Cabrera Capital Daily Game Plan

Thursday May 25, 2023                                                                      Trading Desk:
(312) 236-8907

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

DATA/HEADLINES   8:30ET Chicago Fed National Activity Index, Weekly Jobless Claims, Personal Consumption, GDP Price
Index, Core PCE; 9:50ET Fed’s Barkin speaks; 10:00ET Pending Home Sales; 10:30ET Fed’s Collins speaks; 11:00ET Kansas City Fed; 1:00ET $35 billion 7-year notes auction

TODAY’S HIGHLIGHTS:  

• First new ‘quit-smoking’ drug in 20 years shows promising results in US trial – Cytisinicline
  
• Ron DeSantis’s live Twitter launch of his presidential campaign suffered technical glitches as servers buckled
  due to demand

Global markets were stuck in US debt ceiling limbo, while Europe largely shrugged off news that its biggest economy, Germany, had sagged into recession and that all
the wrangling in the United States could cost it a AAA credit rating. Nvidia Corp., the world’s most valuable chipmaker, forecast sales that blew past analysts estimates, showing how booming demand for AI processors has the potential to reshape the sector.
Outside of chipmakers, markets were broadly weaker and selling intensified in Hong Kong. The worry for investors is that China’s economy is losing momentum and there are persistent financial troubles in the real estate industry. China’s muted economic rebound
and Beijing’s reluctance to use large-scale stimulus are reverberating around the globe, weighing on commodity prices, and weakening equity markets.  The BOK left its key rate unchanged at 3.5% and cut its 2023 GDP forecast to 1.4% from 1.6%. Indonesia held
its main rate at 5.75%.                     

EQUITIES: 

Nasdaq is leading a rally in US equity futures and chipmakers soared as a bullish sales forecast from Nvidia ignited gains in companies linked to the frenzy for artificial
intelligence. Nvidia shares soared over 30% in post-market trading after its forecast for surging revenue surprised even the most optimistic analysts. If the premarket gain holds, Nvidia’s value would rise by about $180 billion, ranking among the biggest one-day
pops in history. The company, whose shares have doubled this year, is at the forefront of an explosion in spending on artificial intelligence. The excitement triggered by Nvidia was enough to outweigh a warning from Fitch.  Fitch Ratings placed the United
States’ AAA credit rating on watch, a sign of growing unease about the country’s ability to avert a first-ever default. The US received a credit downgrade during similar turmoil in 2011. President Biden offered to freeze government spending at current levels
during crunch debt talks with Republicans. This would reduce the deficit by $1T, Treasury Secretary Janet Yellen said.     

Futures ahead of the bell: E-Mini S&P 0.75%, Nasdaq +2.2%, Russell 2000 -0.1%, Dow -0.2%  

In pre-market trading, Snowflake plunged 15% after the cloud software company’s sales outlook missed. American Eagle Outfitters (AEO) shares tumble ~20% after the apparel retailer’s forecast
for the full-year disappointed analysts. Carnival Corp. (CCL) rises more than 2% in US premarket trading after Citi upgrades to buy from hold. Desktop Metal (DM) shares trade ~6% higher after Stratasys agreed to buy the 3D printer company in an all-stock transaction.
Splunk (SPLK) shares gained more than 7% in extended trading, after the software company reported first-quarter revenue that beat expectations. Elf Beauty (ELF) rose ~11% post-market after an earnings beat. Mirati Therapeutics (MRTX) dropped ~9% post-market
after the biotechnology company said the Sapphire study didn’t meet its primary endpoint. Nutanix (NTNX) shares are up 17% after the infrastructure-software company boosted its revenue guidance for the full year. In other news, Disney said it is in talks to
buy out Comcast’s minority stake in Hulu. Earnings include Costco, RBC, TD Bank, CIBC, Best Buy, Medtronic, Marvell, Ralph Lauren, Gap.

European stocks were muted on Thursday as investors stayed glued to US debt-ceiling negotiations, offsetting a rally in tech stocks after Nvidia issued an upbeat outlook. Chipmaker ASM
International (ASM NA +9%) led gains in the Stoxx 600. Technology outperforms, while Telecom and Media are Europe’s biggest underperformers. Updated data today showed that the German economy was in recession in early 2023 after households spending finally
buckled to the pressure of high inflation. Gross domestic product fell by 0.3% in Q1 following a decline of 0.5% in the fourth quarter of 2022. Coca-Cola HBC said it is now targeting average annual organic revenue growth of 6% to 7%, up from a previous target
of 5% to 6%. The stock came under pressure, however, as it has gone ex-dividend.  Stoxx 600 -0.05%, DAX -0.2%, CAC -0.35%, FTSE 100 -0.3%. Technology +2%, Travel +0.6%, Basic Resources +0.4%. Energy -0.9%, Telecom -0.9%, Media -0.8%, REITs -0.7%.

Asia was divided overnight with Japan grinding higher, but Hong Kong tumbled almost 2% to its weakest level of the year amid renewed geopolitical concerns surrounding
Chinese tech giants such as Tencent (-3%), Alibaba (-3%) and Meituan (-3.3%).  Japan raised its monthly economic assessment in May for the first time in 10 months, upgrading its assessment of consumer spending, production, and exports. The MSCI Asia Pacific
Index dropped 0.8%, dragged by communication and financial shares. Chinese stocks listed in Hong Kong had its worst week since March and was on track to erase about half of its gains seen during the reopening rally. China and Hong Kong are closed tomorrow.
Asian semiconductor-related stocks climbed after Nvidia gave a bullish revenue outlook. Taiwan +0.8%, Nikkei 225 +0.4%, Vietnam +0.3%, Sensex +0.15%, Hang Seng Tech Index -2.25%, ASX 200 -1%, Philippines -0.8%, Kospi -0.5%, CSI 300 -0.2%.

FIXED INCOME: 
 

Treasury yields were steady, with yields on the two-year and 10-year note holding near the highest since mid-March, during the depths of the banking crisis. Treasuries
front-end of the curve is leading losses on the day with long-end yields little changed. US 2-year yields cheaper by almost 5bp on the day at around 4.23%, flattening 2s10s spread by ~3bp; 10-year yields sit around 3.76%. Don’t expect Fed rate cuts until “well
into 2024,” The Fed’s Raphael Bostic warned. “The tightening that we’ve done is just starting to show up,” but it’s not clear how much time it’ll take for higher rates to slow the economy. US session includes jobless claims data and 1Q GDP revision as well
as 7-year note auction.  A late Wednesday announcement that Fitch placed US credit on “rating watch negative” generated limited market reaction.    

METALS: 

Gold edged higher, paring Wednesday’s loss, with the metal still range-trading as US debt-ceiling talks drag on. Gains in bullion were capped by the US dollar rising
to an over two-month high. Gold has slid into a new range, finding a floor on haven demand as investors hedge against a disastrous US default. Exchange-traded funds backed by the metal have continued to increase their holdings this month. Gold +0.2%, silver
is flat.  The price of copper has widened to the biggest discount against its futures in almost two decades, in a warning sign of a sudden weakening in global demand as China’s economic rebound stalls. Copper +0.9%.  

ENERGY:  

Oil dropped following three days of gains, after a top Russian official played down the prospect of additional production cuts when OPEC+ meets early next month.
Citi expects global demand growth will fall short of estimates. The global oil map is being redrawn as western sanctions channel more barrels from Russia to Asia. China and India got more than 30% of their combined purchases from Russia, Iran, and Venezuela
in April, Kpler said. That’s up from 12% in February 2022. Flows from West Africa and the US collapsed. In natural gas, wagers that Chinese LNG imports will rebound are quickly fading as the country’s top buyers remain absent from the spot market, traders
said. European gas tumbled again. WTI -1.8%, Brent -1.7%, US Nat Gas -2.5%. 

CURRENCIES:         

The Dollar Index headed for its fourth day of gains for the first time in seven months as money markets priced in nearly a 90% chance for a rate hike by the Federal
Reserve in July. Fitch Ratings said it may downgrade the US’s AAA credit rating, yet the yen and the Swiss franc fail to pick up momentum on a haven-flows basis. USD/JPY now relatively flat, after briefly dropping 0.5%, driven by reactions to Fitch’s Ratings
news. It still expects a deal before June 1. But even the negative ratings watch will cause economic problems, House Democratic Whip Katherine Clark said. Elsewhere, the Swedish Krona fell to a 14-year low vs the Euro. China’s yuan sagging near a 6-month low
pointed to its economy spluttering again.   US$ Index +0.2% GBPUSD -0.04%, USDJPY +0.1%, EURUSD -0.2% , AUDUSD -0.3%, NZDUSD -0.6%.

Bitcoin -0.3%, Ethereum -0.9%.     

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:

• Caesars Entertainment (CZR) raised to neutral at Susquehanna; PT $39
• Carnival (CCL) raised to buy at Citi; PT $14
• Cresco Labs (CL CN) raised to buy at Echelon Wealth; PT C$2.75
• Dycom Industries (DY) raised to overweight at Wells Fargo; PT $120
• Futu Holdings ADRs (FUTU) raised to outperform at Credit Suisse; PT $49
• Kanzhun ADRs (BZ) raised to overweight at Barclays
• Leidos (LDOS) raised to overweight at Wells Fargo; PT $102
• Nvidia (NVDA) raised to outperform at Baird; PT $475
• Pembina Pipeline (PPL CN) raised to outperform at Credit Suisse; PT C$53
• RenaissanceRe (RNR) raised to buy at Jefferies; PT $238
• Toll Brothers (TOL) raised to outperform at RBC; PT $77
• Vipshop ADRs (VIPS) raised to overweight at JPMorgan; PT $18

DOWNGRADES:

• American Express (AXP) cut to sell at Redburn
• Annexon (ANNX) cut to neutral at JPMorgan; PT $9
• Caleres (CAL) cut to neutral at Piper Sandler; PT $25
• Digital Turbine (APPS) cut to neutral at Roth MKM; PT $10
• Dish (DISH) cut to neutral at Citi; PT $8
• XPeng ADRs (XPEV) cut to hold at CMB International; PT $9
• XPeng ADRs (XPEV) cut to underweight at Barclays; PT $6

INITIATIONS:

• Broadcom (AVGO) reinstated buy at William O’Neil
• Cedar Fair (FUN) reinstated overweight at KeyBanc; PT $54
• Legend Biotech ADRs (LEGN) rated new market perform at William Blair
• Mobileye (MBLY) rated new overweight at Wells Fargo; PT $50
• SeaWorld (SEAS) reinstated sector weight at KeyBanc
• SentinelOne (S) rated new strong buy at Raymond James; PT $25
• Six Flags (SIX) reinstated overweight at KeyBanc; PT $35
• Teva ADRs (TEVA IT) reinstated equal-weight at Morgan Stanley; PT $10

Data sources: Bloomberg, Reuters, CQG

David Wienke

Head Trader, Americas

Cabrera Capital Markets, LLC