TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Full steam ahead. Stocks hit new records. Earnings looked strong at least so far. The biggest IPO of the year soars. Economic data heats up. If everything seems to be going in the right direction, why are some so worried?
SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR: Pricing power. The one industry that can raise prices more steeply and more often than any other –
– and it touches us all.
MATHISEN: You`re hired. Multiple reports say the “Apprentice” like contest to become Donald Trump`s running mate ends up with Indiana`s Mike Pence as the winner. What the choice means for the race for the White House.
All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, July 14th.
EPPERSON: Good evening, everyone. I`m Sharon Epperson, in tonight for Sue Herera.
MATHISEN: And I`m Tyler Mathisen. Welcome, everybody.
Well, higher highs. Stocked pushed further into record territory, thanks to a strong start to earnings season and the expectation for further stimulus from global central banks, and it is those expectations that have supported the rush into riskier assets like stocks over the past couple of weeks. And as stocks went up today, government bonds went down, and their yields, which move in the opposite direction climbed.
The Dow Jones Industrial Average up 134 points to 18,506, its first five- day win streak since March. The NASDAQ added 28, and the S&P 500 gained 11.
EPPERSON: Helping today`s rally, strong earnings from Dow component J.P.
Morgan. The nation`s largest bank by assets beat Wall Street earnings and revenue estimates. That sent shares higher by 1.5 percent.
Kayla Tausche has the details on J.P. Morgan`s report and why it helped ease the gloom surrounding the financial sector.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: J.P. Morgan Chase setting an optimistic tone for the financial sector after reporting second quarter earnings that blew past Wall Street expectations. Some closely watched items for the bank showed pleasant surprises and absence of legal costs, costs going up and banks getting more confident about stability for energy companies. Consumer activity was resilient amid a weakening global picture. Loan growth was up. Deposits grew and credit card spending was up as well.
That balanced out corporate sentiment that was less than rosy — fewer companies pursuing mergers and acquisitions, fewer companies doing IPOs.
There is uncertainty in the economic environment in a quarter that ended with U.K. voting to leave the E.U. That did cause a spike in trading activity but the bank said that will return to normal, though the uncertainty will last for many quarters to come.
That topic and the outlook for J.P. Morgan`s business across Europe getting the focus of the management call with investors.
JAMIE DIMON, J.P. MORGAN CHASE CEO: We will continue in every single country to serve of our clients day in and day out and if it adds extra costs, so be it. Not really worried about it.
TAUSCHE: As for the size of the American economy, banks are an important barometer. They tell us whether people are borrowing and buying goods and earnings from Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC) will show us further whether that`s the case when they report.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in New York.
MATHISEN: And now to that central bank move or lack of same. The Bank of England in its first policy meeting since the Brexit vote did not cut interest rates as many had expected. Instead, it hinted at looser monetary policy next month.
Geoff Cutmore has our report tonight from London.
GEOFF CUTMORE, NIGHTLY BUSINESS REPORT CORRESPONDENT: So according to the notes of the minutes, the majority of members on the committee decided that this was not the meeting to start cutting interest rates. In fact, only one member of the committee signaled they thought now we should get a $25 basis point cut, so we move forward to the August meeting.
Given that Mr. Carney and the committee have suggested there is not enough data yet for them to take clear action on monetary policy, we have ahead of us three weeks of speculation. The guidance has been very clear that we will have something in August if I read from the notes of the meeting in the absence of further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis. Most members of the committee expect monetary policy to be loosened in August.
But the sting in the tale as far as markets are concerned, we have very little idea at this stage what that will look like. We will get fresh forecasts on the economy and we will have new data on inflation for members of the committee to work with. So, financial markets, even though they had got themselves into a froth of expectation that there would be a cut this time around, they will just have to cool their heels. The pound may get a little bit of support for this. The equity markets — well, not too much in it for the traders in that market today, but we have another three weeks of speculation ahead as we try and work out just what the size and scope of any loosening may be at the next meeting in August.
This is Geoff Cutmore outside the Bank of England.
EPPERSON: One gauge of inflation is inching higher, and it`s something the Federal Reserve want to see. The prices charged by U.S. producers rose last month at the fastest pace in 13 months. The producer price index increased 0.5 percent in June, helped in part by a rise in gas prices and a tightening labor market.
And today`s jobless claims report provided more evidence that the labor market remained strong. The number of Americans filing for unemployment benefits was unchanged last week from the prior week remaining at a historically low level. This weekly report is considered a proxy for layoffs across the country.
MATHISEN: Well, with stocks going higher, the economy seemingly moving in the right direction, the labor market is tightening, the housing market strengthening. Is this a new goldilocks economy for investors and consumers?
Craig Dismuke is the chief economist with Vining Sparks.
Craig, good to have you back with us.
I want to ask you a kind of tricky question I suspect and that is this — stocks at an all-time high, the list is broad of the ones that are there.
Are stock prices reflecting economic fundamentals, the underlying strength of the economy, or are they reflecting the prospect of low, low, low and lower interest rates?
CRAIG DISMUKE, VINING SPARKS CHIEF ECONOMIST: Well, hey, good evening, Tyler. Thank you. The — I think that`s exactly right. The question is a tricky question. It`s reflecting a little bit of a strengthening economy.
You do have a better labor market. You do have some signs of improvement.
Analysts are expecting corporate profits to rebound in the second half of the year. So that`s good news.
But I think the bigger driver, really the biggest driver of asset prices today is what`s happening with the central banks, and you have these lower and lower interest rates. You have people expecting as Geoff reported on the Bank of England to cut at the next meeting. The ECB is likely to become more accommodative which will drop interest rates.
The Bank of Japan is expected to drop interest rates, and all of that when that happens, it pushes interest rates lower across globally which then pushes up stock prices. And so, if you look today, you know, the S&P is trading at 20 times earnings which hasn`t happened since 2009. It`s — I think they are very frothy.
EPPERSON: You were talking about all of these things that could happen, but they haven`t happened yet, and whenever we talk about market timing, you know investors, individual investors, that is not something we want them to do, right. So, what do investors do in this situation where you`re anticipating these events will take place? They haven`t yet, but one thing we do know we haven`t had a financial crisis after Brexit, we have a stronger labor market, and we also have stock prices that are rising.
DISMUKE: Sure, and that`s one of the things about monetary policy that is so, I guess, convenient for monetary policy-makers. It doesn`t actually have to happen before the markets respond to it, and as Jeff reported earlier, the markets were frothy leading into the Bank of England`s meeting today because they were excited that maybe they would cut and then they didn`t.
You know, it is hard to time it, but the reality is that you have all of these pressures. You have all of these reasons for these central banks to cut rates or to make policy more accommodative. And as they do, it puts more and more pressure on the Fed to not raise rates as quickly because if they were to do so, it would push the dollar up which then hurts U.S.
exporters and hurts manufacturers. And so, it puts more pressure on the Fed to not raise rates as quickly which then pushes stock prices higher.
So, it`s — you know, I think it is a bubble. I think all of the assets markets are in bubbles today when you look across the board and the question is, how long can it last?
DISMUKE: And for investors that`s the question they have to answer and I think can last for quite a while honestly.
MATHISEN: Quick answer here. I worry, do you, that the so-called safe havens, bonds, utilities, telecoms have become so inflated in price that at some point, they`re not going to be safe anymore?
DISMUKE: I worry about that, but I — I think I worry more about the non- safe haven assets because those I think will have a bigger drop once some kind of reality starts to set in. So, yes, safe haven assets have gone up in value by a large amount, but when you look at non-safe haven assets, I think they have gone up by just as much.
MATHISEN: All right. Craig, thank you very much. Craig Dismuke is the chief economist for Vining Sparks.
DISMUKE: Thanks, Tyler.
EPPERSON: To politics now where multiple reports say the presumptive Republican nominee Donald Trump has signaled that Mike Pence will be his vice presidential pick. Although there`s been no confirmation from the Trump campaign that the Indiana governor was among the handful of finalists, we still have a lot to talk about it and Eamon Javers has been following that story tonight from Washington.
Eamon, if Mike Pence is the V.P. pick, what will it mean for the race for the White House?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, look, this is a guy who extends a bridge from Donald Trump`s sort of insurgent campaign within the Republican Party to the Republican base, to conservative evangelicals. We know that this is a guy who is well-respected throughout the party. So, it`s sort of a calming pick for Donald Trump to make within the party.
In terms of the national election stage, I`m not sure he does that much, but as vice president ultimately — remember, Mike Pence when he was in the House of Representatives, he was the chairman of the House Republican conference. So, he knows the ins and outs of that group of members of Congress. He knows how the Capitol works, so to the extent there is a Trump legislative agenda as vice president, a guy like Mike Pence could be a good pick to help get that through.
But let`s not overlook the possibility here that it`s not Mike Pence.
Donald Trump is a showman, and we have these — this sort of weird meandering series of rumors and signals and smoke signals and all kinds of things today, but we don`t really know for sure that it`s Mike Pence, and we may not know until somebody walks out on that stage with Donald Trump tomorrow.
MATHISEN: And he loves the suspense, Mr. Trump, the showman that he is and I guess we`ll find out tomorrow at 11:00.
JAVERS: That`s right.
MATHISEN: To the extent that we know, Eamon, how ideologically on social issues particularly are Mr. Pence and Mr. Trump aligned?
JAVERS: Well, that`s a really good question. In their heart of hearts, it`s very hard to say. I mean, Pence has said some things critical about Donald Trump earlier on. This week, he was asked about his criticisms of Trump. He has said, look, ultimately, I`ve disagreed with almost everyone I`ve served with in politics on one thing or another, and you don`t always agree on every single thing.
Nonetheless, he said I think that Donald Trump is a good person and his family are good people. And, of course, that`s who`s going to be making the decision.
EPPERSON: All right. Thanks, Eamon. Eamon Javers in Washington.
MATHISEN: Still ahead: Get the message. The largest tech IPO of the year made its debut on Wall Street, and investors liked what they saw.
MATHISEN: The European Union, remember them, they filed additional formal charges against Google (NASDAQ:GOOG). This is the fourth round of charges in a little more than a year. The European Commission is accusing Google
(NASDAQ:GOOG) of breaching antitrust rules by restricting how a website that offers a Google (NASDAQ:GOOG) search function can show ads sold by other companies.
EPPERSON: The tech industry`s biggest initial public offering this year made its Wall Street debut today. Line, a Japanese messaging app operator surged on its first day of trading after raising more than $1 billion in its initial public offering. Shares soared 26 percent after pricing yesterday at the top of its range.
This IPO comes as the market for new offerings has been quiet.
Fujita Akiko tells us why investors are lining up for shares of Line.
AKIKO FUJITA, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a messaging platform with a uniquely Japanese flair. When it comes to Line, free texts and free calls aren`t the main attraction, but digital stickers featuring cuddly characters Cony and Brown.
FLORIAN HOPPE, BAIN AND COMPANY PARTNER: Because of the unique Asian appeal it was reflected in the market where it`s been winning, so both Japan and also Thailand and Indonesia and Taiwan, where they have really profited from this emoticons kind of interface.
FUJITA: Line began as a free chat app to improve communication in the aftermath of the 2011 tsunami in Japan. Five years later, it`s become a social content platform dominating the messaging space in Japan and three other markets, with 218 million monthly active users.
And the app isn`t limited to messaging. You can play games online, make payments and group calls, and, yes, you can even take selfies with more than a dozen different filters.
The CEO Takeshi Idezawa calls the one-stop app a smart portal.
TAKESHI IDEZAWA, LINE CEO (through translator): There is a major shift of usage with current search engines and portals to messenger apps as an entry point to conduct all forms of transactions.
FUJITA: That`s transformed line into a lucrative business, raking in more than $1 billion in revenue last year, a 40 percent increase. Games and advertising make up the majority of their earnings, though a quarter of revenue comes from sticker sales. On average, Line users sent 390 million stickers each day.
The company`s expanded beyond the app space, too, opening up shops in five countries, including China, where the Line app is still banned on the mainland.
HOPPE: Yes, I think as a business, the company is in fundamentally a good position.
FUJITA: But the company has struggled to expand beyond its core market, trailing competitors globally. The number of monthly active users grew just 1 percent last year.
Idezawa embraces the challenge of saying it`s been 20 years since the Japanese company stood up to battle with the big boys. Line may be far behind American tech giants, but the company hopes a dual listing in the U.S. and Japan will be the first step in changing that.
For NIGHTLY BUSINESS REPORT, Akiko Fujita, Japan.
MATHISEN: China`s richest man is going after the Hollywood studio Paramount, according to reports. The chairman of China`s Wanda group, Wang Jianlin, wants to buy a 49 percent stake in the movie studio. Viacom (NYSE:VIA), which owns the studio, reportedly values Paramount at $8 billion to $10 billion. Wanda already owns AMC Entertainment and bought Legendary Entertainment in January.
EPPERSON: Delta plans to cut some flights to the U.K. because of Brexit, and that`s where we begin tonight`s “Market Focus”.
The airliner stayed would cut back on the number of seats available on service between the U.S. and the U.K. this winter due to currency headwinds following Britain`s decision to leave the U.K. Delta also posted a better than expected profit for the quarter, but revenue came up short. Shares rose more than 3.5 percent to $40.98.
Blackrock saw both profit and revenue fall in the latest quarter as lower income from fees dragged down results. But the world`s largest money manager still managed to match street expectations. Shares of Blackrock down a fraction, $355.19.
Bayer is sweetening its takeover bid for Monsanto (NYSE:MON). The pharmaceutical giant increased its offer to $125 a share, valuing the seed company at about $65 billion. Monsanto (NYSE:MON) rejected Bayer`s first unsolicited bid saying the price was too low and didn`t factor in regulatory risk. Shares of Monsanto (NYSE:MON) rose 3 percent to $104.22
MATHISEN: The LED lighting company Cree (NASDAQ:CREE) will sell its Wolf Speed Power Division to the European chip-maker Infinion for $850 million.
Wolf Speed, which makes semiconductor technology, is expected to increase Infinion`s presence in the power semiconductor space. Shares of Cree
(NASDAQ:CREE) up more than 10.5 percent to $27.74.
United Airlines will pay a $2 million fine but will not be charged for its role in the scheme involving the former chairman of the Port Authority of New York and New Jersey. The airline re-established direct flights from Newark to a small South Carolina airport so that the chairman could travel to his vacation home. The official has pleaded guilty to bribery charges and could face a maximum penalty of up to ten years in prison. Shares of United up 4 percent to $47.85.
EPPERSON: A federal judge has set a trial for Martin Shkreli, the former pharmaceutical executive who was arrested in December on allegations of security fraud. The date of Shkreli`s trial will be June 26th of next year. That`s nearly a year and a half after he was arrested. Shkreli is being accused by prosecutors of looting the company he once headed.
Shkreli is best known for abruptly raising the price of an HIV drug called Daraprim by more than 5,000 percent overnight.
MATHISEN: Pricing power does seem to be stronger than ever in one industry. According to analysis by the “Wall Street Journal,” more than two-thirds of the 20 largest drug companies said price hikes increased sales of some of their biggest products in the first quarter of this year.
And the price hikes are becoming sharper and more frequent despite increased scrutiny by lawmakers.
Geoff Porges is the — follows the industry for Leerink Partners.
Geoff, I apologize if I mispronounced your name but I`m going to call you Jeff from here on out.
How big are these price increases and how widespread?
GEOFF PORGES, LEERINK PARTNERS: Yes. On what we call the specialty therapeutics, we`re definitely seeing some acceleration in the price increases. These are big drugs, drugs like say a Humira or an Embrel, or something like this, multi-billion dollar product and they are taking prices in the range of 25 percent to 35 percent.
Now, that`s the list price and people need to understand that not all of that flows through to the manufacturer. Some of it goes to the channel in the media areas, the PBMs, but it`s also a pretty nice tailwind for earnings and revenue.
EPPERSON: You talk about the pharmacy benefits manager, the PBMs. But also, what about the discounters and discount prices that many of these drugs have. Some say that makes it difficult to really ascertain what the price rise is for some of these drugs. How much an impact is that?
PORGES: Certainly, the manufacturers don`t make it particularly easy for people like us to determine how much of the revenue increase was priced.
But if we back out what we think the incremental discounting to the PBM is, it looks to us as though depending upon a category, something between 30 percent and 70 percent of the list price increases is sticking with the manufacturer and then the balance is going to either the PBMs and/or the payers. You know, still, it`s positive price nevertheless.
MATHISEN: Are the drug companies asking for trouble here, Jeff? In other words, are they asking for government to come in and say enough is enough?
PORGES: Yes. Look, this is a very good question and something that we in the industry ask ourselves all the time. There`s definitely a sense that the manufacturers are sort of poking the sleeping tiger with a stick, and they could be in for a surprise. I think the somewhat cynical view is maybe the tiger is already awake and going after the industry anyway, and if that`s the case, then this might be one of the last opportunities to really take meaningful price.
EPPERSON: How far do we think prices are going to go here before government steps in to stop them?
PORGES: Yes, look, there`s often a run up into a price into an election and there`s a chance of administration. It wouldn`t be — it would be a surprise if we didn`t see a slowdown in some of these sort of pretty eye- popping price increases. You know, you can`t take 25 percent list price increases on a $4 billion, $5 billion drug for terribly long before it doesn`t attract a lot of attention.
So, you know, it has to slow down it. It probably slows down next year, but it`s a great tailwind for earnings and revenue in the second half of this year.
MATHISEN: I think you just answered my final question. This is not necessarily good news for the payers, but it probably is pretty good news for investors, right?
PORGES: It`s pretty good news for investors in these biopharmaceutical stocks.
PORGES: They`re trading at all-time lows. Are they going to get a nice tailwind in the second half?
MATHISEN: Geoff Porges with Leerink Partners — thanks very much.
PORGES: Thank you.
EPPERSON: Coming, a question we never would have asked just a week ago.
Can Pokemon Go help you sell your house?
MATHISEN: Here`s what to watch tomorrow. Big, big day for economic data.
Retail sales, consumer prices, consumer sentiment, industrial production, they`re all going to be released and we`re going to have them all for you tomorrow night.
As we reported earlier, Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) released their quarterly results. China will tell us how fast the world`s second largest economy grew in the second quarter and that, folks, is what to watch on a busy Friday.
EPPERSON: Tyler, “Consumer Reports” is urging Tesla to disable its auto steering function. The magazine, it has 8 million subscribers that issues annual ratings of cars wants Tesla drivers to keep their hands on the wheel. It also wants Tesla to stop calling the product autopilot, which it says promotes the assumption that the Model S is capable of driving on its own. The function is currently under investigation by regulators after a fatal crash.
MATHISEN: California rejects Volkswagen`s plan to recall some vehicles.
The state calls the proposal incomplete and deficient. The automaker has agreed to spend more than $15 billion to settle lawsuits and government allegations that diesel cars with smaller engines cheated on emissions test. California is not accepting its plan for cars with larger engines.
EPPERSON: Just how popular is Pokemon Go? According to a new survey the augmented reality mobile game has overtaken Pandora, Twitter, Netflix (NASDAQ:NFLX), Hangouts and Spotify in daily use in the U.S. People are also spending more time in its app than in Facebook (NASDAQ:FB). Digital market intelligence firm Similar Web says if the trend continues, it could take over Snapchat and WhatsApp.
MATHISEN: Right now, the Poke-economy seems to have no limits. We`ll see if it lasts. The fact that it`s based on drawing people to destinations makes it a no-brainer for real estate. If it could possibly lead to a sale, you bet real estate agents across the nation are more than willing to play the game.
Diana Olick has the story.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: At an open house in Manhattan`s Greenwich Village, real estate agent Jay Glazer knew a good hook when he saw one. He added this Pokemon teaser to the ad, hoping to drive more potential buyers to the $1.5 million listing.
JAY GLAZER, COMPASS REAL ESTATE AGENT: I think at the end of the day the goal is to get as many people through the door and interested in the apartment, and ultimately if there`s a Pokemon-obsessed person out there who also likes this home, then we want them here and this is the best way to attract them.
OLICK: Glazer is not alone. This the home in Redmond, Washington, on Zillow lists a new roof, new hardwood floors, a new tankless water here the and a Pokemon Go Gym five minutes away. On the other hand, this listing in Florida screams there are zero Pokemon Go features.
GLAZER: I think that sellers might be opposed to advertising Pokemon Go in their listings ultimately because let`s admit, it is a little bit childish.
It`s not necessarily high brow and if you`re going for a certain look or aesthetic theme such as sophistication, it`s ultimately not going to fit in with that.
OLICK: The whole thing seems like an enormous fad right now, but this could be a much bigger part of the real estate business if and when Niantic, the developer of Pokemon Go with Nintendo, starts selling sought- after locations to advertisers, putting a Pikachu along with a new washer and dryer could tip the scales on a sale.
SVENJA GUDELL, ZILLOW CHIEF ECONOMIST: The more people you have at an open house, it`s considered to be a good open house and therefore, people will think, oh, this is a competitive market. There are going to be lots of offers. A lot of people are looking at this house.
OLICK: And Goodell does think it could play even bigger in the rental market, where the clients are younger. In other words, the possibilities are as real as the game is unreal.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
MATHISEN: And to read more about how Pokemon Go could potentially help you sell your house, I got one for sale, head to our website, NBR.com.
EPPERSON: I know what to add to that ad.
MATHISEN: Yes, I know what to add to that ad.
EPPERSON: Yes, you want a gym.
MATHISEN: My son Ian was playing it today when I was on the air doing an interview about Pokemon.
EPPERSON: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sharon Epperson. Thanks so much for watching.
MATHISEN: And I`m Tyler Mathisen. Have a great evening, everybody. Bring your Pokemon Go. We`ll see you tomorrow.
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) 2016 CNBC, Inc.