OTP Morning Brief: Donald Trump rejected Iran’s proposal to reopen the Strait of Hormuz
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OTP Morning Brief: Thursday trading brings equity market correction and rising oil prices
European equities closed slightly lower, primarily due to weakness in the technology and defence sectors. A more significant correction unfolded on US equities markets as a wave of selling hit technology stocks, while oil and natural gas prices rose markedly amid escalating geopolitical tensions. Amid growing investor caution, both US and German government bond yields declined, while the dollar edged higher against the euro after experiencing significant intraday volatility. Longer-dated yields also declined on the Hungarian bond market, while the forint weakened against both the euro and the dollar. The negative sentiment spilled over from US markets into Asia, with most major Asian equity indices trading in negative territory during the morning session. Today's focus will be on the October US labour market data, which could materially influence market expectations regarding the Federal Reserve's December rate decision. Additionally, retail sales data will be released from both the euro area and Hungary, while Germany will publish its September industrial production figures.
OTP Morning Brief: Investor sentiment improved following the Democrats’ congressional victory and the decline in oil prices
Lower bond yields and oil prices, driven by the Democrats’ expected congressional majority, improved market sentiment. Brent crude has fallen by roughly 20% since the beginning of the week, while the yield on the 10-year US Treasury note declined by 6 basis points to 4.89%. Amid the favourable risk environment, the US dollar weakened, with the EUR/USD exchange rate rising to near 1.123. In Europe, positive corporate news also supported market sentiment, with the STOXX 600 index rising by 1.8%, while shares of Novo Nordisk gained 5.6% after the company raised its full-year guidance. Today, investors will focus on German industrial orders, French industrial production and the euro area producer price index, alongside interest rate decisions by the Bank of England and the Czech central bank. In the US, weekly initial jobless claims, as well as Q3 productivity and labour cost data, will also be in the spotlight.
European equity markets mostly moved higher on Friday and over the week as a whole, despite a larger-than-expected deterioration in German consumer confidence. US equity markets moved higher last week, while adverse developments emerged on Saturday regarding a potential settlement with Iran. Trade tensions between China and the US eased, and durable goods orders continued to point to strong investment activity. Long-term bond yields climbed to fresh record highs as the likelihood of a US rate hike in October increased further; over the week, the dollar strengthened while the forint weakened against the euro. No major macroeconomic data releases are scheduled for today, but central bank policymakers from Europe, the UK, and the US are due to deliver speeches, while the Dallas Fed Manufacturing Index will also be published.
European equity markets mostly moved higher on Friday and over the week as a whole, despite a larger-than-expected deterioration in German consumer confidence
European equity markets mostly moved higher on Friday and finished the week in positive territory, while energy markets showed signs of easing, helping to alleviate concerns over inflation risks. Following the correction in natural gas prices, government bond yields also stabilized, reducing the risk of further inflationary pressure building in Q4. The banking sector outperformed after a weaker spell, with shares of UniCredit, Deutsche Bank, and ING gaining between 1% and 3%. Companies linked to artificial intelligence infrastructure and software also delivered strong performance, tracking the positive momentum in the US technology sector. Shares of ASML, Infineon, and Prosus also moved higher.
However, the GfK Consumer Climate Index for October deteriorated by more than expected, as previously surging energy prices weighed on German households’ income expectations and dampened consumer sentiment. The data suggest that household demand remains fragile in the euro area’s largest economy.
Major CEE equity indices declined, while among Hungarian blue chips, OTP bucked the trend with a 1.3% gain. The other three heavyweight stocks moved lower, with MOL posting the largest decline, falling 1.9%.
US equity markets moved higher last week, while adverse developments emerged on Saturday regarding a potential settlement with Iran, trade tensions between China and the US eased, and durable goods orders continued to point to strong investment activity
US equity markets ended the week higher despite a sharp rise in government bond yields during the period. On a weekly basis, the S&P 500 gained 1.2%, the Nasdaq advanced 2.1%, while the Dow added 0.3%. Investor sentiment was supported primarily by lower oil prices. Markets responded positively to reports suggesting that a diplomatic solution to the Middle East conflict could be taking shape and that the likelihood of the Strait of Hormuz reopening had increased. As a result, WTI crude fell 2.3% to USD 92.4 per barrel on Friday, while Brent declined 2.1% to USD 104.3 per barrel. On a weekly basis, WTI dropped 7.9%, whereas Brent edged 0.4% higher. However, it emerged on Saturday that President Trump had rejected Iran’s proposal to reopen the Strait of Hormuz under certain conditions. According to some officials, he also indicated in private discussions that military strikes could continue after the midterm elections. Iran’s conditions reportedly included ending military aggression, lifting the maritime blockade, removing economic sanctions, and unfreezing Iranian assets. These adverse developments could provide renewed support for oil prices this week.
The technology sector once again outperformed. The information technology sector rose 3.1% over the week, supported in part by continued optimism surrounding artificial intelligence. Meta’s share price surged nearly 13% during the week on positive expectations related to the company’s new Muse AI agent. Akamai Technologies gained 3% after announcing a multi-year strategic partnership with Anthropic. Investors also closely monitored developments in US-China relations. Chinese President Xi Jinping’s visit to the US and further progress in bilateral trade negotiations improved market sentiment after the two countries had previously extended their trade truce by an additional two months. According to reports from China on Saturday, the two sides reached an eight-point agreement that includes USD 30 billion in mutual tariff relief, the continuation of AI-related negotiations, and the establishment of a joint trade committee.
In the US, new orders for durable goods were unchanged in August compared with the previous month. The reading came in stronger than market expectations for a 0.4% monthly decline. As a result, the indicator stabilized following two consecutive months of growth. The main drag came from a 0.6% decline in transportation equipment orders. Within this category, orders for civilian aircraft and parts fell 4.3%, while motor vehicle and parts orders declined 0.6%. At the same time, several key industries recorded increases in new orders. Orders for defense aircraft and parts rose 5.9%, while bookings for computer products increased 1.5%. Excluding transportation equipment, durable goods orders rose 0.3% month-on-month, falling short of both the 0.6% market expectation and July’s 0.7% increase. However, non-defense capital goods orders excluding aircraft, one of the most closely watched leading indicators of corporate investment activity, rose 1.6%. This significantly exceeded both the 0.5% market consensus and the 0.6% increase recorded in July. The data suggest that US companies remain willing to invest and expand capacity despite an uncertain economic environment, sending a positive signal for the future outlook of economic growth.
Long-term bond yields climbed to fresh record highs as the likelihood of a US rate hike in October increased further; over the week, the dollar strengthened while the forint weakened against the euro
US Treasury yields stabilized toward the end of the week following a pronounced sell-off in previous sessions. The 10-year US Treasury yield finished the week at 5.18%, marking its highest level since 2007. The shorter-dated 2-year yield edged down to 4.86% on Friday but still ended the week 12 basis points higher. The rise in yields continued to be driven by hawkish comments from Fed policymakers, persistently elevated energy prices, and macroeconomic data pointing to ongoing strength in the US economy. Fed Governor Michael Barr indicated during the week that further monetary tightening may be necessary to bring inflation back to target. Accordingly, money markets priced in roughly a 64% probability of another rate hike in October. The bond market sell-off was not confined to the US: yields on Japanese, UK, and euro area government bonds also climbed to multi-year highs during the week, highlighting the synchronized adjustment of global fixed-income markets to a persistently higher interest rate environment.
The dollar continued to strengthen against the euro over the week, and together with ongoing uncertainty in energy markets, this put pressure on regional currencies, including the forint. The Hungarian currency ultimately weakened by 0.3% over the course of the week, closing at 365.2 against the euro.
Today's highlights
Asian equity markets were mixed this morning, while oil prices resumed their rise following adverse developments over the weekend. Alongside declines in Japanese and Chinese equities, US index futures also pointed to a weaker open, whereas the Australian market managed to post gains.
No major macroeconomic data releases are scheduled for today, but central bank policymakers from Europe, the UK, and the US are due to deliver speeches, while the Dallas Fed Manufacturing Index will also be published.
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