Markets Turn Defensive Amid Fears of Wider Disruption to Energy Trade

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By Richard Fargose

July 17, 2026 at 2:23 AM IST

Global Mood: Cautiously Risk- Off
Drivers: Iran-Houthi Red Sea Threat, US Escalation Risks

Asian markets opened lower on Friday as investors adopted a risk-off stance amid renewed geopolitical tensions in West Asia and rising oil prices. Japanese and Australian equities declined, with regional sentiment also weighed down by a rotation out of semiconductor stocks following strong US bank earnings, which prompted investors to shift towards financials. The move disproportionately affected Asian markets, given their heavy exposure to technology shares.

Geopolitical risks remained the dominant driver of sentiment. The US-Iran conflict intensified after Tehran reportedly urged the Houthis to prepare for potential action in the Bab al-Mandeb Strait if Washington expands military operations against Iranian infrastructure. The prospect of simultaneous disruption to both the Strait of Hormuz and the Bab al-Mandeb shipping corridor raised concerns over global energy supplies, supporting oil prices and reinforcing inflation worries. Meanwhile, continued fighting in Ukraine underscored the persistence of broader geopolitical risks. With multiple conflicts showing little sign of resolution, investors remained cautious despite supportive corporate earnings in developed markets.

THE BIG STORY
The US-Iran confrontation entered its sixth consecutive day of tit-for-tat strikes Thursday with no off-ramp in sight, as Iran raised the stakes dramatically by asking the Houthis to stand ready to close the Bab al-Mandeb strait — the Red Sea's critical oil shipping gateway — if Washington follows through on Trump's threat to hit Iranian power infrastructure. The move would effectively weaponise two of the world's most vital energy chokepoints simultaneously, with Hormuz already largely closed and Bab al-Mandeb handling a significant share of global oil and container traffic. Saudi Arabia is reportedly taking the threat seriously. Analysts warned that Trump risks repeating the same mistake as earlier in the conflict — military pressure that has so far failed to extract concessions from Tehran while steadily deepening the global energy crisis and rattling financial markets.

In Ukraine, Russian and Ukrainian attacks killed at least 13 people Thursday across multiple front-line cities. Russian guided bombs struck Zaporizhzhia, killing three and wounding 15, while missiles hit Odesa's port, killing two more and damaging civilian infrastructure. The grinding attritional violence contrasts with the high-intensity aerial exchanges in the Gulf but reflects the same broad pattern — multiple major conflicts simultaneously escalating with no clear diplomatic resolution on the horizon. With Trump's power plant ultimatum still hanging over Iran and the Houthi trigger now primed, the coming days represent perhaps the highest-stakes moment of the conflict since it began in February.

Data Spotlight
US retail sales rose 0.2% month-on-month in June, the smallest gain in five months, as a 5.3% decline at gasoline stations weighed on headline receipts. Excluding gasoline, sales rose a firmer 0.7%, with the GDP-linked control group up 0.5%, pointing to underlying consumer resilience.

US pending home sales fell 5.4% month-on-month in June, the sharpest drop since December 2025, with all four regions posting losses. Near-record mortgage rates and record-high home prices continued to weigh on affordability, particularly for first-time buyers.

The Philadelphia Fed Manufacturing Index surged to 41.4 in July from 10.3 in June, far exceeding expectations of 13 and the strongest reading since November 2021, with new orders, shipments and employment all strengthening. Price pressures remained elevated, with both prices paid and prices received rising further.

Takeaway: A sharp rebound in Philadelphia manufacturing points to broadening industrial momentum, while underlying consumer spending held firm despite lower gasoline prices. Housing remains the key pressure point, with affordability constraints showing little sign of easing.

WHAT HAPPENED OVERNIGHT

US stocks slip as chip selloff overshadows strong earnings and economic data

The Dow fell 0.20%, S&P 500 lost 0.51%, and Nasdaq dropped 1.47% as semiconductor weakness continued to dictate broader market direction.
The Philadelphia Semiconductor Index fell 4.3% and the S&P 500 tech sector dropped 1.8%, with SanDisk, Western Digital, Seagate, and Intel down between 5.8% and 12.6%.
Economic data was broadly solid, with core retail sales rising, jobless claims falling, and Northeast manufacturing activity surging, though pending home sales and homebuilder sentiment disappointed.
Iran released a US citizen, suggesting a diplomatic path remains open even as the US and Iran extended their week-long barrage of airstrikes, effectively voiding last month's truce.
S&P 500 Q2 earnings growth is now expected at 24.8% year-on-year, with tech earnings alone seen jumping 65.5%.

US Treasury yields climb back toward two-month highs as energy inflation fears return

The 10-year yield rose to 4.60%, approaching the July 13 peak of 4.62%, as continued US-Iran strikes pushed benchmark fuel prices higher and rekindled energy inflation concerns.
Solid retail sales in June and initial jobless claims falling to a two-month low reinforced the strong economic backdrop underpinning the case for Fed tightening.
The combination of rising energy costs and a robust labour market kept rate-hike expectations firm, consistent with FOMC projections and current positioning in the rate-derivative market.

Dollar rebounds as solid US economic data and West Asia tensions support sentiment

The dollar index rose to 100.6, snapping two straight sessions of losses, as retail sales met expectations and jobless claims fell to a two-month low of 208K.
Oil prices hovering near one-month highs on intensified US strikes against Iran kept energy inflation concerns alive, supporting the dollar's rebound.
Markets price a 12% chance of a Fed hike this month and 56% odds of a September move, with the resilient economic backdrop keeping tightening expectations intact.
The dollar was mostly higher against the British pound and the euro.

Oil settles 1% lower on market exhaustion after hitting one-month highs earlier this week

Brent settled at $84.23 per barrel, down 0.9%, and WTI at $78.95, down 0.8%, as traders readjusted positions after short-covering drove the week's earlier rally.
Iran asked Yemen's Houthis to be ready to close the Red Sea's Bab el-Mandeb gateway if the US strikes Iranian power infrastructure, raising the risk of simultaneous disruption to both major West Asia oil export routes.
Around 7.4 million bpd of petroleum transited Bab el-Mandeb in June, 7% of global oil output, making a potential closure a significant additional supply shock.
Iraqi crude loadings more than doubled to 1.2 million bpd in the first half of July as exports accelerated following months of restricted shipments.

Day’s Ledger*

Economic Data

Eurozone June CPI data
India weekly FX Reserves Data
US June Industrial Production Data

Corporate Actions

Earnings: Central Bank of India, Federal Bank, Havells India, ICICI Lombard General Insurance Company, JSW Steel, Poonawalla Fincorp, RBL Bank, Reliance Industries, Tata Technologies,

Policy

RBI Governor Malhotra to Speak

Tickers to Watch

TECH MAHINDRA: April-June profit misses estimates despite margin expansion; deal wins top $1B for third straight quarter.
WIPRO: April-June constant currency revenue growth at -1.2%, trailing TCS (0.4%) and near HCLTech (-0.5%).
CEAT: April-June net profit falls 96.4% YoY to 40 million rupees from 1.12 billion rupees.
JIO FINANCIAL SERVICES: April-June consolidated PAT up 156% YoY to 8.30 billion rupees.
HEXAWARE TECHNOLOGIES: Partners with Factory for agent-native software development for global enterprise clients.
BOROSIL RENEWABLES: April-June net profit at 868 million rupees, reversing a 1.665 billion rupee loss a year ago.
HCLTECH: Signs 7-year deal with Guardian Life Insurance, acquiring Guardian India unit (2,000 employees).
PIRAMAL FINANCE: April-June consolidated PAT up 67% YoY to 4.61 billion rupees.
SKY GOLD AND DIAMONDS: Subsidiary Starmangalsutra suffers 107 million rupee loss from device-hacking fraud.
HAVELLS INDIA: Expands cable manufacturing capacity in Tumakuru, Karnataka with 2.55 billion rupee investment.
PC JEWELLERS: Board approves QIP to raise up to 10 billion rupees, plus higher authorised share capital.

Must Read

(*Compiled from various media sources)

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