Global Mood: Cautiously Risk-on
Drivers: US-China trade talks, Oil near $100

Asian stocks traded mostly higher on Monday as investors looked ahead to the planned US-China summit and tracked firmer US equity futures. 

South Korea’s KOSPI gained around 1%, while Australia’s S&P/ASX 200 fell 0.49%. Japan’s markets were closed for a holiday, while Chinese shares traded higher. The SGX Nifty was at 23,345, down 16 points or 0.07%, pointing to a mildly negative opening for Indian equities.

Markets are focused on the prospect of progress in US-China trade relations, while elevated oil prices and Treasury yields remain key risks for sentiment.  Crude prices stayed around $100 a barrel amid supply concerns linked to West Asia, while the 10-year US Treasury yield hovered near 5%, keeping inflation and the outlook for interest rates in focus. 

THE BIG STORY
Iran warned that any new US attack would trigger sustained retaliation against US bases and interests, while President Donald Trump threatened severe economic or military consequences but said he remained open to talks.

Houthi missile and drone attacks on Riyadh have added a new front, with the US warning of possible further escalation and airspace disruptions. Houthi control of the Bab el-Mandeb threatens the Red Sea route, while restrictions on shipping through the Strait of Hormuz have sharply disrupted Gulf energy flows. The simultaneous disruption of both routes could keep crude prices elevated and deepen the global fuel supply shock.

Minneapolis Fed President Neel Kashkari said inflation remains too high across services and broader consumption, not just energy. Most Fed policymakers expect another rate hike this year, with markets are pricing a strong possibility of another 25-basis-point hike by year-end.

Data Spotlight
US industrial production was unchanged in August, missing forecasts of a 0.3% rise, as manufacturing output fell 0.3%, ending a seven-month streak of consecutive gains. 

Utilities climbed 1.8% on stronger electric utility production, while capacity utilisation held at 76.3%, still 3.1 percentage points below its long-run average.

Germany's producer prices rose 4.6% year-on-year in August, the fastest since April 2023 and above forecasts of 4.1%, as energy prices surged 8.3% on higher mineral oil and motor fuel costs. 

Intermediate goods accelerated to 6.1% on metals and copper price surges, while monthly PPI rose 1.1%, the fastest pace in three months.

Takeaway: A stalled US factory sector points to softer industrial momentum, while Germany's sharp rise in producer prices highlights renewed cost pressures from energy and metals as West Asia supply disruptions persist.

WHAT HAPPENED OVERNIGHT

US stocks end mixed as markets digest a tumultuous week

• The Dow fell 0.18% for its biggest weekly decline since March, while the S&P 500 gained 0.17% and Nasdaq rose 0.40%
• A chip rally lifted tech as broader weakness weighed on the blue chips.
• October Fed hike odds rose to 55.4% from 42.5% last Friday and just 7.2% a month ago, as markets absorbed the Fed's first hike since 2023 and its signal of further tightening.
• Crude settled above $100/bbl but reversed session highs after China, at Saudi Arabia's request, asked Iran to limit Houthi attacks on Saudi oil infrastructure.
• Soaring diesel prices are set to translate into broader inflationary pressures across farming and shipping costs as winter approaches.
• Crypto stocks surged, with Coinbase, Strategy, and Robinhood gaining 9.1%-16.4% as bitcoin jumped 5.9%.

US Treasury yields recover to 5% as hawkish Fed reassessment resumes

• The 10-year yield edged up 7bps to 5%, reversing Thursday's 8bps decline, as markets reassessed the implications of the Fed's hawkish signal.
• Warsh's credibility restoration helped cap further long-end selling after the benchmark had topped 5.04% pre-decision, its highest since 2007.
• Concerns over the Fed's ability to contain price pressures amid persistently elevated oil prices had driven the pre-decision spike above 5%.
• Oil price volatility on Friday, with Saudi supply concerns and elevated West Asia tensions persisting, kept the inflation outlook uncertain and supported the yield recovery.

US Dollar rises to six-week high as Fed credibility restored and yen weakens on dovish BoJ split

• The dollar index climbed to 100.4, its highest in one-and-a-half months, up 1.3% on the week, as the Fed's unanimous 25bps hike and signal of further tightening boosted the greenback.
• Warsh's reaffirmation of the Fed's inflation commitment helped restore policy credibility, compounding the dollar's post-hike gains.
• The dissent-driven dovish BoJ read sent the yen lower, amplifying the dollar's gains against the Japanese currency.

Oil slides but holds above $100 after China asks Iran to limit Houthi attacks

• Brent settled at $104.87/bbl, down 0.93%, and WTI at $100.30, down 1.58%, on track for Brent's first weekly loss in three.
• Saudi Aramco told at least two European customers they will receive no crude next month after the East-West pipeline attack damaged three pumping stations.
• Hormuz crossings fell to four vessels Thursday, well below the 10-day average of ~16; US retail diesel hit a record $6.45/gallon.
• JPMorgan said it has no clear baseline oil market view for the first time since the war began in February.
• The UN General Assembly next week will discuss the war, with Iran's delegation permitted to attend, offering a rare diplomatic opening.

Day’s Ledger*

Corporate Actions

• Suryoday Small Finance Bank to consider fund raising

Policy

• Fed Goolsbee Speaks
• ECB President Lagarde Speaks
• Bank of Canada Governor Macklem Speaks

Tickers to Watch

• MANIPAL HEALTH ENTERPRISES redeems listed NCDs worth 53.10 billion rupees issued by its wholly owned subsidiary Manipal Hospitals.
• MARUTI SUZUKI INDIA launches automatic S-CNG variants of Swift, Dzire and Baleno models, combining CNG powertrains with AMT technology.
• MAZAGON DOCK SHIPBUILDERS signs MoU with NSHIP-AP to develop a greenfield shipyard at Dugarajapatnam, with investment of around 150 billion rupees planned over five to seven years.
• LENSKART SOLUTIONS sees a block deal worth around 20.47 billion rupees, with Platinum Jasmine A 2018 Trust offering shares at a floor price of 682.45 rupees apiece.
• NESTLE INDIA faces legal action from FSSAI over alleged non-compliances related to NAN Excella Pro Stage 1 and Lactogen Pro 1 products, while the company says the products comply with applicable regulations.

Must Read

• RBI’s IPO Push Forces a Boardroom Test for Tata’s Trust Model
• When Regulators Might Be Right but the Timing Might Still be Wrong
• RBI Wants a Listing, Noel Wants the Tata Ethos — Both Are Possible
• Are Interest Rates in India Too Low?
• When Fighting Cyber Fraud Freezes the Money of Innocent Indians
• Gold Loans – The Good, the Bad and the Ugly
• SEBI may take up PMS regulation overhaul at September 24 board meeting
• Record buffer may help prevent spike in pulse prices

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day