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Rate Hike to Come? Investors Focus on the Fed’s ‘Patient’ Message

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Mar. 16 2015, Published 8:37 a.m. ET

This week is all about one word

The FOMC meets this Tuesday and Wednesday, and the entire market is focusing on one word: “patient.” This word will be the signal from the Fed that the first hike in the federal funds rate will be at the June FOMC meeting.

In other economic data, we have some heavyweight reports economically, with industrial production, capacity utilization, and manufacturing. Wall Street is forecasting an increase in industrial production of 0.2%, which is slightly above the historical average from 1998. Given the harsh February winter, that estimate is set up to disappoint.

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We also get housing starts and building permits this week, which should provide a bit of insight into how the spring selling season is going. Wall Street is at 1.04 million, which would be a slight drop from the annual pace of the last two months. Again, there could be some weather-related disappointment.

Economic data this week

Here’s a rundown of this week’s economic data.

Monday, March 16, 2015

  • Empire Manufacturing
  • industrial production
  • capacity utilization
  • manufacturing production
  • NAHB Housing Market Index
  • TIC flows

Tuesday, March 17, 2015

  • housing starts
  • building permits

Wednesday, March 18, 2015

  • Mortgage Bankers Association (or MBA) mortgage applications
  • FOMC decision

Thursday, March 19, 2015

  • initial jobless claims
  • Bloomberg consumer comfort
  • Philly Fed
  • Index of Leading Economic Indicators

Friday, March 20, 2015

  • no data
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Earnings reports this week

Thursday, March 19, 2015

Impact on mortgage REITs

Real estate investment trusts (or REITs) such as MFA Financial (MFA), Annaly Capital (NLY), and American Capital Agency (AGNC) will emphasize data that will move the bond market. The bond market (and by extension REITs) will hinge on whether the Fed is moving in June. The more interesting question will be the reaction in long-term rates: does the yield curve flatten or make a parallel shift?

Investors interested in trading the mortgage REIT sector via an ETF should look at the iShares Mortgage Real Estate Fund (REM). Investors who are interested in making directional bets on interest rates should look at the iShares 20-year bond fund (TLT).

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