NIGHTLY BUSINESS REPORT for May 25, 2016, PBS - Part 1

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Phil LeBeau, Eamon Javers, Meg Tirrell>

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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR: What`s changed? The rally is building. So why are the markets stressing about all the things that used to have them so worried?

(BEGIN VIDEO CLIP)

REP. MICHAEL MCCAUL (R), TEXAS: Today, we face a crisis in our airports. We`ve all read the headlines, three-hour long security lines.

(END VIDEO CLIP)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Tempers flare in Congress and at airports. But Delta and the TSA may have found a solution to get you through security more quickly.

EPPERSON: Science or science fiction. Medical technology is advancing faster than ever before, changing the way we treat illness. The first part of our "Modern Medicine" series begins tonight on NIGHTLY BUSINESS REPORT for Wednesday, May 25th.

Good evening, everyone. I`m Sharon Epperson, in tonight for Sue Herera.

MATHISEN: And I`m Tyler Mathisen. Welcome, everybody.

Well, two straight days of gains on Wall Street, sizable gains in fact, a rise in oil prices, optimism over the economy, even positive news out of Greece, yes, Greece helped fuel the rise. And get this -- some investment pros say now that higher interest rates may not spell trouble for the economy or stocks after all.

With that, the Dow Jones Industrial Average climbed to 145 points to 17,851. The NASDAQ added 33 and the S&P 500 was up 14.

MATHISEN: But the market had a long list of worries, just a short time ago. What happened to them all?

Dominic Chu explains?

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Many of the market risks haven`t changed, but the market perceptions of how risky they are may have. So we`ve put a lot of hot button topics on our thermometer here of risks to the overall market.

We`ll start with some of the ones that traders are valuing pretty highly right now. A summer interest rate hike from the Fed possibly, the ripple effects there could be huge. Also watching what`s happening with the possible Brexit, that is to say U.K. leaving of the European Union, also perhaps a rolling of the markets around that and, of course, what`s happening with the U.S. elections coming up this fall.

China was a huge topic last year and into this year early, and it still remains a big topic but maybe not as important or as flaring as it was at that point here.

Corporate earnings slightly better than expected although still not great, not as hot a topic here. And oil prices, they`ve stabilized. They thought they were going to down huge, but they managed to stabilize for now. So maybe not as much of a risk, at least for this moment.

And then, of course, one of the thing to watch here, U.S. economic data has generally gotten better, it`s up for debate right now, but still, some people say if the U.S. economic situation isn`t going gang busters but it`s still going good enough, is that enough to help power the markets.

All of these will be risks being assessed by traders and investors throughout the course of the summer months and, of course, into the U.S. elections this fall.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: Jim McDonald joins us now to talk more about the markets. He`s chief investment strategist at Northern Trust (NASDAQ:NTRS) Asset Management.

Mr. McDonald, welcome. Good to have you with us.

You know, as Dom said, the risks haven`t gone away necessarily. Maybe our perception of them has changed just a little bit. I don`t want to make too much out of two days of triple-digit gains, but does this feel like a sustainable change in momentum to you or not?

JIM MCDONALD, NORTHERN TRUST ASSET MANAGEMENT: Well, Tyler, I think we`ve covered the positive aspects of what has come out from an economic data standpoint and some reduced geopolitical risks. The thing I would add that`s new is investor sentiment was awful heading into this week. So, individual investor sentiment is very bearish and that means that we`re really run out of sellers.

So, I think that`s the additional piece that`s led to the rally we`ve seen over the last couple of days.

EPPERSON: Are investors are becoming too complacent when it comes to thinking about the Feds, thinking that we`re going to see a rate hike and we`re definitely going to see an exit from the E.U., Britain, that we`re going to see a U.S. election that`s going to end however one might think it`s going to end? Are investors getting complacent in their ideas of what is going to happen outside of the economy somewhat, and that`s helping to fuel what`s happening with the market?

MCDONALD: No, I don`t think we`re close to complacency. There`s still a concern about Britain leaving the European Union. The concern about the Fed is a little bit more justifiable. The reduction in concern because if the Fed does raise interest rates, that`s a sign the economy`s a little bit better. It`s a sign that financial markets are stable and the fact that the market`s moving up at a time when investors are thinking the Feds may raise rates I think is a good sign.

MATHISEN: So, Jim, so you very gracefully sidestepped my question about whether you think this little rally or rally-let may be it is can continue. You said that sellers we sort of ran out of them. Do you think that`s an enduring possibility or that sellers are going to come back at the first sign of trouble?

MCDONALD: So, Tyler, what I`ll be looking for is a continuation of the economic data showing a moderate expansion. So, we saw good housing data but we saw relatively mediocre purchasing index reports. So, we need to see the economy continue to advance for the market to keep working. Sentiment is a help but we really do need economic data to continue to come through.

MATHISEN: So, what about the elections here and let`s get a quick thought on the Brexit possibility, the idea that England, Great Britain would leave the European Union?

MCDONALD: So I don`t think that is the likely scenario. If you look at the market reaction, the pound has appreciated by 6 percent or 7 percent from its lows and the polls are indicating greater confidence that they will remain in the European Union. The U.S. election is much harder to handicap because we don`t know what`s going to happen not only on the presidential side but with Congress. So, the market will likely churn until we have better clarity on the likely outcome of the U.S. election.

MATHISEN: Jim, great to see you. Jim McDonald of Northern Trust (NASDAQ:NTRS) Asset Management.

EPPERSON: A potential interest rate hike is not in fact a done deal but the data is favorable so says the president of the St. Louis Fed. He specifically pointed to the most recent reports on the labor market.

(BEGIN VIDEO CLIP)

JAMES BULLARD, FEDERAL RESERVE BANK OF ST. LOUIS PRESIDENT: Obviously, we`ve tried to be data-dependent and I don`t think there`s any reason to pre-judge the June meeting at this point. We can wait until we get to the meeting to see what the data says and try to make a good decision there.

(END VIDEO CLIP)

EPPERSON: But Bullard said that while jobs data are strong, other measures like gross domestic product are not as robust.

MATHISEN: In Europe, it has been a while since we heard about Greece asking for money from its international creditors but that is what happened overnight. In recent years, Greece`s debt lows have been a summertime hair ball for stocks. But now, eurozone`s finance ministers and the International Monetary Fund apparently like what they see out of Athens. They approved Greece`s reform efforts and gave the country more than $11 billion in fresh bailout funds. Greece`s total debt now stands at about 180 percent of its annual economic output and that`s high.

EPPERSON: The French government is tapping its oil reserve to end gasoline shortages. According to local French papers, one quarter of the country`s gas stations have run out of fuel or were running very low. A strike over new labor laws have spread across France`s fuel infrastructure and to all of its eight refineries.

Total, which owns five of France`s oil refiners, threatened to review its investments in response to this disruption.

MATHISEN: Domestic crude is closing in now on $50 a barrel. This after the U.S. government reported a larger than expected drop in crude stock piles. Oil futures settled at $49.56 a barrel, that`s the highest level since October. Despite the rise, oil and gasoline prices are still relatively low and that means a heck of a lot of people are going to hit the road this holiday weekend.

According to AAA, in all, 38 million Americans are expected to travel and most of that travel will be by car.

Jackie DeAngelis has more on what`s promising to be one of the highest volume memorial travel weekends on record.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The inspiration is coming from cheap gas. The national average for a gallon of regular is $2.30 today on AAA`s website, up 16 cents over the last month, but down 44 cents from this time last year.

Still, not everyone is satisfied.

UNIDENTIFIED FEMALE: I think gas prices should be even lower but they`re not as high as they were last year around this time. I do drive a lot with my job and everything, so gas prices are very important.

UNIDENTIFIED FEMALE: I`m going to drive because I`m going to drive. And if the gas prices are high, I`m not going to be as happy as I`m driving, but I`m still going to go where I need to go.

DEANGELIS: Top destinations for road travel, Orlando, Myrtle Beach, Washington, D.C., New York and Miami, all places expected to have nice weather this weekend.

So far this year, Americans have saved about $18 billion on gasoline alone. Where those savings are being spent is still debatable, but one thing is for sure, cheap gas motivates people to get up and go.

ANTHONY GRISANTI, GRZ ENERGY PRESIDENT: We came in the summer with a huge amount of supply of gasoline, and yes, we are drawing at record rates right now for gasoline demand because prices are so low. But that demand should be able to be met with the supplies that we do have. I imagine prices will probably peak in the next two or three weeks barring any hurricanes, geopolitical problems or things like that.

DEANGELIS: Crude is up almost 50 percent in the last three months alone. If the market is starting to level off and stabilize, could we see a national average back at $2 again?

GRISANTI: I don`t think it will happen until after the summer driving season. What happens with the summer there`s a premium for the gasoline to burn cleaner. Once we get through that season, in October, we go back the cheaper winter gas and I think that`s the point where you could see $2 a gallon again.

DEANGELIS: One thing for sure, most consumers aren`t kicking the gift horse in the month. The cheapest gas in over a decade for this time or year is nothing to sneer at.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

EPPERSON: And if you`re heading to the airport this weekend, you may be wondering if flying means you`ll be dealing with long lines at security checkpoints. Well, in Atlanta, Delta and the TSA hope they`ve found one solution to make airport security lines move faster.

Phil LeBeau has more on what`s being done.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It looks like a regular TSA security checkpoint, but Atlanta`s Hartsfield-Jackson Airport has a new system designed to quickly move travelers through security screening.

BILL LENTSCH, DELTA AIR LINES: If it`s as successful as we believe it is, I think airports are going to be looking for this technology very quickly.

LEBEAU: Here`s how it would work -- when travelers get to the checkpoint, there are five stations for five people to but their belongings in bins. When the person is done, regardless of where they are in line, they push their bin down the line to the x-ray machine and walk through a metal detector. If there`s a problem with their bag, it`s automatically sent to an area beyond the x-ray machine for further inspection, that way it doesn`t hold up the line.

And with five people constantly going through one of two metal detectors the lines should move even if some people are occasionally stopped.

UNIDENTIFIED MALE: It went fast up to this point, but quicker than the old way to unload your bags.

UNIDENTIFIED FEMALE: I didn`t think it was faster.

UNIDENTIFIED MALE: Seemed to go pretty quickly. Went through the front of the line and my bag did get screened, but it only took about ten minutes all together.

LEBEAU: With long lines in many airports, the TSA is adding more officers and more overtime.

Meanwhile, the embattled head of the agency found himself on Capitol Hill answering questions on how the TSA can relieve security line headaches.

REP. MARK WALKER (R), NORTH CAROLINA: You`re undergoing an impossible or trying to take on an impossible task. That probably doesn`t encourage you very much today.

REP. CEDRIC RICHMOND (D), LOUISIANA: Do you think that the number of bags going through our check points is problematic?

LEBEAU: Delta spent $1 million developing this security system and now in its first day in use, there were a few hiccups with TSA agents and passengers adjusting to the new set up, but nothing major.

If it works as planned, this new system could clear up to 25 percent more passengers than a standard TSA checkpoint, which would be welcome news for those travelers tired of waiting in security lines.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Atlanta.

(END VIDEOTAPE)

MATHISEN: Still ahead, Microsoft (NASDAQ:MSFT) guts its smartphones business. Does one of the world`s biggest tech companies have a mobile strategy that will work?

(MUSIC)

EPPERSON: A real estate firm with ties to a senator is reportedly under investigation. According to "The Wall Street Journal", the FBI and SEC are focusing on accounting practices at CBL and Associates. Investigators are asking questions about the relationship between the firm and Senator Bob Corker, who has profited over the years from trading CBL stock. Shares of CBL fell more than 8 percent.

MATHISEN: A report by the State Department`s inspector general slammed Democratic presidential frontrunner Hillary Clinton`s use of a private e- mail server while she was secretary of state. The report was delivered today to members of Congress.

Eamon Javers is following the story for us.

Eamon, tell us what the report said and how damaging is this to her campaign?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it is damaging, Tyler. The report did say that the method that Secretary of State Hillary Clinton had chosen to store her e-mail on a personal sever was not an appropriate method of preserving documents. It also found that her practices failed to comply with department policies.

That`s bad news for Hillary Clinton especially as you go through the details that were in this report of staffers at one point or another raising concerns about this arrangement, those concerns being brushed off by people close to Hillary Clinton. It paints a picture that Republicans have been trying to paint on the campaign trail that Hillary Clinton was sort of blithely unworried about e-mail security and decided that she would rather protect her documents in her own home in her own computer server rather than allow the State Department system to have access to those communications.

EPPERSON: Eamon, what about her own private e-mail address? Did we find out more about why she chose to keep that e-mail?

JAVERS: Well, that`s the question here, is why did she decide do this in the first place? And the report sheds some light on the decision making very early on. It`s clear that this decision was made at the very beginning of her tenure as secretary of state. And you can see in the report, staffers grappling about what to do, what the implications of that are, that she owned her own e-mail server that lives in her home and is not controlled by the State Department, how do they handle that?

They were proposing giving her a separate BlackBerry at one point, giving her a separate computer that could sit on her desk that would be connected to that server at home. All of that was being wrestled out in early days for Hillary Clinton. So, clearly, this was a decision that was made early on and they stuck to it.

MATHISEN: Mrs. Clinton has said I`ll talk to anybody any time about this, I encourage my staff to do the same. Did she?

JAVERS: About the e-mail issue in particular?

MATHISEN: Did she talk to the inspector general? Did she cooperate in this investigation?.

JAVERS: You know, she had said she would cooperate with the investigation in every step of the way, and clearly, they got access to all of the e- mails between, say, her aide Huma Abedin, and Hillary Clinton. In fact, there`s one in which they discuss whether or not for her, and Hillary Clinton says, no, I don`t want a State Department e-mail but I don`t want that personal e-mail being circulated within the State Department.

MATHISEN: Quick question and answer, is Speaker Ryan going to endorse Mr. Trump soon?

JAVERS: Boy, that is a good question. There`s a rumor that there`s a phone call expected this evening between the two men. We`ll see whether that leads to an endorsement or not. Paul Ryan under a lot of pressure to fall in line, but he is trying to extract some political gain here from Donald Trump and encourage Donald Trump to be more in line with Paul Ryan`s --

MATHISEN: The great negotiator being negotiated with.

JAVERS: That`s right.

MATHISEN: Eamon Javers, thanks very much.

JAVERS: You bet.

EPPERSON: Regulators are launching an investigation into Alibaba, and that`s where we begin tonight`s "Market Focus".

The SEC is looking into the accounting practices of the Chinese e-commerce giant relating to its annual singles day event. Last year, the company reported more than $14 billion in sales on that day alone. The news sent shares of Alibaba down nearly 7 percent to $75.59.

AT&T (NYSE:T) may want a piece of Yahoo (NASDAQ:YHOO) after all. According to Bloomberg, the telecom company has made an offer to buy the tech giant`s core assets. Verizon (NYSE:VZ) had been considered the front-runner for the businesses. Shares of AT&T (NYSE:T) up a fraction to $38.62. Yahoo (NASDAQ:YHOO) shares though fell 5 percent to $35.59.

Lower tourist spending dragged down results of Tiffany`s once again. The luxury jeweler saw its sales fall more than 7 percent, its biggest decline in years. Its profit also fell and missed estimates. In addition, Tiffany (NYSE:TIF) lowered its earnings forecast for the year. Shares were marginally up, though, to $63.89.

MATHISEN: Sales growth stalled at the clothing chain Express (NYSE:EXPR). The company reported a drop in same stores sales growth and warned of a further slow down in sales for the current quarter in the full year. Profit also below estimates with the CEO citing a challenging retail environment. We`ve heard that one, lots of times lately. Shares fell more than 8 percent to $14.68.

Williams Sonoma saw its revenue climb, thanks in part to strong growth in its West Elm brand. That helped quarterlies at the home furnishings retailer top estimates. Shared initially popped in extended hours trading, as you see on that graphic, after ending the regional session up more than 2 percent at $52.10.

Microsoft (NASDAQ:MSFT) meantime cutting more than 1,800 jobs in its mobile phone business and the company will take a nearly $1 billion charge related to that move. This unit has seen multiple rounds of layoffs and steep write-downs since Microsoft (NASDAQ:MSFT) bought Nokia`s phone business for more than $7 billion back in 2014. Shares rose 1 percent.

EPPERSON: Still with Microsoft (NASDAQ:MSFT) streamlining its troubled mobile unit, what will be the company`s next move?

Brian Blair, principal and co-founder at Grays Peak Capital joins us right now.

And, Brian, I have to admit, with a teenage son, I don`t know much about this Microsoft (NASDAQ:MSFT) phone because that`s not the one kids are talking about. Is that part of the problem here for Microsoft (NASDAQ:MSFT), that millennials and younger people aren`t as interested in their phones?

BRIAN BLAIR, GRAYS PEAK CAPITAL PRINCIPAL & FOUNDER: Well, it actually goes back several years. You know, Microsoft (NASDAQ:MSFT) maybe going back five years thought their mobile operating system could take on Apple`s iOS or Google`s Android system and they were late to the game. You know, they first -- they got in bed with Nokia (NYSE:NOK), you know, as a partner before they ended up buying the hardware unit.

And it never went anywhere. There was really never much developer interest and so, they never created a system. So, it`s clearly a problem now because these phones aren`t anywhere, but the problem goes back five years where they never got any traction with their mobile operating system.

MATHISEN: You have to remind me there is a Windows phone operating system because it is such a third place finisher here.

BLAIR: Right.

MATHISEN: Is mobile ever going to be a big part of Microsoft`s business?

BLAIR: You know what, it can be, but it`s certainly not going to be on the hardware side. That`s what we learned through this failed acquisition of the Nokia (NYSE:NOK) device division. But it can be a meaningful part as it extends from the cloud.

You know, Microsoft (NASDAQ:MSFT) has been successful in the cloud. Nearly half of their revenues last quarter came from their cloud business, both Office 365 and Azure. So, part of that is extending their Enterprise applications into the mobile environment, not just the phones but the tablets and to their own Surface Pro.

So, I actually think it can be a meaningful part because, you know, users are mobile. Everybody needs the key applications and the enterprise to extend to their phone, and that`s Microsoft`s future to approach it that way -- but certainly not from the hardware side, and not from the mobile operating system side.

EPPERSON: So, then, it sounds like, Brian, you don`t think this is going to have a major impact on Microsoft`s overall business, this misstep with the actual phone, because the focus is really on the cloud and also Microsoft (NASDAQ:MSFT) Office, right?

BLAIR: That`s exactly right. We saw quarter. You know, I think Azure grew about 120 percent year over year, and it`s really becoming a cloud company.

You know, the PC side has been in a slide for a number of years now, which has really pushed their move into the Cloud. You know, PCs I think are down about 10 percent year over year now. But this is a small hiccup. This is something we`ve seen for a while. They`ve been talking it down. There really hasn`t been any traction.

So, this is something they probably should have done a year or two ago and we`re just finally now seeing them say, that`s enough, let`s cut our losses now and look ahead.

EPPERSON: All right. Sounds like a plan and what they`re going to be doing forward. Thank you so much, Brian Blair --

BLAIR: You bet.

EPPERSON: -- Grays Peak Capital.

Coming up, how the Department of Defense is helping doctors do things that just a few years ago would have seemed unthinkable. The first part of our series on modern medicine is next.

(MUSIC)

MATHISEN: Here`s what to watch tomorrow.

The G7 Summit convenes in Japan. The expected to be, as you might expect, the economy, trade, energy, among other things.

McDonald`s (NYSE:MCD) hosts its annual meeting. I wonder what they`ll be serving. Executive compensation is one of the items on the menu there.

Initial jobless claims, durable goods, pending home sales, they`re going to give a look at the state of the economy, and that, folks, is what to watch Thursday.

EPPERSON: Shares of Sarepta soared after the Food & Drug Administration said it`s delaying a review of a drug made by the company. Some interpreted that delay as an indication of a possible approval by the agency. And as we reported last month, an advisory panel recommended that the FDA reject the controversial medicine for Duchenne muscular dystrophy, which has no effective treatments. Sarepta shares spiked more than 26 percent today on that news to $23.35.

MATHISEN: Medical technology is advancing faster than ever before. Things that physicians didn`t think possible just a few years ago are today realities.

Meg Tirrell begins our "Modern Medicine" series with a look at how high tech prosthetics are changing the lives of injured vets.

(BEGIN VIDEOTAPE)

FRED DOWNS, VIETNAM WAR VETERAN: I lost my arm up here when I stepped on a land mine and almost lost this arm and almost lost my legs.

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fred Downs was 23 and a soldier in Vietnam in 1968, when a land mine took his arm. When Downs returned from the war, his options to address his injury were limited.

DOWNS: The Army fit me with the -- what I call a hook, which is a plastic arm that was the only thing available in those days.

TIRRELL: He wore that style of prosthetics for 47 years. Then, in 2009, he was given a chance to use this.

DOWNS: Here is my power grip.

TIRRELL: The Deka arm is built by Deka Research and Development and funded by the Defense Advanced Research Project Agency, or DARPA, a branch of the Department of Defense.

Downs uses censors mounted on his shoes to control the arm, and he says the technology is a huge improvement from his old prosthetics.

DOWNS: Well, it`s strange because for the first time in 40-some years, I have the ability to use my left hand to grab things.

TIRRELL: It`s part of a wave of technology that`s helping the way we think about what prosthetics can be.

DR. JUSTIN SANCHEZ, DARPA BTO DIRECTOR: Let me show you something cool.

TIRRELL: Dr. Justin Sanchez is project manager for DARPA`s biological technologies office. He works with teams of researchers across the country, testing new types of prosthetics, and they`re doing things that just a few years ago seemed like science fiction.

The next generation of prosthetics connects directly to the brain, and has the same range of motion as a natural arm. It even has censors to allow the user to feel pressure.

SANCHEZ: We can do very light touches, we can harder kind of touches and the person can actually distinguish between the light touch and the hard touch.

TIRRELL: Patients like Jan Sherman are showing how promising this technology can be. Sherman was diagnosed with a severe neuro degenerative disorder that left her unable to move her arms and legs. She entered a trial at the University of Pittsburgh Medical Center, funded by DARPA, and underwent surgery to have censors installed in her brain that could control a prosthetic arm.

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