OTP Morning Brief: Renewed hostilities in the Middle East have pushed crude oil prices higher
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OTP Morning Brief: Crude oil prices plunged sharply as the Middle East conflict eased
The first trading day of the week brought modest gains to the major European stock markets, as sectors benefiting from the easing of the Middle East conflict offset declines in the technology and energy sectors. Stock markets across the CEE region also moved higher, with the BUX gaining 0.7%. Wall Street indices closed mixed with minor moves, as investors turned their attention to the Fed's upcoming interest rate decision later this week and earnings reports from major technology companies. WTI crude futures fell by more than 7%, while Brent crude declined by over 8%. Developed-market bond yields declined as easing concerns over CPI, driven by lower oil prices, boosted demand for fixed-income assets. Domestic long-term bond yields also moved markedly lower. The EURHUF exchange rate is trading around the 360 level. Today marks the start of the Fed's two-day rate-setting meeting, while the earnings season continues with reports from several major companies.
OTP Morning Brief: Airstrikes eased in the Middle East
European indices advanced on Friday, allowing them to end the week in positive territory once again. The July PMI data painted a positive picture of the eurozone outlook, although Trump imposed new tariffs, including measures affecting Europe. The BUX declined on Friday, but still ended the week in positive territory. According to the HCSO, employment declined while unemployment increased. Airstrikes between Iran and neighboring countries eased over the weekend. This pushed oil prices back below $100 per barrel. The S&P declined on Friday and posted a loss for the week as a whole. The composite PMI also increased in the US. Developed market government bond yields retreated from their local highs. Hungarian bond yields increased, while the forint strengthened slightly. Q2 GDP data will be released this week for Hungary, the eurozone, and the US. In addition, investors will be watching eurozone and US CPI data, as well as the Fed's interest rate decision.
The USA bombed Iranian targets for the third night in a row, while Iran attacked tankers in the Strait of Hormuz, after closing it again. President Trump ordered the blockade of Iranian ports to be reinstated. Crude oil prices jumped nearly 10% on Monday, and futures rose another 2–3% this morning. Inflation concerns flared up, expectations for interest rate hikes have strengthened. Money market is now pricing in a nearly 60% probability of a second rate hike by the Fed this year. Long-term yields continued to rise in the developed bond markets, as well as in Hungary. The dollar strengthened slightly against the euro, the EUR/HUF climbed above 360 and the USD/HUF traded above 316 — levels not seen since the Hungarian elections this Spring. Amid the deteriorating geopolitical situation, Western European stock markets held steady on Monday, while major US indices declined as pressure on technology stocks mounted. Today, we are focusing on US June inflation figures, while in Hungary, May construction and industrial production data will be released. The Q2 earnings season in the US kicks off today, with reports from the major banks.
Stock markets in Western Europe held steady despite escalating tensions in the Middle East
Renewed hostilities between the USA and Iran over the weekend filled investors with concern after the parties carried out intense missile and drone attacks against each other. Iran has once again closed the Strait of Hormuz, crude oil prices have surged, and inflation fears have returned to the forefront, fueling expectations of interest rate hikes. European stock indices held steady overall following last week’s decline; the Stoxx 600 and the FTSE 100 remained flat, while the DAX rose 0.2% and the CAC 40 gained 0.3%. Among the Stoxx600 sector indices, the energy sector rose the most (+2.2%), while defense sector stocks lost just over 1%. Shares of Norwegian defense company Kongsberg Gruppen plummeted nearly 7% after its second-quarter orders fell short of expectations. The travel and leisure sector also joined the list of losers; among airlines, Lufthansa fell by just over 4%, Ryanair dropped more than 2%, and tour operator TUI slipped 1%. The technology sector also came under pressure after SK Hynix plunged 15% on the South Korean stock exchange following the stock’s successful Nasdaq debut on Friday. Fintech broker Plus500 fell 15%. Vodafone jumped 5.5% on news that billionaire Xavier Niel is buying a 6USDbn stake in the company from its former owner in the United Arab Emirates.
In the CEE region, only the Polish WIG20 held steady on Monday, while the BUX fell 0.9% and the PX dropped 0.7%. Among Hungarian blue chips, Richter slipped 1.6%, OTP fell 1.5%, and Mol rose 0.8%.
European gas prices climbed just over 2% in Monday’s session, along with rising crude oil prices; the 1-month TTF futures closed above 52 EUR/MWh.
Technology sector is under pressure, Wall Street indices started the week in the red
Key US equity indices started the week on a negative note, S&P 500 dropped 0.8%, the Dow fell 0.3%, and the Nasdaq Composite declined 1.6%. IT and telecommunications sectors were the main drags on the S&P, though gains in the energy sector cushioned the overall negative sentiment. Amid the ongoing AI frenzy of recent months, chip stocks have tended to take the lead through rally and selloff. The Philadelphia SE Semiconductor Index was the clear underperformer, with constituents SanDisk, Marvell Technology and Intel dropping between 6.1% and 12.6%.This came one day after South Korean SK Hynix, recently debuted on the Nasdaq, rallied 12% on Friday and then plummeted 9% on Monday.
The United States and Iran exchanged fierce airstrikes over the weekend, marking a sudden escalation in the scale and scope of the attacks. Iran’s closure of the Strait of Hormuz prompted Trump to reinstate the U.S. blockade of Iranian ports, raising concerns about the future of peace talks. Crude oil prices rose sharply by 9–10% on Monday, further intensifying concerns that tight supply and upward pressure on energy prices could lead to long-term, systemic inflation.
Long yields in developed bond markets and in Hungary as well crept even higher, the forint depreciated to levels not seen for months
Long-term yields rose even higher in developed bond markets, with the US 10-year yield climbing above 4.6%, reaching a nearly two-month high. In the eurozone, the German 10-year yield crept toward 3.1%, a level not seen since mid-May, excluding last week’s spike. Amid the renewed hostilities between the US and Iran, that sent energy prices soaring, brought back inflation concerns into the forefront. Expectations for Fed rate hikes have strengthened; the CME FedWatch Tool now projects two 25-basis-point rate hikes by the end of this year, with a nearly 80% probability of a hike in September. For the last quarter of the year, the market prices in a nearly 60% probability of a December rate hike. The dollar strengthened slightly on Monday, with the EUR/USD falling to 1.138, approaching its annual low of 1.1357 set in June.
In the Hungarian Treasury market, the rise in yields observed last week continued at the middle and long ends of the yield curve. The 10-year yield crept up to 5.16%. The forint weakened more than 1% against both the euro and the dollar: the EUR/HUF rose above 360, a level not seen in nearly two months, while the USD/HUF returned yesterday to pre-election levels.
Today's highlights
As trading draws to a close, main indices in Asian stock exchanges are mostly in the green, based on available data. In China, exports grew by 27% year-over-year in June, exceeding expectations. However, the situation in the Middle East remains fragile, Iran bombed tankers in the Strait of Hormuz, the US military carried out airstrikes against Iranian targets for the third consecutive night on Monday, while President Donald Trump reimposed a blockade on Iranian shipping and proposed imposing a 20% fee for patrolling the Strait of Hormuz. Crude oil prices rose another 2–3% this morning.
Stock index futures are mostly pointing to a negative opening on the stock markets of developed economies.
June inflation figures from the US will be today's highlights, and Fed Chair Ken Warsh's first hearing before the House Financial Services Committee will also be in the spotlight. In Hungary, May’s construction and industrial production data will be released.
Meanwhile, the Q2 earnings season in the US kicks off with the latest reports from major US banks. Today, we should keep an eye on the earnings reports from JPMorgan, Bank of America, Goldman Sachs, Wells Fargo, and Citigroup.
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