OTP Morning Brief: Escalation in the Middle East, Iran threatens to establish another restricted zone
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OTP Morning Brief: August data dispelled concerns about the stability of the US labor market
News and developments related to the Middle East conflict continued to fundamentally shape market sentiment over the past week. The major European indices declined on a weekly basis as concerns over CPI and expectations of further interest rate hikes intensified. The BUX was the region’s worst performer on a weekly basis, posting a decline of nearly 2%. Wall Street indices ended the week with modest moves. TTF gas prices rose by nearly 10% over the week, climbing above EUR 70/MWh. Oil prices also surged, with both Brent and WTI crude trading above USD 90 per barrel. Much stronger-than-expected August employment data reinforced expectations of further US interest rate hikes. Long-term yields in developed markets moved higher, while the dollar weakened against the euro. According to Bloomberg, the MNB is expected to pause its rate-cutting cycle in September and lower its inflation target to 2.5%. The forint strengthened by nearly 1.0% against the euro over the course of the week, with EUR/HUF once again trading around the 362 level. The Middle East saw another exchange of strikes over the weekend. The AfD won Sunday’s state election in Saxony-Anhalt. The most important data releases of the week will be the August Hungarian and US inflation figures, while the ECB will hold its monetary policy meeting. US markets are closed today in observance of Labor Day.
OTP Morning Brief: Declining expectations for US interest rate hikes improved market sentiment
European stock indices advanced, while Trump's remarks and easing expectations for US interest rate hikes improved sentiment; the rise in European producer prices accelerated. Major US stock indices rose on the back of declining expectations for interest rate hikes; initial jobless claims came in line with expectations, while the ISM Services PMI exceeded forecasts. Developed market yields declined following gains in previous days, after dovish remarks from a Federal Reserve governor and a conciliatory statement by President Trump; the forint strengthened on reports that the MNB may pause its rate-cutting cycle and lower its CPI target. Several labor market reports are due from the US today, with the change in nonfarm payrolls standing out among them. Germany will release industrial orders data, while retail sales figures are scheduled from both the euro area and Hungary.
The escalating conflict in the Middle East provided further support to oil prices on Monday, intensifying inflation concerns. Iran has also threatened to establish another restricted zone. Brent crude rose to USD 97 per barrel, while the European TTF gas benchmark climbed to nearly EUR 74/MWh. US markets were closed on Monday due to a public holiday. European equity markets closed mixed on Monday, with the Stoxx 600 ending the session flat. Geopolitical risks were offset by a revised estimate showing stronger-than-expected Q2 eurozone GDP growth, as well as the Sentix investor confidence index rising to a four-year high, while investors continue to assess the outcome of the weekend's German elections and prepare for the ECB's policy meeting on Thursday. German long-term yields continued to rise, with the 10-year Bund yield closing near 3.38%. Markets expect another ECB rate hike by year-end following the anticipated September increase. EUR/USD remained above 1.16. Hungarian long-term yields showed movement only at the far end of the curve, with the 10-year yield falling to 5.43%, while EUR/HUF edged above 363. Today, attention will be focused on Hungary’s August CPI data.
European equities traded sideways, while oil prices continued to rise amid the escalating conflict in the Middle East. US markets were closed for a public holiday
European stock indices were little changed on Monday, as rising oil prices driven by renewed tensions between the US and Iran intensified CPI concerns, offsetting stronger-than-expected economic data released in the eurozone. The pan-European Stoxx 600 ended the session unchanged at 649.9 points, in line with Friday’s close. Germany’s DAX slipped 0.2%. On Sunday, the far-right AfD won the Saxony-Anhalt state election with 44% of the vote, amid a record-high turnout of 76.5%. France’s CAC 40 edged 0.3% higher after falling to a two-month low last week as fiscal concerns continued to mount ahead of next year’s elections. At the sector level, energy stocks led gains within the Stoxx 600 universe, closely followed by technology shares. Healthcare was the worst-performing sector, with Switzerland’s Novartis declining 3.2% after its cholesterol-lowering drug failed in a closely watched clinical trial. Insurers, financial services firms, real estate stocks and media companies also moved lower.
The Sentix investor confidence index improved more than expected in September, reaching its highest level in four years in the eurozone, while the third estimate of Q2 eurozone GDP pointed to stronger growth than previously reported, with the economy expanding by 0.6% quarter-on-quarter and 1.2% year-on-year. At the same time, German industry delivered a weaker-than-expected performance in July, with industrial output falling 1.1% month-on-month. In addition, the June reading was revised to show stagnation, overturning the previously reported modest growth.
Central European equities delivered a mixed performance on Monday, with Poland’s WIG20 and the Czech PX Index posting gains, while Hungary’s BUX closed lower. Hungary’s blue chips also turned in a mixed performance, with Magyar Telekom emerging as the day’s biggest loser, falling 2.7%. OTP and MOL edged higher, while Richter retreated.
Hungary’s preliminary industrial production data for July showed 4.7% year-on-year growth, exceeding the Reuters consensus forecast of 3.2%.
Brent crude surged to a six-week high on Monday after Iran threatened to launch attacks on energy infrastructure across the Middle East and establish another restricted zone beyond the Strait of Hormuz in response to renewed US strikes against Iranian facilities. The latest escalation of the conflict could significantly disrupt oil supplies from the region. Brent settled at USD 97 per barrel after reaching an intraday high of USD 98.06, its highest level since July 24. No WTI quotation was available due to the US Labor Day holiday.
The TTF benchmark on the Dutch gas exchange rose to nearly EUR 74/MWh, its highest level since late 2022 and early 2023. The rally was driven by the escalating conflict between the US and Iran.
Long-term eurozone yields rose, with markets now pricing in two additional 25bp ECB rate hikes. Meanwhile, the forint weakened beyond 363 against the euro
Long-term yields in the eurozone moved higher again after declining for two consecutive days from their highest levels in more than 15 years, as investors remained cautious following the AfD's victory in Saxony-Anhalt and ahead of the ECB's policy meeting on Thursday. Germany’s 10-year Bund yield rose by 5bp to 3.38%, moving back toward last week’s peak of 3.3951%, its highest level since April 2011.
Markets widely expect the ECB to raise interest rates on Thursday, while maintaining a cautious stance as the prolonged US-Iran conflict keeps oil prices elevated, adding to CPI pressures. Money markets are also pricing in roughly a 90% probability of a second rate hike by year-end. The euro was little changed, with EUR/USD remaining above 1.16.
Following last Friday’s sharp decline in yields across the Hungarian bond market’s longer-end segment, trading activity on Monday was limited to maturities beyond five years. Based on early afternoon quotations, the 10-year benchmark yield fell by 5bp to 5.43%, its lowest level since mid-August. The forint weakened on Monday, while regional currencies posted modest gains. EUR/HUF edged above 363.
Today's highlights
Asia-Pacific equity markets were mixed ahead of Tuesday’s close. In Japan, the final reading of Q2 GDP showed stronger growth than initially estimated, while July’s current account balance posted a larger-than-expected surplus. In China, exports rose 25% year-on-year in August, in line with market expectations. Meanwhile, crude oil prices continued to rise on Tuesday morning.
Futures markets point to a mixed opening in both Europe and overseas.
Today, Hungary’s August CPI data will be in the spotlight, while August budget figures are also scheduled for release.
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