OTP Morning Brief: The Fed raised rates, while Europe benefited from the correction in oil prices
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OTP Morning Brief: Fed expected to raise interest rates today, while crude oil prices continue to rise
On Tuesday, market sentiment was shaped by tensions in the Middle East and caution ahead of the Fed’s interest rate decision. Oil prices continued to soar following the attacks on Saudi oil infrastructure, fueling risk-off sentiment across both Europe and the US. The STOXX 600 fell to a three-month low, while the Dow declined 0.6%, the S&P 500 slipped 0.4%, and the Nasdaq dropped 0.8%. Energy companies outperformed on the back of soaring oil prices, while the US 10-year Treasury yield climbed back above 5%. In Europe, financial and luxury stocks remained under pressure, although German investor sentiment improved across the region, while the Hungarian market outperformed thanks to gains in OTP, Richter, and Magyar Telekom. Today’s focus will be on the Fed’s interest rate decision, alongside US retail sales, euro area industrial production, UK CPI data, and Hungarian wage figures.
OTP Morning Brief: US 10-year Treasury yield rises to a level not seen in a long time
On Monday, escalating complications surrounding the Middle East conflict were compounded by AI-related concerns, prompting leading AI companies such as Anthropic, OpenAI, and xAI to signal a potential slowdown in the pace of development. This, in turn, weighed heavily on the technology sector in both Europe and the US. In the US, additional concerns emerged as the steadily rising yield on the 10-year Treasury bond climbed above 5%. Meanwhile, energy prices also continued to rise, with Brent crude ending the day at around $106 per barrel. In China, industrial activity remained robust, while retail sales and investment figures pointed to underlying weaknesses in the economy.
Alongside the Fed's rate decision, the decline in oil prices shaped market sentiment on Wednesday. The central bank raised the target rate range by 25 basis points, in line with expectations, while a majority of policymakers did not rule out the possibility of another rate hike before year-end. Following the Fed's communication, US equity markets moved into negative territory, government bond yields rose, and the dollar strengthened. Investor sentiment improved in Europe, supported primarily by declining energy prices. Both Brent and WTI crude prices fell by nearly 3% following reports of additional supply from Saudi Arabia, while TTF gas prices declined by a similar magnitude. The STOXX 600 index gained 0.5%, while yields in European bond markets edged lower. In Hungary, the BUX gained 0.4%, while July wage data continued to point to robust growth in earnings and real wages. Today, attention will focus on the UK and Czech rate decisions, as well as US jobless claims and housing market data.
The correction in oil prices improved sentiment on European stock markets
European equity markets closed higher on Wednesday. The pan-European STOXX 600 index advanced 0.5%, while most major European benchmarks also finished the session in positive territory. Market sentiment was supported by lower oil prices after reports emerged that Saudi Arabia was offering additional crude cargoes to the market through Oman, easing concerns over supply risks. As a result, both Brent and WTI crude prices fell by nearly 3%, while European natural gas prices also posted a decline of a similar magnitude. The move in energy prices weighed on the European energy sector, whereas travel and leisure stocks gained 1.2%, supported by expectations of lower fuel costs.
Major Western European stock indices also closed in positive territory, with the FTSE 100 rising 0.3%, the DAX gaining 0.5%, and the CAC 40 finishing 0.6% above its previous close.
European macroeconomic data released on Wednesday delivered a mixed picture overall. In the UK, annual CPI rose to 3.1% in August from 2.9% in July, in line with expectations. The acceleration in CPI was driven primarily by higher transport costs, as motor fuel inflation soared to 23% following increases in petrol and diesel prices. Price pressures also intensified across housing and household services, communication, as well as recreational and cultural services, while food CPI remained unchanged. Core CPI held steady at 2.6%, suggesting that underlying inflationary pressures showed no meaningful strengthening.
Eurozone industrial output in July 2026 was slightly better than market expectations, declining by 0.1% month-on-month, matching the decrease recorded in June. The monthly contraction was primarily driven by weaker production of non-durable consumer goods, while growth in energy output also lost momentum. In contrast, the production of intermediate goods and capital goods improved following weaker performance in the previous month, and output of durable consumer goods also developed favourably. Among the euro area's largest economies, performance varied considerably: industrial production fell by 1.5% in Germany and 0.4% in France, while Spain recorded growth of 0.6%.
Among the major CEE indices, the WIG20 and PX50 closed down 0.9% and 0.3%, respectively, while the BUX gained 0.4%. Most Hungarian blue chips ended the session higher, with Mol posting the strongest performance. Richter closed 0.5% lower. In Hungary, gross average earnings rose by 7.5% year-on-year to HUF 745,500 in July 2026. Thanks to the expansion of tax allowances for families and mothers, net average earnings increased at a faster pace of 9.1%, while real wages were 7.8% higher than a year earlier.
The Fed signalled further tightening, sending US equities lower
The Fed raised the target rate range by 25 basis points to 3.75-4.00% at its meeting yesterday, in line with expectations. According to the central bank’s latest projections, the outlook for US economic growth improved slightly for both this year and next, while the unemployment rate is expected to remain lower than previously anticipated. Policymakers also revised their forecasts for this year’s PCE inflation and core PCE inflation marginally higher, by 0.1 percentage point each, while the 2027 projection was left unchanged. The updated dot plot showed that 16 of the 18 policymakers see at least one additional 25-basis-point rate hike as likely before the end of the year.
Leading US indices were still trading higher ahead of the rate decision, but market sentiment turned negative following the Fed’s communication. The Dow Jones fell 1.2%, the S&P 500 declined 0.4%, while the Nasdaq closed virtually unchanged, down just 0.01%. At the sector level, technology was the best-performing segment within the S&P 500, supported by gains in semiconductor stocks. In contrast, the energy sector dropped 3% as oil prices moved lower. Chevron fell 2.9%, Exxon Mobil lost 3.5%, while Devon Energy and ConocoPhillips retreated by more than 5%.
Among corporate developments, Intel stood out with a 4% share price gain following media reports that SK Hynix is in talks with the company on a US memory manufacturing partnership. Robinhood fell 5.5% amid regulatory uncertainty surrounding the US crypto sector and an insider trading case, while Boeing declined 3.7% after the company's CEO indicated that efforts to stabilise 737 MAX production were progressing more slowly than expected.
Data released yesterday continued to point to a resilient US economy. Retail sales rose by 1.2% month-on-month in August 2026, significantly exceeding market expectations. The increase was driven primarily by higher sales at gasoline stations, while online retailers, miscellaneous store retailers, electronics and appliance stores, as well as food services and drinking places also posted strong growth. In contrast, a modest decline was recorded at building material and garden equipment stores. Core retail sales, which exclude autos, fuel, building materials and food services and are closely watched as a gauge of GDP, increased by 1.4% in August, substantially outperforming market expectations and marking the strongest monthly expansion since September 2024. Business inventories rose by 0.8% month-on-month in July, well above the market consensus of 0.3%, corresponding to annual growth of 3.8%. The stronger-than-expected reading was primarily supported by a sharp increase in wholesale inventories, while inventory levels at retailers and manufacturers also moved higher.
The Fed’s rate hike and the prospect of further tightening pushed US yields higher, while the correction in energy prices brought temporary relief to European bond markets
US Treasury yields moved higher on Wednesday following the Fed’s rate decision. The yield on the two-year US Treasury rose to as high as 4.74%, its highest level since July 2024. Markets had been trading at lower yield levels ahead of the Fed meeting, but the central bank’s communication reinforced the possibility of further policy tightening. The two-year yield closed at 4.73%, up 6.4 basis points, while the benchmark 10-year yield ended the session at 5.00%, an increase of 0.8 basis points. The dollar strengthened against major currencies following the rate hike, with the euro falling 0.7% to USD 1.147 on Wednesday.
Relief was seen in European bond markets, supported by the decline in oil prices and a wait-and-see approach ahead of the Fed’s rate decision later in the day. The yield on the 10-year Bund fell by 2.5 basis points to 3.5%, after climbing to its highest level since June 2009 on Tuesday. The more monetary policy-sensitive German two-year yield declined by nearly 3 basis points to 3.2%, having reached an almost two-year high earlier in the week.
Longer-dated Hungarian government bond yields also moved lower yesterday, with the 10-year yield closing at 5.77% after declining by 4 basis points. The forint was broadly unchanged against the euro on Wednesday, while strengthening by 0.7% against the dollar.
Today's highlights
Asia also saw mixed but generally favourable sentiment. Investors responded positively to Fed Chair Kevin Warsh’s firm commitment to fighting CPI, which helped reduce market uncertainty. In early trading, Japan’s Nikkei 225 gained 0.4%, while South Korea’s Kospi advanced 0.7%. In contrast, China’s SSEC fell 0.3%, and Hong Kong’s Hang Seng declined 0.9%.
Today, attention will focus on the UK and Czech rate decisions, as well as US jobless claims and housing market data.
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