Transcript: Nightly Business Report – October 11, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue

and S&P 500 all set records again. And now, with earnings season about to
get under way, will corporate America`s report card help stocks even more?

world`s largest free trade agreement hanging in the balance. Canada`s
prime minister comes to Washington as tensions run high.

HERERA: And empty cup. The U.S. men`s soccer team fails to qualify for
next year`s World Cup. Why that could have a big financial impact far
beyond the soccer pitch.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, October

MATHISEN: Good evening, and welcome, everybody.

Well, it was a hat trick of records for the major market indexes on Wall
Street today. And we`ll get to that in more detail in a moment.

But, first, we begin in Washington with the latest round of talks to
renegotiate the North American Free Trade Agreement or NAFTA got under way.
The talks are expected to be tough between the U.S., Canada, and Mexico.
Today, Canadian Prime Minister Justin Trudeau brought his case directly to
the Oval Office.

Kayla Tausche has more.


meeting with the Canadian prime minister, President Trump said tough
negotiations are ahead for the trade agreement between the U.S., Canada,
and Mexico.

for a long time in terms of the fairness of NAFTA. I said we`ll
renegotiate. And — I mean, Justin understands this that if we can`t make
a deal, it will be terminated and that will be fun. They`re going to do
well. We`re going to do well. But maybe that won`t be necessary.

TAUSCHE: Trade negotiators got to work at a hotel five miles away in
Virginia. Labor groups hosted protest signs outside those talks as
business groups worried requirements for higher share of U.S. parts in
autos might kill the deal. Ahead of the meeting with the president, Prime
Minister Justin Trudeau and Foreign Minister Chrystia Freeland met with the
Ways and Means Committee which oversees trade agreements.

In prepared remarks, Trudeau touted the volume of U.S. trade with Canada
and thanks the group for inviting him. But committee aides say Canada
requested it. The fact of the meeting underscores an uneasy alliance with
NAFTA partners worried the White House is proposing purposely unpopular
demands in this week`s NAFTA negotiations in order to justify potentially
pulling out.

(on camera): This round of NAFTA negotiations was extended two days, now
set to close on Tuesday. The extension is meant to give negotiators more
time to hash out more than two dozen topics. President Trump says the
outcome of a deal will be known in the not-too-distant future.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.


HERERA: Let`s turn now to Jonathan Lieber for more on those NAFTA talks.
He is the head of the Eurasia Group`s United States practice.

Jon, welcome. Nice to have you here.

be here.

HERERA: Given what we`ve heard from the president and from Prime Minister
Trudeau, how likely do you think that the NAFTA negotiations will be
successful as they exist now?

LIEBER: I think the probability of a successful renegotiation of this deal
is declining right now. You have a very real deadline, and sometime early
next year, because the Mexican presidential season is going to start
heating up. And you`ve got the United States, who is backing away from
their initially fairly reasonable set of demands to a much more difficult
set of asks of the Mexican and Canadian governments, that`s putting a lot
more pressure on these talks.

MATHISEN: So, what do we end up with, Jon? Do we end up with a terminated
NAFTA and bilateral trade agreements with the U.S. and Mexico and the U.S.
and Canada, or what?

LIEBER: So I think what`s much more likely is the U.S. very well could
trigger the withdrawal provision of NAFTA, but never actually go through
with the withdrawal process. The U.S. has never withdrawn from a trade
agreement before. Congress would be very unlikely to support that. In that
case, you got to have NAFTA hanging out there in limbo throughout the
Mexican presidential election next year.

Potentially, you`ve got a new government in Mexico. Potentially, the
Republicans lose the House of Representatives in the midterm elections, and
we come back in 2019 with NAFTA in limbo and negotiations starting all over

HERERA: If they indeed they do manage to strike a deal, there`s talk that
Mexico might not be included in the deal, it may just be the U.S. and
Canada. But if indeed they do strike some sort of deal, what would be the
advantages as we know the negotiations are right now, to the United States?

LIEBER: So, you know, NAFTA is a quarter of a century old. There`s huge
parts of the American economy in particular that just didn`t really exist
back then. You know, you can update NAFTA to include provisions on digital
goods, for example. There`s probably intellectual property provisions that
a lot of American businesses would welcome.

A lot of the other stuff that the Trump administration is pushing for is
not really welcomed in Mexico, Canada, or amongst the U.S. business
community. Maybe you`d see a tepid reception from the American labor
community. But beyond, there`s not a lot of wind to be gained from the
more extreme demands by the Trump administration.

MATHISEN: A lot of American businesses like NAFTA. It helps them do
business economically, the Chamber of Commerce among them.

Let me go back to your earlier point. If we activate those sort of
withdrawal provisions, what`s the — but NAFTA doesn`t really go away?
What`s the point there? The president gets to say, hey, I walked away from
NAFTA, and what? What`s the —

LIEBER: Yes, I think the president is trying to increase leverage. If we
know anything about the president`s, you know, deal history or any of his
books that he`s written, he wants to go into negotiations with the
strongest possible hand that he can. And in this situation, the way he can
increase and maximize his leverage is not just by threatening to withdrawal
which I think the Canadians and the Mexicans don`t think is credible today,
but he can actually pull the trigger on a withdrawal. It would be a much
more serious situation that they would have to stand up and pay attention
to at that point.

HERERA: Which means we`ll be talking to you again, Jon. Thank you so

LIEBER: Thank you.

HERERA: Jon Lieber with the Eurasia Group.

MATHISEN: Well, despite weak inflation, the minutes of the last Fed
meeting show the central bank is on track to increase interest rates once
again later this year.

Steve Liesman has the lowdown on what policymakers are thinking


in the September meeting that another rate hike is warranted this year but
had a serious debate about inflation and wages being too low and what that
meant for the next rate hike.

Minutes of the meeting show the key issue is the failure of inflation to
hit the Feds` 2 percent target. Members of the rate-setting Federal Open
Market Committee thought the recent inflation was likely the results of
unique factors like a decline in telecom prices. Under this line of
thinking, inflation would gradually move up towards its target, clearing
the way for a hike.

But there was also substantial worry that more prominent factors like
technology and globalization were behind the inflation miss. That concern
has led a group of Fed officials to be less certain about raising again in
December. The failure of wages to rise, along with declining unemployment
rate is another major concern, again, most expect them to rise gradually
but some are beginning to think maybe there`s more too it, maybe there`s
more slack in the economy, more slack in the labor market than previously
thought. If so, it would cause them to rethink future hikes.

So, the bottom line is the Fed clearly indicated it`s on track to hike
again in December. And that`s the probably at the moment the even money
bet. But if economic data over the next several months, including coming
inflation reports, show that the low inflation theories are founded, there
looks to be enough concern and even doubt on the committee to delay that
next rate hike.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.


HERERA: And those Fed minutes helped fuel a modest rise in stocks as
investors applauded the Central Bank`s sentiment that the economy is strong
enough to perhaps withstand another interest rate hike. That led to record
closes for all three of the major indexes. The Dow rose 42 points to
22872, the Nasdaq added 16, and the S&P tacked on four.

And another thing investors turned their attention to — earnings season.

Bob Pisani has a look.


starting up again. And the key question now is, are we at peak earnings?
Could earnings start to decline and maybe even go negative in the next
quarter or so? That`s what`s got traders worried right now. The short
answer, relax, it`s no.

That`s what`s propping the markets up. First, earnings are trending up.
After treading water in 2016, earnings have bounced back in a healthy way
in 2017. So, the S&P 500, earnings as a whole are expected to rise about
11 percent this year over last year, and up roughly another 11 or 12
percent in 2018.

Second, look at the scope of the growth. Earnings have pretty much
returned to double digit growth. So, we`re up 15 percent in the first
quarter. We`re up 12 percent in the second quarter.

Now, the third quarter is a bit of an exception. Analysts are only looking
for 5 percent gains. But that`s because of major insurance losses from
Hurricanes Harvey and Irma. But financials, particularly the insurance
companies, should bounce back in the fourth quarter once all the dust

Now, the key to this story is the strong steady growth in technology. It`s
been the big winner all year. We`ve been talking about semiconductors.
Semiconductors alone are expected to jump almost 30 percent in their
earnings in the third quarter.

That`s a huge number. Another big factor is the global growth trade. We
call it the reflation trade. It`s real. Earnings are improving in Europe,
for example. The Stock 600, it`s like the S&P 500 for Europe, they`re
expected to grow 5.4 percent in the third quarter and 16 percent in the
fourth quarter. That`s important given how big these U.S. multinationals
have become, very dependent on their earnings overseas.

Finally, no assumptions have been factored in about tax cuts. Yes, traders
are expecting some kind of tax cut to materialize and there`s some kind of
premium in the market expecting that to happen. But it`s not in the
earnings numbers yet. And when that happens, we may see an additional

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.


MATHISEN: Joining us now with her predictions for the third quarter is
Karyn Cavanaugh. She`s senior market strategist at Voya Investment

Karen, nice to see you. Good to have you back.

You know, it looks like corporate earnings overall are going to be pretty
good. Why don`t we start with that? What do you see as the overall, when
we get through the whole thing, what do you see as the growth rate for the
third quarter year over year?

Well, I think the party is going to keep on rolling. We may not see double
digit growth. But I think we`re going to see high mid-single digit growth.
So, I think we`ll probably end up around 7 percent or 8 percent growth for
the quarter, for the third quarter earnings. And that`s pretty darn good.

HERERA: Is that because the comparisons are easy for some sectors? Or is
it because, you know, corporations are really firing on all cylinders, or
maybe a combination of the two?

CAVANAUGH: Well, I think a combination of the two. In the energy sector,
yes, the comparisons are pretty low from the third quarter of 2016. So, it
makes it a little bit of a lower bar to jump over. And we`ve seen a nice
increase in commodity prices. So, that`s really helping the energy sector.

Sectors like the tech sector are really benefiting from that global growth
story. We have a synchronized global growth expansion going on. That`s
not something that we all the time . This is a really good backdrop for
corporate earnings.

MATHISEN: When you started 2017, you favored financials. You still favor
financials, they`re still your top pick, but you say that in this third
quarter, they will be down 12 percent. Why?

CAVANAUGH: Well, that`s really the insurance companies that are going to
be hit by a lot of the hurricane losses. But we definitely will see a
bounce back in the fourth quarter. And even in some of the other
subsectors of financials, like I think the banks are going to do well in
the third quarter. And I think we`re going to see some positive surprises.

Also, financials are — the valuations are pretty compelling in the
financial sector. So, there`s some good bargains there. They`re valued
lower than other sectors, so you can really jump in, investors can jump in
there. And if we get any kind of tax cuts, we`re going to see the economy
move forward.

And that`s really going to help interest rates and that`s going to help
financials even more.

MATHISEN: All right, from your lips to the earnings report`s ears. Karyn
Cavanaugh, thank you very much.

CAVANAUGH: Thank you.

MATHISEN: Boy, I love it down there in Charleston. Karyn Cavanaugh with
Voya. Thanks again.

HERERA: It is a beautiful part of the world.

The number of job openings remain near a record high, even after falling
slightly in August. According to the Labor Department, there are a little
bit more than 6 million openings. Job openings have risen as the number of
unemployed have fallen to the lowest in a decade. The unemployment rate is
currently standing at a 16-year low of 4.2 percent.

MATHISEN: The president of the Dallas Fed says he wants more signs of
inflation before raising interest rates again. The Central Bank has raised
interest rates twice so far this year, but the yield on the benchmark 10-
year treasury has fallen, a reversal of what you usually see.

Robert Kaplan calls that development ominous. He doesn`t want the Fed to
raise rates too fast and risk getting what`s known as an inverted yield
curve, because that tends to be a precursor of a recession.

HERERA: The deadly wildfires burning in California have taken their toll
already, and now threaten one of the safe economic hubs. That`s coming up.


HERERA: The head of the Food and Drug Administration says the country may
start to see some drug shortages because of the damage that hurricane a
caused to Puerto Rico. Ten percent of drugs prescribed in the U.S. are
made by manufacturing facilities on that island. Drug makers are working
to get their facilities back online, but they`re facing widespread power
occupation and supply issues.

MATHISEN: Well, the images out of northern California are nothing short of
apocalyptic. Homes and businesses have been destroyed by the hundreds,
lives have been lost. Much of the damage caused by the deadly wires
concentrated in Sonoma and Napa Counties, the heart of wine country.

Aditi Roy reports tonight from Napa, California.


Signorello is seeing his winery for the first time since it burned to the
ground. His father bought the property in 1977. And now, the once-elegant
tasting room is a pile of rubble.

Signorello is one of five wineries in Napa destroyed or heavily damaged by
the more than dozen wildfires that have ravaged the state, hitting wine
country the hardest. Signorello`s wine maker was on the property at the
time of the blaze and tried to save it.

RAY SIGNORELLO, SIGNORELLO ESTATE WINERY: So, my crew had come up to try
to fight the fire for a little while. But they didn`t have near the
equipment. I mean, I don`t think you could have had the equipment to
battle what they were trying to battle here.

ROY: But it was too late and they had to flee. They are not alone. In
neighboring Sonoma County, the owner of Paradise Ridge winery which was
also leveled says he will rebuild.

RENEE BYCK, PARADISE RIDGE WINERY: Our winery, obviously, it`s devastated,
suffered complete loss in both the wine making facility and also our
tasting room and events center.

ROY: The economic impact of the wildfires to the tourism economy could be
significant. According to the Wine Institute, California sold $34 billion
worth of wine last year and the state`s wine industry generated $114
billion worth of economic impact in the U.S.

In Napa, dozens of hotels, restaurants, and wineries that were not damaged
remain closed due to power outages and road closures. They include iconic
hotels like Meadowood, and Silverado Resort and Spa, and wineries like Opus
One, Joseph Phelps, Cakebread and Beringer.

Signorello says the silver lining for him is that the winery has already
completed most of its harvest, which means they can focus on rebuilding.

SIGNORELLO: This I can rebuild. This I will rebuild. And, you know, it
will take me a year or two, and I`m just trying to look at it in that
positively that it could have been a lot worse for us. And other people
are going through really tough times right now.

ROY (on camera): He also adds that he doesn`t expect any long term damage
to his crops. Wine makers in this area meantime say what remains to be
harvested are cabernet sauvignon grapes. They are thick-skinned and
impervious to smoke.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Napa, California.


HERERA: Profit falls less than expected at Delta, and that`s where we
begin tonight`s “Market Focus”.

The airline managed to report stronger than expected results despite
canceling thousands of flights due to hurricane disruptions. Delta said
some of the strength in the latest quarter came from overseas.


ED BASTIAN, DELTA CEO: Currency is also having a benefit with the weaker
dollar, in terms of the desirability of travel going over to Europe, but
it`s the first time in about three years where our international unit
revenues outpaced our domestic unit revenues. So, we feel good about that
trend going forward.


HERERA: The company also warned that higher fuel costs would hurt
operating margins in the fourth quarter. Still, Delta managed to eke out
an almost 1 percent gain on the day, ending at $53.07.

JetBlue said the recent hurricanes will cut into its profits and in the
third and fourth quarter. For the third quarter, the airline said earnings
per share will be reduced by as much as 7 cents and as much as 13 cents for
the fourth quarter. JetBlue shares rose almost 1.5 percent to $20.53.

Kroger (NYSE:KR) said it is exploring strategic alternatives for its
convenience store businesses which may result in a sale of nearly 800
stores. The supermarket operator also reaffirmed its guidance for the year
and said it plans to cut costs and make larger investments in ecommerce.
The shares were up 1 percent to $20.78.

And the luxury handbag maker Coach (NYSE:COH) is changing its name to
Tapestry. The company, which bought Kate Spade and shoe maker Stuart
Weitzman, said the name change reflects that the company houses several
brands. Coach (NYSE:COH) will also change its stock ticker to TPR. Shares
of Coach (NYSE:COH), or should I say Tapestry, finished down by nearly 3
percent to $38.87.

MATHISEN: Well, after the bell, the networking company Juniper Networks
(NYSE:JNPR) cut it sales and earning outlook for the current quarter. The
company cited lower revenue in its cloud vertical. Shares initially fell
following the news and ended the regular day down more than 1 percent at

And prepaid card company Blackhawk Network is also forecasting
disappointing results after the bell. The company said increasing
competition in the retail market would cause earnings and revenue for the
year to miss estimates. In the latest quarter, the company beat profit
expectations. Shares initially lower in the extended session. They
finished the regular day down about 1 percent at $44.20.

HERERA: It was a heart breaker and perhaps the worst loss in the history
of U.S. men`s soccer. The American national team fell to the last place
team from Trinidad and Tobago, failing to qualify for the World Cup for the
first time since 1986. Now, you might think this is just a sports story,
but it`s a lot more than that. A number of companies have a lot riding on
this event.

Eric Chemi is following the story for us tonight.

Good to see you, Eric, as always.


HERERA: It was a heartbreaker. I watched it and I couldn`t believe it.
But the networks probably were looking at it. Television had a lot of
riding on it.

CHEMI: Fox in particular. They are spending $400 million for the next two
World Cups, call it $200 million per tournament. That`s four times as much
as ESPN spent per tournament in the previous one. So, this is a big

And if you don`t have the most popular team in America playing, it`s one
thing to get Mexico ratings or England ratings, it`s not the same to get
American ratings.

MATHISEN: The U.S. ratings can drive that.


MATHISEN: The sponsors have spent a lot of money backing the U.S. team.
They want to reach the U.S. audience. Who is spending the most on
sponsorships? How much are they going to feel this?

CHEMI: So, it`s a mix between U.S.-based sponsors and broader FIFA
sponsors who sponsor the whole tournament. So, some of these names like
AT&T (NYSE:T), Coke, Nike (NYSE:NKE), McDonald`s (NYSE:MCD), Visa (NYSE:V),
Anheuser-Busch, the big brands that we think about when we watch a Super
Bowl or the Olympics, that level of companies, and, you know, similar
amounts of money there.

But again, if you`ve got other stars from other countries, hopefully,
people will still watch.

HERERA: Right, because it`s a global sport.

CHEMI: Right.

HERERA: And it`s very popular all over the world. So one would think
there would be over ripple effects, either positive or negative.

CHEMI: Yes, the ripple effects can go a few ways, because if you think
about soccer development until the U.S., what does it mean for major league
soccer if you don`t have the young people watching, or if they`re not
interested in playing or they think America is not even good enough to make
the World Cup, why would I try to make a career in soccer player? I`ll go
basketball or football.

So, there`s a lot of things here and ecosystem of all those companies that
sell shoes and gear and getting kids and parents to buy all that stuff.
So, big ecosystem —

MATHISEN: I don`t want to catch you flat footed here, where is the next
World Cup this next season?

CHEMI: It`s going to be in Russia.

MATHISEN: It`s in Russia.

CHEMI: So, that brings its own complications of sponsors who didn`t want
to get involved because as we know, Russia has a lot of issues with
cheating in other sports and things like that.

MATHISEN: And you also have time shifting issues for the U.S. market.

CHEMI: Right. The ratings would already have trouble because of that time

MATHISEN: Interesting story. A heartbreaking loss.

HERERA: It really was.

CHEMI: For a lot of people.

HERERA: They just had to have a tie.

CHEMI: Or not score a goal on themselves.

HERERA: Exactly.



HERERA: Thank you, Eric, as always. Eric Chemi.

MATHISEN: All right. Coming up, Facebook`s CEO takes the stage at a time
when the company is under increased scrutiny. We`ll tell you about that
after this.


HERERA: Personal computer shipments fell for the 12th straight quarter.
According to Gartner (NYSE:IT) Research, weak back to school sales are
partly to blame. Shipments of Apple`s Mac were lower by about 5.5 percent.
HP was the only major PC maker to see a gain.

MATHISEN: Well, the massive Equifax (NYSE:EFX) hack reportedly compromised
driver`s license data for more than 10 million Americans. According to
“The Wall Street Journal”, the license information was taken by those
hackers who also took vital personal information like Social Security
numbers. Information various by state but licenses typically do include a
person`s name, date of birth, home address, and personal details like your
eye and hair color.

HERERA: And finally tonight, Facebook (NASDAQ:FB) and Instagram were down
temporarily for some users today because of what the company said was a
networking issue. But the timing could not have been worse. The company
faces intense scrutiny from government officials over its role in spreading
false news reports and apologized for what people called a tone-deaf
virtual reality trip to Puerto Rico.

And today, CEO Mark Zuckerberg took the stage at a corporate event.

Julia Boorstin has more.


hasn`t been the out of this world hit that many hoped. But Mark Zuckerberg
took the stage at today`s Oculus Connect Conference to say this is just the

MARK ZUCKERBERG, CEO, FACEBOOK: We believe that one day, almost everyone
is going to use virtual reality to improve how we work, how we play, and
how we connect with each other. But we know that the most important
technologies don`t start off mainstream.

BOORSTIN: To drive adoption, Zuckerberg announcing a new $199 headset, the
Oculus Go. It doesn`t need a mobile phone or a PC, calling it the most
accessible VR headset ever.

LANCE ULANOFF, MASHABLE EDITOR-AT-LARGE: This could be a game changer,
people are already excited about it. But it`s a sort of a loss leader for
Facebook (NASDAQ:FB), because they`re pouring a ton of money into VR and
they`re not going to see a lot of return on it for quite a long time.

BOORSTIN: Today`s announcements come up after a rough year for VR. Oculus
has slashed prices on its headsets, Nokia (NYSE:NOK) shut down its VR
camera unit, citing the slow-growing market, and eMarketer says that VR
growth is slowing and will not reach mass adoption in the foreseeable

And just earlier this week, Zuckerberg was criticized for being tone deaf
in his attempt to promote his headsets, by demoing virtual reality
technology in a visit to Puerto Rico, an attempt to show consumers the
technology`s value outside gaming.

Zuckerberg apologized.

ULANOFF: It is super hard to get people excited, consumers excited about
virtual reality. So, a lot of people are going to come into it through
gaming. And then, as the prices come down, as it gets simpler to use, they
may start to expand into these other areas.

BOORSTIN: Zuckerberg showcased VR`s range of uses. Doctors prescribing VR
for pain relief and using it to study the heart. Zuckerberg setting a goal
of getting a billion people into VR. We`ll have to see if the new cheaper
headsets tip the product to the mainstream.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.


MATHISEN: And before we go, one more look, why not, at a record day on
Wall Street, all three of the major indexes at record levels at the close.
The Dow up 42 points at 22872, Nasdaq up 16, and the S&P 500 packed on

HERERA: That will do it for us tonight. For NBR, I`m Sue Herera. Thanks
for joining us.

MATHISEN: Thanks from me as well. I`m Tyler Mathisen. Have a great
evening, everybody. And we`ll see you back here tomorrow.


Nightly Business Report transcripts and video are available on-line post
broadcast at The program is transcribed by ASC Services II
Media, 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) 2017 CNBC, Inc.


This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply