Transcript: Nightly Business Report – October 17, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Deal day.  A pair of  agreements.  One raises hopes that the U.K. can leave the E.U., and the  other, the UAW reaches a deal with GM.  But the strike isn`t over yet.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Now what?  The recent  thawing of tensions over trade and Brexit have some wondering what this  means for the Fed and the future of interest rates.  

HERERA:  And mighty minerals.  How the rare earths are playing a crucial  role in the world today and tomorrow.  
All those stories and much more tonight on NIGHTLY BUSINESS REPORT for  Thursday, October 17th.  

GRIFFETH:  And we bid you good evening, everybody, and welcome.  
Yes, it was a day of deals that early on lifted the stock market but it  wasn`t big corporate mergers that put investors in a buying mood, but  rather a pair of tentative agreements that might signal resolution to  thorny issues that have been hanging over the markets.  We`re talking about  an agreement on Brexit which Wall Street has kept an eye several years now  and also the possible end of the strike at General Motors (NYSE:GM).  More  on those in just a moment.  

But, first, while stocks started off strong, the end — in the end, things  moderated with Dow rising just 24 points, Nasdaq climbed 32, the S&P added eight.  

HERERA:  First up, Brexit.  Stocks initially got a lift after British Prime  Minister Boris Johnson said he had a great new Brexit deal with the E.U.   The E.U. president then tweeted the deal was fair and balanced.  
Willem Marx has more from Brussels.  

WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It was Boris Johnson`s  short walk to what he described as freedom.  The British prime minister in  Brussels hoping to take Britain out of the E.U. with an agreement.  

BORIS JOHNSON, BRITISH PRIME MINISTER:  It means that the U.K. leaves whole  and entire on October 31st.  And it means that Northern Ireland and every  other part of the U.K. can take part, not just in free trade deals,  offering our tariffs, exporting goods around the world.  But also it means  that we can take together as a single United Kingdom decisions about our  future, about our laws, borders, our money and how we want to run the U.K.  

MARX:  Johnson helped drive the 2016 Brexit campaign.  Now three years  later as premier, he is charged with transforming that referendum vote into reality.  

His efforts have frequently faced criticism across Europe.  But today, he  won some congratulations however begrudging from his counterparts.  
EMMANUEL MACRON, FRENCH PRESIDENT (through translator):  This agreement  seemed today to be a good compromise which answers to all of his  objectives.  

ANGELA MERKEL, GERMAN CHANCELLOR (through translator):  My personal opinion  is that an agreement like the one on the table is a good solution when you  accept that Britain is leaving the European Union.  

MARX:  But Europe`s leaders reserving the highest praise for each other and  particularly the Irish prime minister or Taoiseach, Leo Varadkar.  

JEAN-CLAUDE JUNCKER, EUROPEAN COMMISSION PRESIDENT:  Over the past two  years, we have worked very closely with the Taoiseach.  And without the  Taoiseach, it would not have been possible to reach agreement today.  

MARX:  But despite the smiles, handshakes and applause here in Brussels,  the British prime minister faces plenty of political obstacles and  opponents back in the U.K.  Together, they could once again prolong Brexit  or even potentially prevent it.  

MARX:  In Westminster meanwhile, lawmakers agreed to meet Saturday to  review the agreement.  The parliament first weekend legislating since 1982,  and in a crucial vote, they decided to keep open the option for another  Brexit extension or even a second referendum.  

BERCOW:  The motion as amended be agreed to.  As many as are of that  opinion say aye.  

HOUSE:  Aye!

BERCOW:  On the contrary no.

BERCOW:  I think the ayes have it.  The ayes have it.  

MARX:  Johnson`s allies must now begin the tough task of trying to magic up  a parliamentary majority after expulsion, defections and suspensions  outside the government`s control of the House of Common`s chamber.  And a  small northern Irish party, the DUP, that might have helped with that vote  count have said they cannot approve the new agreement.  

JACOB REES-MOG, HOUSE OF COMMONS LEADER:  I hope my friends in the DUP will  also find what it does for the whole of the United Kingdom is something  over which they can have comfort and support.  

MARX:  Johnson may find the unexpected comfort offered by his fellow  Europeans will not guarantee the support of his countrymen back at home.  
For NIGHTLY BUSINESS REPORT, I`m Willem Marx in Brussels.  

GRIFFETH:  The other big story we told you last night that General Motors  (NYSE:GM) and the United Auto Workers had reached a tentative deal.  But  today, things didn`t go exactly the way you might expect.  
Jane Wells is in Detroit for us tonight.  

And I guess the headline is that the strike technically is not over yet, is  it.  
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  No, we weren`t really  sure what was going to happen today.  For over six and a half hours, the  union negotiating team was discussing, debating, pitching to a couple  hundred union leaders from chapters around the country, trying to get them  to say yes, take this deal and send it out to the rank and file.  

Finally, they agreed to take the deal but they have also decided that workers are not to come back to work until all the votes are counted.  And  that may not be a week until a week from tomorrow.  So, that would be  another week where these people are off the jobs job not getting paid and a  strike which the Center for Automotive Research estimates is costing the GM  and workers about a half billion dollars per week.  

OK.  So, what are they getting in this deal?  They are getting a record  $11,000 ratification bonus.  So, that will more than make up for rots wages  on strike.  Also raises, important point, temporary — permanent temporary  workers, which is 7 percent of the GM`s workforce will now have a path, a  shortened path to become permanent workers.  That will begin in January.  

The cap has been lifted on profit-sharing.  They get to maintain their  great health care which they only pay about 3 percent of the costs.  

However, GM wins — three U.S. plants will remain closed.  That could be a  deal breaker especially the one in Lordstown, Ohio.  It`s going to be  closed.  It`s not going to be a GM plant anymore.  Also, jobs in Mexico are  going to stay in Mexico.  

And finally, there was something weird that happened.  The UAW put out a  summary of the deal today.  Out of it were claims that gm made earlier they  were investing billions in plants to retain or add 9,000 jobs.  That wasn`t  in the UAW summary.  And during the press conference, the UAW spokesman was  pressed about that, how come you`re not mentioning that?  

He hedged a bit saying that`s outside the contract.  He didn`t have a good  answer.  It was an odd omission — guys.  

HERERA:  Jane, is there any feeling how the rank and file might accept this  or not accept it?  

WELLS:  Eleven thousand dollars is hard to walk away with, but there were a  lot of Lordstown supporters here.  And these — I don`t know how  representative they are.  But they were adamant that without Lordstown,  they were going to vote no.  And there is no Lordstown. 

They are going to sell Lordstown to some electric truck start-up.  That  won`t be a union shop.  They are going to build a battery plant nearby.   That could be a union shop.  It will be a GM plant, but outside the scope  of the contract.  
So, whether that`s enough to get people to vote yes, we`ll know by a week  from tomorrow.  

GRIFFETH:  Very quickly before you go, what happens with this DOJ  investigation into union leadership?  Where does that stand right now?  Do  we know?  

WELLS:  Well, it`s ongoing.  And, you know, some of the current former  leaders are suspected of using — you know, due`s payer funds for things.   I asked the union members today, does that bother you?  They all basically  told me, we`ll talk about later.  Today, we are one, UAW.  

GRIFFETH:  Jane Wells in Detroit for us tonight.  Thank you, Jane.  

HERERA:  So let`s turn now to Karl Brauer to talk more about that tentative  agreement reached between GM and the UAW and what it might mean and  potentially impact the transformation that the auto industry is currently  undergoing.  He is the executive publisher at Kelley Blue Book and Auto  Trader.  
Kim, welcome, nice to you — Karl, rather, nice to have you here.  


HERERA:  We got some of the details from Jane.  Given what you have been  able to hear and find out about this deal, what do you think of it?  

BRAUER:  Well, I think you have seen some great movement on both sides,  right?  You have seen the workers get increased wages and benefits for both  themselves and new temporary workers.  Shorten the time frame on what it  takes to get to the full payment, full pay scale which is what they really  wanted and, of course, they continue to have a great medical coverage which  every American would love to have right now.  

And GM is supposed to get to be able to close three plants that they want  to close to maintain profitability and maintain kind of the lean approach  that Mary Barra is increasingly taken over the last five plus years, where  she really wants the company to be profitable.  So, both of them have moved  and gotten to this point where they can actually get a vote out there.  

GRIFFETH:  Right.  

BRAUER:  But also as noted, there`s still some pushback on the plant in  Ohio.  And there`s still some pushback on a plant in Mexico that built the  new Blazer for instance.  It`s not a done deal.  

GRIFFETH:  And now, Ford and Fiat Chrysler will use this as a blueprint for  their own negotiations.  Does this contract as you know about it at this  point prepare the U.S. auto industry for the transformation that they`re  going through right now, fewer sedans sold, a lot for SUVs and the coming  of electrified vehicles?  

BRAUER:  You know I think this negotiation process and this contract proves  that it`s possible to get through these transitions as they`re happening  but also proves how tough it can be.  I mean, this was a long strike and it  costs GM a lot of money and production.  And I don`t think it`s going to  get easier.  I don`t think this deal signifies that things will be easier  going forward necessarily, especially since there`s still so much  transition to go on.  

We are going to see more electrification of vehicles.  We`re going to see  fewer sedan sales.  It`s just the new world, the new normal we live in.   And I think we`re going to see more of these potential strikes that could  drag on because there is going to have to be give and take as the industry  transitions for both unions and auto makers.  

HERERA:  Don`t you think, though, that both the union and the companies  know that they have to go through the transitions, right?  I mean, that`s  inevitable.  

BRAUER:  Yes, and it makes sense, right, that they`re going to both face  this.  You know, they`re very dependent on each other.  And if they can`t  come together on these things, it`s bad for both of them.  

But I think — look at the last ten years, right, this was one of the most  successful time frames in the U.S. auto industry history.  And I don`t  think there was any avoiding this kind of serious negotiation by the unions  who rightfully expected more.  They wanted more out of the companies that  have done so well.  But it`s ironic that now, we`re going to get to kind of  the next cycle and we know it these go in cycles where there might be  shrinking sales, there`s going to be a lot of transition to different types  of vehicles.  

And right now, they are asking for, you know, more money and better  benefits when the auto makers probably are going to see a tougher next five  years than the last 10 that they have experienced.  

HERERA:  All right, Karl.  Thank you so much for your perspective.  
Karl Brauer with Kelley Blue Book.  

GRIFFETH:  So, as deals are reached, whether it`s Brexit or the China trade  truce, or even the GM strike getting closer to resolutions, tensions that  have been placed on the U.S. economy are easing ever so slightly.  So, what  does it mean for the Fed`s next moves?  
Steve Liesman has some thoughts.  

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A pause in Federal  Reserve rate cut is increasingly likely either at the upcoming October  meeting or more likely after one more cut, according to comments from  several Fed officials.  

What the Fed does will depend critically on upcoming economic data in the  several weeks before that October 29th meeting.  Positive developments in  trade talks with China and the apparent Brexit breakthrough reported this  morning could argue in favor of a near-term pause.  Support for that pause,  even one that could happen in October comes from comments this week from Chicago Fed President Charles Evans, a strong backer of the recent rate cuts.  

But he said he didn`t see additional cuts this year.  Dallas Fed President  Robert Kaplan said yesterday he is, quote, agnostic about additional cuts.   And Fed chairman Jay Powell was careful to say last week that decisions are  being made meeting by meeting and that the Fed would only, quote, act as  appropriate.  

The Fed could still cut in October or instead in December if it pauses  once.  But recent Fed comments suggest the market pricing of an 83 percent  probability of rate cut in October, well, that could be too high.  

Fed officials believe they`ve already provided considerable economic  stimulus in three different forms.  First, they back off planned rate hikes  this year.  Second, they stopped producing their balance sheet.  And third,  they cut rates twice by 25 basis points each time.  

That stimulus in the pipeline is why many Fed officials insist policy,  quote, is in the right place.  Meaning it may have anticipated current  weakness, like yesterday`s slowdown in consumer spending.  

But if it hasn`t, Fed officials have been clear they will do more but a  pause would give the Fed time to see how existing stimulus in the pipeline  will affect the economy.  Adding support to the idea of a pause, the Fed is  divided over the next move.  The pause could give time for data and  developments to clarify what the right interest rate policy is and for the  Fed to develop a consensus.  


HERERA:  Luke Tilley join us to talk more about what he thinks the Fed will  do next.  He is the chief economist and senior investment strategist at  Wilmington Trust (NYSE:WL).  

Welcome, Luke.  Nice to have you here.  


HERERA:  You think we got one more cut from the Fed.  You`re pointing to a  slowdown in capital spending, correct?  

TILLEY:  Yes, that`s correct.  We still do think there`s going to be one  more cut this year, most likely in two weeks at that October meeting.  And  as Steve suggested, if not then, then probably in December.  

So, I think Bill said it right when he set it up.  He said that maybe those  tensions have eased ever so slightly.  And it really has been slight.  The  Fed has been cutting rates and basically they said for two reasons.  One  because of the trade tensions, and second because of the global slowdown in  economic growth.  

So we have had a little bit of easing on the trade tension with the  tentative deal with the Chinese from last week.  But, really, we`re still  looking at the other risks still present.  We`ve got that global slowdown.   We know that our manufacturing sector has slowed considerably.  It`s really  been hurt.  
And we still are slated — unless there is a solid trade deal in the works  and signed, we still are slated to get more tariffs either the ones that  were postponed a little bit from a — they`re supposed to go into effect  two days ago and then another set for December 15th.  

So, those risks are still around and enough reason I think for the Fed to  be lowering rates one more time this year.  

GRIFFETH:  And then there were those retail sales number yesterday that  were negative actually for the month of September.  Was that an outlier in  your view or something else going on there?  

TILLEY:  Yes, the retail sales number was really weak on month over month  basis, as you point, Bill.  They had been really strong in the months  before that.  And they can bounce around a bit.  I think really the  question for the Fed is whether the slowdown in manufacturing — and there  is also a little bit of a slowdown in hiring — whether it continues to  bleed into the services sector.  

The services sector has been holding up OK.  We would expect the retail  sales to resume growth in the months coming ahead.  But if the risks  persist and if you continue to get the slowdown, if you get those tariffs,  then would really be the worry that it would bleed more into consumer  spending and services.  

HERERA:  Are you one who thinks that we are in a slowdown or are you one  who thinks that there is a recession looming?  

TILLEY:  Well, our baseline outlook is for a continued slowdown in GDP  going forward probably as low as 1.5 percent going forward.  And that is  based on the idea that the trade tensions don`t get any worse from here.   We don`t get anymore tariffs.  

We think that if the tariffs that are currently scheduled to go into place  do come, that that would end up pushing us lower and possibly into a  recession.  But at the same time, a lot of in slowdown is because of the  existing tariffs and also business uncertainty about whether there is more  coming down the pike.  So, the possibility of upside is pretty strong.  If  you had a deal that removed the existing tariffs or even just convinced  businesses that there were no more coming, then you would start to get some  stronger CapEx we believe and you can get some stronger growth numbers.  

GRIFFETH:  So, quickly, for you, trade is the biggest issue facing the Fed  right now?  

TILLEY:  Yes, it certainly is because it`s playing directly into the  economic data.  And, of course, the economic data and economic growth and  inflation is what they`re basing rate moves on.  

HERERA:  Luke, thank you so much.  Luke Tilley with Wilmington Trust  (NYSE:WL).  
TILLEY:  Thank you.  

GRIFFTH:  Here are some other stories we are keeping an eye on in the news  these days.  

Vice President Pence today said that Turkey has agreed to a 120-hour  ceasefire to give Kurdish forces time to withdraw from an area of northern  Syria.  He also announced the creation of a safe zone.  

MIKE PENCE, VICE PRESIDENT OF THE UNITED STATES:  The United States and  Turkey have both mutually committed to a peaceful resolution and future for  the safe zone.  Working on an international basis to ensure that peace and  security defines this border region of Syria.  

GRIFFETH:  Elsewhere, the White House said today that next year`s G7 summit  will be held at President Trump`s National Doral Golf Resort near Miami.   Acting chief of staff Mick Mulvaney said the property was the best possible  location for the summit, and he insisted that the president would not  profit from the event because services will be offered at cost.  
HERERA:  Coming up, prices are on the rise for some brands of cigarettes.   And we`ll tell you why.  

GRIFFETH:  Juul said today it`s immediately suspending sales of its fruit- flavored e-cigarettes.  The company is getting ahead of looming White House  policy that is expected to take all flavored e-cigarettes off the market  amid a teen vaping epidemic and the spread of a vaping-related lung  disease.  Juul, though, does plan to sell its mint and menthol flavors.  
Meanwhile, shares of tobacco giant Phillip Morris International rose today  after beating analyst expectations, thanks to big gains of shipments of its  smokeless, heated tobacco product.  

HERERA:  And all of this comes as Altria is raising prices.  Shares rose  more than 1 percent today on the news.  
Frank Holland has more.  

FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Marlboro maker  Altria is increasing prices on its combustible cigarettes.  The company  says packs will cost 8 cents more, that`s a 2 to 3 percent increase that  will take effect next week, according to Wells Fargo (NYSE:WFC), and be the  third price increase this year.  

This as the momentum towards vaping appears to be slowing over increasing  health concerns.  The CDC releasing new data showing that vaping deaths  have increased to 33 and lung injuries associated with vaping have  increased to nearly 1,500.  

Cigarette sales have been on steady decline in recent years, but according  to Wells Fargo (NYSE:WFC) analyst Bonnie Herzog other companies are  expected to hike their prices as well.  She writes: We expect tobacco  stocks will react favorably though this list price increase since it  affirms the industry`s continued strong pricing power.  Pricing will remain  a critical driver of revenue and earnings growth.  

Altria shares down 10 percent year to date.  One drag on the stock,  Altria`s 35 percent stake in e-cigarette maker Juul.  

GRIFFETH:  Mixed results for Honeywell and that`s where we begin tonight`s  “Market Focus”, with the conglomerate channel reporting better than  expected profits, thanks to strong results from its aviation unit.  But it  did fall short on revenue.  Executives also said that Honeywell has not  been greatly impacted by the prolong grounding of the Boeing (NYSE:BA) 737  MAX.  Shares rose more than 2 percent today to $167.52.  

BellRing Brands debuted on Wall Street today with its IPO priced at $14 a  share.  The company is a spin off from food company Post Holdings.  It  makes the power bar branded snacks and it was a powerful trading debut as  shares jumped almost 18 percent today to $16.50.  

Tesla has received the green light from Chinese regulators to start car  production in China.  The automaker was already building a $2 billion  factory in Shanghai.  And according to reports, the plan is to build half a  million electric vehicles a year at that facility.  Shares of Tesla were up  a fraction today to $261.97.  

And Ford is partnering with Volkswagen and Amazon (NASDAQ:AMZN) in  providing a new public charging network for its electric car customers.   The automaker says that the network will allow Ford owners to share  Volkswagen`s charging stations as well as various home charging options  with the help from Amazon (NASDAQ:AMZN).  Ford up a fraction today to  $9.11.  

HERERA:  United Rentals (NYSE:URI) topped Wall Street estimates driven by  growth across its core construction markets.  The equipment rental company  also lowered its full year guidance as it sees higher operating costs  ahead.  Shares rose more than 5 percent to $127.90.

After the bell, ETRADE beat expectations.  This comes after the discount  brokerage company moved to zero commissions which the chief executive  called a meaningful shift for the industry.  Shares were volatile in the  after hours trading and they closed the regular session up just a fraction  to $39.04.  

Morgan Stanley (NYSE:MS) topped expectations driven by strength in bond  trading.  The company`s chairman and CEO said it was a strong quarter  despite the volatile markets and a summer slowdown.  Shares rose about 1.5  percent to $43.44.  

GRIFFETH:  Coming up, animal, vegetable or mineral?

BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Coming up, we`re  going to tell you why a mineral in this rock may hold the key to a high- tech future.  

HERERA:  Last night, Brian Sullivan told us why the so-called rare earth  minerals are an important player in the trade war with China.  Put simply,  China is a major producer.  .  The U.S. is a major consumer.  Tonight, he  is in a newly reopened mine in California with more on what`s being done to  breathe life into a nearly dormant industry in the U.S., and why these  minerals might be the key to the future.  

SULLIVAN:  So much of the latest and greatest high technology gear or  anything from tablets to Teslas to MRI machines and even missile detection  and defense systems require a very old school way of doing business.  And  that is mining.  

We are out here at the MP Materials Mountain Pass Rare Earth Minerals Mine.   You probably heard about rare earth even on this show.  But what exactly  are they and why do we care?  

Well, take this rock.  Inside this rock is a rare earth mineral called  neodymium and it powers everything from that Tesla motor to very important  magnets that keep everything running.  

Now, we used to have a vibrant industry in the United States.  But that  mine went bankrupt a number of years ago after the Chinese flooded the  market and prices collapsed.  

Well, now, a new brand of entrepreneur is hoping to revive that mine.  To  resuscitate the rare earth minerals business in the United States so that  we are not completely reliant on China.  

JIM LITINSKY, JHL CAPITAL GROUP CEO:  We`re investors and it`s not every  often in life that you can buy a world class asset as substantial discount  to replacement cost that also happens to be levered to one of the single  greatest economic themes over the next 20 years.  

SULLIVAN:  Rare earths have also played a part in the trade war because the  president issued executive order stating that these rocks and these  minerals are so critical to high-tech that they`re of national and economic  security importance and relying on China ultimately could be a dangerous  longtime play.  

But get going out of the ground is just one part of the story.  After you  crush the rock, they still send it to China to be refined but they are  hoping to fix that with refinery that is here on-site.  They hope to open  that up next year.  

Still, there`s a long way to rebuild the industry and one analyst we talked  to said even if we hit the ground running full steam now, it could be a  long time before the supply chains are finished.  

CHRIS BERRY, HOUSE MOUNTAIN PARTNERS PRESIDENT:  For us to have a  vertically integrated supply chain, you`re looking at five to seven-year  endeavor at the earliest.  I mean, there`s just a lot of issues surrounding  permitting and environmental issues and so on and so forth.  

SULLIVAN:  However long, it may take, there is new attention both in the  private markets and with the federal government around this industry  because relying on China for all of our high-tech gear is viewed by many as  a dangerous long-term proposition.  The bottom line is this: for all the  new gear that we want, it will often require a very old school way of  getting key components but an industry that many suggest may be ready to  explode.  
For NIGHTLY BUSINESS REPORT, Brian Sullivan, Mountain Pass, California.  

GRIFFETH:  Before we go, one last look at the day on Wall Street.  It feels  like a wait and see market still.  The UAW agreement still to be ratified.   The Brexit deal still to be voted on in the U.K.  
The Dow just rose 24 points today.  The Nasdaq climbed by 32.  The S&P  added 8.  

And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Bill Griffeth.   Thanks for watching.  

HERERA:  I`m Sue Herera.  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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