WEBVTT - Schwab's Kleintop: Avoiding Japan, Likes Europe Banks (Audio)

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<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pallett. Stocks are trading higher on the way

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<v Speaker 1>to the strongest to day rally in nearly three months

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<v Speaker 1>of Signs of a stronger economy spurred speculation that can

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<v Speaker 1>withstand higher interest rates. The SMP five hundred indecks up fourteen,

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<v Speaker 1>a gain of seven tenths of one percent. The SMP

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<v Speaker 1>at two thousand ninety naz stack up thirty one points,

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<v Speaker 1>a gain of seven tenths of one percent. Down industrials

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<v Speaker 1>up one d forty nine points, a gain of eight

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<v Speaker 1>tenths of one percent. The tenure down to thirty seconds,

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<v Speaker 1>the old one point eight six percent, Gold down four

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<v Speaker 1>sixty the ounce to twelve twenty four A dropped there

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<v Speaker 1>of four tenths of one percent. Crude up one oh

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<v Speaker 1>seven of arrow forty nine sixty eight, a gain there

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<v Speaker 1>of two point two percent. I'm Charlie Pallett, and that's

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<v Speaker 1>a Bloomberg Business Flash. Charlie Pella, thank you so very much.

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<v Speaker 1>Now it's time for the e t F Report brought

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<v Speaker 1>to you by van Eck Vectors e t S expect

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<v Speaker 1>own Catherine Cowdery. Investors are taking their fascination with low

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<v Speaker 1>volatility stocks to new heights. That's the word from Joseph

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<v Speaker 1>Cieli of Bloomberg News. He says that Power Shares SMP

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<v Speaker 1>five funded Low Volatility Fund and the I Shares Edge

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<v Speaker 1>m SCI Minimum Volatility USA e t F saw their

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<v Speaker 1>combined assets reached twenty billion dollars this month for the

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<v Speaker 1>first time, and they've added seven billion dollars so far.

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<v Speaker 1>They see here. The reason, Sioli says, some of it

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<v Speaker 1>has to do with uncertainty about when the Federal Reserve

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<v Speaker 1>is going to raise interest rates again. So there's a

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<v Speaker 1>lot of debate as to whether a rate hike could

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<v Speaker 1>be a positive or negative for the stock market. So

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<v Speaker 1>the safest thing to do is just to buy an

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<v Speaker 1>instrument that that's insulated from from either of them and

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<v Speaker 1>kind of just benefits from arrangement market. You also have

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<v Speaker 1>concerns over global growth in China, which has really been

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<v Speaker 1>one of the major themes in two thousand and sixteens

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<v Speaker 1>so far. The Brexit vote coming up in in the

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<v Speaker 1>U k IS is also adding a little to the turmoil.

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<v Speaker 1>And then just overall just a dispatch of economic data

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<v Speaker 1>that can really swing the market one way or the

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<v Speaker 1>other on a given day. That's your Bloomberg ETF report.

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<v Speaker 1>I'm Catherine Cowdery. This is taking stock with pin Box

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<v Speaker 1>and Kathleen Mays on Bloomberg Radio. Economic growth in the

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<v Speaker 1>United States versus economic growth in the Eurozone. Eurozone GDP

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<v Speaker 1>growth surprised to the upside in the first quarter, up

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<v Speaker 1>six tenths of a percent. Go Ahead annualized that in

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<v Speaker 1>order to compare it to the United States where two

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<v Speaker 1>point four quarterly growth. Let's find out more from Jeff

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<v Speaker 1>klein Top. He is the chief Global investment strategist for

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<v Speaker 1>Charles Schwab and Come Company. He joins us from Boston,

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<v Speaker 1>of course, home to Bloomberg twelve hundred and he can

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<v Speaker 1>be followed on Twitter at Jeffrey Klinop. Jeff, thanks very

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<v Speaker 1>much for being with us and start us off by

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<v Speaker 1>giving us some details about economic performance in Europe. You bet,

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<v Speaker 1>it's great to be with you. So here's the thing

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<v Speaker 1>about Europe. Not a whole lot was expected for Q one,

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<v Speaker 1>but we did see quite a rebound and lately we've

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<v Speaker 1>actually just gotten the flash p M I numbers um

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<v Speaker 1>and and it looks pretty good. In fact, Germany just

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<v Speaker 1>saw a nice rebound, and we also got the i

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<v Speaker 1>FO data, which is a big business survey over there

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<v Speaker 1>in Germany's had also showed a nice upticks three months

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<v Speaker 1>in a row. Now for the manufacturing economy in Germany

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<v Speaker 1>coming back, it's good to see. And so you've got

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<v Speaker 1>a broad based of support from consumer spending which is

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<v Speaker 1>strengthening manufacturing sector coming back. This is important. Remember just

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<v Speaker 1>a couple of years ago, gosh, less than a couple

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<v Speaker 1>of years ago, Europe was in recession. So it's still

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<v Speaker 1>earlier in a teconomic cycle, and we're seeing that vibrancy

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<v Speaker 1>in better economic growth. But Jeff, there isn't a lot

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<v Speaker 1>of this confined to Germany, in Europe's biggest economy, the

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<v Speaker 1>economy that is benefiting so much from being part of

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<v Speaker 1>the euro Area, very very export dependent. Much of the

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<v Speaker 1>rest of Europe is not doing anywhere near this. Well,

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<v Speaker 1>that's true. A lot of particularly southern Europe has has

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<v Speaker 1>had a much tougher time than northern Europe has. UM.

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<v Speaker 1>But you know, we are see broadly speaking, uh, the

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<v Speaker 1>economy continues to move in the right direction. I think

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<v Speaker 1>you want to be careful when you're investing in Europe

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<v Speaker 1>to make sure you understand what you're getting exposure to. UM.

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<v Speaker 1>You know, we like the financials within Europe, and that's

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<v Speaker 1>naturally gonna orient you more towards the northern part of Europe,

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<v Speaker 1>countries like Germany and France as opposed to the south.

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<v Speaker 1>And and so you know, I think as you invest,

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<v Speaker 1>you think about healthcare also another area in Europe that's attractive.

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<v Speaker 1>That's uh, primarily northern Europe where you're going to find

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<v Speaker 1>those health care companies, and that's where we're sending to

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<v Speaker 1>focus on finding value. Hey, Jeff, is Spain by any

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<v Speaker 1>chance and exception. I mean there's some investment opportunity you

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<v Speaker 1>don't want to buy when it's already high. You know that.

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<v Speaker 1>That's an interesting point. So Spain, Spain has shown some

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<v Speaker 1>signs of turning the corner there have been labor reform

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<v Speaker 1>recently implemented there and some increasing momentum in that economy,

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<v Speaker 1>but the unemployment rate is still very high, so that

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<v Speaker 1>economy has got a long way to go and is

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<v Speaker 1>vulnerable to some risks. So while Spain looks attractive and

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<v Speaker 1>many Spanish stocks look attractive from a valuation perspective, they

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<v Speaker 1>do come with a lot of volatility, given the vulnerability

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<v Speaker 1>to geopolitical shock or other economic shocks. We know, our

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<v Speaker 1>colleague our stocks and are Dave Wilson. We were talking

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<v Speaker 1>about the Euro Area Minister's meeting and you know, trying

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<v Speaker 1>to help Grease stay on its feed and get through

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<v Speaker 1>its debt payments and all that, but basically point out

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<v Speaker 1>that the Greek stock market has been quite a performer.

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<v Speaker 1>What do you think about that? Yeah, well, you know,

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<v Speaker 1>some of that uh you know, rebound, a lot of

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<v Speaker 1>it just reflecting just the risk. I mean it's interesting

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<v Speaker 1>to see, you know, just make a parallel with with

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<v Speaker 1>Brazil this year, right, I mean, you know, the economy

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<v Speaker 1>took off on prospects for for change and reform, and

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<v Speaker 1>ultimately it's a long road to recovery, both for Brazil

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<v Speaker 1>and for Greece. And investors may be disappointed. Certainly, Greece's

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<v Speaker 1>European country, but it's also an emerging market, and we're

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<v Speaker 1>a little bit more cautious on the emerging markets, and Gosh,

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<v Speaker 1>i'd include Greece and that given the very long road

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<v Speaker 1>to recovery there. Jeff the Nikkai in Japan down nearly

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<v Speaker 1>four percent so far this year. Invest in Japan or

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<v Speaker 1>wait for perhaps another recession or another attempt to forestall

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<v Speaker 1>a recession. Yeah, you know, Japan does not look very

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<v Speaker 1>attractive to us. Japan's got a number of issues, including

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<v Speaker 1>the uh, you know, deteriorating manufacturing sector. Unlike what we

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<v Speaker 1>see going on in Europe where things are improving. Japan

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<v Speaker 1>very dependent on China. China big customer of Japanese products

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<v Speaker 1>in China seems to be slowing here once again as

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<v Speaker 1>they maybe moderate some of the stimulus that they injected

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<v Speaker 1>earlier this year, and that's going to be a drag

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<v Speaker 1>on Japan, as is that stronger yen, which seems to

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<v Speaker 1>be a real point of weakness for it. For that

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<v Speaker 1>economy so much more focused from a developed market standpoint

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<v Speaker 1>on Europe rather than Japan. Also, Jeff are was one

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<v Speaker 1>of the reasons you're focusing on the rest of the

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<v Speaker 1>world is that you see fewer opportunities now in the

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<v Speaker 1>United States in the stock market. Well, you know, the

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<v Speaker 1>US has UH is a little bit longer in in

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<v Speaker 1>the twoth I mean, the economic cycle has gone on

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<v Speaker 1>quite a bit. There's less momentum UH and and I'd

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<v Speaker 1>say there's less room to grow profit margins in the US,

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<v Speaker 1>whereas in Europe, for example, profit marches are still relatively low,

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<v Speaker 1>a little bit below average. And so I think profit

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<v Speaker 1>growth has a lot more momentum to it as we

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<v Speaker 1>look to what's going on in Europe than than perhaps

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<v Speaker 1>the US does. What about the Latin America, Jeff, are

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<v Speaker 1>we waiting waiting and seeing what happens in Brazil? I mean,

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<v Speaker 1>is that is that just the sort of a political

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<v Speaker 1>issue at this point for investors, It seems to be

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<v Speaker 1>Brazil very tied to to put all of Latin America

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<v Speaker 1>very tied to both politics and commodity prices and pim

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<v Speaker 1>you know, noticing recently, I'm notwithstanding oils move today, raw

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<v Speaker 1>industrial commodity prices have started to roll over a little bit,

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<v Speaker 1>and you know, talking about things we used to make

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<v Speaker 1>other things from rubber and comport at ten and lead.

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<v Speaker 1>They seem to be stabilizing after a pretty strong run

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<v Speaker 1>up in prior months. That's bad news for commodity exporting nations,

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<v Speaker 1>including those in Latin America. It's gonna be a tough

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<v Speaker 1>ride for them. Okay, you're looking at stocks as you

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<v Speaker 1>look globally. Are there any sovereign bond markets you like?

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<v Speaker 1>Are there any corporate bonds or corporate bond markets in Europe, Asia,

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<v Speaker 1>Latin America you like? We remained um focused on on

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<v Speaker 1>the US for fixed income, not finding a lot of

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<v Speaker 1>value overseas, still believing that dollar might be heading a

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<v Speaker 1>little bit higher over the remainder of this year, say

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<v Speaker 1>flat to higher, and that's a drag on your returns

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<v Speaker 1>from international fixed income investing. So it isn't necessarily a

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<v Speaker 1>credit view as much as it is a view on currency.

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<v Speaker 1>Jeff Fer. Everyone wants to know when do you think

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<v Speaker 1>they're going to raise interest rates? You know, we we've

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<v Speaker 1>been saying that the Fed is likely to raise rates

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<v Speaker 1>uh in the second half of this year. You know,

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<v Speaker 1>we had thought maybe September. Perhaps that's a little bit

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<v Speaker 1>earlier now, but the doors open to one, maybe even

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<v Speaker 1>two rate hikes later this year. And that's uh. That's

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<v Speaker 1>encouraging is that the FED finally feels the global economy

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<v Speaker 1>is strong enough to do that. But it's negative news

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<v Speaker 1>for the emerging markets. You know, earlier this year, the

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<v Speaker 1>emerging markets were leading, leaving things higher. In fact, through

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<v Speaker 1>the end of April they were up six or seven

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<v Speaker 1>percent on the year. They've pulled all the way back

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<v Speaker 1>here in the month of May as prospects for FED

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<v Speaker 1>rate hikes have picked up. And that's because emerging market

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<v Speaker 1>performance is so dollar dependent. The revival in the dollar

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<v Speaker 1>after a slide earlier this year has been toxic for

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<v Speaker 1>emerging market assets and really helped them underperformed. That maybe

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<v Speaker 1>a recipe for the second half. Look for volatility and

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<v Speaker 1>a lagging performance out of emerging markets. UH So, are you, then,

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<v Speaker 1>um in the camp that thinks, uh a fedrate height

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<v Speaker 1>could actually be the state destabilizing, especially overseas well. I

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<v Speaker 1>think it could be. It could raise concerns and and

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<v Speaker 1>and tighten financial conditions for some emerging market countries, but

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<v Speaker 1>I'm not worried about a crisis. I we don't have

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<v Speaker 1>the same type of UH dollar denominated debt emerging markets

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<v Speaker 1>that we saw in nineteen nine, seven or nine that

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<v Speaker 1>led to the global financial crisis. Back then, gosh, Back then,

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<v Speaker 1>South Korea had eight percent of its debt denominated in dollars.

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<v Speaker 1>Now it's eight. So it's a problem, but not a crisis,

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<v Speaker 1>all right, Jeff clientop, thank you for joining us an

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<v Speaker 1>investment look around the world. Jeff is chief Global investment

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<v Speaker 1>Strategist at Charles Swab. He's up in Boston, home of

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<v Speaker 1>Bloomberg twelve hundred. He likes European banks if it comes

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<v Speaker 1>to fixed income. He's keeping his money, his client's money

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<v Speaker 1>in the United States. I'm Kathleen Hayes along pim Fox.

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<v Speaker 1>This is taking Stock on Bloomberg Radio.