OTP Morning Brief: The Fed left interest rate on hold, oil prices rose further
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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 in the red yesterday. Oil prices rose sharply after attacks on several oil facilities in the Persian Gulf. US indices fell; the Fed left interest rate on hold, as expected. Producer prices rose faster than expected. Micron released strong earnings report. Advanced economies’ bond yields rose; the USD strengthened. The HUF weakened the most inthe CEE region. The central banks of Europe, England, and Czechia make interest rate decisions today. Britain’s unemployment data, US housing market and the weekly jobless claims data will be in investors' focus.
Europe’s stocks subsided yesterday, ending earlier up moves; oil prices grew steeply after attacks on oil facilities in the Persian Gulf
In Europe, stock markets closed lower yesterday as investors watched the impact of geopolitical tensions over Iran ahead of the Fed’s decision. Despite the morning’s gains, the Stoxx 600 index closed 0.7% lower, and most sectors and national stock exchanges closed in the red. The eurozone’s final inflation data showed that the consumer price index rose by 0.6% month-on-month in February, which was below the preliminary estimate of 0.7% but marked a sharp turnaround from -0.6% in January. In corporate news, shares in Diploma jumped by 17.8% as the UK-based specialized technical products distributor significantly raised its guidance for the year (organic revenue growth of 9%, up from 6%) and analysts’ profit expectations grew by 13%. Softcat shares shot up 9.2% thanks to the company’s exceptionally strong half-year performance; operating profit surged 27.3% and the management raised its guidance.
Oil prices grew steeply on Wednesday after threats by Israel and Iran against each other’s energy facilities further heightened supply risks surrounding the Middle East, exacerbating already significant global supply disruptions due to a drop in tanker traffic in the Strait of Hormuz. The sentiment was soured by Israel's attack on Iran's largest gas processing plant in Bushehr province, while Tehran threatened to target key oil and gas facilities in Saudi Arabia, the United Arab Emirates, and Qatar.
The CEE region's indices closed mixed yesterday. Hungary’s BUX and Poland’s WIG declined, while the Prague index rose. Hungary’s blue chips also painted a mixed picture: OTP and Richter edged higher, while the other two stocks lost more than 1%.
US indices dropped; the Fed left interest rates on hold as expected; producer prices rose faster than expected; Micron released strong earnings report
US indices fell sharply yesterday after the latest macro data and Jerome Powell’s words added to inflation concerns. The Fed left its benchmark interest rate range at 3.5-3.75%, as expected, and signalled that it continues to expect one rate cut this year. At the same time, Chairman Powell acknowledged that inflation was declining more slowly than hoped and indicated that, although it is still early to assess the war’s impact on inflation, it poses a significant risk to prices. The Fed’s new forecast expects slightly higher growth and faster inflation than in December.
Before the Fed’s interest rate decision came the disappointing release on US producer prices, which rose by 0.7% MoM in February, exceeding both the 0.3% market expectation and the January reading of 0.5%; it was also the fastest growth rate in seven months. Experts find that the increase was mainly driven by tariffs and higher industrial input costs, but the indicator does not yet reflect the impact of the energy market shock. On the other hand, services inflation slowed to 0.5%, which is the mildest increase in three months. The core producer price index rose by 0.5% MoM, down from 0.8% in January but also exceeding forecasts of 0.3%. On an annual basis, the headline PPI jumped to 3.4% (expected: 2.9%), and core inflation accelerated to 3.9%. New orders in the US manufacturing sector rose 0.1% in January, matching the consensus; orders for non-durable goods upped by 0.3%, while durable goods orders remained flat overall, as the growth in electronics, machinery, and metal products was offset by a 0.8% decline in transportation equipment, particularly military aircraft orders (-23.8%). Orders excluding transportation equipment rose by 0.4%, marking the third consecutive monthly expansion.
After market close, Micron released its interim report, which significantly exceeded expectations in terms of both sales and profit. The former grew nearly threefold in a year, and the management is predicting rapid growth for the next quarter. Despite the better-than-expected result, the share price rose only 1% in after-hours trading.
Developed markets’ bond yields rose; the USD strengthened; the HUF weakened the most in CEE
On Wednesday, the bond yields of advanced economies rose in several waves. Firstly, Israel launched attack on Iran’s energy infrastructure, which caused oil prices to soar: WTI (+3%, to USD 100) and Brent (+6%, to USD 110) both surged. Second, the US producer price index and all its relevant sub-indexes rose much higher than thought. In addition, the Fed left the federal funds rate at 3.5-3.75%, as expected, and neither did the interest rate path (which predicts one rate cut for this year and next year) change, while the growth and inflation forecasts increased. The 10Y US yield rose by 7 basis points, closer to 4.3%. European long-term bond yields rose comparably: the 10Y German one is once again above 2.95%. The dollar strengthened again versus the euro, this time by 0.7%, thus the EUR/USD sank below 1.15.
The selling pressure has returned to the CEE region’s currency markets. Unsurprisingly, the Czech koruna (CZK) weakened the least (-0.1%), the zloty (PLN) by 0.4, and the forint by 1.3% (sending the EUR/HUF near 394). Benchmark bond yields barely changed, as they were fixed in the early afternoon, masking Wednesday’s increase that followed the drop on Tuesday afternoon; the 10Y yield remained near 7.15.
Today’s highlights
Asia’s indices sank today, following Wednesday's rise in oil prices and a drop in US stocks. The Bank of Japan left its key rate at 0.75%, as expected.
Today, the European Central Bank, the Bank of England, and the Czech National Bank make monetary policy decisions. Britain’s unemployment statistics, US housing market data as well as weekly jobless claims figures will be in focus today.
Hungary’s ÁKK auctions 3Y, 5Y, and 10Y bonds, offering HUF 15, 15, and 20 billion, respectively.
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