ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Trade tensions flare. Optimism fades around the U.S.-Chinese talks just days before high-level negotiations are set to begin.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Alive and well. Despite all of the market challenges, we`ll talk to one strategist who says don`t bet against this bull.
GRIFFETH: Rising risks. How oyster reefs are protecting coastal real estate from erosion and storm surge.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, October 8th.
HERERA: Good evening, everyone, and welcome.
Investors would love to see an end to the trade war between the U.S. and China. But experts say it`s likely you`re going to have to wait. Stocks fell sharply today as tensions between the world`s two largest economies escalated, just days before critical high-level talks begin and higher tariff rates are scheduled to take effect.
Here are closing numbers. The Dow Jones Industrial Average fell 313 points to 26,164, the Nasdaq was down 132, and the S&P 500 lid 45.
We begin tonight at the New York Stock Exchange and Bob Pisani.
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BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was another tough day of trading. Stocks selling off as optimism falters around the U.S.- China trade deal, but we ended right near the session lows.
So, once again, the markets fight themselves beholden to these trade talk headlines and tensions are escalating as the week drags. Stock started today lower on news that the U.S. would be adding more Chinese companies to its export blacklist. Then it fell further on the word that the Trump administration was considering ways to limit U.S. investments in China like cutting down on investments made by U.S. pension funds.
Predictably, that put a lot of pressure on the usual cyclical names of banks and materials and retailers, and it`s taken a toll on chip makers like Qualcomm (NASDAQ:QCOM) and Broadcom (NASDAQ:BRCM) and Intel (NASDAQ:INTC). They all get between 30 to 60 percent of their revenues from China.
So, around 3:00 p.m. Eastern Time, the markets took a sharp return south on news that the U.S. Department of State would be imposing visa restrictions on some Chinese officials linked to the detention of Muslims in China, supposedly.
The market is increasingly coming to believe a trade deal, even an 80 percent deal, most of the way, might be unlikely this year, and that means that lower growth may carry over into 2020.
Finally, Brexit fears could also be adding to the nervousness. Some are concerned the British exit from the European Union will likely not end with a deal. A top official said a Brexit deal is essentially impossible following a phone call between British Prime Minister Boris Johnson and German Chancellor Angela Merkel. The two sides are slated to reach a consensus by October 31st, and so far, sources are saying any extension of that deadline it`s very unlikely.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
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GRIFFETH: Now, even before those visa restrictions were put in place, China made it very clear it`s not happy with the tone coming from the U.S. right now.
Eunice Yoon is in Beijing for us tonight.
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EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China`s message to the U.S. today: butt out of our domestic affairs. At its regular press briefing, the Foreign Ministry criticized the Commerce Department for expanding its blacklist to include more Chinese entities on the grounds of violating the human rights of the Muslim minority out west known as the Uyghurs. The ministry hinted that it could retaliate, saying Beijing would continue to take firm and resolute measures to protect its sovereignty.
Many of the listed companies like surveillance-camera firm Hikvision said they opposed the ban which would block American tech firms from supplying critical components. The U.S. decision will likely complicate talks set for later this week. The Commerce Ministry today confirmed that Vice Premier Liu He will be in Washington for high-level discussions Thursday and Friday with his U.S. counterparts, Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.
Prospects for a deal already appear dim after weekend report suggested that China would take state subsidies, a long-standing sore point of the U.S., off the table. Analysts are skeptical about a major deal this week and some believe that the two sides might only agree to meet again in Chile at the APEC Summit in November.
Fr NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
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HERERA: Just as talks between the U.S. and China are tense, so are discussions between the United Kingdom and its European counterparts when it comes to Brexit. As we mentioned, the U.K. prime minister wants to leave the European Union with or without a deal, and the clock is ticking.
Willem Marx is in Luxembourg tonight.
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WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a phone conversation that cascaded a currency. The British pound weaken sharply Tuesday after the German chancellor reportedly laid down some bricks at red lines in a call with her British counterpart.
Angela Merkel has been on the job almost 14 years. Boris Johnson, not yet 11 weeks. While Brexit`s economic and political challenges may have forced these two very different leaders to talk together, the British side today said their positions still remain far too far apart.
Last week, Johnson`s representatives arrived in Brussels with an entirely new roadmap to guide Britain out of the E.U. It asked the Europeans to change their current stance on customs checks that are currently unchecked and legally invisible border between Ireland and the U.K.
But so far, Brussels has refused to budge and in Westminster, that`s raised the parliamentary pressure for Johnson and his pro-Brexit allies.
MICHAEL GOVE, U.K. CONSERVATIVE PARTY: It is now time for the E.U. to move to. If it does, then there is still every chance that we can leave with a new deal. However, if the E.U. does not move, this government is prepared to leave without a deal on the 31st.
MARX: On days like this, when no deal looks even a little more likely, traders tend to sell the pound to calm their concerns. Impartial but still scathing analysis released Tuesday shows that leaving without a deal would desperately damage the U.K. economy and balloon British debt to a 50-year high.
And in neighboring Ireland, a new budget also out Tuesday use no deal Brexit as its baseline assumption. The Irish government may have to borrow around a billion and a half dollars to support Ireland`s businesses if profits suffer as anticipated.
Tomorrow when most of Europe`s finance ministers gather for their monthly meeting here in the E.U. smallest member state Luxembourg, each of them will be all too well aware of what a no deal Brexit could mean for their continent`s already faltering economies.
Diplomats say the outlines for an agreement should be sketched out before E.U. leaders meet Johnson next week. The head of the European Council, Donald Tusk, will host that meeting. But today, he accused Johnson of trying to win what he called a stupid blame game in case talks break down.
Meanwhile, the prime minister`s parliament critics said Downing Streets accounts for the Merkel call was a deliberate dog-whistle designed to provoke racist resentment towards Germany.
UNIDENTIFIED MALE: Then sparked a series of frankly, racist attacks.
MARX: Britain`s negotiating rhetoric and its currency may recently have been driven in a more negative direction. But tonight, three years on, the final destination for Brexit still remains uncertain.
For NIGHTLY BUSINESS REPORT, I`m Willem Marx in Luxembourg.
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GRIFFETH: Meanwhile, in separate speeches today, the leaders of the World Bank and of the International Monetary Fund both warned of a weakening global economic outlook.
World Bank President David Malpass said that growth is slowing because a Brexit Europe`s recession and trade uncertainty.
And in her speech, new IMF managing director Kristalina Georgieva said the global economy is now in a synchronized slowdown.
Both organizations hold their annual meetings in Washington next week.
HERERA: And then, there is the Fed. For a short while today, comments from Fed Chairman Jerome Powell help cut the market losses in half, though short-lived, it is a reminder of just how powerful the central bank can be.
Steve Liesman tells us what the chairman said and why it`s important to investors.
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STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fed Chairman Jerome Powell seven times in his speech Tuesday said interest rate policy that is whether they go up or down will depend on the data, the economic data that is. He added that the economy is in good shape overall despite some troubles on the horizon.
JEROME POWELL, FEDERAL RESERVE CHAIRMAN: Many indicators show a historically strong labor market with solid job gains, unemployment at a half century low, and rising prime age labor force participation. But there are risks to this favorable outlook, principally from global developments. The growth around much of the world has weakened over the past year and a half, and uncertainties around trade, Brexit and other issues pose risks to the outlook.
LIESMAN: What`s it all mean for the outlook for rates? Well, Powell did appear mostly neutral about what the Fed will do at its late October meeting. Markets took his comments is affirming their expectations for another rate cut.
JPMorgan (NYSE:JPM) writing in a commentary after the speech, quote, if the Fed leadership wanted to push back against market expectations of another ease later this month, we think Powell would have chosen language that didn`t all-out downside risks to the outlook. Speaking in Denver, the Fed chair also said the central bank will begins its increasing the size of its balance sheet that reverses a policy from last year where was reducing the balance sheet swell during the financial crisis to a more normal level.
POWELL: Growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis. Neither of the recent technical issues nor the purchases of treasury bills, we are contemplating to resolve them, should materially alter the stance of monetary policy.
LIESMAN: This was a major opportunity for Powell to change the market`s expectations for the late October meeting, and he seems to have chosen not to do so. So, it looks like another rate cut, another basis point rate cut is on the way to being delivered by the Fed right around Halloween.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
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HERERA: So, from the Fed, to warnings of a weakling global economy, to the ongoing trade war between the U.S. and China, there`s Brexit, market certainly is not without as challenges right now. But our guest tonight says the bull market is still alive and well.
We welcome back our friend, Jeff Saut, the market strategist at Capital Wealth Planning.
Jeff, good to see again.
JEFF SAUT, CAPITAL WEALTH PLANNING MARKET STRATEGIST: Always a pleasure.
GRIFFETH: But if the global economy is slowing down, that has to take a toll on earnings. Tariffs are still in place, that`s taking a toll on earnings. What`s going to power this bull market higher in your view?
SAUT: I think it`s going to be earnings. I mean, you know, Steve Liesman and my dear friend Arthur Cashin are two of the calming voices on Wall Street, and there`s not going to be and I — you know this about me, I lived in D.C. for a long time. I`m still pretty well-connected in D.C. There`s not going to be a trade deal with China in the near term.
Earnings have slowed but they`re going to reaccelerating it into 2020. The economy`s not going into a recession. GDP growth is probably going to be slow at about two, two and a quarter percent, but that`s actually the mother`s milk for a decent stock market.
And people — I`m telling you, I`m out here speaking not just to portfolio managers but to individual investors, and they`re not just cautious. They`re scared to death and that is not the way secular bull markets end.
HERERA: We are however hearing from companies that have reported their earnings in this past quarter and some that are starting to report now that the lack of a trade deal, the tariffs, and the dollar are all having an impact. What makes you think that the companies will be able to overcome those headwinds?
SAUT: Because I think the economy is going to re-accelerate, Sue, and I think if you`re using Edgar Denny`s (NASDAQ:DENN) (ph) estimates for next year, he`s around 177, 178, and my work shows that a fair market multiple is 19 times earnings in this low interest rate environment. Put a 19 multiple on one hundred and seventy seven hundred and seventy-eight dollars, you`re talking about 3,200.
And I would remind CNBC —
GRIFFETH: Thirty-two hundred on the S&P you`re talking about.
SAUT: Yes.
GRIFFETH: Yes.
SAUT: I would remind CNBC that for three weeks, at the end of September, I admonish that our models that called the August low, we`re telling you to be very cautious in the first part of October.
GRIFFETH: It`s a market of stocks though. I think you`ve told me many times before, not a stock market. So, who will power us higher? Which sectors do you like right now, Jeff?
SAUT: Well, you know, Wall Street will always — 55 years of looking at markets and 45 — excuse me, 49 years, my gosh I`m getting old in this business, the investors will always pay up for true growth.
So, technology is probably at the top of the list. I still like financials. It`s not been a good place to be for a while. But I like energy. Particularly, the midstream master limited partnerships.
Where I don`t like it`s where everybody crowded into, into utilities and consumer staples.
GRIFFETH: Jeff Saut with Capital Wealth Planning — always good to see you. Thanks for joining us tonight.
SAUT: Pleasure.
GRIFFETH: You bet.
HERERA: If the Fed wants to hit its inflation target, it may have to wait. The prices businesses receive for their goods and services unexpectedly fell in September, posting the biggest decline in eight months. According to the Labor Department, the producer price index was down 0.3 percent from the previous month, in part because of a pullback in trade services.
GRIFFETH: But there is apparently inflation in the price of some drugs. According to a new report out today, seven prominent medicines saw price increases above the rate of medical inflation which cost Americans an additional five billion dollars over the last two years. That study concluded that none of the price hikes had been adequately justified.
Companies though make those seven drugs have criticized that report for not factoring in the value of their drugs and the lives saved.
Still ahead, a trip to coal country.
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SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump`s promises to save the us coal industry are running into a bit of a roadblock. It`s called the free market. I`m Scott Cohn in Gillette, Wyoming, the heart of coal country. We`ll see how they`re coping, coming up on NIGHTLY BUSINESS REPORT.
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GRIFFETH: For several years now, the so-called millennial generation has been the focus of retailers and marketers because of its size and buying power. But as millennials age, attention is now turning to the next generation referred to as Gen Z, and according to Piper Jaffray`s annual survey of teenagers, this group is spending less, just about $2,300 on average annually, and that is the lowest spending level since 2011.
But it`s what they`re spending their money on that interests investors and retailers. For males in that category, food comes first, clothing is second, video games third. For females, it`s clothing, then food, then personal care.
When it comes to restaurants, Chick-fil-A is still number one, just as it was with millennials, followed by Starbucks (NASDAQ:SBUX) and Chipotle.
Nike (NYSE:NKE) remains the top apparel brand for nine years running, followed by American Eagle Outfitters (NYSE:AEO) and Adidas.
And when it comes to watching videos, teens are now choosing YouTube over Netflix (NASDAQ:NFLX) for the first time ever.
HERERA: Domino`s did not have the quarter that many were hoping for. The company reported weaker than expected third quarter earnings and revenue. That sent the stock initially lower but then later in the day, the CEO said the company would repurchase billion dollars in shares and that gave the shares a lift.
Kate Rogers (NYSE:ROG) has more on Domino`s quarter and its strategy.
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KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: A tough quarter for Domino`s, the world`s largest pizza company by retail sales as it faces pressure from emerging players. Domino`s cut its long term guidance, citing market uncertainty and competition from third-party delivery companies like Uber Eats and Postmates which make ordering food easier for you and the restaurant.
Many of Domino`s competitors have teamed up with those outside delivery brands, but Domino`s went in a different direction, believing its best long-run strategy is to handle deliveries in-house instead.
RITCH ALLISON, DOMINO`S PIZZA CEO: We`ve had a very strong and profitable delivery business for many years now. So, unlike a lot of the other restaurant brands, we don`t have to decide to get in or not, or try to figure out which of these third-party aggregators is ultimately going to be the win at the end of this shakeout. We`re really focused on, you know, building — continuing to build that delivery business with our franchisees, and do it in a profitable way for them, and we believe that means doing it on our own.
ROGERS: The brand is in the midst of a major expansion plan to open more stores close to one another in order to shorten delivery times and capitalize on the carry out market, which analysts at Guggenheim say represents a bigger opportunity than delivery does.
ALLISON: It`s about getting more stores on the map closer to our customers because the number one criteria when consumers choose is convenience, with carry out. And so, we`re going to continue to build more units and get closer and closer to them.
ROGERS: On the earnings call, Allison called the move proactive not reactive, and defended Domino`s strategy, while also maintaining that a shakeout is coming to the delivery industry.
One message was clear: Domino`s isn`t letting one rough quarter change its game plan.
For NIGHTLY BUSINESS REPORT, I`m Kate Roger.
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GRIFFETH: Boeing`s deliveries are almost cut in half. That`s where we begin tonight`s “Market Focus”, with the world`s largest plane maker saying it delivered 302 planes so far this year. That`s down 47 percent from the same period last year, and it trails rival Airbus`s deliveries of 570 aircraft. Boeing (NYSE:BA) also said today that last month, it booked its first order for a 737 MAX plane since April. The order was for a single plane. Boeing (NYSE:BA) did not identify the buyer. Shares fell a fraction today to $374.10.
Chemicals producers Celanese (NYSE:CE) is reportedly undergoing a strategic review that could end up with a breakup of the company. Bloomberg reports that the company is working with a financial advisor and that the review is in its early stages. Shares fell more than 1 percent today to $117.85.
HERERA: Helen of Troy (NASDAQ:HELE) which includes brands like Braun and Vicks, had strong sales which helped the company top analyst estimates. The consumer products company also raised its full-year outlook, but shares fell nearly 3 percent to $154.60.
Late tonight, a Pennsylvania jury said Johnson and Johnson must pay $8 billion dollars in punitive damages. The trial was related to the risk of male breast growth linked to Risperdal, a psychiatric drug. The stock fell an initial after-hours trading.
GRIFFETH: President Trump`s promises to save the U.S. coal industry are proving to be no match for the free market. Natural gas and wind energy are now both cheaper sources of power and that is creating some big challenges in coal country.
Scott Cohn reports tonight from the nation`s biggest coal producing states, Wyoming.
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COHN: In the heart of Wyoming`s coal rich Powder River Basin, Gillette bills itself as the energy capital of the nation, which made more sense a few years ago.
MAYOR LOUISE CARTER-KING, GILLETTE, WY: At one point, we were serving 40 percent of the nation`s needs of energy, and it has declined. Now, it`s probably in the 20s, 25, something like that.
COHN: Just this year, two mining companies with operations in Gillette declared bankruptcy, temporarily throwing 600 people or 3 percent of the county`s workforce out of work all at once. Coal production statewide is down 30 percent in five years.
GOV. MARK GORDON (R), WYOMING: Definitely it`s a time that Wyoming`s got to think about his future and what the future of coal is.
COHN: Never mind the promises by the president —
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Coal is coming back. Clean coal is coming back.
COHN: This is economics. Electricity from natural gas cost as little as half of power from coal, thanks to technologies like fracking. Wind energy, increasingly abundant, can cost even less.
And that`s making coal-fired power plants like this an endangered species in many parts of the country, the equivalent of about 25 power plants either retired or converted to natural gas last year alone.
With demand in the U.S. dwindling, companies in Wyoming and other western states have been seeking to export their coal overseas, blocked so far by West Coast states on environmental grounds.
GORDON: We are actively looking at what a lawsuit would look like.
COHN: In the meantime, they`re trying to turn the economics to their advantage, inviting researchers to set up shop in the shadow of Gillette`s Dry Fork Power Plant to study carbon capture, ways to make coal more cost- effective and environmentally friendly.
MIKE EASLEY, POWDER RIVER ENERGY CEO: Is there an opportunity to take that CO2 and instead of being a liability, to turn it into some type of an asset?
COHN: But that could be years away. These challenges are here and now. Wyoming`s budget, its economy and its identity are at stake.
For NIGHTLY BUSINESS REPORT, Scott Cohn, Gillette, Wyoming.
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HERERA: Coming up, little oysters are being used for a big task, to help protect coastal real estate from more intense storms.
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GRIFFETH: There is a surprising new weapon in the battle to preserve our shores from rising sea levels and increasingly severe storms.
Diana Olick has the details now in her continuing series on the rising risks to real estate.
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DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: At Manhattan`s iconic Gramercy Tavern, where the menu celebrates locally sourced sustainable food, something transformational is going on in the trash.
Gramercy Tavern is one of more than 70 New York area restaurants donating their wholly eaten half-shells to help repopulate the oyster reefs in New York harbor.
MICHAEL ANTHONY, GRAMERCY TAVERN CHIEF: When I learned a little bit more about their technique, then they had me hooked.
OLICK: Oyster reefs are natural barriers that protect shorelines from erosion, rising tides, and increasingly severe storm surge. They knock down the height and force of waves, but they`ve been decimated by a century of over-harvesting and worsening water quality.
ANTONIO RODRIGUEZ, UNIVERSITY OF NORTH CAROLINA PROFESSOR: We`ve seen a loss of almost 80 percent of oysters in estuaries worldwide.
OLICK: University of North Carolina professor Antonio Rodriguez studies oyster reef growth. He says the best way to protect the billions of dollars worth of coastal real estate from the effects of climate change is to go back to nature.
RODRIGUEZ: The goal is to keep people safe, keep their property intact, and sometimes making your environment more natural and you`re learning from the way the environment was before we developed it. Those are the best techniques.
OLICK: Oyster reefs are now being rehabbed from Massachusetts to Texas. In projects by universities, local municipalities, the U.S. Navy and Air Force.
MADELINE WACHTEL, BILLION OYSTER PROJECT DEPUTY DIRECTOR: This is the oyster hatchery of the New York Harbor School and it`s where Billion Oyster Project grows all of the billion oyster.
OLICK: The Billion Oyster Project is one of the most ambitious, a twist on farm-to-table, it`s table to farm, with a three and a half million dollar annual budget funded in part by state and federal grants from Superstorm Sandy. It collects 10,000 pounds of discarded restaurant shells per week, brings them to Governors Island to cure for a year then puts them in a hatchery where they spawn oyster larvae.
WACHTEL: So right here, you can see two baby oysters. Once the Sandy happened, in the aftermath of that, we realized just how valuable oyster reefs in New York harbor could be. New York harbor used to have over 200,000 acres of oyster reefs protecting the shoreline and that population is virtually extinct.
OLICK: So our natural barriers to storm surge are gone.
WACHTEL: Correct.
OLICK: And you`re telling me that this big old pile of oyster shells is going to save us?
WACHTEL: Um, I don`t know save us, but they should absolutely help.
OLICK: The goal is to place one billion live oysters across 100 acres of reefs by 2035, bag by bag.
In order to receive federal funding, projects like Billion Oyster had to prove that not only were they making the shorelines more resilient, but they were creating social resilience. That is bringing even the largest communities together to protect their own real estate.
WACHTEL: We want to engage communities everywhere because that`s actually how you get long-standing change, right? If the community and the people that live there and work there are actively involved in stewarding their local environment.
ANTHONY: We`re lucky to live and work in New York City where we have access to some of the freshest and the best the widest variety of species anywhere in the world. But with that comes a responsibility of the choices that we make.
OLICK: For NIGHTLY BUSINESS REPORT, I`m Diana Olick on Governors Island in New York.
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HERERA: And before we go, here`s another look at the day`s final numbers from Wall Street. The Dow fell points to 313 points to 26,164, the Nasdaq was down 132, and the S&P 500 slid 45.
And that is NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.
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