ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Oil shock. An attack on the heart of Saudi Arabian productions sends prices spiking and the effects are being felt far beyond the market for crude.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: On strike. GM workers walk off the job for the first time since the financial crisis and both sides have a lot at stake.
HERERA: What`s in a name? A startup strikes a deal to put its name on the most expensive NFL stadium ever built.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, September 16th.
GRIFFETH: And we do bid you a good evening, everybody, and welcome.
You know, we usually begin this program talking about stocks. But tonight, you probably will not be too surprised to hear that we`re beginning with oil.
Those attacks over the weekend on Saudi Arabia`s oil facilities cut more than half of the kingdom`s output and it sparked fears of a global supply crunch. The result was the biggest one-day gain for domestic crude prices in almost 11 years. They rose 15 percent after having been up as much as 20 percent.
And the shock rippled through other markets as well. It sent shares of Exxon Mobil (NYSE:XOM) (NYSE:XOM) and Chevron (NYSE:CVX) (NYSE:CVX) higher, making them two of the best performing stocks in the Dow today. Refiners took a hit because many depend on Saudi Arabia`s distinctive heavy crude and off shore oil drillers rose. Oil stocks fell on concerns about higher fuel costs. Cruise lines came under pressure for fear that the price spike could become a drag on their earnings as well.
So what happens next? That`s the question many are asking and one that Seema Mody sent out to answer.
SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The attacks on Saudi oil production facilities are being called unprecedented in the history of global oil industry. Five-point-seven million barrels of daily oil production were knocked offline, roughly 5 percent of the world`s daily oil production.
HELIAM CROFT, RBC CAPITAL MARKETS: This is the largest single day disruption of oil supply. This is the nerve center of the Saudi Arabian energy system, Abqaiq. Al Qaeda tried to hit Abqaiq in 2006 and failed with two truck bombs. The fact that a group was successful over the weekend is terrifying.
MODY: Most experts say whether oil moves higher from here depends on how the Saudis and OPEC respond. Saudi Arabia has been in talks with members of OPEC and non-OPEC nations like Russia to assess what steps should be taken next to limit disruption and minimize shocks to the energy market.
KEVIN BOOK, CLEARVIEW ENERGY PARTNERS: The spare capacity that comes from OPEC producers mostly reside in Saudi Arabia. When the Saudis can`t come to the rescue, it leaves about a million barrels per day, with everyone including Russia. So, that`s a very narrow cushion against the supply shock.
MODY: Energy analysts are trying to figure out how much damage was inflicted on Abqaiq, a Saudi oil plant that was targeted in Saturday`s attack. At this point, they say it will take some time before Saudi`s oil production returns to full capacity.
BOOK: I think we`re talking weeks to months before it`s fully restored.
MODY: Experts say this could present an opportunity for U.S. energy producers and all of the U.S. supply that makes this oil shock different. The American energy market has grown substantially in the last decade, perhaps making this supply shock a little less painful.
BOOK: There`s nothing that better illustrates the twin effects of U.S. supply buffering the risk to the global system, and also the weak demand environment in which we find ourselves.
MODY: With tensions high in the Middle East, analysts say oil prices will likely remain higher for the foreseeable future.
For NIGHTLY BUSINESS REPORT, I`m Seema Mody.
HERERA: Joining us to discuss the ramifications of the Saudi oil strike is John Kilduff, founding partner at Again Capital.
Welcome back, John. Good to see you.
JOHN KILDUFF, FOUNDING PARTNER, AGAIN CAPITAL: Good to see you. Good evening.
HERERA: What are your thoughts? It was a large strike and it comes at a time when Iran is off line and Venezuela is also off line.
KILDUFF: And the fact that prices didn`t go even higher I think speaks volumes to the soft demand environment that we`re dealing with. The slowing economies, particularly in Asia. There was some key data out of China last night that further evidenced the slowing industrial impact with the U.S./China trade war is having.
So, the fact that we were able to sort of hang in there, only get WTI crude or U.S. crude above $60 a barrel, which is a reasonable level for it in normal circumstances, it speaks volume to the weakness that`s out there.
GRIFFETH: I`m seeing today two estimates about what the impact will be on gasoline prices in this country, 20 cents, maybe 25 cents. What do you think? And what can the U.S. industry do to try to mitigate some of that?
KILDUFF: Well, there`s no shortage for starters. Let`s look that off the table. Neither for crude oil, nor gasoline or any of the refined products. There`s plenty in storage, plenty being made, there`s plenty of crude stock in inventory to process — to continue to supply the country adequately.
What will have to happen, Bill, is the tensions will have to calm down. Right now, the oil market is rightly pricing in a terrific insecurity. There could be another attack. Obviously, Saudi Arabia is incredibly vulnerable to these drone strikes or to these cruise missile strikes, whichever it was — they do not have an adequate air defense system of any kind — if they couldn`t protect their crown jewel.
So those prices will come raising to the pump higher, probably by the end of the week you`ll see that full 20 cents priced in. And then what happens next is the turning point here. Does the U.S. respond? Do the Saudi`s respond, do the Houthis engaged in another attack on the infrastructure that further limit Saudi`s ability, A, to recover, or B, knock more oil offline?
HERERA: The language this afternoon from the White House was a little softer than it was earlier this morning, for lack of a better word. Does that give you an indication that maybe there will be more of a time difference between the time that we hear what the U.S. is going to do or Saudi Arabia?
KILDUFF: There`s clearly no rush to war at this point. It doesn`t appear that there`s even an appetite for it.
I can tell you that — now, this was a significant attack on Saudi infrastructure. You have to believe there has to be some kind of response. But these attacks in smaller in scale have been going on for months and the Saudis have done nothing other than to try to hit the Houthis in Yemen harder.
KILDUFF: So, the oil for the most part keeps flowing. The Saudis, they have a terrific ability to restore most quickly and there are reports they`ll be fully back online by the end of the month. So, not necessarily a huge crisis for the market, but certainly the bubbling cauldron of geopolitical risks persists.
HERERA: John Kilduff, thank you so much.
KILDUFF: Thank you.
GRIFFETH: As always.
HERERA: John Kilduff of Again Capital.
GRIFFETH: Now to the stock market which fell on concerns that the rise in oil prices could slow global economic growth even more than it already is. The result was a decline for the Dow after eight consecutive gains. The industrial average was down 142 points, back to 27,076. Nasdaq was down 23. The S&P slid by nine.
And that spike in oil prices is throwing yet another curveball at investors just in time for this week`s Federal Reserve meeting.
Mike Santoli has more.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: After a bitter set back in August, the stock market finds itself in something of a sweet spot. The question now is how long the market can stay there after an oil price spike and the crucial Fed meeting just ahead.
Several key market variables fell to extremes last month. Treasury yields fell to three-year lows. Economic expectations sank in anticipation of a possible recession. Investor sentiment turned quite pessimistic, given the S&P 500 never fell more than 6 percent from a record high.
In recent weeks, though, data on jobs and retail sales have calmed recession worries and sparked a powerful rise in treasury yields from the low of 1.44 percent to above 1.8 percent. Yet they were above 2 percent the last time the S&P 500 was this close to a record in July. And rates are not high enough yet to pinch economic activity or undermine equity valuations.
The firmer economic readings are a comfort to investors, yet are not so hot as to jeopardize the expected quarter point Fed rate cut later this week.
With 6 percent rebound in recent weeks has brightened investor experience and prompted some from fresh inflows into equity funds, but sentiment is far from turning complacent or over-optimistic just yet. Even oil prices surging after the weekend attacks on Saudi infrastructures are rising from benign levels and are even back to their springtime highs.
For sure, the geopolitical implications are an unknown risk. The trade war simmers in the background and the past two short pull backs in stocks also occurred with the S&P near a high in a Fed meeting week that was back in May and July.
So, for now, the market backdrop has improved in most respects without yet being too good to be true.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
HERERA: For the first time in a dozen years, auto workers at General Motors (NYSE:GM) (NYSE:GM) are on strike. Though talks continued today, assembly lines across the country were shut down. That sent shares of GM lower by more than 4 percent. At issue, pay raises, job security and bringing new models to plants phasing out production, including GM`s plant in Detroit, where we find Phil LeBeau.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: After 40 years at GM, John Blaze is on strike, determined to help the UAW get a better contract with General Motors (NYSE:GM) (NYSE:GM).
JOHN BLAIES, UAW STRIKER: We`ll stay out here as long as we need to, to get a good contract.
LEBEAU: From early morning picketers in Flint, Michigan, to auto workers outside the GM plant in Arlington, Texas, 46,000 UAW members have effectively shut down the country`s largest automaker.
HARLEY SHAIKEN, UC BERKELEY: I am not at all surprised that there is a strike. The issues were very tough. The stakes were very high for both sides.
LEBEAU: For GM, the goal is containing costs, including benefits the company pays UAW members $63 an hour, more than Ford, Fiat Chrysler or foreign automakers operating in the U.S. The UAW counters that GM has steadily increased the number of vehicles imported from Mexico and believes some of those vehicles could have been built in plants like the one in Lordstown, Ohio, which has been shuttered.
It`s all part of Mary Barra`s plan to make GM lean and profitable, but that also drawn the ire of President Trump, who wants GM to add more jobs in the U.S. The strike prompted him to tweet: Here we go again with General Motors (NYSE:GM) (NYSE:GM) and the United Auto Workers. Get together and make a deal!
While it may take days or even weeks for a deal to come together, General Motors (NYSE:GM) (NYSE:GM) and the UAW do have a history of eventually hammering out agreements, including a decade ago when the automaker was going through bankruptcy and everyone attached to it was forced to make tough choices.
BLAIES: We did what we had to do back in `09 to save our self and the company, and now, we`re asking the company to save our jobs.
LEBEAU: Phil LeBeau, NIGHTLY BUSINESS REPORT, Detroit.
HERERA: GM says, quote: We negotiated in good faith and with a sense of urgency. Our goal remains to build a strong future for our employees and our business, end quote.
GRIFFETH: And joining us to assess the impact this strike will have on GM and the ever-changing automotive industry overall, Michelle Krebs is back with us. She`s executive analyst at Cox Automotive.
Good to see you again. Thanks for joining us.
MICHELLE KREBS, COX AUTOMOTIVE EXECUTIVE ANALYST: Thanks for having me.
GRIFFETH: And you said this strike is very different from the one a decade ago. How so?
KREBS: There are a lot of different ingredients in this one. First of all, we are approaching a downturn. Actually, we had a little bit of a downturn in auto sales. We could be facing an economic downturn.
But we`re also on this precipice of a massive transformation of the industry to electric cars, autonomous cars, new mobility services. Nobody knows when that`s going to take place, but it`s starting to emerge. And automakers are plowing a lot of investment into those future technologies.
HERERA: It sounds like you think that area that we`re in right now, this transition might make it harder for the two sides to come to a deal.
KREBS: It does because General Motors (NYSE:GM) (NYSE:GM) is trying to ring out every penny of profit it can so that it can sustain itself today but also so it can make investments in the future. And GM`s been very aggressive on saying it`s going to go into an all electric future.
GRIFFETH: Let`s face it, they don`t know what kind of jobs they`re going to need as they go into the future, and that goes for the whole industry, too, by the way.
KREBS: That`s absolutely right. If you go into an electric car plant, it doesn`t have as many assembly workers. Yes, there are people that have to put together the battery packs, but nobody knows exactly how many jobs will be needed. And we don`t know how well those vehicles will sell yet.
It`s going to take some time before companies — those proliferate and companies make profits on electric vehicles and autonomous vehicles.
HERERA: What are your thoughts on the length or possible lengths of this impasse? They are still talking. But the workers aren`t working. They`re out on the picket lines.
So, what is your sense of how long this might last?
KREBS: Maybe I`m being optimistic and hopeful. But I`m hoping it will be days, not weeks. We`ll see. It`s hard to know.
GRIFFETH: When does it start to cut into GM, though? I mean, Phil LeBeau was pointing out the inventory they have on hand at this point.
KREBS: Well, it`s immediately financial impact because when you`re not producing cars, you`re not selling them to your dealers and you`re not bringing in revenue. But there`s plenty of inventory on the ground for consumers and at dealerships. So, we won`t see any impact there for a while. They`ve got — GM has like a 77-day supply of most vehicles so they`re good for now.
GRIFFETH: Michelle Krebs with Cox Automotive. Again, thanks for joining us.
KREBS: Thank you.
HERERA: It is time to take a look at some of today`s upgrades and downgrades.
Uber and Lyft were both upgraded to buy from hold at HSBC. The analyst cites the stock`s valuation and says regulatory concerns are priced in. The price target on Uber is $44, Lyft, $62. Shares of both Uber and Lyft rose more than 3.5 percent today.
Lowe`s was upgraded to outperform from neutral at Wedbush Securities. The analyst cites the CEO`s ability to transform Lowes into a more productive and profitable company. The price target is $135. The stock fell a fraction to $112.63.
GRIFFETH: JPMorgan (NYSE:JPM) (NYSE:JPM) was downgraded to neutral from buy at Buckingham Research. The analyst, though, cites the stock`s evaluation, even though he still called the bank a great company and best in class. Price target now $122. That stock was down a fraction to $119.16 today.
And Dick`s Sporting Goods (NYSE:DKS) was downgraded to market perform from outperform at Wells Fargo (NYSE:WFC) (NYSE:WFC). The analyst cited the retailer`s margins that remained under pressure. Price target, $39. Shares fell 1 percent today to $38.55.
HERERA: Still ahead, Purdue Pharma filed for bankruptcy but legal battles lie head.
HERERA: A regulator for the United Arab Emirates said he is not optimistic that the Boeing (NYSE:BA) (NYSE:BA) 737 MAX will return to operation this year. The comments come as the new head of the FAA said he plans to test the changes Boeing (NYSE:BA) (NYSE:BA) made in a simulator this week.
(BEGIN VIDEO CLIP)
STEVE DICKSON, FAA ADMINISTRATOR: I`m anxious to get out to Seattle later this week and look into this myself and see where we are with a certification process. As a pilot myself, I can tell you that I will not allow this airplane to fly unless I would fly it myself and put my own family on it and that`s my commitment.
(END VIDEO CLIP)
HERERA: Shares of Boeing (NYSE:BA) (NYSE:BA) fell slightly in trading today.
GRIFFETH: Now to an update on the story that we`ve been following for years. That would be the opioid epidemic. Purdue Pharma which makes OxyContin has filed for bankruptcy. But the story is not over yet.
Meg Tirrell explains.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s the end of a chapter for Purdue Pharma, but just the beginning of a new one in the saga of litigation over the opioid epidemic. Purdue`s bankruptcy filing was part of an arranged process to try to settle the thousands of cases filed against it from cities, counties, states and others, claiming Purdue helped cause the crisis of opioid addiction that`s claimed 400,000 lives over two decades.
The bankruptcy plan which would turn Purdue over to plaintiffs in a deal it values at $10 billion comes with the agreement of 20 states but with the opposition of at least 10 others.
STEVE MILLER, PURDUE PHARMA CHAIRMAN: We have 24 already agreed to this. There are some states that have been vocal in their objection, thinking there may be more money. I don`t know what their objections in — total may be, but I remain hopeful that we will get to a solution that they can all buy into.
TIRRELL: The final resolution for bankruptcy has to be voted on by creditors, according to attorney Joe Rice of Motley Rice. He`s one of the co-lead attorneys for the thousands of plaintiffs in the federal, multi- district litigation that consolidated more than 2,000 cases from cities and counties. They`re supportive of the agreement with Purdue but several states, including New York, effusively oppose it, and they`re now sharpening their focus on the billionaire Sackler family that owns Purdue Pharma.
The New York Attorney General`s Office said Friday it tracked about a billion dollars in wire transfers by the family, including through Swiss bank accounts. New York is among states that have named individual Sacker family members in their lawsuits.
The Sackler family said, quote: There`s nothing newsworthy about these decades old transfers which were perfectly legal and appropriate in every respect.
Meanwhile, the litigation continues for several other defendants, from Johnson & Johnson (NYSE:JNJ) (NYSE:JNJ), to Teva, to drug distributors like McKesson (NYSE:MCK) (NYSE:MCK), AmerisourceBergen (NYSE:ABC) (NYSE:ABC) and Cardinal Health (NYSE:CAH) (NYSE:CAH).
Rice said they`ve filed a motion to sever Purdue from the trial set to begin in late October in Ohio and hopes other companies may step forward to try to resolve the case on a global basis.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
HERERA: A warning from the country`s largest steel maker. That`s where we begin tonight`s “Market Focus”.
Nucor (NYSE:NUE) (NYSE:NUE) said the third quarter profit is well below expectations. The company cited weakness in raw materials at its steel mill businesses. This comes amid lower steel prices. Shares are down a fraction to $53.16.
A Danish pharmaceutical company is buying Alder Pharmaceuticals for nearly $2 billion. Alder makes an experimental migraine treatment that is currently under FDA review. Alder stocks skyrocketed almost 84 percent to $18.50.
GRIFFETH: Winnebago industry is acquiring luxury RV maker Newmar for nearly $345 million using a combination of cash and stock. The deal expands Winnebago`s portfolio brands which includes its own Grand Design motor homes and Chris-Craft boats. The stock rose almost 2-1/2 percent today to $37.66.
Blackstone is buying real estate investment trust Dream Global for more than $4.5 billion. Dream Global owns office space and warehouse properties in more than 100 cities in Europe. Blackstone shares dropped a fraction to $53.52.
And late today, FedEx (NYSE:FDX) (NYSE:FDX) said it`s going to increase shipping rates at its express unit by an average of 4.9 percent for domestic export and import services starting January 6th. Rates at FedEx`s freight unit will increase a bit more. Stock didn`t do much in the after hours session tonight, but it closed the regular session slightly lower at $173.57.
HERERA: The NFL`s most expensive stadium has a new name, but it might not be a household one. Kate Rooney tells us about the major deal struck by a startup.
KATE ROONEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Silicon Valley finance startup SoFi is joining the big leagues. The company signed a 20-year deal to have its name on the new home of the Los Angeles Rams and the Chargers.
Having launched in 2011 with millennial student loan refinancing, the company is already well-known in the financial technology space.
But CEO Anthony Noto, a former NFL executive, hopes the deal will pay off by turning the lending company into a household name.
ANTHONY NOTO, SOFI CEO: I think, first and foremost, is why we`re doing it strategically and that`s both on location, live experience that can bring our brand to life, but also this national telecast that will drive our needed brand awareness.
ROONEY: The 3 million-square-foot arena is set to open next summer as part of L.A. real estate mogul Stan Kroenke`s entertainment complex.
And even with a massive price tag, a reported $600 million, Noto says there are plenty other suitors who wanted the exclusive naming rights.
NOTO: Anything that the NFL is doing is something many other companies would love to do. And, you know, one of the things I learned having had a front row seat is it`s not always about the dollars that someone is willing to pay, but it`s about the spirit of partnership.
ROONEY: It costs companies hundreds of millions of dollars to put their name on an NFL stadium and it`s typically reserved for established names like JPMorgan (NYSE:JPM) (NYSE:JPM) or Bank of America (NYSE:BAC) (NYSE:BAC). SoFi is the outlier here. It`s the only venture capital- backed startup with their name on an NFL stadium.
NOTO: Not only is it important strategically. It`s not big relative to our overall spend, and most critically, we have plenty of capital to do this.
ROONEY: The new SoFi Stadium is the most expensive NFL stadium in history, costing an estimated $5 billion to build. And executives say it`s having a huge impact on L.A.`s economy.
KEVIN DEMOFF, LOS ANGELES RAMS COO: This is going to become one of the economic hubs of Englewood. We hope it will double the tax base of the city. So, I think you can see tremendous improvements coming for a neighborhood well on its way back to recovery.
ROONEY: It won`t just be football games pumping money into the local economy. SoFi Stadium has already booked some other high profile events, with the Super Bowl in 2022, the college football championship the following year and a 2028 Olympics.
For NIGHTLY BUSINESS REPORT, I`m Kate Rooney, Englewood, California.
GRIFFETH: And coming up, from expensive stadiums to pricey apartments.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: What`s it like to live on the 131st floor above Manhattan? And how much would it cost? We`ll take you inside the tallest residential tower in the world. Sky high prices and views coming up on NIGHTLY BUSINESS REPORT.
(END VIDEO CLIP)
HERERA: Here`s a look at what to watch tomorrow.
FedEx (NYSE:FDX) (NYSE:FDX) reports its earnings. Its results are considered a bellwether for the global economy.
As we mentioned, Federal Reserve policymakers begin their two-day meeting with a decision on interest rates due Tuesday.
We`ll see if the drop in mortgage rates improve sentiment among the home builders.
And that is what to watch for on Tuesday.
GRIFFETH: And finally tonight, a skyscraper building boom has been reshaping the Manhattan skyline and the newest residential tower which opens tomorrow will also be the city`s tallest building. But its sky high views face some sky high challenges.
Robert Frank, as you saw, is in Manhattan for us tonight.
FRANK: Tomorrow morning, this will officially become the tallest residential tower in the world and also one of the most expensive with $4 billion worth of condos to sell in a real estate market that is struggling with an oversupply, lack of foreign buyers and new tax changes that have hurt high tax states like New York.
Central Park Tower will be 1,550 feet tall or 131 floors. There will be 179 apartments in total, ranging in price from $6.9 million to over $63 million for a five-bedroom.
The first apartments won`t close until the building is finished probably in late 2020. Extell, the developer, also built One 57, the building just down the street, which launched the super tower craze here on 57th Street, now known as Billionaire`s Row, and they`ve all transformed the Manhattan skyline. There is a forest of giant glass condos in midtown and prices are falling. About one in four new condos built in Manhattan since 2013 remain unsold today.
By some estimates, there will be a nine-year supply of new condos at the end of this year, but Central Park`s tower owner is confident this building will sell, mainly because of the extraordinary views and floor plans.
GARY BARNETT, EXTELL FOUNDER & PRESIDENT: Overall, we`re cautiously optimistic that we`re going to continue to sell and, you know, sell enough and get through the downturn. It`s not really demand. You know, very often the cycle is, you know, demand slows down, the economy slows down and going through a recession, and so you get hit with slowdown in demand, and that`s hard to fight.
Here, we`re — here, we`re really — economy is booming. New York City is booming. The demand basically is a lot of people can afford to buy. But there`s an oversupply.
FRANK: Now, Nordstrom (NYSE:JWN) (NYSE:JWN) is building a store on the first seven floors of the building totaling 360,000 square feet with six restaurants. The building will also have a private club for owners with a swimming pool, fitness and spa and restaurant.
FRANK: Now to get up all these floors, the building developed a special high speed elevator that goes 2,000 feet per minute.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank in Manhattan.
HERERA: Or above Manhattan.
HERERA: Before we go, here`s a look at the day on Wall Street. The Dow fell 142 points to 27,076. The Nasdaq was down 23. The S&P slid 9.
That is NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you tomorrow.
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