Transcript: Nightly Business Report – September 3, 2019

ANNOUNCER:  This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill  Griffeth.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  September slump.  Stocks  tumble to start the month after the new report on the economy adds to  worries about the impact of the escalating trade war.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  It`s the economy.  Why now  through the end of the year could determine who wins the White House in  2020.  

GRIFFETH:  Home sweet home.  A growing number of millennials are ready to  buy homes and it could heat up an otherwise cool housing market.  
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Tuesday,  September 3rd.

HERERA:  Good evening, everyone, and welcome.  
Well, September is living up to its reputation as being a rough month.   We`re only one day in and today was pretty bumpy.  The trading day started  with new tariffs on U.S. and Chinese goods, marking the latest escalation  in the long-running trade war between the world`s two largest economies.   That dampened investor sentiment.  

Then came a weak report on manufacturing.  Its weakest read in three years,  raising fears of an economic slowdown and that dented sentiment further.   Investors loaded up on gold and U.S. treasuries sending yields lower and  pressuring bank stocks.  

And by the close, the Dow Jones Industrial Average fell 285 points to  26,118.  The Nasdaq was down 88, and S&P500 slid 20.  
Seema Mody starts us off tonight from the New York Stock Exchange.  

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Wall Street started the  month of September on a down note as President Trump come forth with a new  set of tariffs.  Investors are losing faith that a trade deal will be  reached before the end of the year.  This as officials from the US. and  China had yet to confirm a date for a September meeting that would launch  another round of trade talks.  

Stocks continue to decline after the Institute for Supply Management`s  manufacturing index unexpectedly contracted for the first time in three  years, due in part to tariffs and the broader global slowdown.  At one  point, The Dow Jones dropped 428 points, but finished off the lows of the  day.  Industrials, many of which are exposed to China, led the major  indices lower as did energy and technology stocks like Apple (NASDAQ:AAPL)  and Amazon (NASDAQ:AMZN).  

September is historically a bad month Wall Street.  Strategists are worried  that this September could be especially tough for investors as U.S.  tensions remain high and worries over whether the Federal Reserve will cut  interest rates at its next policy meeting.  Tomorrow, investors will be  keeping a close eye on the manufacturing data released from a number of  European countries and a speech from Dallas Fed President Robert Kaplan.  

GRIFFETH:  And as she just mentioned, trade was a major overhang on Wall  Street today as it has been for quite some time and those escalating  tensions are getting trickier for businesses to navigate.  
Kayla Tausche has that story in Washington tonight.  

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Many products  leaving ports in China and the U.S. over the weekend just got more  expensive.  With the U.S. charging 15 percent on footwear, clothes and  certain tech products totaling $112 billion.  China slapping tariffs on $75  billion in goods.  A late June truce between Presidents Trump and Xi short  lived as the two economic powers are back to battling over trade with the  holiday season around the corner.  

GARY SHAPIRO, CONSUMER TECHNOLOGY ASSOCIATION:  He`s promised us now for a  year and a half this is just a short-term thing and we`ve gone along with  it, not happily, of course, but he keeps increasing.  He`s increased so  much now on almost every product that consumers are going to feel it.  In  fact, businesses are already feeling it.  

TAUSCHE:  The hit could have been worse.  Three sources say President Trump  wanted to double existing tariffs after learning of China`s retaliation.   Treasury secretary and the U.S. trade representatives enlisted CEOs to talk  Trump out of it.  

Days later, Secretary Mnuchin acknowledged Trump wanted more.  

STEVEN MNUCHIN, TREASURY SECRETARY:  His only second thoughts, as he said,  was maybe he should raise tariffs more.  

TAUSCHE:  President Trump said on Twitter he`d be much tougher on China  after his potential re-election, warning of China`s economy deteriorating  in the meantime.  

The Chamber of Commerce says for business, getting back to the negotiating  table would be more effective.  

TOM DONOHUE, U.S. CHAMBER OF COMMERCE:  And I think it would have been much  better doing that than continuing to ratchet up of who`s got the biggest  threat available at the time.  It`s all going to be paid by American  companies and American consumers between now and the end of the year.  We  should do better.

TAUSCHE:  A call between U.S. and Chinese officials last Thursday did not  produce any tariff relief.  The two sides had been discussing in-person  negotiations in Washington this month, but no date for those talks has been  set.  

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

GRIFFETH:  By the way, later in the program, we`re going to take you to the  town in China that makes roughly half the world`s Christmas lights and  ornaments.  We`re going to see how things have been charged there by the  trade war.  

HERERA:  When investors are not concerned about trade, they are worried  about the Federal Reserve and the path forward for interest rates.  And  that concern will likely build ahead of its policy meeting later this  month.   
Steve Liesman takes a look at what might lie ahead for the Fed.

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The breeze investors  feel is not a local wind, it`s a global downdraft in interest rates that`s  expected to blow harder this month.  On September 12th, the European  Central Bank meets, and on September 18th, the Federal Reserve meets.  Both  are expected to reduce interest rates or otherwise provide monetary policy  easing.  That could boost the Japanese yen, pressuring the Bank of Japan to  cut, and Mark Carney, the governor of Bank of England, he`s only holding  his fire until he knows how the U.K. is going to exit the European Union in  the Brexit process.  

In an exclusive interview in Jackson Hole, Mark Carney talked about the  impact of Brexit and trade.  

MARK CARNEY, BANK OF ENGLAND GOVERNOR:  Business investment is actually  running almost 25 percentage points below its previous trend.  Business in  the U.K. and quite reasonably said, wait a minute, I`m going to wait until  if they have any exposure to Europe, either upstream or downstream, they  decided to wait and see what are the new rules of the game going to be.   That`s part of what`s happening worldwide as people saying, well, OK, I`ve  got exposure to Chinese supply chain or U.S., let me see where this settles  out.  

LIESMAN:  There`s a widespread ride now in global interest rates.  China`s  central benchmark rate is at 4.35 percent.  The U.S. at 2.13.  The U.K. at  just three quarters of a percent while Europe is at zero, and Japan is  minus 0.1.  

It`s not just Central Banks in the developed world that are cutting.  Of 37  emerging market central banks looked at by “Reuters”, there`s been a net 14  cuts in August.  That`s the most in a decade.  And that`s up from eight net  cuts in July and it`s the seventh straight month of cuts from these banks.  

The Fed is expected to cut rates in September and again in October.  That  could prompt another global downdraft in interest rates.  The question is,  is the tailwind provided to economies from lower rates enough to offset the  headwinds from slower growth and a trade war?

GRIFFETH:  There was some positive news on the economy today.  Construction  spending ticked higher in July after falling more than 2 percent so far  this year.  According to the Commerce Department, government spending on  schools, sewers and the water supply picked up as did construction for  single family homes.  

HERERA:  A key vote in the U.K. parliament tonight and a potential major  blow to the new prime minister.  Lawmakers moved to take control of  parliament.  A vote will now be held tomorrow which could prevent the  government from being able to withdraw from the European Union without a  deal at the end of October.  

A so-called hard Brexit is something economists have viewed as a risk to  the global economy.  

GRIFFETH:  So, trade, slowing economy, the Fed, they all continue to weigh  on stocks as we begin this month September.  What`s it going to bring for  investors?  

We have two market pros with opposing views on that tonight with us.  
Barry Bannister is head of equity strategy at Stifel.  He sees a tough  month ahead for stocks.  

While Kristina Hooper thinks that the market is going to hold up fairly  well.  She`s chief global market strategist at Invesco.  
Good to see you both.  Thanks for joining us tonight.  


GRIFFETH:  Kristina, I`m gong to start with you.  We had an epic volatility  in the month of August with all kinds of issues going on with the trade war  and the Fed.  If I`m reading your notes right, you see things settling down  a bit?  What do you see happening in September?  

HOOPER:  Well, I expect more volatility, but we could see a similar  scenario that we saw in August, where we get a lot of negative news flow, a  lot of fluctuations in the stock market, but ultimately, finish the month  in fairly good standing, with stocks holding their own and possibly eking  out gains.  

HERERA:  Barry, you think it is going to be a rough September.  I mean, we  just detailed what`s going on in the U.K. with Brexit.  That`s another fly  in the ointment in terms of global tensions that are out there.  How do you  see September playing out and what role will the Fed play?  

BARRY BANNISTER, STIFEL HEAD OF EQUITY STRATEGY:  Well, to me, it looks  like a game of two chickens, right?  So, on the one hand, you`ve got the  Fed and the trade policy in the White House going head on to each other and  neither one wants to turn their car.  So, it`s like a game of chicken.  

And the other hand, when you look at the market, it`s a chicken and an egg  problem in that eggs are going to have to break before the Fed turns  chicken enough to start whacking those rates.  The Fed took rates up at the  end of last year to 2.4 percent in a world with zero rates.  It was just  too tight for the rest of the world.  

And so, in effect, the rest of the world has slowed down.  U.S. exports are  going to weaken appreciably.  We`re probably going to see an inventory pile  up.  The industrial sector was weaker than we expected.  

So, it looks pretty tough until we can convince the Fed to really cut those  rates aggressively, which they need to do.  They`re the biggest problem  right now.  Keeping those rates above 2 percent on the short end, which is  way above the 10-year yield right now.  

GRIFFETH:  Barry, how — what are you expecting this month?  Are you among  those who would like to see 350 basis points cut in September?  

BANNISTER:  Well, absolutely.  I think they need to at least move towards  what the futures expect.  Well, the market`s job is essentially to riot,  until the Fed adapts to what the market expects.  

So, when you think about it, the Fed funds expected, expected by the  futures market to be 1 percent at the end of 2020.  They`re at 2.1 now and  not talking about anything like that kind of rate cut.  So, yes, they need  to move and they need to move fast.  

GRIFFETH:  Kristina, you think the Fed can probably be positive for the  stock market if indeed they do cut rates, but what about for the economy?
HOOPER:  Well, I don`t think the Fed has the cure for what`s ailing the  economy, which is tariffs.  The only thing that can stop that is a  resolution to the trade war.  But the Fed does have in its arsenal,  monetary policy tools that can be very supportive of risk assets.  All we  have to do is look back to the global financial crisis and how well stocks  and other risk assets did.  

And we could see a replay of that again where accommodative, monetary  policy, Fed rate cuts enable stocks to not only hold their own, but make  some gains.  

GRIFFETH:  So I`ll ask you the same question.  How much do you think the  Fed will cut rates this month?  

HOOPER:  I expect the Fed will cut rates by 25 basis points.  And I —

GRIFFETH:  And what will the market`s response be to that do you think?  

HOOPER:  I think markets will accept it and we could see stocks move  slightly higher, as long as the messaging remains dovish.  That`s really  what`s critical in September.  

HERERA:  Would you agree with that, Barry?  It`s the messaging, not  necessarily the move?  

BANNISTER:  The messaging obviously and Chairman Powell`s press conference  would be very important when they have the September meeting, but the  quarter point I think would not be enough.  I think the market would be  disappointed.  

The other thing to consider is that all this talk of trade war, the U.S.  economy what`s called the domestic GDP is holding up very well.  The  unemployment is exceptionally low.  

The real problem is the international.  The trade war is much harder on the  rest of the world than it is on the U.S.  


BANNISTER:  And a lot of the global companies in the large capitalization  index, they`re suffering for it.

GRIFFETH:  All right.

BANNISTER:  So that`s why it`s important. 

GRIFFETH:  We must move along, but a good conversation from both of you.   Thank you.  

Barry Bannister with Stifel, Kristina Hooper with Invesco, thanks for  joining us tonight.  

HOOPER:  Thank you.  

HERERA:  It is time to take a look at some of today`s “Upgrades and  Downgrades”.

Snap, the parent company of Snapchat, was upgraded to outperform from  inline at Evercore.  The analyst cites the company`s move into gaming.  The  price target is $20.  The stock rose a fraction to $15.93.  

Square was upgraded to buy from hold, but SunTrust Robinson Humphrey, the  analyst there cites the company`s investments in his point of sale card  readers to attract some new customers.  The price target is $80.  Despite  the upgrade, the stock fell 1 percent to $61.13.  

GRIFFETH:  Boston Beer (NYSE:SAM) was downgraded to underperform from hold  at Jefferies today.  The analyst cited increased competition in that hot  alcoholic seltzer drink market right now.  Price target, $332.  The stock  fell 6 percent today to $411.10.  

Amazon`s Price Target (NYSE:TGT) was raised to $2,600 from $2,250 by RBC  Capital Markets.  The analyst cites the company`s new prime one day  shipping initiative.  The firm has an outperform rating on the stock and  Amazon (NASDAQ:AMZN) rose a fraction today $1,789.84.  

HERERA:  Coming up, open house.  Some millennials are jumping into the real  estate market and it`s showing up in home prices. 

HERERA:  Google (NASDAQ:GOOG) may be the next target of a new antitrust  prob.  According to “the Washington Post (NYSE:WPO),” more than half of the  nation`s state attorneys general could announce an investigation next week.   Many states have been critical of Google (NASDAQ:GOOG) for its handling of  user`s personal information and its searches.  Over the summer, the  Department of Justice announced its own broad review into big tech.  

GRIFFETH:  Walmart is scaling back its firearms sales.  The world`s largest  retailer said today it`s going to stop selling handguns and certain types  of ammunition and it will no longer allow customers to openly carry  firearms in its stores while they shop.  

CEO Doug McMillon said that the policy shift was a response to those fatal  shootings in two of his stores last month and he admitted that Walmart will  likely lower its market share of ammunition sales from 20 percent to as  little as 6 percent.  Shares of Walmart rose slightly in today`s session.   The shares of gun makers and firearm retailers, they fell in today`s  trading.  

HERERA:  There are reports that new delays could keep Boeing`s 737 MAX  grounded into the holiday travel season.  According to “The Wall Street  Journal,” a tense meeting last month between Boeing (NYSE:BA) and  international regulators has pushed out the jet`s return.  

As we reported, United pushed back the MAX`s return into December and  American made a similar announcement over weekend.  Boeing (NYSE:BA) was  the biggest drag on the Dow index today falling more than 2.5 percent.  

GRIFFETH:  Home prices had been cooling off for much of this year, we knew  that.  But that may not be the case anymore.  Demand is rising again,  especially among one segment of millennial buyers.  
Diana Olick explains.  

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  They may have waited  longer than other generations, but older millennials are finally buying  homes and at a faster clip, thanks to low mortgage rates and rising  incomes.  More than a quarter said they want to buy a home in the next  year, according to a new survey by Core Logic.  

That may be reigniting the fire under home prices.  Home price gains had  been shrinking over the year, but gains turned higher again this summer.   Home prices were 3.6 percent higher in July compared with July 2018,  according to Core Logic.  That is wider than the 3.4 percent gain in June.  
Core Logic is now predicting an even larger 5.4 percent annual price gain  by July of 2020.  There is though a massive imbalance between supply and  demand, especially on the lower end of the market where demand is  strongest.  That`s where supply is leanest.  

Sales on the low end fell 10 percent in July because there was so little  for sale.  Sales surged higher in the move up market where there are more  listings.  More listings would likely come on the market in early fall  before the winter freeze, but given the strong demand, it is unlikely to be  enough.  
For NIGHTLY BUSINESS REPORT, I`m Diana Olick, in Washington 

HERERA:  AT&T (NYSE:T) inks a new leasing deal with American Tower  (NYSE:AMT).  That`s where we begin tonight`s “Market Focus”.  
The long-term tower leasing deal streamlines wireless distribution at  American Tower`s U.S. sites.  It will also help AT&T`s deployment of 5G and  other next generation technology across the country.  American Tower  (NYSE:AMT) shares rose more than 3 percent to $237.84.  AT&T (NYSE:T)  shares were up a fraction to $35.38.  

Retailer Conn`s (NASDAQ:CONN) saw a boost in new store offerings, improved  online offerings, and favorable credit performance.  All of that helped the  company top expectations.  Conn`s also plans to expand its presence with  more locations in the next fiscal year.  The stock rose more than 18  percent to $23.85.  

Bio pharma firm The Medicines Company (NASDAQ:MDCO) said late stage trial  of an experimental drug showed lowering level of bad cholesterol.  The  drug, which is used twice a year, was tested against the placebo in  patients with heart disease.  Shares of The Medicines Company (NASDAQ:MDCO)  rose more than 10 percent to $46.31.  

GRIFFETH:  Spark Therapeutics and Roche have again extended Roche`s $4  billion offer for the gene therapy firm as regulatory reviews continue.   That extension now runs until October 1st.  Spark Therapeutics rose more  than 1 percent today to $98.67.

After the bell, Tyson Foods (NYSE:TSN) said that it is lowering its full  year guidance due to a number of factors, including market volatility, a  beef processing plant fire and slower than expected operational  improvements in its chicken brand.  Shares dropped in initial after hours  trading this evening, but they closed the regular session up a fraction at  $93.29.  

And hedge fund Starboard Value says it`s going to be taking a more than 7  percent stake in cloud service provider Box.  Starboard calls Box`s shares  undervalued.  This new investment makes it now the second largest  shareholder in Box.  And those shares rose in initial after-hours trading  on that news.  They closed the regular session up 1-1/2 percent to $14.85.  
HERERA:  And as the calendar turns to September, so does the focus on  politics because some say what happens to the economy between now and the  end of the year could determine the outcome of the next presidential  election.  

We`re joined from Washington by Mark Avallone, president of Potomac Wealth  Economic Advisers, and John Harwood joins us as well this evening.  

Welcome, gentlemen.  Nice to have you here.


HERERA:  So, Mark, I`ll start with you.  What does history tell us about  how important the economic performance is in this latter part of the year  as it pertains to the election?  

AVALLONE:  Well, that`s certainly as we get closer to 2020, it`s going to  be the issue.  It`s the kitchen table topic that families talk about and  the unemployment rate and wage growth and the outlook on the economy is  going to be the biggest driver.  And that`s why there`s so much pressure  right now on the Trump administration to reach a deal with tariffs because  as we heard, that`s the issue driving the fear in the markets and that`s  what`s slowing global growth.  

GRIFFETH:  And, of course, John, there`s been talk of maybe a tax cut of  some kind.  A payroll tax cut.  The president has said the things that I  remember Ross Perot used the call the free candy that politicians on both  sides of the aisle like to hand out at certain times of the year.  
Is there anything the administration can do to balance the slowdown in the  economy if that happens because of the trade war?  

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT:  I think the biggest  thing the administration could do to help itself economically would be to  call a cessation to the trade war.  We`re in a very dangerous point for the  Trump White House because Americans perception of where the economy is may  be changing right now.  

We`ve had the backdrop of the entire Trump presidency, the idea that  markets were rising, the economy was growing in a robust rate.  Wages were  rising, especially for people at the bottom.  But we saw a poll last week  that showed for the first time in a long time, a plurality of people saying  the economy is more likely to get worse in the next year than better.  

And if, all of a sudden, the backdrop for the Trump re-election campaign is  a slowing economy or worse yet, one that`s in recession, all bets are off  because then the culture wars diminish in significance and the economy  becomes a driving factor to his detriment.  

HERERA:  Mark, we did get some economic news this morning.  Manufacturing  contracting sharply and you also make the point, it`s not just the tariffs  and trade war with China, but whatever administration says right now, they  also have some issues with Europe in terms of trade.  So, it`s kind of a  two front.  Is it not?  

AVALLONE:  Yes, and that`s what`s co me at least in terms of why not align  with our allies against the main trade predator, China.  And that would  make a clear landscape for an early resolution.  

The China trade war is also trickling into e emerging economies, creating a  global slowdown and while we are not primarily a manufacturing economy, it  is a growing importance.  It was thriving early in the first year or two of  the Trump administration, so we`re seeing everything being suppressed now,  whether it`s emerging countries growth, developed Europe growth, some  pockets at home.

And I think John made a good point as the year turns closer to the  election, how people feel about the economy is going to be just as  important if not more important than how the economy actually is.

HERERA:  Gentlemen, thank you very much.  Mark Avallone with Potomac Wealth  Advisors and John Harwood, thank you both.

AVALLONE:  Good to be here.  

GRIFFETH:  And coming up, how China`s Christmas village is trying to stay  jolly during the trade war.  

GRIFFETH:  In the news tonight, Hurricane Dorian.  Of course, it has been  devastating for those residents caught in its path, but it`s already  affecting a number of businesses.  Airlines have canceled 1,400 flights so  far.  Some airports have been shut down.  

One analyst estimates that cruise lines could see a reduction of five cents  per share for the current quarter, because of cancellations and UBS says  that hurricanes could cost insurers about $25 billion.  But share of those  insurers with exposures to Florida did move higher due to the storm`s  changing path off the coast.  

HERERA:  Members of the United Auto Workers Union granted union leaders  authorization to strike during contract negotiations with the big three  automakers.  The union said about 96 percent of members support the action.   GM will lead the negotiations which come amid a widening probe into union  corruption, which we told you about last week.  The industry is also  grappling with slowing demand and rising trade tension.

GRIFFETH:  Finally tonight, if you own Christmas lights or ornament,  chances are they were made in a small town in China.  It`s known as  Christmas Village.  But this year with the ongoing trade war, there isn`t a  lot of holiday cheer.  
Eunice Yoon is there for us.

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  I`m in the Chinese  town of Yiwu where it`s Christmas 365 days a year.  This eastern coastal  city makes roughly half of the world`s Christmas decorations.  Buyers come  from all over the world to meet with Chinese manufacturers here and hunt  for everything from artificial trees to dancing Santas.  
Manufacturers tell us for the most part, orders have been priced and  shipped for this year, but with new tariffs hitting this past weekend and  in December, they`re scared about orders for Christmas next year.  Some  estimate orders could drop by at least 10 percent.  

The Christmas industry is a low margin business and the factories believe  that the confrontation with the U.S. will last for another year or two at  least.  So, they`re looking for ways to survive and have more flexibility  than you might think.  Some are thinking of moving production to less  developed rural parts of China where they say land can be a tenth of a cost  here in the coast, and labor 40 percent cheaper.  

They`re also looking for to expand businesses in markets outside the U.S.,  in Europe, Latin America, the Middle East and Southeast Asia.  For many  manufacturers here, the U.S. only makes up 10 to 25 percent of their sales.   In the short-term, they`re working out with their customers who is going to  eat the tariffs.  Some of the manufactures say they`re absorbing 3 percent  to 5 percent.  

But this latest round of tariffs hitting so many consumer products, they  say that the cost will be shared with American retailers and consumers.  
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Yiwu.

HERERA:  Here`s another look at final numbers from Wall Street.  The Dow  fell 285 points.  Nasdaq down 88.  S&P 500 down 20.  

That`s NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks for  joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have a great evening.  We`ll see you  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) 2019 CNBC, Inc.

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