Rising interest rates could be good for manufacturers

Lucy Hill
March 15, 2017

"Notions of quicker hikes may lead to pullback on property stocks and real estate investment trusts, because they are considered more vulnerable to rising interest rates", she noted. As a result, the Federal Reserve has historically raised interest rates to help dampen inflation.

Dow component Wal-Mart was up 1.4 percent at $70.93. Most recently, while the headline US employment data, for February, came in higher than expected, much of that upside surprise was attributed to warmer-than-expected weather and a rise in lower-skilled, lower-paying employment. Continued gains would encourage the Fed to continue to raise interest rates gradually, though a quick burst higher in inflation or another surprise could upset things.

"There is very little that could hold off a rate hike at the March 14-15 FOMC meeting", said UBS economist Samuel Coffin. But even centrist policymakers like the San Francisco Fed's John Williams see receding risks of persistently too-low inflation and the potential need for swifter rate hikes.

But the overall yield curve, the range of interest rates from short to long term debt maturities, showed little sign investors thought the Fed was becoming anxious about inflation.

Right at this moment, the rate of interest an investor can get by purchasing a five-year Treasury note is nearly 2 percent.

Bond prices tend to rise when interest rates rise.

New Zealand interest rates are on the move - USA 10 year bond yields last traded at 3.15 per cent from 2.15 per cent last August.

The strength of consumer indicators adds further weight to the case for a rise. "What should be underscored, is the extent at which FOMC officials will acknowledge the pace of USA economic growth, starting with labor data expansion", F. Yap Securities said.

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For the past eight years, prevailing interest rates have stayed in a low range that most of us never experienced before.

"We expect more rate rises by the end of 2018 than the market is now pricing so believe that bond yields and the dollar can still move higher over the rest of this year, although inevitably not in a straight line".

Four hikes can't be ruled out now, given the strong incoming data, notes Bill Stone, chief investment strategist at PNC.

Many think the U.S. stock market is due for a retreat, but opinions differ on whether the rate rise will be enough to burst the market's exuberance.

As has been typical of prior monetary policy tightening cycles, the Fed's moves have been felt mostly in short-dated bond yields, with less effect on the mortgage markets or other long-term financing important to economic growth. But how much higher and how fast they will go up will depend on whether the Fed will keep raising rates. The real impetus for the next move in USA bond yields will come from the Fed's accompanying statement.

Oil prices have also moved higher, with the price of Brent crude oil [LC0c1] up about 30 percent from January 2016.

"To some degree, the Fed's choice of policy wording may depend on the outcome of the February consumer price index measure of inflation, which will be released earlier in the day on Wednesday".

Other reports by TheDailyFarc

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