OTP Morning Brief: The Middle East ceasefire and the tech sector remain under pressure
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OTP Morning Brief: ECB raised interest rates
After four days of decline, the pan-European STOXX 600 rose again. In line with expectations, the ECB raised its key deposit rate by 25 basis points yesterday. The ECB projects CPI at 3% this year and 2.3% next year. On positive developments in the Middle East, US indices surged sharply by the close. President Trump walked back the tough strikes he had promised earlier in the day and later spoke of a near-term agreement. After a significant drop, Brent is trading below $90 this morning. US producer prices rose more than expected in May. Bond yields declined on positive developments in the Middle East. Trading in SpaceX shares could begin today on the Nasdaq.
OTP Morning Brief: President Trump threatened Iran with further attacks as the talks drag on
European indices closed mixed yesterday as uncertainty surrounding the Iran war persisted, while investors awaited today’s ECB rate decision. US indices declined yesterday following President Trump’s hawkish remarks; the correction in semiconductor stocks continued. May’s monthly core CPI came in slightly below expectations, while on an annual basis it remained above the Fed’s target, as headline CPI rose above 4%. Long-term yields in developed markets edged higher, while regional currencies weakened slightly. Today, the Turkish and European central banks hold rate-setting meetings, while in the US the focus will be on producer price index data and the usual weekly jobless claims.
Although tensions in the Middle East eased on Monday, a downed Apache helicopter and an attack on a southern Lebanese port city triggered a renewed rise in instability. By morning, escalation had already materialized, with both the US and Iran launching strikes against each other. Meanwhile, the decline in the technology sector continued, weighing on markets in both Europe and overseas. The Bux fell by 0.3% on Tuesday. German economic data showed some improvement in the country’s economic performance. Domestic inflation stood at 1.8% in May, which could provide room for a rate cut. Yields declined. Oil prices moved in an uncertain direction. The forint remained below the 356 level against the euro. Following Wednesday’s surge, Asian stock markets fell sharply. Today, attention will be on the release of US CPI data.
European equities declined again on Tuesday, German exports saw a notable rise, and domestic CPIcame in at 1.8% in May
European equities reversed course in the second half of Tuesday’s session, giving up earlier gains and extending their losing streak to a third consecutive day, driven primarily by weakness in commodity-related stocks as investors weighed the fragile ceasefire between Iran and Israel. The pan-European STOXX 600 index declined by 0.5%, with the FTSE 100 dropping 1.4%, the DAX falling 0.7%, and the CAC 40 posting a slight increase. Within the STOXX, mining and energy shares led losses, declining by 2.5% and 2.4% respectively, while European technology stocks also moved lower, ending 1.3% down after showing notable volatility recently. In other sectors, telecom stocks fell by 2%, partly due to declines in Ericsson and Nokia following news that Nvidia may develop technology for mobile networks, while European defense stocks slipped 0.7% after Morgan Stanley downgraded the sector.
Based on data released yesterday for April, German industrial production recorded a 0.4% monthly rise, falling short of analysts’ expectations, but showing a marked improvement compared to previous months. Meanwhile, German exports exceeded forecasts, posting a 0.9% monthly increase instead of the anticipated 0.5% decline.
Sentiment in the CEE region was mixed, with the WIG 20 gaining 0.3% and the PX rising 1%, while the BUX declined by 0.3%. Among Hungarian blue chips, all but Magyar Telekom moved lower, with Richter posting the steepest drop at 2.5%. Domestic CPI stood at 1.8% year-on-year in May, coming in below our expectation of 2.0%, the market consensus of 2.3%, and the central bank’s forecast, suggesting that the low reading could provide room for the MNB to consider a rate cut. Core inflation came in at 2.0% over the same period.
Downed helicopter threatens the ceasefire, while the tech sector continued to decline
Investors continued to monitor developments in the Middle East conflict. Although tensions between Israel and Iran appeared to ease on Monday following Trump’s intervention, the US president announced Tuesday evening that Iran had shot down a US Apache helicopter in the Strait of Hormuz and vowed retaliation, further deepening doubts about the prospects for peace between the two countries. Meanwhile, an Israeli strike in southern Lebanon left eight people dead, adding further complexity to the situation. According to reports this morning, the promised countermeasures have materialized, with the US military stating on X that it had targeted Iranian air defense units, ground control stations, and surveillance radar systems near the strait. In response, Iran’s Revolutionary Guard announced that it carried out attacks on a US base in Jordan as well as 21 additional targets across the Gulf region on Wednesday.
The S&P 500 and Nasdaq indices declined on Tuesday, with the former slipping 0.3% and the latter falling 1%, driven partly by developments in the Middle East and partly by the fading rebound in technology stocks. The Cboe Volatility Index (VIX) climbed to its highest level since April 7 during the session. By the close, the technology index dropped 1.8%, while the semiconductor index ended 1.9% lower. Shares of Broadcom fell 1.1% on Tuesday, while Nvidia edged down just 0.2%. Beyond the chip sector’s decline, the broader AI space also came into focus after OpenAI, the developer of ChatGPT, announced it had filed for an IPO, just over a week after its rival Anthropic, behind Claude, made a similar move. Apple shares closed 3.6% lower as investors and analysts reacted cautiously to the company’s latest product unveilings and announcements at its annual Worldwide Developers Conference.
Yields declined, while the forint remained below 356
Commodity traders were still pricing in de-escalation on Tuesday, pushing oil prices down by 2.5% to around $90, though they began to rise again by morning. The US 10-year Treasury yield fell to around 4.5%, while European yields declined more modestly, with the German 10-year yield holding near 3.05%. The dollar weakened slightly, with EURUSD recovering to 1.115.
The forint’s exchange rate against the euro remained largely unchanged, holding below the 356 level, while neither the zloty nor the koruna showed any meaningful movement. Weaker-than-expected CPI data and a decline in external yields led to a drop in benchmark yields on the domestic bond market by around 10 basis points, with the 10-year yield easing to 5.4%. At the Government Debt Management Agency’s (ÁKK) three-month T-bill auction, demand was subdued, yet HUF 38 billion worth of securities were sold versus the announced HUF 30 billion, at an average yield of 5.54%.
Today's highlights
Asian equity markets declined on Wednesday as risk aversion increased following a renewed flare-up in military tensions between the US and Iran, while the earlier rebound in technology stocks also lost momentum. South Korea’s KOSPI was the region’s worst performer, dropping 6.5%, dragged lower by further losses in leading chipmakers after Monday’s sharp decline. Chinese (SSEC -0.9%) and Japanese (Nikkei -2.2%) equities also moved lower, as local inflation data amplified concerns about the inflationary impact of a potential conflict involving Iran.
Today, alongside developments in the Middle East, the focus will be on the release of US May CPI data, which is expected to further reinforce inflation concerns: the market anticipates core inflation of 0.3% month-on-month and headline inflation of 0.5%.
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