OTP Morning Brief: Markets remain on hold ahead of the MNB rate decision and Middle East tensions
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OTP Morning Brief: The S&P pulled back from its record high on Friday, but ended the week in positive territory
European stocks closed slightly lower on Friday, snapping a four-week winning streak. The BUX presented a much more positive picture in terms of its weekly performance. The eurozone economy expanded by 0.4% quarter-on-quarter in Q2, supported by Spain’s outstanding performance. Major US indices also closed lower on Friday, but the week was largely positive overall. Investor sentiment continued to be weighed down by uncertainty in the Middle East and elevated oil prices. US Treasury yields rose and the dollar weakened following weaker-than-expected retail sales data. Japan's Q2 GDP growth fell short of expectations, while Asian equity markets moved higher. August purchasing managers' indices are due for release this week.
OTP Morning Brief: US rate cut expectations declined further despite the favorable producer price index data
The favorable July producer price index data led to a further decline in US rate cut expectations on Thursday. Markets are now pricing in a Fed rate cut only in December. Declining rate cut expectations provided a boost to US equities, with the technology-heavy Nasdaq posting the strongest gains among the major indices. Sandisk shares surged 13.7%. In Europe, major stock indices moved only modestly, with the STOXX 600 remaining broadly flat. The favorable US CPI data led to a decline in developed market government bond yields. Today, the second estimate of eurozone Q2 GDP is due for release, while additional July retail sales data will be published in the US.
European equities closed mixed on Monday, as investors remained cautious ahead of this week's ECB rate decision, while ongoing Middle East tensions encouraged a wait-and-see approach. US indices declined, while semiconductor stocks outperformed, supported by AI-related optimism and reports about Alphabet’s chip development efforts. Oil prices experienced significant volatility: Brent crude surged above $90 per barrel before partially retracing on reports of a possible US-Iran diplomatic rapprochement. In the Hungarian market, the BUX rose, while OTP announced the acquisition of Luminor Bank. Today's trading session is likely to focus on the MNB's rate decision and the ongoing earnings season.
European indices close mixed; Ryanair’s weak earnings report keeps pressure on the travel sector
European equity markets finished mixed on Monday, as escalating tensions in the Middle East and investor caution ahead of this week's ECB rate decision encouraged a wait-and-see approach. Markets expect the ECB to leave interest rates unchanged this week, although pricing still reflects the possibility of one or two additional tightening moves by year-end. The STOXX Europe 600 index edged 0.3% lower, while rising energy prices supported oil and gas companies, enabling the sector to outperform the broader market. The situation in the Middle East continued to deteriorate, with risks to shipping through the Strait of Hormuz increasing on the ninth day of US military operations against Iran. As a result, Brent crude briefly surged above $90 per barrel, boosting energy stocks. At the same time, investors also monitored reports suggesting a potential diplomatic solution between the US and Iran, helping to ease concerns about further escalation. Travel and leisure stocks were the weakest performers. Ryanair shares fell around 6% after the airline reported a 34% decline in Q1 profit due to higher fuel costs and lower ticket prices. By contrast, technology stocks posted modest gains ahead of earnings reports from major US technology companies later this week. In the United Kingdom, Andy Burnham officially assumed the role of prime minister on Monday, becoming the country's seventh head of government within the past decade.
Sentiment remained positive across the Central and Eastern European region, with the BUX rising 0.4%, Poland's WIG20 gaining 0.5%, and Prague's PX50 advancing 0.3% compared to their previous closing levels. Hungarian blue chips delivered mixed performance: MOL and OTP moved higher, while Magyar Telekom and Richter edged lower. After the market close, OTP announced the acquisition of Luminor Bank, which operates in the Baltic region, marking the largest acquisition in the bank's history.
Leading US indices decline; chipmakers improve market sentiment
Leading US indices closed modestly lower on Monday. The S&P 500 fell 0.2%, the Nasdaq slipped 0.05%, while the Dow declined 0.6% compared to their previous closing levels. The market was primarily supported by a rebound in technology and semiconductor stocks, although this was not enough to lift the major indices into positive territory by the end of the session. Risk appetite improved during the day after comments from Iranian officials left the door open to a diplomatic resolution, while intermediaries presented a proposal for a 10-day ceasefire to Washington and Tehran. Later in the session, however, concerns over global energy supply resurfaced after Yemen's Houthi movement announced a maritime blockade against Saudi Arabia.
Among corporate developments, Alphabet was in the spotlight after media reports indicated that the company is working on a new artificial intelligence-optimized chip. The stock rose nearly 3%, while the semiconductor sector also advanced following last week's sharp correction.
Among macroeconomic releases, the leading index attracted attention after declining 0.2% month-on-month in June, a larger drop than expected. The weaker reading was mainly driven by deteriorating consumer expectations and a decline in building permits issued. However, analysts at The Conference Board believe that softer consumer spending is being offset by expanding AI-related investment, prompting them to raise their GDP growth forecast for this year from 1.8% to 1.9%.
US yields rise; Middle East developments and central bank expectations drive markets
US Treasury yields moved higher on Monday, with the 10-year benchmark yield rising 6 basis points to 4.6%. Markets continued to price in the Fed's expected rate path, while the more favorable CPI data released last week moderated expectations of further monetary tightening. In Europe, investors focused on this week's ECB rate decision. Germany's 10-year Bund yield increased as market participants assessed the inflation outlook and the central bank's expected communication. In the foreign exchange market, the Hungarian forint strengthened modestly against the euro, while the EUR/USD exchange rate edged lower. In the Hungarian bond market, the long end of the yield curve moved higher, with the 10-year benchmark yield rising to 5.42%. Today's trading is likely to focus on the MNB's rate decision.
Today's highlights
Trading in Asia was mixed. Japanese equities moved higher, with the Nikkei rebounding from a multi-month low, while South Korean indices also advanced. Chinese and Hong Kong markets posted gains as well, whereas the Indian market recorded a slight decline this morning.
During the day, UK unemployment data and Germany's ZEW Economic Sentiment Index will be released, while in Hungary the focus will be on the MNB's rate decision. Among corporate earnings reports, General Motors' quarterly results will be in the spotlight.
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