OTP Morning Brief: Stock markets rose on signs of easing tensions with Iran
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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.
Europe’s stock indices rose yesterday. The UK's Februaryinflation matched expectations. The Ifo sentiment index fell in March as expectations worsened. US indices rose as chances of a negotiated settlement with Iran seem to increase. Developed markets’ bond yields fell; the USD and the HUF appreciated. Today the US releases weekly jobless claims figures, and Hungary’s MNB publishes its latest Inflation Report.
Europe’s stocks rose on Wednesday; UK February inflation matched expectations; Ifo sentiment index fell in March as expectations worsen
The stock markets in Europe climbed higher on Wednesday as investors priced in the possibility of an imminent de-escalation in the Middle East, although concerns about the economic impact of the war continued to dampen risk-taking. The STOXX 600 increased by 1.4%, in its third straight day of gains. Brent crude dropped after US President Donald Trump said there was progress in talks with Iran, even though Tehran denied direct negotiations and left closed the Strait of Hormuz, through which a fifth of the world's oil and gas passes. Macroeconomic uncertainty and Europe's dependence on oil imports continue to weigh on European stocks.
In the United Kingdom, annual inflation was 3% in February, matching the January figure and market expectations. The biggest upward impact came from a 0.9% month/month increase in clothing prices, while inflation slowed in several sectors, including transport (2.4% vs. 2.7% in January), food (3.3% vs. 3.6%) and services (4.3% vs. 4.4%). CPI rose by 0.4% month/month, in line with market expectations, while annual core inflation accelerated to 3.2% vs. 3.1%. However, the February data may be less market-moving this time, as it does not yet include the impact of the March oil price shock. In Germany, the Ifo business sentiment index dropped to 86.4 points in March, weaker than the previous month’s 88.4, but slightly above the expected 86.1 points. The decline was driven by a sharp deterioration in expectations, exacerbated by uncertainty over the Iran war, while the current situation component remained at 86.7. The decline was also broad-based across sectors, but the sentiment particularly weak in manufacturing, services, trade, and construction.
The CEE region’s stock indices rose yesterday. The picture was mixed for Hungary’s blue chips: OTP and Richter closed higher, while MTelekom ended flat, and MOL's share price slipped.
US indices rose as prospects for a negotiated settlement to the Iran conflict appear to be improving
America’s stock indices closed higher yesterday as investors continued to watch developments in the Middle East. Adding to the gloom was Iran’s foreign minister’s statement that Tehran was unwilling to negotiate with Washington, even though the leadership was considering a US plan to end the war. Iran’s state media reported that the country would reject the US ceasefire offer and propose its own five-point counter-proposal, including control over the Strait of Hormuz. Meanwhile, oil prices eased (WTI: -2.2% and Brent -2.17%), as the market began to price in the possibility of a near-term easing of the conflict. The key indices returned to positive territory after last week’s sharp decline, but analysts warned that the market may be overly optimistic about a quick resolution, while inflationary risks from an energy price shock and the possibility of a prolonged conflict persist.
Developed markets’ bond yields fell; the USD and the HUF strengthened
As confidence in a peace deal in Iran deal grew, fears surrounding energy prices, inflation, and interest rate hikes, as well as risk aversion all abated, helping developed economies’ bond yields retreat from previous peaks. The 10Y US bond yield sank by three basis points, to 4.35%, the German one declined comparably, to less than 3%, and the riskier French and Italian ones slipped by almost 10 basis points. At the same time, the dollar strengthened by almost 0.5% against the euro, pushing the EUR/USD to 1.155, after Germany’s IFO index fell sharply, while US export and import prices unexpectedly jumped markedly.
The sentiment was also benign in Hungary. The forint’s 0.7% appreciation drove the EUR/HUF to 387, and Hungary’s benchmark government bond yields eased by roughly ten basis points; the 10Y one dropped below 7.4%. At the auction of 6M discount T-Bills, barely HUF 5 billion worth of Treasury bills – a quarter of the announced amount – were allotted due to anaemic demand; the average yield was set at 6.38%. But there was strong interest at the switch auction of 2037/A and 2038/A bonds, where the amounts on offer (HUF 42 billion and HUF 22 billion respectively) were allotted, with the average yield slightly above 7.4%.
Today’s highlights
Asia’s indices moved mixed today, as it seemed that the end of the Iranian conflict might be even further away than had been hoped, as the leaders of the attacked country initially rejected America’s demands and the USA continued bombing Iran.
The USA releases the weekly jobless claims data, and Hungary’s MNB publishes its latest Inflation Report today.
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