OTP Morning Brief: The Fed lowered interest rates by 25 basis points
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OTP Morning Brief: US producer price index came in above expectations, yet the US 10-year Treasury yield still declined
Western European equities continued to advance despite ongoing pressure on the technology sector. Wall Street indices also rebounded, recovering some ground after Wednesday’s sell-off. Healthcare was the standout performer on both sides of the Atlantic. Eurozone industrial production declined by 0.5% month-on-month in August. In the US, the producer price index accelerated to 6.3%, delivering another upside surprise in inflation developments. US retail sales increased by 0.8% compared to August. The US 10-year Treasury yield declined by more than 10 basis points. The long end of the Hungarian government bond yield curve also declined by 7-9 basis points. In Hungary, August wage data will be released today, while in the US, September industrial production figures are due.
OTP Morning Brief: US CPI data came in above expectations
European equity markets advanced, supported by strong results from ASML and the outstanding performance of the healthcare sector. US equity markets came under pressure following higher-than-expected September CPI data. The annual CPI rate accelerated to 3.7%, driven primarily by a surge in gasoline prices, while core CPI rose by 0.3% month-on-month, supported by higher housing costs and rising transportation service prices. Oil prices rose amid escalating tensions in the Middle East and the impact of the IEA's oil market report. US Treasury yields retreated after an initial increase, driven by Fed commentary, while European bond yields generally moved higher. The US macro calendar will be busy today, with investors focusing on September retail sales and producer price index data, as well as the New York Fed Manufacturing Index, weekly jobless claims, and business inventories. August industrial production data from the euro area will be released today.
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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