Cabrera Capital Daily Game Plan

Tuesday September 20, 2022                                                        Trading
Desk: (312) 236-8907

TODAY’S GAME PLAN:  from
the trading desk, this is not research

DATA/HEADLINES    
8:30ET  Building permits, Housing starts ; 1:00ET 20 Year Note Auction

Wednesday: Fed interest rate decision. Thursday Central Bank policy meetings in Japan, UK, South Africa, Turkey and Switzerland

TODAY’S HIGHLIGHTS:  

• Bloomberg US homebuilder sentiment has fallen every month this year,
  the longest stretch of declines in data back to 1985
• Twitter co-founder Jack Dorsey will be questioned under oath today
  
• Hurricane Fiona dumped heavy rain on Puerto Rico and life-threatening
  flash flooding is still occurring in the east of the Dominican Republic

Global markets are mixed as sentiment remained cautious ahead of the Fed’s two-day policy meeting which starts today. With
the first of six central bank decisions this week, Sweden’s Riksbank set a tone of upside surprise and aggressive policy approach as they hiked 100bps, more than the +75bps expected.  In China, banks kept their main lending rates unchanged after the central
bank paused its monetary easing and defended a weakening yuan.  The markets aren’t buying it but Turkey’s President Erdogan told PBS Newshour that Russian President Putin wants to end the war as soon as possible. According to Erdogan, Russia must return all
land it had occupied, including Crimea.                          

EQUITIES: 

US equity futures declined, giving up earlier gains after Sweden’s aggressive hike and as traders braced for another supersized US rate hike
from the Fed tomorrow. The US central bank kicks off its meeting today and is expected to again hike rates by 75 basis points Wednesday. Market participants have dialed back expectations of an even larger increase and only two of 96 economists in a Bloomberg
survey now predict a full-point move. Meanwhile, in a worrying trend for stocks, real rates — Treasury yields adjusted for inflation — rose to the highest level since 2011. Goldman Sachs recommends staying defensive on US stocks as two year yields head higher
and signal peak Fed hawkishness. Apple unveiled sweeping price increases on apps and in-app purchases from Europe to Asia as major currencies buckle under the strong dollar.    

Ahead of the bell: E-mini S&P futures -0.55%, Nasdaq -0.65%, Russell 2000 futures -0.6%, Dow futures -0.5%

In pre-market trading, Ford (F) shares decline 5% after the carmaker said 3Q supply costs were running $1b above expectations.
Change Healthcare (CHNG) gains 7% after winning court approval for the $7.8b acquisition by UnitedHealth. US-listed Macau casino stocks rise on the possibility that Hong Kong will ease Covid restrictions. Cognex (CGNX) shares rise 4% after the company boosted
its revenue guidance.

European stocks fell as investors braced for interest-rate decisions by major central banks this week to combat high inflation. 
German PPI came in at 7.9% versus an estimate of 2.4%.  The Stoxx 600 Index dropped as much as 0.8%, paced by losses in real estate and miners. European lenders outperform, led by Nordic banks after the Swedish central bank hikes rates by more than expected.
UK’s benchmark FTSE 100 outperforms, supported by oil majors, with the index nearly flat on the day. Consumer staples stocks such as Diageo and British American Tobacco also rose in London. Volkswagen AG is pushing ahead with the initial public offering of
its Porsche sports-car unit, paving the way for one of Europe’s largest listings in years.  Policy uncertainty combined with fears of a looming recession have resulted in an “extreme” valuation gap between rate-sensitive growth stocks and cheaper value stocks
in Europe, and the odds for payoff relative to value are looking “excellent,” according to Goldman Sachs strategists. Stoxx 600 -0.5%, CAC -0.75%, DAX -0.7%. Travel +0.5%, Banks +0.5%, Autos +0.45%, Energy +0.4%. Real Estate -3.9%, Construction -1.5%, Tech
-1.4%, Retail -1.25%

Asian stocks advanced, helped by signals that Hong Kong will move toward easing Covid restrictions.  Hong Kong’s chief executive
said the city wants to relax Covid travel curbs after nearly three years of restrictions. The Hang Seng Tech Index added 2%.  The MSCI Asia-Pacific Index gained as much as 1% with Tencent, Alibaba and TSMC providing the most support.  Australia’s main gauge
was at the top of the leader board, led by the materials sector, after the RBA meeting minutes were released showing policy makers discussed slowing the pace of rate hikes. Japan’s stock market advanced despite high inflation data, after being closed Monday.
Even with Japan’s inflation rate printing at 3%, the quickest pace in seven years, the bank probably will maintain its negative rate and a yield target of 0% for the 10-year tenor.  MSCI Asia Pacific Index +0.7%; ASX 200 +1.3%, Hang Seng +1.15%, Vietnam +1.1%,
Sensex +1%, Taiwan +0.85%, Kospi +0.5%, Nikkei 225 +0.45%, Shanghai Composite +0.2%.

FIXED INCOME: 
                                        

Treasuries extend Monday’s slide, leaving yields cheaper by 3bp to 5bp across the curve with intermediates underperforming.
Supply pressure in the form of a 20-year bond auction awaits for today’s session, before the Fed meeting Wednesday where OIS has eased slightly, pricing in 78bp of hikes for the meeting.  10-year yields trade above 3.5% while yields on the more policy-sensitive
two-year rate hit the highest since 2007 and are poised to crack above 4%, reflecting hard-landing fears.                  

METALS: 
                               

Gold is lower as traders position themselves ahead of the FOMC, wagering on a 75-bps hike on Wednesday.  As the US 10-year
real yield rises to the highest since 2011, its ascent has major cross-asset implications from equities to precious metals. By this measure, coupled with an expected aggressive move by the Fed, gold has more downside risk ahead. The inverse correlation between
gold and 10-year TIPs, measured over a 40-day period, is significant. Spot gold -0.5%, silver -1.35%.                                                                       

ENERGY:      

WTI slipped on news that the Department of Energy will offer additional US reserve crude for sale ahead of plans by the
European Union to ban most Russian oil in December. The agency will offer 10 million barrels of low-sulfur crude for supply in November from storage caverns in Texas and Louisiana, according to a press statement. Of the 10 million barrels slated for November
delivery, 1 million are being marked for possible export.  The timing is notable as it coincides with OPEC discussing the possibility of curbing production. European natural gas prices fell, poised for their longest losing streak since July, as Germany earmarked
billions for gas purchases to avoid shortages and the Netherlands unveiled a support package for households. Meanwhile, Germany is closing in on a deal to nationalize gas giant Uniper. WTI -0.2%, Brent +0.05%.       

CURRENCIES:  
                     

The dollar was steady near a two-decade high versus major peers as traders boost central bank rate-hike expectations following
a full percentage point increase by Sweden’s central bank. Kiwi slides to a fresh two-year low against the greenback and seven-year low versus the Aussie dollar. Offshore yuan is weaker by 0.2% after Chinese banks kept lending rates unchanged. US$ Index +0.2%,
GBPUSD -0.1%, USDJPY +0.25%, AUDUSD -0.3%, EURUSD -0.4%, NZDUSD -0.9%, USDBRL +0.95%.                    

Bitcoin %;  Ethereum %.  The next significant upgrade for Ethereum is the “Shanghai”, expected by market participants in
around six months’ time, which is aimed at reducing its high transaction costs.  It would allow validators, who have deposited ether tokens on the blockchain in exchange for a yield, to withdraw their staked coins, to hold or sell.  Beyond Shanghai, a slew
of other upgrades are planned for Ethereum, which co-founder Vitalik Buterin has nicknamed “the surge”, “verge”, “purge” and “splurge”.  A drastic drop in demand for crypto as a payment method has been spotted by JPMorgan in the past six months. That’s as
$2 trillion in market value has been erased from the cryptoverse in less than a year.  

TECHNICAL LEVELS: 
  

Colors within the report:
Green
is always the 200 period (day, week). Red is always 21,
Blue = 50,
Brown =
100  *Stars have added importance

UPGRADES:

• America Movil ADRs (AMXL MM) raised to buy at UBS; PT $20.40
• Humana (HUM) raised to overweight at Morgan Stanley; PT $549
• Martin Marietta (MLM) raised to outperform at Exane; PT $407
• Morningstar (MORN) raised to buy at Redburn
• Norwegian Cruise (NCLH) raised to buy at Truist Secs; PT $19

DOWNGRADES:

• Cemex ADRs (CEMEXCPO MM) cut to neutral at Exane; PT $4
• Change Healthcare (CHNG) cut to neutral at Citi; PT $27.75
• Change Healthcare (CHNG) cut to neutral at Piper Sandler; PT $27.75
• Huntsman (HUN) cut to equal-weight at Wells Fargo; PT $28
• Huntsman (HUN) cut to underweight at JPMorgan; PT $25
• Nike (NKE) cut to equal-weight at Barclays; PT $110
• PayPal (PYPL) cut to neutral at Susquehanna; PT $100
• Virios Therapeutics (VIRI) cut to neutral at HC Wainwright
• Western Digital (WDC) cut to hold at Deutsche Bank; PT $40

INITIATIONS:

• Adobe (ADBE) rated new market perform at CICC; PT $321
• Aritzia (ATZ CN) rated new buy at Stifel Canada; PT C$57
• Black Stone Minerals (BSM) rated new overweight at KeyBanc; PT $22
• Brigham Minerals (MNRL) rated new sector weight at KeyBanc
• Callon Petroleum (CPE) rated new sector weight at KeyBanc
• Cepton (CPTN) rated new neutral at JPMorgan
• Civitas Resources Inc (CIVI) rated new overweight at KeyBanc; PT $80
• Comstock Resources (CRK) rated new overweight at KeyBanc; PT $26
• Corebridge Financial (CRBG) rated new outperform at Autonomous; PT $26
• Denbury Inc (DEN) rated new overweight at KeyBanc; PT $102
• Diamondback (FANG) rated new overweight at KeyBanc; PT $163
• EOG Resources (EOG) rated new overweight at KeyBanc; PT $157
• Ermenegildo Zegna (ZGN) rated new buy at BofA; PT $13
• Focus Financial (FOCS) rated new underweight at Morgan Stanley; PT $37
• Gelesis (GLS) rated new neutral at Citi; PT $1.15
• Gogoro (GGR) rated new underweight at JPMorgan; PT $4.30
• Gulfport Energy (GPOR) rated new sector weight at KeyBanc
• Innoviz Technologies (INVZ) rated new overweight at JPMorgan; PT $22
• Kimbell Royalty Partners (KRP) rated new sector weight at KeyBanc
• LiveRamp (RAMP) rated new hold at Benchmark
• Luminar (LAZR) rated new overweight at JPMorgan; PT $30
• Magnolia Oil & Gas (MGY) rated new overweight at KeyBanc; PT $28
• Matador Resources (MTDR) rated new overweight at KeyBanc; PT $72
• NexPoint Residential (NXRT) rated new market outperform at JMP; PT $70
• PDC Energy (PDCE) rated new sector weight at KeyBanc
• Pioneer Natural (PXD) rated new overweight at KeyBanc; PT $290
• Provention Bio (PRVB) rated new buy at Jefferies; PT $10
• SM Energy (SM) rated new overweight at KeyBanc; PT $64
• SilverBow Resources (SBOW) rated new overweight at KeyBanc; PT $58
• Velodyne Lidar (VLDR) rated new underweight at JPMorgan
• Viper Energy (VNOM) rated new overweight at KeyBanc; PT $39
• Vista Outdoor (VSTO) rated new hold at Jefferies; PT $26
• Ziff Davis Inc (ZD) rated new outperform at Evercore ISI; PT $90

David Wienke

Cabrera Capital Markets, LLC