Investment Outlook 2026
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Hungary: Lower-than-expected inflation for the third month in a row
Hungary's headline inflation increased from 1.4% year-on-year in February, to 1.8% in March. The published data came as a surprise as it was lower than both the consensus (2.2%) and our forecast (2%). The downward surprise mostly came from lower-than-expected inflation of non-durable goods and processed food, while fuel prices rose slightly faster-than-foreseen. Core inflation edged down from 2.1 to 1.9%. The March data do not yet reflect the impact of the war in Iran. Even before the sharp increase in energy prices, we expected inflation to reach its annual low in February, followed by a gradual acceleration, driven by fuel prices and the waning disinflationary effect of food prices, although prices in both categories are still declining on a year-on-year basis.
Commodities - Technical Analysis
The prices of the two precious metals have undergone a sharp correction and reached the levels that were expected at a minimum. If they turn downward from here, the bigger picture will not change: price curves will continue to be defined by a fundamentally downward trend. Oil has turned downward again and is currently testing its upward trend line. Strong selling pressure was observed during yesterday’s trading, suggesting that the uptrend appears to be running out of steam. The natural gas price may still wait to reach the downtrend line, from which an upward reversal could subsequently develop. Copper has reached the expected correction level, from which an upward move has begun. Price movements in wheat and corn can be viewed as a minor correction or consolidation for now, as long as key support levels remain intact.
Consumption and AI related investments saved the year in the US with 2% GDP growth, and despite the trade war and shutdown the outlook remained solid. Fiscal and monetary easing continues to provide strong tailwinds, but equities are expensive, meaning there is less and less room for error. We are therefore keep some powder dry, to increase equity exposure in case of drawdowns, and selectively choosing between sectors and regions for excess returns. Within Europe, we see potential in the cheapest small-cap segment, several factors could catalyze its outperformance in addition to the German stimulus.
Macro
Consumption and AI related investments saved the year in the US with 2% GDP growth, and despite the trade war and shutdown the outlook remained solid. Recession risk is low, but the weakening labor market, high and fast rising debt, halted disinflation above CB’s target, and political pressure on the Fed remain a cause for concern. Looser fiscal policy in the EU could add to GDP growth in 2026-2027, but debt sustainability issues can not be neglected. Inflation is at target levels, but risks are more tilted to the upside. In the short run we expect the market to price in more cuts as the new FED chair is getting closer, which will moderate long bond yields. In Europe, we still expect term premiums to rise. From the current level, we do not expect further meaningful HUF appreciation, but holding long positions remains to be attractive due to high interest rate differential.
Equities
Fiscal and monetary easing continues to provide strong tailwinds, but equities are expensive, meaning there is less and less room for error. We are therefore keep some powder dry, to increase equity exposure in case of drawdowns, and selectively choosing between sectors and regions for excess returns. In the US, we favor sectors primarily linked to the development of AI infrastructure, like semis on the hardware and cybersecurity on the software, utilities/renewables on the energy supply side. Within Europe, we see potential in the cheapest small-cap segment, several factors could catalyze its outperformance in addition to the German stimulus. The weakening dollar and Fed interest rate cuts are tailwinds for EM, but valuation is already neutral, so we prefer the cheapest Brazil and the nearshoring driven Mexico. After a long consolidation, we would also start building positions in the structural megatrends driven India. We see no change in the factors driving CEE so far, depressed valuations compensate for higher risks.
Bonds
While the weakening labor market and slowing growth are pushing yields lower, continued significant budget deficits and deteriorating debt trajectories pose risks in the opposite direction. For this reason, we continue to favor the short/medium end of the yield curve. Corporate bonds’ historically tight spreads do not cover the increasing risks.
Commodities
We maintain an overall neutral view on commodities, as energy and agricultural products remain weak for now. However, the outlook for industrial and precious metals remains favorable, so selective exposure is recommended. We like copper, uranium, and gold related exposures.
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