Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Investment Strategist
Summary: Sentiment had gotten too bearish and equities are now pushing potentially forcing short positions to be covered. The recent sessions seem to driven by technical flows as there has been little new information on the macroeconomy. It seems that the market is positioning itself for a positive surprise in the US August inflation report on Tuesday. The earnings calendar is quite light next week with the key earnings focus being Adobe that is a bellwether in the US technology sector. The software maker is expected to post strong results but a stronger USD and weaker advertising market may cloud the outlook for Adobe.
Equities continue to rebound ahead of important CPI print
As we indicated yesterday in our equity note without having anything statistical significant to show, the odds were leaning in favour of a rebound in equities as sentiment was historically bad and usually followed by gains. S&P 500 futures closed above the 4,000 level yesterday and are pushing today above the 50-day moving average trading around the 4,039 level. The next big resistance level to watch is the 4,072 level which was the highest exhaustion point in the recent cycle. The past couple of sessions’ price action seems to be driven by technical flows on top of a weaker USD, and maybe the moves are a sign of the equity market positioning itself for a better than expected US August inflation report on Tuesday which is really the key event that will shape expectations in equities in the weeks to come.
Can Adobe rise above the dark clouds?
The earnings calendar is light these weeks as the market is waiting for Q3 earnings releases to roll in a month from now. Next week earnings calendar of important earnings is listed below with our focus on Adobe. The software maker has surprised negatively in the past four earnings releases due weaker than estimated outlook causing its share price to tumble 44% from its highs. In the past couple of months the share price has stabilised as expectations are no longer deteriorating. Analysts expect Adobe to report revenue growth of 12.6% y/y and expanding operating margin as recent cost cutting is beginning to improve profitability. Adobe is part of the high quality pocket in the equity market with a high market share and double digit organic growth rates expected over the coming years. Key risks to consider for Adobe are the strong USD, corporate spending slowdown on digitalization, and generally weakness in the global advertising industry.