In its monthly “Portfolio recommendations” series, Amundi Alapkezelő assesses recent market developments and their implications. The firm highlights that renewed Iran–US hostilities and refinery outages have driven energy prices higher, with knock-on effects across financial markets.
What happened?
A short-lived lull in Iran–US tensions ended in renewed hostilities within around two weeks, contributing to a rise in energy prices. At the same time, refinery capacity losses in the Gulf and disruptions to Russian refining capacity caused by ongoing attacks in Ukraine have pushed spreads for refined products—especially gasoline and diesel (the so-called crack spread)—to record levels.
Why it matters
Higher crude and refined-product prices increase Europe’s energy-supply risk on two fronts. European gas storage is historically low and difficult to refill at this time of year, while disruptions to refining capacity raise the price of transport fuels. Because rising energy costs feed into inflation expectations, the European Central Bank (ECB) has already tightened policy and signalled further hikes, even though second-round inflationary pressures are increasingly concentrated in energy-related items rather than the broader basket of commodities seen earlier.
Bond markets and energy-price linkage
Amundi points out that the 30-day correlation between ten-year European government yields and the one-month Dutch front-month gas price has reached historic highs. Investors are effectively trading long-duration bonds based on immediate energy-price moves, because rising energy costs imply a tighter ECB rate path. Amundi regards this as undesirable from a monetary-policy perspective: volatility in a relatively niche but economically important commodity is transmitting into the entire sovereign yield complex, affecting saving and investment decisions.
Macro implications
Higher energy prices raise financing costs and can act as a growth shock. Reflecting this, the EU’s GDP forecast has been revised down from 1.2% to 0.6% for the year in the context discussed by Amundi. Given the weaker growth outlook, Amundi does not expect the ECB to deliver the roughly 2.2 percentage points of further hikes that markets currently price in; either further growth deterioration or an easing of geopolitical tension could lead to a relaxation of monetary policy, which would benefit euro-area bonds and sectors exposed to them, such as real-estate–linked equities.
Hungary: monetary outlook and FX
The prospect of the Magyar Nemzeti Bank’s (MNB) durable rate cuts has receded amid ECB tightening and energy-driven uncertainty. Amundi notes that, after the previously communicated move toward a 5.5% policy rate by August, long-term rate derivatives (FRAs) currently price only one to two additional cuts over the next two years. Amundi views this as conservative: absent large crises, the MNB could deliver larger cuts, which would make short-duration (1–3 year) Hungarian government bonds an attractive opportunity. Potential larger MNB cuts could also limit further strong forint appreciation, so Amundi anticipates a sideways trajectory for the currency.
Equity markets: rotation and the exhaustion of the AI rally
On the surface major equity indices have been relatively stable, but beneath the surface significant rotation has occurred over the past six weeks. The formerly dominant AI-linked rally—characterised by rapid gains and very high positioning—has run out of steam and those segments experienced a swift correction. Alongside lofty valuations and elevated expectations, Amundi attributes part of the correction to negative news around the financing capacity that had been supporting rapid AI investment: waning interest in bond issuance (now with higher spreads) and the potential for additional equity issuance have added supply-side pressure to equities.
At the same time, non-AI segments that had previously lagged have performed well. Amundi interprets recent moves more as rotation than broad-based selling. The sharp corrections have in many cases improved market health and valuations in several sectors considered attractive over the long term. In particular, corrections in energy storage, electrification and alternative-energy areas mean that much of the adjustment may already be behind investors.
AI investments and profitability questions
A key uncertainty around the AI investment boom is how much cash generation the already deployed services will deliver, and whether that cash can finance further expansion. Significant uncertainty remains, but Amundi notes market rumours that Anthropic was operationally profitable in the second quarter.
Amundi model portfolio currency exposures
- HUF exposure: 70%
- EUR exposure: 10%
- USD exposure: 10%
- Other currency exposure: 10%
Closing note
Amundi stresses the asset-allocation figures are for informational purposes only. This piece does not constitute investment advice or an investment recommendation. Investors should consider their own risk tolerance and objectives before making decisions.
