Asian Markets Stage Relief Rally as Dollar, crude Oil Pull Back

GLOBAL MOOD: Cautiously Risk-On
Drivers: US-Iran war widens, NATO drawn in

Asian equity markets rebounded sharply on Thursday, signalling a tentative return of risk appetite after several sessions of steep losses driven by the escalating West Asia conflict. South Korea’s Kospi surged more than 12%, staging a dramatic recovery from its worst selloff in nearly two years, while broader Asia-Pacific markets tracked the positive momentum from Wall Street’s overnight gains.

Investor sentiment improved as oil prices cooled from recent spikes, easing fears of an immediate inflation shock. Brent crude slipped from its intraday peak above $84 per barrel, while the US dollar index retreated below 99 as safe-haven demand moderated. Markets also drew support from signals that energy supply risks may stabilise despite ongoing disruptions around the Strait of Hormuz.

However, caution persists as geopolitical tensions remain elevated and China set a conservative 2026 GDP growth target of 4.5%–5.0%, its lowest in decades, underscoring persistent deflationary pressures and global trade uncertainties.

For now, the rebound reflects relief rather than a decisive shift in sentiment, with markets still highly sensitive to developments in the Iran conflict and oil markets.

TODAY’S WATCHLIST
 - US Initial Jobless Claims
 - ECB Lagarde Speech

THE BIG STORY
The US-Iran war intensified Wednesday when a US submarine sank an Iranian warship near Sri Lanka, killing at least 80 and highlighting the conflict's growing global scope. NATO air defences also intercepted an Iranian missile aimed at Turkey, involving Ankara for the first time, though NATO's collective defense clause was not activated. After five days, US and Israeli forces now control most of Iran's airspace following extensive strikes that have caused hundreds of deaths and disrupted global markets.

Despite the military pressure, Tehran shows no sign of capitulating. The powerful son of slain Supreme Leader Khamenei has emerged as a frontrunner to succeed his father, signalling continuity in Iranian leadership rather than collapse. Behind the scenes, however, Iranian intelligence operatives reportedly reached out via a third country's spy agency to the CIA just one day after the conflict began, presenting a backchannel ceasefire proposal, even as Iranian leaders publicly rejected talks with the Trump administration. At least 200 vessels remain anchored off the West Asian coast as the Strait of Hormuz had a fifth day of paralysis, with Trump pledging naval escorts and insurance for energy shipments but offering little immediate relief for the estimated $81-plus oil market that continues to rattle global growth and inflation expectations.

Data Spotlight 
US services activity hit its highest level since August 2022 in February, with ISM Services PMI rising to 56.1 from 53.8, outpacing forecasts. Business activity, new orders, and employment saw notable gains, with new orders at a 17-month high. While the prices index stayed above 60, it reached its lowest point since March 2025, hinting at easing cost pressures.

Private payrolls increased by 63,000 jobs, led by education and health services, though professional and business services lost 30,000 positions. Annual pay growth for job-stayers remained at 4.5%, while job-changers' wages slowed to 6.3%.

US crude inventories grew by 3.475 million barrels, topping expectations, as gasoline stocks dropped more than forecast and distillates saw a slight increase.

Takeaway:
Strong services PMI and rising payrolls indicate a hotter economy than Q4 GDP implied, making the Fed's task of managing inflation and uncertainty more complex. Meanwhile, ongoing increases in crude inventories raise demand concerns even as oil prices climb due to West Asia supply risks.

WHAT HAPPENED OVERNIGHT

• US stocks rebounds as Iran ceasefire signals, Trump's Hormuz pledge calm nerves
  • The Nasdaq jumped 1.29% and the S&P 500 closed near its all-time high as Iran's openness to talks and Trump's pledge to steady oil markets lifted sentiment sharply.
  • Tech led the recovery - Micron and AMD each surged over 5.5%, while Amazon gained 3.9%, keeping the Nasdaq in positive territory since the start of the West Asia conflict.
  • KKR and Blackstone each gained roughly 3%, signalling a tentative recovery from the private credit volatility that had rattled financials earlier in the week.
  • Moderna soared 16% after agreeing to pay up to $2.25 billion to settle a long-running COVID-19 vaccine patent dispute, removing a significant legal overhang.
  • Energy stocks declined: Exxon Mobil dropped 1.3% and ConocoPhillips slid 2.42% as crude's supply risk premium eased amid ceasefire hopes.
  • Strong US economic data helped the S&P 500 stay near record highs despite geopolitical tensions.

• US Treasury yields inch up to 4.09% as inflation fears, ceasefire hopes pull in opposite directions
  • The 10-year Treasury yield rose 2 bps to 4.09%, extending a third consecutive session of gains as markets digested a busy mix of geopolitical, tariff, and economic signals.
  • Bond markets remain under pressure as the West Asia conflict and surging energy prices raise fears of a broader inflationary spiral.
  • A New York Times report that Iranian operatives offered ceasefire terms provided some relief, easing oil prices and temporarily capping yield upside.
  • Rate traders have now pushed the Fed's first cut back to September from July, though two 25 bps reductions remain priced in for 2026.

• US Dollar drops below 99 as Iran ceasefire signals and Hormuz escort plan reduce war premium
  • The US dollar index dipped 0.3% below 99, pausing after a sharp 1.5% rally over the prior two sessions.
  • A New York Times report that Iranian operatives had offered to discuss ceasefire terms triggered a pullback in safe-haven demand, easing the dollar's geopolitical bid.
  • President Trump said Washington will insure and escort ships through the Strait of Hormuz if needed, easing energy market concerns despite unclear details.
  • Oil and gas prices eased on dual diplomacy signals, reducing the inflation-driven dollar tailwind that had dominated earlier in the week.
  • Treasury Secretary confirmed the 15% global tariff takes effect this week but added that levies are expected to revert to previous levels within five months, limiting the long-term trade policy shock.

• Crude oil prices hold at multi-month highs as Strait of Hormuz paralysed for fifth straight day 
  • Brent crude prices flat at $81.40/barrel, it’s the highest since January 2025, while WTI edged up 0.1% to $74.66/barrel, it’s the highest since June for a second consecutive session.
  • A volatile session ended unchanged as markets balanced escalating US-Israeli strikes on Iran against demand destruction fears from a slowing global economy.
  • The Strait of Hormuz has now been paralysed for five days, severely disrupting oil and gas flows from West Asia.
  • Shipping through the strait remains at a near-standstill, with insurers raising war risk premiums sharply and vessels avoiding the waterway entirely.

Day’s Ledger*

Economic Data

• US Initial Jobless Claims 
• US Trade Data

Corporate Actions

• Amarnath Securities board to consider fund raising
• Mangal Credit board to consider fund raising
• Saboo Sodium board to consider fund raising
• SBI Cards to consider interim dividend 

 

Policy Events

• ECB Guindos Speech 
• ECB Donnery Speech
• ECB Lagarde Speech
• Tickers to Watch
• Walmart-backed PhonePe targets up to $10.5 billion valuation in IPO
• MRPL declares force majeure on gasoline exports cargoes amid Gulf crisis
• IIFL Finance hires EY for due diligence on potential Samasta stake sale
• Motilal Oswal Home Finance secures $100 million from Asian Development Bank
• Jio Platforms appoints Dan Bailey as President, to lead global initiatives
• MRF to invest ₹53 billion crore in new tyre plant in Tamil Nadu's Sivaganga
• Mahindra clarifies no communication from Indonesia on import hold
• IndiGo may face further downgrades as Iran conflict clouds outlook
• Must Read
• IRGC threatens 'region's complete destruction' as West Asia conflict widens
• Russia offers to divert oil to India as Hormuz crisis hits supplies
• Oil prices fall after report of possible US-Iran talks amid Gulf turmoil
• Indian households face a looming fuel crunch as West Asia crisis drags on
• February PMI services comes in at 58.1; new order growth at 13-month low
• Hormuz shutdown worsens after US hits Iran warship, tankers
  
  

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See you tomorrow with another edition of The Morning Edge.
Have a great trading day

Gold in Equity Funds Risks Expanding India’s Import Burden

GURUMURTHY R writes, from a portfolio perspective, the logic is sound. Gold is a hedge and improves diversification. But in India, gold is not just another asset class — it is a macroeconomic variable.

Because domestic production is negligible, rising gold demand largely translates into imports. If large equity funds begin allocating even small percentages to gold, the aggregate demand impulse could be meaningful, potentially widening the trade deficit and adding pressure to the current account.

The question is not whether gold belongs in portfolios.

It is whether expanding institutional avenues for gold demand aligns with India’s external stability.

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(*Compiled from various media sources)