ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Trade talks loom. And investors aren`t sure what to expect. Just days before higher tariffs go into effect.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Baseball backlash. A single tweet has thrown the NBA into a geopolitical crisis with China threatening billions of dollars in a critical market.
HERERA: Slowing down. Why experts say autonomous vehicles are not yet ready for primetime even as car companies increase their investments in that technology.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, October 7th.
GRIFFETH: And we do bid you a good evening, everybody. Welcome.
Stocks started this week searching for direction. The latest round of trade talks between the U.S. and China are going to be hanging over this market all week just days before higher tariffs are scheduled to take effect. Investors are trying to gauge what if anything are going to come out of these talks and so far, they`re getting some mixed messages.
And that caused the push and pull that we saw today ending with the Dow down 95 points to 26,478. The Nasdaq was down 26. The S&P slid by 13.
Kayla Tausche starts us off tonight from Washington.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Round 13 of U.S.- China trade talks kicked off in Washington today, lower level officials meeting to figure out a menu of items for cabinet-level negotiators and potentially President Trump to take up later this week.
With tariffs escalating in days, a potential meeting between Trump and President Xi in weeks and critical election primaries in months. Here`s President Trump today.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I think that we`ll just have to see what happens. I would much prefer a big deal and I think that`s what we`re shooting for. Can something happen? I guess, maybe. Who knows? But I think it`s probably unlikely.
TAUSCHE: White House advisors are hedging their bets.
Economic adviser Larry Kudlow, open minded.
LARRY KUDLOW, NEC DIRECTOR: We are waiting for the Chinese offer. We are open — open to almost anything right now.
TAUSCHE: White House trade adviser Peter Navarro told NPR today any deal will have to be comprehensive, with new laws to combat technology theft, something Chinese officials are signaling they`re unwilling to offer.
People close to the talks note that`s been a deal breaker for the White House in the past. But U.S. officials want to avoid anymore self-inflicted economic wounds.
Economist Mary Lovely says the U.S. will have a hard time completely rolling back tariffs now.
MARY LOVELY, SYRACUSE UNIVERSITY ECONOMICS PROFESSOR: The president is going to get much less out of this than was advertised originally, and so, he`s going to have to say that he`s going to keep some powder dry in case commitments are not made or in case we don`t move forward.
TAUSCHE: The next round of tariffs will hit consumer electronics like iPhones and laptops. Engines of U.S. innovation, perhaps giving an advantage to foreign competitors like Samsung who don`t assemble products in China and driving up prices for those that are.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
HERERA: So what is the market hoping to hear from the trade meetings at the end of the week?
We`re joined by David Lebovitz. He`s the global market strategist at
JPMorgan (NYSE:JPM) Asset Management.
David, welcome back. Nice to see you again.
DAVID LEBOVITZ, GLOBAL MARKET STRATEGIST, JPMORGAN ASSET MANAGEMENT: Thanks for having me.
HERERA: What does the market anticipate or want to hear at this juncture?
LEBOVITZ: So I think that the market is operating under an assumption that, eventually, at some point, we do get some sort of deal. I think in terms what the markets wants to see with respect to this week and the next couple of months is the tariffs that are on the cusp of going into effect, seeing that can get kicked, seeing no escalation in trade tensions beyond where things currently stand, I don`t think the market is expecting this to go away but I think kind of maintaining that two steps forward, one step back type of narrative that we`ve seen in play for the past almost 18 months is kind of what the market is currently pricing in.
GRIFFETH: There was a survey released today, David, of the economists that make up the National Association of Business Economics. And, you know, a majority of them said they feel like the U.S. could dip into recession next year largely because of the tariff situation, the trade war.
So, our question is, what would keep us out of recession? Prioritize some of the issues that they are going to be negotiating this week. I mean, is it something to do with the consumer?
Manufacturing is already in recession at this point. Is there something they could do to pull that out at this point? What do you think?
LEBOVITZ: I think manufacturing is in a bit of a tough spot, and what happens with manufacturing activity, not just in the U.S. but around the world going forward, is going to be beholden to how trade talks develop.
In terms of our view on where the U.S. economy is headed, it really all comes down to the consumer. Manufacturing goes through many cycles every 18 to 24 months. We`ve seen a couple of them through the course of this expansion. The consumer has been able to offset that weakness. During prior episodes, the consumer is actively offsetting that weakness during the current episode.
But the question you need to ask yourself is, you know, we look at last week`s job report. We see the pace of job growth slowing down. The consumer isn`t headed off of a cliff but consumption is obviously a function of what goes on in the labor market and you`re seeing companies begin to pull back a little bit. So that`s something that we need
consumer isn`t headed off of consumer isn`t headed off of a cliff but consumption is obviously a function of what goes on in the labor market and you`re seeing companies begin to pull back a little bit. So that`s something that we need to keep an eye on as we gauge the longevity of this expansion.
HERERA: And very quickly, if these new tariffs go in, they are going to hit a lot of consumer electronic products.
HERERA: Which could, I would assume, have a dampening effect.
LEBOVITZ: Absolutely. And I think that`s why this final round of tariffs is so scary. You know, up until this point, people don`t buy washing machines every year for the most part, but they do buy phones every year. And so, we need to think about, you know, what is in this set? And it`s definitely more relevant to the way the consumer spends their money.
HERERA: David, thank you so much, as always.
LEBOVITZ: Thanks for having me.
HERERA: David Lebovitz with JPMorgan (NYSE:JPM) Asset Management.
GRIFFETH: And as we`ve been reporting for months now, farmers here in the U.S. have been hit with a one-two punch, the trade wars and bad weather.
And now, that in turn is hitting demand for farm equipment. We sent Frank Holland to East Moline, Illinois, to see how that industry is fairing right now.
FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: Farming is cyclical — a time to plant, a time to harvest and a time to buy new equipment.
PHIL FUHR, FUHR FAMILY FARMS OWNER: I`m being very conservative about large equipment purchases.
HOLLAND: Bill Fuhr is a sixth generation farmer.
FUHR: Planted fairly early May, so there`s seed beans in those pods.
HOLLAND: He`s one of many farmers in the Quad Cities area of Illinois and Iowa who say they`ve been directly impacted this season by floods and rain in the Midwest, as well as the ongoing trade war reducing demand for soy beans.
FUHR: The farmer in the U.S. is obviously in a worse position than they were a few years back to be buying combines and tractors. I`m trying to take a wait and see attitude, maintain the old equipment and then if times improve we`ll roll into some newer tractors or combines.
BILL ONKEN, ONKEN FARMS OWNER: We`ve backed off of any capital purchases of anything very high dollar involved. We`re going to postpone anything in the future for probably a full year, possibly two years out and just maintain the line that we now have. The income just isn`t there to justify a new high dollar purchase.
HOLLAND: Major manufacturers seeing the uncertainty of farmers hitting their bottom line. Farming equipment shipments are down 18 percent year to date from a peak in 2014.
John Deere will layoff 160 workers later this month and in November after reporting a 6 percent decline in sales for its agriculture division last quarter.
AGCO (NYSE:AGCO) reporting sales of tractors down 2 percent. Combines down 3 percent in the first half of the year.
John Deere is the region`s largest employer and people who live here say they have a mixed outlook on downturns and layoffs.
UNIDENTIFIED FEMALE: I believe the farming industry moves in cycles. I see that, you know, we have layoffs and shutdowns for a while but it seems like they always call people back.
UNIDENTIFIED MALE: It hurts everybody. I mean, it`s just like a downfall, you know? I mean, machinery costs go up, people lose their jobs and it`s really bad.
HOLLAND: With trade talks resuming on Thursday, farmers say they`re hoping for a new deal that will give them the confidence to buy new equipment.
Here in East Moline, Illinois, Frank Holland, NIGHTLY BUSINESS REPORT.
GRIFFETH: Meanwhile, Americans slowed their pace of borrowing slightly in August. According to the Federal Reserve, credit card debt actually fell but auto and student loans saw their biggest jump in three years. Economists, of course, are watching the consumer for any signs that households may be pulling back on their spending. As you know, the consumer has been the one bright spot for the economy so far this year.
HERERA: And the health of the consumer is key to the housing market. But a funny thing is happening. A new survey shows consumer confidence in housing is weakening just as homes are becoming more affordable.
Diana Olick explains the disconnect.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lower mortgage rates are making home buying more affordable, but concerns about personal financing are eating into overall confidence in housing. Consumer sentiment in housing fell in September from its August high, according to a monthly survey from Fannie Mae.
Why? Well, because more Americans said they are concerned about losing their jobs. That was the second straight month that component of this survey rose. This as mortgage rates now sit at the lowest level in over a month and are significantly lower than they were a year ago.
The average rate on the 30-year fixed mortgage is around 3.64 percent. That means that about 21 percent of the national median income is required to make the monthly principle and interest payments on the average price home. This is the second best affordability rate in nearly two years. It also adds about $46,000 in purchasing power. That`s boosting home sales and mortgage refinances as current homeowners take advantage of potential savings.
JAY FARNER, QUICKEN LOANS CEO: I`d say most of the folks out there today should think about getting a refinance because these rates are now at historic lows. And, in fact, we`re actually seeing the purchase market pick up. September was a very, very strong month for us from a purchase perspective. I think interest rates help that as well.
OLICK: So far, lower rates seem to be outweighing weaker confidence fueling the fall housing markets and strengthening home values. But if home prices overheat again and rates turn higher, the scale could easily tip in the other direction.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: Time to take a look at some of today`s “Upgrades and Downgrades”.
We begin with shares of Uber. They were upgraded to buy from neutral at Citi with the analyst saying the third quarter results may help investor sentiment. Those results will be released next month. Price target, $45. The stock rose 2 percent today to 30.37.
ETrade was upgraded to buy from neutral at UBS. The analyst says ETrade has the most value of any of the online brokerages. Price target, $41. That stock gained 2 percent to $37.22.
HERERA: Wendy`s was downgraded to market perform from outperform at Cowen. The analyst says the company`s push into breakfast could be costly. The price target is $20. The stock finished just about at that level at $20.11.
Carnival (NYSE:CCL) Cruise Line was downgraded from hold to buy at HSBC. The analyst cites the potential for weaker bookings in 2020. The price target, $43. The stock fell a fraction to $40.91.
GRIFFETH: Still ahead, a foul has been called on the NBA in China and now the league is in crisis mode.
HERERA: General Electric (NYSE:GE) is freezing its pension plan for 20,000 employees. The decision is designed to reduce GE`s pension deficit and shore up its balance sheet. About 100,000 former GE employees who haven`t started receiving pension benefits will be offered a limited time lump sum payment. No changes will be made for retired employees. The stock was down a fraction in today`s trading session.
GRIFFETH: General Motors (NYSE:GM) is temporarily laying off another 415 workers, this time in Mexico, due to the strike here in the U.S. Company had to halt production at a V8 engine and transmission plant in Mexico because of a shortage of parts. Today`s layoffs are in addition to the 6,000 temporary layoffs announced last week.
Meantime, over the weekend, United Auto Workers officials said the talks with the company had taken a turn for the worse. The strike is now in its fourth week.
HERERA: Many agree that the consumer is in good shape and that bodes well for restaurant stocks which begin reporting earnings in the coming days. But the consumer isn`t the only thing driving business in that industry. Kate Rogers (NYSE:ROG) takes a look at the sector and what to watch when earnings are released.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Is it time for investors to dine on restaurant stocks? The next few weeks could hold the answer. It used to be that the strength of the consumer would make or break the quarter, but not anymore. The industry has gone through a big transformation. That includes the growth of delivery services.
In fact, Americans spent some $10 billion on third party delivery last year alone. Mention these companies by major restaurant players have been on the rise in recent years. It`s been a big boost for brands like Chipotle and McDonald`s as they expand their reach. Meanwhile, Domino`s has admitted it`s being pressured by increased competition from these companies.
BOB DERRINGTON, TELSEY ADVISORY GROUP: If you look at the trends over the last roughly 12 to 18 months or so, off premise sales have been the biggest driver of any sales growth for the industry and a principle part of that is delivery. You know, Domino`s certainly has felt the surge in third party delivery providers.
ROGERS: Then there`s the restaurant itself. Upgrades and new technology, things like kiosks and mobile order and pay are attracting new customers. Both Starbucks (NASDAQ:SBUX) and Chipotle have continued to emphasize new offerings and have seen loyalty programs increase as a result.
DERRINGTON: And if you look at where the real success has been in sales growth related to technology, certainly McDonald`s (NYSE:MCD) is one of the largest. Chipotle has been very, very successful. Starbucks (NASDAQ:SBUX) has been very successful.
All of those companies are, I think, you know, great examples within the industry where economies of size and scale and the ability to invest in the business is really making a difference in their sales trends versus a lot of the smaller operators.
ROGERS: And finally, analysts will be looking out to hear how value is playing among consumers as recession chatter continues and how new menu items like plant-based meat at places like Burger King and Dunkin` are performing.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).
GRIFFETH: Harley-Davidson`s e-bike may be stuck in neutral and that`s where we begin tonight`s “Market Focus”.
“Reuters” says that the motorcycle company is seeing weak demand for its new line of electric bikes that are called LiveWire due to a nearly $30,000 price tag and a lack of interest from younger and more environmentally friendly riders. Harley shares fell about 3.5 percent on that news to $34.11.
Livongo Health has won a government contract allowing that company`s diabetes management program to now be offered to federal employees who either have type one or type two diabetes. Livongo says it will increase revenue up to $60 million and bring up to 45,000 new customers over the next few years. And shares jumped big time today, up 18 percent to $20.50.
HERERA: ConocoPhillips (NYSE:COP) is hiking its dividend nearly 40 percent to 42 cents per share. The energy company also announced a $3 billion share buyback program for next year. Conoco rose about 2 percent to $54.60.
Dick`s Sporting Goods (NYSE:DKS) is looking to hire up to 8,000 seasonal workers for the upcoming holiday season. Next week, the retailer will be hosting its second annual national signing day in an effort to help fill those seasonal positions. Dick`s hired 5,000 employees at that job event last year. Shares were basically off more than 2 percent today to finish at $37.94.
The NBA finds itself in the middle of a political crisis. One of the teams most popular with fans in China now finds itself in hot water all because of one tweet.
And as Eric Chemi reports, there are billions of dollars at stake for the league which has spent years growing a massive audience in that country.
ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Houston Rockets general manager Daryl Morey tweeting on Friday night an image saying fight for freedom, stand with Hong Kong.
That led to an immense backlash from the Chinese government and some of the NBA`s major Chinese partners. The NBA issuing its own press release, calling Morey`s tweet regrettable while Rockets owner Tilman Fertitta distanced himself from Morey`s message, saying the Rockets are not a political organization, nor does Morey speak for the team.
The fallout has put the relationship with China on thin ice, a relationship that the league has been carefully nurturing for decades. Today, Forbes says the NBA`s China division is worth more than $4 billion or $133 million per team.
While the league has allowed players and coaches to be vocal on domestic political issues, it has taken a different issue with China. The league has boasted about the 300 million basketball players in China and the 500 million people who tuned into an NBA game last year. Over 20 million people watched game 6 of the NBA Finals.
The league`s media deal with China`s Tencent is worth over $1.5 billion. Tencent has already said it would not show Rockets games. That comes as a slew of other Chinese sponsors have cut ties with the Rockets.
That is a twist because the Rockets are perhaps the most popular NBA team in China due to Yao Ming who played his entire NBA career for the rockets. Yao is now the chairman of the Chinese Basketball Association, which has cut ties with the Rockets as well.
The Los Angeles Lakers and Brooklyn Nets will play in China this week as part of the league`s preseason global tour. Nets owner Joe Tsai is a co- founder of Alibaba and issued a lengthy statement against Morey, connecting it to a history of foreign interference in China and the threats to its territorial integrity and sovereignty.
At stake is a business that has been notching double digit growth in China since 2008 and internet viewership on Tencent has tripled in just four years.
For NIGHTLY BUSINESS REPORT, I`m Eric Chemi.
GRIFFETH: So with billions of dollars at stake for the NBA in China, the league clearly is in damage control right now.
Joining us tonight with some thoughts on that, Dean Crutchfield is back with us. He`s CEO of the crisis management firm, Crutchfield and Partners.
Dean, good to see you. Welcome back.
DEAN CRUTCHFIELD, CRUTCHFIELD + PARTNERS COE: Good to see you. Thank you very much.
GRIFFETH: Commissioner Adam Silver is going to be in China as part of those exhibition games. He`s going to hold a news conference. What do you think he should say?
CRUTCHFIELD: Well, I think he`s got to be very direct about his message. You know, he`s got to be, yes, apologetic to China for the upset it`s caused them. But I think he also has to defend American principles. We have to show leadership. That`s what makes America great.
We can`t kowtow to China, but there`s billions of dollars as we know at stake here, so it`s a very sensitive issue. You know, he`s basically going to be skipping through the rain drops figuring out how to manage it very delicately. But what he does need to do is respond boldly.
Now, what can that mean? It can mean different things. Most importantly it has to be done in bold steps forward and done with the view that America is good.
HERERA: But it is a fine line, is it not, because the league is getting criticism from players and from politicians about kowtowing to China.
HERERA: So, how does he walk that fine line? How does the league and the players, how do they walk that line?
CRUTCHFIELD: Well, I mean, what you need to do is look at what`s the best message to put forward?
Now, marketing is a great way of unifying people and what`s needed in this crisis right now is going to be a lot of marketing coming out over the next days and weeks because that can unify. You know, brands basically are meant to bring people together. Sport has many unifying points of view. And this is about a sport.
So, they can use the sport as a platform, as a mantle to communicate a message of how to unite people`s points of view around celebrating sport. So, basically what he needs to do is defend the position they took. He needs to deny that there was anything about sovereignty or any imposition towards China and he needs to deflect the responsibility of the situation to Daryl Morey who made the statement and did the tweet. That`s what they need to do.
So defend what they said, delay the ultimate response, deflect the responsibility to Morey and basically defend their position. Absolutely critical.
GRIFFETH: Along those lines, should rockets owner Tilman Fertitta fire the general manager who tweeted this?
CRUTCHFIELD: Well, I think, look, if this is another business he would be fired for this. This is a breach of conduct. This is a situation where you`ve made a statement you should have known shouldn`t have been sent. You didn`t seek permission. In a corporation, this is a fireable offense.
I think the ultimate thing they need to do is they have to get rid of Morey to show that they mean business.
GRIFFETH: It`s going to be interesting to see what Adam Silver does, in fact, say this week.
Dean Crutchfield with Crutchfield and Partners, again, thanks for joining us tonight, Dean.
CRUTCHFIELD: OK, thank you.
HERERA: Coming up, want to let your car do the driving? Experts say, not so fast.
GRIFFETH: About 1/4 of health care spending here in the U.S. can be classified as wasteful. That`s according to a new study from Humana (NYSE:HUM) published in the Journal of the American Medical Association.
Complex administrative structure accounted for most of the waste followed by things like failure of care delivery, failure of care coordination and overtreatment. The study estimates that roughly half of all wasteful health care spending could be avoided.
HERERA: While Elon Musk and others are promising the arrival of self- driving cars within the next couple of years, there`s a growing number of executives in the auto and tech industries who are pumping the brakes on those expectations. They say it will likely be many years before you see driverless cars zipping around your city.
Phil LeBeau has more.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: From autonomous minivans in Arizona to self-driving cars on the streets of San Francisco, the auto and tech industries are getting close to putting driverless cars out on the road in large numbers, but experts say slow down.
DR. MARK ROSEKIND, ZOOX: They`re not ready for primetime yet. There`s a lot of development that has to take place.
LEBEAU: Dr. Mark Rosekind and the team at Zoox are developing an autonomous vehicle. But at a safety summit in California focused on self- driving vehicles, he and others admit the technology still has a ways to go.
CHRIS URMSON, AURORA CEO: We`re still very much at the learn, put it out there, understand how people are going to use the technology and then build a business around that.
LEBEAU: Urmson`s company, Aurora, which develops autonomous vehicle technology says the potential benefits for freight companies, meal or package delivery firms, even ride share operators is enormous but still unproven.
That`s not stopping Tesla CEO Elon Musk from pushing his company`s auto pilot technology as the next step of letting the car do the driving, but fender benders and close calls with driverless Teslas have some wondering if the public is ready to accept this move.
ROSEKIND: The public`s going to have to trust these. If we don`t have new safety metrics, transparency and experience with people, we`re just not going to see the widespread adoption that`s going to make this truly transformative.
LEBEAU: Which brings us back to Chris Urmson. In 2015, as a leader of Google`s self-driving car project, he talked about the future of autonomous cars.
URMSON: Our team`s goal is that my 12-year-old son won`t have to get his driver`s license because he can get places in cars like this.
LEBEAU: Four years later, Urmson says this —
URMSON: He turned 16 about two weeks ago. And so he can get his driver`s license. He hasn`t yet gone to go get it. So we are — you know, I think when we looked forward from five years ago about this technology, I think perhaps we`re a little bit more optimistic about how quickly we cover the ground.
LEBEAU: The bottom line, the technology driving autonomous vehicles is coming along quickly, but most in the industry are now more realistic about predicting when we will see large numbers of self-driving vehicles out on the road. In fact, many believe that won`t happen until well into the next decade.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
GRIFFETH: And finally tonight, the “Joker” had the last laugh over the weekend. The controversial motion picture had the biggest October opening of all time, raking in $96 million at the domestic box office. That figure beats the previous record held by the Spider-Man spinoff “Venom.” And for the Warner Brothers studios, it was its biggest debut in two years.
HERERA: Before we go, here`s a look at the day`s final numbers on Wall Street. The Dow fell 95 points, Nasdaq was down 26, S&P 500 slid 13.
That is NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.
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