OTP Morning Brief: Stock markets rose on signs of easing tensions with Iran
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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.
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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