Cabrera Capital Daily Game Plan

Thursday June 1, 2023                                                                      Trading Desk:
(312) 236-8907

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

DATA/HEADLINES   8:15ET ADP Employment Change; 8:30ET Nonfarm Productivity, Unit Labor Costs, Weekly Jobless Claims;
9:45ET S&P Global US Manufacturing PMI; 10:00ET Construction Spending, ISM Prices Paid, ISM Employment, ISM New Orders; 1:00ET Fed’s Harker speaks

US ADP Employment Change May: 278K (exp 170K; previous 296K)

TODAY’S HIGHLIGHTS:  

• Zelenskiy joins European leaders at summit in Moldova
• Alibaba is building its most advanced AI system into the Ding Talk messaging app
  

Global shares rose amid diminishing bets for a US rate hike this month and relief over the passage of a bill to suspend the federal debt ceiling through the US House
of Representatives. A surprise swing to growth for Chinese factory activity also provided a lift to sentiment. Sluggish global demand deepened the decline in manufacturing activity across Europe and remained a major challenge for many of Asia’s big exporters,
business surveys for May showed today. The decline was broad based the euro-zone with activity falling in the union’s four biggest economies – Germany, France, Italy, and Spain. Euro zone inflation eased more than expected last month, to 6.1% in May from 7.0%
in April.  Core inflation, which has played an increasing role in the ECB’s policy deliberations, fell to 5.3% from 5.6%, coming well under expectations for 5.5%. Meanwhile, Taiwan and the United States will sign the first deal under a new trade framework
today, boosting ties between the two at a time of heightened tensions with China.                        

EQUITIES: 

US equity futures edged higher after the House passed a deal to avert a US default and Federal Reserve officials hinted at a pause in interest-rate hikes. A divided
House passed the bill to suspend the $31.4 trillion debt ceiling with majority support from both Democrats and Republicans, stoking optimism that it can move through the Senate before the weekend. Morgan Stanley estimated the package will have “negligible
impact” on the overall US economy, probably damping growth next year by a couple 10ths of a percentage point. Also boosting the mood were US Federal Reserve officials, including vice chair nominee Philip Jefferson, pointing to a rate hike “skip” at the Fed’s
June 13-14 policy meeting. Hopes for a Fed pause were partly pared back after Wednesday’s JOLTS jobs report for April showed more than 10 million openings, the highest in three months. Attention turns next to jobless claims data due this morning before Friday’s
nonfarm payrolls.   

Futures ahead of the data: E-Mini S&P +0.05%, Nasdaq -0.15%, Russell 2000 +0.15%, Dow -0.15%  

In premarket trading, AI-exposed stocks slide after C3.ai gave a disappointing sales outlook. Salesforce, Okta and CrowdStrike also fall after reporting quarterly results. C3.ai (AI)
plunged as much as 22%, adding to worries about inflated valuations in the wake of yesterday’s selloff in AI-linked stocks. Nvidia Corp. was steady after Wednesday’s retreat. Meanwhile, Broadcom, MongoDB and Zscaler are slated to report after the market closes. 
Macy’s shares fell over 9% after it cut its sales guidance, citing worsening pressures on consumers.  Salesforce (CRM) dropped 6% on a lackluster sales outlook, even after a first-quarter beat. Lucid (LCID) fell 14% after it raised about $3 billion in a stock
offering. Advance Auto Parts (AAP) falls 2.8% as at least three analysts downgrade the auto-parts retailer after it cut its full-year earnings and sales guidance. Nordstrom (JWN) shares rise 3.6% after the department-store chain reported better-than-expected
quarterly revenue and profit. Pure Storage (PSTG) shares are up 5% after the enterprise storage company reported first-quarter results that beat expectations. Earnings include Broadcom, Dell, VMWare, MongoDB, Macy’s, Dollar General, Lululemon.

European stocks climbed after three days of declines as euro-zone inflation eased more than expected last month. The reading came as only a modest surprise for investors, however, as
national data earlier this week foreshadowed the drop. “Inflation is too high, and it is set to remain so for too long,” ECB President Christine Lagarde said today. Germany’s manufacturing sector contracted at the fastest rate in three years in May and output
fell for the first time in four months, a survey showed. Britain’s manufacturing output fell for a third month in a row. The UK is headed for a “mild recession” this year, according to Moody’s Italy’s manufacturing sector marked its steepest contraction in
three years.  Banks and media led gains in the Stoxx Europe 600 index. Adnoc Logistics & Services, the maritime logistics unit of Abu Dhabi’s main energy company, soared as much as 52% on its debut after a hugely oversubscribed initial public offering. Stoxx
600 +0.5%, DAX +0.9%, CAC +0.3%, FTSE 100 +0.4%, FTSE MIB +1.5%.  

In Asian trading, early gains in Chinese stocks faded as investors studied mixed readings on the country’s manufacturing activity.  Asian equities got an initial
boost from some encouraging economic data out of China. China’s factory activity unexpectedly swung to growth in May, a stark contrast to a deeper contraction activity seen in the official PMI released on Wednesday. The Caixin/S&P Global manufacturing purchasing
managers’ index rose to 50.9 in May from 49.5 in April. The manufacturing subindexes showed factory output rose at the fastest clip in 11 months while new orders including new exports expanded.  However, business confidence for the coming 12 months fell to
a seven-month low amid concerns over global economic prospects. MSCI’s broadest index of Asia-Pacific shares gained as much as 0.8% before giving up about half of its gains.  Japan’s Topix +0.9%, Vietnam +0.3%, ASX 200 +0.3%, CSI 300 +0.2%, Hang Seng Index
-0.1%, Kospi -0.3%, Sensex -0.3%, Philippines -0.7%, Thailand -0.8%.

FIXED INCOME: 
 

Treasuries fluctuated after largely reversing a rally in the previous session. 2s10s, 5s30s spreads flatter by 2.5bp on the day; 10-year yields around 3.65%.  US
session focus turns to data, including ADP employment, jobless claims, and ISM manufacturing. Fed’s Harker also due to speak after urging a June pause Wednesday. Swaps market steady in early session, pricing in around 10bp of rate hike premium for the June
policy meeting following Wednesday’s dovish repricing.  On Wednesday, the Fed’s Jefferson said skipping a rate hike in two weeks would provide policymakers time to see more data before making a decision. Philadelphia Fed President Patrick Harker also said
on Wednesday that for now he is inclined to support a “skip” in rate hikes.  More closely watched employment data is due this week, with the ADP survey out this morning, followed by the monthly non-farm payrolls report on Friday.          

METALS: 

Gold was steady – following two days of gains – after a deal to avert a destabilizing US default was approved in the House and as attention shifts to data published
later in the US.  Gold is still too expensive after recent declines and more losses may be in store, Pimco analysts said. Spot gold +0.2%, silver is flat.    

ENERGY:  

Oil fluctuated as investors awaited official US inventory data after industry figures showed a large rise in crude stocks. US crude stockpiles rebounded 5.2 million
barrels last week after a big drop in the prior period, the API said. Stocks at Cushing rose for a sixth week. Official data on US crude inventories is due this morning. If confirmed by EIA, the crude rise would be the largest weekly inventory build in more
than three months. Meanwhile, OPEC+ faces a divided market when it meets this weekend. The group has never cut within three months of similar action. WTI fell more than 11% in May, its biggest monthly percentage drop since November 2021. Brent dropped 8.7%
in May; its largest one-month drop since November 2022.  WTI +0.3%, Brent +0.2%. 

CURRENCIES:         

US Dollar Index now slightly lower after trading higher a majority of the session. The euro erased losses against the dollar after data showed underlying inflation
in the euro zone dipped by more than expected in May, though that may not stop the European Central Bank from raising rates. European Central Bank Governing Council member Olli Rehn said the bank won’t contemplate lowering borrowing costs before core consumer-price
growth slows in a continuous manner.  Elsewhere, USD/NOK rallied 1%, erasing Wednesday’s drop to lead G-10 losses.US$ Index -0.2% GBPUSD +0.1%, USDJPY +0.3%, EURUSD is flat, AUDUSD +0.1%, NZDUSD -0.3%.      

Bitcoin -1%, Ethereum -0.4%.     

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:

• Alteryx (AYX) raised to buy at BofA; PT $70
• Bluebird Bio (BLUE) raised to overweight at Barclays
• Boralex (BLX CN) raised to outperform at Credit Suisse; PT C$50
• Chevron (CVX) raised to outperform at RBC; PT $180
• Domino’s Pizza (DPZ) raised to overweight at JPMorgan; PT $360
• Equitrans (ETRN) raised to outperform at Wolfe; PT $11
• Intercorp Finl (IFS) raised to overweight at JPMorgan; PT $27
• Kingsoft Cloud ADRs (KC) raised to neutral at Goldman; PT $4.50
• MDU Resources (MDU) raised to buy at BofA; PT $22
• Nucor (NUE) raised to peerperform at Wolfe
• Veeva (VEEV) raised to buy at Guggenheim; PT $226

DOWNGRADES:

• Adicet Bio Inc (ACET) cut to neutral at JPMorgan; PT $6
• Advance Auto (AAP) cut to market perform at Raymond James
• Advance Auto (AAP) cut to neutral at Goldman; PT $82
• Advance Auto (AAP) cut to neutral at JPMorgan; PT $84
• C3.ai (AI) cut to neutral at DA Davidson; PT $30
• Cheniere Energy Partners LP (CQP) cut to underperform at Wolfe; PT $43
• Exxon (XOM) cut to sector perform at RBC; PT $125
• Johnson Controls (JCI) cut to equal-weight at Barclays; PT $70
• Novan (NOVN) cut to market perform at Oppenheimer
• Okta (OKTA) cut to market perform at BMO; PT $85
• Okta (OKTA) cut to neutral at JPMorgan; PT $85
• Target (TGT) cut to neutral at JPMorgan; PT $144
• U.S. Steel (X) cut to underperform at Wolfe
• Veritone (VERI) cut to neutral at Roth MKM; PT $3

INITIATIONS:

• Apollomics (APLM) rated new buy at HC Wainwright; PT $18
• Bright Horizons (BFAM) rated new sell at UBS; PT $79
• Coveo Solutions (CVO CN) rated new buy at Eight Capital; PT C$12
• D.R. Horton (DHI) rated new buy at Deutsche Bank
• Dycom Industries (DY) rated new outperform at Raymond James; PT $120
• Inmune Bio (INMB) rated new outperform at Baird; PT $16
• KB Home (KBH) rated new hold at Deutsche Bank; PT $49
• Kenvue (KVUE) rated new hold at HSBC; PT $27
• Lennar (LEN) rated new sell at Deutsche Bank; PT $105
• MSGE US (MSGE) reinstated outperform at Macquarie; PT $43
• Meritage Homes (MTH) rated new buy at Deutsche Bank
• NLight (LASR) rated new neutral at CL King
• NVR (NVR) rated new sell at Deutsche Bank; PT $4,400
• PulteGroup (PHM) rated new buy at Deutsche Bank
• Taylor Morrison (TMHC) rated new hold at Deutsche Bank; PT $50
• Toll Brothers (TOL) rated new buy at Deutsche Bank; PT $94
• Tri Pointe Homes (TPH) rated new buy at Deutsche Bank; PT $42

Data sources: Bloomberg, Reuters, CQG

David Wienke

Head Trader, Americas

Cabrera Capital Markets, LLC