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Swings in currency market, stock prices cap Wall Street’s chaotic week

It was a topsy turvy week in the markets, with huge swings in the currency markets and, by week's end, another sharp rise in stock prices. The Dow and S&P closed Friday just below their all-time highs. Michael Regan of Bloomberg News joins Hari Sreenivasan for more insight into the forces at work.

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  • HARI SREENIVASAN, PBS NEWSHOUR WEEKEND ANCHOR:

    It was a topsy-turvy week in the markets, with huge swings in the currency markets and, by week’s end, another sharp rise in stock prices.

    The Dow and S&P 500 closed yesterday just below their all-time highs. For some insights into the forces at work, we are joined by Michael Regan of Bloomberg News.

    So, first of all, the comments that were made by the fed, everybody kind of thinks about interest rates, but something Janet Yellen said about the price of the dollar seemed to have a huge impact. Why?

  • MICHAEL REGAN, BLOOMBERG NEWS:

    Right. Well, it’s sort of counter-intuitive but a stronger currency is not necessarily the best thing for an economy.

    I’ll give you an example, you know, if you’re an American company selling big Macs or iPhones or whatever in Europe, unless you raise your prices in euro terms, you’ll collect the same amount of euros but then when you translate it back to American dollars, it’s much less on the American dollar side.

    So, that creates sort of a headwind for a lot of companies that have big overseas businesses, which is many American companies.

  • HARI SREENIVASAN:

    So, a lot of these multinational corporations, that means they’re not making nearly as much profit overseas, right?

  • MICHAEL REGAN:

    Exactly, exactly. You know, some are actually doing better because the American spending power is stronger, so it’s sort of a mixed bag.

    But on the whole, it tends to be — oftentimes tend too to be a headwind to the economy and to the stock market.

  • HARI SREENIVASAN:

    OK. Besides these huge corporations, how does it impact our buying power?

    I guess on the one hand, maybe it’s cheaper for me to travel in Europe right now. But if that’s not my thing, how am I actually feeling the impact?

  • MICHAEL REGAN:

    Well, for one thing, as you said, this is a key issue for policy makers trying to decide the fate of monetary policy.

    So at the end of last year, the Fed — their projections for where their interest rate, the Federal Reserve’s rate was going to do was about 1.1 percent by the end of this year.

    They’ve since in the last meeting cut that back down to 0.6 percent. So, you think half a percentage point.

  • HARI SREENIVASAN:

    Right.

  • MICHAEL REGAN:

    How big of a deal is that?

    It’s — on Wall Street, it’s a huge deal, and potentially a big deal to everyone because, obviously, if you — you know, those rates influence everything — treasuries, and trickle on down to mortgages and all sorts of commercial loans.

    So, if investors believe I’m not going to make as much investing in the debt market going forward, I might as well try my luck in the stock market.

    That’s part of the reason why we saw this big jump on Wednesday and Friday in the stock market is because you know the risk return looks a little bit better in the stock market compared to potential lower interest rates in the debt markets.

  • HARI SREENIVASAN:

    And this is at a time when our central bank is going one way on the dollar versus all these other banks that are actually trying to suppress their currency.

    So, we almost can’t stop the power of the dollar from getting bigger.

  • MICHAEL REGAN:

    Right. And it’s really sort of uncharted territory, you know?

    The boilerplate, you read everywhere on Wall Street is past performance does not guarantee future results, right?

    But what does Wall Street do? They spend all their time analyzing the past, trying to figure out what is going to mean for the future?

    And in this case, you know, it’s so unprecedented what we’ve seen, you know, not only the Fed lowering interest rates as low as they did, buying trillions of dollars worth of bonds and now, the opposite happening where we’re sort of backing away from that and Europe is doing what we did a few years ago — they’re aggressively — they’re going to buy more than $1 trillion worth of bonds in Europe.

    So, you know, it’s two forces acting at once to strengthen the dollar, and it’s very unprecedented, and it’s — it has a lot of people — you know, maybe not worried but very sort of flummoxed because, again, they look back to these models based on the past, and, you know, they don’t know — there’s no historical record to base any predictions on.

  • HARI SREENIVASAN:

    All right. Michael Regan of Bloomberg news — thanks so much.

  • MICHAEL REGAN:

    Thank you.

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