BMO's Ablin: Correlation Between Trump and Mexican Peso (Audio)

a d R dot org. The State of California is barring Wells Fargo from underwriting state debt, from its banking transactions and it's in its investments after the company admitted to opening millions of bogus customer accounts. California is the nation's largest issuer of municipal bonds. That suspension takes effect immediately. It will remain in place for twelve months. Wells Fargo shares they're a little change now by less than one tenth of one percent. As MP five hundred index up

seven seven, four tenths of one percent. Oil is surging West Texas Intermediate of five ninety. Right now. We have got gold down four ninety. The ounce one. I'm Charlie Public. That's a Bloomberg business flash. You're listening to Taking Stock with Pim Box and Kathleen Hayes on Bloomberg Radio. We're broadcasting alive today at the Bloomberg Market's most influential summit

at our world headquarters. We want to bring in a very special guest now, who is going to get us up to date on what's going on with the stock market today? Rising actually on report OPEC has reached a deal to curb production. We've seen headlines like this before. We'll see if this one holds up. And step back also and look at some of the big macro forces, the elections, the debates, and of course the Federal Reserve. Very happy welcome back to this show. Jack Avenin, Chief

investment Officer for BMO Private Bank. So Jack, let's start with the latest on OPEC. It seems to me that every time there's some kind of OPEC meeting, there's this back and forth about maybe reaching some kind of deal. What do you make of the latest news? And I guess, even more importantly, how important is this the stock market? Well, I do think it's important to stock market. Um, it would appear anyway, that oil is really a global growth barometer.

And UM, historically, or at least over the last couple of quarters anyway, UM, there has been a tight correlation between the direction of the stock market and the direction of oil prices. So I think having UM, perhaps some sort of an agreement or at least a report of an agreement certainly boosting oil prices, and that's turned stocks

around today. You know, Jack, I'm sorry, I'm gonna have to turn your domestic and I want you to just tell me about the US banking industry, because, of course, one of the more recent pieces of news is that California has suspended its business relationship with Wells Fargo. The banks in the United States are particularly pressure because of low infest rates and as a result they have major incentives to try to make other businesses, but also they

have to set aside a lot of capital. What's your take on how banks will be performing if we do get an infest rate increase. Well, I do think, uh, and I would tend to agree with you, UM that you know, the banks are certainly under a lot of pressure. UM. They've they've been the political pinata going into the election season. This is a this is one area where both Republicans and Democrats can agree. UM. So that that's been in

the in the headlines. UM, but I do think that ultimately the higher short term interest rates will ultimately you will be a souve for um. These companies that have been under some profit pressure. Well, and of course talk about pressure. Yellen was kind of beaten up on Coppit Hill to a uh, defending the big banks. They're in

much better shape than they were, they're better capitalized. Yesterday, Chris Whalen from no Bon rating agencies, quite expert on the bank said yes, he was a big proponent of ringing in the banks during the crisis, but now they're overregulated and the more the banks the regulars want to raise capital, that's hurting them. Does that do you agree with that? And does it mean does it make banks less of a good investment the financials? Yeah, I mean you have to sort of put a different lens on

banks nowadays. Uh. I I would argue that they are um should be trading at a lower valuation, and they certainly are currently, but are also they're safer bets. I mean, the fact is now if you're gonna treat them like utilities. Then you know, my guess is their stocks are going to be perform a lot more predictably. So I think there are you know, a double edged sword there. But on the other hand, keeping mind, financials is the only sector UH this year that's actually negative while the rest

of the market is higher. So there is a lot of making up to do. And I think that higher interest rates, in having the election behind us UM could be the catalyst to make to allow these these stocks to move over the next four quarters. Okay, so we got it. We did a little bit of oil, we did a little bit of banks, banking stocks the United States. I want you to tell me about the Paso in Mexico and Donald Trumps refers specifically to your most recent missive,

your letter that you see, yeah, thanks to him. UM. Yeah. You know, we've looked at a bunch of implications of UM of Trump and and and Clinton and so forth, and probably you know, you could argue biotech for for Clinton, but it was really the pace so that has the biggest statistical UH correlation to Trump's UM near the vagaries of his UH of his fortunes in this in this election. And what we found was probably not a surprise. As his election chance has improved, the pace so fell and

vice versa. And so one of the earliest indications that I noticed right after the debate UM was that the pace rallied in addition to stock futures. But the pay so in particular really signified to me, or reaffirmed to me, that investors believe that Donald Trump lost the debate, or at least didn't get the message that he wanted to

get across, and Clinton m certainly didn't lose. Of course, the this is a bet that if Donald Trump were elected, he would block, alter, even dismantled trade deals that have benefited Mexico greatly. So I guess that that is the logic there. And of course, is there any logic behindness? And is this just like a kind of a two month wonder once you get the results from the election, does this trade go away? I don't think so, Kathleen.

I think what we've finding is, first of all, going into them, the going into that Um Monday Um debate, we have to keep in mind the pay so so was the weakest in its entire history relative to the US dollar, and so this rally that we're seeing a relief rally whatever you want to call it is UM you know, certainly moving the currency in the right direction. But I also think it underscores the notion that, you know, whether Trump attained presidency or he disappears, UH, this issue

wasn't going to go away. I think that UM candidates UM, but also constituents are pre skeptical of trade and that could put UM, Mexico UH and the Paco under under dress even after you know, Trump, if he were to lose UM into next year. Well, Jackie, I'm going to turn you all the way back to the North America and to the and then I want you to go and do that pivot for for more oil and natural resources. UM. Because you mentioned the value of the pace, so the

value the Canadian dollar also sliding. Tell me what's going on there, and then tie that into natural resources, you know, do that whole boat. Yeah, so UM, the you know, the Canadian currency slightly different trade, although UM it was you know again it was really NAFTA that was called in the question UM that candidate Trump should be elected president, would hope to UM cancel NAFTA, which of course covers Canada as well. So I do think there is some

of that going on. Um, But but you're right to him. Canada is a resource rich country, and oil prices have certainly have come down pretty dramatically from their peak a couple of years ago. Uh, and let's put pressure on the currency. In fact, we believe in you know, at seventies seven, it's on the dollar. Um, the Canadian dollar is probably eight or nine percent undervalued on what we'll call a purchasing power parity or kind of a fair value basis. So um, we think that, um, you know,

these two currencies could be pretty interesting you know, interesting plays. Uh, once the you know, the the all the confetti has swept up after this election, Okay, until that confetti falls. Are you on the sidelines? Are you have you moved a lot into cash? Is that the best strategy? When we do it still looks like a pretty close race.

And we know if any of these things, like the Paso volatility or an early indication markets, many different asset classes around the world could move when we get the election results, depending on what they are. Is it best just to be defensive right now? Well, it really depends on your your time horizon and the strength of your stomach. I suppose, Um, we do have a fair sizeable cash position. It's been kind of a you know, burning a hole in our pocket, but we want to keep some powder

dry and look for opportunities. On the other hand, I think that you know, a lot of the you know, the the rhetoric is it will die down, whether it's surrounding the banks, uh and Wells, Fargo Well, whether it's surrounding concerns about the pay so or even biotechs and whatever. You know, keep in mind, even if, um, you know, a candidate is elected, it doesn't necessarily be a surprise everyone, all of your listeners, but not all candidates actually enact

items that they talk about during the campaign. So um, it's it's entirely possible that sort of the enthusiasm wears off once they get into office and low and behold these sectors come back. Yeah, very good point, Very interesting. Thank you very much. Jack Appman is always the chief investment Officer at FEMO Private Bank. We are broadcasting from Bloomberg Market's most influential summit from our world headquarters in New York. This is taking Stock. I'm pim Fox. My

co host Kathleen Hayes. This is Bloomberg