Global Mood: Cautiously risk-on
Drivers: Iran’s shipping attacks, AI spending worries

Asian markets traded mixed on Wednesday as concerns over an AI spending bubble and intensifying competition from China weighed on technology stocks, while investors assessed early third-quarter earnings results. Japan’s Nikkei 225 rose 0.2%, and South Korea’s Kospi gained 1.8%, while Australia’s S&P/ASX 200 fell 0.62%. Semiconductor stocks remained under pressure after the VanEck Semiconductor ETF fell for a sixth consecutive session, reflecting growing concerns over the sustainability of AI-related spending and future earnings growth. The GIFT Nifty was trading at 22,764, down 86.5 points or 0.38%, pointing to a weaker opening for Indian equities.

Despite stronger-than-expected quarterly results from major US banks, Goldman Sachs and Citigroup shares fell, suggesting investors are demanding stronger results to justify elevated valuations. S&P 500 companies are expected to report blended earnings growth of around 30%, while semiconductor and equipment companies are forecast to post growth of 130%, raising the stakes for technology firms.

THE BIG STORY
Iran has adopted new tactics to target commercial vessels in and beyond the Strait of Hormuz, aiming to keep oil prices elevated ahead of the November US midterm elections. Attacks on shipping have intensified, with at least five incidents involving tankers and other commercial vessels reported in the Hormuz area over 48 hours. Tehran plans to expand operations into the Gulf of Oman and waters off Qatar and the UAE, raising the risk of wider disruption to global energy supplies.

Iran is using unarmed spotters in small boats to identify targets after US strikes weakened its radar and naval capabilities, a US military official said.

President Volodymyr Zelenskiy accused Moscow of disregarding the energy ceasefire announced by US President Donald Trump and warned that further missile attacks were likely.

Kyiv said it received no advance warning from Western partners before the strikes, raising concerns over its reliance on US intelligence for missile alerts. Trump said Washington was continuing to share intelligence with Ukraine, despite reports that US officials had threatened to restrict intelligence and weapons supplies unless Kyiv halted attacks on Russian refineries.

Zelenskiy argued that easing restrictions on Russian diesel exports would do little to lower US fuel prices but would provide Moscow with additional revenue to finance the war.

Ukraine said it had not targeted Russian refineries since Trump's ceasefire announcement and remained open to talks with US envoys on ending the conflict.

Trump declined to say whether Russia had violated the proposed energy truce, while the Kremlin said contacts were ongoing without providing further details.

Data Spotlight
US existing home sales rose 1.5% month-on-month to an annualised 3.99 million units in September, recovering from a two-year low but remaining subdued. 

Housing inventory increased 1.9% to 1.6 million units, equivalent to 4.8 months of supply. 

Rising mortgage rates continue to constrain buyer affordability, with August and September marking the slowest months for sales this year.

The US NFIB Small Business Optimism Index fell to 97.9 in September, its lowest in three months, from 98.7 in August. 

Businesses grew less optimistic about future conditions and expansion opportunities. 

Labour quality remained the biggest concern, cited by 26% of owners, while inflation rose as a key concern to 20%, highlighting pressure from costs and borrowing rates.

The IMF raised its 2026 global growth forecast by 0.1 percentage point to 3.1%, with growth projected to accelerate to 3.4% in 2027. 

Resilient advanced economies and AI investment supported the upgrade, but high energy prices linked to the US–Iran war remain a key downside risk. 

US growth is forecast at 2.3% in both years, while China is expected to slow to 4.5% in 2026 and 4.0% in 2027. India’s economy is projected to grow 7.0% annually in both years.

Takeaway: The US housing and small-business data point to mounting pressure from high borrowing costs, inflation, and labour constraints, suggesting that domestic demand remains vulnerable despite pockets of resilience. The IMF’s modest upgrade to global growth reflects stronger-than-expected activity and AI-related investment, but elevated energy prices threaten to weigh on consumption and growth, particularly in energy-importing economies. The outlook remains uneven, with India projected to outperform major economies while China and the eurozone face more subdued growth.

WHAT HAPPENED OVERNIGHT

US stocks edge lower as bank earnings disappoint

• The S&P 500 slipped 0.02% to 7,805.45, the Nasdaq fell 0.15% to 27,204.38, and the Dow declined 0.35% to 51,670.10 as investors assessed mixed bank earnings and continued losses in chip stocks.
• The Philadelphia semiconductor index fell 0.23%, extending its losing streak to five sessions, amid concerns over rising Chinese competition and questions about excessive investment in AI. Micron Technology fell 3.6% and Applied Materials dropped nearly 7%.
• Citigroup fell 5.6% and Goldman Sachs slipped 0.2% despite both reporting profits above estimates. 
• Wells Fargo declined 3.1% after net interest income missed forecasts, while JPMorgan Chase lost 0.9% following a rare profit miss.
• Analysts expect S&P 500 third-quarter earnings to rise by more than 30% year on year, driven largely by AI-related technology companies. 
• Strong earnings expectations have helped offset concerns over elevated bond yields, high oil prices, and the Iran conflict.

US Dollar retreats from 18-month high as oil and Treasury yields ease

• The US dollar index fell to 102.2 on Tuesday from 102.6 in the previous session, its highest level in 18 months, as oil prices and Treasury yields declined.
• A technology-led equity sell-off supported safe-haven demand, while investors awaited Wednesday’s US consumer inflation report and other data this week for clues on the Federal Reserve’s policy outlook.
• Markets priced in a 19% probability of a 25-basis-point Fed rate hike in October, while the odds of a similar increase in December stood at nearly 72%, reflecting expectations of further tightening to contain inflation.
• The dollar weakened broadly, with its steepest losses against the yen after Japanese wholesale inflation came in below expectations. However, persistent price pressures continued to support expectations of further Bank of Japan rate hikes.

US Treasury Yields Hold Above 5.2% as Oil Risks and AI Debt Supply Weigh

• The 10-year US Treasury yield erased early declines on Tuesday to trade above 5.2%, as investors assessed inflation risks from higher energy prices and the prospect of increased corporate bond issuance by technology companies.
• Oil prices recovered amid expectations of prolonged supply tightness, with potential Saudi strikes on Houthi targets threatening shipping through the Red Sea and low Russian Black Sea port loadings limiting prospects for higher energy exports.
• Advances in Chinese AI chip technology raised concerns over competition for US semiconductor companies, clouding the outlook for corporate credit issuance.
• Research estimates suggest the AI industry could issue $4.1 trillion in debt by 2030, raising concerns that heavy corporate borrowing could compete with US Treasury issuance for investor demand and put upward pressure on yields.

Oil Settles Mixed as Russian Diesel Prospects Offset Saudi-Yemen Supply Risks

• Brent crude fell 0.9% to $105.69 a barrel on Tuesday, while WTI rose 0.4% to $94.14, its highest close since September 24. Hopes of additional Russian diesel supplies offset rising Gulf supply risks.
• The potential US-Russia diesel deal raised hopes of easing supply tightness. However, the Kremlin denied any direct link to Ukraine peace talks. US diesel futures rose about 5%, reflecting uncertainty over the deal’s impact.
• Supply risks persisted as Saudi Arabia attacked Yemen following Houthi strikes on Riyadh. Tanker attacks near the Strait of Hormuz also heightened shipping concerns, threatening key energy flows.
• OPEC said OPEC+ production rose sharply in September, driven by higher Saudi output, despite disruptions linked to the Iran war. 
• The group cut its 2026 oil demand growth forecast for a sixth consecutive month but raised its outlook for 2027 as depleted inventories need replenishing.
• Longer-dated prices remained firm, with WTI futures for 2027 reaching a record $84 a barrel for a 12th consecutive session, while Brent’s 2027 contract hit $90 on Monday. 
• The divergence between near-term benchmarks reflected competing forces from geopolitical supply risks and the prospect of additional Russian exports.

Day’s Ledger*

 Economic Data

• China September CPI
• China September Trade Balance
• India September WPI Inflation
• India September Trade data
• US IEA Monthly Report
• US September CPI
  
  

Policy

• ECB President Lagarde Speaks
• BoE Breeden Speaks
• BoE Gov Bailey Speaks
• BoE MPC Member Pill Speaks
• ECB's Elderson Speaks
• German Buba Vice President Buch Speaks
• ECB President Lagarde Speaks
• US FOMC Member Bowman Speaks
• ECB's Schnabel Speaks
• US FOMC Member Barkin Speaks

Corporate Actions

• Earnings: Bharat Heavy Electricals, Canara Bank, HDB Financial Services, ICICI Lombard General Insurance Company, Mangalore Refinery and Petrochemicals, Tata Technologies

Tickers to Watch

• TATA ELXSI's net profit for July-September 2026 was 1.703 billion rupees, compared to 1.706 billion rupees in the previous quarter (QoQ). Revenue increased by 3.4% QoQ, reaching 10.557 billion rupees. EBIT is up 7.2% to 2.077 billion rupees. EBIT margin at 19.68% vs 18.97%.
• BHARAT ELECTRONICS receives additional orders worth 5.33 billion rupees since last disclosure on September 17, 2026. Orders cover communication equipment, avionics, cybersecurity, drones, jammers, software, upgrades, spares and services.
• TRANSFORMERS AND RECTIFIERS July-September 2026 net profit at 798 million rupees vs 339 million rupees. Revenue is up 60.7% YoY to 7.394 billion rupees. EBITDA at 1.288 billion rupees vs 516 million rupees. Margin at 17.4% vs 11.2%. One-time exceptional gain of 1.314 billion rupees.
• ADANI ENTERPRISES signs a non-binding MoU with Jabil Inc. for a 50:50 JV. Venture will make AI and data centre equipment in India. Products include AI racks, servers, storage, networking gear, power distribution units, liquid-cooling systems, and transformers.
• ANAND RATHI SHARES AND STOCK BROKERS reported a net profit of 423 million rupees for July-September 2026,  an increase of 48.4% year-on-year from 285 million rupees. Revenue is up 20.1% to 2.73 billion rupees from 2.27 billion rupees.
• HINDUSTAN OIL EXPLORATION appoints Debabrata Das as CFO, effective October 16. Allen Andrade steps down as CFO on October 15.
• RAILTEL CORPORATION OF INDIA receives a 489.8-million-rupee work order from Odisha's Higher Education Department. The project covers 83 digital application modules integrated with the existing ERP system. Due by May 10, 2027.

Must Read

• No Tax on Speeches, But the Economy Pays
• Barua Says Must Rethink 4% Inflation Target
• India's Hidden Connectivity Shock
• Cost of Sustainability Must Not Become the Cost of Digital Exclusion
• India’s Services Exporters Face a Declaration Raj
• Rupee should be allowed to find its own level, says Uday Kotak
• Two-thirds of MSMEs use AI, but only 21% deploy business software: Study
• GEC-III opens door to competitive bidding for state power transmission
• CEA chairman flags fuel supply concerns as electricity demand rises sharply
• IMF raises India's FY27 growth forecast to 7% on strong domestic demand
• India's SEBI extends easier IPO rules till March 2027, bankers lobby says
• Apple supplier Jabil, Adani sign pact for AI data centre equipment venture in India
• Freight rates for Russian Urals oil shipments to India hit fresh records in early October

 

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day