Markets in serious peril – but is there a way out?
The week turned out to be quite exciting both internationally and domestically. The movement of international stock markets was determined by an event that rarely affects markets, but when it does, vulnerability reaches its peak. In the narrative surrounding AI, the bubble is mentioned more and more frequently, and the broader economic picture (labor market, inflation), the double liquidity shock affecting the US banking system (the Fed's Quantitative Tightening [QT] program and the fact that, due to the government shutdown, tax revenues continued to flow into the US government's Treasury General Account [TGA] while spending was suspended) meant that there were more and more days when the markets closed with declines of around 2%.
Nvidia's flash report exceeded expectations, while the US labor market performed better than anticipated. In this situation, the big question is whether it makes sense to cut interest rates in the US in December. During the week, the dollar strengthened against the euro and the Japanese yen. This is due to better-than-expected US labor markets and the fact that the December interest rate cut is now in jeopardy.
The most significant development on the Hungarian side was the resignation of Barnabás Virág, deputy governor of the National Bank of Hungary (MNB). The news sent the forint tumbling.
What do we look forward to this week?
On Monday, Germany will release its IFO economic sentiment index, followed by the Dallas Fed's manufacturing PMI in the afternoon. Both are important for assessing the economic situation. The big question is whether growth will pick up in Germany and whether the US will maintain its current growth rate.
On Tuesday, Hungarian and major international data will be released simultaneously. At home, the European Commission will assess developments in the excessive deficit procedure launched against Hungary, which is crucial in terms of the fiscal path and EU funds, and may therefore directly affect the forint and Hungarian bond yields. On the international front, Germany's second GDP estimate, France's consumer confidence index, the US ADP employment report, and retail sales and producer prices will be released. Together, these figures will show how strong growth remains in the core countries and the US, and how stubborn inflationary pressures are – providing direct input for markets speculating on the future actions of the Fed and the ECB.
On Wednesday, the US will dominate the calendar: durable goods orders, new jobless claims, and the Chicago Fed PMI will be released. These are important because durable goods orders are a good indicator of corporate investment appetite, while weekly jobless claims are an ultra-short-term indicator of how tight the labor market still is.
Thursday will see a dual focus: Asia and Europe. Chinese industrial profit data will be released at dawn, which is critical for the global industrial cycle and the raw materials market due to the health of the corporate sector there. In the morning, economic sentiment and inflation expectations indicators will be published in the eurozone, from which the market will try to gauge how much companies and households still fear inflation – in other words, how "relaxed" the ECB can be with its easing measures. On the Hungarian side, tourism accommodation turnover and population movement data will be released, which are more background indicators, but provide an indication of the strength of the service sector and demographic trends.
Friday will bring a flood of data, both in Hungary and Europe, making it the busiest day of the week. In Hungary, employment and unemployment figures and industrial producer prices will be released in the morning, showing both the tightness of the labor market and corporate cost-side inflation, which will have a direct impact on the forint and bond markets. At the international level, Japanese inflation figures will be released, retail sales and import prices from Germany, French CPI and GDP estimates, retail sales and inflation from Spain, followed by the German unemployment rate, German regional inflation, Italian inflation, and finally German national inflation at the end of the day. This block is essentially a mini "European inflation day," which could determine how markets price the ECB's next moves and where the euro will go. And then, at the weekend – early on Sunday morning – we will see the Chinese NBS PMI, which could influence sentiment at the start of next week, particularly on the Asian and commodity markets.
Finally, it is important to note that data has started to come in again in the US, but there is still some uncertainty about when and what will be published. Therefore, there may still be surprises in the publication of US data.
Cover photo (for illustration purposes only): Getty Images
