Transcript: Nightly Business Report – July 2, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Still going.  The S&P closes at a record for the second straight day as the economic expansion becomes the longest ever.  Can the growth continue?  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Speed bump.  Corporate buybacks have been a tail wind for the markets but they slowed in first quarter.  The ramifications for investors.  

HERERA:  And watchful eye.  Insurance companies are riding along with drivers, virtually tracking their behavior on the road.  Good for customers or too big brother?  

All of that and more on NIGHTLY BUSINESS REPORT tonight for Tuesday, July 2nd.  

GRIFFETH:  And we do bid you a good evening, everybody, and welcome.  
It wasn`t exciting, wasn`t spectacular, but in the end, it was another record for the S&P 500, but the gains were capped a bit as yesterday`s enthusiasm over a trade truce between the U.S. and China was replaced by a skepticism today after the U.S. threatened more tariffs on $4 billion worth of European union goods.  Just another chapter in that long-running despite over aircraft subsidies.  

But in the end, stocks did hang on with the Dow rising 69 points, the Nasdaq climbed just about 18, and the S&P scratched out a gain of eight for that record close.  

HERERA:  And as for the China trade issue, administration officials met to discuss what to do about the Chinese telecom company Huawei.  As part of the detente, the U.S. relaxed restrictions against the company but it isn`t exactly clear what that means.

But White House trade advisor Peter Navarro gave his take.  

PETER NAVARRO, WHITE HOUSE TRADE ADVISOR:  We are going to work closely with our allies around the world to make sure Huawei 5G is not in those countries, but in the meantime, a small amount of low-level chips are going to be sold to keep systems going, and that`s not a bad thing when it gets us back to the bargaining table with China and with China committing to immediate and significant purchases of agricultural goods.  And let`s see if they deliver on that.  

HERERA:  Navarro did say trade talks were moving in the right direction.  
Eunice Yoon takes a look at what`s next.  

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The expectation is that over the course of the week, the Trump administration will clarify what can be sold and not sold to Chinese tech giant Huawei.  The uncertainty has become a dark cloud over the trade talks.  President Trump says the two sides restarted negotiations, but the Huawei issue will likely complicate them since the Chinese now expect restrictions on Huawei to be lifted as part of a deal.  

President Trump is already facing resistance to easing up on the company, which members of congress, the nation at security community and hawks within his own administration have argued is a security threat.  The talk now is of a partial ban.  White House economic advisor Larry Kudlow says approved products would mass market and not impact U.S. national security.  That suggests that core 5G networking equipment would be off limits.  

A source following the trade talks on the Chinese side told me that the Chinese could go for that though it is still unclear how national security would be defined.  

The Chinese had caught on to the contradiction in U.S. policy, reinforcing the view here that the U.S.`s campaign targeting Huawei is not about protecting national security but more about undermining China`s tech ambitions.  

Separately, Wall Street will be able to expand businesses in China faster than they probably expected.  Premier Li Keqiang said today that China would move up the timeline that would allow foreign financial firms to wholly own an entity here by 2020.  Up until now, firms have been applying for 51 percent ownership with an eye on full ownership by 2021.  
Companies that are in the process or have gotten approvals recently are J.P. Morgan, Morgan Stanley (NYSE:MS) and UBS.  In theory, as of next year certain fund management companies like Fidelity, Vanguard, BlackRock (NYSE:BLK) and Invesco can also sell products to retails investors.  Premier Li didn`t reference the trade deal, but the move was seen as a message to the U.S. and beyond that China is serious about accelerating its economic reforms.  

People in the financial industry here tell me that the move is significant, but that the reality of getting things done in China like licensing means that the process of expanding will be slow.  
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.  

GRIFFETH:  And the trade war with China is hitting U.S. real estate.  And as Diana Olick tells us now, it`s not just about higher construction cost but also lower demand from Chinese buyers.  

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Wes Yu owns one home in southern California and one in New Jersey, but he is now pulling back from buying more.  

WES YU, CHINESE INVESTOR (through translator):  The trade war makes everyone, because we`re immigrants, we are hesitant, a little scared to invest more because of the political situation.  

OLICK:  For several years, the Chinese have been the largest international buyers of U.S. real estate, but their numbers are now shrinking due to the trade war.  In the first quarter of this year, Chinese buyer inquiries for U.S. properties on, a Chinese real estate site, were down 27.5 percent from a year ago, while they were up for properties in Canada, the U.K. and Australia.  

Inquiries have been down in four of the last five quarters.  Juwai CEO calls it the Trump effect, a combination of anti-Chinese political rhetoric, a clamp down on visa processing and tariffs.  
It`s also hurting demand from Chinese students and their families, especially in California.  

YU:  Students come to America, they very — they — to America spirit, America lifestyle.  But after the trade war, they have to go back.  They have to go back to China, to go back to their country.  So, they stop to invest in property.  

OLICK:  It`s also now getting harder for Chinese citizens to get their money out of the country.  As a result of the trade war, the Chinese government is now cracking down on the $50,000 limit on foreign currency exchange.  

ANGELA WONG, COLDWELL BANKER REAL ESTATE AGENT:  China/U.S. trade war definitely has a big impact on Chinese investors.  

OLICK:  California real estate agent Angela Wong says 75 percent of her business used to be Chinese buyers, but now, it`s less than half.  
WONG:  Before the Trump administration, most of the Chinese use a lot of underground banks and they use — you know, many — say, for example, 20 people, each wire $50,000 to their bank account over here in U.S., but now, they are not even allowed to do that.  

OLICK:  So with the funding cut off and some of the financial and educational incentives less appealing, Chinese buyers are simply taking their business elsewhere.  

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.  

HERERA:  To the economy now where the latest read on auto sales shows Americans still have a healthy appetite for a new vehicle, especially when it comes to pickup trucks.  
Phil LeBeau has more on what`s selling on the lot.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  There was a time when Ram trucks were considered a distant third in the big three pickup sales race.  Not anymore.  For the second straight quarter, Ram pickups outsold the Chevy Silverado, GM`s top-selling vehicle, with Ram sales surging 56 percent last month.  An offer of 15 to 20 percent off Ram suggested retail price was the message that connected with buyers and will help Fiat Chrysler`s bottom line, since pickup trucks have some of the largest profit margins, especially higher-end versions.  

For the second quarter, FCA sales fell only fractionally, while GM and Toyota (NYSE:TM) were down slightly more.  

Overall, the strong economy, low unemployment and low interest rates are convincing Americans to buy new vehicles, especially higher-priced models.  The average price paid is now close to $35,000.  For the year, auto sales are not far from the record pace seen over the last four years.  
While June and second quarter sales are proof there`s still plenty of demand for new vehicles, investors remain skittish about auto stocks, which has struggled to kick into a higher gear like the rest of the market.  

GRIFFETH:  Well, the U.S. economy is now in its longest economic expansion in history without a recession.  This month marks the 121st consecutive month of growth since the 2008 financial crisis and that beats the previous record of 120 months between the years 1991 and 2001.  
Joining us tonight to talk about it all, Odeta Kushi, is deputy chief economist at American First Financial.  
Thanks for joining us, Odeta.  


GRIFFETH:  It hasn`t been the strongest growth we have seen over the last decade or so, but it has been steady without a recession.  What happened?  Why has it been this way do you think?

KUSHI:  So this is the longest expansion we have had in the record and we`re also facing record low unemployment rates and, you know, consecutive growth in job gains.  However, it has been extremely slow.  Compared to previous recoveries, we had about a 2.3 percent year over year gain on average GDP growth and in the past, we`ve had about 3.5 percent.  

The reason for that has been sluggish gains in the labor force, as more people are retiring and younger people have been pushing their educations longer and longer.  

HERERA:  Well, slow and steady though wins the race, at least that`s the adage.  

Does this continue at a slow and steady pace, or does the second half look even slower?  

KUSHI:  Well, we`re starting to see some economic indicators really slow down in the second quarter, but the labor market remains extremely healthy.  And, you know, two-thirds of GDP growth of consumer spending, so as long as those people have their jobs and they`re able to go out and spend, then it is looking pretty healthy for 2019.  

GRIFFETH:  But those looking for a cut by the Federal Reserve in their interest rates argue in part it is not just about our economy but it is the global economy, that we`re seeing a slowdown overall in part because of the trade tariffs we are seeing here.  What do you think?  

KUSHI:  So that`s something that could work to slow down the economy.  And so, consumer confidence, business confidence, manufacturing are all a product of, you know, the global economy, especially manufacturing.  So we`re really going to be watching what happens with these trade wars and tariffs, and that could have an impact on this expansion.  

HERERA:  You know, depending on where you look, we just had a report on the housing market.  The housing market has been an underpinning to this economy, but that even with lower interest rates in some sectors of the country is starting to slow.  Is that significant?  

KUSHI:  So the housing market has made some significant gains, especially in house prices, but the issue really has been a lack of inventory.  People are not moving from their homes and it is really tough to buy what`s not for sale.  So we haven`t seen home sales we have been expecting, but that`s largely been a product of a lack of supply, certainly not a lack of demand.  The demand there is very strong.  

GRIFFETH:  So if you had to guess, how much longer does this last do you think without a recession of some kind?  

KUSHI:  We`re seeing a healthy 2019.  The crystal ball gets a little muddier after that, but definitely a strong year, especially as we continue with the record low unemployment rates and the healthy labor market.  

GRIFFETH:  That does help, that`s for sure.  
Odeta Kushi with First American (NYSE:FAF) Financial — again, thanks for joining us.  
KUSHI:  Thanks very much.  

GRIFFETH:  You might recall yesterday we told you that OPEC agreed to extend prices for nine months to keep oil prices from falling too far.  Today, its non-OPEC partner said that`s a good idea and they agree to that extension, but that did not stop oil from falling nearly 5 percent today on fears of slowing demand.  
Brian Sullivan has more from Vienna.  

BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The morning of day two here at the OPEC meeting was dominated by Russian and their extension of the 1.2 million barrel a day cut aligned with OPEC also bringing the nation closer to the cartel.  

But the news came later on in the afternoon as well when CNBC landed an interview with the oil minister of Saudi Arabia, Khalid Al-Falih, and we diverted from the OPEC topics to go on to broader information.  Specifically, I asked him about the expectations in the market that global economies were at risk of slowing down and, thus, oil prices may fall.  He disagreed with that and thought the stimulus the Fed and central banks are providing should help boost economies in the second half of the year. 

KHALID AL-FALIH, SAUDI OIL MINISTER:  I see it the other way.  I see the stimulus steps that are being done by monetary authorities are precautionary in nature, but they`re certainly going to have a positive effect in terms of fueling economic growth.  I think the fact that we`ve had soft prices for oil and energy in general is also another stimulant for global energy demand. 

SULLIVAN:  The other big topic that has been facing oil and gas investors in the United States, of course, has been the idea of debt, that many of the biggest oil and gas companies, specifically those in the Permian basin of Texas simply have too much debt to continue on long term.  It has been a growing theme in the market as of late which is why oil and gas stocks have not performed well.  

I asked him, what does he think about debt levels in the Permian and he did express some concern.  

AL-FALIH:  Well, definitely, they have not been generating enough cash flow to their investors.  And I know that`s impacting the appetite for investors to continue with putting money into unconventional resources.  So, the combination of infrastructure, which has constrained, the combination of service industry constraints, financial constraints, as well as the unknown constraints of geology will ultimately bring us back to reality that there has to be a plateau and ultimate decline.  

SULLIVAN:  Those words may not be too comforting to U.S. oil and gas investors or the companies themselves.  So while we leave here, the OPEC meeting in Vienna, Austria, the focus will be on the group`s longer term future, its tie-up with Russia and maybe some concerning comment about debt levels among oil and gas companies in the United States.  
For NIGHTLY BUSINESS REPORT, from Vienna, Austria, I`m Brian Sullivan.  

GRIFFETH:  By the way, European leaders today nominated Christine Lagarde to become the head of the European Central Bank when current President Mario Draghi`s term ends October 31st.  Lagarde has led the International Monetary Fund since 2011 and if elected, she would become the first woman to lead the ECB.  

HERERA:  Coming up, does the drop in corporate buy back signal a warning for stock investors?  

GRIFFETH:  AB InBev is spinning off its Asian business, looking to raise nearly $10 billion by listing shares in Hong Kong.  It would be the world`s largest initial public offering so far this year.  Shares of AB InBev itself rose more than 2 percent in today`s trade.  
Frank Holland takes a look at this strategy.  

FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Brewing agent AB InBev which sells Budweiser, Guinness and Corona beers in Asia is betting big on the region.  That`s because sales in China are up just about 8 percent, while sales in the U.S. are only up about 1 percent.  
In the short term, its partial IPO is expected to help reduce AB InBev`s debt, increasing the company`s standing with investors.  In the long-term, this gives AB InBev a stronger presence in the biggest beer market in the world.  Last year, Chinese consumers drank twice as much beer than Americans, according to Evercore data.  

Analyst Robert Ottenstein says the market was previously dominated by low end brands and AB InBev essentially created the premium and super premium segment in this region.  CEO Carlos Brito also telling “The Financial Times” this IPO could be part of a strategy to grow by acquiring competitors in Asia, just as it did in Latin America.  
Brito saying, quote, the number one reason to do the listing is to have a platform in the region that is seen as closer to those markets and connected to what the region will do.  It`s a strategy that Jeffrey`s analyst Jefferies analyst Edward Mundy agrees with, writing, we believe this offers great flexibility to do M&A in the region, local players might prefer local.  

Already, the largest brewer in Asia, AB InBev is hoping that this listing will help it keep growing.  

HERERA:  Apple (NASDAQ:AAPL) is under investigation again and that is where we begin tonight`s “Market Focus”.

The Irish Data Protection Commission which is Europe`s main regulator of the company, has opened a third privacy investigation into the iPhone maker over the past few weeks.  The regulator is now looking into whether Apple (NASDAQ:AAPL) users have sufficient data access rights. 

Apple (NASDAQ:AAPL) shares rose a fraction today to $202.73.  

Nike (NYSE:NKE) is pulling its July 4thth themed sneaker featuring an early American flag with 13 stars in a circle known as the Betsy Ross flag.  “The Wall Street Journal” says former NFL quarterback Colin Kaepernick who is one of Nike`s endorsers told the company it should not sell the sneaker because the flag links to a period of slavery.  Nike (NYSE:NKE) told CNBC it did not release the shoe because it featured an old version of the American flag.  Nike (NYSE:NKE) shares were off a fraction to $84.96.

GRIFFETH:  Delta Airlines (NYSE:DAL) is raising its guidance, thanks to strong revenue and traveler demand heading into the busy travel season.  The airline also said that it carried a monthly record of nearly 19 million customers in June.  The stock was up more than 1 percent today to $58.54.  

And CNBC is reporting that T-Mobile and Dish Network have agreed to a divestiture deal which will help T-Mobile come closer to gaining merger approval with Sprint.  However, the reports say that Justice Department is still concerned that the deal is not sufficient to make Dish a competitive wireless network once the T-Mobile/Sprint merger is complete.  

T-Mobile shares were up nearly 2 percent today to $75.48.  Dish was up about a fraction to $39.17 and Sprint shares up more than 4.5 percent to $6.88.  

And then after the bell, Tesla topped expectations by announcing more than 95,000 vehicle deliveries.  The company also beat production estimates with a record 87,000 cars produced.  Shares rose initially in the after-hours trading tonight but did close the regular session down more than 1 percent to $224.55.  

HERERA:  Could a slowdown in share buy backs be a hurdle for the stock market?  Well, according to the “Wall Street Journal”, share repurchases by companies recently contracted for the first time in seven quarters, potentially removing a pillar of support from the market.  
Mike Bailey is director of research at FBR — FBB Capital Partners and he joins us now to discuss exactly what this could mean for investors.  
Mike, welcome.  Nice to have you here.  


HERERA:  Are you worried about this?  And why the pull back?  

BAILEY:  We`re not too worried about it.  So, we would sort of put the buy back changes in perspective with other changes going on in the market.  So, if you look over the last couple of years, you`ve seen buy backs move up and down.  We really haven`t seen our tight sort of pattern with a big move up or down in buy backs, and, frankly, a move in the stocks, which is really what investors worry about.  

You could go back to, for example, 2017.  We saw a steady amount of buy backs and stocks straight up.  The flip side was 2018.  So, you saw companies buying back their shares and the stock market was dead.  So, we sort of put cold water there in terms of thinking there`s a really tight impact.  

GRIFFETH:  But if there`s not a direct correlation in the stock market movement, you have to admit though, there has been a pretty good tail wind for the markets over the last decade, hasn`t it?  

BAILEY:  Absolutely.  It certainly has helped.  I mean, some folks tried to quantify.  I think some people said if earnings are generally growing, high single digit — let`s call it 8 percent earnings growth, maybe one to two percentage points have come from buy backs.  

It is definitely helping.  It is not the majority of growth but it is meaningful, so any big swing in buy backs, you want to pay attention to it, but you have to keep in mind the other factors out there driving total earnings growth.  

HERERA:  Could it also be when interest rates were low and we were coming out of the recession, companies were able to do those buy backs perhaps a little more cheaply and a little more easily than they are now?  

BAILEY:  It is possible.  You know, I mean you could argue, you know, if interest rates are low, people can, you know, borrow money and the debt markets take that and buy back stock, that certainly helps out the stock price.  Maybe there`s a little less of that now, although the flip side is, you know what, interest rates are coming back down again and you could start to see the cycle kick in again.  The first quarter was a bit of a dip, things could stabilize or come back in the back half of the year.  

GRIFFETH:  So, what do you think happens now?  Do we see a meaningful pull back of some kind at some point?  I realize that you are making the case that the buy backs haven`t been as much of a tail wind as others might expect, but if they start to pull back in a meaningful way, what do you think happens to the stock market?  

BAILEY:  So, yes, it depends on the size.  If there`s a meaningful pull back and you start to see headlines, big blue chip companies cutting buy back programs and it starts to filters down across the market, yes, you could argue it is going to have an impact on sentiment, it is going to slowdown overall earnings growth and it will have an impact.  

I guess the question is, how do you want to quantify so that.  So, if earnings are generally growing, you know, let`s say 8 percent, and now they`re growing p percent or 6 percent it is not as good.  But potentially a better return than you could get in the bond market.  So, it`s all relative but we are watching for any major changes in buy backs.  

HERERA:  All right.  Mike Bailey with FBB Capital Partners — Mike, thanks so much.  

BAILEY:  Great.  Thank you.  

GRIFFETH:  And coming up, when your insurance company becomes a back seat driver.  

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It`s a big, new trend in auto insurance, tracking driver behavior.  The bet is big brother will mean a big boost to the bottom line of insurers, but how much privacy are you willing to exchange for a discount on your auto insurance?  
I`m Contessa Brewer.  That`s coming up on NIGHTLY BUSINESS REPORT.

GRIFFETH:  Finally tonight, insurance companies are starting to use apps and other devices to monitor driver behavior in real-time, but does instant feedback like that make you a better driver or are you the one taking the risk?  

As you saw, Contessa Brewer is behind the wheel tonight taking a look. 

BREWER:  As a backup singer with the Allman Brothers and other well-known rock bands, Keith England shares his voice with the world, but he doesn`t want to share how he drives.  

KEITH ENGLAND, ALLSTATE CUSTOMER:  It`s just kind of a personal thing, driving, where you`re going, how fast you are going.  

BREWER:  The vocalist downloaded the app from his car insurance company, Allstate (NYSE:ALL), to pay his bill more conveniently.  He didn`t realize the app was also capable of monitoring his driving.  

ENGLAND:  I had no idea it had the tracking app within the app.  No idea.  It gives you an option of, yes, sure, go ahead and track me, or no thanks.  So, then, it`s like, well, if you click “no, thanks”, they`re like, what are you hiding?  

BREWER:  It`s called UBI, usage-based insurance.  They`re telematics.  They track and report driving behavior, how fast you go, how hard you brake, how much time you spend behind the wheel, even the time of day you drive.  Auto insurers nationwide are offering discounts for drivers to download and use these apps.  

AD NARRATOR:  Just keep it running in the background, then drive safely like you do already.  

AD NARRATOR:  You can watch and see why you`re saving.  


UNIDENTIFIED MALE:  But you`re in labor.  

UNIDENTIFIED FEMALE:  Don`t mess with my discount!  

BREWER:  The ads highlight the savings and that appeals to some drivers.  

UNIDENTIFIED MALE:  That would do it because I`m a really safe driver.  

UNIDENTIFIED FEMALE:  Everybody knows what we do anyway.  So, if it can save me a discount, I`m for it.  

BREWER:  But the flip side, bad drivers could see their premiums go up.  This data-dependent system is designed to benefit insurers.  

CHRIS BOGGS, INDEPENDENT INSURANCE AGENTS & BROKERS:  There will be some savings in premium but they will see more on the back end on the profit side either because these pay out fewer claims and lessen claims, or they see an increase in premium because people who have poor driving habits have an — and enjoy a higher rate.  

BREWER:  But the tracking actually changes driving behavior.  Researchers found customers whose driving was monitored for 26 weeks decreased hard braking by an average of 21 percent, and younger drivers improved their overall score the most out of all age groups.  As the trend grows, there`s concern about whether the monitoring becomes mandatory and the privacy concerns loom large.  

ENGLAND:  It is just the idea of being tracked.  It feels a little big brotherish.  

BREWER:  Still, if it sounds a sour note with some — it is a seismic shift in the way insurers assess risk, how you drive rather than your history of driving.  


HERERA:  And before we go, here`s a final look at the day on Wall Street.  The Dow rose 69 points.  The Nasdaq climbed just about 18.  And the S&P 500 scratched out 8 for a record close.  

GRIFFETH:  And that is the NIGHTLY BUSINESS REPORT for tonight.  I`m Bill Griffeth.  Thanks for watching.  

HERERA:  I`m Sue Herera.  Have a great evening and we will see you right back here tomorrow.


Nightly Business Report transcripts and video are available on-line post broadcast at 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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