Global Mood: Cautiously Risk-off
Drivers: Fed Rate Hike Expectations, West Asia Development

Asian equities were modestly higher on Friday despite a global bond selloff, with Japan leading gains as several regional markets remained closed for holidays. Nikkei rose 1.05% and Topix 1.15%, while Hang Seng futures slipped 0.3%. GIFT Nifty pointed to a largely flat opening for Indian equities.

The broader tone remained cautious as surging oil prices reinforced inflation concerns and pushed long-term bond yields to multi-year highs. The US 30-year Treasury yield climbed to its highest since 2004, while the 10-year yield rose 8 basis points to 5.20%, strengthening expectations of further Federal Reserve tightening and weighing on risk assets.

Brent crude settled at $106.60 a barrel after rising for two sessions, taking its 2026 gain above 75%. However, a slight pullback in oil offered some relief as US-Iran negotiators explored a phased deal involving reopening the Strait of Hormuz and easing the US blockade.

THE BIG STORY
The Federal Reserve may need to raise interest rates again before year-end to contain persistent inflation risks, New York Fed President John Williams said, reinforcing expectations of further monetary tightening. Williams said market expectations for another hike were a “reasonable” way to view the policy outlook, as the US economy and other major economies have remained resilient despite the energy shock from the Iran war.

The Fed raised rates last week as inflation remains above its 2% target, with tariffs and higher energy prices adding to pressures. The Fed's median projection sees PCE inflation returning to its 2% target in 2029, with tariffs and higher energy prices adding to near-term pressures. Futures markets are pricing strong odds of another hike at the October meeting, with another increase also possible in December.

Geopolitical risks remained elevated, with Saudi-led coalition forces saying they intercepted six ballistic missiles launched by Iran-aligned Houthis towards Saudi Arabia, including Taif and the strategic port of Yanbu. The Houthis later claimed missile and drone attacks targeting Riyadh and Saudi Aramco facilities in Yanbu, keeping pressure on regional energy infrastructure.

Data Spotlight
The S&P Global US Flash Composite PMI rose to 58.4 in September from 56 in August, marking the strongest private-sector expansion since July 2021, driven by five-year high service sector output (58.7) and accelerating manufacturing (56.7).

Increased backlogs of uncompleted orders encouraged US firms to boost hiring at the fastest rate since June 2022, though input cost inflation hit its highest since October 2022 due to rising fuel, transport, and wage pressures.

Sales of new single-family homes jumped 6.4% month-over-month to a year-to-date high annualised rate of 684,000 in August, beating market expectations of 620,000 despite rising mortgage rates, supported by an 84.9% surge in the Midwest.

The US current account deficit expanded to $246 billion (3% of GDP) in Q2 2026 from $212.6 billion in Q1 as the goods shortfall widened to $291.3 billion, though the gap came in below the expected $255 billion.

Initial jobless claims fell to 197,000 in mid-September-nearing July's 60-year low-while continuing claims remained near three-year lows at 1,719,000, confirming ongoing labour market resilience.

Takeaway: Strong private-sector growth, accelerating hiring and resilient housing demand point to solid US economic momentum. However, rising input costs and a wider current-account deficit highlight the inflation and external-balance pressures accompanying stronger activity.

WHAT HAPPENED OVERNIGHT

US stocks edge lower as oil, yields, and Iran uncertainty dominate sentiment

• The S&P 500 fell 0.02%, Nasdaq edged up 0.01%, and the Dow lost 0.31%, with markets rebounding from lows after Reuters reported US-Iran negotiators are exploring a phased path out of war.
• Brent rose over 3% to nearly $107/bbl after a Houthi missile attack on Saudi Arabia revived supply disruption fears.
• October Fed hike odds rose to 70% after NY Fed's Williams said another hike this year is reasonable; the 30-year Treasury yield hit its highest since 2004.
• Meta climbed 4.5% after unveiling a handheld AI gadget; Oracle fell 3.5% after sending a force majeure notice to a New Mexico data centre, dragging Blue Owl lower.
• MGM Resorts slumped 11% after Barry Diller's People Inc withdrew its acquisition proposal.
• The Trump-Xi summit was described as heavy on symbolism but light on substance on AI, trade, Taiwan, and the Iran war.

US Treasury yields hold at 2007 highs as inflation fears and Fed hike bets intensify

• The 10-year yield topped 5.15% before easing to 5.1%, while the 30-year climbed above 5.44%, its highest since 2004, as oil prices and UNGA diplomatic stalemate kept inflation fears elevated.
• September S&P Global PMI pointed to continued US economic strength, compounding hawkish Fed speak in pushing yields higher.
• Primary dealer demand remained uneasy, with surging AI company debt issuance continuing to crowd out Treasury appetite.

US Dollar extends winning streak to four sessions at July highs on Fed hike bets and oil-driven inflation

• The dollar index rose to 101.2, its longest winning streak since May, staying near July highs as expectations of further Fed tightening underpinned the greenback.
• Oil prices moved higher amid elevated US-Iran tensions and little UNGA diplomatic progress, with US diesel hitting a new record high and adding to the inflation outlook.
• The SNB held rates unchanged at 0%, prompting dollar strength against the Swiss franc, while the yen weakened to three-week lows.
• Record diesel prices are expected to add further pressure on broader inflation, keeping the case for additional Fed action alive beyond October.

Oil settles 3% higher as Houthi attack revives supply fears

• Brent crude rose $3.52, or 3.4%, to settle at $106.60 a barrel, while WTI gained $2.45, or 2.7%, to $94.61, ending a six-session, 13% decline.
• Saudi Arabia intercepted missile attacks targeting Taif and the Yanbu area along the Red Sea, while oil prices briefly surged 5% before retreating after reports of renewed US-Iran diplomatic talks.
• Negotiators are exploring a framework to end the nearly seven-month conflict by linking the reopening of the key oil route with the lifting of the US economic blockade on Iran.
• Several neighbouring countries banned Iranian airlines following extended US sanctions targeting companies doing business with Tehran, prompting Iran to threaten retaliation against countries complying with the measures.
• Saudi Arabia is increasing crude flows through its pipeline to the Red Sea export hub, although satellite imagery and shipping data show tanker loadings have yet to resume.
• Global diesel markets remain tight amid Russian export restrictions and West Asia disruptions, while US Energy Secretary Chris Wright contacted refiners about voluntary export curbs as an alternative to a reported 90-day ban.

Day’s Ledger*
Economic Data

• India Weekly FX Reserves Data
  
•  US August Durable Goods Orders
  
•  US September Michigan Consumer Sentiment Final

Corporate Actions

•  Natco Pharma Limited to consider fund raising

Policy

•  BoE Governor Bailey Speaks
  
•  US FOMC Member Williams Speaks
  
•  US Fed Schmid Speaks
  

Tickers to Watch

• WHEELS INDIA opened its QIP on September 24 with a floor price of ₹2,197.10 per share; may offer a discount of up to 5% on the floor price.
• INOX GREEN ENERGY SERVICES opened its QIP on September 24 with a floor price of ₹174.36 per share; may offer a discount of up to 5%.
• WAAREE ENERGIES  subsidiary Waaree Clean Energy Solutions entered India’s specialty gases business, targeting semiconductor and solar cell manufacturers.
• DR LAL PATHLABS board approved acquisition of a 70% stake in SN Genelab for up to ₹1.68 billion; SN Genelab will become a subsidiary, with the deal expected to close by November 30.
• STERLITE TECHNOLOGIES expanded its Neuralis Data Center portfolio with 48F-6,912F pre-terminated fibre trunk assemblies for hyperscale and enterprise data centres.
• L&T TECHNOLOGY SERVICES partnered with Cognite to develop industrial AI and data solutions for asset-intensive industries, strengthening its Engineering Intelligence portfolio.
• JSW ONE PLATFORMS filed DRHP with SEBI, BSE and NSE to raise up to ₹30.54 billion through an IPO.

Must Read

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• Tata Sons defends Chandra's reappointment, sends 3 legal opinions to Trusts
• NSE's big-bang IPO delivers quiet debut, shares list at nearly 1% premium
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• India sees coal remaining power mainstay through 2035-36
• India eases foreign investor access to commodity derivatives, widens scope of portfolio managers
• PB Fintech to cut costs, slow hiring after India insurance commission caps

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day