OTP Morning Brief: The Fed lowered interest rates by 25 basis points
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OTP Morning Brief: Crude oil prices plunged sharply as the Middle East conflict eased
The first trading day of the week brought modest gains to the major European stock markets, as sectors benefiting from the easing of the Middle East conflict offset declines in the technology and energy sectors. Stock markets across the CEE region also moved higher, with the BUX gaining 0.7%. Wall Street indices closed mixed with minor moves, as investors turned their attention to the Fed's upcoming interest rate decision later this week and earnings reports from major technology companies. WTI crude futures fell by more than 7%, while Brent crude declined by over 8%. Developed-market bond yields declined as easing concerns over CPI, driven by lower oil prices, boosted demand for fixed-income assets. Domestic long-term bond yields also moved markedly lower. The EURHUF exchange rate is trading around the 360 level. Today marks the start of the Fed's two-day rate-setting meeting, while the earnings season continues with reports from several major companies.
OTP Morning Brief: Airstrikes eased in the Middle East
European indices advanced on Friday, allowing them to end the week in positive territory once again. The July PMI data painted a positive picture of the eurozone outlook, although Trump imposed new tariffs, including measures affecting Europe. The BUX declined on Friday, but still ended the week in positive territory. According to the HCSO, employment declined while unemployment increased. Airstrikes between Iran and neighboring countries eased over the weekend. This pushed oil prices back below $100 per barrel. The S&P declined on Friday and posted a loss for the week as a whole. The composite PMI also increased in the US. Developed market government bond yields retreated from their local highs. Hungarian bond yields increased, while the forint strengthened slightly. Q2 GDP data will be released this week for Hungary, the eurozone, and the US. In addition, investors will be watching eurozone and US CPI data, as well as the Fed's interest rate decision.
Europe’s stock indices closed mixed on Wednesday. Italy’s industrial production fell sharper than thought. LVMH champagne workers called for strike. Wall Street's key indices closed higher yesterday. The Fed lowered interest rates by 25 basis points; it may be more cautious with further cuts, but restarts asset purchases. The dollar has weakened. In Hungary, the role of FX financing and issuance for households will increase, the ÁKK's financing plan for 2016 reveals. The rate decision of Turkey’s central bank and the release of US weekly jobless claims figures are worth checking today.
Europe’s stock indices closed mixed on Wednesday; Italy’s industrial production fell sharper than thought; LVMH champagne workers called for strike
The stock markets of Europe closed mixed on Wednesday as investors awaited the Fed's rate decision. The Stoxx 600 index traded virtually flat, with mixed sectoral performances. Delivery Hero shares jumped by 8.6% after the company indicated it was exploring strategic options to improve financial indicators. Attention shifted to the Fed's last meeting of the year: the market priced in nearly 90% probability of another 25-basis-point interest rate cut. Policymakers were divided: some support the reduction, pointing to the weakening labour market, while others were cautious, citing inflation risks. Before yesterday's decision, financial markets priced in roughly 70% chance that the Fed would not cut rates further in January.
In a sharp reversal from September’s 2.7% gain, Italy’s industrial production shrank by 1% month-on-month in October, whereas a 0.3% decline was expected. The contraction was broad-based, particularly in consumer and investment goods; Italy’s output dropped by 0.3% year-on-year.
Shareholders of Anglo American and Teck Resources have approved a merger of the two companies. The deal could give rise to a global copper mining giant. In France, the CGT union at LVMH’s called champagne workers for strike on Thursday, yet the stock price rose by 0.4%.
Most of the CEE region’s main indices nudged higher yesterday, but Hungary’s BUX stagnated. Of its four blue chips, Richter and MTelekom made hains, while the other two weakened.
The Fed lowered interest rates by 25 basis points; it may be more cautious with further cuts, but restarts asset purchases to provide liquidity to the money market
US indices rose on Wednesday after the FOMC had lowered interest rates by 25 basis points for the third time, to a target range of 3.50-3.75%, although the three votes against the move indicated divisions within the board. The statement accompanying the decision pointed out that the Fed would consider the “extent and timing” of further steps, reflecting a more cautious tone regarding further interest rate cuts. According to the dot plot in the latest economic forecast, one more interest rate cut is expected next year. The market expects more cuts, but the forecasts of the Fed's decision-makers are unusually varied. However, Fed Chairman Jerome Powell’s words suggest that no interest rate hikes are likely in the coming months; equity investors viewed this as a positive sign. The market also welcomed the Fed's announcement that it would start purchasing short-term Treasury bills, initially USD 40 billion per month, to maintain liquidity in the money market. In addition, the Fed's updated forecast included higher but still unsatisfactory growth, lower inflation, and an unchanged unemployment rates for 2026 than in September, partly due to the base effect of the government shutdown; this also favours the rise in stock prices.
Long-term yields eventually declined in the USA and stagnated in Germany; the dollar has weakened; in Hungary, the role of FX financing and issuance for household is to increase according to the ÁKK's plan for next year
In the third step of the interest rate cut cycle restarted in September, the Fed reduced the target range of the key interest rate by 25 basis points, to 3.5-3.75%, as expected. Policymakers updated their forecasts for the US economy, increasing the growth projections for 2025 and 2026 (from 1.6% to 1.7% for this year, and from 1.8% to 2.3% for next year), while inflation projection eased for both years (from 3% to 2.9% this year, and from 2.6% to 2.4% for next year). According to the interest rate path expected by policymakers, it is most likely that another interest rate cut will take place next year. After a minor swing, the market welcomed the decision: bond yields sank, and the ten-year yield, which had been hovering above 4.2% in the early afternoon, decreased by four basis points, to 4.15% by the evening. In Europe, yields’ increase continued in the morning; Germany’s Bund yield rose to a six-month high, near 2.9%. By the afternoon, a reversal reached Europe, and yields dipped back almost to Tuesday's levels; Germany’s 10Y yield was around 2.85%. The dollar weakened: the EUR/USD rose by more than half a percent, to end near 1.17.
In Hungary, the ÁKK published its financing plan for 2026: the role of net FX funding and issuance of bonds for households will increase in financing, while net bond issuance for institutional is to decrease. The forint has strengthened, pushing the EUR/HUF to around 382, but Hungarian government bond yields have risen by 3-5 basis points; the ten-year yield is at 6.93%.
Today’s highlights
Asia’s stock markets traded mixed today, following the Fed's interest rate cut on Wednesday. In China, ZTE shares fell sharply on media reports that the company would have to pay more than USD 1 billion in compensation to the US government over bribery allegations.
Turkey’s central bank holds a rate-setting meeting, and the USA publishes weekly jobless claims today.
In Hungary, the ÁKK auctions 3Y, 5Y, and 10Y bonds, offering HUF 10 billion, 20 bn and 25 billion, respectively.
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