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