Global Mood: Cautiously Risk- off
Drivers: US-Iran uncertainty, Energy supply risks

Asian equities were lower on Tuesday, tracking Wall Street losses as uncertainty over the US-Iran conflict kept investors cautious. Japan’s Nikkei fell 0.73%, South Korea’s Kospi declined 0.35% and Australia’s ASX 200 slipped 0.1%. The SGX Nifty was at 22,822, down 2.5 points, indicating a largely flat opening for Indian equities.

Risk appetite remained subdued as investors assessed the potential impact of the conflict on oil supplies, inflation and global growth.

Diplomatic efforts offered some relief, with US and Iranian officials holding separate talks through mediators. Iran said it could reopen the Strait of Hormuz if Washington lifts its blockade, ends hostilities and unfreezes Iranian assets. However, uncertainty over the outcome kept energy-supply risks elevated. Geopolitical concerns were compounded by continued Russian drone attacks across Ukraine.

THE BIG STORY
US and Iranian officials held separate talks with mediators on a possible amended peace plan.  Iran said it would reopen the Strait of Hormuz after the US lifts its blockade, ends hostilities and unfreezes Iranian assets. Trump said the US would win the war “very soon” but also confirmed talks with mediators. Iran’s foreign minister remained in New York awaiting Washington’s response to Tehran’s latest proposal.

Iran’s conditions for reopening the strait remain central to the talks, keeping global oil supply risks tied to the outcome of diplomacy. The waterway remains a key route for global crude and LNG shipments.

Russian drones killed at least nine people across Ukraine, including two at Kyiv’s Academy of Sciences and three in Dnipro. Ukraine said Russia is increasingly using faster jet-powered drones that are harder to intercept.

Data Spotlight
The Dallas Fed Manufacturing Index eased to 9.8 in September from 11.6 in August, as the company outlook index slowed sharply to 8.7 from 19.2 and uncertainty edged higher. 

Raw materials prices surged to 52.2, well above the series average of 28.0, while employment picked up to 15.1 and six-month production expectations held firm at 40.3.

China's industrial profits rose 15.7% year-on-year in the first eight months of 2026, slowing from 17.6% in January-July, with computers and communications leading sectoral gains at up 110%. 

August alone saw profit growth slow sharply to 4.2% from 11.2% in July, the softest pace since November 2025, as subdued domestic demand weighed.

South Korea's manufacturing Business Survey Index fell to 79 in September from 81 in August, with production and new orders both declining while inventories rose. 

The Composite Business Sentiment Index fell 4.3 points to 99.5, with the forward-looking index also easing, pointing to a continued softening in business conditions.

Takeaway: Easing manufacturing sentiment across Texas, China and South Korea points to a broadening industrial slowdown, even as headline profit growth in China remains positive. Surging raw material costs in the US and slowing order momentum in Asia suggest the global manufacturing cycle may be losing steam heading into Q4.

WHAT HAPPENED OVERNIGHT

US stocks fall as Iran deal rejection, surging yields, and oil pressure equities

• The Dow fell 0.67%, S&P 500 lost 0.77%, its biggest daily drop since August 20, and Nasdaq dropped 0.92%, as Trump's rejection of Iran's peace proposal pushed oil higher before Qatari mediation hopes pared gains.
• October Fed hike odds rose to 70.3% from 57.6% a week ago and just 17.7% a month earlier, with Fed Governor Cook flagging continued inflationary pressure from AI demand and higher oil prices.
• Nvidia gained 1.6% after announcing a record $150 billion share buyback authorisation, bucking the broader selloff.
• Key data this week includes inflation readings and Friday's payrolls report, which could shape the October Fed decision.

US Treasury yields climb above 5.2% to fresh 2007 highs as Iran stalemate keeps inflation fears elevated

• The 10-year yield rose above 5.2%, hitting new highs since mid-2007, as swinging but elevated oil prices and lack of US-Iran progress kept inflationary concerns firmly in place.
• Strong economic data, deteriorating fiscal conditions, and rising government debt continued to weigh structurally on the Treasury market alongside energy-driven inflation risks.

US Dollar holds near two-month highs as Iran deal rejection and Fed hike bets drive safe-haven demand

• The dollar index climbed above 101.2 as Trump's rejection of Iran's Hormuz reopening proposal and Tehran's refusal to ease conditions pushed oil higher, boosting safe-haven demand.
• Cleveland Fed's Hammack cited resilient growth, a strong labour market, and government debt concerns as contributors to higher long-term yields, reinforcing the tightening case.
• PCE inflation and Friday's payrolls data are the key near-term catalysts for the October Fed decision.

Oil rises as Trump rejects Iran proposal, while Gulf crude flows recover

• Brent rose 0.9% to $105.28/bbl and WTI gained 0.2% to $92.60 as supply risks persisted after Trump rejected Iran’s proposal to reopen the Strait of Hormuz.
• Qatari mediators are expected to hold separate talks with the US and Iran, raising hopes of a diplomatic path to reopen the strait.
• Crude exports from key West Asian producers rose to 12.8 million bpd in September, the highest since the war began in February, as Saudi Arabia and the UAE increased shipments, Kpler data showed.
• Hormuz flows are set to reach about 7.4 million bpd this month, up from earlier levels but still well below the roughly 20 million bpd that passed through the strait before the conflict.
• Saudi Arabia shifted exports from Yanbu to Ras Tanura after attacks damaged its East-West pipeline, while Aramco is considering discounts for oil loaded off Oman as freight costs surge.
• Brent’s premium over WTI widened to its highest since May as talk of US diesel export restrictions weighed on domestic crude demand.
• The White House considers broader sales of red-dyed diesel to ease fuel prices.

Day’s Ledger*

Economic Data

• US September CB Consumer Confidence
• US August JOLTS Job Openings
  

Corporate Actions

• Punjab & Sind Bank to consider fund raising
• Transport Corporation of India to consider buyback

Policy

• German Buba President Nagel Speaks
• German Buba Mauderer Speaks
• ECB President Lagarde Speaks
• BoE MPC Member Mann
• US FOMC Member Bowman Speaks
• US Fed Vice Chair for Supervision Barr Speaks
• US Fed Goolsbee Speaks
• US FOMC Member Williams Speaks
• ECB's Lane Speaks

Tickers to Watch

• IRFC signs a 42 billion rupees term loan agreement with Damodar Valley Corporation to finance renewable energy projects across Jharkhand and West Bengal.
• PIDILITE INDUSTRIES partners with South Korea-based Hwaseung Chemical to bring its footwear adhesive technology to Indian manufacturers.
• ZYDUS LIFESCIENCES says US FDA inspection at its SEZ II manufacturing facility in Ahmedabad concluded with one observation.

Must Read

• Tata Trusts Propose Merger Plan to Take Tata Sons Out of NBFC, CIC Frameworks
• India August industrial growth 8.0% on manufacturing, power boost
• The SIR Conundrum and the Controversy Over Differences Among Election Commissioners
• IRDAI Must Finally Put Some Bite Behind Its Rules
• The Independent Director Indian Cooperative Banks Have Long Been Missing
• Why Corporate India Should Look Beyond the Headline GDP Numbers
• El Nino to Reduce Kharif Production for 2026-27, Rabi Crops Also Under Stress 
• The Opposing Forces Reshaping Global Finance

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day