OTP Morning Brief: The Fed did not cause surprise
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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.
The Fed did not cause surprise; Meta’s and Tesla’s earnings reports were well received, but that of Microsoft disappointed. Western Europe’s stock markets fell, led by luxury companies, while CEE markets closed at new highs. In Hungary, Richter and OTP headed the rally, the latter ended at a new high. The Fed’s decision did not move US markets, investors waited for big tech companies' earnings reports to be published. The EUR/USD turned back from its 1.2 peak, while the EUR/HUF remained around 380. Bond yield moved mixed, Hungary’s long-term yields sank. Precious metal prices hit new highs again. Today, the USA releases factory orders and weekly unemployment statistics, and Hungary publishes industrial producer prices and detailed foreign trade statistics. As the earnings season continues, Apple, Mastercard, and SAP release their reports today.
Western European stocks fell, led by luxury companies, while CEE indices closed at new highs. MTelekom and OTP fuelled the BUX’s rally, the banking share closed at new high.
Western Europe’s indices subsided on Wednesday as luxury stocks weakened and investors remained cautious ahead tech giants’ of upcoming earnings reports and the Federal Reserve's interest rate decision. The STOXX 600 closed 0.8% lower, with luxury stocks leading the decline (-3.8%), marking their fourth consecutive day of losses. Shares of LVMH, the owner of Louis Vuitton and Tiffany, plunged 7.9% after CEO Bernard Arnault warned to be cautious in the year ahead.
Chipmaker ASML eased concerns about a near-term slowdown in demand by reporting stronger-than-expected fourth-quarter orders. Yet the general caution surrounding the sector sent the stock down 1.9%, despite hitting a record high in early trading.
Deutsche Bank shares slid 1.9% after federal police raided its Frankfurt and Berlin offices as part of a money-laundering investigation, prosecutors in Frankfurt said.
On the macroeconomic front, the German government cut its growth forecasts for this year (from 1.3% to 1%) and next year (from 1.4% to 1.3%), citing uncertainties surrounding global trade and the slower impact of government measures.
The unsupportive sentiment in Western Europe could not drag down CEE stock markets: Poland’s WIG20, Czechia’s PX50, and Hungary’s BUX all closed at new highs. The engines of the BUX’s growth were Richter (+1.6%), OTP (+1.1%) and MTelekom (+1.0%). The latter two blue chips also ended trading at record highs, and OTP closed above the 40,000-forint mark for the first time. Mol slipped by 1.5% from Tuesday's peak.
The Fed’s decision did not move US markets, investors waited for tech giants' earnings figures
America’s markets barely moved on Wednesday: the S&P and Dow stagnated, the NASDAQ inched up. In the earlier part of the trading session the S&P was above 7,000 points for the first time, but it could not hold out there. The indices did not move much after the FOMC's decision, where the Federal Reserve left interest rates on hold. In the subsequent statement, the Fed indicated that the labour market "shows signs of stabilization" and removed the wording from its previous statement that the downside risks to jobs had increased. At the same time, it considered inflation to be elevated, but Chairman Powell emphasized that these risks have also decreased, and services inflation is slowing, while goods inflation reflects the impact of a one-off increase in tariffs. Investors waited for reports from "Magnificent Seven" companies (Meta, Microsoft, Tesla) to be released after market close.
Of the eleven main sectors of the S&P 500, real estate, consumer staples, and healthcare suffered the biggest falls. The energy sector (+0.7%) posted the largest gains, along with technology (+0.6%), mainly thanks to chipmakers. AI chipmaker Nvidia (1.6%) gave the biggest impetus, followed by Micron (+6%) and Intel (+11%). Previously, SK Hynix, a key Nvidia supplier, reported a record quarterly profit, and ASML also posted its highest-ever fourth-quarter order book, sparking a rally in tech stocks from Europe to Asia. Texas Instruments shares rose 9.9%; late Tuesday, the analogue chipmaker forecast first-quarter revenue and profit that beat Wall Street expectations. Seagate Technology shares closed more than 19% higher after the company also forecast higher-than-expected revenue and profit for the third quarter, while rival Western Digital rallied 10.7%.
Meta and Tesla shares initially rose nearly 4% and 3%, respectively, in late-night trading as their flash reports were released after market close. In contrast, Microsoft shares fell more than 3% after the report was released, while IBM shares jumped 7% on the back of the latest results.
Oil prices rose around 1% on Wednesday due to growing concerns about Iran, while the weak US dollar provided further support.
The EUR/USD turned back from the 1.2 peak; the EUR/HUF remained near 380; Hungarian bond yields sank, precious metals at new peak
The EUR/USD fell to 1.19 from the four-year high hit earlier this week after US Treasury Secretary Scott Bessen ruled out any intervention in the USD/JPY exchange rate. Having cut interest rates in the previous three meetings, the Fed did not change the target range of the key interest rate, as expected. Fed Chairman Jerome Powell indicated that further cuts were unlikely for some time. ECB's policymaker Martin Kocher warned that further strengthening of the euro could lead to interest rate cuts. Bond yields barely changed on Wednesday; the US 10Y yield remained near 4.25% and the German is still in the vicinity of 2.85%.
Meanwhile, gold was heading for the USD 5,300 mark, and briefly surpassed it. Gold and silver ended Wednesday’s trading at new highs.
The strengthening of the forint has stopped at the 380 level against the euro. In the bond market, reference yields on 10Y maturities and beyond sank by 4-5 basis points, the ten-year bond yield is at 6.5%. In Wednesday’s auction, the ÁKK offered HUF 30 billion in six-month discount T-Bills, bids amounted to barely half of that amount, and the agency accepted HUF 10 billion worth of them. However, there was strong interest at the switch auctions, where HUF 80 billion worth of 2032 and 2034 tenors changed hands.
Today’s highlights
Asia’s indices remained largely unchanged today (Nikkei 0.1%; SSEC -0.1%), as mixed flash reports from the US technology sector warranted caution. Index futures pointed to tiny moves in the USA and suggested small gains in Europe this morning.
Gold and silver rose to all-time highs as investors continue to flee to physical assets. Oil prices also reached a four-month high after US President Donald Trump warned Iran that it could expect attacks if it did not reach an agreement on nuclear weapons.
Today, domestic producer price statistics and detailed foreign trade data for December will be released. In the US, weekly unemployment figures and manufacturing order statistics will be released.
Today, the USA releases factory orders and weekly unemployment statistics, and Hungary publishes production price index and detailed foreign trade statistics.
The earnings season continues with reports from Apple, Mastercard, and SAP, among others.
In Hungary, the ÁKK is offering 12M discount Treasury Bills, 6Y green bonds, and 10Y floating-rate bonds worth HUF 30, 20, and 25 billion, respectively.
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