ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Another round. China reportedly wants more trade talks before agreeing to phase one of the deal, and investors aren`t sure what to think.
Boeing (NYSE:BA) shakeup. The CEO is stripped of his chairman`s role as Boeing (NYSE:BA) moves more aggressively to resolve the major challenges facing the company.
New capitalism. The Salesforce CEO is the latest business leader to say the system needs a reboot.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Monday, October 14th.
Good evening, everyone, and welcome. Bill is off this evening.
The optimism of Friday did not carry over into the new week. Stocks drifted between small gains and small losses as investors tried to figure out just how much progress was actually made on trade. Treasury Secretary Steve Mnuchin maintained today that a fundamental agreement between the two countries has been reached.
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STEVE MNUCHIN, TREASURY SECRETARY: It is subject to documentation and there`s a lot of work to be done on that front, but it includes intellectual property rights, it includes financial services, it includes currency and foreign exchange and it also includes very significant structural issues in agriculture.
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HERERA: But some investors felt details were scant and China is describing the agreement in a different way.
Eunice Yoon starts us off tonight in Beijing.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: A Chinese state media blog attempted to explain why the Chinese have been describing the outcome of the trade talks as substantial progress as opposed to President Trump`s term, deal. Taoran Notes, which is closely watched by trade experts, says that the reason is even though the Chinese shares the same spirit as the Trump administration on the talks, that they`re cautious about their words because of previous, quote, flip-flops.
That has been the message from the Chinese side that from Beijing`s perspective, a firm agreement is not yet in place. State media here has made little mention of Beijing`s pledge to buy up to $50 billion of U.S. agricultural products except for Taoran which said buying farm goods is China`s unique bargaining chips and should be complimentary to the country`s needs.
I spoke to a former trade official who follows that talks closely and he said similar to a Bloomberg report that in his opinion, the Chinese side would ask that the U.S. scrap a December tariff hike to make the phase one agreement more balanced. He also said any text that would be presented to President Xi Jinping for the APEC Summit which now appears to be the target for finalizing phase one, would have to be completely locked down. The Chinese have been nervous throughout this process that President Trump could say or do something that could potentially embarrass President Xi.
So that means that the clock is ticking for the trade negotiators and from what Treasury Secretary Steven Mnuchin says, there`s a lot of work to do by mid November.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
HERERA: That caution surrounding the partial trade deal put pressure on oil prices. The energy market is also watching developments in the Middle East after the U.S. said Friday it was deploying more troops in Saudi Arabia. Domestic crude settled about 2 percent lower.
And one of the companies that has the most to win or lose in the U.S.-China trade war is Caterpillar (NYSE:CAT), in part because of the amount of business it does in that country. That`s why it`s followed so closely by investors and why its outlook is becoming more difficult to predict.
Seema Mody has more.
SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: A growing number of analysts see Caterpillar (NYSE:CAT) as a trade proxy for the market, given its global footprint tied to China`s growth story as well as its reach into the U.S. market.
BORIS SCHLOSSBERG, BK ASSET MANAGEMENT: Caterpillar (NYSE:CAT) is probably the single most levered name to the U.S.-China trade relations you could find from both ends, simply because it obviously has to get a benefit from the farmer`s side, in the U.S. side, and just generally from the Chinese demand that they sell into quite a lot over there.
MODY: The back and forth on trade has created a volatile year for the stocks. Shares have trailed its peers and the broader market due in part to the bruising trade war. Tariffs have increased manufacturing costs and disrupted trade. China`s slowing economy has hurt profits. Caterpillar (NYSE:CAT) also generates a significant amount of its revenue overseas, making it highly exposed to the slowdown in the global economy.
SCHLOSSBERG: The two most vulnerable groups, the farmers and Chinese demand for U.S. multinational corporations are really the crux of Caterpillar`s business. So on the positive side, it really gets a tremendous amount of benefit if there`s any kind of problems, it`s the first one to be hit. That`s why it`s so incredibly sensitive to both sides of the issue.
MODY: Some say any sign of de-escalation on the trade front will improve visibility around Caterpillar`s future earnings and signs of progress between U.S. and China will lift confidence among companies making capital investments. But other market experts are less optimistic. Others say a partial trade deal helps improve sentiment but delaying new tariffs only stops things from getting worse rather than making things materially better.
Industrial analysts also point to the latest headlines that suggest the Chinese are more cautious about the trade agreement made in Washington last week, which keeps the outlook for Caterpillar (NYSE:CAT) cloudy.
Later this week, China will publish the latest figures on growth which will be watched closely by multinationals like Caterpillar (NYSE:CAT) that in the past had seen the country as a source of growth. Analysts caution if China`s economic story worsens, that could weigh on shares of Caterpillar (NYSE:CAT), even if progress is made on trade.
For NIGHTLY BUSINESS REPORT, Seema Mody.
HERERA: And the trade data out of China was weaker than expected. According to “Reuters”, China`s exports fell more than 3 percent in September from a year ago while imports dropped more than 8 percent. Economists pinpoint the decline on the ongoing trade war with the U.S.
The World Trade Organization has formally backed U.S. tariffs on European Union goods. The Trump administration no longer faces any legal obstacles for previously scheduled sanctions that could take effect on Friday. Unless a deal is negotiated between Washington and Brussels, the tariffs will hit everything from scotch whisky to French wine to Italian cheese.
And President Trump is raising tariffs on steel imports from Turkey back to 50 percent. He is also ordering sanctions against officials in response to Turkey`s incursion into Syria, which the White House says threatens stability in that region.
As we mentioned, stocks made small moves as new trade concerns emerged. Trading volume was also thin with many banks and fixed income desks shut in observance of Columbus Day. The Dow Jones industrial fell to 26,787, the Nasdaq down 8 and the S&P 500 was off 4.
Attention now turns to earnings which kick off in earnest this week and we could hear details on how the trade war`s impacting corporate America.
We`re joined by David Dietze, president and chief investment strategist — strategist I should say — at Point View Wealth Management.
Welcome, David. Nice to have you here.
DAVID DIETZE, POINT VIEW WEALTH MANAGEMENT: Thank you, Sue.
HERERA: What kind of season are you expecting overall?
DIETZE: Well, the headline number is quite negative. We`re going to be down 4.6 percent. But once you start digging into the details, it`s not quite that bad. So, for example, earnings per share, because of massive stock buybacks will leave earnings down only 2 percent.
If you look at the average stock as opposed to the market cap measurement, we`re actually going to be up 6 percent. The other thing to watch for, Sue, is revenues. Revenues are actually going to be up 3 percent market cap weighted up as much as 4 percent on the average stock.
HERERA: What about the trade war that`s going on between the U.S. and China? This I believe is really going to be the first earnings season in earnest where we may get a chance to really see how trade and tariffs are affecting stocks.
DIETZE: You`re absolutely right. The wheels came off the bus in terms of trade negotiations in May. That was halfway through Q2. So, Q3 is the first one where we have the full negative winds of the trade tension.
So I think the more overseas-oriented a company is, the more goods are going to be impacted. And that`s certainly in sync with what earnings analysts are forecasting. So, for example, information tech companies are going to be 10 percent and energy and materials companies which are also very sensitive to the global economy will also be down much more than the overall market.
HERERA: How important are the financials, are the banks? They`re the first to report. We`re going to get some this week. What do you think?
DIETZE: Well, the financials are very important. First, they can set the tone because they go first as you just mentioned, but because the banking system is touched by about every actor in the economy, whether as a borrower or as a lender or both, they have a good sense of the economy.
I would caution that a little bit insofar as they`re domestically-oriented. I don`t think they`re going to be the best barometer overseas and therefore, what the multinationals are doing.
Plus, of course, they`re very interest sensitive. And we`ve seen a decline in the net interest margins. So, they`re impacted by that in a way that other parts of the economy really aren`t.
HERERA: What sector do you think will fare the best?
DIETZE: Well, certainly, the interest rates interest sensitive sectors are going to benefit from the tailwind of much lower interests this year. That will be particularly utilities. That will be particularly REITs.
Health care companies which also aren`t too exposed to the global economy also going to do better than the average company.
HERERA: All right. David Dietze, nice to have you with us, David.
DIETZE: Thank you.
HERERA: Appreciate it very much.
And David is the president and chief investment strategist at Point View Wealth Management.
Well, months after regulators around the world grounded the 737 MAX due to safety concerns, Boeing`s CEO has been stripped of his role as chairman of the company. It is the latest indication that Boeing`s board is getting more aggressive in resolving a crisis that is weighing on Boeing (NYSE:BA) and its share price.
Phil LeBeau has more on the changes in the C-suite.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Boeing`s executive shakeup means CEO Dennis Muilenburg will no longer be chairman of the aerospace giant.
That job is now held by David Calhoun, who after a decade on the Boeing (NYSE:BA) board, becomes non-executive chairman of the company.
JEFFREY SONNENFELD, YALE SCHOOL OF MANAGEMENT: In this case, a non- executive chairman is very little difference than a presiding or lead director, the role he previously had. They`re going to define it in a way I think which gives him a little bit more authority.
LEBEAU: Calhoun has vast experience with major industrial companies, including GE, where he ran the aircraft engine division and Caterpillar (NYSE:CAT), where he sits on the board and once served as chairman.
After being selected as chairman at Boeing (NYSE:BA), Calhoun said the board has full confidence in Dennis as CEO, and believes this division of labor will enable maximum focus on running the business with the board playing an active oversight role.
Back in April, at Boeing`s annual meeting, more than 1/3 of the shareholders voted to split the chairman and CEO jobs. After that meeting, Muilenburg dismissed questions about possibly resigning.
REPORTER: In the light of the crisis facing your company and in the interest of re-earning the trust of the flying public, have you considered resigning?
DENNIS MUILENBURG, BOEING CEO: I think the important thing here again is we`re very focused on safety.
LEBEAU: That focus goes well beyond correcting software problems that led to two 737 MAX crashes. It also involves growing questions about the culture at Boeing (NYSE:BA). Last week, an in depth report by a panel of aviation regulators slammed the company for failing to make proper disclosures about key components during the MAX certification.
Now, with hundreds of MAX planes parked around the world, Muilenburg`s top priority is getting the plane cleared to fly again.
Muilenburg is sticking with his guidance that the MAX will be back in service this year, which means Boeing (NYSE:BA) has to clear several hurdles over the next ten weeks in order to convince the FAA and other regulators that the MAX is safe to fly.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
HERERA: In addition, the Southwest pilots union today said it is looking at, quote, probably a February time frame to say the least, end quote, for the return of Boeing`s 737 MAX.
It`s time to take a look at some of today`s “Upgrades and Downgrades”.
Nike (NYSE:NKE) was upgraded to neutral from underperform at Bank of America (NYSE:BAC) Merrill Lynch. The analyst cites the outlook for the sports wear business especially for women and children. The price target is $98. The stock rose 1 percent to $94.88.
Toll Brothers (NYSE:TOL) was downgraded to neutral from positive at Susquehanna. The analyst cites the stock`s valuation following outperformance since the beginning of the year. The price target is $42. The stock fell a fraction to $39.25.
Tapestry, the parent company of coach, was downgraded to neutral from buy at UBS. The analyst cites the rising popularity of used handbags. The price target is $25. The stock fell more than 2.5 percent to $25.25.
And Delta Airlines (NYSE:DAL) was downgraded to equal weight from overweight at Stevens. The analyst cites the outlook for higher costs for the second half of the year. The price target is $57. Despite the downgrade, the stock rose slightly to $52.99.
Still ahead, the Switzerland of streaming. Roku has found a unique role for itself in the hyper competitive industry and it`s paying off.
HERERA: Don`t look now, but Roku shares have been soaring this year and it`s all because of the company`s distinctive position in the fast-growing streaming industry.
Julia Boorstin takes a look at Roku`s rise and its risks.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Roku shares have been a rocket ship, up about 300 percent year to date. What`s driving those gains is expectations that Roku will benefit from the explosion of streaming apps, with Apple (NASDAQ:AAPL) TV Plus and Disney (NYSE:DIS) Plus launching next month, followed by HBO Max and Peacock next year, Roku is expected to gain ad revenue from the new services as they market themselves to consumers and if people subscribe through the Roku platform, it will earn a share of revenue.
MARK MAHANEY, RBC CAPITAL MARKETS: You want to be the Switzerland during the streaming wars. They are — they are Switzerland, then the wars are occurring around them. They should be paid by a lot of these arms dealers.
BOORSTIN: In addition to generating ad revenue from the free ad supported content it offers, and taking a cut of subscription revenue and downloads, Roku also makes money from selling streaming devices which range from $30 to $100. Also from licensing its technology to smart TVs which cost $200 and up.
Roku had more than 30 million active accounts as of its last quarterly report and analysts expect that number to continue to grow as Roku capitalizes on a shift to streaming and as it begins its international expansion launching in Europe next year.
MAHANEY: Roku has been entirely North American, entirely U.S. phenomenon to date. They announced they`re launching into Europe. I don`t see any particular reason why they can`t be successful both as a device vendor, those Roku devices as an operating system vendor and into smart TVs in Europe and in the rest of the world, but also as streaming platforms.
BOORSTIN: In contrast to Roku soaring on the potential for it to benefit from the streaming wars, Netflix (NASDAQ:NFLX) has given up most of its gains from earlier in the year. It`s now up 6 percent year to date, this as investors watch all the coming competition for streaming subscribers and content.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
HERERA: Smile Direct Club sees challenges in California, and that`s where we begin tonight`s “Market Focus”.
California`s governor signed a bill allowing the state`s dental board to extend operations overseeing and regulating dental services until the year 2024. The new law also gives protections for patients who receive direct to consumer orthodontic treatment from technological platforms such as Smile Direct Club. Shares slid nearly 13 percent to $9.70.
ConocoPhillips (NYSE:COP) is selling to operations in Australia for nearly $1.5 billion to its Australian business partner, Santos. The oil and energy company sees this as an opportunity to help shift capital to other projects. Shares fell a fraction to $56.13.
Both Lyft and Uber are suing New York City as the ride-sharing company`s challenge the Big Apple`s new rule limiting drivers from spending time cruising in Manhattan without passengers. Separately, Uber laid off 350 employees across multiple units and marks the third round of cuts in recent months totaling more than 1,000 positions. Lyft shares were up a fraction to $39.80 while Uber shares rose more than 3 percent to $31.12.
After the bell, Reata Pharmaceuticals reported successful trial results for its treatment of a neuromuscular disorder. The news helped shares initially spike 40 percent in afterhours trading after closing the regular session up about 5 percent to $159.
The co-CEO of Salesforce, Marc Benioff, says capitalism as we know it is dead. In a “New York Times (NYSE:NYT)” editorial, Benioff wrote that the current system has led to inequality. This follows recent comments from Facebook (NASDAQ:FB) CEO who said of billionaires that no one deserves to have that much money, and Senator Sanders who said that billionaires should not exist.
So, does capitalism need a reboot?
We are joined by Erik Gordon, professor of the University of Michigan`s Ross School of Business, and Mark Weisbrot, co-director at the Center for Economic Policy Research.
Welcome to both of you.
MARK WEISBROT, CENTER FOR ECONOMIC & POLICY RESEARCH CO-DIRECTOR: Thanks. Thanks for having me.
ERIK GORDON, UNIVERSITY OF MICHIGAN`S ROSS SCHOOL OF BUSINESS PROFESSOR: Hi, Sue.
HERERA: Erik, you think things are pretty much fine the way they are in terms of capitalism. Why?
GORDON: Well, you know, I don`t know if everything is fine, but I don`t think capitalism is dead. I don`t think it needs to be changed into quasi- socialist capitalism because the problems that the other Marc, Marc Benioff, complains about, things like income inequality, no right of privacy, no climate protection — those are big problems in socialist economies. If you look at China, there`s income inequality, giant income inequality, no right of privacy and climate protection. It`s just terrible there.
HERERA: Mark, you agree with what much of Mr. Benioff says. And a number of CEOs, 200 CEOs have signed the same contract that he did talking about basically social justice and income equality, correct?
WEISBROT: Yes. And nobody`s talking about turning the United States into China. We`re having a debate and if you look at Bernie Sanders campaign, for example, he got 43 percent of the vote in 2016 and his ideas are now the main ideas of the Democratic Party — Medicare for all, $15 minimum wage, college free — tuition free college and forgiveness of student loan debt.
All of that happened because people really want this. The people are really ready for serious change and I think that`s what we`re really talking about, getting the things in this country that other high-income countries have. We`re the richest country in the world and we don`t even have health care as a right.
HERERA: Mark — rather, Erik, what is wrong with what Mr. Benioff is arguing when he says, quote, it`s time for a new capitalism, a more fair, equal and sustainable capitalism that works for everyone, where businesses including tech companies don`t just take for society but they also give back? Is there — is there something wrong with that?
GORDON: No, I don`t think there`s anything wrong with that, but I think when Benioff goes beyond that and says capitalism is dead, I think that`s wrong. I think capitalism is a system, just like socialism, is a system that`s been tinkered with over, you know, many, many years. The capitalism we have today is not the capitalism we had at the turn of the 18th to the 19th century.
So I think capitalism needs to evolve and I think it will evolve but I don`t think it`s dead, which is what Benioff claims.
HERERA: Mark, what about that? What about the fact that 200 CEOs did sign off on trying to change capitalism, trying to change society but when you look at the grand scheme of things, there are a lot of others who have not signed off on that?
WEISBROT: Well, I think — I don`t know what the author of the op-ed that we`re talking about really meant by capitalism is dead. He means capitalism as we know it in the U.S. is dead in the sense that people are really unsatisfied.
Look, we`re at the peak of a business cycle that`s the longest running expansion in U.S. history. Unemployment is at a 50-year low and inflation is very low, and yet people are really dissatisfied. And they`re looking for the kind of change that I`ve just talked about.
So, clearly, something is very wrong. You don`t even need the statistics. You can just look, talk to somebody who grew up in the `60s or `70s or even the `50s and a person — a worker with an average wage or salary could buy a house, send their kid to college and the kids didn`t come out with loans that they were going to pay off for the rest of their lives.
So something has changed. We`ve had enormous growth in productivity and growth in the economy since then and yet it all went to the upper end of the income distribution. That`s really a fundamental, deep problem.
HERERA: Erik, you get the closing thoughts.
GORDON: You know, I agree with Mark that that`s a deep problem. I don`t know if it`s caused by capitalism. It could be caused by the government. It could be caused by other social factors. It could be caused by an education system that has left people behind.
It`s a problem. I`m not sure who has caused it or how to solve it.
HERERA: On that note, more to discuss next time around. Erik Gordon with University of Michigan`s Ross School of Business, and Mark Weisbrot at the Center for Economic and Policy Research.
Still ahead, the brewing battle between politicians and social media companies. But, first, a look at how commodities fared because the bond market was closed today.
HERERA: Booking Holdings, formerly Priceline, is the last one to back away from Facebook`s cryptocurrency project called Libra. The decision follows similar moves by eBay (NASDAQ:EBAY), MasterCard (NYSE:MA), Visa (NYSE:V) and Stripe. Libra says it remains focused on moving forward with the project. Treasury Secretary Mnuchin said he told Libra representatives he would take action if the cryptocurrency did not meet regulatory standards.
Elizabeth Warren and Mark Zuckerberg are at it again but this time the Democratic senator and Facebook (NASDAQ:FB) CEO are feuding over fake ads, and they`re not the only ones. Ylan Mui has our story.
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Senator Warren is accusing Facebook (NASDAQ:FB) of allowing politicians to place misleading ads on its platform. And she proved it by running a fake ad herself. It claimed that Zuckerberg endorsed President Trump for reelection. The ad does admit that`s not true, but it argues what Zuckerberg has done is give Trump free rein to lie and then pay Facebook (NASDAQ:FB) gobs of money to push out those lies to American voters.
Facebook (NASDAQ:FB) has been very clear that politicians are held to different standards on its platform and that anything else would be undemocratic.
NICK CLEGG, FACEBOOK GLOBAL AFFAIRS VP: Would it be acceptable to society at large to have a private company in effect become a self-appointed referee for everything that politicians say? I don`t believe it would be. In open democracies, voters rightly believe that as a general rule, they should be able to judge what politicians say themselves.
MUI: And it`s not the only social media company that made exception for speech from politicians. Twitter notifies users when content may violate its standards, but it`s kept up in the public interests.
YouTube applies different standards to content beyond ads that comes from candidates and elected officials.
SUSAN WOJCICKI, YOUTUBE CEO: When you have a political officer that is making information that is really important for the constituents to see or for other global leaders to see, that is content that we would — that we would leave up because we think it`s important for other people to see.
MUI: But the current political climate is testing the limits of that approach. Former Vice President Joe Biden has asked all three platforms to take down what he says is a misleading ad from President Trump`s campaign that goes after his son. All three companies refused but it`s Facebook (NASDAQ:FB) that`s taken most of the heat.
LEE GOODMAN, FORMER FEDERAL ELECTION COMMISSION CHAIRMAN: Facebook (NASDAQ:FB) is condemned whether they do, whether they don`t. And, you know, they don`t want to be the arbiter and they don`t want to take sides in these political debates and their stated policy, I think, is fair.
MUI: Expect this fight to continue as the Democratic presidential candidates and the Trump campaign gear up for tomorrow`s debate.
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.
HERERA: And finally tonight, the Nobel Prize in economics was awarded to a trio of economists for their work in alleviating global poverty. The three tested specific policies to improve educational outcomes and health and other issues associated with the very poor. Two of the winners are from MIT, the other is from Harvard.
And that is NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks for joining us. Have a great evening. See you tomorrow.
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