OTP Morning Brief: News about the Middle East conflict and the earnings season drove market movements
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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.
There is still no agreement between the United States and Iran on peace in the Middle East. Crude oil prices continued to rise. The United Arab Emirates announced that it will withdraw from OPEC and OPEC+. Most stock markets in the developed world closed in the red. The BUX slipped by 0.2%, with OTP the only domestic blue chip to record gains. Developed market bond yields rose, while the dollar strengthened against the euro. Domestic yields edged slightly higher, while the forint strengthened against the euro. In line with expectations, the MNB’s Monetary Council left the policy rate unchanged at its April meeting. April inflation data are due from several major euro area member states. The FOMC’s two-day meeting ends today. The earnings season continues with results from the technology sector’s heavyweights.
Major European indices closed mixed amid negative investor sentiment; the BUX fell
Sentiment was gloomy across European stock markets on Tuesday, as mixed corporate earnings, the failure of negotiations to resolve the Middle East conflict, and caution ahead of interest rate decisions scheduled for the rest of the week all weighed on investor sentiment. . The pan-European Stoxx 600 slipped 0.4%, although among the major indices the UK’s FTSE 100 and Italy’s FTSE MIB managed to edge higher. Most Stoxx 600 sector indices turned negative, with technology posting the biggest decline of 1.8% amid fading optimism surrounding artificial intelligence, while banks delivered the strongest performance. Barclays shares closed down 0.2% after the British bank flagged a USD 308 million hit linked to collapsed lender MFS. The energy sector rose 0.6%, riding a rally in BP, whose shares gained 1.1% after beating expectations for first-quarter earnings.
Equity markets in the CEE region closed mixed, with the BUX down 0.2%, placing it in the middle of the pack. Among Hungarian blue chips, only OTP managed to advance.
Wall Street indices turned lower; the technology sector underperformed; crude oil prices rose
The United States rejected Iran’s latest proposal on Middle East peace, as it would have postponed negotiations on the nuclear issue. The decision heightened concerns about persistently elevated inflation and deteriorating growth prospects; however, media reports suggest that Pakistani intermediaries expect a new proposal from Iran in the coming days.
Wall Street indices closed in the red on Tuesday, driven partly by the breakdown of peace talks and partly by growing concerns surrounding the artificial intelligence boom. Semiconductor manufacturers such as Nvidia, AMD and Broadcom performed particularly poorly, but the entire technology sector came under pressure. The Wall Street Journal reported that growth in OpenAI’s new user numbers and revenues has fallen short of the company’s own targets, raising questions over whether the AI giant can cover the massive spending associated with its data center investments.
The earnings season continued: General Motors shares rose on the back of better-than-expected first-quarter earnings and an upwardly revised full-year revenue outlook; meanwhile, UPS shares fell after the parcel delivery company reaffirmed its full-year revenue targets, while Coca-Cola shares advanced thanks to stronger-than-expected quarterly results and a raised full-year profit forecast.
Crude oil prices continued to rise yesterday, with Brent reaching USD 111 per barrel and WTI USD 100, levels that are roughly 50% higher than those seen immediately before the outbreak of the Middle East conflict. So far this year, WTI prices have climbed by 74%, while Brent has gained 83%. In addition to the Strait of Hormuz remaining closed, yesterday’s announcement by the United Arab Emirates that it would withdraw from OPEC and OPEC+ on May 1 also caused turmoil in the oil market. The country, which accounts for 3-4% of global oil production and has long advocated for raising production quotas, justified its decision by stating that it aligns with the United Arab Emirates’ long-term strategic and economic vision; furthermore, due to the closure of the Strait of Hormuz, the announcement’s impact on the oil market may now be smaller.
Developed market yields rose; the MNB left the policy rate unchanged yesterday; the forint strengthened
Developed market bond yields rose and the dollar strengthened following further adverse developments in the oil market. US Treasury yields edged higher, with the 10-year yield up 1 basis point to 4.35%. European yields rose more markedly, as the 10-year German Bund yield climbed 4 basis points to 3.07%. The dollar also firmed slightly against the euro, with EUR/USD trading around 1.17.
In Hungary, markets focused on the MNB, which, in line with expectations, left the policy rate unchanged at 6.25% at its April rate-setting meeting. In a hawkish message, MNB Governor Mihály Varga warned of geopolitical risks, the inflationary impact of rising oil prices, and noted that the sustainability of the election-related strengthening of the forint and the decline in yields remains uncertain. He also said that should the government decide to adopt the euro, the central bank would support the process.
In parallel with the press conference, the forint strengthened against the euro, with the exchange rate falling below 364. Government Debt Management Agency (ÁKK) reference yields recorded in early afternoon moved a few basis points higher, with the 10-year yield rising to 6.07%. Demand was strong at ÁKK’s auction yesterday, where HUF 40 billion worth of three-month Treasury bills were sold at an average yield of 5.98%.
Today's highlights
Morning trading in the key Asia-Pacific markets showed mixed movements amid concerns surrounding the oil market and the technology sector. Japanese markets were closed today due to a public holiday.
Today, attention will be on inflation data from euro area member states and the Fed’s rate-setting meeting. In the latter case, particular focus may fall on Jerome Powell’s post-meeting press conference, as this will be the last meeting in the series chaired by him.
The earnings season continues today with major names, including results from Alphabet, Amazon, Meta, and Microsoft.
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