OTP Morning Brief: In Western Europe, the leading indices rose, while in the US they closed on a mixed note
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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.
The STOXX 600 rose by 0.8%, closing at a record high. Bayer received a favorable court ruling in the Roundup herbicide case, and the German company’s shares soared. According to Isabel Schnabel, the ECB needs to raise interest rates further. Markets are still pricing in one more hike this year. According to data released by the KSH, the unemployment rate in Hungary declined to 4.3%. The US indices closed on a mixed note. Micron’s share price soared by 15.7%. US Q1 growth was revised up to 2.1%. Core PCE rose by 0.32% month-on-month in May. Both Hungarian and international bond yields declined on Thursday. The forint strengthened by 0.3% to 354.5 against the euro. Asian indices are in a sharp decline this morning.
Western European stock indices rose
Western European stock indices rose. The STOXX 600 rose by 0.8%, closing at a record high, while the DAX gained 1%, the CAC 40 added 0.5%, and the FTSE 100 advanced by 0.7%. Healthcare stocks contributed the most to the rise, with the sector index finishing 1.5% higher. Bayer’s share price soared by 18.7% after securing a legal victory, as the US Supreme Court limited lawsuits alleging that the German manufacturer failed to warn users about the potential cancer risks of its Roundup herbicide. The technology sector gave back part of its intraday gains but still closed 0.8% higher. Positive outlooks from Micron and Qualcomm eased investor concerns that AI-related stocks had become excessively overvalued. Among European chipmakers, Infineon and STMicroelectronics climbed by 3.1% and 5.1%, respectively, while semiconductor equipment supplier ASML moved 2.6% higher. Shares of Siemens Energy, which also produces AI-related equipment, increased by 2.3%. Among individual stocks, private equity firm 3i Group jumped 11.4%, while EasyJet rose by more than 5% after rejecting a fourth takeover bid from US investment firm Castlelake.
According to Isabel Schnabel, the ECB’s hawkish Executive Board member, the European Central Bank needs to raise interest rates further, as energy prices remain elevated and the Middle East ceasefire does not justify a pause. Market participants expect at least one more rate hike by year-end, assigning roughly a one-third probability to a move at the July 22–23 meeting, although a September step is seen as more likely.
According to data released by the KSH, the unemployment rate in Hungary declined to 4.3%. At the same time, the downward trend in employment appears to be stabilizing based on the latest figures. Although a year-on-year decline of 33,000 is still visible, shorter-term data indicate a rise in employment.
In the region, the BUX rose by 0.6% and Poland’s WIG20 gained 1.3%, while the Czech PX50 declined by 0.2%.
The US indices closed on a mixed note
On Thursday, the S&P 500 was little changed. The Nasdaq Composite fell by 0.5%, while the Dow Jones edged 0.1% higher. Technology stocks reversed course after early gains, putting pressure on the Nasdaq. Apple shares dropped 6.1% after the company raised prices for iPads and MacBooks to offset higher costs for memory and storage chips. Shares of Nvidia, Microsoft, and Alphabet declined between 0.5% and 3.5%. Meanwhile, Micron’s share price soared by 15.7% after the company’s results and guidance exceeded Wall Street expectations, while memory chipmaker SanDisk jumped 22%.
US Q1 growth was revised up, with GDP expanding at an annualized rate of 2.1% instead of the previously estimated 1.6%. The 0.5 percentage point upward revision was primarily driven by a downward adjustment to imports. At the same time, the growth rate of consumer spending was cut from 1.4% to 0.5%, mainly due to a downward revision in services expenditure. Early Q2 data suggest that consumption has strengthened again, partly supported by substantial tax refunds.
Core PCE rose by 0.32% month-on-month in May, while the year-on-year figure increased by 0.1 percentage points to 3.4%. Services inflation was particularly broad-based, rising by 0.45% month-on-month, suggesting that rapid disinflation is less likely. The latest inflation data remain inconsistent with the Fed’s 2% target, and according to FedWatch data, markets are already pricing in a 25-basis-point rate hike for September.
Consumer spending rose by 0.7% month-on-month in May, exceeding expectations. The data reinforce the view that households have weathered the gasoline price shock relatively well. Nominal incomes increased by 0.7% on a monthly basis, matching the expansion in spending, leaving the savings rate broadly stable at around 3%.
Oil prices rose by more than 1% after a report indicated that Tehran plans to collect billions from reopening the Strait of Hormuz.
Both Hungarian and international bond yields declined on Thursday
US Treasury yields declined by a few basis points after May inflation data came in slightly more favorable than some investors had expected, although the headline PCE year-on-year price index rose to 4.1%, and the core PCE remains inconsistent with the Fed’s inflation target. The US 10-year yield thus edged just below 4.4%. Meanwhile, German yields also fell by a few basis points, with the 10-year at 2.86%. Following recent gains, the dollar weakened modestly against the euro to 1.138.
Hungarian government bond yields also declined, with the 10-year falling by 3 basis points to 5.09%. Demand was strong at the auctions of 3-, 5-, and 10-year bonds. Against announced amounts of HUF 20bn, HUF 20bn, and HUF 25bn, the Government Debt Management Agency accepted bids totaling HUF 76bn, HUF 40bn, and HUF 85bn, respectively, while total demand for the three instruments exceeded HUF 450bn. The forint strengthened by 0.3% to 354.5 against the euro.
Today's highlights
As technology stocks came under pressure, Asian indices turned to a significant decline. Approaching the close, the Nikkei was down 4.7%, the KOSPI dropped 7.8%, the SSEC fell 2.1%, while the Hang Seng declined by 1.9%. Oil prices have also turned lower again this morning.
Today, the KSH will publish Hungary’s Q1 current account data.
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