NIGHTLY BUSINESS REPORT for June 22, 2016, PBS

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Brexit on the brain. Why tomorrow`s U.K. vote on whether to leave the European Union has investors here on pins and needles.

Stressed out. The Feds will tell the banks if they`re in good shape. Investigators want to know if they`re healthy enough to hike their dividend payouts.

And old reliable. The surprising name topping one of the auto industry`s most prestigious list.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, June 22nd.

Good evening, everyone, and welcome. Sue Herera is off this evening.

An evening -- a big evening before the day that Britons go to the polls to decide whether to stay in the European Union or quit. Pre-vote opinion polls wobble back and forth. Right now, it looks like a dead heat with both sides commanding about 44 percent of the probable vote, but 12 percent remained undecided and in those undecided hands lie the future of an organization that dates to 1957. Britain joined in the `70s, an organization that has never had a member pull out.

Investors around the globe have tip toed around the vote. Today, U.S. stocks had modest moves lower. The Dow Jones Industrial Average lost 49 points to finish at 17,781. NASDAQ composite dropped 10 to 4,833, and the S&P 500 dipped about three.

Since no nation has ever left the E.U. before, no one knows for sure what the economic impacts could be if Britain pulls out, but what is certain economies around the globe, not just in Britain or Europe could feel some tremors, dislocation. That`s a fact not lost on Fed Chair Janet Yellen who has weighed in.

So, what might the vote`s impact be on the U.S. economy and markets?

Sara Eisen tells us from London tonight.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Voting begins tomorrow in what British leaders are calling a once in a generation vote. The results will be felt far outside the U.K., including potentially on the U.S. economy. The U.K. is America`s largest trading partner. We export about $57 billion worth of goods to the U.K. and import a little more than that from the U.K. -- mostly cars, medicines, alcohol and other big auto parts.

Now, when it comes to the portion of overall trade for the U.S., the U.K. represents 3 percent. So, it`s not a huge chunk of our trading activities. Still, if the British economy does decline if Britain votes out, it could hurt a key source of demands. Several economists, including mostly notably the chairman of the Federal Reserve, is concerned about the fallout.

JANET YELLEN, FEDERAL RESERVE CHAIR: It would usher in a period of uncertainty and it is very hard to predict, but there could be a period of financial market volatility that would negatively affect financial conditions and the U.S. economic outlook that`s by no means certain, but it is something that we will be carefully monitoring.

EISEN: The other impact could be a weakening of the British pound. If Britain does vote to leave, hedge fund manager George Soros, who has a pretty strong track record betting on the British pound or against it, made a billion dollars back in 1992, said we could see a 20 percent devaluation for the pound if Britain leaves. That would mean a much stronger U.S. dollar and could be painful for any multinational American company that does business here in the U.K., already suffering from the effects of the stronger U.S. dollar.

But the real concern for the U.S. economy is financial market distress, widening credit spreads, falling stocks, the strengthening dollar, buying of safe haven assets like U.S. treasuries, that`s what economists fear could end up ultimately hurting the U.S. economy. It doesn`t help that the economy already doesn`t have much of a cushion for barely growing 2 percent, and the Fed is already working hard to keep the stimulus flowing and interest rates low.

That`s why another key reaction is certainly going to be European stocks and the euro because in that case, we`re talking about a $16 trillion economy, just about the size of the U.S.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen in London.

(END VIDEOTAPE)

MATHISEN: And while we brace here for a possible exit, Julia Chatterley tell us, regardless of the outcome, few doubt there are major changes coming for the entire European Union.

She has more from Brussels.

(BEGIN VIDEOTAPE)

JULIA CHATTERLEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here in the heart of Europe, Brussels we can only wait to see what voters decide. We they decide to remain within the E.U. or will they decide to leave. And I can tell you, the polls are still so close that it`s anyone`s guess.

We have heard from the likes of Wolfgang Schauble, the German finance minister, saying no matter how U.K. voters decide, Europe will be materially changed by these events. You know, I think that`s little comfort to the skeptics who say, why wasn`t Europe more forthcoming when the prime minister was trying to renegotiate this relationship in order to improve his position in this fight and actually wasn`t given that much according to those U.K. voters?

We`ve heard from the president of the Eurogroup, Jeroen Dijsselbloem, who said, look, talking about closer integration now just won`t fly and he`s right. It`s not just about the U.K., it`s about the Dutch, it`s about the Finns. It`s also about the Southern (NYSE:SO) European countries who have been through bailouts, I`m talking Italy, Greece, Portugal and Spain.

And for investors here, the U.K. is just one brick in an entire world. And if that is pulled away, what about other worldly brick. I`m talking about France maybe too given their prevalence of the far right national front there. So, while this may be a pivotal moment for the U.K. and their relationship with the E.U., the echo boom that it creates could be far bigger for Europe and investors will judge that early on Friday morning.

For NIGHTLY BUSINESS REPORT, I`m Julia Chatterley in Brussels.

(END VIDEOTAPE)

MATHISEN: The results of the voting in the U.K. will begin to come out overnight tomorrow night. That`s early Friday morning here in the U.S. Most experts believe there will be a strong impact felt by markets across the world no matter what the decision.

Here in the U.S., Federal Reserve Governor Jerome Powell says the U.S. Central Bank is ready for whatever happens.

(BEGIN VIDEO CLIP)

JEROME POWELL, FEDERAL RESERVE GOVERNOR: Markets have been very responsive to changes in the polls clearly so the vote could certainly bring on significant volatility. If that happens, financial conditions could tighten, it could have an economic effect on the U.K. and the E.U. We could feel that as well. We could very feel that if there was significant risk with the dollar. So, we would have to take that into account in setting monetary policy.

(END VIDEO CLIP)

MATHISEN: Despite Mr. Powell`s reassuring tone, Federal Reserve Chair Janet Yellen in a second day of testimony up on Capitol Hill had to remind the House Financial Services Committee that stock markets are not figuring into the Fed`s decision making process.

(BEGIN VIDEO CLIP)

JANET YELLEN, FEDERAL RESERVE CHAIR: It is not a third pillar of monetary policy. We do not target the level of stock prices that is not an appropriate thing for us to do.

(END VIDEO CLIP)

MATHISEN: Home sales rose last month to a nine-year high, suggesting that the housing market is strong. Sales of existing homes rose nearly 2 percent in May to an adjusted annual rate of more than 5.5 million. That`s the highest rate since February of 2007.

At the same time, the National Association of Realtors says the median existing home price now sits at $239,700. That is the highest on record.

Well, today, Hillary Clinton and Donald Trump took their shots at how to fix the economy and naturally took some shots at each other.

John Harwood joins us from Washington.

It was a little bit tit for tat, I suppose you would say. Mr. Trump firing back in a very personal way against Mrs. Clinton. She, not so personal today, but she had been yesterday.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tyler, Hillary Clinton had taken two roundhouse punches at Donald Trump in the last couple of weeks, one on national security, saying he was temperamentally unfit to be president, and one of them on the economy, that was this week, and talking about how his business experience is mostly about Chapter 11.

Today, Donald Trump, who`s got a rough couple of weeks in general, fired his campaign manager on Monday, came back hard trying to get on offense, said he was the candidate who could change and shake up Washington, shake up the special interest, and Hillary Clinton wasn`t. Why? Because he argued she`s corrupt. He talked about the big speeches she`s given to Wall Street firms, the money the Clinton Foundation has taken and all that he went through trying to hurt her badly.

MATHISEN: He has been trying to portray her as too tied, as you just mentioned to special interests, getting paid for speeches and that he`s not. Do the facts bear this out?

HARWOOD: Well, not really. Look, Hillary Clinton and Bill Clinton have raised a lot of money over a long period of time, but they`ve been in public service. Hillary Clinton started at the Children`s Defense Fund. She has not -- her career has not been principally about making money, although like many politicians she has made a bunch after she left as first lady and Bill Clinton that is after he left as president and when she left as secretary of state, they made a ton of money giving speeches.

Now, there`s no proof that they`ve been corrupted by that money but Bernie Sanders made the argument that it was corrosive to the idea of changing Washington. So, Donald Trump picked up that theme.

MATHISEN: Mr. Trump has campaigned on a very dramatic tax cuts. What do the numbers say about what it would do to the deficit?

HARWOOD: Well, the numbers say that if you ask the conservative Tax Foundation even after assuming the so-called dynamic effects of growth, be it would add $10 trillion over ten years to the deficit. Mr. Trump has not identified a way to pay for that. Now, his contention is that the growth would be greater than the Tax Foundation has estimated, and you wouldn`t have a deficit at all.

But other think tanks said similar things about a $10 trillion loss to the Treasury. There`s no question that Donald Trump, given his spending promises and his tax cut promises, would at least in the short term for some period of years add to the deficit.

MATHISEN: All right. John Harwood, thank you very much.

HARWOOD: You bet.

MATHISEN: Tomorrow, the Federal Reserve will tell the nation`s biggest banks and shareholders like you whether their plans to stand up to the financial shocks are strong enough and investors want to know if they can raise they`re dividends. We`ll take a look.

(MUSIC)

MATHISEN: House Speaker Paul Ryan rolled out a Republican health care agenda. The plan that would repeal the Affordable Care Act, but would keep portions of it, such as not being denied coverage for pre-existing conditions and letting parents carry their children on their insurance until they reach age 26. It would also add long-held Republican positions like expanding health savings accounts and buying insurance across state lines.

Well, the biotech sector got a strong lift after a report on Medicare spending showed the growth rate did not top its target which would have triggered cost cuts.

Jason Kolbert is Maxim Group`s senior managing director and biotech analyst.

Mr. Kolbert, welcome, good to have you with us. I hope I`m pronouncing your name correctly. There`s another guy who`s got a name like yours and he calls it Colbert. You know what I`m talking about

JASON KOLBERT, MAXIM GROUP SENIOR MANAGING DIRECTOR: I do. Thank you so much. You have it perfect.

MATHISEN: He`s funny and I`m sure you`re going to make us laugh, because biotech`s moved up today on this news. What does it really mean for the future of this sector?

KOLBERT: Well, right now, the sector is climbing the wall of worry over pricing. In fact there`s been a lot of discussion on your show about the U.K. and what will happen, and the U.K.`s insurance government agency needs really -- just refused to offer a very high reimbursement rate for a new cystic fibrosis drug from Vertex. So, it tells you that when we look at, will Medicare be around and be able to fund our health care needs, there was a report that was going to deal with drug pricing and that report looks like it`s delayed.

So, it looks like we`re going to see no action. And right now, no action is good news because the fear is we will see price controls in this country some day.

MATHISEN: Are there drugs that you`re aware of that are in the pipeline or soon to come to market that will be extraordinarily high priced like the ones that treat Hepatitis C that came out in the past couple of years and how burdensome might they be -- and I assume those are the ones that Medicare would be targeting if they`re concerned about holding the line on cost.

KOLBERT: That`s exactly right. When we look at kind of the new genre of biotechnology drugs, they are personalized medicines around gene editing and something called CAR T, they`re very expensive, anywhere from $200,000 to maybe $1 million a person. How are we going to pay for that?

So, that concern is starting to creep into the marketplace as the reality of these drugs gets closer in terms of their clinical maturity and being commercialized. Something has got to give. We can`t pay for everything.

MATHISEN: It`s really a very, very difficult ethical question when you start to look at cost versus benefit in this area because obviously each patient is individual and the prices can be very high. Take us through that thinking very briefly.

KOLBERT: Well, a great example is the decision on the reimbursement of the cystic fibrosis drug that Vertex manufactures. What they found is a very small, very short incremental benefit against a very, very high price target, and the government decision was made not reimburse it.

It`s funny that governments all around the globe, in Japan, in Europe, are able to regulate price controls and say, what is the risk, what is the benefit, and what is the aggregate benefit to society?

That`s something that our health care system has never been able to deal with and yet, we`re going to have to deal with it because when we look at the Medicare trustee`s report, we know that Medicare is just not funded to pay for everything. So, again, something`s got to give but who has the political will to deal with that and in a political election cycle that becomes an even more prominent question.

MATHISEN: Jason, thank you very much. Very clear. Very helpful. We appreciate it.

KOLBERT: Thank you.

MATHISEN: Jason Kolbert of Maxim Group.

Well, investors give the thumbs down to Tesla`s bid for SolarCity and that`s where we begin tonight`s "Market Focus".

Last night, the auto maker made a nearly $3 billion takeover for the rooftop solar energy company. Another company founded by Tesla`s CEO Elon Musk. Mr. Musk says the deal would be allowing customers to buy an electric car and a home solar system in a one stop shop. Shares of Tesla cratered more than 10 percent to $196.66, SolarCity rose 3 percent to $21.88.

Shares of Winnebago got a lift today after the RV and motor home maker reported a jump in quarterly profit that topped estimates. Revenue also rose better than expected, thanks to an increase in sales in the company`s towables and motorized shipments businesses. Shares up 6 percent on the day to $22.95.

Analysts are bullish on Priceline. Barclays upgraded the travel booking company stock from equal weight to overweight and increased its price target to $1,500. Yes, you heard me right. The firm cited an expectation that Priceline will see long term structural growth and improving margins. Shares of Priceline up a percent to $1,360.10.

But it`s a different story for McDonald`s (NYSE:MCD). Nomura downgraded the fast food chain stock to neutral from buy, citing overall slowing in the U.S. burger restaurant sales and tougher year over year comparisons. Shares of McDonald`s off more than 1.5 percent on that news. They finished at $120.62.

Well, tomorrow, the Federal Reserve will release the first round of the so- called stress test for the big banks. The purpose is to see if the banks have enough capital to handle a sharp economic downturn. Investors will look to see if the banks are strong enough to raise dividends.

Joining us to talk more is Erik Oja, analyst at S&P global market intelligence equity.

Erik, good to have you with us.

ERIK M. OJA, S&P GLOBAL MARKET INTELLIGENCE EQUITY ANALYST: Thank you.

MATHISEN: Some of the banks, and I am remembering most particularly Citibank, have had stumbles when these stress test results have come out in the past. Is Citi the one we should watch closest tomorrow?

OJA: Well, I think the ones that we should be watching would be the largest six banks in the U.S. which would also include J.P. Morgan Chase, Bank of America (NYSE:BAC), and the custody banks, including Bank of New York Mellon (NYSE:BK) and State Street (NYSE:STT), because the stress tests have a new level of complexity, which would be counter-party risk in a global environment. And as well, there`s also, how would they react to negative interest rates?

So the stress tests will be tougher tomorrow and certainly, Citi group will be in the crosshairs of that.

MATHISEN: Are these banks healthier now than they were say three, five years ago? Not just with respect to being able to pass a test, but just healthier generally.

OJA: Sure. Revenues are up, capital ratios are up. Liquidity is up. They`ve done a great job in the last five years of making themselves much stronger, and I would say the U.S. banks are among the strongest banks in the world now.

MATHISEN: Do you anticipate that when these results come out, that any of the banks you mentioned will be restricted in their ability to pay or raise dividends to the levels they might like to do?

OJA: It`s likely that Bank of America (NYSE:BAC) and Citigroup (NYSE:C) will still feel some restrictions.

Likely, most of the banks will not be able to have the sort of dividend increases that we have seen in prior stress test cycles, simply because they`re getting to the upper end of their pay out ranges. They can`t really pay out that much more as a percentage of profits and profits are not growing as fast as they were during the early part of the recovery.

So, it`s likely that the largest banks will be constrained. We expect that most of them will have some small increases.

MATHISEN: All right. Erik, thank you very much. And we`ll be watching with great interest tomorrow.

OJA: Thank you.

MATHISEN: You bet. Thank you.

Coming up, J.D. Power out with the most reliable brands for automobiles. Did yours make the list?

(MUSIC)

MATHISEN: Here`s a look at what to watch tomorrow. We get our weekly snapshot of the labor market when initial jobless claims come out. More housing data, this time it`s new home sales for May, the existing ones are pretty good. And as we`ve been taking, the big U.K. referendum on whether to leave the European Union. That`s what to watch Thursday.

Here is some welcome news for car buyers. A new J.D. Power survey shows owners report fewer problems with their new vehicles, especially when it comes to infotainment systems.

Phil LeBeau takes a look at what`s changed and which brand is rated now as most reliable.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: After years of improving the reliability of new models, Kia has become number one in new vehicle quality, according to the research firm J.D. Power.

Kia topped this year`s survey, edging up Porsche, Hyundai, Toyota (NYSE:TM) and BMW. It`s the first time since 1989, a non-luxury brand has stopped the reliability survey. Researchers say it`s due to Kia focusing on cleaner model launches where automakers often struggle with issues that can pop up unexpectedly.

RENEE STEPHENS, J.D. POWER: So, the new vehicles that are coming out are really coming out -- launched very well, very well thought out in the design phases of their vehicle.

LEBEAU: Overall, the auto industry is doing a better job cranking out vehicles with fewer problems, especially when it comes to infotainment systems, that had been the number one complaint with new car buyers. In many cases, the connectivity doesn`t always work or there are glitches in the electronics. But that appears to be improving as automakers focus on giving drivers in-car options that are easier to use.

Amy Nelson in Western Springs, Illinois, says her new Land Rover has the connectivity that she wants without overwhelming her.

AMY NELSON, NEW VEHICLE BUYER: It didn`t have all the bells and whistles. And so, it was kind of simple and clean on the inside, and it was a good fit for me.

LEBEAU: While Kia may be the automaker with the most reliable new vehicles, according to J.D. Power, there`s also good news in this survey for the American brands. For just the second time in the last 30 years, the big three all improved their reliability in the same year with the biggest gains coming from Jeep and Chrysler.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: Cannes Lions was always one of the big get-togethers for the advertising world, but now, it is turning into a kind of South by Southwest type of event in France, where different media worlds meet.

Kayla Tausche takes us to the south of France.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Cannes Lions started as the advertising industry`s response to Cannes Film Festival, but it`s really more of the who`s who of the tech and media world, as all of those worlds have collided. You have the legacy broadcasters touting their foothold in digital, while hot young upstarts like Vice and Snapchat are touting their expansion and momentum.

SHANE SMITH, VICE MEDIA CEO: It`s a good time to expand. You know, millennials just took over from baby boomers. That`s the largest cohort in the world. And we`re a millennial brand. So, there`s a lot of demand. So, we just announced 15 new networks around the world, 15 different countries.

TAUSCHE: With conference goers buzzing about the future of Viacom (NYSE:VIA), Sir Martin Sorrell, chairman and CEO of WPP (NASDAQ:WPPGY), which is a client of Viacom`s, as well as his wife being on the Viacom (NYSE:VIA) board, we got his take on how he sees the situation unfolding.

SIR MARTIN SORRELL, WPP (NASDAQ:WPPGY) CEO: We have a relationship with Viacom (NYSE:VIA), a significant relationship with Viacom (NYSE:VIA), in terms of we`re buying media on behalf of our clients.

TAUSCHE: Does that relationship depend on Philippe Dauman remaining CEO?

SORRELL: No, it depends on the value of Viacom (NYSE:VIA) and indeed any other television group delivers to our clients.

TAUSCHE: Facebook (NASDAQ:FB) ad chief announcing Instagram hit a milestone of 500 million monthly active users.

CAROLYN EVERSON, FACEBOOK HEAD OF ADVERTISING: The exciting thing is that these 100 million have joined faster than the prior 100 million, so we`re seeing tremendous momentum around the world and enthusiasm for a platform that is all about visual communications and discovery.

TAUSCHE: Not to be outdone, Twitter`s COO Adam Bain voicing optimism for his company`s product pipelines amid growing criticism.

ADAM BAIN, TWITTER COO: We`re excited about video because video is great for people on Twitter. It`s great for publishers that put content on there and certainly, it`s great for marketers. It`s a terrific creative canvass for advertisers and ultimately on the ROI side. We`ve shown that advertisers get better returns when they use video in their ad campaigns than even traditional promoted tweets.

TAUSCHE: An eventful week that may only look like a day at the beach. Executives say it`s one of the most productive weeks of the year. Most conversations about deals start here.

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

(END VIDEOTAPE)

MATHISEN: I would call it my most productive week of the year too if I want to go back.

All right. Finally tonight, who says people don`t like a front-runner. In this election year, politicos are having an impact on baby names. According to an analysis of more than 115,000 baby names registered on the website baby center so far this year, names from the Clinton and Trump families are on the rise. Hillary far in front, up more than 140 percent from last year, Donald up 8 percent. Oh and the name of a runaway Broadway smash "Hamilton" is up 60 percent as a baby name.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Tyler Mathisen. Thanks for watching. Have a great evening, everybody, and we`ll see you back here tomorrow.

END

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