Hungary's central bank (NBH) has, for the fifth consecutive policy meeting, left the base rate unchanged at 8.00% in line with market expectations. The central bank is currently ignoring the fact that the forint is so strong against the Euro and focusing much more in the inflationary pressures. Capital market trends continued to strongly influence the Budapest exchange. The Budapest Stock Exchange was lifted on the international optimism fueled mostly by the rather-positive announcements from the US Federal Reserve (Fed) and the maintenance of interest rates in the US. The Fed kept its target for the federal funds rate, an overnight bank lending rate that helps determine rates on credit card, home equity and other loans, at 5.25 percent. One of the biggest bones the Fed threw to the markets in its last statement was its omission to directly mention the problems developing in the sub-prime mortgage market, taking that as a sign that rising defaults among borrowers with poor credit histories may not be that big of an issue. Sub-prime borrowers, those with poor or limited credit records or high debt burdens, made up about a fifth of all new mortgages last year. Many investors interpreted that rates in the near term would not be raised and that the Fed might even start cutting them if need be later this year.
Although the relationship between interest rates and the stock market is fairly indirect, the two tend to move in opposite directions. A decrease in interest rates means that those who are buying securities such as bonds have a decreased opportunity to make income from interest. Assuming investors behave rationally; a decrease in interest rates prompts investors to move money away from the bond market to the equity market, helping the prices of stocks to rise as there is a transfer of capital from selling their bonds and buying stocks. At the same time, businesses enjoy the ability to finance expansion at a cheaper rate, thereby increasing their future earnings potential, which leads to higher stock prices. Investors and economists alike therefore view lower interest rates as catalysts for expansion since they lower business costs, boost corporate profits, and consequently stock prices.
Oil prices rises Crude oil prices were up for the whole last week on fears that supplies would be disrupted as international tensions increased over Iran's nuclear program and its detention of British sailors and marines since last Friday.
This latest escalation of tensions in the oil-rich Gulf sent the Amex Oil Index (XOI) up a 7% advance for the week. The XOI is an index of the leading companies involved in the exploration, production, and development of petroleum. It measures the performance of the oil industry through changes in the prices of the stocks that they comprise.
MOL, Hungary’s biggest oil and gas refinery, has been lifted since last week in part by the global geopolitical tensions in Iran and the influence of a higher price of the XOI index.
Wednesday, 28 March 2007
Wednesday, 7 March 2007
Oil and Gold in the way up
February 28, 2007 08:00 am On the Hungarian macro-economic front, the Hungarian National Bank (MNB) left its benchmark interest rate at 8%, in line with market expectations.
This is the fourth consecutive time that rates have been left unchanged. The MNB raised its forecast for 2007's annual average inflation to 7.4% from 6.9%.
As reported elsewhere, the PM nominated András Simor as the head of the National Bank. He will replace Zsigmond Járai on Mar 2.
We believe this new nomination to be good news for the market, given the business experience of Simor as the chairman of Deloitte and Touche Hungary, and as the chairman of the Budapest Stock Exchange (BSE) from 1998-2002.
Last week's performance of the major stocks in the BSE was mixed.
The price for OTP, the largest retail local bank, decreased by almost 4%. MOL, the largest oil and gas refinery in Hungary, on the other hand, increased by more than 3% for the past week.
There were two main reasons for the hike in MOL's price; higher oil and commodity prices in the US and the upgrade from Goldman Sachs from "hold" to a "buy" recommendation.
Safe haven?
The most significant events in the US markets lately were the heightened geopolitical tensions in Iran, the world's fourth-largest oil producer, which lifted the price of oil and commodities including gold.
Iran's President, Mahmoud Ahmadinejad, said last week that he would continue to pursue his nuclear program, ignoring a UN deadline to halt an uranium enrichment program, amid fears it could be used to make atom bombs.
In light of the geopolitical tensions, gold touched a new nine-month high of $685/oz on Friday, now very close to the key psychological mark of $700.
The price of gold often rises with increased geopolitical concerns because of the metal's appeal as a financial safe-haven.
Silver also jumped to a nine-month high on Friday, while oil climbed above $61 to its highest level this year.
Investors will be keeping an eye on crude oil prices, especially after the United States reported an unexpected drop in gasoline inventory capabilities.
This made investors anxious as they predict a higher demand for petroleum ahead of the summer driving season.
Oil production, which reached about six million barrels a day in the late 1970s, now lingers at around 3.5 million, according to the US Energy Information Administration (EIA).
In more concrete terms, within the stock market, the run-up in prices of commodities gave a lift to metals and mining stocks, as well as to energy stocks, but also put a damper on any broader market advance of the major US stock indices.
Six-year highs
Even thought the Dow Jones index has been very bullish lately, and the S&P 500 and NASDAQ composite have been reaching more than six-year highs, all indices retreated late last week on Iran's nuclear pursues and higher commodity and oil prices.
With oil and gold prices continuing to move higher on geopolitical concerns, investors are becoming a little worried about the direction of the stock markets and are investing more heavily in energy-related stocks and commodities like oil, gold, and silver.
Ana Herrero-Wallace works in equity sales at Cashline Securities (Budapest). She has also worked as a NASDAQ trader for another brokerage and securities firm in the US.
This is the fourth consecutive time that rates have been left unchanged. The MNB raised its forecast for 2007's annual average inflation to 7.4% from 6.9%.
As reported elsewhere, the PM nominated András Simor as the head of the National Bank. He will replace Zsigmond Járai on Mar 2.
We believe this new nomination to be good news for the market, given the business experience of Simor as the chairman of Deloitte and Touche Hungary, and as the chairman of the Budapest Stock Exchange (BSE) from 1998-2002.
Last week's performance of the major stocks in the BSE was mixed.
The price for OTP, the largest retail local bank, decreased by almost 4%. MOL, the largest oil and gas refinery in Hungary, on the other hand, increased by more than 3% for the past week.
There were two main reasons for the hike in MOL's price; higher oil and commodity prices in the US and the upgrade from Goldman Sachs from "hold" to a "buy" recommendation.
Safe haven?
The most significant events in the US markets lately were the heightened geopolitical tensions in Iran, the world's fourth-largest oil producer, which lifted the price of oil and commodities including gold.
Iran's President, Mahmoud Ahmadinejad, said last week that he would continue to pursue his nuclear program, ignoring a UN deadline to halt an uranium enrichment program, amid fears it could be used to make atom bombs.
In light of the geopolitical tensions, gold touched a new nine-month high of $685/oz on Friday, now very close to the key psychological mark of $700.
The price of gold often rises with increased geopolitical concerns because of the metal's appeal as a financial safe-haven.
Silver also jumped to a nine-month high on Friday, while oil climbed above $61 to its highest level this year.
Investors will be keeping an eye on crude oil prices, especially after the United States reported an unexpected drop in gasoline inventory capabilities.
This made investors anxious as they predict a higher demand for petroleum ahead of the summer driving season.
Oil production, which reached about six million barrels a day in the late 1970s, now lingers at around 3.5 million, according to the US Energy Information Administration (EIA).
In more concrete terms, within the stock market, the run-up in prices of commodities gave a lift to metals and mining stocks, as well as to energy stocks, but also put a damper on any broader market advance of the major US stock indices.
Six-year highs
Even thought the Dow Jones index has been very bullish lately, and the S&P 500 and NASDAQ composite have been reaching more than six-year highs, all indices retreated late last week on Iran's nuclear pursues and higher commodity and oil prices.
With oil and gold prices continuing to move higher on geopolitical concerns, investors are becoming a little worried about the direction of the stock markets and are investing more heavily in energy-related stocks and commodities like oil, gold, and silver.
Ana Herrero-Wallace works in equity sales at Cashline Securities (Budapest). She has also worked as a NASDAQ trader for another brokerage and securities firm in the US.
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