World markets tank

Bob Moon Jun 8, 2006

KAI RYSSDAL: I wish we could start off with something more pleasant. Wouldn’t have to be much. A poke in the eye, maybe. Take a look around at the world’s stock markets and you’ll know what I mean. Major indexes were down 2, 3, even 5 percent in some places. And most of the day things were only a little bit better on Wall Street. We asked our Bob Moon in New York to give us the big picture.

BOB MOON: It was a day for a lot of head scratching on Wall Street. The stock market was on a downward spiral from the start, fearing the possible fallout from new interest rate increases from central banks in Asia and Europe. Seaport Securities chief Ted Weisberg says investors could only guess whether the overseas banks were merely following the lead of the Federal Reserve in moving to contain inflation, or whether it portends still more rate hikes here in the U.S.

TED WEISBERG:“It’s hard to know what comes first, the chicken or the egg. You don’t know if they’re reacting to what we’re doing here, or if it’s vice versa. But, bottom line is, higher interest rates, at least in the short term, are not helping equity prices.”

In this case, “short term” was indeed short. Heading into its final hour of trading, investors seemed to shake off their initial fears, and the market rallied. At Wachovia Securities, market consultant Larry Wachtel wondered if maybe investors have managed to get a clear signal about the Fed’s intentions, at long last:

LARRY WACHTEL:“There has been an enormous amount of so-called ‘Fed speak,’ stressing one fact, over and over again. They’re not comfortable with inflation, therefore the implication is rates will have to rise. I think Wall Street has gotten the message after numerous commentary, and now they’ve adjusted – they’ve adjusted to that reality.”

But market analyst Art Hogan says until the Fed actually meets at the end of the month, the turbulence is bound to continue:

ART HOGAN:“I do think the end in sight, if you will, or you know the signpost up ahead, is the June 29th meeting, and a new statement coming from the Fed.”

Until that actually happens, Hogan expects the head-scratching will go on.

In New York, I’m Bob Moon for Marketplace.

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