OTP Morning Brief: The Fed lowered interest rates by 25 basis points
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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.
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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