Asian Equities Gain on Fed Cut Bets, but Global Political Risks Keep Markets Cautious

GLOBAL MOOD: Cautiously Risk On
Drivers: Fed rate cut hopes, France politics, Indonesia unrest

Markets are showing a cautious risk-on tone, with equities buoyed by Fed rate-cut expectations after weak US labour data, while political upheavals in France and Indonesia spur safe-haven demand, keeping volatility elevated and risk-taking selective.

TODAY’S WATCHLIST
 - US EIA Short-Term Energy Outlook      
 - Eurogroup Meetings

THE BIG STORY
France plunged deeper into political turmoil on Monday as parliament voted to bring down Prime Minister Francois Bayrou’s government over its plans to rein in the country’s ballooning debt. Bayrou’s minority government lost the confidence vote 364 to 194, forcing his resignation on Tuesday and leaving President Emmanuel Macron to appoint his fifth prime minister in under two years. Bayrou had sought parliamentary support to tackle a deficit nearly double the EU’s 3% ceiling and a debt pile equivalent to 114% of GDP, but lawmakers rejected the plan, warning that rising expenses and mounting debt would continue to strain the economy.

Meanwhile, Indonesia also faced market jitters as influential Finance Minister Sri Mulyani Indrawati was abruptly replaced by economist Purbaya Yudhi Sadewa. The move has sparked concern over the potential erosion of fiscal credibility amid ongoing protests, as the country navigates delicate economic and political conditions.

Data Spotlight 
US consumer inflation expectations for the year ahead rose to 3.2% in August 2025, the highest in three months, up from 3.1% in July. While expectations eased for college costs by 7.8%, rent by 6.0%, and medical care by 8.8%. Anticipated price changes for gas (3.9%) and food (5.5%) remained steady for the third consecutive month. Longer-term inflation expectations also held stable, with the three-year outlook at 3% and the five-year forecast at 2.9%. Meanwhile, US consumer credit surged by $16.01 billion in July, well above the $10.1 billion expected, following a revised $9.61 billion increase in June. Revolving credit rose at a 9.7% annual rate, and nonrevolving credit grew 1.8%, driving an overall seasonally adjusted annual expansion of 3.8% in consumer borrowing.

Takeaway: Rising near-term US inflation expectations, coupled with strong growth in consumer credit, indicate that US households remain confident in borrowing and spending. This trend suggests persistent domestic demand, which could influence Federal Reserve policy amid mixed signals from price pressures and economic activity.

WHAT HAPPENED OVERNIGHT

• Nasdaq hits record, S&P 500 rises on rate-cut bets 
  
  • Nasdaq closed at a record high, supported by Broadcom’s 3.2% gain on AI-driven revenue optimism.
  • S&P 500 advanced as investors priced in potential Fed interest rate cuts after weak jobs data.
  • Robinhood Markets surged 16% and AppLovin jumped 12%, ahead of their S&P 500 inclusion on September 22.

• US Treasury yields slip as rate-cut expectations persist
  
  • US Treasury 10-year yield eased to 4.047%, lowest since April, pausing a three-day slide.
  • 30-year bond yield fell to 4.697%, while 2-year note yield dropped to 3.497%.
  • Investors awaited key inflation reports PPI on Wednesday, CPI on Thursday to gauge Fed’s near-term rate decisions.

• US dollar weakened amid Fed rate cut bets
  
  • The US dollar index declined by 0.42% to 97.46, continuing its fall following the latest US jobs report and expectations of a Federal Reserve rate cut.
  • Euro gained 0.36% to $1.1759 despite political turmoil in France following Prime Minister Bayrou’s ousting.
  • Dollar edged up 0.04% to 147.44 yen as markets reacted to Japanese PM Ishiba’s resignation.

• Crude oil prices recover on OPEC+ decision
  
  • Brent crude rose 0.79% to $66.02 per barrel; US WTI increased 0.63% to $62.26 per barrel.
  • OPEC+ announced a modest output hike, smaller than some analysts expected, signalling cautious supply growth.
  • Investors also priced in the potential for further sanctions on Russian crude, supporting market sentiment.

Day’s Ledger

Economic Data

• UK August BRC Retail Sales Monitor
• US EIA Short-Term Energy Outlook      

Corporate Actions

• Titan Intech to consider right issue 
• Vikram Solar earnings 

Policy Events

• Eurogroup Meetings                    
• German Buba President Nagel Speaks

Tickers to Watch

• RAILTEL CORP secures ₹597.7 million order from Bihar Education Project Council
• GODREJ CONSUMER’s Indonesia arm starts building new manufacturing plant
• Govt extends INDIAN OVERSEAS BANK MD & CEO Srivastava’s term till Oct 2027
• VEDANTA invests ₹125 billion to boost metal output and value-added products
• INFOSYS board to meet on Thursday to consider share buyback
• IRB INFRA’s August gross toll collection rises 12% YoY to ₹5.63 billion
• HUDCO inks MoU with Nagpur Metropolitan Region Development Authority
• Promoter WestBridge exits APTUS VALUE HOUSING, sells full 16.2% stake
• SPICEJET clears $24 million dues to Credit Suisse

MUST READ

• India, Israel sign bilateral investment treaty to boost economic ties
• Piyush Goyal may visit Qatar in October as FTA framework nears close
• India's textile exports to US rise 9% in July on pre-tariff shipments
• OPEC to boost output for market share; Brent may fall below $65 a bbl
• M&M cushions dealers from cess hit; GST 2.0 dents Aug auto sales: Fada
• India's CAD may expand as external risks intensify, warn economists
• Trump tariffs may trim 0.5% from India's FY26 GDP: CEA Nageswaran
• China’s Rate-Cut Outlook in Doubt as Stock Rally Stirs Worry

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See you tomorrow with another edition of The Morning Edge.

Have a great trading day.

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