Global Mood: Cautiously risk-off
Drivers: RBI MPC Outcome,  Iran nuclear talks, Hormuz risks

Asian markets traded with a cautious, risk-off bias on Wednesday, as gains in US technology stocks offered limited support amid elevated Treasury yields and concerns over foreign demand for US debt. Japan’s Nikkei 225 was flat, South Korea’s Kospi fell 0.57% and Australia’s S&P/ASX 200 declined 0.13%. GIFT Nifty fell 29.5 points, or 0.13%, to 22,744.5, signalling a mildly negative opening for Indian equities.

US stocks closed higher on Tuesday, while the 10-year Treasury yield eased to 5.286% after reaching its highest level since April 2002. However, concerns over foreign appetite for US debt amid geopolitical tensions continued to weigh on sentiment. Investors are also monitoring US-Iran negotiations, with Vice President JD Vance saying Tehran must make meaningful cuts to uranium enrichment capacity to end the seven-month war. Talks over reopening the Strait of Hormuz remain critical, as uncertainty over Iran’s decisions keeps energy supply risks in focus.

THE BIG STORY
US Vice President JD Vance said Iran must make a meaningful reduction in its uranium enrichment capacity to end the seven-month war. Washington remains in talks with President Masoud Pezeshkian and Foreign Minister Abbas Araqchi, but says concrete nuclear concessions are required.  Iran and the US are also negotiating over reopening the Strait of Hormuz, a key global energy route. Washington wants concrete action from Tehran, while uncertainty over Iran’s decision-making structure continues to complicate talks.

Saudi-backed Yemeni forces are consolidating gains around the Bab el-Mandeb Strait after pushing Houthi fighters from parts of the coast. The reversal could ease risks to a key Red Sea energy route, although fighting continues and the Houthis retain the ability to target shipping.

The Houthis have continued attacks on Saudi targets, including airports and oil infrastructure, as Riyadh backs the Yemeni government offensive. The fighting adds another layer of supply risk alongside the disruption in Hormuz.

Data Spotlight
US trade deficit widened to a 17-month high of $105.6 billion in August from $92.8 billion, exceeding expectations of $102 billion. Imports jumped $17.2 billion to a record $420.8 billion, led by crude oil, gold, semiconductors and industrial machinery. Exports rose $4.5 billion to $315.2 billion, supported by industrial supplies and capital goods, partly offset by weaker pharmaceutical exports.

US crude inventories fell 2.09 million barrels in the week ended October 2, while Cushing stocks rose 866,000 barrels. Gasoline inventories declined 1.37 million barrels, while distillates rose 461,000 barrels. US oil production edged up to 13.955 million bpd. US crude stocks have fallen more than 38 million barrels over 25 weeks, although total inventories remain nearly 13 million barrels higher year-to-date.

The US Economic Optimism Index rose to 46.8 in October from 45.6, the highest since March, with gains in financial and economic outlook measures. The Logistics Managers’ Index rose to 70.2 in September, its second-highest level in four years, reflecting stronger inventory levels and utilisation. Warehousing capacity contracted sharply, while warehousing and transportation prices remained elevated, pointing to persistent logistics cost pressures.

Takeaway: US activity remains relatively resilient, with stronger imports, improving economic sentiment and robust logistics demand signalling firm domestic activity. However, tighter warehousing and transportation capacity, alongside higher logistics costs, could add to inflation pressures. Falling crude and gasoline inventories provide some support to oil prices, while higher imports and the widening trade deficit remain a drag on the external balance.

WHAT HAPPENED OVERNIGHT

US stocks hit record closes as oil steadies, yields ease, and earnings season looms

• The S&P 500 gained 0.58% and Nasdaq rose 0.45%, both to all-time closing highs, while the Dow added 0.49%, as stabilising oil and easing yields shifted focus to July-September earnings season.
• October Fed hike odds fell to 19.4% from 50.9% a week ago; analysts expect S&P 500 July-September earnings to grow 30.6% year-on-year, led by energy at 114.7% and tech at 66.5%.
• Constellation Energy jumped 12.3% after Alphabet signed a 3,590-megawatt power deal; Marvell climbed 5.8% on a 2028 revenue forecast raise; AMD gained 2.8% after CEO Su pledged substantially higher chip supply in 2027.
• Option Care Health soared 32.7% after McKesson and Clayton Dubilier & Rice agreed to acquire it for $5.8 billion, including debt.
• The US trade deficit widened 13.7% as imports hit a record high, with capital goods imports up 4.4% in August reflecting robust AI infrastructure spending.

US Treasury yields pause at 24-year highs as oil dip offers brief respite

• The 10-year yield eased to 5.26%, pausing after touching a 24-year high of 5.33% on Monday, as signs of tanker passage through Hormuz temporarily tamed oil bids.
• Yields have surged over 110bps this year driven by Fed rate hike risk, soaring federal deficit spending, and record corporate debt supply crowding out duration demand.
• ISM Services prices surged to a four-year high, consolidating expectations of another Fed hike this year, while the CBO projected net public debt rising from 101% of GDP now to over 175% by 2056.
• The Treasury's preference to fund rising debt via bills rather than coupons offers limited structural relief to the long end of the curve.

US Dollar weakens as falling oil eases inflation concerns and near-term hike bets fade

• The dollar index slipped to 101.8 as oil fell to a one-month low on signs of recovering West Asia crude exports, easing inflation concerns and reinforcing the case for an October Fed hold.
• Markets now price a December hike rather than an immediate move, with the greenback weakening broadly and posting its largest declines against the euro.
• The euro had fallen as much as 0.8% on Monday on French debt concerns and political deadlock, with Spanish snap election risks adding to eurozone headwinds that partially cushioned the dollar's decline.

Oil holds near $100 as higher West Asian exports offset supply risks

• Brent rose 0.3% to $100.58/bbl, while WTI was nearly unchanged at $89.44 as rising exports offset concerns over further disruptions.
• Around 12 million bpd of crude and 2 million bpd of refined products left the region by tanker over the past seven to 10 days, Vitol CEO said.
• Saudi Arabia's East-West Pipeline had moved 5.8 million barrels to Yanbu by Tuesday, indicating a recovery in export flows.
• The G7's planned release of 100 million barrels of diesel and crude from emergency reserves also capped gains.
• Attacks on Saudi airports in Jazan and Najran by Iran-backed Houthis raised concerns over further disruption to Saudi energy infrastructure.
• EIA expects global petroleum production to fall to 101.1 million bpd in 2026 from 106.3 million bpd in 2025, while demand is seen at 102.4 million bpd.
• Global supply and demand are forecast to rebound to record highs of 109.6 million bpd and 104.6 million bpd, respectively, in 2027.
• US crude inventories are expected to rise 1.7 million barrels for the week ended Oct. 2, potentially marking a third consecutive weekly build.
• A potential cyclone in the Gulf of Mexico could support prices if it disrupts US oil and gas output or damages energy infrastructure.

Day’s Ledger*

Economic Data

• US Crude Oil Inventories
  
  

Corporate Actions 

• Ola Electric Mobility to consider fund raising

Policy

• RBI MPC Interest Rate Decision
• US FOMC Meeting Minutes

Tickers to Watch

• UTKARSH SFB July-September 2026 total disbursements up 54.9% YoY to 35.25 billion rupees from 22.75 billion rupees.
• GODREJ CONSUMER PRODUCTS inaugurates the first phase of a new manufacturing facility in Indonesia's Kendal SEZ, part of an IDR 500 billion (2.5 billion rupees) investment.
• JSW CEMENT commissions an additional 1 MTPA cement grinding unit in Nagaur, Rajasthan, taking total capacity to 25.1 MTPA.
• HCLTECH Group announces a 5 billion rupee investment to expand HCL IT City in Lucknow. Separately launches an AI upskilling initiative for 1,000 students.
• ADANI PORTS AND SPECIAL ECONOMIC ZONE incorporates wholly owned subsidiary Paradip Mahanadi Terminal for development of two dry bulk berths at Paradip Port, Odisha.
• TITAN COMPANY Q2 domestic business up 22% YoY, international up 97%. Consumer business up 25% — watches up 30%, eye care up 28%. Emerging business up 21%, jewellery up 21%.

Must Read

• One Rate Hike, Two Views on the RBI MPC’s Next Move
• When Everyone Protests, Even Bonds are Voting with Their Feet
• RBI Needs More Than a Rate Hike to Tighten Policy
• Investors Cannot Do Everyone’s Homework
• Time for RBI to Bite the Bullet

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day