Cabrera Capital Daily Game Plan

Wednesday March 8, 2023                                                        Trading
Desk: (312) 236-8907

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

DATA/HEADLINES 
 8:15ET ADP Employment; 10:00ET JOLTS Job Openings, Fed Chair Powell testifies, BOC rate decision; 1:00ET 10 year note auction

ADP Employment Change (Feb) 242K vs 200K Expected

TODAY’S HIGHLIGHTS:  

• China to move finance and tech under direct party oversight
  
• The US is set to relax Covid testing requirements on travelers from
  China this week
• Tesla Under Investigation by US for Detached Steering Wheels
  

Global stocks struggled a day after Fed Chair Jerome Powell’s first day of his semi-annual monetary policy testimony before
Congress weighed on US shares. The Fed will likely need to raise interest rates more than previously expected in response to strong progress in the world’s largest economy, Powell said on Tuesday.  Markets remain cautious ahead of more testimony from the Fed
chief later today, with Treasury yields still marginally higher on the day and the dollar holding close to this year’s peak.  Chances grew of a 50 basis-point move at the Fed’s March 21-22 meeting and analysts at Goldman Sachs added a July Fed hike to their
forecasts. Rates are repricing higher elsewhere too, with wagers on the Bank of England rising to 5% today, while an additional 155 basis points of tightening priced from the European Central Bank. The pain is hitting emerging markets, with MSCI’s emerging
equity gauge losing as much as 1.6%.  The Bank of Canada is set to become the first major central bank to hit pause on rates. It’s expected to hold at 4.5% today, ending a streak of eight increases.                         

EQUITIES: 

US stock futures steadied, after a selloff triggered by Fed Chair Jerome Powell whose hawkish comments drove up Treasury bond yields, and revived
fears that the world’s largest economy will not be able to dodge a recession. Money markets are now pricing US interest rates to rise above 5.6% later this year after Powell signaled readiness to speed up policy tightening, should inflation keep running hot.
The next highlight for traders will be Friday’s February jobs data. Payroll growth has topped estimates for 10 straight months in the longest streak in decades. But for today, traders await the second part of Powell’s testimony.    

Futures ahead of the bell: E-mini S&P -0.15%, Nasdaq -0.1%, Russell 2000 +0.1%, Dow -0.05%. 

In pre-market trading, CrowdStrike (CRWD) gains 6.7% after the cybersecurity software company reported fourth-quarter results
that beat expectations and raised guidance. Maxeon Solar (MAXN) jumps 18% after the renewable energy equipment provider delivered 4Q results and a bullish first quarter forecast that beat estimates. Rigel Pharmaceuticals (RIGL) surges 32% after the biotech’s
earnings beat. WeWork (WE) shares gain 7% after the workspace rental company was said to be in talks to raise hundreds of millions in capital to support the business. Zymeworks (ZYME) jumps 9% after the biotech company’s revenue for the fourth quarter beat
estimates  Silvergate rose 1% after saying it’s in talks with the FDIC to avoid a shutdown. SoundHound AI (SOUN)  shares fell 11% after the artificial intelligence company reported wider net losses for Q4. Shoals Technologies Group (SHLS) falls 8% after an
offering of 24.5m class A shares.

European indices trade little changed as investors digested the hawkish comments from Federal Reserve and assessed the latest
earnings news. Euro-area GDP didn’t grow last quarter in the final reading, compared with an initial estimate of 0.1%. German industrial output rose 3.5% month on month in January versus consensus for 1.4% and a revised -2.4% the prior month. The positive
development “was driven in particular by strong growth in the manufacturing of electronic equipment … and chemicals,” the statistics office said. Earnings were mixed in Europe, beats from; Conti, Hiscox and Legal & General were offset by misses from Admiral,
Adidas and Geberit.   Adidas fell over 2% after slashing its dividend, missing estimates, and offered no concrete plans for disposing of $1.3 billion in Yeezy gear. The Stoxx Europe 600 Index and FTSE 100 are flat, DAX +0.3%, CAC -0.1%. Autos +0.55%, Banks
+0.5%, Technology +0.4%. REITs underperform, down 1.2%. 

Shares in Asia were mostly lower as hawkish comments from the Federal Reserve hurt appetite for risk assets, with China’s
technology shares bearing the brunt of the selloff. The MSCI Asia Pacific Index declined 1%, the most in three weeks, dragged by Tencent, Alibaba and Meituan. Hong Kong and South Korea led losses in the region, while Japanese benchmarks were in positive territory.
Shares of Asian gold and copper producers declined after metals tumbled following Powell’s comments. China’s legislature is set to approve an administrative overhaul this week that would put public security, financial regulation and technology — areas now
handled by the state — under direct Communist Party control. Beijing seeks to ensure its financial system and supply chains, especially for semiconductors, are prepared for a Taiwan conflict and the ensuing Western sanctions. Hang Seng -2.3%, Kospi -1.3%,
ASX 200 -0.8%, CSI 300 -0.35%, Taiwan -0.25%. Vietnam +1.1%, Nikkei 225 +0.5%, Sensex +0.2%.   

FIXED INCOME: 
 

Treasuries slightly cheaper across the curve with losses led by front-end after Tuesday’s aggressive flattening move was
extended during Asia session and European morning. Front-end US Treasury yields rose 6bps during the Asian session with more flattening of the yield curve as a result Fed Chairman Powell’s hawkish Congressional testimony.  The two-year yield, which tracks
interest rate expectations, briefly touched 5.09% — its highest level since 2007. Germany’s two-year bond yield meanwhile touched 3.367% , its highest level since 2008. The closely-watched spread between 2- and 10-year yields showed a discount larger than
a percentage point for the first time since 1981, when then-Fed Chair Paul Volcker was engineering hikes that broke the back of double-digit inflation at the cost of a lengthy recession. 2/10yr spread traded at -107bps. The swaps market shifted to show a half-point
hike was seen as more likely than a quarter-point move at the Fed’s next policy meeting on March 22.  Markets now price in an almost 70% chance of a 50 basis point rate hike, according to CME’s FedWatch tool. Treasury auction cycle continues with $32b 10-year
note reopening at 1pm, concludes with $18b 30-year reopening Thursday. 10 year yield ~3.95%. 2 year yield ~5.03%.                    

METALS: 

Gold was little changed after declining the most in a month after hawkish comments from Powell, which triggered a shift
in bets to a larger rate increase than markets had previously expected. The Fed chair’s comments have crushed a budding rally in gold, leaving the metal close to its lowest this year and retesting its 200 day moving average.  Later this morning are two sets
of US jobs data, which will be eyed for signs that the labor market is cooling down. Wage gains driven by worker shortages were a major driver of price pressures last year, making it an important target in the Fed’s campaign against inflation. In a positive
sign for bullion, China increased its gold reserves for a fourth month in February, joining other Asian nations in raising holdings. Central bank buying was an important supportive factor for gold last year.  Spot gold +0.02%, silver +0.05%.             

ENERGY:      

Oil prices steadied after earlier losses, driven by fears that more aggressive US interest rate hikes would hit demand,
while the market awaited further clarity on inventories. Both Brent and WTI fell by more than 3% on Tuesday after hawkish comments from the Fed chairman. Traders are awaiting official crude inventory data from the EIA today after the API data showed a decline
in inventories, the first drop in 11 weeks.  The price of Russian crude is rising for buyers in Asia as a pool of bigger customers from China and India expands. Offers for Urals and ESPO grades rose by as much as $2 from last month, marking one of the steepest
jumps since sanctions were imposed. WTI -0.3%, Brent -0.1%.    

CURRENCIES:               

In currency markets, the US dollar index rose to its highest level since December 1, having jumped by 1.3% on Tuesday in
its biggest daily increase since September. The yen weakened  ahead of the Bank of Japan’s meeting on Thursday and Friday when the Japanese central bank is expected to stick to its ultra-loose monetary policy. A decline in China’s yuan saw the Chinese central
bank signal its intention to support the currency. The PBOC set a stronger-than-expected yuan fixing as it weakened toward 7 per dollar after Powell’s testimony. US$ Index +0.05% GBPUSD +0.1%, USDJPY +0.1%, EURUSD -0.05%, AUDUSD +0.2%  

Bitcoin -0.2%, Ethereum +0.2%.  

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:

• AGNC Investment (AGNC) raised to overweight at JPMorgan; PT $12.50
• Atlantica Sustainable (AY) raised to buy at BofA
• CrowdStrike (CRWD) raised to buy at WestPark Capital; PT $203
• Pollard Banknote (PBL CN) raised to buy at Canaccord; PT C$24
• Sea Ltd ADRs (SE) raised to buy at UOB Kay Hian; PT $94.34

DOWNGRADES:

• Ares Commercial (ACRE) cut to market perform at KBW; PT $12.50
• Cara Therapeutics (CARA) cut to underperform at BofA; PT $6
• Edwards Life (EW) cut to equal-weight at Wells Fargo; PT $78
• InterRent REIT (IIP-U CN) cut to hold at Canaccord; PT C$15.75
• Offerpad Solutions (OPAD) cut to neutral at JPMorgan
• Qualtrics (XM) cut to hold at Canaccord; PT $18.15
• RBC (RY CN) cut to hold at Fundamental Research; PT C$140.25
• TDCX ADRs (TDCX) cut to hold at HSBC; PT $13
• Tesla (TSLA) cut to hold at Berenberg; PT $210
• Zscaler (ZS) cut to neutral at KGI Securities; PT $130

INITIATIONS:

• Ballard Power Systems (BLDP CN) rated new outperform at Haitong Intl
• Bowlero (BOWL) rated new buy at Canaccord; PT $22
• Karuna Therapeutics (KRTX) rated new neutral at Cantor; PT $214
• Lantheus (LNTH) rated new market outperform at JMP; PT $120
• Piedmont Lithium (PLL) rated new outperform at Macquarie; PT $140
• Sabre (SABR) rated new underperform at Bernstein; PT $4
• Scorpio Tankers (STNG) reinstated overweight at JPMorgan; PT $87
• Vipshop ADRs (VIPS) rated new add at GuoSen; PT $17.50
• Weibo ADRs (WB) rated new add at GuoSen; PT $24

Data sources: Bloomberg, Reuters, CQG

David Wienke

Head Trader, Americas

Cabrera Capital Markets, LLC