OTP Morning Brief: Middle East Escalation and Earnings Reports Drove Markets on Wednesday
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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 escalation of the Middle East conflict continued to push energy prices higher. TTF natural gas rose by more than 4%, while Brent crude climbed 3.4%, moving above USD 94 per barrel. The rise in oil prices fueled CPI concerns, leading to higher Hungarian and international government bond yields. Despite these developments, the major Western European equity indices managed to post gains on Wednesday. CPI Came in Lower Than Expected in the United Kingdom. US equity markets moved lower. After the close, Alphabet and Tesla reported earnings, with the initial market reaction proving unfavorable. The substantial investment plans announced by US technology companies, including Alphabet and Tesla, provided support to the share prices of Asian chipmakers. The ECB is expected to keep its key deposit rate unchanged at 2.25% today.
European Markets Extended Their Gains on Wednesday
Major Western European equity markets continued to move higher on Wednesday. The Stoxx 600 and the DAX gained 0.6%, while the CAC 40 advanced 0.9% and the FTSE 100 rose 1.2%. The rally was led by the defense sector (+2.5%) and the energy sector (+0.8%), while the technology sector index closed slightly lower. Among individual stocks, the Dutch staffing company Randstad delivered a standout performance after reporting quarterly revenue that exceeded expectations, with its share price soaring nearly 14%. Airbus shares surged 7% after the aircraft manufacturer announced a EUR 5 billion share buyback program and unveiled new medium-term targets, aiming to nearly double its profit by 2029. Nestlé gained 2.2% after the Financial Times reported that private equity firm Platinum Equity was close to reaching an agreement to acquire an approximately 50% stake in the Swiss company's European water business.
UK CPI eased more than expected to 2.6% in June. Core CPI, however, remained unchanged at 2.6%, contrary to expectations for a 0.1 percentage point decline.
In the CEE region, the BUX and the WIG20 gained 0.6%, while the Czech PX index advanced 1.6%.
Alongside Wednesday's rise in energy prices, European benchmark TTF natural gas climbed 4.2%, moving above EUR 62/MWh.
Alphabet and Tesla Reported Earnings After the Closing Bell
Wall Street indices moved lower. While the S&P 500 slipped 0.1% and the Dow Jones closed marginally in negative territory, the Nasdaq Composite declined 0.6%. The technology sector delivered mixed performance. The Philadelphia SE Semiconductor Index closed 0.4% higher, recovering its earlier losses during the session and marking its third consecutive day of gains. Shares of Super Micro Computer skyrocketed 19.8% after the server manufacturer reported securing more than USD 60 billion in new orders during the fourth quarter.
After the close, Alphabet (-1.2%) and Tesla (-1.3%) released their Q2 earnings reports. Alphabet raised its 2026 capital expenditure forecast by USD 15 billion after its cloud business delivered the strongest growth in its history. Adjusted earnings per share (EPS) came in at USD 2.85, slightly below the USD 2.89 expected by Wall Street. The company's shares reversed course and fell around 3% in after-hours trading. Tesla reported weaker-than-expected Q2 results and posted negative free cash flow for the first time in more than two years, as the Elon Musk-led electric vehicle manufacturer significantly accelerated its investments in artificial intelligence and robotics infrastructure. The earnings miss and cash burn came despite the company delivering a record number of vehicles during the quarter. Tesla shares fell around 4% in after-hours trading.
The Middle East conflict once again proved to be a key market driver. On Tuesday, Yemen’s Houthi rebels threatened to block Saudi Arabia’s Red Sea oil exports. As a result, several oil tankers were forced to alter their routes to avoid the Bab el-Mandeb Strait, the southern gateway to the Red Sea. The significance of the development lies in the fact that the East-West crude oil pipeline, which supplies the Red Sea port of Yanbu, serves as the most important alternative route to the Strait of Hormuz. Meanwhile, US President Donald Trump stated on Wednesday that the US would destroy an Iranian bridge or power plant every time Iran opened fire on a vessel in the Strait of Hormuz. Ongoing escalation continued to fuel market concerns, helping Brent crude rise for a fourth consecutive session on Wednesday. The benchmark closed above USD 94 per barrel, up 3.4% on the day.
Oil Price Gains Fueled CPI Concerns, Driving Bond Yields Higher
Renewed tensions surrounding the war with Iran once again brought CPI concerns to the forefront. The US 10-year Treasury yield rose 3 basis points to 4.66%. Markets are now pricing in nearly an 80% probability that the Fed will raise interest rates by September. Germany’s 10-year government bond yield increased by 1.5 basis points to 3.18%, while its French counterpart is approaching the 4% level. Investors consider it almost certain that the ECB will leave its key policy rate unchanged today, although the probability of a rate hike in September has climbed above 80%. The US dollar weakened again against the euro, with EUR/USD moving above 1.14.
In Hungary, the long end of the yield curve rose by 5 basis points, pushing the 10-year government bond yield up to 5.45%. The forint weakened by 0.5% against the euro to 363.65, once again underperforming its regional peers.
Today, Hungary’s Government Debt Management Agency (ÁKK) will offer HUF 15 billion each of 3-year and 5-year government bonds, along with HUF 20 billion of 10-year government bonds.
Today's highlights
As Asian markets approached the close, major equity indices were mostly trading higher, supported by the substantial investment plans announced by US technology companies (see Alphabet’s and Tesla’s quarterly earnings reports), which provided a boost to the region’s chipmakers. The Nikkei rose 0.6%, the KOSPI surged 3.6%, and the Hang Seng gained 1.3%, while the Shanghai Composite (SSEC) slipped 0.2%.
In early trading, Brent crude continued to rise, approaching the USD 96 per barrel level.
The Japanese yen remains close to its four-decade low against the US dollar. With the exchange rate having traded above 163 in recent days, Japan’s Ministry of Finance has warned that it may intervene in the foreign exchange market. Although the Bank of Japan will hold a policy meeting next Friday, markets are currently pricing in the next rate hike only for October.
After a relatively quiet Wednesday on the macroeconomic front, the European Central Bank will hold its policy meeting today. The ECB is widely expected to leave its key deposit rate unchanged at 2.25%. In addition to the ECB, the Turkish central bank will also announce its interest rate decision. Elsewhere, the euro area will release its July consumer confidence index, while in the US, the usual weekly jobless claims data are due. Early Friday morning, Japan will publish its June CPI figures.
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