OTP Morning Brief: March PMIs reflect the impact of the Iran conflict
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OTP Morning Brief: The S&P pulled back from its record high on Friday, but ended the week in positive territory
European stocks closed slightly lower on Friday, snapping a four-week winning streak. The BUX presented a much more positive picture in terms of its weekly performance. The eurozone economy expanded by 0.4% quarter-on-quarter in Q2, supported by Spain’s outstanding performance. Major US indices also closed lower on Friday, but the week was largely positive overall. Investor sentiment continued to be weighed down by uncertainty in the Middle East and elevated oil prices. US Treasury yields rose and the dollar weakened following weaker-than-expected retail sales data. Japan's Q2 GDP growth fell short of expectations, while Asian equity markets moved higher. August purchasing managers' indices are due for release this week.
OTP Morning Brief: US rate cut expectations declined further despite the favorable producer price index data
The favorable July producer price index data led to a further decline in US rate cut expectations on Thursday. Markets are now pricing in a Fed rate cut only in December. Declining rate cut expectations provided a boost to US equities, with the technology-heavy Nasdaq posting the strongest gains among the major indices. Sandisk shares surged 13.7%. In Europe, major stock indices moved only modestly, with the STOXX 600 remaining broadly flat. The favorable US CPI data led to a decline in developed market government bond yields. Today, the second estimate of eurozone Q2 GDP is due for release, while additional July retail sales data will be published in the US.
Western Europe’s leading stock indices rose yesterday, except the DAX. Brent rebounded by 4.6% on Tuesday, ending Monday’s slip. TTF natural gas prices eased again, by 5.6% on Tuesday. The Iran conflict is already reflected in March PMIs. Hungary’s MNB has left its base rate at 6.25%. Wall Street failed to sustain Monday’s impetus yesterday. Doubts about the resolution of the Iran conflict resurfaced on Tuesday. US and German yields barely changed on Tuesday. The UK’s inflation data and Germany IFO economic sentiment index are figures to watch today.
Western Europe’s major stock indices rose, except for the DAX
The key stock indices in Western European rose, with the exception of the trivially declining DAX. The STOXX600 (+0.4%), France’s CAC40 (+0.2%), and the FTSE100 (+0.7%) all closed higher yesterday; the latter picked up from Monday’s ailing. Telecommunications (+2.4%) and energy (+2.5%) stocks were top gainers. An important driver for the latter may have been that oil prices bounced back 4.6% on Tuesday, after Monday's easing when Brent closed slightly below USD 100. Defence stocks slid 1.1%, and the financial sector slipped 0.7%. In individual stocks, Italy’s largest mobile tower operator INWIT skyrocketed 9.9% on news of a takeover bid. Britain’s Bellway tumbled 17.5% after the homebuilder cut its forecast for the 2026 financial year. SAP lost 4% after J.P. Morgan downgraded the stock to Neutral from Overweight. Given the software maker’s weight of around 15%, this was also reflected in the weaker performance of Germany’s DAX index.
Preliminary purchasing managers’ indices for March were released for the eurozone and its major economies. Composite indicators in Germany, France, and the euro area all fell short of February’s figures as well as of analysts’ consensus. Manufacturing surprised on the upside in all three regions, but the services sector PMIs dragged down the composite indicators. The manufacturing boost is likely to be a temporary effect, driven by concerns about supply disruptions and brought forward purchases. In the eurozone, the composite PMI at 50.5 and the services sector at 50.1 were the lowest readings since May. The data is in line with the consumer confidence index released on Monday, which, at -16.3, was also worse than expected.
On Tuesday, Australia and the European Union signed a free trade agreement that will eliminate tariffs on almost all products and potentially ease the EU’s access to critical minerals from Australia. This is a response to both US tariffs and the reliance on critical minerals from China.
Hungary’s MNB left its base rate at 6.25% yesterday. Given the geopolitical tensions, Hungary’s central bank lowered its growth forecast for 2026 to 1.7%, from 2.4% in December’s Inflation Report. The MNB raised its inflation forecast for 2026 to 3.8%, from 3.2%. At the subsequent press conference, Governor Mihály Varga repeatedly pointed out that the MNB was operating in data-driven mode and that all options were on the table. He also emphasized that the situation is much better than during the energy crisis in 2022.
The price of TTF natural gas declined further, slipping 5.6% on Tuesday..
Wall Street ran out of momentum on Tuesday
US stock markets could not keep up Monday’s momentum: the S&P500 (-0.4%), the Dow Jones (-0.2%), and the Nasdaq Composite (-0.8%) all closed in the red on Tuesday. On Monday, Donald Trump's words (on ‘productive’ talks with Iran) brought some relief to the markets but doubts about the resolution of the conflict resurfaced on Tuesday. Iran vehemently denied that it had talks with the USA. Reportedly, the USA is to send elite airborne soldiers to the Middle East. But other reports said that there was contact between the two countries and that the US has proposed a 15-point peace plan to the Persian state.
Within the S&P 500, the communications services (-2.5%) and the technology (-0.7%) sectors were among the worst performers. The energy sector (+2.05%) was the strongest one. In individual names, Jefferies shares surged 2.5% after the Financial Times had reported that Japan’s Sumitomo Mitsui Financial Group is preparing a potential takeover bid for the US investment bank. Estée Lauder’s stocks nose-dived 9.8% when the cosmetics giant announced talks about a potential merger with Spain’s Puig; the latter’s share price shot up 13%.
In the USA, the preliminary readings of the S&P Global Services and Composite Purchasing Managers’ Indexes were disappointing, similarly to the ones in Europe. The latest survey showed the worst performance since May 2025.
US and German bond yields barely changed
Despite the lack of reassuring news from the Middle East, and although Iran denied the news of the negotiations, oil prices picked up only slightly by Tuesday’s close, while European gas prices fell by 6%, to EUR 53. American and German yields were little changed: the 10Y dollar yield remained below 4.4%, and the German ten-year one was above the 3% breakout level. Japan’s 10Y yield dropped by 5 basis points from its multi-decade peak of more than 2.3%, while Italy’s and France’s 10Y yields rose. The EUR/USD closed at 1.16.
In Hungary, investors kept an eye on the MNB. As expected, the Monetary Council left its base rate at 6.25% but raised its average inflation forecasts for this year and next from around 3% to 3.8% and 3.7%, respectively, and lowered this year's GDP forecast to 1.7%. The decision left currency and bond unaffected. The forint weakened by 0.75% against the euro: the EUR/HUF drew near 391. Government bond yields rose: in line with the growing expectations of interest rate hikes, 3Y–5Y bond yields eased by 6-10 basis points, while longer maturities were idle: these yields remained near 7.45%. At the ÁKK’s auction, HUF 20 billion worth of 3M discount T-Bills were sold, with the bid/cover ratio at 2, and an average yield of 6.35%.
Today, the ÁKK auctions 6M discount T-Bills, offering HUF 20 billion debt. In addition, investors can obtain 2037/A and 2038/A bonds worth HUF 10 billion each at the switch auction, in exchange for securities maturing this year.
Today’s highlights
Heading into the close, Asia’s markets were seen dynamically increasing. Japan’s Nikkei (+2.9), Korea’s KOSPI (+1.6%) China’s SSEC (+1.1%), and Hong Kong’s Hang Seng (+0.5%) all grew, mostly driven by cautious optimism regarding the resolution of the Iran conflict and by the related drop in oil prices today.
The United Kingdom’s February inflation data and the March reading of Germany’s IFO economic sentiment index will be released today. Christine Lagarde will give a speech at the “The ECB and Its Watchers” conference at 9:45 (CET).
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