OTP Morning Brief: Eurozone CPI rose in line with expectations
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OTP Morning Brief: European equities retreat, bond yields rebound
European equities erased their gains accumulated over the week on Friday, while in the US only a late-session rebound lifted markets, led primarily by the technology sector. Long-term government bond yields also rebounded, moving back toward the historic highs reached earlier in the week, levels not seen in 15-18 years in the US and Western Europe, and in four years across the CEE region. Little macroeconomic data were released, but what did emerge largely supported the narrative of the rate-hiking central banks, namely the Fed and the ECB, that economic activity remains resilient.
OTP Morning Brief: Bank of Japan raises interest rates
The correction in oil prices improved sentiment across European equity markets, while both the UK and Czech central banks left their benchmark interest rates unchanged, in line with expectations. Following the previous day's losses, the major US indices moved higher. US housing market data came in weaker than expected, while labor market indicators continued to paint a favorable picture. Long-term yields declined in both overseas and European markets a day after the Fed’s rate hike, supported by the drop in oil prices, while the forint strengthened against both the euro and the US dollar. For the remainder of the day, attention will focus on UK retail sales data, US industrial production, and the performance of the leading index.
European indices closed mixed on Tuesday, while persistently elevated oil prices weighed on market sentiment. Major US indices declined on Tuesday, with the exception of the small-cap Russell 2000; uncertainty surrounding the Middle East persisted, while US existing home sales fell in July at a pace broadly in line with expectations. Developed market yields edged lower, while Hungarian yields beyond the one-year maturity increased by 8-10 basis points; the yen remained largely unchanged. Today's focus will be on US CPI and budget data.
European indices closed mixed on Tuesday, while persistently elevated oil prices weighed on market sentiment
European equity markets closed mixed yesterday as investors awaited key macroeconomic data due later this week. The pan-European STOXX 600 index was little changed, hovering near its record high. Market sentiment was also weighed down by rising oil prices after efforts to resolve tensions between the US and Iran lost momentum. Oil prices continued to rise despite reports from Pakistani sources during the day suggesting a possible US-Iran initiative, following Monday’s announcements from both sides that they intended to seek war reparations. Investors were concerned that any prolonged disruptions around the Strait of Hormuz could further intensify CPI pressures, potentially delaying monetary easing. Higher energy prices, however, provided support to the energy sector, which ranked among the strongest-performing industries. In contrast, travel and leisure stocks weakened amid concerns over rising fuel costs.
On the corporate front, Alcon shares rose 5% after the ophthalmic products maker raised its full-year earnings guidance. In contrast, Spirax Group stock fell 5.6%, as investors were disappointed that the British engineering company merely reaffirmed its previous full-year outlook. InterContinental Hotels Group shares came under pressure after the company reported slower second-quarter room revenue growth due to weaker demand in the Middle East.
Major indices in the CEE region closed mixed yesterday, with the Prague Stock Exchange posting losses, while markets in Budapest and Warsaw moved higher. Among Hungarian blue chips, OTP declined, whereas the other three heavyweight stocks ended the session in positive territory.
Major US indices declined on Tuesday, with the exception of the small-cap Russell 2000; uncertainty in the Middle East persisted, while US existing home sales fell in July at a pace broadly in line with expectations
With the exception of the small-cap Russell 2000, major US indices closed lower on Tuesday as investor sentiment weakened amid fading hopes for a swift reopening of the Strait of Hormuz. Among the S&P 500 sectors, communication services posted the weakest performance, with Alphabet shares falling 3.8%. The stock remained under pressure as investors continued to assess the company’s artificial intelligence-related organizational restructuring. The technology sector also had a weak session: Nvidia erased its intraday gains to finish flat, while Apple lost more than 1%. Rising oil prices further weighed on market sentiment. Iran’s Secretary of the Supreme National Security Council reiterated that the Strait of Hormuz would not be reopened until the country’s conditions were met. As a result, WTI crude rose 1.3% to above USD 83 per barrel, while Brent gained 1.4% to nearly USD 89 per barrel. Market attention also remained focused on upcoming US CPI data. Investors are awaiting the release of July consumer and producer price figures, which could prove particularly important for the Fed’s interest rate outlook following recent signs of weakness in the labor market. Market expectations suggest that the ongoing moderation in price pressures could support a steady-rate environment, although higher energy prices continue to pose upside risks to CPI.
In the US, existing home sales declined 1.7% month-on-month in July to a seasonally adjusted annualized rate of 4.05 million units. The reading was broadly in line with market expectations of 4.06 million units. Housing supply also tightened, with the inventory of homes available for sale falling 1.9% to 1.54 million units. Meanwhile, the median home price across all housing types rose 2% year-on-year to USD 434,100. The housing market appears to be showing notable resilience despite elevated mortgage rates, with existing home sales increasing 2.4% since the beginning of the year.
Developed market yields edged lower, while Hungarian yields beyond the one-year maturity rose by 8-10 basis points; the yen remained largely unchanged
US Treasury yields saw only limited moves yesterday as investors continued to assess geopolitical tensions in the Middle East and the upcoming CPI data due later this week. The yield on the 10-year US Treasury note declined by just over 1 basis point to 4.68%, while the more monetary policy-sensitive 2-year yield eased to 4.22%. The modest decline in yields came despite deteriorating expectations regarding a resolution to the Middle East conflict. However, investors remained primarily focused on the forthcoming US CPI readings. Market participants believe the inflation data could determine whether longer-dated bond yields stabilize or resume their upward trajectory in the period ahead. German and UK long-term yields also edged lower yesterday.
Contrary to international trends, Hungarian yields beyond the one-year maturity rose by 8-10 basis points yesterday, with the 10-year yield closing at 5.5%. The forint weakened 0.2% against the euro and remained above the 365 level. Meanwhile, the Japanese yen was little changed against the dollar following Monday’s partial pullback, which came after the yen-supporting intervention carried out by Japan’s Ministry of Finance in cooperation with US authorities at the end of July.
Today's highlights
Major Asian indices were mixed this morning, while North Korea conducted another ballistic missile test, just days before the start of joint military exercises between Seoul and Washington, which Pyongyang has long criticized and condemned. Meanwhile, Taiwan condemned a planned naval exercise involving China and an Indonesian warship near the island’s eastern coast.
Today's focus will be on US CPI and budget data.
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