OTP Morning Brief: Stoxx 600 and DAX reach new record highs
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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 Europe and the DAX closed at new record highs on Friday, supported by positive market sentiment driven by easing interest rate hike expectations. Looking at the week as a whole, Western European equity indices posted considerable gains, while US benchmarks recorded only modest advances. US markets were closed on Friday due to the holiday weekend. Eurozone bond yields continued to move higher, with the German 10-year yield ending the week at 2.93% after rising 8 bps. The Hungarian 10-year yield fell to 5.0%, marking its lowest level in more than four years. EUR/USD remained below 1.144 on Friday, while the dollar weakened by 0.5% vs the euro over the course of the week. The Hungarian forint extended its gains, approaching 353.4 against the euro, its strongest level in more than two weeks. Today, we are watching German industrial orders data, Hungarian industrial production and retail sales figures, as well as the eurozone Sentix investor confidence index, producer price indices, and retail sales data.
Stoxx 600 and DAX close at record highs; defence sector in focus; European gas prices continue to rise
The Stoxx 600 reached another record high on Friday, with the pan-European equity index closing 0.7% higher amid upbeat market sentiment. The DAX climbed 0.8% to a fresh all-time high, while the CAC 40 gained 0.5% and the FTSE 100 advanced 0.3%. Among the Stoxx 600 sector indices, industrials, basic materials and utilities led the gains, whereas the travel and leisure sector underperformed. Siemens surged 2.6% after brokerage firm Kepler Cheuvreux upgraded its recommendation on the stock from reduce to hold. Chipmaker Aixtron rallied 6%, while peers Soitec and BE Semiconductor jumped 5% and more than 4%, respectively. Defence stocks also performed strongly, with the sector index rising 0.7% as Russia launched its deadliest attack of the year so far on Ukraine. Investors expect defence spending and production to increase during periods of heightened geopolitical tensions.
On a weekly basis, the Stoxx 600 gained 2.7%, marking its strongest weekly performance since mid-May, while the DAX soared 4.5%. Easing interest rate hike expectations continued to support developed equity markets throughout the week. Following a softer-than-expected eurozone CPI release and a weaker-than-forecast US labour market report for June, market pricing assigned lower odds to more than one additional 25 bps rate hike this year. Defence stocks delivered the strongest gains during the week, alongside cyclical sectors such as industrials, banks and financial services, as the rally that had previously been concentrated in technology shares broadened across the market. The easing of Middle East tensions also contributed to the broader market advance.
Trading volumes were lighter than usual due to the US holiday.
CEE markets also moved higher, with the BUX gaining 0.9%. All major Hungarian blue chips closed in positive territory, led by MOL, which surged nearly 3%. Looking at the week as a whole, the WIG20 advanced almost 3%, the PX gained more than 2%, while the BUX rose 2.3%, with MOL providing the main boost to the Hungarian market after skyrocketing 6.6%.
In commodity markets, Brent crude oil futures continued to edge higher, moving above USD 72 per barrel (no Friday settlement was available for WTI due to the US holiday). European TTF natural gas prices rose alongside crude, albeit at a faster pace, with the benchmark contract climbing nearly 2% on Friday and approaching EUR 45/MWh. On a weekly basis, WTI posted a modest gain and Brent recorded a slight increase, while the Strait of Hormuz has remained open for shipping. Amid the ongoing European heatwaves, European gas prices rose by 9–11% over the course of the week. Gold prices advanced 2% last week, ending a streak of four consecutive weekly declines.
Easing interest rate hike expectations in developed markets, while long-term eurozone bond yields continued to move higher on Friday; the Hungarian forint strengthened against the euro, and the Hungarian 10-year government bond yield hit a four-year low
The US bond market was closed on Friday due to the holiday weekend, but long-term eurozone bond yields resumed their upward move. The German 10-year yield rose to 2.93%, an increase of nearly 9 bps, marking the first weekly rise in the benchmark since early June. Market participants adjusted their positions after the initial decline in yields following the US-Iran agreement, while rising long-term yields in Japan, driven by concerns over higher fiscal spending, also put upward pressure on German yields. Reuters reported on Friday that Germany’s draft 2027 budget envisages more than EUR 203bn in borrowing, exceeding the EUR 196.5bn total borrowing target outlined in the government's key fiscal plans approved in April. European bond yields remain well below the multi-year highs reached in May, as lower crude oil prices, softer-than-expected CPI data, and dovish comments from ECB President Christine Lagarde prompted markets to scale back expectations for a third ECB rate hike this year. Money markets continue to view a second rate increase as the more likely outcome. June CPI data came in below expectations, with headline CPI easing to 2.8% and core CPI declining to 2.4%. At the ECB's Sintra forum, Lagarde noted that risks to eurozone inflation and growth had become more balanced. Meanwhile, a weaker-than-expected US employment report further reduced expectations for a near-term rate hike by the Federal Reserve. The US 10-year Treasury yield rose 11 bps to 4.48% over the week. EUR/USD moved close to 1.144 on Friday, while over the course of the week the euro strengthened by 0.5% against the dollar.
There was little movement in the Hungarian government bond market during Friday's trading session. Based on the Debt Management Agency's (ÁKK) early afternoon benchmark fixing, the 10-year yield edged down by 1 bp to 5.00%. Among regional currencies, the zloty and the Hungarian forint saw the most notable moves on Friday, with EUR/HUF strengthening by a further 0.3%, slipping back below the 353.5 level. Over the week as a whole, the forint appreciated by only 0.1% against the euro, although it gained 0.7% versus the dollar.
Today's highlights
Asian-Pacific equity markets are painting a mixed picture this morning. While most Japanese indices are trading in positive territory, the Nikkei is showing a modest decline of 0.3%. In China, the Shanghai Composite is trading 1 point below Friday's close, while the CSI 300 is marginally higher and remains in positive territory. South Korean indices, meanwhile, are uniformly pointing to notable losses ahead of the morning close.
European equity index futures are mostly pointing to a higher open, while US equity futures are uniformly trading in positive territory.
Oil prices are edging lower on Monday after OPEC+ agreed to further increase production quotas from August, while exports through the Strait of Hormuz by major producers are gradually returning to normal, potentially boosting global supply.
The week-long funeral ceremonies for former Iranian Ayatollah Ali Khamenei began on Sunday. He was killed during the joint US-Israeli airstrikes launched at the end of February. According to media reports, three of his sons attended the prayers, although the son designated as his successor was not present. During the week-long mourning period, a breakthrough in US-Iran negotiations appears unlikely.
Today, we are watching German industrial orders data, Hungarian industrial production and retail sales figures, as well as the eurozone Sentix investor confidence index, producer price indices, and retail sales data.
In the week ahead, investors will primarily focus on the release of Hungarian June CPI data on Tuesday, while several May activity indicators will also be published. In the US, the ISM Services PMI and the weekly jobless claims figures could influence market sentiment, while the minutes of the latest FOMC meeting will also be closely watched. Eurostat is scheduled to release the eurozone’s May retail sales data.
The Hungarian Debt Management Agency (ÁKK) is holding bond switch auctions today.
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