Cabrera Capital Daily Game Plan

Monday March 20, 2023                                                        Trading
Desk: (312) 236-8907

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

DATA/HEADLINES 
  10:00ET ECB President Christine Lagarde appears before European Parliament’s economic committee

TODAY’S HIGHLIGHTS:  

• UBS to take over Credit Suisse with billions in central bank, state
  support
• The SNB offered UBS around 100 billion francs in liquidity help
  for the transition and the Swiss government granted a 9 billion-franc guarantee on potential CS losses
  
• Many midsize banks want FDIC insurance extended to all deposits
  for two years
• Trump said he expected to be arrested tomorrow
  

Global shares fluctuated anxiously as the emergency weekend rescue of Credit Suisse left the financial system facing widespread
uncertainty.  The Federal Reserve and five other central banks announced coordinated action to boost liquidity in US dollar swap arrangements to ease strains in the global financial system.  The move by the Fed, BoE, BoJ, ECB, SNB and BoC was the most dramatic
intervention since the global financial crisis with the world’s top central banks pledging daily dollar funding offerings. Among the biggest losers in the Credit Suisse sale are investors in the bank’s riskiest bonds, known as AT1s, worth $17 billion. These
money managers are set to be wiped out as the bonds become worthless due to the use of public funds for the rescue.  World markets are now betting that rising interest rate campaigns are over amid fears that an unfolding credit crunch resulting from stressed
banks hastens recession and disinflation on its own.  In other news, Russia’s President Putin hosts Chinese President Xi Jinping today hoping for support against Western pressure over his war in Ukraine while Xi will present China as a global peacemaker intent
on brokering an end to the conflict. France will press ahead with an overhaul of its retirement system even amid street protests and no-confidence votes against Emmanuel Macron planned for today.                                          

EQUITIES: 

US stock index futures steadied after UBS Group’s agreement to buy Credit Suisse and central-bank moves to boost dollar liquidity left investors
to puzzle over how far that will go toward boosting confidence in the global financial system. While the Credit Suisse deal ends a week of intense speculation over the Swiss bank’s fate, the prospects for America’s regional banks remain uncertain. Warren Buffett
was in touch with the Biden administration about potentially providing aid, while smaller banks and lawmakers demanded that the government offer more protection for customer deposits. Shares in First Republic Bank fell as much as 37% in premarket trading,
following last week’s record 72% retreat. FRC was downgraded by S&P Global Ratings for a second time on Sunday after being cut to junk just days ago, even after the bank received $30 billion from eleven US banks to stave off a potential collapse. Meanwhile,
Morgan Stanley strategist Michael Wilson said the stress in the banking system marks what’s likely to be a painful and “vicious” beginning of the end to the bear market in US stocks.  All eyes are now on the Federal Reserve’s two-day policy meeting, with the
central bank due to release its statement on Wednesday.     

Futures ahead of the data: E-mini S&P is flat, Nasdaq -0.1%, Russell 2000 +0.3%, Dow -0.05%. 

In pre-market trading, Cryptocurrency-exposed stocks rise after Bitcoin extended its gains for a fifth consecutive session. Marathon Digital
(MARA) +5.6%, Riot Platforms (RIOT) +8% and Coinbase (COIN) +4.2%. Energy stocks decline as investors’ concern about the banking system spur broad risk aversion and drag crude prices lower. Karuna Therapeutics Inc. (KRTX) rose 15% after its experimental schizophrenia
drug met the primary goal of a late-stage study. New York Community Bancorp (NYCB) gains 27% after its subsidiary Flagstar Bank agreed to take over Signature Bank’s deposits and some of its loans. PDD Holdings (PDD) US-traded shares fall 14% after the Chinese
e-commerce firm’s fourth-quarter revenue missed expectations. 

European indices reversed early losses as investors try to assess the implications of a forced marriage in Swiss banking
on Sunday.  Credit Suisse shares fell over 63%, below the deal price, and those of its acquirer UBS dropped nearly 13%.  Of particular concern was the impact on wider bank funding markets of a controversial decision to wipe out Credit Suisse’s junior bondholders
even as equity investors gained something from the deal.  The broader European STOXX 600 fell as much as 2% before recovering those losses. Banking and financial sectors declined the most, while utilities and miners outperformed. The crisis at Credit Suisse
has shaken up the outlook for euro-area banks, which had been the favorite equity trade of 2023 on bets of higher interest rates. Barclays strategists cut their rating on European banks to market weight from overweight, citing higher regulatory scrutiny on
the sector. French stocks are in focus as lawmakers are set to vote on a no-confidence motion that could bring down the government of Prime Minister Elisabeth Borne after she forced through an unpopular plan to raise the retirement age.  The Bank of France
is now predicting a 0.6% expansion in GDP this year, double the 0.3% forecast in December. Stoxx 600 +0.3%, DAX +0.5%, CAC +0.7%, FTSE 100 +0.3%. Financial Services -1.4%, Banks -1.3%, Autos -0.3%, Retail -0.1%. Utilities +1.4%, Basic Resources +1.4%, Media
+0.9%, Travel +0.6%. 

Asian stocks declined as UBS Group’s historic deal to buy Credit Suisse failed to quell investor concerns about the health
of the global financial system. The MSCI Asia Pacific Index fell as much as 1.4%, reversing most of its gain from Friday, with tech and financial names among the biggest drags. Hong Kong gauges led losses in the region as financial stocks including HSBC and
AIA Group fell due to worries over risky bond exposures. China’s onshore equity benchmark erased earlier gains even after its central bank unexpectedly cut the reserve requirement ratio late Friday.  Data today showed China’s imports rose 4.2% last month year
on year, the most in a year and snapping four months of declines. MSCI Asia Pacific Index -1.2%, Hang Seng -2.65%, Vietnam -2.1%, Topix -1.5%, ASX 200 -1.4%, Kospi -0.7%, CSI 300 -0.5%, Taiwan -0.2%.

FIXED INCOME: 
 

Treasuries are richer across the curve with gains led by the belly, although futures are well off best levels of the day
heading into early US session. Treasury yields fell sharply overnight as risk aversion across markets caused traders to increase bets that the Federal Reserve would not raise interest rates this week. The anxious start to the trading week prompted a flight
to safety, with German and UK government bonds rallying. The policy-sensitive US two-year Treasury yield fell as much as 21 basis points before paring the move, while 10-year yields dropped to the lowest since September. Last week saw the largest one week
decline in 2-year yield since the 1987 crash.  Futures markets now only see a one-in-three chance that the Fed will go ahead with a final rate hike this Wednesday and they see at least four rate cuts in the US by year-end. 2 year yield ~3.78%, 10 year yield
~3.38%, 5 year yield ~3.43%. US auctions this week include $12b 20-year bonds reopening Tuesday and $15b 10-year TIPS sale Thursday.

The fastest the 2-year treasury yield has ever gone from a six-month high (3/8/23) to a six-month low (3/17/23). 

METALS: 

Gold is slightly lower after rising above $2,000 an ounce for the first time in more than a year as turmoil linked to Credit
Suisse boosted haven demand. Bullion surged 6.5% last week in its biggest advance since early on in the pandemic after several regional American lenders collapsed. It’s a sharp turnaround for bullion, which slid last month on expectations the Federal Reserve
would continue its aggressive monetary tightening to curb inflation. Those bets have since been greatly diminished, with swaps traders now split on whether the central bank will hike again this year. Spot gold -0.2%, silver -0.5%.       

ENERGY:      

Oil sank, with US benchmark West Texas Intermediate plunging below $65 a barrel to hit the lowest level since late 2021,
as escalating investor concerns about a global banking crisis eroded appetite for risk assets including commodities.  Brent dropped below $71 after plunging 12% last week  After trading in a tight range at the start of the year, crude has broken lower as the
banking crisis, concerns over a global slowdown, and Russia’s ability to keep crude flowing despite a web of sanctions combined to undermine prices. China’s appetite for US crude remains strong.  Record exports of US crude are coinciding with a ramp up in
Chinese imports, prompting more cross-Atlantic flows and lifting freight rates.  WTI and Brent are down ~1.5%.     

CURRENCIES:               

The dollar slipped as jitters around a global banking crisis raised speculation that the Federal Reserve may adapt a more
cautious tone when it meets later in the week. The yen gained broadly, bolstered by haven demand. USD/JPY fell as much as 1% to a five-week low before paring some of its loss. Sterling rose as traders are betting the Bank of England will raise rates by 25bps
when it meets on Thursday. US$ Index -0.15%, GBPUSD +0.35%, EURUSD +0.3%, USDJPY -0.7%, USDCHF +0.1%.        

Bitcoin +1.1%, Ethereum -0.7%. Bitcoin climbed to a nine-month high on Monday as turmoil in the banking sector drives some
investors to turn to digital assets, as the cryptocurrency built on its best week in four years. Bitcoin rose 26% last week, its best weekly gain since April 2019, and has soared some 40% in 10 days as turmoil in the banking sector rippled around the globe.

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:

• Aspen Aerogels (ASPN) raised to buy at Benchmark; PT $14
• Brookfield Corp (BN CN) raised to outperform at Credit Suisse
• Cleveland-Cliffs (CLF) raised to peerperform at Wolfe
• Conagra (CAG) raised to hold at Deutsche Bank; PT $35
• Dow (DOW) raised to buy at Deutsche Bank; PT $60
• EastGroup (EGP) raised to buy at Mizuho Securities; PT $185
• Enphase Energy (ENPH) raised to outperform at Raymond James; PT $225
• Kimberly-Clark (KMB) raised to hold at Deutsche Bank; PT $123
• LyondellBasell (LYB) raised to buy at Deutsche Bank; PT $100
• Meta Platforms (META) raised to buy at Edward Jones
• New York Community Bancorp (NYCB) raised to outperform at KBW
• PepsiCo (PEP) raised to market perform at Bernstein; PT $185
• Portillo’s (PTLO) raised to buy at Stifel; PT $24
• PowerSchool (PWSC) raised to outperform at Raymond James; PT $22
• U.S. Bancorp (USB) raised to outperform at Baird; PT $52
• U.S. Steel (X) raised to peerperform at Wolfe
• Unum (UNM) raised to buy at Jefferies; PT $50
• VF Corp (VFC) raised to buy at Williams Trading; PT $27
• Verisk (VRSK) raised to neutral at Redburn
• WestRock (WRK) raised to buy at Citi
• Youdao ADRs (DAO) raised to outperform at Daiwa; PT $9.50

DOWNGRADES:

• 9 Meters Biopharma Inc (NMTR) cut to hold at Truist Secs
• Akumin (AKU CN) cut to hold at Canaccord; PT C$1.23
• Co-Diagnostics (CODX) cut to neutral at HC Wainwright; PT $3
• Cyxtera Technologies (CYXT) cut to market perform at Cowen; PT $1
• Diversey Holdings (DSEY) cut to neutral at Baird; PT $8.50
• Pear Therapeutics (PEAR) cut to market perform at Cowen
• Pear Therapeutics (PEAR) cut to neutral at BTIG
• Pear Therapeutics (PEAR) cut to neutral at Credit Suisse; PT $1

INITIATIONS:

• First Solar (FSLR) rated new outperform at Haitong Intl; PT $233.66
• Genius Sports (GENI) rated new buy at BTIG; PT $6
• Genius Sports (GENI) rated new market outperform at JMP; PT $7
• Home Bancorp (HBCP) rated new market perform at Raymond James
• Icecure Medical (ICCM IT) rated new buy at HC Wainwright; PT $3
• Lion Electric (LEV) rated new market perform at BMO; PT $2
• Prologis (PLD) rated new buy at Mizuho Securities; PT $140
• Roper (ROP) rated new buy at Truist Secs; PT $510

Data sources: Bloomberg, Reuters, CQG

David Wienke

Head Trader, Americas

Cabrera Capital Markets, LLC