FOMC Minutes and Other Indicators This Week

Brent Nyitray, CFA, MBA
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Why the FOMC Minutes Should Be the Highlight This Week

FOMC minutes to be released

The week after the jobs report is usually pretty data-light, and the upcoming week is no exception. We have a few tertiary indicators next week, but nothing that should be market-moving. The big event will be the release of the FOMC minutes, which everyone will be parsing closely to see how much weight overseas events (mainly the sell-off in China) are weighing on the Fed.

Economic data this week

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

Monday, October 5, 2015:

  • Markit US Composite PMI

  • Markit US Services PMI

  • ISM Non-Manufacturing Index

  • Labor Market Conditions Index

Tuesday, October 6, 2015:

  • Trade balance

  • IBD TIPP Economic Optimism Index

Wednesday, October 7, 2015:

  • MBA (Mortgage Bankers Association) mortgage applications

  • Consumer credit

Thursday, October 8, 2015:

  • Initial jobless claims

  • Bloomberg Consumer Comfort Index

  • FOMC minutes

Friday, October 9, 2015:

  • Import prices

  • Wholesale inventories

  • Wholesale sales

Earnings reports

  • No real estate-related earnings

Impact on mortgage REITs

REITs such as Annaly Capital Management (NLY) and American Capital Agency (AGNC) will focus on the FOMC minutes in order to get an idea of when rates are going to start rising. Given the overall weakness we’ve been seeing in the economy lately, an increase in the Fed funds rate could have a minimal effect on long-term bond yields. While this means narrowing net interest margins for REITs, it won’t necessarily mean capital losses on their MBS (mortgage-backed securities) portfolios. Investors who want to bet on interest rates can look at the iShares 20+ Year Treasury Bond ETF (TLT).

Impact on homebuilders

Builders such as PulteGroup (PHM) and D.R. Horton (DHI) will focus on the Labor Markets Conditions Index and the ISM services data. Homebuilders are more sensitive to the labor market than they are to interest rates.

We’re entering the seasonally slow period for builders, which lasts about as long as a football season. Investors can trade in the homebuilding sector through the SPDR S&P Homebuilders ETF (XHB).

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