Asian Shares Fall as West Asia Tension Escalates After US Strikes on Iran

Global Mood: Cautiously Risk-Off 

Drivers: US Strikes Iran, Oil Sanctions Reimposed, Kyiv Under Attack

Asia-Pacific markets fell broadly on Wednesday as escalating West Asia tensions rattled investor sentiment, with US strikes against Iran overnight sending shockwaves through regional trading. Japan's Nikkei 225 fell 0.55% and the Topix declined 0.7%, South Korea's Kospi dropped 0.72% and the small-cap Kosdaq slid 1.94%, while Australia's ASX 200 was among the sharper fallers, down 1.36%.

The selloff came after the US launched a series of strikes against Iran in retaliation for attacks on commercial vessels in the Strait of Hormuz, while the Treasury Department also revoked a sanctions waiver that had allowed Iran to sell oil globally. Surging oil prices added to the cautious mood, as investors also looked ahead to minutes from the Federal Reserve's latest policy meeting for further clues on the interest rate outlook.

THE BIG STORY

The fragile US-Iran ceasefire suffered its most serious blow yet Tuesday as Washington launched fresh strikes on Iranian targets — hitting air defences, coastal surveillance systems, and drone launch sites across Kharg Island, Qeshm, Sirik and Bandar Abbas — after three tankers were struck in the Strait of Hormuz. In a potentially decisive blow to the June accord, the US simultaneously revoked Iran's licence to sell oil on international markets, reimposing sanctions that had been a key concession under the deal. Oil prices jumped over 3% on the news. CENTCOM called Iran's shipping attacks a clear ceasefire violation, while the strikes came just as millions mourned Supreme Leader Khamenei in Qom, adding a volatile political backdrop to an already precarious diplomatic moment.

Ukraine meanwhile intensified its campaign to isolate Crimea, with drones striking a dozen Russian shadow-fleet tankers in the Sea of Azov over two days as Kyiv seeks to cut off fuel supplies to the Russian-occupied peninsula, which has already declared a state of emergency amid shortages. Russia responded with fresh missile strikes on Kyiv and Odesa overnight, injuring at least twelve people across both cities and triggering fires on both banks of the Dnipro. The dual escalation — in both West Asia and Eastern Europe — marks a sharp deterioration in the global security outlook just as the NATO summit in Ankara was expected to open diplomatic channels on both fronts.

Data Spotlight

The US trade deficit widened sharply to $77.6 billion in May from $54.6 billion in April, the largest gap since March 2025, as imports climbed 3.3% to a 14-month high of $395.3 billion, driven by consumer goods, crude oil and passenger cars. Exports fell 3.2% to $317.7 billion, weighed down by lower shipments of gold, computers and pharmaceuticals. The data suggests net exports will be a heavier drag on second-quarter GDP than in the first.

US median one-year inflation expectations rose to 3.7% in June, the highest since September 2023, while three-year expectations climbed to 3.3%, the highest since June 2022. Gas price growth expectations fell sharply to 1.5%, the lowest since August 2022, and job security perceptions improved, with the probability of job loss dropping to 14.1%. However, households anticipated tighter credit conditions ahead.

The RealClearMarkets/TIPP Economic Optimism Index rose to 45.5 in July from 42.5 in June, beating expectations of 45, as the six-month economic outlook jumped to 42.1 from 37.1. Personal financial outlook rose to 52.2, remaining the only component above the 50 threshold, while confidence in federal economic policies edged up to 42.1.

Takeaway

The sharp widening in the trade deficit and rising inflation expectations point to persistent structural pressures on the US economy, even as consumer optimism showed a tentative recovery in July. With credit conditions expected to tighten and GDP facing a trade headwind, the Federal Reserve's path to easing remains narrow. 

WHAT HAPPENED OVERNIGHT

US stocks fall as chip selloff deepens on AI valuation concerns

• The S&P 500 lost 0.45%, Nasdaq dropped 1.16%, and the Dow fell 0.25%, with the Dow briefly hitting a record high before losing ground.

• The Philadelphia Semiconductor Index fell 4.65%, trimming its 2026 gain to 74%, as Samsung's blowout earnings failed to satisfy sky-high investor expectations.

• Micron dropped 4.7% and SanDisk lost 7.3%, with analysts noting expectations for AI-related chipmakers have become "almost impossible to beat."

• Reports that Chinese startup DeepSeek is developing its own AI chip added to concerns over Nvidia's competitive position and future demand.

• SpaceX fell 7% in its first day as a Nasdaq 100 component after a wave of brokerages initiated coverage on the stock.

• SK Hynix's US listing on the Nasdaq is set for Friday, providing the next key test of appetite for chip stocks.
  

US Treasury yields climb to one-month highs as oil rebound fans inflation fears

• The 10-year yield rose to 4.51%, its highest in a month, while the 30-year yield topped 5% on fresh Hormuz security concerns.

• An LNG carrier struck by a projectile exiting the Strait of Hormuz drove oil up more than 2%, highlighting ceasefire fragility.

• The oil rebound nudged September Fed hike odds to 58% from 56% the prior day.

• FOMC minutes from Warsh's first meeting are due Wednesday, with markets watching for further policy signals.
  

US Dollar edges toward 101 as vessel attacks near Hormuz revive inflation concerns

• The dollar index edged higher toward 101, showing only a modest reaction to rising oil prices despite fresh Hormuz security concerns.

• Reports of vessel attacks near the strait drove oil higher, reviving inflation fears and nudging September Fed hike odds up to 58% from 56% the prior day.

• FOMC minutes from Kevin Warsh's first meeting are due Wednesday, with investors watching for further policy signals after June's hawkish stance.

• The dollar posted modest gains against most major currencies but remained slightly weaker against the yen.
  

Oil surges over 3% as Iran attacks Hormuz vessels and US revokes Iranian oil license

• Brent settled at $74.16/bbl (+3.01%) and WTI at $70.44 (+2.76%), with both benchmarks extending gains post-settlement to trade up more than 5% after the US revoked its general license authorising Iranian crude sales.

• Iran attacked three commercial vessels crossing the Strait of Hormuz, prompting the US military to launch retaliatory strikes against Iran.

• The US revocation of the Iranian oil sales license came directly in response to the vessel attacks, with analysts viewing it as a signal Iran had crossed a line though not expecting a lasting impact on Tehran's export capacity.

• Iran's foreign minister said talks toward a final deal would not proceed if US threats continue, casting fresh doubt on the MOU signed in June.

• Analysts warned ceasefire fragility means further sporadic attacks are likely, with any threat to close Hormuz again seen as a potential trigger for sharp price spikes.

• Ukrainian drones struck eight tankers from Russia's shadow fleet delivering fuel to Crimea overnight, adding further supply disruption risk.

• API data showed US crude inventories drew down 399,000 barrels last week, with the EIA's official report due Wednesday.

Day’s Ledger* 

Economic Data

• Australia May Building Approvals (MoM) 

• German 10-Year Bund Auction

• US Crude Oil Inventories

• US 10-Year Note Auction

• US FOMC Meeting Minutes

Corporate Actions

• Indbank Merchant Banking Services’ Financial Results

• Vaishali Pharma Limited considering fundraising options

• Sukhjit Starch & Chemicals Limited 

Policy

• German Buba President Nagel Speaks
  

Tickers to Watch

• RASHTRIYA CHEMICALS AND FERTILIZERS: Board approves raising up to ₹15 billion via FPO, subject to shareholder, Department of Fertilisers and DIPAM approvals.

• COCHIN SHIPYARD: OFS oversubscribed 3.52 times on first day (July 7), per DIPAM Secretary.

• UNO MINDA: Enters four-wheeler PV seating systems segment with 3.2 billion rupees investment for greenfield facility in Chhatrapati Sambhajinagar, Maharashtra.

• POONAWALLA FINCORP: Approves issuance of unsecured, redeemable, rated, listed subordinated NCDs (Tier II capital) worth up to 2 billion rupees via private placement.

• CEIGALL INDIA: Receives appointed dates for three highway projects worth 40.50 billion rupees combined, enabling construction start in Jharkhand and Madhya Pradesh.

• HCL TECHNOLOGIES: HCLSoftware completes acquisition of Jaspersoft; embedded analytics platform to become part of Actian, its data and AI division.

• IDEAFORGE TECHNOLOGY: Launches QIP to raise up to ₹5 billion; indicative issue price set at Rs 795/share, a 5.4% discount to July 7 NSE closing price.

• ADVAIT ENERGY TRANSITIONS: Secures 516.2 million rupees turnkey contract from Dakshin Gujarat Vij Company for supply, installation, testing and commissioning of 11KV MVCC and related works.

• EMS: Receives L-1 (lowest bidder) status from Delhi Jal Board for sewerage work project valued at 1.5829 billion rupees, including GST.

• SILVER TOUCH TECHNOLOGIES: Secures order from RITES Ltd for design, development and implementation of PARAKH, an AI-based DPR appraisal and intelligence platform.

• EPIGRAL: Incorporates wholly owned subsidiary, Epigral Advanced Materials Ltd., for chemicals manufacturing; received Certificate of Incorporation on July 7.

Must Read

The Magellan Paradox Comes to India

El Nino Once Again Exposes Gaps in Irrigation Strategy

E20 Is Not the Enemy, Compulsion Is

From Form to Function

Policy support lifts foreign inflows into Indian banks to 14-month high
SBI joins global banks to fund Sun Pharma's $11.75 billion Organon buy

FM Sitharaman asks toy makers to aim for a quarter of global market by 2032
Tata Power plans to enter nuclear sector: Chairman N Chandrasekaran

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

The Magellan Paradox Comes to India

For long, Indian investors have enthusiastically begun SIPs after prolonged bull markets, and discontinued during market crashes, when they should have done the exact opposite. Behavioural economists have spent decades documenting this tendency. Fear, greed, regret and recency bias routinely overwhelm arithmetic.

India does not need more SIP accounts. What it needs is for the mutual fund industry to spend as much effort educating investors about staying invested during bear markets as it spends celebrating record monthly collections. It needs more investors who understand why they started one and why they should resist stopping it. Otherwise, the country's greatest financial innovation may end up producing not disciplined wealth creation, but a larger Indian version of the Magellan Paradox.

Read the full article by GURUMURTHY R: The Magellan Paradox Comes to India on BasisPoint Insight.