OTP Morning Brief: Middle East Escalation and Earnings Reports Drove Markets on Wednesday
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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.
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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