Cabrera Capital Daily Game Plan

Tuesday May 23, 2023                                                                      Trading Desk:
(312) 236-8907

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

DATA/HEADLINES    8:30ET Philly Fed; 9:45ET S&P Global US Manufacturing PMI, Services PMI; 10:00ET New Home Sales,
Richmond Fed Manufacturing Index

Fed Chair Powell will be attending the New Democrat Coalition today to discuss the debt ceiling, inflation, and interest rates

TODAY’S HIGHLIGHTS:  

• UK and US regulators were told of a state-led drive to “rig” interest rates in the 2008 financial crisis,
  but covered it up – BBC
• Nuggets beat the Lakers 4-0; NBA teams are 0-150 all-time when trailing a series 3-0
  

Global markets were mixed as the world seems fixated on US debt ceiling talks and as investors monitor US-China tensions. A senior US official called Beijing’s restrictions
on Micron’s chips a retaliation while China questioned US “sincerity” as Biden sought more talks with Beijing. The White House said it has no plans to lift sanctions on the Chinese defense minister, appearing to backtrack on comments made a day earlier by
Biden.  Japan’s manufacturing activity expanded in May for the first time in seven months, survey data showed, while the service sector hit record growth. Euro-zone manufacturing activity shrank this month at the fastest pace since the pandemic shuttered factories
three years ago, according to a report from S&P Global. The French economy grew at the slowest pace in four months in May as the services sector lost momentum. Germany’s economic activity accelerated in May to the highest in more than a year, thanks to better
performance in the services sector, as manufacturing activity worsened. Britain’s service-sector companies reported the fastest increase in cost pressures in three months, the latest sign that the Bank of England may have to raise interest rates again. PMI
numbers for the US are due this morning.            

EQUITIES: 

US equity futures slipped as debt ceiling talks continue to take center stage. President Biden and House Speaker McCarthy could not reach an agreement on Monday on
how to raise the US government’s $31.4 trillion debt ceiling with just 10 days before a possible default. The speaker expects to talk daily with the president until a deal is done, though he stressed the GOP won’t agree to tax changes. Investors added $21
billion in new long positions on S&P futures, Citi data showed. The weekly flow of new longs was one of the largest seen in recent years.  

Futures ahead of the bell: E-Mini S&P -0.3%, Nasdaq -0.3%, Russell 2000 -0.1%, Dow -0.2%  

In premarket trading, Yelp shares surged over 10% on a report that an activist investor pushed for a sale or strategic options. Lowe’s (LOW) slipped after cutting its sales outlook for
the year, citing a slowdown in consumer spending. Zoom (ZM) fluctuated, reversing post-market gains after it boosted revenue guidance and management outlined plans to incorporate artificial intelligence into its products. PacWest (PACW) shares advanced 15%,
set to extend Monday’s 20% gains. The surge was fueled by the bank’s sale of a $2.6 billion portfolio real estate construction loans to shore up liquidity. Microvast (MVST) plunged as much as 24%, following the US Energy Department’s cancellation of a planned
$200 million grant to the lithium-ion battery maker amid criticism over ties to China. Tegna (TGNA) shares rose 2.3% in extended trading after the company announced a share buyback plan and said its merger with Standard General was terminated.

European stocks slipped after euro-zone manufacturing activity shrank at the fastest pace since the pandemic.  Euro-area composite PMI slid to 53.3 from 54.1, with the factory index unexpectedly
sinking further into contraction. The Stoxx 600 was down 0.3%, with consumer products and retail stocks leading the declines.  In company news, Julius Baer’s shares dropped over 7% after the Swiss wealth manager reported modest money inflows so far this year,
disappointing investors who had expected the Swiss wealth manager to benefit from Credit Suisse’s troubles. Luxury-goods makers Hermes International and LVMH slumped as Deutsche Bank analysts said they expect investors to become more selective going forward
as the sector is crowded and valuations are lofty. REITs +1.5%, Energy +0.7%, Telecom +0.6%. Construction -1%, Retail -1%, Autos -0.7%, Travel -0.6%.

Asian stocks fell, with Chinese benchmarks underperforming as geopolitical tensions resurfaced. The MSCI Asia Pacific Index erased an earlier gain to fall 0.4%, led
lower by Toyota and Tencent. Benchmarks in Hong Kong and mainland China lost more than 1% each, with the CSI 300 Index close to wiping out all its gains for the year. Japanese stocks reversed gains as news about stricter export controls on chip technology
weighed on sentiment. Japanese semiconductor-related stocks turned lower after METI announced tighter export controls will take effect July 23. Shanghai Composite -1.5%, Hang Seng -1.25%, Topix -0.65%, Vietnam -0.45%, Philippines -0.25%, ASX 200 -0.05%. Kospi
+0.4%, Thailand +0.4%, Taiwan +0.05%, Sensex +0.03%.           

FIXED INCOME: 
 

Treasuries are adding to Monday’s losses with the front-end underperforming, flattening the curve. Treasury auction cycle begins with a 2-year note sale, and Fed
Chair Powell reportedly will make an unscheduled appearance.  Yields were cheaper by up to 7bp across front-end of the curve with 2s10s, 5s30s spreads flatter by ~4bp on the day; 10-year yields around 3.74%, cheaper by ~ 3bps. $42b 2-year note auction at 1pm
EST begins cycle that also includes 5- and 7-year sales Wednesday and Thursday.    Minneapolis Federal Reserve President Neel Kashkari said on Monday that it was a “close call” as to whether he would vote to hike again or pause at next month’s meeting, and
St. Louis Fed President James Bullard said another 50 basis points of hikes might be required. The comments pushed 10 year and 2 year yields to the highest levels since March.         

METALS: 

Gold prices continued their downward trajectory as the US debt ceiling issue remained at the forefront of investors’ minds. Dollar strength has spot gold down 0.6%
as market participants anticipate that US interest rates will remain elevated for a longer period. Fed Fund futures indicate that while traders expect a pause in the Federal Reserve’s rate hike cycle in June, they are also reducing their expectations for any
rate cuts this year. As the week progresses, attention will turn to additional US economic indicators, as well as the release of the minutes from the Fed’s May meeting on Wednesday.  Spot silver is down 2%.  

ENERGY:  

Crude oil rose as the first day of the annual QEF event kicked off.  At the Qatar Economic Forum, Saudi Arabia’s top energy official issued another warning to oil
short-sellers, just over a week before the OPEC+ alliance is due to meet. Oil prices have fluctuated this month as traders weigh a positive outlook for demand against faltering economic data from China, risks of recession in the US and a protracted battle
over America’s debt ceiling.  WTI +1.3%, Brent +1.2%. US Nat Gas -0.7%.

CURRENCIES:         

The dollar hovered near its two-month high after talks between House Speaker McCarthy and President Biden were seen as productive despite ending without a deal. Investors
remain reassured for now that the debt ceiling issue will be resolved soon, even after Treasury Secretary Janet Yellen warned it’s now “highly likely” her department would run out of sufficient cash in early June and that default could come as soon as June
1.  The dollar received further support from two Federal Reserve hawks who said they see the need to raise interest rates further this year. EUR/USD slips 0.3%, weighed by a bigger-than-expected fall in manufacturing PMI in the region; GBP/USD falls 0.4% after
weak UK PMI. The Aussie $ fell after preliminary Australian PMI data for May came in softer. US$ Index +0.35%, USDJPY -0.1%, AUDUSD -0.5%, NZDUSD +0.6%, USDCHF +0.4%.

Bitcoin +1.5%, Ethereum +1.9%. The world’s largest cryptocurrency exchange, Binance, commingled customer funds with company revenue in 2020 and 2021, in breach of
U.S. financial rules that require customer money to be kept separate, three sources familiar with the matter told Reuters.    

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:

• Chevron (CVX) raised to buy at CFRA; PT $172
• Chevron (CVX) raised to buy at HSBC; PT $189
• Greenhill (GHL) raised to market perform at KBW; PT $15
• MEG Energy (MEG CN) raised to sector outperform at Scotiabank; PT C$26
• Myriad Genetics (MYGN) raised to buy at Goldman; PT $25
• Quanterix (QTRX) raised to buy at Goldman; PT $27
• Zoom Video (ZM) raised to market perform at MoffettNathanson LLC

DOWNGRADES:

• Greenhill (GHL) cut to market perform at JMP
• Intercept Pharma (ICPT) cut to hold at Needham
• Maravai (MRVI) cut to neutral at Credit Suisse; PT $14
• Rain Oncology Inc (RAIN) cut to market perform at Oppenheimer
• Rain Oncology Inc (RAIN) cut to market perform at SVB; PT $2
• Rain Oncology Inc (RAIN) cut to neutral at Citi; PT $1.50
• Rain Oncology Inc (RAIN) cut to neutral at HC Wainwright
• Rain Oncology Inc (RAIN) cut to neutral at Piper Sandler; PT $1.75
• VectivBio Holding (VECT) cut to market perform at LifeSci Capital
• VectivBio Holding (VECT) cut to market perform at SVB; PT $17
• VectivBio Holding (VECT) cut to neutral at Credit Suisse; PT $17
• Wheaton Precious Metals (WPM CN) cut to sector perform at RBC; PT C$60.95

INITIATIONS:

• Chimerix (CMRX) rated new outperform at Baird; PT $7
• Cleveland-Cliffs (CLF) rated new neutral at JPMorgan; PT $18
• GrafTech (EAF) rated new neutral at JPMorgan
• Legend Biotech ADRs (LEGN) rated new buy at Daiwa; PT $82
• Nucor (NUE) rated new underweight at JPMorgan; PT $130
• Precigen (PGEN) rated new neutral at JPMorgan
• SimilarWeb (SMWB) rated new overweight at Makor Capital; PT $10
• Steel Dynamics (STLD) rated new underweight at JPMorgan; PT $82
• Stelco Holdings (STLC CN) rated new neutral at JPMorgan; PT C$48
• U.S. Steel (X) rated new neutral at JPMorgan; PT $24

Data sources: Bloomberg, Reuters, CQG

David Wienke

Head Trader, Americas

Cabrera Capital Markets, LLC