OTP Morning Brief: Investors breathed a sigh of relief as crude oil prices fell on Monday
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OTP Morning Brief: Uncertainty stemming from the still-unresolved Middle East conflict weighed on Monday's trading
Crude oil prices rose due to the ongoing uncertainty surrounding the still-unresolved Middle East conflict and the closure of the Strait of Hormuz, reinforcing concerns over higher CPI and potential interest rate hikes. Major European indices ended Monday's trading session with modest moves. The BUX ended in the middle of the pack among CEE stock exchanges, posting a marginal decline. Major US indices moved into negative territory. Developed market bond yields moved higher, while the dollar strengthened against the euro. The long end of the Hungarian yield curve also shifted upward, and the forint weakened against major currencies.
OTP Morning Brief: Rate hike expectations eased on signs of weakness in the US labor market, lifting markets
Friday’s biggest surprise came from labor market data that were significantly weaker than expected, prompting a reassessment of rate hike expectations and boosting equity market performance on the final trading day of the week. Several European indices, including the Stoxx Europe 600, closed at record highs. In addition, favorable economic activity data were released for Germany. The BUX also posted gains. US indices also recorded substantial gains on Friday. Weaker labor market data pushed developed market yields lower, while the US dollar weakened. The other major surprise on Friday was Hungary’s CPI reading of 1.2%, which also came in below expectations. Asian markets also followed the rally. Several key data releases will be in focus this week, including European confidence indicators, detailed Q2 GDP figures and employment data, while in the US, investors will be closely watching the latest CPI release.
Several tankers safely passed through the Strait of Hormuz over the weekend, easing fears about the strait being closed for a longer period; oil prices fell on Monday. As a result, global inflation fears eased, allowing investors to breathe a sigh of relief. The Stoxx600 rose and US stock indices also closed about 1% higher. Despite the benign external sentiment, the BUX weakened further. The long-term yields of developed economies’ bond markets decreased, the USD weakened. Hungary’s long-term yields fell sharply; the EUR/HUF sank below 390. Australia’s central bank raised interest rates today. The Fed's two-day interest rate decision meeting begins today. Today, the ZEW economic sentiment index and US housing market data will in the focus of attention, in addition to news from the Middle East.
Europe’s stock markets heaved a sigh of relief as crude oil prices fell, but the BUX extended losses
Western Europe’s stock exchanges opened this week higher; the leading indices recorded small gains at the end of Monday's trading. Erasing the morning’s slight losses, the Stoxx600 (+0.4%), the DAX (+0.5%), and the FTSE100 (+0.6%) closed higher. The sentiment on stock markets improved as concerns about the war in Iran and the closure of the Strait of Hormuz have abated. Investors’ attention shifted to this week’s central bank meetings, where the market does not expect interest rates to be changed, but policymakers will have an opportunity to outline how recent events will affect their outlook, giving market participants a new hint for building their positions. Of the Stoxx600 sector indices, the real estate and energy sectors posted the biggest shifts. Morgan Stanley upgraded its investment recommendation for European real estate companies from Underweight to Neutral. Stock market sentiment was also boosted yesterday by Goldman Sachs’ announcement that it had revised up its year-end target price for the FTSE100.
In individual stocks, Commerzbank’s price jumped by 9% following a bid by Italy’s UniCredit to increase its stake in the German bank. UniCredit’s share price did nut budge. Shares in Amplifon dived 14% after the Italian hearing aid maker announced plans to buy Denmark's GN Store Nord's similar business for EUR 2.3 billion. Oil companies fared well on the London Stock Exchange, despite a drop in crude oil prices.
The Prague (+0.5%) and Warsaw (+0.6%) stock exchanges benefited from the positive sentiment, but Hungary’s benchmark index fell further. The BUX (-0.8%) was dragged down by Mol (-2%) and 4iG (-4%); OTP and MTelekom slipped 0.5% each, while Richter closed flat.
Crude oil prices fell on reassuring news, giving a boost to US stock markets
America’s major stock indexes closed almost 1% higher on Monday as the sentiment improved owing to a sharp drop in oil prices, following reports that, despite the blockade, tankers were able to pass through the Strait of Hormuz over the weekend. The Dow (+0.7%), the S&P100 (+1%) and the Nasdaq Composite (+1.2%), and the Russell2000 (+0.9%) mid-cap index all gained yesterday. Investors returned to their preferred field, artificial-intelligence-related companies. Meta jumped 2.3% following a Reuters report that it was cutting at least 20% of its workforce. Nvidia increased by 1.6% after CEO Jensen Huang introduced new components at the company's annual developer conference. Foxconn, a Taiwanese company that uses Nvidia chips to make AI servers, published a strong quarterly earnings outlook on Monday. Tesla advanced 1.1% after CEO Elon Musk said the company’s Terafab AI chip manufacturing facility would start production within a week. Micron Technology Inc. jumped nearly 4% after the memory chip maker said it planned to build a second manufacturing plant in Taiwan.
All of the S&P500 eleven sector indices rose, particularly technology (+1.4%), and consumer discretionary (+1.3%). Wall Street’s “fear index,” the CBOE VIX Volatility Index, shed 3.5 points, back to 23.7. Travel stocks Delta Air Lines and Norwegian Cruise Line surged 3.5% and 5.1%, respectively, benefiting from lower oil prices. Discount store chain Dollar Tree rallied more than 6% after signalling it could benefit from favourable tariffs in the short term.
The February reading of US industrial and manufacturing output in came in slightly better than expected. The data released yesterday showed 0.2% MoM increase, slightly topping expectations for a 0.1% uptick. In contrast, the New York Empire State manufacturing index fell sharper than thought and entered negative territory.
Oil prices fell sharply on Monday as several tankers safely passed through the Strait of Hormuz over the weekend, easing fears of a prolonged closure of the strait and raising hopes that the route could reopen soon. India is negotiating the safe transit of six more ships, while several countries are holding unofficial talks with Iran to ensure the safe passage of their ships. The USA is allowing Iran to continue shipping crude oil through the Strait of Hormuz, while US President Donald Trump has called on other countries to support efforts to protect trade in the strait. Reportedly, a direct communication channel between the USA and Iran has also been established.
The TTF natural gas price fell below 51 EUR/MWh.
Falling oil prices eased global inflation fears, bond yields declined, and the USD weakened. Hungary’s long-term yields also fell sharply, the EUR/HUF sank below 390
Given that a few ships passed through the Strait of Hormuz, oil prices slumped; tensions and global inflation fears eased, bond yields dropped, and the US dollar weakened. The ten-year US bond yield sank below 4.25% and the German one below 2.95%, both declining by about 5 basis points from the levels seen at the end of last week. Ending a massive appreciation in the previous two weeks, the dollar weakened by nearly 1% against the euro yesterday, sending the EUR/USD above 1.15.
The improving global sentiment had its effect on Hungary’s foreign exchange and bond markets. The forint strengthened by nearly 1% versus the euro, pushing the EUR/HUF below 390. Bond yields declined, the 10Y bond yield dropped by 3-5 basis points at the belly of the curve, and by 10-15 basis points, to less than 7.25% for 10Y maturities and beyond. At the ÁKK’s switch auction, discount Treasury bills worth HUF 20 billion changed hands yesterday.
Today’s highlights
This morning's trading shows a mixed picture for Asian stock markets. In the last hour of today’s trading, the Nikkei (-0.3%), the Shanghai Composite (-0.5%), and the CSI300 (-0.4%) were all in the red. But the Hang Seng inched up, and most Korean indices were up 1-2% on Tuesday morning.
This morning, Brent crude rebounded 3.4%, trading above 103 USD/barrel as several US allies rejected Donald Trump's call on Monday to send warships to escort tankers through the Strait of Hormuz. Reuters reported that Iran's Revolutionary Guards (IRGC) had arrested ten foreign nationals accused of spying in the country's northeast, the semi-official Tasnim news agency reported on Tuesday.
Today the Reserve Bank of Australia raised interest rates at its policy meeting, for the second time this year. The benchmark rate rose to 4.1%, but the 5-4 vote is close enough to cast doubt on the bank's next move.
Today the Fed begins its two-day policy meeting, at the end of which it is widely expected to leave its benchmark interest rate on hold. According to data collected by LSEG, traders have pushed back their expectations for a rate cut of at least 25 basis points to October, compared to the previous expectation of a rate cut in July. According to the CME FedWatch Tool, interest rate futures are pricing in a 99.1% probability that the FOMC will decide to hold interest rates on Wednesday.
Today’s important publications are Germany’s ZEW economic sentiment index and the latest data on US pending home sales.
In Hungary, the ÁKK auctions 3M discount Treasury Bills, offering HUF 30 billion debt.
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