ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
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JEROME POWELL, FEDERAL RESERVE CHAIRMAN: In a world of lower interest rates, the research seems to show I think this is fairly widely accepted, that it`s better to act preemptively.
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CONTESSA BREWER, NIGHTLY BUSINESS REPORT ANCHOR: But the Fed chair also suggests an interest rate cut in July is not a done deal. And stocks fall.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Pharma mega-merger. AbbVie offers to buy Allergan (NYSE:AGN) for $63 billion as big drug makers look for new ways to grow.
BREWER: Made in Vietnam. Multinationals are considering whether to shift production out of China as tensions with the U.S. remain tightened.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, June 25th.
And good evening, everyone. I`m Contessa Brewer, in tonight for Sue Herera.
GRIFFETH: And welcome aboard. Good to have you back.
GRIFFETH: We begin tonight with the Federal Reserve, which has been a driving force, of course, for stocks. The market has been looking for an interest rate cut maybe as early as next month. Any suggestion one is coming, investors cheer. Any suggestion of something else, stocks falter.
And that`s what happened today. Fed Chair Jerome Powell said that Fed is grappling with whether to reduce interest rate and while he did say there is a case to be made for lowering them preemptively, he also said he did not know how long all the current economic uncertainties will last, and he warned against monetary policy that responds to short-term political interest.
Today, the Dow fell 179 points, just off its lows at 26,548. Nasdaq was down 120. The S&P 500 slid by 27.
Dominic Chu starts as off tonight.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Federal Reserve Chair Jerome Powell speaking at the Council on Foreign Relations saying the Federal Reserve will act as appropriate to sustain is expansion. He says uncertainty over trade and global growth have increased, but he is grappling over whether these uncertainties will continue.
Still, Powell saying the economy has performed reasonably well this year and that the baseline outlook for the Fed remains favorable and that policy should not overreact to any one data point. Powell also hinting at possible insurance rate cuts pointing to research that shows it`s best to act sooner and more forcefully.
POWELL: I think in a world of lower interest rates, the research seems to show and I think this is fairly widely accepted that it`s better to act preemptively. As a general matter, I think most central banks would want to act preemptively and not let a downturn gather steam, in a sense. The thought being, an ounce of prevention is worth a pound of cure.
CHU: Now, this comes after St. Louis Federal Reserve President James Bullard spoke on Bloomberg earlier regarding his dissenting vote in last week`s Federal Reserve policy meeting. Bullard saying now seems like a good time for an insurance rate cut, but that a 50 basis point rate cut may be overdone. He said he does see 50 basis points worth of cuts by the end the year in total. Bullard said he hopes Fed action will straighten out the yield curve as well.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
BREWER: The president has been very vocal about his thoughts on interest rates. Today, he reportedly said once again he believed the U.S. dollar is still too strong and he feels the situation could be eased if the Fed lowered interest rates. The forecast for lower rates along with growing tensions between Iran and the United States saw investors piling into safe haven commodities like gold, which today hit a six-year high.
GRIFFETH: Speaking of which, when we look at how the various markets have been performing, stocks, they`re near all time highs, which suggest long-term growth, but interest rate are near three-year lows, which suggest a slow down. And despite very tepid inflation readings, gold is now at this six-year high.
So, what`s going on?
Scott Nations joins us tonight to talk about all this. He`s president and chief investment officer at Nation Shares.
Scott, always good to see you. Thanks for joining us tonight.
SCOTT NATIONS, NATIONS SHARES PRESIDENT & CIO: Thanks very much, Bill.
GRIFFETH: What specifically is gold`s message right now? Why do you think it`s been going up?
NATIONS: I think there are three drivers for gold. Not only now, but generally, there are three drivers.
The first one is interest rates. When interest rates are low, the opportunity costs for owning gold which doesn`t pay is lower so people are able to buy more gold and we see as you pointed out, interest rates historically very low. Long-term rates down three quarter of a percentage point over the past six months.
The second driver is the dollar. The dollar`s fallen quite a bit over the past month against the currency, against a basket of foreign currencies and if you`re buying gold in another currency, and it`s denominated in a dollar, then it`s cheaper than it used to be, it`s easier to buy.
So, those things in quantify, there`s a third as geopolitical concern it`s tough to quantify. And if you`re focused on what`s going on between Iran and the United States and there`s plenty of geopolitical concern for people to think is an impetus for buying gold.
BREWER: So, Scott, if geopolitical concerns are hard to quantify. Is it easier to quantify what China`s doing? After all, over the past years, it`s been a net buyer of gold and help supported the price, perhaps slowing the decline. Is it behind some of these moves higher?
NATIONS: Almost certainly. China wants to diversify their corporate balance sheet, if you will, and one way to do that is to sell dollars and buy gold. So they`re obviously trying to do that. Of course, the undercurrent there is trade tension. The trade war with the United States.
So, that also makes sense, but there are so many reasons to buy gold right now. There are very few reasons to doubt it.
NATIONS: Except for maybe the fact that comes so far so fast.
GRIFFETH: I know you`re not a fan of gold right now. So how much you think it goes?
NATIONS: Well, I`m actually — I have thought for the past month or two that all of the planets were aligning and it made tremendous sense to buy gold as a trade, as a very short-term trade, a hedge against some of these concerns. I`m not a fan of investing in gold for the long-term because not only does it not pay interest or dividends, you have to pay to store it and insure it, so it generates some negative return.
But in the short-term, if you want to hedge against some of these concerns, then I`ve been a fan of gold — although again, it`s come long way in a hurry.
BREWER: All right. Scott Nations with Nations Shares — Scott, thank you so much for joining us.
GRIFFETH: Elsewhere, investors were also giving a little more detail on what to expect on the upcoming meeting between the U.S. and China at this week`s G20 Summit in Japan. And administration officials said today that the goal is simply to reopen trade negotiations and that the U.S. will not accept any preconditions to remove tariffs.
BREWER: A blockbuster bio tech deal. AbbVie is buying Botox maker Allergan (NYSE:AGN) for $63 billion in a move designed to bolster its pipeline before one of its best-selling drugs loses patent protection. The stocks moved in opposite directions. Allergan (NYSE:AGN) shares rose 25 percent while AbbVie fell 16 percent.
Meg Tirrell has more on the latest merger in the pharmaceutical industry.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: AbbVie makes the world`s top selling drugs. The rheumatoid arthritis treatment Humira which draws more than $19 billion in annual sales, but Humira faces competition in the U.S. as early as 2023 and AbbVie needed a way to replace that revenue.
Enter Allergan (NYSE:AGN), the maker of Botox — the wrinkle treatment worth $3.5 billion a year. The company also sells drugs for bipolar disorder, gastrointestinal diseases, and women`s health. Plus, more products for cosmetic applications like Latisse and CoolSculpting.
The combination raised eyebrows on Wall Street. But Humira and cool sculpting make strange bedfellows, wrote Raymond James. While Piper Jaffray called it, quote, an expensive price for a questionable asset.
AbbVie is paying $63 billion in cash and stock for Allergan (NYSE:AGN), a 45 percent premium to where Allergan (NYSE:AGN) shares closed yesterday. That doesn`t include more than $20 billion in Allergan`s debt.
DAVID MARIS, WELLS FARGO: The premium was a lot to where the stock has been trading, but the stocks underperformed a lot.
TIRRELL: And while $63 billion is a lot, it`s much less than the $160 billion that Pfizer (NYSE:PFE) have agreed to pay for Allergan (NYSE:AGN) in 2015, in a deal planned to move Pfizer`s tax base to Allergan`s Ireland. That deal was scuttled by a change in tax rules. AbbVie`s deal for Allergan (NYSE:AGN) brings an Irish domicile company back to the U.S. But AbbVie shareholders didn`t like the deal, and the stock declined.
Wells Fargo (NYSE:WFC) analyst David Maris said it`s not the type of deal that excites investors.
MARIS: There are two types of pharma deals, I think, if I had to classify them. One is we`re behind in science and we need to buy the newest science that`s coming on to the market. And those are a lot of tech deals, and then there`s the “I have something wrong going wrong in a few years and I should fill in this hole or try to augment of diversify away from this problem”, and this kind of falls into that.
TIRRELL: And he said as political pressure continues on drug prices, we`re likely to see more of these kinds of combinations.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
GRIFFETH: Our nation`s federal debt load is on track to hit unprecedented levels. A new report from the Congressional Budget Office says that the government`s debt will rise to 144 percent of our gross domestic product by 2049. Currently stands at 78 percent. The report also warns that debt levels could reach 219 percent of GDP if Congress doesn`t cut discretionary spending in the budget and if the individual tax cuts from the most recent tax law do not sunset in 2026.
BREWER: Well, consumer confidence dropped more than expected, reaching its lowest point in nearly two years. According to the Conference Board, the decline is due to the escalation in trade and tariff tensions. The report also notes that while the index remains at a high level, continued uncertainty could result in further volatility.
In theory, higher confidence leads to an increase in spending, which makes up a large portion of economic activity.
GRIFFETH: The housing industry has been hoping that lower mortgage rates would help drive sales of newly built homes, but that hasn`t happened so far. Sales fell for a second straight month in May. And that news pressured shares of homebuilder stocks in today`s trade and one was especially hit hard.
Diana Olick has more.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: At a stunning newly built home in southern California, buyers were pretty scarce. Even the few that did come out for this luxury offering were worried about affordability.
RENITA DRAPER, PROSPECTIVE BUYER: It`s nice that the interest rates are going down. I just like to be in a better position going debt free.
OLICK: Sales of newly built homes dropped unexpectedly in May, down nearly 4 compared with a year ago. Most expected sales to bounce on that big drop in mortgage rates.
BUCK HORNE, RAYMOND JAMES SENIOR VICE PRESIDENT: We got some tail wind from the mortgage rate decline, but it was a sluggish start to this year`s spring selling season, so we were just clawing back to break even, which is effectively what Lennar (NYSE:LEN) reported.
OLICK: The average on the 30-year fixed mortgage fell from just over 4.25 percent to well below 4 percent in May when those sales contracts were signed. The median price of a newly built home also fell close to 3 percent, likely because fewer luxury homes like this one are selling. What is selling is on the lower end.
Precisely why the nation`s largest builder by revenue, Lennar (NYSE:LEN), saw unexpectedly bright earnings in the second quarter as it starts to build more entry level homes and offers more incentives.
STUART MILLER, LENNAR EXECUTIVE CHAIRMAN: We clearly saw traffic and continued to strengthen in the second quarter as a combination of lower interest rates, together with at least slower price appreciation and in some instances, slightly lower prices. It`s positively impacted affordability.
OLICK: But Lennar (NYSE:LEN) stock dropped sharply during the conference call after its president said tariffs and the labor shortage were increasing their cost.
And while builders may want and need to put up cheaper homes given the current housing shortage, doing so given the higher cost hurts their bottom line.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: Time to take a look at today`s “Upgrades and Downgrades”.
We begin with shares of Tiffany (NYSE:TIF) tonight. They were downgraded to hold from buy at Luke Capital. The analyst cited global growth concerns as well as the ongoing tariff dispute which could cause wealthy customers to delay purchases. Price target, $95. That stock fell a fraction to $91.24.
Shopify was downgraded to neutral from outperform at Wedbush. The analyst cited the stock`s valuation and said that it`s new network of fulfillment centers is not expected to generate profits until 2023. Price target, $305. Shares fell 9 percent today almost to $284.04.
BREWER: Grubhub was upgraded to buy from annuity from neutral at Citi. The analyst cites data which suggests Grubhub is an early test with McDonald`s (NYSE:MCD), Starbucks (NASDAQ:SBUX) and other large chains. Price target is $91. The stock rose 5 percent to $75.90.
McDonald`s (NYSE:MCD) and other residents were initiated with an outperform rating at Credit Suisse. The analyst cites the company`s digital push and modernization efforts. The price target there, $230. McDonald`s (NYSE:MCD) rose a fraction to $205.71.
GRIFFETH: Coming up, made in Vietnam.
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CARL QUINTANILLA, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Carl Quintanilla in Vietnam.
With the threat of tariffs on more Chinese goods, Vietnam wants to become the next manufacturing power house. That`s tonight on NIGHTLY BUSINESS REPORT.
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BREWER: FedEx (NYSE:FDX) topped Wall Street profit estimates, but warned that its 2020 results will be hurt by the trade war. The company cites a weakness in global trade and industrial production. FedEx (NYSE:FDX) gets about third of its revenue from outside the United States. It`s often viewed as a barometer for global economic health. Shares were volatile in the extended trading session.
Frank Holland has more on FedEx`s results.
FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: FedEx (NYSE:FDX) has had a string of negative headlines recently, but still managed to post a bet on profits that were in line with estimates. The company says it expects profits to decline next year however due to trade uncertainty. Global weakness and also the decision not to a newer customer, they didn`t name that customer, but it appears to be Amazon (NASDAQ:AMZN).
The key takeaway is that FedEx (NYSE:FDX) is pivoting the focus more on its ground service where it says it expects margins to increase. It also expects freight margin to increase. China, where it gets about 2 percent of revenue and has a major hub in Asia, that remains a question mark after its followed suit against the Commerce Department saying the restrictions placed on the shipper is part of the U.S. blacklist on some Chinese companies are unconstitutional.
For NIGHTLY BUSINESS REPORT, I`m Frank Holland.
GRIFFETH: And late last night, FedEx (NYSE:FDX) sued the Department of Commerce saying that it should not be required to enforce federal export bans like the one targeting China`s Huawei and that policing the contents of millions of packages is virtually impossible. You might recall FedEx (NYSE:FDX) recently mishandled two deliveries for Huawei which then prompted Beijing to launch an investigation into FedEx (NYSE:FDX).
BREWER: FedEx (NYSE:FDX) is part of the broader transportation sector, which is a key component of the market. Lately, it hasn`t been performing that well.
Bob Pisani has a closer look from the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks may be within striking distance of historic highs, but one group left out of these recent rally has been transportation stocks and that could be a little bit of an issue for the market.
Shipping and freight names, for example, they`ve got had a really rough time this quarter. Truckers like J.B. Hunt, Rider, logistics companies like FedEx (NYSE:FDX) and UPS, they`re all down double digits. The Dow Transports are still in correction territory overall, down about 12 percent from their 52-week highs. That`s a bit alarming because many investors use transports as an important barometer of the health of the U.S. economy and even the global economy. So, any weakness in the sector could spell more trouble ahead from the broader markets, and make it hard to stock a sustained upward momentum.
That`s the key premise, in fact, behind Dow Theory. But FedEx (NYSE:FDX) in particular has already cut its full year guidance twice since December, citing slowing macro conditions and weaker global trade growth trends. That`s very important because they`re a barometer of global health which is a notable divergence between ground-based transportation and the airlines. The airlines have been doing great quarter so names like JetBlue, Alaska Air, Delta, they`re off about 10 percent or so in the second quarter.
Airlines have been gaining back pricing power. They`ve been able to reduce capacity and that`s a key issue that`s been plaguing the industry for the past several years.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: Micron Technology (NASDAQ:MU) reported better than expected profit and revenue tonight, and said that it sees early signs of improving demand. That was very welcome news for investors since Micron is one of those companies caught in the middle of the U.S.-China trade wars since it does a lot of business with that country.
Josh Lipton joins us tonight from San Francisco.
What was the one key take away from that important report, Josh?
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, so that was interesting, Bill, because you`re heading into the earnings report, the stock has really taken it on the chin. It was down more than 20 percent from its intraday highs back in early April and a big reason there, you mentioned it was Huawei or specifically a fallout from the Trump administration`s decision to blacklist that Chinese tech giant because it`s an important Micron customer, makes about 13 percent of revenue.
What executives on the Micron call said though was, listen, they reviewed that export ban and they determined they could lawfully resume shipping at least some subset of their current products to Huawei. I checked in with RBC`s Mitch Steves, he covers the name and he said, listen, that was a relief to investors, it meant that business at least didn`t go completely to zero.
Also more broadly, executives said they were seeing some early signs of demand improvement and you can see that stock moving sharply higher right now in the afterhours, Bill.
GRIFFETH: All right. Josh Lipton in San Francisco for us tonight — thanks, Josh.
Well, there might be a fox guarding the hen house. And that`s where we begin tonight`s “Market Focus” with Bloomberg saying the Justice Department is looking into claims of potential price fixing of poultry at both Tyson and Pilgrim`s Pride (NYSE:PPC).
Pilgrim`s Pride (NYSE:PPC) told CNBC it strongly denies those alleges. While Tyson said the allegations had no merit. Both Tyson and Pilgrim`s Pride stocks were down about more than 1 percent today.
GRIFFETH: Berkshire Hathaway`s CEO Warren Buffett says despite report, there have been no conflicts with 3G Capital, which is Berkshire`s ownership partner of Kraft (NYSE:KFT) Hines. The report said there were tensions, the result of the chronic underperformance and accounting problems at the giant food producer. Berkshire and Kraft (NYSE:KFT) were both up a fraction in today`s trade.
BREWER: Bausch Health said it will help pay down an additional $100 million worth of debt, clearing its mandatory payments for the first quarter of 2020. The company also launched a new lotion treatment for plaque psoriasis. Bausch shares rose more than 2-1/2 percent to $24.33.
Late today, AeroVironment (NASDAQ:AVAV) reported quarterly profit below Wall Street expectations. The defense and aero space company cited a decrease in product sales and weaker gross margins. That stock fell sharply in afterhours trading initially. It finished the regular session off just a fraction to $61.31.
GRIFFETH: Well, a made in China label is seemingly everywhere these days, but with the threat of more tariffs on Chinese goods, some multinational companies are considering moving their manufacturing operations out of that country and into places like Vietnam.
Carl Quintanilla reports for us tonight from Hanoi.
QUINTANILLA: This is story of that Nike (NYSE:NKE) pullover or the Adidas track suit you might have bought for your kids or grand kids at Walmart or Costco (NASDAQ:COST). It`s being sown here today at a factory in Vietnam just north of Hanoi. Workers earning $280 a month stitch, package and ship the product to the U.S.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: And companies are leaving China.
QUINTANILLA: With president Trump threatening more tariffs against Chinese goods, American brands are asking, what else can we make in Vietnam? The U.S. is importing 40 percent more from Vietnam than this time last year. While imports from China, down 13 percent.
Linh Nguyen`s company makes clothes for Columbia sportswear and Abercrombie & Fitch (NYSE:ANF).
LINH NGUYEN, TNG INVESTMENT & TRADING JSC: What China can do, they can now do the same at cheaper price, plus environmental, human right, whatever we can do is the right thing to do for the industry, for the consumer.
QUINTANILLA: It affects your pocketbook. Retailers like Target (NYSE:TGT), Best Buy (NYSE:BBY) and others would likely charge you more to make up for a proposed 25 percent tariff on China. Shifting to Vietnam could be one solution, if factories like this one can find enough new workers. And if Vietnam`s congested highways, rail lines and ports can handle the extra traffic, issues the Chinese have been ironing out for 20 years.
AN NGUYEN, CBRE VIETNAM DIRECTOR: We expect all that to take time before Vietnam can be ready to, old demands, that stuff, we`re looking at the moment.
QUINTANILLA: Of course, these are jobs that let left the U.S. decades ago and that many wish would come back. It`s not unthinkable. But a lot will depend on how the U.S. and China narrow their differences. And how countries like Vietnam step up to get goods you want on the shelves near you.
For NIGHTLY BUSINESS REPORT, Carl Quintanilla, Hanoi.
BREWER: Coming up, will the second half be a healthy one for health care stocks?
GRIFFETH: The government today revealed a nationwide crackdown on illegal robocalls. The FTC says it recently blocked more than a billion illegal calls in coordination with the Justice Department as well as with state and local law enforcement agencies. Together, they took more than 90 actions against those touting bogus services. According to the FTC, consumers get tens of billions of illegal robocalls every year.
BREWER: And still some got through to me.
BREWER: The health care sector was the best performing group last year, but that wasn`t the case in the first half 2019 and now, investors want to know if the sector is ready to rebound.
Bertha Coombs takes a look.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Regulatory pressure from Washington will continue to loom large for the health care sector with the Trump administration now taking up transparency on hospital prices. In the next few months, analysts say watch for the administration to finalize its drug price blueprint policies, including a ban on pharmacy benefit rebates for Medicare drug plans and potentially pegging some Medicare drug prices to international rates.
The policies proposed in the last year just after drug makers raised list prices.
CHRIS MEEKINS, RAYMOND JAMES HEALTHCARE POLICY RESEARCH ANALYST: If you assume the drug companies are going to raise list prices again, the beginning of July of this year, then we can assume the administration is going to do what it did the last two times, which is issue additional regulations immediately there after.
COOMBS: Outrage over high drug prices hit pharmaceutical stocks hard during the last presidential election cycle in 2015. This time around, health insurers have been hit hard, following Senator Sanders campaign launch in February and again in April after the senator reintroduced his Medicare-for-All bill which is endorsed by presidential hopefuls Kamala Harris (NYSE:HRS), Cory Booker and others.
Analyst at Nephron Research say stocks found their footing after Joe Biden entered the race. The front-runner is not seen endorsing single-payer health care.
MEEKINS: If you were to see one of the candidates like Bernie who believes in a Medicare-for-All and believes in really getting aggressive on drug pricing take the lead, at that point, I think you would see negative impact on health care stocks going forward.
COOMBS: On the fundamental side, the major insurers have all forecast stronger earnings in the second half, which also helped stabilize their stocks over the last month, but it may be tougher for them to move higher, amid the regulatory and political pressure they`ll face this election cycle.
For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.
GRIFFETH: And finally tonight, SpaceX`s Falcon heavy rocket blasted into orbit in the wee hours of the morning this morning. It carried 24 satellites for the Defense Department. SpaceX founder Elon Musk called this the most difficult launch ever. SpaceX reuses its rockets including the two side boosters of the Falcon Heavy, and after this launch, those twin boosters landed upright and intact, but the rocket`s center booster missed its target and landed in the sea.
But the overall mission was completed just a few hours after it began and it was considered a success. And always a spectacular to watch, too.
BREWER: And so remarkable how far we`ve come since we first landed a man on the moon, right?
BREWER: Well, before we go, let`s take final look at the day on Wall Street. The Dow fell 179 points to 26,548, the Nasdaq was down 120, off a percent a half, and the S&P 500 slid 27.
That`s NIGHTLY BUSINESS REPORT for tonight. I’m Contessa Brewer. Thank you for watching.
GRIFFETH: I’m Bill Griffeth. Have a great evening. See you tomorrow.
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