Global Mood: Cautiously risk-off
Drivers: US-Iran tensions, Russia-Ukraine war and energy risks

Asian markets were down on Friday, with South Korean stocks leading losses amid a sell-off in technology shares. Japan’s Nikkei 225 fell 0.68%, while the Topix gained 0.26%. South Korea’s Kospi dropped 3.11% and the Kosdaq declined 2.35%, while Australia’s S&P/ASX 200 rose 0.65%. US equity futures fell, with Nasdaq-100 futures down 1.7% and S&P 500 futures lower by 0.7%.

Technology stocks came under pressure after Amazon fell 6% in extended trading following a third-quarter earnings and revenue miss. The company also reported negative free cash flow of $ 42.4 billion and maintained its 2026 capital expenditure forecast of $ 220 billion. Intel shares also declined after results, adding to pressure on US technology futures. The GIFT Nifty was trading at 23,028, down 14.5 points or 0.06%, pointing to a largely flat opening for Indian equities.

THE BIG STORY
US Vice President JD Vance's outreach to Tehran, which President Donald Trump described as an effort to facilitate medical supplies, comes amid renewed attempts to revive peace talks. Iran has yet to respond and insists that the US lift its naval blockade, ease sanctions on oil exports and end hostilities across the region before reopening the Strait of Hormuz.

Russian drone and missile strikes killed at least 20 people across Ukrainian cities, including 14 in Dnipro, despite a local ceasefire in the Kherson region. Ukraine has reportedly paused strikes on Russian oil refineries following pressure from Trump, potentially easing risks to Russian fuel infrastructure even as Moscow intensifies attacks on Ukrainian energy and civilian facilities.

Data Spotlight
The US economy expanded at an annualised 3.4% in the third quarter of 2026, accelerating from 2.2% in the previous quarter and exceeding expectations of 3.2%. Growth was driven by a sharp rebound in private domestic investment, which surged 19.4%, led by a 20.9% increase in equipment investment, particularly computers and peripheral equipment, amid strong AI-related spending. 

Personal consumption remained robust at 3.8%, while government spending rose 5.3%. However, residential investment contracted 3.3%, and net trade weighed on growth as exports fell 5.7% and imports increased 19.7%. US personal consumption expenditures (PCE) inflation accelerated to 0.5% month-on-month in September, the highest in six months, from 0.3% in August, in line with expectations. Headline inflation rose to 3.6% year-on-year from 3.4%, while core PCE inflation increased to 3.1% from 3%. Goods prices rose 0.8%, driven partly by a 9.2% jump in gasoline and other energy prices. Core PCE inflation increased 0.3% month-on-month, its strongest rise in four months.

Markets priced in an 84.6% probability of a Fed rate hike in December, as higher energy prices and persistent inflation strengthen expectations of further monetary tightening. 

The European Central Bank kept its main refinancing rate unchanged at 2.65% and the deposit facility rate at 2.50%, as expected. The ECB warned that elevated energy prices could fuel inflation while weighing on economic activity, particularly if indirect and second-round effects intensify. Underlying inflation remained broadly stable, with no significant wage response so far. President Christine Lagarde said policymakers discussed a rate hike but unanimously agreed to hold rates steady.

Takeaway: Strong US growth, supported by AI-related investment and resilient consumer spending, reinforces economic momentum but complicates the Fed's inflation outlook. Accelerating PCE inflation and higher energy prices strengthen expectations of further monetary tightening. In Europe, the ECB faces a difficult balance between energy-driven inflation risks and weakening economic activity.

WHAT HAPPENED OVERNIGHT

US stocks fall as Alphabet's AI Spending Revives Capex Concerns

• US stocks closed lower on Thursday as investors reassessed big technology companies’ heavy artificial intelligence spending after Alphabet’s quarterly revenue miss and rising cash outlays. 
• The Dow fell 0.25% to 52,342.56, the S&P 500 declined 0.30% to 7,720.39 and the Nasdaq dropped 1.37% to 26,184.72. The Russell 2000, however, gained 1%.
• Alphabet plunged 12.6% after its revenue missed expectations, while accelerated AI-related spending raised concerns over cash burn. 
• The Philadelphia semiconductor index fell 1.4%, ending a four-session winning streak, as investors differentiated between companies able to fund AI investments and those relying on borrowing.
• Software stocks also came under pressure, with Fortinet and ServiceNow falling more than 20% each after their quarterly results. 
• Amazon dropped 6.5% in extended trading after its fourth-quarter sales forecast fell short of expectations.
• US economic data showed third-quarter GDP growth of 3.4%, above analysts’ expectations, while inflation pressures continued to build amid higher oil prices linked to supply disruptions. 
• The data followed the Federal Reserve’s decision on Wednesday to hold interest rates steady and signal a data-dependent approach to future policy.
• The earnings season remained broadly supportive, with 81% of the 253 S&P 500 companies that had reported beating analyst expectations, according to LSEG. 

US Dollar Edges Higher as Strong US Growth and Sticky Inflation Support Rate Outlook

• The US dollar index rose to 102.2 on Thursday after data showed stronger-than-expected economic growth and persistent inflation, reinforcing expectations that the Federal Reserve would keep rates elevated.
• US GDP grew at an annualised 3.4% in the third quarter, above forecasts of 3.1% and accelerating from 2.2% in the previous quarter. 
• Robust consumer spending and higher private investment, particularly in AI-related equipment and intellectual property, supported growth.
• Annual headline PCE inflation accelerated to 3.6% in September, while core inflation rose to 3.1%, both above the Fed’s 2% target. However, quarterly PCE inflation eased from the second quarter, offering some relief.
• Consumer spending increased 0.5% in September, while initial jobless claims fell to 194,000, pointing to continued resilience in household demand and the labour market.
• After holding rates at 3.75%–4%, the Fed is expected to assess incoming economic and inflation data before deciding its next policy move.

US 10-Year Treasury Yield Hovers Near 5% as Strong Data Firm December Rate-Hike Bets

• The US 10-year Treasury yield hovered around 5% on Thursday as investors assessed the outlook for monetary policy following the Federal Reserve’s decision to hold interest rates steady.
• The Fed offered no clear signal on a December move, with Chair Kevin Warsh saying policymakers were not on a predetermined path. 
• However, the central bank acknowledged persistent inflation, while two officials dissented in favour of a 25-basis-point hike.
• September core PCE inflation stood at 3.1% annually, well above the Fed’s 2% target. US GDP grew at an annualised 3.4% in the third quarter, beating expectations of 3.1%, supported by robust consumer spending and AI-related investment.
• Initial jobless claims remained below 200,000, adding to evidence of labour market resilience.
• Traders priced in an 83% probability of a 25-basis-point rate hike in December, reflecting concerns that resilient growth and sticky inflation could keep monetary policy tighter for longer.

Oil Slips as US-Iran Diplomacy Hopes Offset Fears of Further Supply Disruptions

• Brent crude fell 0.38% to settle at $114.88 a barrel on Thursday, while US West Texas Intermediate declined 0.76% to $102. 
• Both benchmarks had fallen more than $2 earlier in the session before recovering some losses as fresh reports of attacks on Saudi energy infrastructure revived supply concerns.
• Hopes of renewed US-Iran negotiations weighed on prices. US Vice President JD Vance reportedly sent a letter to Iran's Supreme National Security Council, while Qatar continued efforts to broker a deal to end the conflict. However, Tehran has described the latest proposals as unacceptable.
• The Houthis claimed attacks on Saudi Arabia's Ras Tanura and Rabigh refineries, an Aramco facility in Abqaiq and airports. 
• Saudi Arabia did not immediately confirm the claims. The Saudi-led coalition separately said it had intercepted a Houthi ballistic missile aimed at the kingdom's eastern region.
• Concerns over a possible US military strike on Iran after the November 3 midterm elections also limited the decline. 
• The US military's senior officer overseeing West Asia reportedly briefed President Donald Trump on military options concerning Iran.
• Expectations of higher Russian oil supply added to downward pressure. JPMorgan said Russian refinery runs rebounded by 350,000 barrels per day last week to 4 million barrels per day, following a pause in confirmed attacks on refining infrastructure since October 15.

Day’s Ledger*

Economic Data

• German July- September GDP
• India September Fiscal Deficit
• India Weekly Forex Reserves
• US October Chicago PMI
• Eurozone July- September GDP
  

Policy

• BoJ Interest Rate Decision
• US FOMC Member Daly Speaks
  
• ECB's Lane Speaks

Corporate Actions

• Earnings: Aditya Birla Capital, Bank of Baroda, Bharat Electronics, GAIL (India), General Insurance Corporation of India, Indian Oil Corporation, LIC Housing Finance, New India Assurance Company, NTPC Green Energy, Sun Pharmaceutical Industries, Sun TV Network.

Tickers to Watch

• INTERGLOBE AVIATION Posts third straight quarterly loss. July-September 2026 consolidated loss at 18.791 billion rupees vs 25.821 billion rupees a year ago. Forex losses at 13.33 billion rupees, about 70% of the loss. Fuel CASK rose 68.9% to 2.44 rupees. Total expenses up 18.6% to 261.884 billion rupees.
• VEDANTA POWER Reports highest-ever quarterly performance. July-September 2026 net profit at 830 million rupees vs loss of 4.23 billion rupees in April-June 2026. Revenue up 11.5% QoQ to 29.08 billion rupees. EBITDA up 44.7% to 4.21 billion rupees. Margin at 14.5% vs 11.2%.
• VEDANTA OIL AND GAS July-September 2026 profit down 21% QoQ to 7.46 billion rupees from 9.44 billion rupees. Revenue down 0.8% to 24.88 billion rupees. EBITDA margin at 54.3% vs 32.5%. Gross operated production at 72.2 kboepd. Working interest production at 47.8 kboepd.
• TRENT July-September 2026 net profit up 8.6% YoY to 4.9 billion rupees. Beats the 4.75-billion-rupee estimate. Revenue up 22.5% to 57.88 billion rupees. Merchandise sales up 23%. Noel Tata to retire as chairman on November 11, 2026, as he turns 70.
• SURYODAY SMALL FINANCE BANK July-September 2026 net profit at 770 million rupees vs 300 million rupees. NII rose 43% YoY to 3.69 billion rupees from 2.58 billion rupees.

Must Read

• India's pharma exports grow 4.9% to $16.14 bn in H1FY27 on Europe gains
• RBI's new forex derivative norms to raise FCNR(B) hedging costs for banks
• EPFO plans to channel 3% of fresh inflows into startups, AIF investments
• India's dealmaking resilient despite weak rupee, equity slump: Citi
• Centre cuts MRPs for trade-margin-capped cancer meds by up to 93%
• India's Hyderabad city to add 60-70 offshore tech centres in 2027, consultant ANSR says
• India says trade deal with US will not hurt its farmers
• RBI’s FX Strategy: Mounting Costs of Rupee Defence Amid a False Calm
• The Risk of One Shock Too Many
• The Superficially Intuitive Case Against Capital Gains Tax
• Is India's Coal Crunch a Supply Shock or Demand Surge?
• Is Washington Trying to Inflate Away Its Debt?

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day