Transcripts For KQED Nightly Business Report 20240714

You know, forhe a while stock and bond markets have been focused on three things, trade,r the fed andrate earnings. Today all three issues collided. First, presieant trump rd that the u. S. And china still have a long way to go before the two countries rch a trade deal, and he warned once again that hes ready to slap tariffs on another 325 billion of chinese goods. , seconew report said that retail sales increased more than expected in june, an indication that the consumer is strong. That could change the calculus for the fed and the likelihood of rate cuts this year. Third, earnings reports released so far have shown that Consumer Spending i strong, but business spending is slowing down. New reports like thesean often change a longheld outlook for growth, so we asked Steve Liesman to put together a realtime assessment of the economy. Thats where we start tonight. Reporter well, everyone seems to be expecting the Economic Party to wind down or even end, no one seems to have the told the u. S. Consumer. The government reported june retail sales tod up a strong 0. 4 , beating expectations on the street. Consumers spent less money on gasoline but plowed the savings into clothing and furniture purchases. Auto sales also did well and internet sellers did a brisk business, seemingly at the expense of department stores. All of this shored up views the Second Quarter with the cnbc rapid update with the median tracking on wall street running at 1. 8 , a fslowdownm 3 of the First Quarter but well above theorst quarters that accompanied the beginning of the omarter about trend growth. Fed chair j powell in a speech tuesday continued to tout a rate cut coming fro the fed as did chicago fed president evans. In interview he said he was concerned about slowing growth, the trade war and finflation below the feds 2 growth target. I would say more accommodation would be more helpful for ensuring weco idently get to and above 2 . I think 2. 25 or a littl more would be appropriate for our economy and monetary policy. At this point into the nick cycle we are ten years into an expansion, a and if we going to be above 2 above this cycle, about right. Uld be consumers enjoyed strong job growth and recent wage growth and are likely to get a cut from the fed. It doesnt seem like the party, that is the economic expansion, is ending any time soon. For nightly Business Report, im Steve Liesman in chicago. So what happens when Consumer Spending is strong and business spending starts to soften . The chief economist at moodys analytics. Mark, thanks for being with us thisho evening. Do you explain the strong disconnect between consumer and business spending . Well, businesses are nervous. Business sentiment is way off from where it was this time last year and thats because of the president s titde war. As made it has unnerved businesses around the world. You know, pick your suh vea. The Duke University runs a survey of cfos here in the united states. Twothirds of those survey respondents say we will have a recession by the end of 2020. So businesses are very nervous about the trade war, but as a result of that theyulling back on their investment but they have not pulled back on their their payrolls. Theyre still adding to jobs. Unemployment is still low, and thats what consumers care about, that they have a job and oyment is low. Consumers are fine just as long as businesses dont cut hiring. Rightha we see here you call the economy fragile, but it depends on which sector of the economy you are looking at. So, again, f whats the going to do with this . Does this mean fewer rate cuts if were going to get any this year . Reporter i think the fed will cut rates. I think theconomy broadly, you add it all up, the positives and the netives, it is still fragile. 1. 8 gas talking about growth, probably below the economys potential. That means if we stay here veryb long, growth will slow to the point unemployment will start to rise and unnerve consumers and that will be the fodder for recession. I thinkhe Federal Reserve desperately wants to avoid that, get growth back u above 2 . That means they will cut Interest Rates and keep cutting rates as long as this traar is going on and as long as growth is below potential. Mark, ist possible to know what is a better indicator of the economy . Is the r consumerht or are businesses right . Reporter well, generally Business Confidence, if you go back and look at h look at recessions over the last, say, since world war the last ten recessions, a Business Confidence tends to lead consumer confidence. So businesses, you know, theyre much more sensitive. Theyr. On the grou theyre buying and selling. You know, theyre changing their prices. Theylave a reel for what is happening, and so business once businesss sentiment sta to go and they start to pull back, if they ultimately curtail their hiring and unemployment starts to rise, then consumers follow. Actually the most interesting is it is investors that go first, then businesses and t finall consumer. The consumer is last to figure it out and lose faith in the economy and the recession ensues. Mark zandyith moody analytics, thank you. Thank you. To walstreet where stocks pulled back from the record levels we saw yesterday in participate because of the trade comments from President Trump we told you about earlier in the program. The dow industrial average fell just 23 points. Were at 27,335. Nasdaq was down 35. The s p was lower by 10. The push and in the market today was driven largely by earnings. Three of the nations biggest banks topped profit expectations, but investor reaction to those results froms goldman s, jp morgan ands wergo was mixed. Goldman sachs shares were up because i growing loan business pushed Net Interest Income up by almost 40 . That business however is threatened by trade tensions and the possibility of Interest Rate cuts. Goldmans profits revenue both topped estimates, but both down from a year ago. Profits fell by 6 . Consumer businesses were relatively strong at Jp Morgan Chase, too profits fro loans, up 7 , were qbig reason the banks overall secondrter profit jumped by 16 , b and it is a big but interest race were on hold, which means loan growth slowed and any Interest Rate cut by the fed will put even more pressure on the banks loan portfolio. Wells fargos profit was up even more, about 20 from a year ago, butev renue was flat and like Jp Morgan Chase net interest margins fell. Thats the difference between the amoun of the loan and the amount of interest tt the loan brings in. Margins are down, in part because homeos are refinancing again, making their mortgages less profitable for banks. And tomorrow we will get Quarterly Results from bank of america, u. S. Bank corp. And Pnc Financial services. O the grounding boeing 737 max did not have a big impact on uniteds bottom line. They reported better than revenue, profit and thanks to stronger thanxpted travel demand and higher fares. Taking a look at the stock, it rose slightly in initial after hours trading. Phil lebeau joins us from chicago. Good tgrhave you. Thnding of the 737 max did not affect the carrier in the most recent quarter, but what about lookingorward . What about future quarters . Great question. We dont know. We dontnow the exact impact of not having the max in the Second Quarter had results for united airlines. Theyre not breaking those out, nor will they sayhe expected impact for all of 2019. But one interesting note did come out in the earnings release. The company has agreed to buy 19 used boe with some of the deliveries starting in december. Why is this important . It is important because they may not have the max back until the end ofhis year, and even then some people are saying, look, it may not be until early year, but they have Capacity Growth planned. They want to make sure they have theteats in place for that. Like to see them kicking the tires on those gsth yeah. United is seeing Strong Demand in the u. S. What about International Routes right now . Thats a good question. Weill have a chance to talk with Ceo Oscar Munoz tomorrow morning and it will be onef the primary questions. We heard from other Airline Executives theyve seen what they term as softness, particularlysin or around china with all of the trade tensions that have been developed. Tw, that doesnt mean tt is falling off of a cliff in terms of demand, but it is an area thats going to get a l of question not only from us in the media but also from analystn hey talk with Ceo Oscar Munoz tomorrow. Okay. Ouwe knowertainly will ask. Thank you. Phil lebeau in chicago for us. Elsewhere, dow component Johnson Johnson reported better than expected earnings and increased its guidance, but that wasnt enough tohe push stock higher. Meg tirrell explas why. Reporter san jose Johnson Health orlds highest care company, selling everything from bandages, hip and knee replacement. The stock fell. It may be because investors focus is elsewhere, legal battles around bab powder and opioid pain killers. It is still pretty difficult for investors to understand the implications of some of the legal liabilities that they may face with rpect to talc and also with opioids. Reporter closing arguments d took place yes in a case in oklahoma where state attorneys claim jnnson john contributed to the opioid crisis. The defense blamed everyone, everyone except themselves for causing the crisis. Reporter a decision from the judge iser expected l this summer. In an interviewhi morning, they disputed the claims. We readily admit theres an Opioid Epidemic that needs to be solved by many parts and has to be multifactor in terms of the solution set. A Johnson Johnsons stock fell on report the Justice Department oped a criminal investigation into whether the company lied to the public about the risk of asbestos in its talcum products going back to the 1970s. We are cooperating fully with the department of justice. It is an astute organization. Im sure once they go through the facts they will come tohe sameonclusions that the Company Acted responsibly and the product is safe. Reporter but the uncertainty leaves investors unsure. That makes the stock that once considered defensive, steady investment less so. The quarter netti everything out, very much in line. I think the legal overhang is the conversation in terms of bung or selling t stock into the second half. Reporter today anyway buvestors sold. For nightlness report, im meg have been reporting one of the biggest concerns for theth market i slowing Global Economy and it is starting to show up in the results from industrial companies. Bob pisani is at the new york stock exchange. Reporter earnings season is officially under way ale in the early end investing is slowing. Aero electronics preanweunced er earnings for the Second Quarter. It they c deteriorating demand conditions, particularly from asia, and an inventory correction. Imwe heardar sentiments from week. Ies last another Semiconductor Company announced june sales well below expectations and inventory corrections and pressure. Fastenall also reported lower revenues and lower Gross Margins last week. They blamed higher costs largely related to trade wars and tariffs. Finally, basf, the worlds biggest chemical company, they also lowered guidance last week. They cited the trade nflicts, weak Global Industrial Production Growth and a broader downturn in the Global Automotive industry. Iryond the corporate speak, Federal Reserve c. Powell echoed slowing global. He said the Manufacturing Sector has bee weak since the beginning of the year and part weighed down by the softer business spending and concern about trade tension we willee whether the story remains the same for other seminductors and industrial names including manufacturing giant honeywell and chip maker taiwan semiconductor. Both will report results on thursday. For nightly Business Report, im bob pisani at the new york stoc exchange. Il prices fell today after President Trump signalled progress with iran and said that he was not looking foran regime in that country during a meeting of his cabet at the white house. Secretary of state mike pompeo said that tehran was ppared to negotiate on its missile program, and those comments poind to an easing of tensions which then sent oil prices down by about 3 in todays session. And time n to take look at some of days upgrades and downgrades. Dow comnent home depot downgraded from hold to buy at cabelli. Na thest cites the stocks valuation and the firm notes the current stock price reflects above market growth. The stock fell a fractio to 217. 26. Parker hanna fin was downgraded from sell t neutral at goldman sachs. Wn innalyst sites a slow the industrial sector. The price target is 150. Now, despite the downgrade the stock rose 2 to 171. 04 and sti ahead, in the hot seat. Lawmakers come down hard on a sector thael hasd drive this market higher. And it was a rough day for big tech on capitol hill. Facebook, google, amazon and apple all found themes the target of lawmakers who, as you know, arehe increasing pressure on some of the nations most prominent companies. Ylan mui was there. Reporter irst up was facebook testifying before the Senate Banking committee on its new cryptocurrency called libra. Senators on both sides of the f aisle pressebook on how it would, would, who would regulate it and how facebook planseyo make m from it. Republican senator john kennedy accused facebook of trying to control the money supply while democratic senator brown compared the company to a toddler playing with matches. But ultimately, Lawmakers Said their concerns come down trust. Trust is something you earn and factaook cly hasnt earned it. What what kind of faith do we have in libra . Can we agree that a banker would be trustworthy . I dontt to get into the technical stuff. I am talking about the trust issue. Mr. Chairman, i wish we could trust facebook. It is pretty clear theres almost nobody in this committee that does. Reporter facebk executive david marcus defended his companys record. He said libra will not compete with retail banks or central itnks and that it would not share information facebook. Instead, he pledged to work hand in hand with authoties. Getting this right means addressing these concerns in ll and ensuring that theres proper Regulatory Oversight for th project. Reporter over in the house, the spotlight was not just on facebook, but also amazon and apple as officials from all four companies ef testifiede the house judiciary committee. The focus of that hearing was on innova and entrepreneurship, and whether Big Tech Companies are not only squashing the competition but keeping new g players froting into the market all together. S this hearing isnt just about the companies before us today. It is about ensuring that we have the conditions for the next google, the next amazon, the next facebook, and the nextro apple to and prosper. Reporter the Companies Argue that they actually encouge innovation, not stifle it. They say they face intense competition for their products the at home and around world. The one thing these hearings made clear is that the battle between big tech and washington is far fromver. For nightly Business Report, im ylan mui in washington. So when all is said and done, wt kind of regulations and or restrictions are we likely to see imposed on these tech giants . Joining us is john Freeman Technology analyst at cfra research. John, good to see you. Thanks for joining us toght. Thank you for having me. You think it will be modest to use that term. What do you think ioing to happen . Describe it. Yes. I think the first sort of effort will be modest. There will be some sort of oversight, i think is the most outcome. But the scary thing is that they are writing legislation or, u know, theyre considering writing new legislation ocspecifically forl networks. So this is not as much an sort ust issue, a classic of antitrust issue as it is, you know, curtailing the political power and influence that particularly facebk has. I think that facebook really has ind of, you know, separated from the pack in terms of the scrutiny that legislators have onhem. And would you say that other players in this space are watching sort of how facebook reacts . Beuse as you said, it does seem like regulators are honing in on facebook alspecif. Reporter yeah, i think theyre watching, but i think the thing about facebook is it s relatively new to the lobbying game. Google, apple, even amazon have been doing it a little bitng , and i think theyre a little bit better at it. I think the libra just the timing of it, you know, now youreng go geoive nefarious actors the ability to manipulate the next election with money they dont have to launder. You can seehe political engine getting under there that way. I think thats one of the reason facebook has sort of more scrutiny on it. Now, we all know that these kinds of companies, you know, the companies that have been at the forefront of technology, cuttingedge technology for the last several years, have been leading this market higher. Now theyre getting this scrutiny from rishington. T. Does that cap that growth do you think . Well, i think every i think for facebook, i think it is built in or, you know, the light some sort of light regulation is built in. I think itns maybe even built a little bit for google as well, but perhaps not the more disastrous outcome for, say, example rewriting the 1996 Communications Decency act, which means both google and fallbook would act have to be responsible. They could be liable for, you know ey could be liable for libel. They would have to be responsible for their content, which wouldnbe practical. But, you know, thats kind of the sort of worst case scenario. Most of the investors i talk with have kind o built that in but they are concerned about regulations. Thats the questions that come out,s mostly about regulation ebook and google right now. John freeman with cfra research. Thanks for joining us again. Thank you. Take care. Charles schwab beats the street and thats where we begin tonights market focus. The discount broker was helped by nearly 400,000 new accounts last firm. They have now 12 million active accounts. The stock was up 413. Key corp. Said it discovered fraud that could cost it 90 million. The bank said the fraudulent acvity involved Business Customer and happened at the start of the third quarter. The Company Believes it was an isolated incident and said it working with law enforcement. Key corp. Fell more nan 1 o 17. 38. Cbs and viacom reportedly set a deadline to agree on aer me cnbc says the companies have agreed on august 8th, also on that day. Cbs and viacom will report Second Quarter earnings. Cbs rose f action to 53. 51. Viacom fell to 35. 72. Canadian specific topped analyst est tates thanksan increase in oil, chemicals and plastic shipments. The Railroad Operator also lowered copss for the quarter. The stock rose nearly 4 today to 246. 27. Dominos reported the slowest samestore sales theyve seen in three years as itxpands its store base and faces increased competition from food delivery services. The company has increased the number of locations as a way to compete with those companies. Analystsay the expansion may be cannibalizing sales at existing locations, so shares fell more than 8 today to 246. 54. After the bell csxeported lower than expected earnings and revenue. The company saw an increasen its merchandise shipments like vehicles and apparel, but it was oftset by declines in container shipments. Shares initially dropped in after houto trading ght, but they did close the regular session up more than 1 to 79. 55. And late today the department of justice asked an Appeals Court to pau antitrust ruling against qualcomm. Ight one month ago you recall a judge ruled that qualcomm illegally suppressed the market with smartphone chips. After hours trading on that closed at 75. 67. And coming up, no ad, no problem. Companies are using a different Marketing Strategy to target bing watchers. Kia is shutting down its one american factory. The Company Plans to move operations to europe due to raw material costs that it says are higher here in the u. S. Kia says shifting the workro to and importing the goods will make its furniture in north america more affordable, the danvilleik plant employees 300 workers. Tonight we will look at how way weny has changed t watch tv and the Way Companies advertise. Here is Julia Boorstin. Reporter netflix is roughly 150illion subscribers bingeing with no commercial breaks that pushed advertisers to find new ways to rch viewers glued to adfreela ptforms. One example is new occoke. Wiacola bringing back limited edition coke cans for le, turning the companys failure into a new marketing opportunity. The streamer says none of the many brands mentionedn Stranger Things are paid for but offer netflix valuable promotion. N todays world, the streamers have adopted the old movie technique and are working directly with brands who get Product Placement integration, but then they also promote the show in advertising, on digital, on their social channels, et cetera. So thats building an audience for the show and thats what the streamers want. Promotional partnerships also happen off screen. For Stranger Things bass kin robins created eight flavors tied to the show and first with the streamg platform. Hulu is to feature millers coors beer in into the dark series. They deliver nearly0 increase in purchase intent among viewers and a 75 increase in brand awareness. To break through the clutter, some big brands are returning the original tv ad model, paying to produce shows and cumentaries in an effort to reach consumers with content rather than the ads that interrupt Proctor Gamble is sponsoring a National Geographic series on efforts to combat extreme poverty, looking to align its products with effortsod for brands like p g and others are going to benefit from having those. Iv is expe and thats really where the challenge comes in, is t expense not too high, such that the return is achievable. Johnson johnson financed a documentary about nurses in the frly days of the aids epidemic, the brand hopingor a halo effect from the films message of compassion and rave reviews. For nightly Business Report, im Julia Boorstin in los angeles. And before we go lets take a finalook at the day on wall street. The dow fell 23 points. The nasdaq was down 35, and the s p 500 was lower by 10. And that is nightly Business Report for tonight. Im ra im rahel solomon. Thanks for watching. Im bill griffeth. See you tomorrow. Woman this is bbc world news america. Is made possible by. The freeman foundation; by judy and peter blumkovler foundation, uing solutions for americas neglected needs; and by contributions to this pbs station from viewers like you. Thank you. Laura this is bbrl