Asian Markets Turn Cautious Ahead of Fed, Big Tech Earnings

Global Mood: Cautiously Risk- Off
Drivers: US-Iran Talks Resume, Houthis Eye Red Sea Chokepoint

Asia-Pacific markets opened lower on Tuesday as investors adopted a risk-off stance ahead of a pivotal week featuring the US Federal Reserve's policy decision and earnings from major technology companies. South Korean equities led regional declines, while Japan and Australia also traded lower. Although oil prices remained below $90 a barrel following a pause in US-Iran hostilities, investors stayed cautious as uncertainty over the durability of the truce and the outlook for US monetary policy limited risk appetite.

Attention is firmly on the Federal Reserve, where policymakers are widely expected to leave interest rates unchanged, although markets are seeking clearer guidance on the timing of any future tightening. Investors are also closely watching results from Amazon, Microsoft, Meta and Apple for signals on AI-related spending and whether elevated technology valuations remain justified. Meanwhile, diplomatic contacts between Washington and Tehran offered cautious optimism, but continued attacks by Iran-backed groups across the region highlighted lingering geopolitical risks, keeping investors focused on energy security, inflation and global market volatility.

THE BIG STORY
Trump declared "good talks" with Iran are underway Monday and said there was a real chance of a deal, while warning strikes would resume if diplomacy fails. Iran's foreign ministry pushed back, denying it had requested negotiations, though it acknowledged messages were still passing through mediators. The informal pause held its second day despite Iran-backed groups launching drones at Saudi Arabia, Jordan and Iraq, with Riyadh shooting down projectiles aimed at petroleum targets including in Riyadh itself, and Houthis targeting the East-West Pipeline to Yanbu. A US official separately told Reuters military commanders had advised Trump they were running out of targets in Iran, a candid admission that likely shaped the decision to pause. Oil prices tumbled on the ceasefire optimism, though Yemen's foreign minister warned the Houthis are explicitly seeking to replicate Iran's Hormuz playbook in the Red Sea, raising the prospect of both chokepoints simultaneously under coordinated blockade.

Ahead of Zelenskiy's White House visit Tuesday, a Pentagon letter emerged revealing the administration does not plan to finish spending $400 million in congressionally approved Ukraine aid until 2029, the final year of Trump's term, even as Kyiv runs critically low on air defence munitions. Members of both parties have criticised the pace as unusually slow for an active conflict. Zelenskiy will press Trump on air defence capabilities and a drone manufacturing deal, before meeting all 100 senators on Capitol Hill, where the death of Lindsey Graham has raised questions about whether Trump's recent tilt toward Ukraine can be sustained without his most prominent Republican advocate.

Data Spotlight
The Dallas Fed Manufacturing Index rose to 1.3 in July from 0 in June, with the company outlook index jumping 11 points to 13.4 as uncertainty eased. Production accelerated to 10.1 from 4.1, supported by stronger new orders and shipments, while wages climbed and six-month forward indicators remained firmly positive.

US durable goods orders rose 0.3% in June, rebounding from May's 4% slump but well below forecasts of 1.6%, as gains in computers, electronics and capital goods were partially offset by declines in transportation and machinery. The closely watched core capital goods proxy — non-defence capital goods excluding aircraft — rose 0.9%, above forecasts of 0.8%, with business investment remaining resilient on AI spending and war-related defence orders.

Takeaway: Texas manufacturing momentum and a beat in core capital goods orders point to underlying business investment resilience, driven by AI demand and defence spending. However, the headline durable goods miss and easing labour indicators suggest the broader industrial recovery remains uneven.

WHAT HAPPENED OVERNIGHT

US stocks end mixed as markets weigh Iran peace hopes against AI spending concerns and Fed decision

• The Dow rose 0.51%, S&P 500 edged up 0.02%, and Nasdaq slipped 0.18%, as investors balanced Trump's Iran peace signals against lingering AI capex worries ahead of a packed earnings week.
• Trump abruptly suspended a two-week campaign of US airstrikes on Iran on Saturday, with oil company shares declining, Occidental falling 4.1% and Exxon down 1.4%.
• The Philadelphia Semiconductor Index fell 2.2%, extending its slide to 21% below its June 22 record high.
• China's CXMT Corp debuted strongly in Shanghai, and reports emerged of China manufacturing homegrown DUV chipmaking tools.
• The Fed's policy decision is due Wednesday, with markets pricing a 62% chance of a hold and 38% odds of a 25bps hike, while Thursday's June PCE report will be key for shaping rate expectations beyond July.

US Treasury yields ease as US suspends Iran strikes and oil prices retreat

• The 10-year yield fell to 4.65% after last week's climb to its highest since January 2025, as declining oil prices and a de-escalation in West Asia reduced inflationary pressure fears.
• The US suspended its nearly two-week strike campaign against Iran without a formal announcement, with Tehran halting retaliatory operations and holding talks with Oman on Hormuz shipping.
• Markets scaled back near-term tightening bets, with the probability of a Fed hike this week falling to 33%, though a September move remains the base case at 80% odds.

US Dollar holds near 101.5 as markets price unusually high uncertainty ahead of Fed decision

• The dollar index held steady at 101.5 as markets priced over a one-third chance of a rate hike at this week's Fed meeting, an unusually high level of uncertainty this close to a decision.
• Citadel Securities said it expects the Fed to hike this week to reinforce Warsh's inflation-fighting credibility following his repeated pledges to restore price stability.
• September Fed hike odds stand at 56%, with the dollar remaining resilient despite Trump's "good talks" with Iran pushing oil lower and easing inflation concerns.

Oil falls 8% to one-week low as US suspends Iran strikes, raising Hormuz reopening hopes

• Brent settled at $88.36/bbl, down 8.7%, and WTI at $82.61, down 7.5%, their lowest since July 17 and July 16, respectively, after the US abruptly paused its airstrike campaign over the weekend.
• Trump said the US is holding "good talks" with Iran and that a deal is possible, though he warned of "strong military action" if diplomacy fails, with no signed framework in place.
• Analysts cautioned the political pause does not translate to immediate supply recovery, with Hormuz flows at 15% of pre-war levels and fewer than 10 commodity vessels transiting daily.
• Houthi attacks on Saudi oil installations along the Red Sea coast caused Bab el-Mandeb traffic to fall on Sunday, though a third Chinese supertanker managed to exit via the waterway.
• Saudi Red Sea cargoes continue to face longer, costlier reroutes via Suez as shipping volumes remain heavily depressed despite the unofficial ceasefire.

Day’s Ledger*
Economic Data

• India June Industrial Production
• US ADP Employment Change Weekly
• US June Goods Trade Balance
  
  

Corporate Actions

• Earnings: Ambuja Cements, City Union Bank, Equitas Small Finance Bank, Hindustan Unilever, Larsen & Toubro, Pfizer, Suzlon Energy, Tata Capital.

Policy

• US FOMC meeting begins
• Australia RBA Gov Bullock Speaks
• OPEC Meeting 

Tickers to Watch

• WIPRO: Partners with Databricks to help enterprises modernise data infrastructure and deploy AI at scale.
• ZAGGLE PREPAID: Signs 3-year deal with Daimler India Commercial Vehicles for Zaggle Zatix and Corporate Credit Card programme for DICV's fleet partners.
• TATA POWER: Board approves private placement of NCDs/bonds worth up to 45 billion rupees to refinance loans.
• TATA MOTORS: Flooding disrupts operations at Sanand plant and Gujarat suppliers on July 27; normalcy expected in coming days.
• VARDHMAN SPECIAL STEELS: Begins forging facility development worth 11.16 billion rupees in two phases, with Aichi Steel Corporation, for precision-forged auto components.
• MEESHO: Elevation Capital likely to sell 12 billion rupee stake via block deal, per CNBC-TV18 sources; held 12.04% stake as of June 2026.
• ADANI ENERGY SOLUTIONS: Launches QIP on July 27 with floor price at 1,698.15 rupees/share; may offer up to 5% discount to floor price.
• TVS MOTOR COMPANY: Acquires 4.39% stake (1.13 crore shares) in subsidiary TVS Credit Services from Lucas-TVS for 7.11 billion rupees, raising holding to 85.15% from 80.76%.
• PFIZER: CFO Amit Agarwal resigns effective October 8, 2026, to pursue an opportunity outside the company.

Must Read

• Cross-Ownership Reforms in Indian Aviation: The Legal Framework and the Alternatives
• While Carmakers Argue, This Supplier is Cashing In
• When Functional Regulation Meets Formidable Institutions
• When Journalism Became ANI’s Weakness Against OpenAI
• HDFC Bank Is Still Paying for a Merger It Closed Three Years Ago

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

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