQ:BRCM) and Google (NASDAQ:GOOG).  


For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.  
(END VIDEOTAPE)


GRIFFETH:  So, are trade tensions and weak global growth setting us up for  possible interest cuts or worse, a recession?  
Joining us to talk about it, Mark Avallone is the president of Potomac  Wealth Advisers.  
Mark, good to see you.  Thanks for joining us tonight.  


MARK AVALLONE, POTOMAC WEALTH ADVISORS PRESIDENT:  Good to be here.  


GRIFFETH:  The bond market`s job is to anticipate.  And right now, it  anticipates a slowdown.  So, interest rates have gone down.  
But the Fed typically waits for evidence of a slowdown before it moves.  Is  it possible the Fed this time will cut rates just because the bond market  anticipating a slowdown?  


AVALLONE:  Well, it`s something they`re looking at.  But, remember, first  quarter GDP was over 3 percent in the U.S. 
GRIFFETH:  Right.


AVALLONE:  And the Fed in the fourth quarter last year, just a few months  ago, was raising rates.  So, I think to expect them to cut in June is just  a little much.  I think the only thing we might see in direction of  accommodation is maybe a tone or a change in the projection of what they`re  letting the markets get a hint of and get an idea, but I don`t see a rate  cut in June.  


HERERA:  All right.  Now the backdrop is also slowing global growth.  The  Fed has to look at that as well, does it not?  European banks are having  issues and their economies are not doing well.  


AVALLONE:  Yes, well, we`ve had slowing European financials and tough  sledding over there for some time.  But certainly with the tariff talk and  the trade skirmishes that we`re having around the globe, it`s bringing down  growth further.  


And that is a concern especially when the German bund is yielding negative  20 compared to our rate.  So, the Fed is going to be pressured to look at a  global slowdown and they are looking at that and will process that.  


GRIFFETH:  But, again, what you seem to be saying is you think it`s  premature for the Fed funds future market, the interest rate market, to  anticipate maybe a 50 percent possibility of a cut in September and a 97  percent possibility of a cut in December.  You think that`s premature?  


AVALLONE:  Well, I think that`s premature because that`s September and  December.  I`m concerned about the talk of June rate cuts.  
GRIFFETH:  Right.


AVALLONE:  June is not going to happen.  That`s way too soon.  
I think they`re going to look at what the trade talk progress is.   Remember, if we get even a little trade deal, some positive news and those  tariffs go away, even if the deal is watered down, the markets are going to  like that.  If we can get some normalcy, I think that helps growth here as  well as in China.  I think that keeps the Fed away from raising rates.  
I think it`s a wait and see game for China for the most part right now.  


HERERA:  And very quickly, if you`re a long-term investor, what do you do  in this ever changing environment?  


AVALLONE:  Well, you can tweak with the low rates and to dividend stocks  but really those are minor adjustments.  People should not be reacting to  headlines.  You should have your plan in place before the news changes  because these ups and downs are inevitable.  


GRIFFETH:  Mark Avallone with Potomac Wealth Advisors — again, thanks for  joining us tonight.  
AVALLONE:  Good to be here.  


HERERA:  As concerns of a slowdown continue, interest rates have fallen  sharply and that means mortgage rates have fallen as well.  Add to that,  the possibility of rate cuts and things are looking up for home buyers.
But as Diana Olick tells us, another group likely to benefit from the rate  drop are people looking to refinance.  
(BEGIN VIDEOTAPE)


DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Mortgage rates have  come down more than 1/4 of a percentage point in just two weeks.  Now that  may not sound like a lot, but it can make a big difference for homeowners  and home buyers.  The average rate on the 30-year fixed is now solidly in  the 3 percent range, around 3.9 percent, but it was up over 5 percent in  the last fall and in the mid 4s through the much all important spring  housing market.  


There are now about 5.9 million borrowers who could drop their rates by at  least 75 basis points through a refinance.  This is an increase of 2  million people in just the past month according to Black Knight, a mortgage  software company.  That`s the largest population of eligible candidates in  nearly three years and represents an aggregate of $1.6 billion in potential  monthly savings.  


Per borrower, it`s about $271 a month.  For home buyers, any savings on  that monthly payment is crucial given today`s high home prices.  Also,  lower rates help more buyers not just afford the loan but qualify for the  loan.  
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.  
(END VIDEOTAPE)


GRIFFETH:  To the markets now.  
As we mentioned earlier, it was a tug of war between rate cuts, talk, and  tech worries.  And tech worries won out.  The Nasdaq was the big drag.  The  Dow actually eked out a four-point gain but those tech names took the  Nasdaq down by more than 1.5 percent or 120 points.  The S&P was down about  seven.  


HERERA:  Manufacturing activity in may fell to its lowest level in 2-1/2  years.  The closely watched Institute for Supply Management`s reading fell  to 52.1, its lowest since October of 2016.  And while anything above 50  shows expansion, the ISM chairman said the may number shows manufacturing  is struggling in the face of weak global demand.  


GRIFFETH:  On the flip side, new vehicle sales in the U.S. for major  automakers, at least those that still report monthly sales, they ticked  higher in May, thanks to a stronger economy and an optimistic fueling  demand.  It`s the first positive month, by the way, of 2019.  


HERERA:  Up next, Boeing`s CEO weighs in on his company`s latest issue with  its 737 aircraft.  
(MUSIC)


GRIFFETH:  Shares of Boeing (NYSE:BA) were under pressure again today after  the FAA said that there is a new problem with 737 jets.  And Boeing`s CEO  was out there again today reiterating that the company is making progress  fixing the grounded 737 MAX.  
Phil LeBeau has more.  
(BEGIN VIDEOTAPE)


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It`s another problem  for Boeing`s 737.  This time, it involves faulty parts with the slants on  the front of wings of certain 737s, including some NG models and the 737  MAX.  
The issue will be fixed while the MAX is grounded, but it`s yet another  black eye for the company`s beleaguered airplane.  


DENNIS MUILENBURG, BOEING CHAIRMAN & CEO:  This particular issue around the  slide tracks is a well understood one and one that we`ll work our way  through quickly.  There`s just something that we`re going to stay very  coordinated with our customers.  We know it`s important and we want to  minimize the disruption to our customers.  


LEBEAU:  Boeing (NYSE:BA) is not sure when the plane will take off again.   Muilenburg says the software fix for the plane`s flight control system is  being tested in a simulator and an application for recertification could  come soon.  And while some question if he should stay on the job given the  controversy, Muilenburg says he`s the right man to lead Boeing (NYSE:BA).   And he also knows the 737 MAX is now considered so unsafe by many travelers  that they refuse to fly it ever again.  


MUILENBURG:  I`ve heard those comments.  
LEBEAU:  What`s your reaction when you hear people saying, I`m not getting  on it?  


MUILENBURG:  Well, first of all, we deeply regret the impact.  We`re sorry  for the lives that were lost.  This will always be with this company, I can  tell you that.  It weighs heavily on us every day.  


And when I hear that he is comments from the traveling public, as you might  guess, I spend a lot of time in airports.  I`ve heard these comments.  And  they are — they`re tough.  They wear on us deeply as a company.  


LEBEAU:  Weighing on the minds of investors is when Boeing (NYSE:BA) will  resume production of the MAX and restore the production rate from its  reduced level of 42 per month to its previous level of 52 per month.  
The production level for the MAX is crucial, as is the backlog of orders  for the plane.  And while there have been no cancellations since it was  grounded in mid-March, over that same time frame there has not been a  single new order for a 737 MAX.  
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.  
(END VIDEOTAPE)


HERERA:  Humana (NYSE:HUM) squashes any deal talks with Centene (NYSE:CNC),  and that`s where we begin tonight`s “Market Focus”.
In an SEC filing, Humana (NYSE:HUM) said it will not make an offer to merge  with health insurer Centene (NYSE:CNC).  Humana (NYSE:HUM) said it was  making an exception to its policy of not commenting on rumors.  Centene  (NYSE:CNC) shares tumbled more than 10 percent to $51.82.  
Cypress Semiconductor (NASDAQ:CY) will be selling itself to the German ship  making company Infineon.  The proposed deal is worth $10 billion and would  make the combined company the world`s largest provider of chips to the  automotive sector.  Cypress Semiconductor (NASDAQ:CY) shares jumped nearly  24 percent to $22.07.  


GRIFFETH:  Apparel company PVH has signed a five-year licensing deal with  GIII to produce and distribute the Calvin Klein women`s collection here in  North America.  PVH says that the agreement will support its strategy to  build a successful women`s jeans wear business with GIII`s marketing  expertise.  And PVH shares were up about 3 percent to $87.73.  GIII shares  rose a fraction to $25.79.  


Advanced Micro Devices (NYSE:AMD) announced a multi-year deal with Samsung.   The chipmaker will license its graphics technologies to Samsung for use in  mobile devices and smart phones.  Also, Samsung will pay AMD royalties and  licensing fees.  AMD shares rose a fraction to $27.58.  
HERERA:  Apple (NASDAQ:AAPL) kicked off its annual developer`s conference  today with more than 5,000 people from nearly 100 countries expected to  attend, and the company has a lot riding on it.  
Josh Lipton is in San Jose to tell us why it matters to investors.  
(BEGIN VIDEOTAPE)


TIM COOK, APPLE CEO:  Welcome to WWDC 2019.  
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Apple`s CEO Tim Cook`s  mission today was simple but critical, convince millions of developers all  around the world that they should keep spending their time and money  creating apps for his products, not the competition.  In part, he made that  case by noting that consumer adoption rates for his operating system is  much higher than a competition, meaning Google`s Android operating system.  


COOK:  Eighty-five percent of iOS customers are on the latest release.  And  in fact, iOS 12 has been installed on more systems than any version of iOS  ever.  Now that`s in stark contrast to the latest offering from those other  guys, which was released by iOS 12, they only had 10 percent adoption.  


LIPTON:  To win over developers today, Apple (NASDAQ:AAPL) introduced new  features, apps and tools.  For example, the company unveiled new technology  that lets developers more easily bring apps they create for the iPad to the  Mac.  That makes their lives a lot simpler, and means a lot more apps could  be coming to the Mac platform.  


This all matters a lot for Apple (NASDAQ:AAPL) investors because they pin  so much hope on Apple`s faster growing, higher margin services business.  A  big, important part of that business?  The App Store representing an  estimated 35 percent of that services segment.


So, Cook needs to keep these developers happy and loyal and creating  compelling experiences for his users if that broader services segment is  going to keep humming.  There are challenges for the App Store, however.   The U.S. Supreme Court recently handed Apple (NASDAQ:AAPL) a legal set  back, allowing antitrust suits against the App Store to proceed.   Plaintiffs argue that Apple (NASDAQ:AAPL) monopolizes the market, a  criticism that Apple (NASDAQ:AAPL) flatly rejects.  


And just today, “Reuters” report that the U.S. Department of Justice was  given jurisdiction to include Apple (NASDAQ:AAPL) as part of a broader  antitrust probe.  


But the bottom line for developers today here is this.  Where can they make  money?  They know consumers spend a lot of money on the App Store, an  estimated $47 billion last year alone, nearly double what was spent on apps  from rival service Google (NASDAQ:GOOG) Play.  
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Jose, California.  
(END VIDEOTAPE)


GRIFFETH:  And up next, the $150 billion market in the fight against  cancer.  
(MUSIC)


HERERA:  Finally, tonight, the world`s biggest cancer research meeting is  underway in Chicago.  The American Society of Clinical Oncology, better  known as ASCO, brings together more than 40,000 doctors, researchers and  medical executives to discuss everything new in the fight to beat cancer.  
Meg Tirrell is there in Chicago.  
(BEGIN VIDEOTAPE)


MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Stacey Tinianov`s  mother was diagnosed with breast cancer six years ago.  As her mom started  treatment, Stacey got some news of her own.  


STACEY TINIANOV, SIX-YEAR BREAST CANCER SURVIVOR:  Four months later, I had  my very own mammogram and I was diagnosed with breast cancer.  


TIRRELL:  A mother of two, Tinianov had just turned 40.  She says what she  learned in those four months between her mother`s diagnosis and her own  taught her how to advocate for herself.  


TINIANOV:  I am a six-year breast cancer survivor.  


TIRRELL:  She`s now become an advocate for others as well, part of an  important group who attends the world`s cancer research conference, ASCO,  or the American Society of Clinical Oncology meeting.  It`s where thousands  of cancer doctors and researchers converge each year to discuss the latest  advancements in treating cancer.  


RICK PAZDUR, FDA`S ONCOLOGY CENTER OF EXCELLENCE:  A lot of these newer  therapies are directed towards who`s going to benefit the most.  And,  really, they fulfill an unmet medical need.  Some of these patients have  had very marginal therapies and this really provides really some needed  therapeutic resources to patients, especially those that don`t have really  other therapies.  


TIRRELL:  Updates at the conference also move stocks of pharmaceutical and  biotech companies.  Amgen (NASDAQ:AMGN) and Mirati Therapeutics both soared  on an update from Amgen (NASDAQ:AMGN) that looked particularly encouraging  in lung cancer.  
Biotech company Iovance saw its stock rise on enthusiasm for a personalized  treatment for melanoma when other drugs had stopped working.  


MARIA FARDIS, IOVANCE BIOTHERAPEUTICS:  We`re very pleased to be able to  see that TIL technology, which is our tumor infiltrating lymphocyte, is  able to offer them a 38 percent response rate in this extremely late line  patient population which doesn`t have any alternative.  


The patients have run through Keytruda, as you know what it is.  Sometimes  all the checkpoints have explored on them.  They have seen anti-CTLA-4,  which is another class of drugs.  If they have a BRAF mutation, they`ve  seen BRAF and/or mix.  So, these are all available care for metastatic  melanoma and they have tried all of those already.


TIRRELL:  For Tinianov, the conference is an opportunity to talk to the  people working in cancer.  


TINIANOV:  I`m also to have a hard conversation that say for as much hand  clapping and pat on the backing that`s going on, when we make a discovery,  we still have 117 people dying every day from metastatic breast cancer.  


TIRRELL:  And she says it gives her a chance to say thank you for the  progress that`s been made.  
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in Chicago.  
(END VIDEOTAPE)


HERERA:  And that is NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera.   Thanks for watching.  


And we`d like to remind you, this is the time of year your public  television station seeks your support.  


GRIFFETH:  I`m Bill Griffeth.  We do thank you very much for that support.   See you tomorrow.  

END
Nightly Business Report transcripts and video are available on-line post  broadcast at http://nbr.com. 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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