Cabrera Capital Daily Game Plan

Wednesday March 15, 2023                                                        Trading Desk: (312) 236-8907

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

DATA/HEADLINES    8:30ET PPI Final Demand, Empire Manufacturing, Retail Sales; 10:00ET Business Inventories, NAHB
Housing Market Index

February Retail Sales Seen -0.4%

TODAY’S HIGHLIGHTS:  

• Shelter Inflation Hits Record High As Americans’ Real Wages Drop For 32nd Straight Month
  
• Senate Democrats press DOJ, SEC to investigate if SVB execs broke any laws – CNBC
• Half a Million Workers Strike on UK Chancellor’s Budget Day
  
• GERMAN REGULATOR BAFIN: NO CONTAGION FROM U.S. BANK TECH ISSUE
  

An uneasy calm briefly descended on world markets, as regulators and financial executives try to ease contagion fears sparked by the collapse of Silicon Valley Bank.
However, renewed jitters in the banking sector are complicating the task for policy makers still facing inflation pressures while having to ensure stability of the financial system. European Central Bank policymakers are still leaning towards a half-percentage-point
rate hike on Thursday, despite turmoil in the banking sector, a source close to its Governing Council told Reuters. French inflation was revised up to 7.3% in February, the strongest surge for the country in the history of the euro area. Swedish inflation
accelerated, too. Meanwhile, negative sentiment increased during the European session as broader ongoing concerns on the banking sector, spilling over from Moody’s downgrade on the sector, and heightened doubts on the financial health of Credit Suisse. Credit
Suisse’s CDS surged to 1000 basis points more than 20 times that of UBS and 10 times for Deutsche Bank. In other news, the Chinese government tells its military to deepen war preparedness planning.                                

EQUITIES: 

US equity futures deteriorate, indicating Tuesday’s rebound won’t persist as fresh turmoil at Credit Suisse Group roiled European bank shares and dented sentiment in the US.  The focus
is shifting to the possibility of tighter regulation of banks, particularly mid-tier ones. On Tuesday, US banks regained some ground, aided by news that private equity and buyout giants were looking to scoop up some of SVB’s assets. Separately, SVB Financial
Group said on Tuesday that Goldman Sachs Group was the acquirer of a bond portfolio on which it booked a $1.8 billion loss, a transaction that set in motion the failure of SVB. BlackRock CEO Larry Fink said the banking crisis could worsen beyond the failure
of SVB, worrying aloud about cracks in the financial system that formed during more than a decade of easy money and low interest rates. State Street’s CEO called the Moody’s outlook cut on the US banking system “a terrible overreaction.”

Futures ahead of the bell: E-mini S&P -1.9%, Nasdaq -1.5%, Russell 2000 -3.3%, Dow -1.8%. 

In pre-market trading, shares of large US banks are sinking amid a record plunge by Credit Suisse Group after the Swiss bank’s top shareholder ruled out investing
more. Wells Fargo (WFC) -3.9%, Citigroup (C) -3.9%, Bank of America (BAC) -2.9%, JPMorgan (JPM) -2.4%, Goldman Sachs (GS) -2.8%. Smartsheet (SMAR) shares rise 11% after the software company forecast higher full-year adjusted earnings, defying analysts’ expectations
of a loss. Vacasa (VCSA) plunged 14% after the vacation-rental management company’s full-year revenue forecast fell short of expectations.

European equity markets fall sharply as investor jitters resurface. Fresh turmoil at Credit Suisse Group roiled European bank shares and dented sentiment more broadly
as investors remain on edge after last week’s regional-bank failures. Credit Suisse woes are hitting shares in banks across Europe, with the Stoxx 600 Banks Index tumbling over 7%, while the cost of default insurance on the Swiss lender’s short-term debt approached
distressed levels.   Several bank stocks were halted this morning as Credit Suisse fell for an eighth straight day, plunging 21% to a record low as its top shareholder ruled out providing more assistance to the Swiss lender. Saudi National Bank “absolutely”
will not provide more assistance to Credit Suisse, the Saudi National Bank Chairman said in an interview with Bloomberg TV. ECB Executive Board member Lorenzo Bini Smaghi said the ECB should either delay or pare back this week’s planned interest-rate increase
to avoid a policy error reminiscent of 2011. About half a million British workers are striking today as unions stage a mass walkout timed to disrupt Chancellor of the Exchequer Jeremy Hunt’s annual budget.  Stoxx -2.4%, DAX -2.7%, CAC -3.3%, FTSE 100 -2.6%.
Banks -8%, Retail -5%, Energy -4.3%, Travel -3.7%, Basic Resources -3.6%, Tech -2.4%.

Asian equities rose, tracking Tuesday’s relief rally in the US as abating worries about US banking turmoil fueled a return of risk appetite. The MSCI Asia Pacific
Index climbed as much as 1.4%, and Japan’s Tokyo Stock Exchange banks index jumped more than 4%, after three straight days of heavy selling. Japan’s finance minister said on Wednesday differences in the structure of bank deposits, meant local banks wouldn’t
face incidents similar to SVB’s collapse. Investors also evaluated data showing China’s retail sales and industrial output rose in the first two months of the year following the end of Covid restrictions. In other news, China Banking and Insurance Regulatory
Commission told brokers to stop providing their bond feeds to outside parties due to data security concerns.  MSCI Asia Pacific Index +0.7%, Thailand +2.7%, Vietnam +2.1%, Hang Seng +1.5%, Kospi +1.3%, ASX 200 +0.9%, Topix +0.6%, Shanghai Composite +0.5%,
CSI 300 flat. Sensex -0.6%.

FIXED INCOME: 
 

Treasuries turned higher on haven demand as stock losses deepen, with sharp a drop in shares of Credit Suisse prompting a broader risk-off move.  Treasury yields
are richer by 20bp to 12bp across the curve in a sharp bull-steepening move with front-end outperforming, steepening 2s10s, 5s30s spreads by ~4bp and ~5bp.  Treasury liquidity is evaporating as banking turmoil muddies the rates outlook. Bid-ask spreads on
two-, 10- and 30-year debt widened to the most in at least six months yesterday. Focal points of US session focus include data releases including February PPI and retail sales at 8:30ET. 10-year yield ~3.5%, 2-year yield below 4%, both nearing key 200 day
moving averages. 

METALS: 

Gold reversed an earlier loss and copper dropped to a two-month low as turmoil at Credit Suisse added to heightened concerns about the global finance sector. Bullion
rebounded above $1,900 an ounce as Treasury yields plunged and investors sought haven assets. Focus today will be on retail sales and producer prices data, which will be eyed for their impact on the outlook for the Fed’s monetary policy. Spot gold added 0.8%,
spot silver +2%.   

ENERGY:      

Crude oil fell as investors brace for the release of this week’s government inventories report. WTI crude fell below $70 a barrel for the first time since late 2021
as investors remain on edge about contagion in global financial markets. Fundamentally, OPEC’s upwards revision for Chinese consumption offset bearish investor sentiment fueled by three US bank failures earlier in the week. However, with the problem resurfacing
overnight, crude oil could not hold onto earlier gains. The oil market is contending with a surplus as Russian output defies predictions of a slump, the IEA said. Global stockpiles climbed to the highest in 18 months and the agency revised up its forecast
for Russian production, while demand growth remains subdued. In the US, crude supply rose last week, the API said. Still, gasoline and distillate stocks slumped. WTI -1%, Brent -1%.   

CURRENCIES:               

In currency markets, the euro tumbled, as increasing concerns about the health of European banks triggered haven demand for the dollar and government bonds. The yen,
another safe-haven currency, gained versus most G-10 counterparts. The euro’s drop, coinciding with a sharp rally in Bunds, highlights the dilemma facing the European Central Bank ahead of its policy review tomorrow. The Swiss franc, another haven currency,
fell on concerns about the impact of Credit Suisse’s stability on the wider Swiss economy. Sterling fell ahead of UK budget announcement. US$ Index +0.9%, GBPUSD -0.7%, USDJPY -0.5%, AUDUSD -0.6%, EURJPY -1.8%, EURUSD -1.3%, USDCHF +0.8%. 

Bitcoin -0.1%, Ethereum -1.8%.

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:

• Apartment Income REIT (AIRC) raised to market perform at BMO; PT $39
• Azul ADRs (AZUL4 BZ) raised to equal-weight at Morgan Stanley; PT $8.60
• Baker Hughes (BKR) raised to overweight at JPMorgan; PT $32
• Canadian Pacific (CP CN) raised to sector outperform at Scotiabank
• ExlService (EXLS) raised to neutral at Citi; PT $160
• FTC Solar (FTCI) raised to buy at BofA; PT $3.50
• Hamilton Lane (HLNE) raised to overweight at JPMorgan; PT $85
• Harley-Davidson (HOG) raised to hold at Jefferies; PT $39
• Jack Henry (JKHY) raised to buy at UBS; PT $184
• Reinsurance Group (RGA) raised to buy at Citi
• Schwab (SCHW) raised to outperform at Credit Suisse
• Truist Financial (TFC) raised to buy at Citi
• Unum (UNM) raised to buy at Citi
• Varonis Systems (VRNS) raised to equal-weight at Wells Fargo; PT $26

DOWNGRADES:

• Bakkt Holdings (BKKT) cut to sell at Citi; PT 50 cents
• Decibel Therapeutics (DBTX) cut to market perform at SVB
• Lufax ADRs (LU) cut to hold at ABC International; PT $1.74
• Oak Street Health (OSH) cut to market perform at Cowen; PT $39
• Porch Group (PRCH) cut to hold at Loop Capital; PT $2
• Provention Bio (PRVB) cut to neutral at HC Wainwright
• Q2 Holdings (QTWO) cut to hold at Canaccord; PT $25
• Seagen (SGEN) cut to equal-weight at Morgan Stanley; PT $229
• Traeger (COOK) cut to neutral at Piper Sandler; PT $4
• Vacasa (VCSA) cut to market perform at Oppenheimer

INITIATIONS:

• Amplitude (AMPL) rated new neutral at DA Davidson; PT $13
• Enfusion (ENFN) rated new neutral at JPMorgan; PT $12
• Intuit (INTU) rated new outperform at Daiwa; PT $444
• Movella (MVLA) rated new buy at Stifel; PT $7
• Porch Group (PRCH) reinstated overweight at Cantor; PT $8
• SS&C (SSNC) reinstated overweight at JPMorgan; PT $68
• Shockwave Medical (SWAV) rated new buy at Needham; PT $240
• Western Alliance (WAL) rated new buy at UBS; PT $85

Data sources: Bloomberg, Reuters, CQG

David Wienke

Head Trader, Americas

Cabrera Capital Markets, LLC