Transcript: Nightly Business Report – September 16, 2015

NBR-ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Split decision. The brightest minds in business and economic disagree on what the Federal Reserve will do tomorrow making the start of this meeting one of the most uncertain in recent memory.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Something’s brewing. The world’s biggest beer maker wants to get bigger. It won’t have an easy time getting there.

MATHISEN: Missed expectations. Today, we learned the slowing global economy is taking a toll on a well-known flagship American company.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, September 16th.

HERERA: Good evening, everyone.

The great divide like few have seen before. Some of Wall Street’s leading economists, strategists and top money managers are split on whether the Federal Reserve will raise interest rates when it wraps up its two-day meeting tomorrow. And the latest economic data may complicate even further. Consumer prices unexpectedly fell 0.1 percent in August as gasoline prices decline. And that’s the first drop in that index since January. But inflation is something the Federal Reserve wants to see more of, not less, making what happens tomorrow anybody’s guess.

Steve Liesman reports.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Set, down, hike. For the first time in the five-year history of the CNBC survey, a plurality forecasts central bank will raise rates at the current meeting. Despise harrowing market volatility and rising anxiety over global growth, 49 percent see the Feds rising rates this month.

Of 15 economists and money managers that responded, 43 percent say the first hike will come later with 8 percent unsure.

ETHAN HARRIS: We think it will hike, though obviously a very close call. They will try to soften the blow by talking about a very slow exit going forward. Whatever the Fed does, they do not want to create a serious shock in the capital markets.

LIESMAN: Indeed, the estimates for the Fed funds rate are just 37 basis points for the end of the year and a little under 1.2 percent next year. That suggests Wall Street says the Fed hiking very gradually.

But there are concerns: the probability of recession rose to 19 percent, third straight monthly gain and highest in three years, though still relatively low. And the number one global threat, overseas economic weakness. It’s the reason most likely cited for the Fed doing nothing. Still, several analysts insist the market is ready for a rise.

ART HOGAN, WUNDERLICH: We’ve had $46 billion come out of equity mutual funds, when we shaved off $5.3 trillion in global equity evaluations. Part has to do with concern over slowdown in China and certainly part of that has to do with the assumption that Fed is going to do something sooner rather than later.

LIESMAN: Opponent of the hike say wages aren’t rising, inflation is low, the recovery is tentative and global economic weakness will hurt U.S. economy. Instead of a hike, they think it’s best for the Federal Reserve to call a time-out on raising rates.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Our guests tonight have very different views on what the Fed should do. They are David Kelly, chief global strategist at JPMorgan Funds. He believes the Feds should have raised rates a long time ago and ought to do it now.

And Josh Feinman, chief global economists at Deutsche Asset and Wealth Management, he thinks the time isn’t right just yet. He wants the Fed to stay put maybe until the end of the year at least.

Gentlemen, welcome.

Josh, it’s not that you think the Feds should not raise interest rates, it’s just that you think they need a little more data before they do, right?

JOSH FEINMAN, DEUTSCHE ASSET AND WEALTH MANAGEMENT: Yes, I think we’re getting close. The economy’s made a lot of progress, feel a lot of damage from the Great Recession. I don’t think we’re all the way there yet. I think that, you know, the Fed will probably want to wait a little bit longer to get a little more confirmation that their outlook is holding up —

MATHISEN: What more data do they need?

FEINMAN: A little bit more sign their growth forecasts are coming to pass, that the markets making a little more progress. Also that the recent volatility in rising markets and rising global risks is not damaging growth prospects here.

HERERA: What about that, David? I know you think that they should have raised rates some time ago. But we still do in many parts of the world have very fragile economies.

DAVID KELLY, JPMORGAN FUNDS: Well, we’ll also have a problem somewhere, but the Federal Reserve should focus on the U.S. economy and the U.S. economy has an unemployment rate of 5.1 percent. The 50-year average for unemployment rate is 6.2. The core inflation rate is 1.8 percent year over year. This is a healthy economy and it’s in no way justifies zero percent interest rate policy. They are just so far from neutral that they need to get going.

MATHISEN: So, Josh, let’s turn back to one of the points you made about why you think the Fed will and probably should hold its position for a little while longer. And that is global market stability. I believe David would say, well, are we now saying that the Fed is — one of its missions is to keep the market stable as well as managing price stability and the labor market?

FEINMAN: No, I wouldn’t go that far. But, of course, they have to take into account impact financial conditions might have on the economy. But I think more importantly we’ve made a lot of progress. The unemployment rate is low for sure.

But I don’t think that tells us the full story. I think there still is slack remaining in the labor market. Admittedly, a lot less than there was. I appreciate monetary policy is accommodative and you don’t want to wait until all the slack is gone before you start going. But I think that waiting a little bit longer would still afford the Fed the opportunity and latitude to move slowly rather than having to move too quickly.

HERERA: So, David, let’s say they do what you think they should do and they raise rates. Is it one and done for the rest of the year or is this the first of a number of rate increases that might come closer together than some people think?

KELLY: Well, I think initially it might be one and done for the year. I think they should skip October. I think they have said they would go more slowly, normally would be to raise 25 basis points at each meeting. So, they will skip a meeting anyway. But I think it’s possible at our news conference tomorrow indicate we’ll wait until 2016 to see more data here just to further reassure markets are going to be very slow. But, frankly, since I think they are way behind the curve, going slow will make them further behind the curve. So, I don’t think they should commit themselves doing it but I think they do.

MATHISEN: Let’s get very quick answers both from David and, first, Josh. Where do you think the funds rate will be a year from now?

FEINMAN: I think pretty low, maybe around 1 percent or so.

MATHISEN: David?

FEINMAN: I think it will be about 1 1/2. I think four rate hikes next year, maybe two this year or maybe just one.

MATHISEN: All right. Gentlemen, thank you very much. We’ll know a lot more tonight. David Kelly with JPMorgan Funds, Josh Feinman with Deutsche Asset and Wealth Management.

HERERA: A critical component of the economy is the housing market. And today, a new report shows builders are the most confident they have been since 2005. The National Association of Homebuilders says prospective buyers is rising, thanks to relatively lower mortgage rates and lab market. But it wasn’t all positive. The outlook for sales over the next six months fell slightly.

MATHISEN: The outlook for global economy has weakened slightly. The Organization for Economic Cooperation and Development says recent weakness in China outweighs strength in the U.S. The research group also says the health of the U.S. economy justifies a rate hike by the Federal Reserve but that overall global growth will remain subpar this year.

HERERA: American household incomes fell last year and the poverty rate inched higher. According to the Census Bureau, median income was around $53,600 last year, down from $54,400 in 2013 and more than 6 percent lower than in 2007. The poverty rate rose to 14.8 percent last year from 14.5 in 2013. Some say those new numbers show the economic expansion has yet to be felt by many Americans.

MATHISEN: Well, stocks rally for the second session in a row ahead of tomorrow’s big Fed announcement. Gains in oil prices fuel the move higher in the energy sector which help push overall market higher. The Dow Jones Industrial Average up 140 points to close at 16,739, NASDAQ, 28 points higher, and S&P 500 logged a 17 point gain. Crude closed nearly 16 percent higher on a report U.S. inventories fell for the first time in weeks.

HERERA: A massive deal may be brewing that would combine two of the biggest names in beer, Budweiser and Miller. Anheuser Busch InBev approaching SABMiller about a possible takeover and that sent shares of Anheuser Busch nearly 7 percent higher in today’s session. SABMiller trades overseas.

And while no deal is done, such a combination would be one of the largest acquisitions of all time.

But as Hampton Pearson reports, it will face a number of big hurdles.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Anheuser Busch InBev wants to take over its chief rival, London-based SABMiller to form a beer giant that would brew about a third of all the beer consumed around the world. Market cap for the merge group estimated at $275 billion, with $69 billion in annual revenue.

CAROLINE LEVY: They are having a really hard time holding market share. They are losing in their big brands and they don’t have enough high-end to keep the growth growing. So, we’re now at a point where they need another transaction to do what they do best, which is slash costs and, you know, integrate businesses. So, I think that’s why SAB now makes sense to them.

PEARSON: The clock is ticking because under British regulatory rules, AB InBev has 28 days to make its offer. The initial approach to SABMiller’s board, there can be no certainty this approach will result in an offer or agreement or as to terms.

From SABMiller, a cautionary response, “The board of SABMiller will review and respond as appropriate to any proposal which might be made.”

Antitrust regulators in the U.S. and Europe would closely scrutinize the deal because it accounts for three-quarters of the U.S. beer market. Divestitures from both firms are expected.

LEVY: Well, there’s not a hope in hell that they would be allowed to keep Miller Coors business, given them a 40 percent share of the beer market at AB right now. So, there’s just no question that they will need to be a sale of that business in an SAB, ABI takeover.

PEARSON: At the same time, the beer-making giants facing increased competition from craft beers, especially popular among millennials here in the U.S. Production for the first half of the year is up 15 percent.

CHRIS FURNARI, BREWBOUND EDITOR: Well, competitively, the major brewers are losing market share. So, you look at the two big ones in the United States are Anheuser-Busch InBev and Miller Coors, which is a joint venture between Molson Coors and SABMiller. And they are losing barrels.

PEARSON: Finalizing a deal among the two rivals won’t be easy. In addition to divestitures to satisfy regulators, questions about board representation and financing must be resolved.

In Washington, Hampton Pearson, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN: Got to love that standup at the bar there, Hampton.

Still ahead, the message President Obama sends some of the most influential business leaders in the country today.

(MUSIC)

HERERA: Fiat Chrysler and the United Auto Workers have reached a tentative labor agreement that addresses both wages and health care costs. Union president Dennis Williams says the proposal keeps both sides competitive. Fiat Chrysler’s Sergio Marchionni says the deal will bring workers, quote, “significant benefits”. Neither side, though, disclosed details of the agreement which covers nearly 40,000 workers nationwide. If the terms of the deal are ratified, it will lay the groundwork for negotiations with both General Motors and Ford.

MATHISEN: Today in Washington, President Obama urged chief executives of some of the nation’s biggest countries to pressure Congress to pass a budget plan and avoid government shutdown. The president spoke to the members of the Business Roundtable, a group that generates in total more than $7 trillion in annual revenues. And as we told you last night, a potential closure of the federal government is one of the biggest concerns for the leaders of that group.

Eamon Javers has more from our nation’s capital.

Eamon, what did the president tell the CEOs about the need to prevent a government shutdown?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, Tyler, this is part of President Obama’s standard playbook here. Over the past several years, we’ve seen it again and again. When he wants to pressure Republicans on Capitol Hill, he turns their allies in the business community as you say the Business Roundtable and urges business to make his case up on Capitol Hill. He said he does not want to see a government shutdown over an issue if they don’t come together on a deal.

Here is how the president made the sales pitch today.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Two years ago, Republicans shut down the government because they didn’t like Obamacare. Today, some are suggesting the government should be shut down because they don’t like Planned Parenthood.

That’s not good sense and it’s not good business. The notion that we play chicken with an $18 trillion economy and global markets that are already skittish all because of an issue around a woman’s health provider that receives less than $0.20 out of every $1,000 in the federal budget, that’s not good policymaking.

(END VIDEO CLIP)

JAVERS: But, guys, with the rise of Donald Trump and the campaign trail among Republicans, the question now is whether the business friendly strategy of leverage by the president will really work. A lot of anti-establishment Republicans on Capitol Hill are really energized by the Trump campaign and they may be in a mood here to kind of stick it to the establishment Republicans on Capitol Hill.

So, this strategy may not be as effective this year as it’s been in the past.

HERERA: You mentioned Donald Trump. The meeting with the CEOs came on the same day as the GOP debate. And the president did take a shot at Donald Trump.

JAVERS: Yes, absolutely. He turned Trump’s own slogan on its head, talking about America winning or not. Take a listen to what the president had to say.

(BEGIN VIDEO CLIP)

OBAMA: Despite the perennial doom and gloom that I guess is inevitably part of the presidential campaign, America is winning right now. America is great right now.

(END VIDEO CLIP)

JAVERS: That coming just hours before the big GOP presidential debate this evening and we’ll see if any of the Republican candidates latch onto that rhetoric tonight, guys.

MATHISEN: All right. Eamon, thank you very much. Eamon Javers in Washington.

HERERA: From the man in the White House talking about the economy to those who want to be in the White House. Tonight, Republican presidential candidates, as we mentioned, will take the stage for a debate at the Ronald Reagan Presidential Library. There are many economic issues that will likely be discussed.

John Harwood is there for us.

John, which candidate is most likely to come off the strongest when it comes specifically to the economy?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, they are all going to try, sue.

You’ve got Donald Trump the front-runner saying look at the business deals. Look at the real estate empire I’ve built. I can run the economy best.

Carly Fiorina will say, I was CEO of a Fortune 20 company at Hewlett-Packard. I know what to do.

All the governors and a couple of senators on stage are going to be saying, no, I have the solution. If it’s Rand Paul it’s going to be his flat tax. If it’s Marco Rubio, his different tax reform plan.

People like Chris Christie, Scott Walker, Jeb Bush are all going to be claiming they added jobs and balanced budgets during their tenure.

MATHISEN: Which of the candidates, John, has been the most granular about taxes or entitlement reform?

HARWOOD: Well, not Donald Trump, I can tell you that. Donald Trump has not been heavy on policy so far. But interestingly I sat down with Carly Fiorina, who is the new candidate on the stage having graduated from the kids’ table debate last time and asked her specifically where she stood on entitlement and on taxes.

(BEGIN VIDEO CLIP)

CARLY FIORINA (R), PRESIDENTIAL CANDIDATE: Republicans have been talking about this in the wrong forever. I’m not in favor of revenue neutral tax reform. I’m in favor of revenue reducing tax reform.

How long have we been talking about entitlement reform? We talk about it every election, we talk about tax reform every election. And guess what? Nothing happens. There are binders on great conservative ideas on how to reform social security entitlement. We will never get to it because the political class can’t challenge the status quo or ever get to it.

HARWOOD: Do you think privatization is a useful structural reform to make or would you not do that?

FIORINA: I am not prepared to go to the American people and talk about how we’re going to reform Social Security and Medicare until I can demonstrate to them that the government can execute with excellence, serve the people who pay for it with excellence.

HARWOOD: Now, that is a dodge worthy of a very good politician.

FIORINA: It’s not a dodge. I am deadly serious.

(END VIDEO CLIP)

HARWOOD: As I suggested, guys, in my final back and forth with her, that is an invasion that shows Carly Fiorina belongs on that debate stage with the politicians.

HERERA: All right. John Harwood in Simi Valley, thank you so much for joining us.

MATHISEN: Well, Oracle reports mixed quarterlies and that is where we begin tonight’s “Market Focus”.

Profit beat expectations, but revenue came up short. The software giant saw a big decline in new software licenses. Its cloud computing revenue also disappointed. The stock was volatile in initial after-hours trading. As you see on that chart, in the regular session shares were up a fraction to $38.27.

Investors getting a chance to react to news that Microsoft has hiked its quarterly dividend. The new payout is 36 cents a share, up five cents. It will be payable in December to shareholders on record as of November 19th. The heightened dividend puts the yield on Microsoft shares at about 3 percent. Shares rose slightly to $44.30.

Cracker Barrel posted earnings that topped estimates, helped by higher menu prices. But sales missed consensus, which weighed on shares like a double order of biscuits and gravy. Cracker headed for the bottom of the barrel by more than 3.5 percent. It finished at $145.59.

HERERA: Fitbit securing a huge corporate deal with Target. The retailer will offer Fitbit trackers to its more than 300,000 employees. That’s one of the largest corporate deals the company has ever secured. Shares of Fitbit popped 12 percent to $37.10.

Reports of a takeover sent shares of Williams up in today’s session. The energy transfer equity is close to winning a takeover fight for its rival pipeline operator. Shares rose more than 5 percent to $45.86.

Expedia has won antitrust approval to buy Orbitz. The Department of Justice said it did not require any sort of asset sale from Expedia in exchange for the approval. Orbitz rose about 6.5 percent to $11.92. Expedia was almost five percent higher to $124.68.

MATHISEN: The global slowdown has done some damage to one well-known company, FedEx lowered its earnings outlook citing weak world economy, slower demand and strong dollar. That was enough to pressure the stock which fell nearly 3 percent.

Morgan Brennan has more on the company that many consider an excellent barometer to assess the global economy.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: First quarter earnings at FedEx increased 20 percent, but that still fell short of estimates. The delivery giant also trend its full year EPS guidance on weakening global economic conditions and one-time expense in the ground domestic unit. That sent shares tumbling, putting the stock even further in the red for the year.

Freight specifically less than truckload shipment which include a lot of industrial goods experienced weaker demands. But as the company continues to restructure express, earnings growth in that segment soared 45 percent. Analysts say longer term, the company is still on track.

DONALD BROUGHTON, AVONDALE PARTNERS: Well, they were very clear to point out that the revision down in the full year guidance, a mere 2 percent, $0.20 off $11 number was based upon the increase in an insurance accrual, that while they have some uncertainties about the global trade, especially manufacturing economy, that the consumer economy continues to show growth and ecommerce continues to show growth.

BRENNAN: Up next for parcel carrier, the holidays. Executives on earnings call said they expect another record peak shipping season. The company plans to hire upwards of 55,000 temporary workers, 10 percent more than last year. This after UPS said it will hire 95,000 in line with 2014 in an announcement yesterday. FedEx executives also discussed newly announced rate increases. Starting in January, rates will rise nearly 5 percent in all of its divisions.

But the company also plans to add a new surcharge to oversized ground packages starting in November. As more companies elect to ship these bulky, heavy packages rather than handle them in their stores, FedEx is looking to be better compensated.

BROUGHTON: I think the change in pricing for them will not only improve yield, but improve efficiency. So, there won’t be as many pillows of air shipped, there’s more product that’s being paid for to be shipped.

BRENNAN: Avondale Partners Donald Broughton continues to rate FedEx a buy, with a price target of $200 per share, a 35 percent increase from where the stock is currently trading. And it isn’t alone, FedEx one of the most bullish from transportation analysts on the streets.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

HERERA: Coming up, Under Armour’s ambitious strategy to catch up to the market leader Nike.

(MUSIC)

HERERA: Here is what to watch tomorrow. Besides the Fed announcement, there’s lots out today, that day, including housing starts, weekly jobless claims and also the Philadelphia reserve will release business outlook survey. And that’s what to watch Thursday.

MATHISEN: General Motors reportedly close to a criminal settlement with the Justice Department over defective ignition switches linked to more than 100 deaths. As part of the settlement which will require court approval, General Motors would pay less than the $1.2 billion Toyota paid to resolve a similar case. GM would be charged with hiding from regulators and defrauding consumers.

HERERA: Under Armour is setting big goals for itself. The sports apparel company says it expects revenue to double over the next few years. That sent shares higher closing with a 5 percent gain.

Sara Eisen spoke to CEO at the company’s investors day where he laid out his strategy to pull even closer to rival Nike.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stephan Curry, Tom Brady, Jordan Spieth, Misty Copeland — like so many athletes sponsors, the company is on fire. The sports apparel and footwear giant announcing that it is raising long-term sales projections.

KEVIN PLANK, UNDER ARMOUR CHAIRMAN & CEO: At Under Armour, we like to say that it’s important that we define victory before we start anything. And our definition of victory we look at 2018, next investor goal that we’ll give you is that we believe that we will be a $7.5 billion company by 2018.

I want to be clear of one thing. This is not our finish line.

EISEN: While it’s an ambitious goal, still a fraction of what market leader Nike makes each year.

PLANK: The good news about our industry is it’s not a zero sum game. So, you know, we’re not out there — we don’t need anyone else to lose in order for Under Armour to win. So, we’re incredibly focused on ourselves, what we’re doing and where we’re heading. And I think that plays with our innovation.

EISEN: And the industry is booming. At a time when consumers are spending less on clothing, sports apparel is the bright spot.

MATT POWELL, NPD GROUP ANALYST: Sport footwear business is up in the high single digits for the year. And we’ve been in a period of growth of mid single digits in athletic footwear for more than a decade now.

So, we continue to see this category growing. You have whole generations of kids who have done nothing but wear athletic apparel and footwear. They want to continue to do that.

In 2014, Under Armour did $3 billion in business. Nike added $3 billion to their business in the same year. So, as Nike continues to grow, I think it’s going to be hard for anybody to catch up to them.

EISEN: Many compare Under Armour strategy to its rival Nike, signing top players, expanding its sports portfolio and going global.

But there is one key difference. Nike started as a sneaker company while Under Armour’s roots are in apparel.

Another key distinction is Under Armour’s digital strategy, what it’s calling connected fitness. Plank says that more than 150 million people have signed up for the app which tracks everything from how you sleep, to how you eat, to how you exercise. That is set to drive $200 million in revenue by 2018.

For NIGHTLY BUSINESS REPORT, I’m Sara Eisen in Baltimore.

(END VIDEOTAPE)

HERERA: And that does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us.

MATHISEN: And thanks for me as well. I’m Tyler Mathisen. Have a great evening, everybody. And we’ll see you back tomorrow on Fed Day.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, 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) 2015 CNBC, Inc.

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