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Remarks by San Francisco Fed President John Williams that the next rate hike could come as soon as April or June if economic data continue to warm up kept a lid on U.S. stocks at the start of the week. That’s a lot sooner than the stock market currently contemplates. Williams also stated that the Fed would likely be raising rates faster if not for “global factors.” That should be a bullish remark, if you think about it.
Atlanta Fed President Dennis Lockhart weighed in with a comment that economic data justifies “a further step at one of the coming meetings, possibly as early as the meeting scheduled for the end of April.”
Lockhart noted that inflation is moving towards a healthier rate and that he is confident that growth in the first quarter will bounce back from a weak fourth quarter. Again, that was a surprise to the stock market– and should ultimately provide more ammo for bulls.
Overseas, the China Securities Finance Corp., a government-backed entity, announced that it had relaxed controls on margin lending. The CSF resumed several short-term loan offerings and cut borrowing costs. The move is being viewed as an attempt by Beijing to support the stock market rally. Chinese equities were higher in reaction, especially brokerage stocks. The Shanghai Composite rose 2.1%.
This nascent recovery in China’s stock market is supportive of commodities positions. If that country’s market can recover, it will do a world of good for global commodity producers. Shanghai’s advance was its third straight gain of over 1% and its seventh up day in a row.
Bespoke Investment Group analysts note that the last time the Shanghai Composite had three straight one-day rallies of more than 1% was in November 2015, and the last time it was up seven straight days was back in May 2015. With this rally, the Shanghai Composite is up more than 14% from its Feb. 29 low, and at its highest level since mid-January. Yet the Chinese stocks still have to run pretty hard to dig themselves out of a hole.
The Shanghai stock market is still down 14.7% for the year. With the U.S. stock market now positive and sentiment improving, it’s not crazy to think the same can happen in China.
With that in mind, I’ve been focusing my Trader’s Advantage positions in commodity-related issues. One I want to bring to you today is ArcelorMittal SA (ADR) (NYSE:MT).
Arcelor Mittal is a $7.3 billion global manufacturer and marketer of steel. Its shares have been butchered the past few years in sync with reduced demand from China, but investors are coming back to it and its fellow steelmakers in the expectation that inflation and an improvement in China will boost the business.
While MT shares sank 3.7% Monday, it finished the day in the middle of its range, and its technical analysis looks fine.
Buy MT at current prices, below $4.58.
Set up to sell half at my initial target of at $5.90 and set at stop at $4.10, good after 10:30 a.m. only.
Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation.
