Asia Stocks Rise on Wall Street Rally, Lower Fed Hike Bets Lift Sentiment

Global Mood: Cautiously Risk-on

Drivers: Iran Wedding Strike Probe, Ukraine Peace Talks Stir, Fed Rate Call Hangs on CPI

Asian markets traded mostly higher on Friday, led by South Korea’s Kospi, which rose 1.42%, and Japan’s Nikkei 225, which gained 0.9%. Australia’s ASX 200 edged up 0.07%, and New Zealand’s NZX 50 rose 0.59%, while Japan’s Topix slipped 0.26%.

The gains followed a strong Wall Street rally, with the Dow, S&P 500 and Nasdaq rising 1.18%, 1.06% and 1.40%, respectively. Sentiment improved after Federal Reserve Governor Christopher Waller signalled that he could support keeping rates unchanged if upcoming inflation data shows further cooling, reducing market expectations of a September hike to around 50% from 63% previously.

THE BIG STORY

The Iran war's worst civilian incident in weeks came under scrutiny Thursday as weapons experts reviewing Reuters-verified footage concluded that the deadly strike on a wedding in Sirik was likely a direct hit by a US munition rather than a ricochet, contradicting Washington's initial framing. Five people were killed, including a four-year-old child, with nearly 70 wounded, as mourners held funerals along the Hormuz coastline.

Vance said the US was investigating, stopping short of accepting responsibility, while Iran kept up retaliatory strikes on US bases in Iraq, Jordan, Qatar, Kuwait and Bahrain through Thursday before the exchange appeared to subside. Brent climbed above $96 on a fourth consecutive day of gains as markets priced in sustained disruption, with the conflict's biggest flare-up since July showing no sign of a diplomatic off-ramp and Trump's approval ratings at record lows ahead of November midterms.

On the Ukraine front, both Putin and Zelenskiy offered rare upbeat signals Thursday: Putin acknowledged a peace deal was possible and said the US and China were ready to support a settlement, while Zelenskiy said US envoys Witkoff and Kushner had set preliminary dates to visit both Kyiv and Moscow in the coming days, their first-ever trip to the Ukrainian capital. Wheat futures fell more than 2% on the peace signals. On the monetary policy front, Fed Governor Waller said he was leaning toward holding rates steady at the September meeting if inflation data continues to moderate, offering a counterweight to Warsh's hawkish Jackson Hole stance. He left the door open to a hike if August CPI comes in hot; the data, due next week, is now the single most consequential input for a September decision, with markets pricing in roughly 70% probability of a move.

Data Spotlight

The ISM Services PMI rose to 55.4 in August from 54.1 in July, a six-month high and above expectations of 54.3, as business activity, new orders and inventories all accelerated. Employment contracted for a second consecutive month, while price pressures intensified to a four-year high of 72.6, with petroleum products, diesel and gasoline the primary drivers. Tariffs and the West Asia conflict returned as the most cited supply chain concerns.

The US trade deficit widened to $88.6 billion in July, the largest since March 2025, as imports rose 2.8% to $399.3 billion led by computers and semiconductors, while exports fell 2.1% to $310.7 billion on lower crude oil and gold shipments. The largest bilateral gaps were with Mexico at $27.5 billion, Vietnam at $23.3 billion and Taiwan at $18 billion.

The S&P Global US Services PMI was revised to 56.5 in August from a flash estimate of 56.8, still the sharpest expansion since December 2020, as new business rose the most in over 20 months and backlogs built at the fastest pace in three years. Employment grew at its highest rate in 18 months, though input cost inflation remained above the historical trend.

Takeaway: US services activity accelerated sharply in August, pointing to broadening economic momentum, though surging price pressures at a four-year high and a widening trade deficit signal that inflation and external imbalances remain significant challenges for the Federal Reserve heading into its September meeting.

WHAT HAPPENED OVERNIGHT

• US stocks rally as Fed Governor Waller's dovish lean eases September rate hike fears
• The Dow rose 1.18%, S&P 500 gained 1.06%, and Nasdaq climbed 1.40%, with all three indexes on track for weekly gains after Waller said he would support holding rates if inflation data shows abating pressures.
• September hike odds fell to 50.4% from 63.2% on Wednesday after Waller's remarks, with the 10-year Treasury yield pulling back for a second straight session from its highest level since November 2023.
• Nvidia rose 1.8% after announcing a $12.9 billion acquisition of developer platform Hugging Face, challenging OpenAI and Anthropic in the AI ecosystem.
• Economic data was mixed, with low jobless claims and accelerating services activity offset by services input prices hitting their highest since October 2022 and a 24.4% widening in the trade deficit.
• Friday's August jobs report is expected to show 56,000 jobs added with unemployment steady at 4.1%, the next key input for the September Fed decision.
• US Treasury yields ease to 4.74% as Waller's dovish lean and oil moderation offer relief
• The 10-year yield pulled back from the week's high of 4.81%, its highest since October 2023, after Waller said he would support holding rates if inflation continues progressing toward the 2% target.
• September hike odds fell to 50% from 70% earlier in the week, when oil's spike and Warsh's Jackson Hole hawkishness had driven the sharp yield surge.
• Friday's jobs report and next week's CPI and PPI data are the next key inputs for the September Fed decision.
• US Dollar holds just below 99 as Waller's dovish lean and yen strength weigh on the greenback
• The dollar index stabilised after Thursday's sharp slide, with September hike odds at 50% following Waller's signal.
• Waller said his next policy decision depends heavily on August inflation data due next week, shifting focus from Friday's jobs report to the CPI and PPI releases.
• The yen surged as traders assessed prospects for more aggressive BoJ tightening and watched for intervention signals, adding pressure on the dollar.
• The dollar index is on track for a weekly decline of ~0.7%, extending its recent run of losses.
• Oil mixed as West Asia escalation and Putin's Ukraine peace signals pull prices in opposite directions
• Brent settled at $95.52/bbl, down 0.12%, and WTI at $91.30, up 0.32%, after both hit six-week highs earlier as the most significant US-Iran exchange since July continued to reverberate.
• US strikes killed 18 people and wounded 108 across Iran, with Iranian Army pilots among the dead, while Israeli Defence Minister Katz renewed threats to "cripple" Iran's military and civilian infrastructure, including energy facilities.
• VP Vance said the US will not hold talks with Iran unless Tehran stops attacking commercial Hormuz shipping, with Iran continuing to add vessels to its non-compliant list subject to fines and detention.
• Six commodity vessels transited Hormuz on Wednesday, down from 11 the prior day and below the 10-day average of 13, with global oil inventories still declining and underpinning prices.
• Putin signalled openness to a Ukraine peace deal at an economic forum, with the US, China, and other countries reportedly ready to support a settlement, easing Russian fuel supply disruption concerns.
• Iraq raised oil exports to 2.34 million bpd in August from 1.35 million bpd in July, with September exports also set to increase as heavy discounts and Iranian approvals for Iraqi tankers encourage buyers.

Day’s Ledger*

Economic Data 

• India FX Reserves, USD
• US August Average Hourly Earnings
• US August Unemployment Rate

Policy

• BoE Gov Bailey Speaks
• ECB's Lane Speaks

Tickers to Watch

• ULTRATECH CEMENT: Aditya Birla Group enters India’s wires and cables market with an ₹18 billion investment, launching the business under the Ultravolt brand.
• BHARAT FORGE: Kalyani Strategic Systems partners with FN Herstal to develop small arms and counter-UAS capabilities in India.
• HDFC BANK: Bank raises $11.5–12 billion through FCNR-B deposits under the RBI’s concessional swap facility, sources say.
• STERLITE TECHNOLOGIES: Approves ₹30 billion capex plan to expand capacity at its existing manufacturing facility.
• GLAND PHARMA: ₹22.795 billion rupees block deal launched in the company, with Fosun Pharma as the seller, sources say.
• RAMCO SYSTEMS: Signs MoU with Safran Helicopter Engines to automate engine information flow into its aviation maintenance software.
• RBL BANK: Receives GST show-cause notice proposing demand of ₹1.6414 billion, including applicable interest and penalty.
• CREDITACCESS GRAMEEN: Raises ₹3 billion through private placement of NCDs, fully subscribed and placed with Barclays Bank.

Must Read

• RBI Should Allow Early Exit to Make Its Term VRRR Auctions Effective
• The Hidden Cost of RBI’s $127 Billion FCNR Success
• India’s Credit Data Is Getting Faster. Its Economic Context Still Isn’t
• Empowering Women in India Economically also Improves their Mental Health
• The Burden of a Successful FCNR Scheme
• Jio sets eyes on Navratri-Diwali period to launch mega $4 billion IPO
• CAS mechanism effect: Sebi to review derivatives trades pricing

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day