ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Tensions escalate. The president abruptly calls off an airstrike on Iran, rattling the energy markets and sending oil prices higher.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Big win. A new casino opens, but will the local Massachusetts community get all it gambled for?
GRIFFETH: Pipe dream. West Virginia was supposed to get billions from China`s state-owned energy company, but that`s not what happened.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Friday, June 21st.
HERERA: Good evening, everyone, and welcome.
The Dow flirts with record territory. More on that in just a moment.
But we begin tonight with energy. The entire complex came into focus on heightened tensions between the U.S. and Iran. President Trump said he was ready to strike but he called off an attack just minutes before its planned start. The strike would have been in retaliation for the downing of an unmanned American surveillance drone earlier this week, and any threat to the free flow of oil through that region gets the attention of energy investors.
Eamon Javers starts us off from the White House.
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EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump reversing course Thursday evening and giving an order to stand-down to U.S. military forces who had been poised to strike targets in Iraq of the Iraq. The president suggesting he did that because he was current about the potential for Iranian loss of life.
He sat down with NBC`s “Meet the Press” host Chuck Todd earlier today at the White House and here is how he explained his decision-making last night.
CHUCK TODD, NBC NEWS, “MEET THE PRESS”: Did you green light something or had you said if we do it I`ll do this? What was the order you gave?
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Nothing is green lighted until the very end because things change.
TODD: OK. So you never gave a final order.
TRUMP: No, no, no. We had something ready to go subject to my approval. They came in about a half hour before and said, sir, we`re about ready to go. I said I want to better definition —
TODD: Were planes in the air?
TRUMP: No, we`re about ready to go. No, but they would have been pretty soon and things would have happened, to a point where you wouldn`t turn back or couldn`t turn back. So they came and they said, sir, we`re ready to go, we would like a decision.
I said I want to know something before you go. How many people will be killed? In this case, Iranians. I said, how many people are going to be killed. Sir, I would like to get back to you on that. Great people, these generals.
They said — came back, said, sir, approximately 150. And I thought about it for a second. I said, you know what? They shot down an unmanned drone, plane, whatever you want to call it, and here we are sitting with 150 dead people that would have taken place probably within a half hour after I said go ahead.
TODD: Yes.
TRUMP: And I didn`t like it. I didn`t think it was — I didn`t think it was proportionate.
JAVERS: Now, it is a little bit unclear where this leaves President Trump. What is he going to do about Iranian hostility in the region?
The Iranians have said that they may move forward on their nuclear program in the coming weeks. Not clear now what options the president would consider. He did say that striking down a drone was different from striking down a manned military vehicle. That is nobody on the U.S. side was killed, that`s why the president says he decided to hold off on airstrikes against Iran this week.
For NIGHTLY BUSINESS REPORT, I`m Eamon Javers at the White House.
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GRIFFETH: And there was another development that affected energy prices today, an explosion early this morning rocked an oil refinery in Philadelphia. The 150-year-old facility is the largest such refinery on the East Coast. It processes hundreds of thousands of barrels of crude oil daily and turns it into gasoline. News of the explosion and fire sent gasoline futures sharply higher today, and the price of domestic crude settled at its highest level in three weeks after a one-week gain of roughly 9 percent.
HERERA: Mike Kelly joins us to discuss what it all may mean for energy prices. He is head of research at Seaport Global Securities.
Mike, welcome. Nice to have you here.
MIKE KELLY, SEAPORT GLOBAL SECURITIES HEAD OF RESEARCH: Sue, thank you for having me.
HERERA: What are the implications of the explosion last night in terms of the backdrop of a 9 percent gain on the week in crude oil prices? How much is that going to add to either advances or is the market going to take it in stride?
KELLY: Yes, so two items we`re really dealing with today. It was not a boring day to be an energy analyst, that`s for sure. So the Philadelphia refinery fire, I think that`s going to be more temporary in nature. That may drive, you know, prices for gasoline, what consumers will pay at the pump in the Northeast, 5 to 10 percent higher, but we`ll make that back. We`ll import more gasoline if we need to. That`s not that big of a deal.
It`s — Iran is the nearest big-term issue, the biggest driver that could send crude prices — if this escalates $10 to $20 higher, given how important Iran is in the international markets as a supplier of crude.
GRIFFETH: And along those lines, Mike, another Wall Street energy analyst said something this week I`m intrigued about. She said she feels that the price of crude oil, whether it is domestic or Brent North Sea, would be above $100 a barrel if it were not for U.S. production. She said if this happened five years ago, oil would be at $100 a barrel.
What do you think?
KELLY: Yes, I agree with that 100 percent. We were in 2014, $100 what we averaged. Then we had a thing called shale and fracking. So, we figured out how to unlock an unbelievable amount of black oil here in the U.S. and that changed the game.
GRIFFETH: So does the United States become the flex producer in effect that Saudi Arabia used to be?
KELLY: They`re both — they`re both kind of flexible players. Right now, you know, Saudi will — they`re taking barrels off the market to basically make room for U.S. — U.S. crude. And U.S. becomes a flexible producer when oil prices get too low, and then they just — $45, they say, hold up, this doesn`t make sense, and they stop and you get a little bit of rebound in oil prices. So, that`s kind of the way those two key players will keep crude, we think between kind of a $45 and $65.
HERERA: On that note, Mike Kelly with Seaport Global Securities. Thank you very much.
KELLY: Thank you.
HERERA: A bit later in the program, our market monitor has names he says can weather these geopolitical tensions.
GRIFFETH: To the market now, it was a choppy session today that saw the Dow briefly trade above its all-time high close, but it did fail to hold those gains. At the close, the industrial average was down 34 points. We finished at 26,718. Nasdaq was down 19, and the S&P slid by three after hitting its own all-time high yesterday.
It was a strong week, though, for the major averages as investors cheered the prospects for a rate cut by the Fed.
HERERA: And a number of Fed officials today made the case for an interest rate cut. Minneapolis Fed President Neel Kashkari said he pushed for a cut at this week`s meeting because he feels it is too low. St. Louis Fed President James Bullard said he wanted the central bank to approve an insurance rate cut this week as a guard against weaker growth and low inflation.
And vice chair, Richard Clarida, said that the case for monetary policy accommodation has increased.
GRIFFETH: Home sales picked up in May, rising more than expected thanks in large part to lower mortgage rates, but that boost for buyers could come back to bite them.
Diana Olick explains.
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UNIDENTIFIED FEMALE: The difference a little bit makes.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home buyers are feeling more confident in the market. Sales of existing homes just 2.5 percent in May compared to April, although they were still slightly lower than a year ago, falling mortgage rates are behind the bump.
LAWRENCE YUN, NAR CHIEF ECONOMIST: When the mortgage rate falls, it increases the purchasing power of home buyers, so when the rates were falling, the buyers are taking advantage of better opportunity and large purchasing power. And, therefore, they are able to bid higher on home prices.
OLICK: Mortgage rates began falling at the start of this year, taking a sharp dip in March when a lot of the May contracts were signed. At the same time big gains in home prices were shrinking and competition was slowing.
But falling mortgage rates are a double-edged sword. They help buyers afford more and they bring more buyers into the market. Both increase competition and reignite the fire under home prices.
And that`s precisely what happened in May. Home prices were up 4.8 percent annually, the biggest gain since last August. Lower rates combined with still very low supply mean cooling prices are clearly over.
YUN: Lower mortgage rate is clearly good for the housing market, but what we need is more supply. If we have more supply, home prices would not be rising or reaccelerating.
OLICK: But with current owners now staying in their homes longer and builders still underperforming the market demand, more supply is not exactly on this summer`s horizon.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
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HERERA: Time to take a look at some of today`s “Upgrades and Downgrades”.
Caterpillar (NYSE:CAT) was downgraded to underweight from neutral at Atlantic Equities. The analyst cites macro economic concerns. He says weak first half economic data might lead to slower second demand for the company`s heavy farm equipment. The price target is $110. Despite the downgrade, the stock rose a fraction to $133.90.
Carnival (NYSE:CCL) was downgraded to equal weight from overweight at Barclays. The analyst cites the company`s challenges in Europe, which could continue into next year. Carnival (NYSE:CCL) reported earnings yesterday. The price target is $55. The shares fell more than 4 percent to $46.63.
LabCorp was upgraded to buy from hold at Deutsche Bank. The analyst cites increasing optimism over that company`s contract research business. The price target is $220. The stock rose more than 1.5 percent to $170.80.
GRIFFETH: Wynn Resorts (NASDAQ:WYNN) has made a big bet on Massachusetts, and in return, a Massachusetts town has made a big bet on Wynn. And they will both soon find out if their hard-fought wagers have paid off. Contessa Brewer is in Everett, Massachusetts, for us tonight.
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CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Boston has never seen anything like it. The $2.6 billion encore Boston harbor opens this weekend. The thing is, it`s not actually in Boston.
MAYOR CARLO DEMARIA, JR. (D), EVERETT, MA: It is almost like a rebirth.
BREWER: The five-star casino resort is opening this weekend in gritty, hard-working Everett. The mayor, Carlo DeMaria, worked hard to see this come to life.
DEMARIA: We were a tired, old, industrial city, kind of transforming, a lot of scrap yards and used car lots, especially down in this area. And this is just — this is just transformation — it is unreal.
BREWER: Fifteen upscale bars and restaurants, a grand spa and conference center and, of course, the gaming floor. Wynn Resorts (NASDAQ:WYNN) is already exerting an upward pull. Nearly 6,000 workers hired, nearby property values on the rise, new businesses include a slew of breweries. It is built on a toxic waste site.
In 2017, Wynn Resorts (NASDAQ:WYNN) had budgeted $30 million to clean it up. It spent $70 million, and this week the water was declared so clean you can swim in it.
MATTHEW MADDOX, WYNN RESORTS CEO: We`re excited because our international customers are already talking about they want to come visit, they want to come to Boston.
BREWER: But getting here was a long slog. Local newspapers took a hard stance against gambling in general and Wynn Resorts (NASDAQ:WYNN) in particular, and neighboring cities including Boston fought Wynn tooth and nail.
Revenue sharing agreements helped overcome opposition. Then a year and a half ago, Wynn Resorts (NASDAQ:WYNN) was slammed by serious allegations of sexual misconduct against founder and former CEO, Steve Wynn, which he denied. He left but the company was fined $55 million by Nevada and Massachusetts regulators, punishment for the way it handled the allegations.
After intense investigations and public hearings, Wynn Resorts (NASDAQ:WYNN) was allowed to keep its gaming licenses. And what was the next step? The company reportedly engaged in talks with MGM to sell all of this. It didn`t happen, in part because the Everett mayor took a strong stand against it. Why did you see it as such an untenable deal?
DEMARIA: Oh, no. I mean, you know, we don`t make — we don`t downgrade a place.
BREWER: Already, Massachusetts is seeing the benefits of legalized casino gaming. More than $370 million collected in tax revenue from two smaller casinos. Encore Boston Harbor is expected to blow them out of the water.
Contessa Brewer, NIGHTLY BUSINESS REPORT.
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HERERA: Still ahead, the tourism industry`s new challenge: deaths of tourists in the Dominican Republic.
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GRIFFETH: The 18 largest U.S. banks have cleared the first hurdle of the Fed`s annual stress test. The Central Bank says that the financial institutions would survive in a crisis. The fed releases the second part of those test results next week. That part will determine whether banks can boost their dividends and buy back shares.
HERERA: The deaths of American tourists in the Dominican Republic has grabbed the attention of both Main Street and Wall Street. That country`s economy relies on vacationers, and there`s some evidence that travelers are cancelling their trips.
Seema Mody has more.
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SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Over 2 million Americans travel to the Dominican Republic every year, but following a number of mysterious deaths on the island, Americans are rethinking whether they want to travel there. So far, nine Americans have died at resorts in the Dominican Republic in the last year and dozens more have reported illnesses, raising concerns about the safety and security of tourists.
Tourism officials on the island say as of now the cases are isolated events, but reports suggest tainted alcohol could be the culprit. The Federal Bureau of Investigation is working with local authorities to investigate the deaths, but the results are not expected for weeks. With so many unanswered questions, travelers are thinking twice.
ZANE KERBY, AMERICAN SOCIETY OF TRAVEL ADVISORS PRESIDENT: We have a survey out in the field right now. The early signs are that demand has been curtailed somewhat. How long it lasts I think will be really up to the Dominican Republic government and the result of the FBI investigation.
MODY: According to a new survey, 60 percent of travel advisors have cancelled trips for clients to the Dominican Republic in the last week. Data from Ford Keys, which analyzes over 17 million flight bookings a day, paints a similar picture, with flight cancellations up 45 percent in the first half of June compared to the same period last year. This comes at an inopportune time for the travel and leisure industry, which has been investing in building new properties on the island over the past couple of years.
Analysts at SunTrust expect the decline in tourism to have a negative impact on companies like Playa Hotels, which has 20 percent exposure to the island. Cruise operators Carnival (NYSE:CCL) and Royal Caribbean, both with stops in the Dominican Republic, are monitoring recent events and reviewing the information from the State Department.
Online travel platform bookit.com said while it is seeing increased cancellations to the Dominican Republic, many of the customers rebooked trips to other Caribbean islands and Mexico. Experts say the trend is likely to continue.
KERBY: We have seen some cancellation and rebooking to other islands in the Caribbean, particularly Puerto Rico and other destinations that might have a safer reputation than the Dominican is experiencing right now.
MODY: For NIGHTLY BUSINESS REPORT, Seema Mody.
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GRIFFETH: UnitedHealth is buying health care payments company Equian. That`s where we begin tonight`s “Market Focus”.
With the “Wall Street Journal” saying that the health insurer agreed to buy the company for more than $3 billion, UnitedHealth would likely merge Equian into its Optum health services business which caters to insurers, hospitals and other health care companies. Shares of UnitedHealth rose nearly 2 percent to $252.28.
CarMax (NYSE:KMX) posted better than expected earnings and revenue as gains in vehicle deliveries offset a modest decline in prices. The used car retailer also saw an increase in its comparable dealership sales. CarMax (NYSE:KMX) shares rose more than 3 percent today to $85.64.
HERERA: Medtronic (NYSE:MDT) is increasing its dividend nearly 10 percent to 54 cents a share, up from 50 cents. It is the 42nd straight year that the medical device maker has raised its dividend. Shares were up a fraction to 99.38.
The bidding war for Sotheby`s may not be over. Earlier in the week, we told you that the auction house was sold to the French telecom mogul Patrick Draghi for nearly $3 billion. But “The New York Post” is now reporting that there could be at least two counter offers from rival investors. Sotheby`s rose more 4 percent to $58.92.
GRIFFETH: Now to our weekly market monitor, who has names of some ETFs that address two investment themes, technology and geopolitical disruptions.
Greg Luken is the founder and CEO of his own firm, Luken Investment and Analytics.
Greg, good to see you again. Welcome back.
GREG LUKEN, FOUNDER AND CEO, LUKEN INVESTMENT AND ANALYSTICS: Hey, good to see you.
GRIFFETH: Let`s start with technology. You have an EFT that you say diversifies beyond the FANG stocks. Is that the idea?
LUKEN: That`s exactly the idea. You know, most technology funds have benefited largely from four or five names that have lifted them, whereas FXL has exposure to about 90 names and gives more even exposure across the board. In fact, the top — top ten holdings only comprise less than 22 percent of the fund.
HERERA: Next on the list, we`re going international. It is a diversified markets ETF, emerging market specifically. The symbol is SPEM.
LUKEN: Yes. So this gives an investor broad exposure to emerging markets across the world. Emerging markets didn`t do well last year. They`ve underperformed U.S. markets this year, and those economies in aggregate are actually growing at a higher rate than the U.S. economy.
GRIFFETH: And the third one is another ETF that invests outside the United States, but, you know, this theme of trying to weather global disruptions, how would that help with that?
LUKEN: Well, good question, Tyler. I appreciate that. We believe that the global disruptions, so much of them are already baked into the price of these equities. So this owns companies like Unilever (NYSE:UN) and Nestle. If you eat Haagen-Dazs or Ben & Jerry`s ice cream or drink Carnation`s instant milk, you are using the companies in this and the companies have not performed well. And the geopolitical stresses, the terror threats are already baked into those prices.
HERERA: How do you feel about the market overall at this point, Greg? I mean, we`ve got a lot of headline risk lately. Are you overall bullish on the market despite your giving us hedges against volatility and the like?
LUKEN: We are still very bullish on the market, and there was really interesting price movement this week with gold, which can be a warning sign. So we`re cautious, but we still see in the service sector, the numbers there are still good. Manufacturing is slowing down obviously as a result of what`s going on with tariffs as companies adjust to — to the disruption that`s going on.
HERERA: Right.
LUKEN: And so overall we think it is still healthy.
GRIFFETH: All right.
LUKEN: The growth in manufacturing has slowed.
GRIFFETH: Greg Luken with Luken investments and analytics, good to see you again. Thanks for joining us tonight.
LUKEN: Thanks, Tyler.
GRIFFETH: I will tell Tyler you said hello.
Coming up, pipe dream as President Trump tries to negotiate a trade deal with China that`s enforceable at the national level. Here at home, the biggest deal the administration has already done with China is serving as a cautionary tale, coming up.
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GRIFFETH: The state of West Virginia was supposed to get nearly $84 billion from China`s energy giant, a boon for its blue collar energy and manufacturing workers that helped give President Trump his widest margin of victory in 2016.
But as Kayla Tausche found out, that promise two years later is a pipe dream.
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KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Under the foot hills of Appalachia sits a gold mine of natural gas. Vast reserves of underground energy by U.S. companies and foreign powers. That`s what China wanted when it reached a deal in 2017 with West Virginia, more valuable than everything the state produces in a given year. An $84 billion promise, endorsed by President Donald Trump and President Xi Jinping, billed as a game changer to the Mountain State.
UNIDENTIFIED MALE: Imagine the magnitude of what we`re talking about here.
UNIDENTIFIED MALE: This is the best thing that could possibly happen.
UNIDENTIFIED MALE: Really and truly, it is coming.
TAUSCHE: Eighteen months later, West Virginia`s Governor Jim Justice acknowledges the reality is much different.
Has there been any money that China energy has directly invested in West Virginia?
GOV. JIM JUSTICE (R), WEST VIRGINIA: No, I don`t think so.
TAUSCHE: China`s state-owned energy giant was expected to help fund three initiatives, the state`s new gas burning power plants, a so-called steam cracker that turns gas into a byproduct for plastics and fibers, and an underground reservoir called the Appalachia storage hub, to hold the region`s excess energy until it gets processed.
The goal, according to those involved, invest in the state`s infrastructure and send its natural resources back to China, but China is nowhere to be found.
JUSTICE: The stumbling block is our countries and the trade issue that we have. After we get through that, I think there could be a green light to it.
TAUSCHE: The production of the cracker stalled. The Department of Energy says it won`t be operational for at least three more years at its proposed location, an asphalts lot fenced in by wire. The power plants are under way, but lawmakers tell us Beijing is no longer investing, after the U.S. flagged national security risks with China`s involvement.
Then there`s the storage hub.
STEVE HEDRICK, MATRIC PRESIDENT AND CEO: Flexible storage for ethane and propane and butane.
TAUSCHE: Steve Hedrick runs a firm planning it. He joined state officials in China to tout the original deal.
When you went to China and learned it was going to be an $84 billion pledge, what went through your mind?
HEDRICK: That`s a lot of cash, is exactly what I thought.
TAUSCHE: Hedrick says he`d welcome a Chinese investment but now expects the $3.3 billion he needs to come from elsewhere.
So far as you know, is China participating in this?
HEDRICK: What we have seen thus far is investment out of the continental United States while our investor slate is proprietary at this point. So, we have only been invested in out of the continental U.S.
TAUSCHE: Dennis Xander has been drilling in West Virginia for the past 45 years. He doubts China could come close to the market it wanted to.
Are there $84 billion worth of shovel-ready projects here?
DENNIS XANDER, DENEX PETROLEUM PRESIDENT: No, no, no.
TAUSCHE: Would there be in ten years?
XANDER: Not that I`m aware of.
TAUSCHE: Would there be in 20 years?
XANDER: I doubt it. TAUSCHE: In a statement provided to CNBC, China Energy says its project in West Virginia is currently progressing as planned. However, because this stage of work involves business secrets, it is not suitable for media interviews.
It`s unclear how many stages the deal entails. The document is a memorandum of understanding between the two parties. It was never made available to the public and it is not legally binding.
Woody Thrasher signed off on that document when he was the state`s commerce secretary. He`s now running for governor.
Why get the state excited about something that could be years off or could not happen at all?
WOODY THRASHER, FORMER WV COMMERCE SECRETARY: Well, I don`t think there`s any question there was a lot of significance that took place with president Trump visiting with President Xi, and I think there was a great desire to show we`re going to work together and work on the trade imbalance. I think the temptation was too great not to sort of announce that deal.
TAUSCHE: Why not announce this deal when there was a document or an agreement that would require China to make good on its investment?
THRASHER: Well, that`s at a level that`s really at a national level in terms of sort of the enforcement.
TAUSCHE: It is a state deal.
THRASHER: Well, it is actually a private company that`s going to invest in the state of West Virginia, and it is their money. And any company in the world can invest in the state of West Virginia.
TAUSCHE: And you signed this deal.
THRASHER: Correct, in support of that investment, but it is not an enforceable document where we can make them spend their money.
TAUSCHE: For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, in West Virginia.
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GRIFFETH: And, by the way, there is currently a legal battle to make that document public so that the people of West Virginia can see what exactly China had planned and when a state judge has ruled against that, but the decision is being appealed right now. So we reached out to the Washington players involved. The White House declined to comment. The Commerce Department, which arranged the deal and its announcement, said that work does continue but it cannot guarantee success.
And you can read more about this story on our Website at NBR.com.
HERERA: Here is a look at the final day`s numbers on Wall Street. The Dow down 34. The Nasdaq was down 19. S&P slid three.
For the week, major averages were all up more than 2 percent.
And that does it for us tonight. I`m Sue Herera, thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great weekend.
HERERA: He is.
GRIFFETH: See you Monday.
END
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