OTP Morning Brief: Defence and energy stocks drove stock exchanges higher
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OTP Morning Brief: Thursday trading brings equity market correction and rising oil prices
European equities closed slightly lower, primarily due to weakness in the technology and defence sectors. A more significant correction unfolded on US equities markets as a wave of selling hit technology stocks, while oil and natural gas prices rose markedly amid escalating geopolitical tensions. Amid growing investor caution, both US and German government bond yields declined, while the dollar edged higher against the euro after experiencing significant intraday volatility. Longer-dated yields also declined on the Hungarian bond market, while the forint weakened against both the euro and the dollar. The negative sentiment spilled over from US markets into Asia, with most major Asian equity indices trading in negative territory during the morning session. Today's focus will be on the October US labour market data, which could materially influence market expectations regarding the Federal Reserve's December rate decision. Additionally, retail sales data will be released from both the euro area and Hungary, while Germany will publish its September industrial production figures.
OTP Morning Brief: Investor sentiment improved following the Democrats’ congressional victory and the decline in oil prices
Lower bond yields and oil prices, driven by the Democrats’ expected congressional majority, improved market sentiment. Brent crude has fallen by roughly 20% since the beginning of the week, while the yield on the 10-year US Treasury note declined by 6 basis points to 4.89%. Amid the favourable risk environment, the US dollar weakened, with the EUR/USD exchange rate rising to near 1.123. In Europe, positive corporate news also supported market sentiment, with the STOXX 600 index rising by 1.8%, while shares of Novo Nordisk gained 5.6% after the company raised its full-year guidance. Today, investors will focus on German industrial orders, French industrial production and the euro area producer price index, alongside interest rate decisions by the Bank of England and the Czech central bank. In the US, weekly initial jobless claims, as well as Q3 productivity and labour cost data, will also be in the spotlight.
Western Europe’s stock markets extended their gains on Monday. Defence stocks drove European indices higher. The BUX gained 1.9% yesterday, outperforming its regional peers. US indices also had a strong day. The first trading day after the military action against Venezuela lacked wild moves on markets. US companies may modernize Venezuela’s oil industry. America’s energy sector is soaring. In the USA, ISM manufacturing PMI fell again. Bond yields sank on both sides of the Atlantic on Monday, after the continued rise in Japan’s bond yields. Asia’s markets grew further today.
Western Europe’s stock indices marched higher on Monday
In Western Europe, stock markets extended their gains on Monday. The STOXX Europe 600 advanced 0.9%, breaking above the 600-point mark for the first time in its history. Germany’s DAX (+1.3%), France’s CAC40 (+0.2%) and the UK’s FTSE100 (+0.5%) all climbed higher yesterday.
Following US strikes on Venezuela, Europe’s defence stocks gained new momentum. They have been rather weak since October, on the back of news about the Russia-Ukraine peace process. But the defence sector marched 4.1% higher on Monday, the first trading day after the US action. Rheinmetall (+8.9%), Renk (+8%), Dassault (+4.1%), and Saab (+6.6%) all skyrocketed. Other top performers on Monday included the technology (+3.75%) and materials (+2.3%) sectors. ASML, the world's largest supplier of computer chip manufacturing equipment, jumped by 5.5%. Analysts at brokerage Bernstein upgraded the tech giant to Outperform, and raised their price target to EUR 1,300, from EUR 800. The food and beverage sector, however, had a bad day. Nestlé's (-2.9%) and Unilever's (-2.6%) losses contributed to the 1.4% sector-wide decline. The energy sector gained 0.8%, as oil prices increased by more than 1%.
Along with Western Europe’s defence stocks, 4IG (+3.6%) and Rába (+16%) shot up on Monday. The BUX (+1.9%) closed a strong day, as did its blue chips OTP (+2.85%), MOL (+1.7%), and MTelekom (+1%). Thus the BUX outperformed its peers in the CEE region, where Czechia’s PX50 rose 0.5%, and Poland’s WIG20 edged down 0.1%.
US indices also closed with strong gains
US indices also recorded significant gains on Monday. The Dow Jones Industrial Average (+1.2%), the S&P500 (+0.6%), and the Nasdaq Composite (+0.7%) all excelled. The best-performing sectors of the S&P500 were energy (+2.7%), financials (+2.15%) and consumer discretionary (+1.9%). The aerospace and defence sectors also did well, adding 1.5% each. Of the latter, Lockheed Martin (+2.9%) and General Dynamics (+3.5%) soared.
Although Venezuela’s interim President Delcy Rodríguez called the US military action illegal on Saturday, she struck a more conciliatory tone on Sunday and sought cooperation with the US government. Monday's trading did not see wild market reactions, investors are not pricing in significantly increased geopolitical risks at this point. Yet the price of gold grew by 2.7%, to USD 4,448.
Venezuela holds about 17% of the world's oil reserves, more than Saudi Arabia does. Nevertheless, its output has significantly contracted in the past 50 years, partly due to the nationalization of the oil industry. Back in the 1970s, Venezuela produced 3.5 million barrels per day, but today its output is just 800,000 barrels. Following the action, the US government openly spoke about involving US oil companies in the development of the out-of-date oil industry infrastructure. According to analysts, assuming significant investments, in the long term the US intervention could be followed by a boost in production, which could put pressure on oil prices from the supply side. But in the short term, it is rather the US sanctions policy that could affect prices. Chances that the US assets that had been confiscated during Hugo Chávez’ presidency may be returned have improved. The share prices of the energy companies affected, such as ConocoPhillips and Exxon Mobil, surged by 2.6% and 2.2%, respectively. The stock price of Chevron, the only major US company currently operating in Venezuela’s oil fields, jumped by 5.1%. The developments in Venezuela have also benefited refineries in the Gulf of Mexico, which are particularly well-equipped to use the heavy, high-sulphur crude oil from Venezuela. The US military action also suggests geopolitical rivalry with China, as a significant part of Venezuela’s oil exports flows to China, bypassing US sanctions.
In the USA, the ISM manufacturing PMI fell for the third consecutive month. The December figure of 47.9 is the lowest value since October 2024. A reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.1% of the U.S. economy. Economists polled by Reuters had expected a higher reading of 48.4.
Yields in Europe and the USA declined on Monday after Japan's yield continued to rise
Although Japan’s 10Y bond yield rose to another 26-year high of more than 2.12% on Monday morning, yields on US and European bonds mostly sank yesterday. The US 10-year yield turned back from a four-month peak and the German one declined by 3-4 basis points from the upper edge of its post-Covid trading range; the former dropped to around 4.15% and the latter to around 2.85%. Reasons for the decrease included the faster-than-expected fall in the US ISM manufacturing index, and the anticipations that the US labour market data due on Friday will be weak. The EUR/USD hugged the 1.17 level, remaining in the vicinity of its four-year high.
Ending its strong appreciation in 2025 and around the end of the year, the forint started year 2026 with a moderate, quarter-percentage-point weakening against the euro. The EUR/HUF climbed above the 384 mark. The Czech koruna (CZK) weakened comparably, while the zloty (PLN) lost less than that. Hungarian government bonds’ benchmark yields sank by 2-5 basis points on Monday; the ten-year one dipped below 6.8%. Due to the anaemic demand for the shorter maturity (August), the ÁKK did not accept any bids at yesterday's discount Treasury Bill switch auctions, but bids for the longer (October) tenor totalled HUF 55 billion, and the agency accepted 60% of them.
Today’s highlights
Heading into today's close, Asia’s markets were seen grinding higher. The Nikkei, the KOSPI, the Hang Seng, and the SSEC were all set to gain at least 1%.
France and Germany are to publish preliminary inflation data for December. They precede Wednesday's release for the whole eurozone.
Today Hungary’s ÁKK is offering HUF 30 billion worth of three-month discount Treasury Bills.
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