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Preview of the week ahead: D-day on the debt ceiling

Brent Nyitray, CFA, MBA

Realist Real Estate Roundup: The shutdown continues (Part 6 of 7)

(Continued from Part 5)

Going into week 3 of the government shutdown

According to government reports, the Treasury will run out of cash on October 17 and have to start making decisions about which bills to pay. House Republicans have offered a clean six-week extension to the debt ceiling, but the Administration has rejected it. The current state of play is that discussions are ongoing in the Senate.

While much has been made of the possibility of default, if we don’t have a deal on October 17, we won’t necessarily stop paying interest on the national debt. The market views that possibility as highly remote. Some bills (contractors, for example) may be pushed back.

Earnings season officially kicked off last week, but for the next few weeks, earnings reports will be coming in fast and furious.

Assuming the government reopens, here’s the schedule for economic data this week.

Economic data this week

Monday October 14

  • Stock markets open, bond market closed
  • No data

Tuesday, October 15

  • Empire Manufacturing
  • Construction spending
  • Import Price Index
  • All other reports that should have been released in the last two weeks

Wednesday, October 16

  • MBA Mortgage Applications
  • Fed Beige Book
  • TIC flows

Thursday, October 17

  • Initial jobless claims
  • Bloomberg Economic Expectations
  • Bloomberg Consumer Comfort
  • Philly Fed
  • CPI
  • Housing starts
  • Building permits

Friday, October 18

  • Industrial production
  • Capacity utilization
  • Manufacturing production
  • Index of Leading Economic Indicators

Earnings Reports this week

Tuesday, October 15

  • Citigroup

Wednesday, October 16

  • Bank of America
  • US Bancorp
  • CYS Investments

Thursday, October 17

  • BB&T
  • Fifth Third

Friday, October 18

  • GE

Impact on mortgage REITs

Mortgage REITs like Annaly (NLY), American Capital Agency (AGNC), and MFA Financial (MFA) are highly interest rate–sensitive. The upcoming debt ceiling hike could affect them profoundly if we end up having issues with the debt ceiling. The chart above shows the yield on the generic one-month Treasury bill. It has blown out in the last month on gridlock in Washington. In the next segment (registration required), I’ll discuss how this affects the REIT sector.

Impact on homebuilders

Homebuilders like Lennar (LEN) and KB Home (KBH) are heading into a seasonally weak period, so they’re in inventory reduction mode. This would make them generally cash-rich, which means any sort of credit issue in the economy will have less of an effect on them. Of course, the situation in Washington isn’t doing great things for consumer confidence, which does affect the builders.

Continue to Part 7

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