Cabrera Capital Daily Game Plan

Wednesday May 31, 2023                                                                      Trading Desk:
(312) 236-8907

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

DATA/HEADLINES   8:50ET Fed’s Collins and Bowman speak; 9:45ET MNI Chicago PMI; 10:00ET JOLTS Job Openings; 10:30ET
Dallas Fed Services Activity; 12:20ET Fed’s Collins speaks; 12:30ET Fed’s Harker speaks; 1:30ET Fed’s Jefferson speaks; 2:00ET Fed’s Beige Book

Fed’s Patrick Harker, Susan Collins and Michelle Bowman speak at events

TODAY’S HIGHLIGHTS:  

• A total of 12 horses have died at Churchill Downs since April 27th
  
• The debt-limit deal squeaked through the House Rules Committee by a 7-6 margin
• A Chinese fighter jet swerved in front of a US recon aircraft over the South China Sea
  
• North Korea confirmed that its effort to launch a military spy satellite into orbit failed

Global markets are on the defensive ahead of a crucial vote on the US debt ceiling, and as data today showed factory activity in Asia fell faster than expected. 
China’s purchasing managers’ index shrank faster than expected in May on weakening demand, putting pressure on policymakers to shore up a patchy economic recovery and knocking Asian financial markets lower. The PMIs also echoed weak factory data from other
parts of Asia with Japan reporting a surprise decline in output and South Korean production weakening.  Meanwhile, Europe saw some inflation relief as French and German readouts for May mirrored the surprising drop in Spanish inflation seen earlier this week.
The MSCI All-World Index of global shares, which is heading for its first monthly decline since February, was down ~0.4%.                        

EQUITIES: 

US equity futures slipped after yesterday’s rally, fueled by excitement over artificial intelligence, fizzled. In Tuesday’s trading in the US, the Nasdaq 100 added
0.4% to extend this year’s surge to 31%. Investors also remain focused on the debt-limit deal which is heading for a House vote today after clearing a crucial procedural hurdle with just days remaining to avoid a US default. The CBO estimates the deal would
cut deficits by $1.5 trillion over a decade.  Meanwhile, Fed President Thomas Barkin said he is looking for signs that demand is cooling to be convinced that US inflation will ease. Cleveland Fed’s Loretta Mester said she sees no “compelling reason” to pause
interest-rate increases, particularly in the wake of the debt-limit deal.    

Futures ahead of the bell: E-Mini S&P -0.45%, Nasdaq -0.45%, Russell 2000 -0.6%, Dow -0.3%  

In pre-market trading, Advance Auto Parts (AAP) sinks as much as 28% after the parts retailer cut its earnings and sales guidance for the full year, reduced its quarterly dividend and
missed consensus expectations for first quarter earnings results. Nvidia slips 1.5% after soaring 31% over the past three sessions on optimism surrounding artificial intelligence. HP Inc (HPQ) shares drop as much as 4.9% after the computer hardware firm reported
lower-than-expected second-quarter revenue. Hewlett Packard Enterprise (HPE) fell as much as 8.4% after second-quarter revenue and the current-quarter forecast missed expectations. Ambarella (AMBA) shares drop 19% after sales guidance from the maker of semiconductor
devices fell short of expectations, prompting a downgrade from KeyBanc. Avis Budget (CAR) rises 4% after Deutsche Bank upgrades the car rental firm to buy from hold. LL Flooring Holdings (LL) surges as much as 25% after founder Tom Sullivan makes another attempt
to buy the home-improvement retailer. Twilio (TWLO) shares advanced as much as 5% after a report that activist investor Legion Partners had met with the company’s board of directors and managers to suggest changes to the board. Box’s (BOX +3%) fiscal 1Q results
were solid. Sportsman’s Warehouse (SPWH) dropped 7.8% in extended trading after the sporting-goods retailer’s projections for Q2 missed expectations. Faraday Future (FFIE) rises as much as 6% after the electric-vehicle maker launches an “AI-powered” variant
of its FF 91 EV.

European stocks pared early losses sparked by China’s economic woes, while bonds gained amid signs of easing inflation with French CPI and German NRW Flash CPI coming in below expectations.
Italy CPI moderated less than expected.  The regional STOXX 600 hit two-month lows, led by declines in China-focused luxury stocks like LVMH, Burberry and Swatch Group. Swedish landlord SBB plunged to an all-time low after its CEO said his holding company
had deferred interest payments on a loan. Software and telecommunications stocks advanced, led by Capgemini SE after the Paris-based firm said it expanded a partnership with Google Cloud in data analytics and artificial intelligence. REITs underperform after
the European Central Bank said that financial markets will be vulnerable to negative shocks as it continues the fight against inflation, with real estate among the sectors at risk. Stoxx 600 -0.3%, DAX -0.4%, CAC -0.7%, FTSE 100 -0.2%, Technology +0.7%, Media
+0.6%, Travel +0.5%, Retail +0.3%. Oil & Gas -2.5%, Chemicals -1%, Autos -0.7%.

Today’s China PMI readings pushed markets in Asia into the red with the yuan and Australian and New Zealand dollars tumbling and regional stocks falling sharply. 
The official manufacturing purchasing managers’ index fell to a five-month low of 48.8, down from 49.2 in April and below the 50-point mark that separates expansion from contraction. Service sector activity, which has been one of the few bright spots, expanded
at the slowest pace in four months.  Analysts are now downgrading their expectations for the economy with Nomura and Barclays both cutting China’s 2023 GDP growth forecasts. Japanese retail sales rose 5% in April from a year earlier, missing forecasts for
a 7% gain, while contracting 1.2% from the prior month. The MSCI Asia Pacific Index dropped 1.3%, while shares in Hong Kong led losses in the region. Declines were broad-based, with gauges in Japan, Australia and Thailand also falling. An energy sub-gauge
dropped the most as crude prices fell. Hang Seng Index -1.95%, ASX 200 -1.6%, Nikkei 225 -1.4%, CSI 300 -1%, Singapore -0.9%, Sensex -0.5%, Kospi -0.3% 

FIXED INCOME: 
 

Treasuries are extending this week’s gains, with yields richer by 2bp-4bp across the curve, led by bunds after regional prints point to soft German CPI due at 8:00ET,
while French inflation slowed more than expected. The US debt bill is set for debate today, and passage would send it to the Senate where debate could stretch to the weekend. However, the market remains skittish as once it is authorized to borrow the Treasury
is likely to issue lots of debt to replenish its coffers.  Benchmark 10-year yields , which have dropped by 17 basis points in the last two days, were last at ~3.655%. US session highlights include four Fed speakers and JOLTS job openings.          

METALS: 

Gold prices steadied yet is headed for its first monthly decline in three as the US dollar climbed on expectations the Federal Reserve would keep interest rates higher
for longer. Fed Bank of Cleveland President Loretta Mester sees no compelling reason to wait to implement another interest rate hike, Financial Times reported. Still, US bond yields slumped this week from the highest levels since March on speculation the deal
will exacerbate the risk of recession by limiting government spending used to support US growth.  Most base metals declined.  Copper extended its worst monthly loss in almost a year and iron ore fell further below $100 a ton, as China’s slowing manufacturing
raised concerns about demand from the top metals-consuming economy. Spot gold is largely unchanged, spot silver +0.5%.    

ENERGY:  

Oil extended its biggest decline in four weeks on a stronger US dollar and as weak data from top oil importer China raised demand fears. Both benchmarks fell by more
than 4% on Tuesday. Brent’s July contract , which expires today, and the US benchmark were on track for monthly declines of more than 9% and 11%, respectively. Mixed signals by major OPEC+ producers on whether or not the group will decide to further cut oil
production have sparked recent volatility in oil prices.  OPEC+ may agree to a “lean cut” to output when the group meets this weekend given the softness in oil prices and the need for higher revenues in producer countries, RBC said. In other news, inspections
of Norway’s offshore gas pipelines after the Nord Stream blasts found nothing suspicious, an executive at energy major Equinor told Reuters. WTI -2.8%, Brent -2.4%, US Nat Gas -1.6%.  

CURRENCIES:         

The US dollar gained for the first time in four days and is set for its largest monthly rise since September. With Federal Reserve officials increasingly hawkish
about another US interest rate rise in June and Congress finally on its way this week to lifting the debt ceiling for two years, the dollar was pumped up across the board.  The yuan dropped to its lowest since last November when China was under public health
restrictions. The Australian dollar hit a near seven-month low and is down four months in a row.  EURUSD fell as much as 0.7% after data showed a rapid cooling in consumer price pressures in both France and Germany. French inflation eased to its lowest level
in a year at 6% from 6.9% in April, versus 6.4% estimate. Money-market traders trimmed bets on the path of future ECB interest-rate increases, no longer fully pricing another cumulative 50bps of hikes this year.  Turkey’s lira tumbled to a fresh record low
against the dollar as President Erdogan prepared to decide the shape of his new cabinet and the direction of economic policy after an election triumph. US$ Index +0.3%, GBPUSD -0.3%, USDJPY +0.05%, USDTRY +1.2%, AUDUSD -0.55%, EURUSD -0.5%, NZDUSD -0.65%,
USDNOK +0.5%.     

Bitcoin -2.3%, 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:

• Avis Budget (CAR) raised to buy at Deutsche Bank; PT $263
• Chevron (CVX) raised to neutral at JPMorgan; PT $170
• Xylem (XYL) raised to outperform at Baird; PT $135

DOWNGRADES:

• Ambarella (AMBA) cut to sector weight at KeyBanc
• BRF ADRs (BRFS3 BZ) cut to sell at Goldman; PT $1.20
• GreenLight Biosciences Holdings PBC (GRNA) cut to hold at Canaccord

INITIATIONS:

• Aslan Pharma ADRs (6497 TT) rated new buy at Roth MKM; PT $15
• Cedar Fair (FUN) rated new buy at Goldman
• Colliers International (CIGI CN) rated new outperform at RBC; PT C$174.58
• Five9 (FIVN) rated new buy at Mizuho Securities; PT $100
• Hillman Solutions (HLMN) rated new outperform at Imperial; PT $10.25
• Inventiva SACA ADRs (IVA FP) rated new buy at Roth MKM; PT $11
• Liberty Latin America (LILA) rated new buy at Goldman; PT $10
• MDxHealth SA ADRs (MDXH BB) rated new outperform at Cowen; PT $7
• MasterCraft Boat (MCFT) rated new neutral at DA Davidson; PT $29
• Nevro (NVRO) rated new outperform at RBC; PT $40
• Nice Ltd ADRs (NICE IT) rated new buy at Mizuho Securities; PT $244
• Ocean Biomedical (OCEA) rated new speculative buy at Taglich Brothers
• PayPal (PYPL) rated new neutral at Fubon; PT $70
• Qualys (QLYS) rated new outperform at William Blair
• SeaWorld (SEAS) rated new buy at Goldman
• Six Flags (SIX) rated new sell at Goldman; PT $26
• Terns Pharma (TERN) rated new buy at Roth MKM; PT $23
• UNITY Biotech (UBX) rated new buy at Roth MKM; PT $10

Data sources: Bloomberg, Reuters, CQG

David Wienke

Head Trader, Americas

Cabrera Capital Markets, LLC