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OTP Morning Brief 22 JUNE 2021 OTP Morning Brief • Western Europe's stock markets picked up, benefiting from Christine Lagarde's words • The sentiment improved in the USA, despite Fed officials' continued hints at monetary tightening • The EUR/HUF sank near 353 yesterday, when the MNB governor's hawkish article was published. • The MNB is expected to raise interest rates today; its size may determine the HUF's exchange rate. • Most of Asia's indices headed higher today; Brent climbed to USD 75 www.otpresearch.com 1 22 JUNE 2021 Western Europe's stock exchanges shifted into higher gear on Christine Lagarde’s words Western Europe's stock markets started the week with gains: Germany's DAX jumped 1.0%, reversing Friday's fall, the UK's FTSE rose by 0.6%, and the Stoxx600 closed 0.7% higher. It was the words of Christine Lagarde, the ECB's President, that set markets in motion. Speaking at a hearing in the European Parliament, she spoke about maintaining loose monetary conditions and dispelled fears about the spill-over effects of US inflation in Europe. Cyclical sectors have risen; the winners of the day in the Stoxx600 were vehicle manufacturers, chemical, and materials stocks. Retail companies also did well: the UK-based Morrisons food chain skyrocketed 35% after rejecting a GBP 5.5bn takeover bid from Clayton, Dubilier & Rice. Their rivals also jumped: Tesco advanced 1.7%, and Sainbury’s surged 3.8%. The Stoxx600 Health Sector Index stagnated, even though CureVac plummeted more than 10% on suspicion of insider trading; last week, the biopharmaceutical's stock price of fell as clinical trials pointed to low efficacy of its covid vaccine. The CEE region's stock indices closed mixed on Monday: the WIG20 inched down one point, Russia's RTS slipped 0.3%, while the Czech PX upped 0.3% and the BUX gained 0.5%. All Hungarian blue chips advanced: Mol (+0.9%), OTP (+0.7%), MTelekom (+0.6%) and Richter (+0.2%). After last week’s sell-off, optimism has returned to US stock market There was nothing to complain about in America's stock markets, where the Dow closed 1.8% higher, the S&P upped 1.4%, and the Nasdaq Composite advanced 0.8%. Following last week’s sell-off, risk appetite has returned: the energy sector, financial services, and commodities all boosted the S&P, while technology and telecommunications weighed on it. Most megacap companies made gains, except for Amazon (-0.9%) and Tesla (-0.4%). The Russell 2000 Small Business Index jumped 2.1%, and the Dow Jones Transports Average, another measure of the general economic health, soared nearly 2%. Market sentiment was not broken by calls (by Dallas Fed President Robert Kaplan, and St. Louis Fed President James Bullard) for withdrawing the bond-buying programme, while others warned of the risk of overheating and inflation. Bitcoin nosedived 10% yesterday, and Ethereum fell 13% as China cracked down harder on cryptocurrencies. Firming forint and rising Hungarian long-dated yields ahead of today's rate decision Hungary's current account balance had a surplus of HUF 540 million, or 1.5% of GDP in the first quarter (according to both raw and seasonally adjusted data). This is similar to the third and fourth quarters of 2020. Hungary's gross external debt fell to 59% of GDP. Despite the favourable data, Hungary's external financing capacity, taking into account the balance of errors and omissions, is around zero, and net FDI inflow has been negative for the second quarter. A day before the MNB's rate decision, the forint strengthened, to trade near 353 to the euro by the end of the day, outperforming the zloty and the koruna. An article by Governor György Matolcsy criticized the high deficit in Hungary's 2022 budget, pointing out its inflation risks, and called for the deficit to be cut to 3%. Due to the Fed's communication last week, both German and US 10Y yields rose by three basis points on Monday, with marked volatility in the US 10Y yield: it fell 10 bps in the morning to 1.35% for the first time since February, then it bounced back to 1.48%. The belly and the long end of the yield curve increased by 4-7 bps. www.otpresearch.com 2 22 JUNE 2021 According to the data published yesterday, last week the MNB bought the usual amount, HUF 60 billion worth of government securities (HUF 28 billion at auction, and HUF 32 billion bilaterally) and HUF 1 billion each in government-backed bonds and mortgage bonds. The dollar weakened in Monday's trading: the EUR/USD exceeded 1.19 (+0.5%), the GBP/USD jumped 0.9%, and the Bloomberg Dollar Spot Index sank 0.4%. Crude oil prices extended their gains: WTI jumped 2.8% and Brent grew by 1.9%, closing near USD 75, and it even surpassed it in this morning’s Asian trade, for the first time in two years. According to Bloomberg, U.S. inventories are expected to shrink by 3.5 million barrels before the weekly inventory data are out on Wednesday. Bank of America forecasts that crude oil prices could reach 100 USD/barrel by 2022, as demand for travel returns, including a continued surge in car use. Today's highlights In today's bright trading, Asia's indices were seen in the positive territory, except the benchmarks of Hong Kong and Taiwan. Japan's Nikkei increased by 3%, the Shanghai Composite was seen 0.6% higher, and Hong Kong's Hang Seng shed 0.2%. Index futures suggest that the USA and Europe open with gains today. Today's meeting of the MNB's Monetary Council is likely to raise base rate, possibly above 0.75%, and a significant part of the central bank's extraordinary tools (excluding government securities purchases and the Growth Bond programme) may be withdrawn, based on previous communication. The stakes are high: the decision will strongly influence the forint's exchange rate. Analysts expect the interest rate to increase above 0.9%, the market is pricing in 1%. If the central bank disappoints markets, the forint could weaken. The MNB's usual Tuesday government securities purchase auction takes place today, and the ÁKK auctions 3M discount Treasury bills worth HUF 15 billion. On the macro stage, the June consumer confidence index in the euro area and the May data on existing home sales in the United States are worth checking. In his congressional hearing today, the Fed's Chair Jerome Powell speaks about the Fed’s emergency asset purchase and lending programmes during the pandemic. www.otpresearch.com 3 22 JUNE 2021 Stocks Bonds Commodity & FX Daily Daily Product Product Daily Product Close change YTD (%) Yield YTD* Close change YTD (%) name name change* name (%) (%) S&P500 4225 1,4 12,5 VIX 17,9 -13,6 -21 WTI 73,7 2,8 51,8 DOW 33877 1,8 10,7 US 2Y 0,25 0,0 13 Brent 74,90 1,9 44,6 Nasdaq C. 14141 0,8 9,7 US 10Y 1,49 5,1 58 Gold 1781,8 0,8 -6,0 DAX 15603 1,0 13,7 GER 2Y -0,66 1,4 6 Silver 26,03 0,2 -1,5 CAC40 6603 0,5 18,9 GER 10Y -0,17 2,9 40 EUR/USD 1,1919 0,5 -2,4 FTSE 100 7062 0,6 9,3 PT10Y 0,43 0,2 41 EUR/GBP 0,8553 -0,4 -4,3 Global FTSE MIB 25398 0,7 14,2 IT 10Y 0,88 0,5 34 EUR/NOK 10,2240 -0,6 -2,5 Stoxx600 455 0,7 14,1 SP 10 0,45 0,0 41 USD/CAD 1,2363 -0,8 -2,8 - Banks 135 0,6 25,1 iTRAXX 48,0 -1,0 0 AUD/USD 0,7522 -0,2 -2,2 Nikkei 225 28848 3,0 5,1 JPY 2Y -0,11 0,4 2 USD/JPY 110,27 0,1 6,8 SSEC 3557 0,8 2,4 JPY 10Y 0,05 0,7 3 GBP/USD 1,3934 0,9 1,9 RTS 1642 -0,3 18,4 RUS10 7,1 0,5 122 USD/RUB 73,156 0,4 -1,7 WIG20 2219 -0,1 11,9 POL 10 1,8 -0,2 52 EUR/PLN 4,53 -0,5 -0,7 Regional PX50 1166 0,3 13,5 CZ10 1,6 0,0 38 EUR/RON 4,929 0,0 1,4 BUX 48380 0,5 15,1 3M DKJ 0,64 0,0 36 EUR/HUF 353,10 -0,7 -2,6 OTP 16500 0,7 23,5 1Y 0,82 0,0 43 USD/HUF 296,20 -1,2 -0,2 MOL 2340 0,9 6,8 3Y 1,76 2,0 106 CHF/HUF 322,71 -0,7 -3,8 Hungary MTelekom 425 0,6 11,7 5Y 2,11 7,0 75,0 PLN/HUF 78,00 -0,2 -1,9 Richter 8300 0,2 11,6 10Y 2,87 4,0 79,0 GBP/HUF 412,88 -0,3 1,7 * In the case of bond yields, the change is in basis points instead of percentage (VIX and iTRAXX not included). Sources: Bloomberg, OTP Research www.otpresearch.com 4 22 JUNE 2021 Data Cd. Event/Data Period Fact Cons. Prev. 2021 6. 21. 8 : 30 HU Balance of payments (quarterly, EURbn) Q1 0,5 0,2 16 : 15 EZ C. Lagarde hearing before ECON Committee - - - - 22. 13 : 00 HU MNB gov't bond purchase auction - - 28,0 14 : 00 HU Interest rate decision (%) Jun 0,9 0,6 16 : 00 EZ Consumer confidence (point) Jun -2,8 -5,1 16 : 00 US Existing home sales (annualized monthly, '000s) May 5740 5850 23.
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