ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: The tweet heard around Wall Street. President Trump and China`s President Xi say they will meet at the G20 summit next week, sending stocks into rally mode.
California dreaming, of a trade deal. Why the Golden State has a lot riding on the outcome of those talks with China.
And the color of money. Facebook (NASDAQ:FB) (NASDAQ:FB) unveils its own digital currency, making a big push for it to go mainstream. But how exactly does Libra work?
Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Tuesday, June 18th.
And we do bid you a good evening, everybody, and welcome. Sue is off tonight.
We begin with trade and talks that are back on the calendar.
The leaders of the world`s two largest economies are now scheduled to meet next week at the G20 summit in Japan, and it was all investors needed to hear and stocks took off today. The Dow industrial average rose 353 points to 26,465. The Nasdaq added 108, the S&P was up 28.
But it wasn`t just trade that drove today`s big rally.
Bob Pisani is at the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks were in full rally mode fuelled by high hopes of trade talks and easy money across the globe. That`s what moves things these days. Futures first roared high around 4:00 a.m. Eastern Time. European Central Bank President Mario Draghi said there was a case to be made for more economic stimulus in Europe, meaning more bond-buying generally, if the economy did not improve.
That sent a signal to the markets more easing could be ahead. That sent the euro down against the dollar. It gave a boost to European stocks and the U.S. stocks, and President Donald Trump tweeted out he had a very good phone conversation with Chinese President Xi Jinping, and the two plan to meet at next week`s G20 summit in Japan.
That one tweet sent the Dow up 150 points in less than ten minutes with trade sensitive groups, the usual names, industrial stocks, semiconductor stocks, metals and mining stocks, all outperforming.
The markets are now taking a wait-and-see approach as the Federal Reserve makes a move with many expecting the fed to lay the ground work for a possible cut in July. Right now, the market is putting in an 80 percent chance of a rate cut next month.
Tech stocks had a big day. Not surprisingly. Microsoft (NASDAQ:MSFT) (NASDAQ:MSFT) rallied to an all-time high.
And worth noting that almost a quarter of the gains we have seen in the S&P 500 have come from four stocks — Microsoft (NASDAQ:MSFT) (NASDAQ:MSFT), Apple (NASDAQ:AAPL) (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) (NASDAQ:AMZN) and Facebook (NASDAQ:FB) (NASDAQ:FB). This year, one quarter of the gains to the S&P from those four stocks.
What group was left out of the rally? Financial services. Some of the names like MasterCard (NYSE:MA) (NYSE:MA) and Visa (NYSE:V) (NYSE:V), which have run up big this year, they were down amid news Facebook (NASDAQ:FB) (NASDAQ:FB) is launching its own digital currency called Libra next year. Crypto experts stress unlike bitcoin, this Libra will be backed by real money.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: Art Hogan joins us now to look ahead of the two biggest issues facing the market right now. That would be tomorrow`s Fed meeting and next week`s G20 Summit. Art, of course, is the chief market strategist at National Securities.
Welcome back, Mr. Hogan.
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES: Thanks so much for having me.
GRIFFETH: Boy, the guesses are all over the board for the Fed meeting tomorrow. The decision and Jerome Powell`s news conference. You want to add your guess to all that?
HOGAN: Yes, Bill, it is amazing. I don`t think I`ve ever seen such a spread in terms of interpretation where the Fed stands right now. There are some of my counterparts who think we`re going to raise two times this year, some think not. I think —
GRIFFETH: You mean cut, right?
HOGAN: I think we cut one time. I don`t think it happens any time soon. I don`t think there`s enough evidence in the economic data stream for J. Powell to go ahead and throw some more monetary policy at the economy.
I think what is happening here, and I think you hit it on the head. We`ve got two things we are concerned about, trade with China and monetary policy and they`re intertwined. The tricky part is the better trade gets, the less likely you will see monetary policy kicking in and monetary policy in effect has to come into play because trade policy is not doing well right now. So, they`re kind of locked at the hip.
GRIFFETH: So, next week, they meet at the G20 Summit and presumably jump start the talks once again. Does the wall — does Wall Street care about the details of a trade deal or do they just want to see a handshake?
HOGAN: They want to see a handshake. They want to see — they want to see movement forward. It`s been 45 days since we stopped talking to China, May 3rd. We went in reverse. Trump tweeted out he has escalated, you know, from 10 percent to 25 percent on the tariffs out there already, and that was a step backwards.
Going into that weekend, that was the time frame where we thought we were on the threshold of getting a deal done so it was a major disappointment. The market obviously reacted and we`ve been on the holding pattern for 45 days with the hope G20 was the pivot point.
Now we know there will be a movement. That`s the important thing. We are moving forward. I think both sides of this equation want to get something accomplished. Obviously the sensitivity is around the detail, but I don`t think either side wants to be in a mutually destructive long-term drawn-out trade war that hurts both economies and certainly hurts the global economy.
GRIFFETH: Indeed. Well, it`s going to be interesting over the next week or so.
Art, good to see you again. Thanks.
HOGAN: Nice to see you.
GRIFFETH: Art Hogan with National Securities.
And Wall Street may had had a strong reaction to news of the trade talks with China, but in Washington there`s still a lot of work to be done and a lot at stake.
Ylan Mui has more.
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here in Washington, advisers for President Trump are getting back in touch with their counterparts in China to lay the groundwork for the G20.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: People are starting to deal, as of tomorrow. The teams are starting to deal, so we`ll see.
MUI: The Trump administration is threatening to impose tariffs on another $300 billion in Chinese goods if this deal falls through. That would mean basically everything the U.S. imports from China would be taxed.
That prospect worries Chuck Grassley, the Iowa Republican who heads the powerful Senate Finance Committee.
SEN. CHUCK GRASSLEY (R-IA): Two years ago if you talked to me I would say, well, the president would be crazy if he puts tariffs on China. Now, as I told him, I admitted to him, I knew China wouldn`t be negotiating the big things they`re negotiating if tariff hadn`t been put on. So, if they`re a tool it is one thing, but as a policy they`re catastrophic.
MUI: But at a hearing today, Trump trade ambassador told the committee that talk alone won`t be China in line.
ROBERT LIGHTHIZER, U.S. TRADE AMBASSADOR: It is a long history of them violating the norms of intellectual property and similar norms. Moving forward and not — and making promises and not keeping their promises. So, we`re in a position where we view ourselves as having the most serious problem you can face in the trade space with nothing less than the jobs of our children on the line.
MUI: China is not the only trade deal hanging in the balance. The White House is also negotiating with Japan and the European Union. Most importantly, it needs Congress to approve the new trade deal with Canada and Mexico.
GRASSLEY: Just think of all of the number, particularly Democrats that said NAFTA is no good for the country. Well, this is an improvement on NAFTA. How can any Democrat vote against it?
MUI: The administration has already begun reaching out to Democrats in hopes of passing the deal by the end of the summer.
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.
GRIFFETH: And states are also welcoming news of trade talks, especially those that rely most heavily on Chinese markets. High on that list is California which does about $175 billion in trade with that country.
Scott Cohn is at the port of Oakland for us tonight.
SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Importers and exporters in California are resourceful, that`s for sure. One year into the trade war, they`re still finding ways around the tariffs. So, at the port of Oakland, which specializes in container ships, agricultural exports in the first four months of this year are actually up by 12 percent, including a 5 percent increase to China.
JOHN DRISCOLL, PORT OF OAKLAND MARITIME DIRECTOR: They are finding other markets. They`re tapping other things. They`re being creative where they`re sending their products to other countries.
COHN: Countries like Taiwan, Korea and Vietnam. But with tariffs rising to 25 percent on some goods this month, they know that can only last so long.
ERIN ENNIS, U.S.-CHINA BUSINESS COUNCIL: Twenty-five percent we`ve heard from most companies is a level that companies just simply can`t absorb.
COHN: The biggest impact is on products trading directly between the two countries, like agriculture, chemicals and electronics. States that deal in those commodities have the most to lose. So, in 2018 Louisiana saw a 61 percent drop in the value of its exports to China, 34 percent in Illinois, and about half a percent in California.
But California Senator Dianne Feinstein says the numbers only begin to tell the story, writing in a letter to U.S. Trade Representative Robert Lighthizer this week that California companies are warning the tariffs are damaging their competitiveness and in some cases threatening their existence.
Back at the port of Oakland, they know their good fortune could run out at any moment.
DRISCOLL: The unknown and the uncertainty is if this continues and tariffs impact these volumes. In the future, we could see some falling off of our volumes.
COHN: A breakthrough between Presidents Trump and Xi next week wouldn`t necessarily turn things right back to normal. Some customers on both sides have already found alternative markets and could be slow to switch back. One early lesson from this trade war, the impact is surprisingly difficult to gauge.
For NIGHTLY BUSINESS REPORT, Scott Cohn, Oakland, California.
GRIFFETH: As we talked about earlier, the other big focus for the market right now is the Fed. Today, the Central Bank policymakers began their two days of meetings, and as they decide on the direction of interest rates, our Steve Liesman surveyed strategists and money managers about their outlook for rates and the potential for a recession.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Growing concern about economic weakness in the U.S. and abroad along with increased trade uncertainty has responded to the CNBC Fed survey ratcheting up their chance of recession. It now stands at 30 percent probability of recession in the next 12 months. That`s the highest in eight years for the survey. Just last month, it was at 22 percent.
As a result of this increased concern about recession, the expectations for rate cuts in 2019 stands at 67 percent, 22 percent of the 45 respondents think the Fed will remain on hold, 11 percent actually forecasting a rate hike. On average, the group is forecasting just 25-basis point rate cut from the Federal Reserve, but of those who think they will cut rates, they think there will be two this year.
When will this happen? Fourteen percent think the Fed might announce a rate cut as soon as tomorrow, but 29 percent say sometime between July and September, 23 percent say after September.
Why will the Federal Reserve cut? The top reason is a weakening economy followed by inflation running below the Fed`s 2 percent target. Some believe the Federal Reserve will be reducing rates in response to the inverted yield curve where short rates are above longer-term rates. Pressure from President Trump on the Federal Reserve to cut interest rates is seen as a small factor.
Kathy Bostjancic, chief U.S. financial market economist at Oxford Economics, writes in response to the survey: The Fed will signal if it stands ready to down rates. But it does not want to force it with slower economic data.
John Ryding, chief economist at RDQ Economics, says: We have marked down our forecast because of the uncertainty surrounding trade negotiations. Even if no tariffs are posed on Mexico and the U.S. reaches a trade deal from China, there`s the uncertainty another shoe should drop.
The trouble with forecasting the economy and the Fed stems in part from the trade uncertainty. Presidents Trump and Xi now appear as if they will meet next week in July. A positive meeting could remove concerns about new tariffs which sparked the latest hue and cry for rate cuts to begin with, or it could also go the other way.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
GRIFFETH: We have also been following the housing market closely today and today an important gauge of home building declined, housing starts fell by 0.9 percent in May. That was a steeper downturn than expected. And it points to fresh signs of weakness.
But there was a bright spot. Residential building permits which are seen as a sign of future activity, they rose last month. In fact, it was the strongest monthly rate of growth since the end of last year.
Time to take a look at some of today`s “Upgrades and Downgrades”.
Oracle (NASDAQ:ORCL) (NASDAQ:ORCL), we begin with tonight, was downgraded to neutral from out performed at Macquarie Research. The call comes ahead of the company`s earnings report out tomorrow. The analyst says that the business software company is under-investing in its future right now. Price target, $55. That stock fell a fraction to $52.90.
KB Homes was downgraded to underperform to market perform at Raymond James. The analyst says the stock`s valuation is too rich right now and margin concerns are mounting. Shares fell more than 2 percent today to $25.56.
And Bank of America (NYSE:BAC) (NYSE:BAC) was upgraded to outperform from market perform at BMO Capital Markets. The analysts cited the stock`s valuation and the belief that consensus estimates for the bank are too low right now. Price target: $37 a share. The stock rose more than 2 percent today, closing at $28.62.
Still ahead, the future of the ad industry starts in the south of France.
(BEGIN VIDEO CLIP)
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Julia Boorstin here in Cannes, France. Rival brands and ad platforms here at the advertising festival are teaming up to tackle offensive content. We`ll have that story coming up on NIGHTLY BUSINESS REPORT.
(END VIDEO CLIP)
GRIFFETH: Facebook (NASDAQ:FB) (NASDAQ:FB) today unveiled a digital currency. It`s called Libra, and it`s set up to be a financial system using secure Blockchain-based technology backed by hard asset. The social media giant has lined up big corporate partners like MasterCard (NYSE:MA) (NYSE:MA), and PayPal and Uber, and it`s all designed for ordinary users which Facebook (NASDAQ:FB) (NASDAQ:FB) says is one of the things that sets Libra apart from other crypto currencies like bitcoin.
(BEGIN VIDEO CLIP)
DAVID MARCUS, FACEBOOK MESSAGING PRODUCTS PRESIDENT: If you want to compare Libra with traditional cryptocurrencies, first big difference is that typically cryptocurrencies are investment vehicles or, you know, investment assets rather than exchange and this is really designed from the ground up to be a great medium of exchange, a very high quality form of digital money that you can use for everyday payments and cross border payments, micro transactions and all kinds of different things.
(END VIDEO CLIP)
GRIFFETH: So how is this going to work? Joining us with a quick tutorial on Libra is Ben Fox Rubin, a senior reporter at CNET, good to see you Ben, thanks for joining us tonight.
BEN FOX RUBIN, SENIOR REPORT, CNET: Thank you for having me.
GRIFFETH: So as he said a cryptocurrency like Bitcoin is meant to be a store of values something like gold but with Libra this is more of a transaction mechanism isn`t it?
RUBIN: Yes, in general it works a lot like most any other digital currency where what you would do is take your dollars or any other currency, transfer them over into Libra put them in a digital wallet, this one`s called Calibra and this is where it changes. Instead of actually keeping them in the digital wallet and hoping the value goes up, the argument would be that you would actually use it for goods and services at least that is what Facebook (NASDAQ:FB) is hoping to do here.
GRIFFETH: And this is backed by a basket of currencies, right? I mean these are for international transactions as well?
RUBIN: Yes, arguably Bitcoin and a lot of other cryptocurrencies could also be used for international transactions. You could argue that Facebook (NASDAQ:FB) is really trying to do what Bitcoin was hoping to do, to create an international currency that kind of wipes away borders and boundaries makes it much easier to cross border transactions. So, we`ll see if that actually comes to bear obviously.
GRIFFETH: There are no – at this point no banks involved in this consortium, so who`s holding onto my money when I give it to who, Facebook (NASDAQ:FB) or somebody?
RUBIN: So, there is an association, a non-profit association called the Libra association that is going to be operating this but that`s a really good question, I`m kind of not entirely sure what happens to the money when you do convert it into Libra. Even though there aren`t banks involved, there are some very trusted names in the financial industry that are going to be involved. Those include PayPal, Visa (NYSE:V) and MasterCard (NYSE:MA), so it`s not as if this – kind of a willy-nilly group that doesn`t know anything about finances.
GRIFFETH: And again this is more, as I understand it, about peer to peer transactions. I`m not going to go out and buy a hamburger with this necessarily unless a McDonald`s or some other fast food chain decides they`re going to accept Libra currencies, correct?
RUBIN: That is entirely true and I would probably say that Facebook (NASDAQ:FB) is really hoping somebody like McDonald`s would start accepting Libra. The way Facebook (NASDAQ:FB) is trying to push this they`re saying ordinary Americans, ordinary people from all over the world can jump on the digital currency bandwagon and potentially use this digital currency for any number of goods and services, whether they`re making a purchase on EBay, maybe they`re paying their bills, or they`re also sharing money with friends and families. So, they`re hoping anything and everything can be used with Libra.
GRIFFETH: Very quickly, Sheila Bair, former FDIC chair, told me today she`s skeptical this gets off the ground because of regulatory hurdles, what do you think?
RUBIN: That`s possible, I think a lot of the regulatory hurdles that Facebook (NASDAQ:FB) faces have a lot to do with the potential that has a monopoly, so that is definitely going to be a consideration. As far as regulation related to cryptocurrencies, there really aren`t that many. So, I`m not entirely sure what`s going to prevent this kind of thing from jumping off the ground from that regulatory perspective.
GRIFFETH: Right, clearly a lot more questions than answers right now. We`ll see what happens. Ben Fox Rubin from CNET thanks again for joining us tonight Ben.
RUBIN: Thank you.
GRIFFETH: Boeing (NYSE:BA) lands a new order for its 737 Max planes and that`s where we begin tonight`s “Market Focus”.
British Airways parent company International Airlines Group said it`s going to buy 200 737 Max planes worth $24 billion. The 737 Max as you know has been grounded since March following two deadly crashes. Boeings shares raised more than five percent today to $373.96.
Kellogg (NYSE:K) is cutting about 150 jobs, it`s going to take a pre-tax charge of $35 million as part of a revamp of its North American unit. The cereal maker is looking to slim down by selling its cookie business, which includes the Keelber and Famous Amos brands, as well as its fruit snack products to Italy`s Ferrara group. Kellogg (NYSE:K) fell down nearly two percent today to $55.50.
Fifth Third Bank is reportedly planning to shut down 44 branches in the Chicago area next month. The Chicago Tribune says the move comes as a result of the banks nearly $5 billion acquisition of MB financial. Fifth Third shares rose over more than three percent today to $27.88.
And CBS (NYSE:CBS) is reportedly planning to make an offer to sister company Viacom (NYSE:VIA). The Wall Street Journal says that representatives from both companies have already had preliminary discussions about a proposed deal. Viacom`s chief executive Bob Bakish is widely believed to be the frontrunner to become the CEO of the combined company should that happen. CBS (NYSE:CBS) shares rose a fraction today to $49.21. Viacom (NYSE:VIA) was up more than 1-1/2 percent to $29.81.
One of the biggest challenges facing advertisers right now is making sure their ads do not appear next to offensive content on Internet sites. Now that has been a major focus of the annual Cannes Lions Global Advertising Festival which attracts brands, platforms and media companies from around the world.
Julia Boorstin is there for us tonight.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: At this year`s Cannes Lions Festival, brands and advertisers gathering here on the French Riviera have a big issue on their minds offensive and inappropriate content that could be running next to ads. So, they`re coming together to announce a new solution, the Global Alliance for Responsible Media, which includes the media-buying agencies from all the biggest ad conglomerates, the tech giants, including Facebook (NASDAQ:FB), Google`s YouTube and Twitter, and 16 of the world`s biggest advertisers, including Procter & Gamble (NYSE:PG).
MARC PRITCHARD, P&G CHIEF BRAND OFFICER: What we will do together is establish some common standards that we can all abide by, very similar to what we`ve done on TV and in radio, and where we know we have control over the content and we know that there`s control over editorial comments. By coming together and having that, then we know that we can advertise in places that are safe for consumers and safe for our brands.
BOORSTIN: But the big ad platforms all here in Cannes, this is the first time they and all the other sides of the industry have come together to tackle issues ranging from violent and offensive videos to content targeting pedophiles.
With the goal of first tackling content that poses a threat to society such as terrorism, the alliance`s members say addressing everything from hate speech to misinformation will build trust by creating a new common standard and accountability.
MICHAEL KASSAN, MEDIALINKE CEO Yes, I think this is the Peter Finch network moment or maybe now the Bryan Cranston network moment, “I`m mad as hell and I`m not going to take it anymore”. The brands need to speak with their money. They need to, you know, show what they`re doing. They need to not just move their lips. They need to move their feet.
BOORSTIN: And companies such as Twitter which have invested in cleaning up trolls and fake accounts on their platform say this will be key for advertisers and Twitter`s users going forward.
MATT DERELLA, TWITTER HEAD OF REVENUE: You know, it`s just common sense. It`s listening to our customers and what`s happening and us not looking to compete on something like brand safety. This is something that ultimately will help everyone succeed. It`s important that we have trust in our ecosystem. In many ways, I think this is part of the legacy that all these companies are laying for, you know, for the future.
BOORSTIN: And the future for the ad industry is not just innovative spots that break through the clutter but also environments that are safe for brands and users.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Cannes, France.
GRIFFETH: And coming up, one company`s strategy to get Chinese consumers spending.
GRIFFETH: Beyond Meet shares have gone beyond their recent IPO price of $25 in a big way. Today the stock briefly broke through $200 a share before pulling back. Now at $200, Beyond Meat had a market value of more than $12 billion, making it larger than 115 companies inside the S&5 500, including Under Armour (NYSE:UA), Tiffany (NYSE:TIF), E*TRADE and Whirlpool (NYSE:WHR).
Finally, tonight, the Chinese government wants consumer spending to be a bigger part of that country`s economic activity, and one of China`s largest online retailers, JD.com wants to be at the center of it all. The company has created a spending holiday called 618, that would be short for today`s date, June 18th.
Eunice Yoon is in Beijing for us tonight.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just like Amazon (NASDAQ:AMZN) and Walmart are in a food fight in the U.S., JD and Alibaba are in a food fight in China. JD is building high-tech supermarkets like this where customers can scan fresh produce on their phones and trace where all comes from.
Fresh food is just one area JD sees as a consumer trend for 618. 618 is a mid-year festival JD created to get people shopping mainly online. It spans over 18 days.
The event is seen as a gauge of Chinese consumption. Consumer spending is a big topic here, the government has tried for years to get the consumer to become a bigger part of China`s growth to rebalance the economy away from exports and investment.
The authorities have made some progress, but these days, the consumption data isn`t encouraging. Sales of vehicles and smart phones are down, retail sales for May were a bright spot, but followed April`s figure which is a 16-year low. This despite the government`s stimulus measures.
JD believes Chinese demand for international products is only growing so companies may not be so concerned. This is what one executive told me.
CAROL FUNG, JD.COM FAST MOVING CONSUMER GOODS PRES.: The brand from the international market and they will tell you, China is still their biggest market and they continue understand the Chinese consumer and continue to provide the best products to Chinese consumer. So, I think they should be not worry.
YOON: Officially, unemployment here is stable, but with the slowdown, the weak stock market and the trade war, there`s a lot of uncertainty and Chinese tend to save. Even so, despite the trade war, JD says for this year`s festival, the U.S. is one of the top selling countries, and some of the most popular American brands are Hasbro (NYSE:HAS), Apple (NASDAQ:AAPL), P&G and Bud (ph).
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
GRIFFETH: And before we go, let`s take a final look at the day on Wall Street. A rally day on those hopes for the trade talks next week, up 353 points on the Dow, the Nasdaq added 108, the S&P was up 28. And tomorrow, the Fed.
That`s NIGHTLY BUSINESS REPORT tonight. I`m Bill Griffeth. Thanks for watching. Have a great evening. See you tomorrow.
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