OTP Morning Brief: Uncertainty stemming from the still-unresolved Middle East conflict weighed on Monday's trading
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OTP Morning Brief: Rate hike expectations eased on signs of weakness in the US labor market, lifting markets
Friday’s biggest surprise came from labor market data that were significantly weaker than expected, prompting a reassessment of rate hike expectations and boosting equity market performance on the final trading day of the week. Several European indices, including the Stoxx Europe 600, closed at record highs. In addition, favorable economic activity data were released for Germany. The BUX also posted gains. US indices also recorded substantial gains on Friday. Weaker labor market data pushed developed market yields lower, while the US dollar weakened. The other major surprise on Friday was Hungary’s CPI reading of 1.2%, which also came in below expectations. Asian markets also followed the rally. Several key data releases will be in focus this week, including European confidence indicators, detailed Q2 GDP figures and employment data, while in the US, investors will be closely watching the latest CPI release.
OTP Morning Brief: Rising oil prices and US labor market data pushed developed market bond yields higher
Supported by favorable corporate earnings reports, leading Western European stock indices mostly posted modest gains on Thursday. In contrast, US equity markets closed lower. Eurozone retail sales fell by 0.3% month-on-month in June, while the May figure was revised upward. German industrial orders increased by more than expected. The data released on Thursday continue to support the resilience of the US labor market. Developed market bond yields rose alongside higher oil prices. The forint weakened by 1% against the euro, underperforming its regional peers. Following stronger readings in May, Hungarian retail sales and industrial production declined month-on-month in June. Today, the primary focus will be on July CPI data released by the HCSO and US labor market figures.
Crude oil prices rose due to the ongoing uncertainty surrounding the still-unresolved Middle East conflict and the closure of the Strait of Hormuz, reinforcing concerns over higher CPI and potential interest rate hikes. Major European indices ended Monday's trading session with modest moves. The BUX ended in the middle of the pack among CEE stock exchanges, posting a marginal decline. Major US indices moved into negative territory. Developed market bond yields moved higher, while the dollar strengthened against the euro. The long end of the Hungarian yield curve also shifted upward, and the forint weakened against major currencies.
Major European equity indices closed mixed with modest moves, while the BUX edged slightly lower
Major European equity indices closed mixed with modest moves on Monday, remaining close to their record highs. The pan-European STOXX Europe 600 was virtually unchanged. At the sector level, energy stocks led the gains alongside rising oil prices, while the basic resources sector also advanced, supported by higher gold, silver and copper prices. On the downside, telecommunications and media stocks posted the weakest performance. The biggest loser within the latter group was the UK's WPP, which fell 5.0%, likely due to profit-taking following last week's strong rally. Shares of UK housing developer Vistry declined 12.2% after the Financial Times reported that Allianz could cut insurance coverage for suppliers to the affordable housing builder by as much as 70%. Coca-Cola HBC shed 4.8% after BNP Paribas downgraded the stock from outperform to neutral.
The Sentix index, the first of the monthly economic sentiment indicators to assess the outlook for the next six months, showed a stronger-than-expected improvement in its August reading published yesterday. The index rose to 0.9 points, returning to positive territory and signaling optimism for the first time since February. The data reinforces expectations that the eurozone economy may maintain its cautious growth trajectory through the second half of the year.
CEE equity markets closed mixed, with the BUX's marginal decline placing it in the middle of the regional performance ranking. There was no clear direction among Hungary's blue-chip stocks either, with only MOL and Richter managing to post gains.
According to the Ministry of Finance, the central government sub-sector posted a deficit of HUF 2,857.9 billion in the first seven months of the year, equivalent to 67.7% of the annual deficit target set out in the budget law. July recorded a surplus of HUF 524.3 billion, marking the third consecutive month in which the budget remained in positive territory.
The European TTF natural gas price soared 11% yesterday, climbing above EUR 61/MWh.
Major Wall Street indices turned negative, while crude oil prices surged 5%
The first trading day of the week brought modest losses to Wall Street, as investor sentiment was weighed down by the lack of progress in negotiations aimed at resolving the Middle East conflict and reopening the Strait of Hormuz. Donald Trump threatened economic pressure on Iran and demanded compensation for victims killed in wars, attacks and protests. Meanwhile, Iran's Supreme Leader appointed a veteran commander of the Islamic Revolutionary Guard Corps as national security chief, a figure who has previously expressed skepticism about negotiations. In addition, Iran stated that the pending agreement with Oman regarding oversight of the Strait of Hormuz would not be sufficient to secure its reopening. Against this backdrop, both Brent and WTI crude prices surged 5%, with Brent approaching USD 88 per barrel and WTI moving above USD 82. The developments reinforced concerns over higher CPI and the prospect of further interest rate hikes.
Technology stocks had a difficult session yesterday. Intel shares fell 4.1% after the company announced plans to raise USD 15 billion through a share offering. Nvidia declined 2.9% amid media reports regarding a USD 500 billion AI infrastructure investment project involving the company.
Developed market bond yields moved higher as expectations of further interest rate hikes strengthened; the dollar gained against the euro, while the forint weakened versus both the euro and the dollar
Driven by rising oil prices, developed market bond yields moved higher, with the US 10-year Treasury yield rising 4 basis points to 4.7% and the German 10-year Bund yield climbing 5 basis points to 3.18%, bringing it back close to the upper end of the trading range established in the post-Covid period. Following weaker-than-expected July labor market data, expectations for a September Fed rate hike had eased, but reversed course yesterday, with market pricing once again implying a probability of slightly above 50% for a September increase. Investors are also anticipating the ECB’s next rate hike in September. Rising energy prices supported the dollar, which strengthened against the euro.
In line with global trends, the long end of the Hungarian yield curve shifted 1-4 basis points higher, based on the Government Debt Management Agency's (ÁKK) early afternoon benchmark quotations, with the domestic 10-year yield rising to 5.4%. Although the forint started the day stronger in the FX market, it reversed course by the close, with EUR/HUF rising 0.4% to 364.42. Against the greenback, the Hungarian currency weakened by nearly 0.6%, pushing USD/HUF up to 315.85. Demand was subdued at ÁKK's bond switch auction yesterday, where the debt manager accepted HUF 20 billion in bids out of the HUF 25 billion submitted, despite initially offering HUF 10 billion.
Today's highlights
Concerns over persistently elevated energy prices continued to weigh on sentiment in this morning's trading, with major Asia-Pacific equity indices delivering a mixed performance. Australia's S&P/ASX 200 and South Korea's Kospi outperformed the region, while Japan's Nikkei 225 remained closed due to a national holiday. The recent strengthening of the Japanese yen following official intervention appears to have steadily faded in recent days. Crude oil prices edged higher during the Asian session, extending their recent rise.
Equity index futures point to a mixed open in Europe, while US markets are set to start the day higher
Today, the Government Debt Management Agency (ÁKK) will offer HUF 30 billion worth of three-month discount Treasury bills for sale.
In the US, July existing home sales data will be released today and are expected to come in broadly in line with the previous month's level.
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