Asia Stocks Rise on Tech Rally Despite Fresh US-Iran Confrontation

Global Mood: Cautiously Risk-on
Drivers: Ukraine Peace Talks Gain Momentum, Hormuz Standoff Evolves

Asian stocks opened broadly higher on Monday, tracking gains in US technology shares from Friday, even as renewed military action between the US and Iran kept geopolitical risks firmly in focus. South Korea's Kospi jumped 3.18% and Japan's Nikkei 225 gained 2.03%, while Australia's ASX 200 rose 0.36%. The Hang Seng and Shanghai Composite were little changed.

Oil prices moved higher as the latest US-Iran confrontation heightened concerns over energy supplies and shipping through the Strait of Hormuz, tempering the broader risk-on mood.

THE BIG STORY
Six months into the war, the balance appears to be slowly tilting against Iran as Washington's economic offensive deepens. Three senior Iranian sources acknowledged the sanctions squeeze is becoming increasingly difficult to withstand, with currency fluctuations, import shortages of fuel and wheat, and restricted access to foreign financing compounding the damage. Iran's parliament speaker conceded the country's main battle had shifted to "production and people's livelihoods." Markets have adapted more readily than Tehran anticipated, blunting Hormuz disruption's coercive power — US Energy Secretary Wright said transits now average over 9 million barrels per day, roughly two-thirds of pre-war levels. Iran responded by announcing a new restricted zone outside Hormuz in the Gulf, threatening any vessel entering it with sanctions, while Qalibaf warned that future attacks would receive "faster, heavier and more painful" responses. US Central Command said it struck three Iranian vessels Saturday after the IRGC launched ballistic missiles at two US Navy ships, keeping the tit-for-tat exchange alive even as both sides calibrate their escalation thresholds. Analysts say the clearest path to a deal may lie in Iran abandoning explicit toll demands while retaining the right to charge for navigational or environmental services, giving both sides a face-saving exit.

In Ukraine, a breakthrough in diplomatic momentum emerged as Witkoff and Kushner completed their first-ever visit to Kyiv on Sunday following three hours of talks with Putin in Moscow on Saturday. Both sides described the meetings as substantive, with Witkoff saying he "heard new ideas" in Moscow and was "very encouraged" by Kyiv discussions, and trilateral talks expected to be announced "in short order." Both Russia and Ukraine temporarily halted strikes on each other's capitals during the visits, a rare gesture of restraint. Key sticking points remain — Donbas's future, security guarantees for Ukraine, and Russia's demand for territorial concessions, but the simultaneous engagement of Moscow and Kyiv by US envoys marks the most active diplomatic moment in the Ukraine conflict since talks broke down in February.

Data Spotlight
The US economy added 162,000 jobs in August, the most in five months and well above expectations of 56,000, as food services and drinking places gained 59,000 and local government education rebounded by 42,000 after July's decline. Manufacturing continued its upward trend with 16,000 jobs added and healthcare gained 13,000, while information shed 23,000 jobs. Prior months were revised up by a combined 55,000.

Eurozone retail sales fell 0.6% month-on-month in July, the steepest decline since May 2025 and well below expectations of a 0.3% rise, driven by a 1.4% drop in non-food products and a 0.8% fall in fuel sales. Germany led the regional decline at down 3.4%, with Spain and Italy also contracting, while France and the Netherlands posted modest gains. Annual retail sales growth slowed to 0.6%, the weakest pace in two years.

Takeaway: August's strong US payroll rebound signals greater labour market resilience than July's shock contraction suggested, with broad-based gains across manufacturing, healthcare and education reinforced by upward prior-month revisions. In contrast, the sharp pullback in Eurozone retail sales, concentrated in Germany and driven by weaker non-food and fuel spending, underscores a deteriorating consumer demand backdrop in Europe, with an expected ECB rate hike in September likely to add further pressure on households.

WHAT HAPPENED OVERNIGHT

US stocks dip as strong jobs report lifts September Fed hike odds ahead of CPI and PPI next week

• The Dow fell 0.51%, S&P 500 lost 0.38%, and Nasdaq dropped 0.29%, with all three indexes essentially flat for the week ahead of the Labour Day holiday weekend.
• August nonfarm payrolls surged to 162,000, nearly three times the 56,000 consensus, with June and July revised up by a combined 55,000, pushing September Fed hike odds to 58.4% from 49.4% the prior day.
• The Philadelphia Semiconductor Index gained 3.4% to outperform, though it remains down 17.8% this quarter, while software and services dropped 2.1% despite a 24% quarterly gain.
• CPI and PPI data due next week are the next key inputs for the September Fed decision, with markets now broadly split on a hike versus a hold.

US Treasury yields reverse two-session decline as strong jobs report reignites Fed hike bets

• The 10-year yield rose 3bps to 4.79% after August payrolls surged to 162,000, nearly three times the 56,000 forecast, with prior months also revised higher.
• September hike odds climbed to 52%, reversing the pullback driven by Waller's dovish lean earlier in the week.
• The week's volatile yield swings reflected the tug-of-war between oil-driven inflation fears, Warsh's hawkish Jackson Hole pledge, and Waller's data-dependent hold signal.
• Next week's CPI and PPI data are the decisive inputs for the September Fed decision, with the outcome remaining highly uncertain.

US Dollar rebounds to 99.3 as blowout jobs report bolsters September Fed hike expectations

• The dollar index recovered from a two-week low after August payrolls surged to 162,000, well above the 56,000 forecast, with July revised up to 23,000 from an initial decline.
• The unemployment rate held at 4.1% while annual wage growth eased to 3.1%, with the smaller-than-expected decline keeping inflation concerns intact.
• September Fed hike odds rose to 60% per CME FedWatch, with next week's CPI and PPI data the final key inputs before the decision.

Oil ends the week sharply higher as US-Iran strikes intensify and diesel hits record highs

• Brent settled at $96.28/bbl, up 0.8% on the day, with weekly gains of 7.6% and ~10% for Brent and WTI respectively as supply routes remained impaired in the war's seventh month.
• US retail diesel hit a record $5.85/gallon as renewed US-Iran hostilities and Ukrainian strikes on Russian refineries deepened the supply crunch, with further price rises expected as harvest season drives agricultural demand.
• Four commodity vessels transited Hormuz on Thursday, well below the 10-day average of 15, though analysts noted the week's rally appeared "mostly mood and fear driven" with no material impact on actual exports yet confirmed.
• Citi raised its Q3 Brent forecast to $86/bbl from $80, while ANZ lifted its short-term target to $95/bbl with upside risk if the conflict intensifies.
• Three senior Iranian sources said the US campaign to blockade Iran's oil exports and stop sanctions evasion is growing increasingly difficult to withstand.
• Iraq boosted August oil exports to 2.34 million bpd from 1.35 million bpd in July as heavy discounts attracted buyers.
• The strong August jobs report bolstered the case for a September Fed rate hike, adding downward pressure on WTI as higher rates threaten demand.

Day’s Ledger*
Economic Data 

• Eurozone April-June GDP
• German July Industrial Production

Corporate Actions 

• Earnings: Behari Lal Engineering, Kotyark Industries, Shiprocket Limited
• PNB Housing Finance, RBL Bank and Sammaan Capital to consider fund raising

Tickers to Watch

• MAZAGON DOCK SHIPBUILDERS receives a 1.18 billion rupee purchase order from MSETCL for supply, installation and commissioning of an AI-based Comprehensive Infrasecure Project for five substations.
• JSW STEEL’s  August 2026 consolidated crude steel production up 3% YoY to 24.65 lakh tonnes; domestic operations up 4% to 23.87 lakh tonnes, offset by 11% decline in US operations.
• RVNL receives a 9.03 billion rupee Letter of Award from SJVN Thermal Private Limited for work on the 1,320 MW Buxar Thermal Power Project in Bihar.
• LUPIN receives USFDA approval for Modafinil Tablets USP, 100 mg and 200 mg.
• TATA MOTORS Tata Motors CV launches open offer for Iveco Group shares at €14.1/share, valuing the Italian company at ~€3.82 billion.
• EICHER MOTORS Royal Enfield launches Himalayan 440 in India at ex-showroom price of 229,000 rupees; bookings open September 4.
• BRIGADE ENTERPRISES Launches Brigade Barcelona in Hyderabad's Neopolis, with revenue potential of over 27 billion rupees.
• PRIME FOCUS Approves plan to raise up to 30 billion rupees via equity shares, debt securities, non-convertible securities, share warrants and other equity-linked instruments.
• CIE AUTOMOTIVE INDIA invests 120.76 million rupees in wholly owned subsidiary CIE Hosur, acquiring 69.4 lakh shares on a rights basis.
• LEMON TREE HOTELS Signs licence agreements for two properties in Bodhgaya, Bihar, adding 145 rooms to its portfolio in the state.
• COHANCE LIFESCIENCE Receives Form 483 with 4 observations from USFDA for FDF plant in Telangana.
• OMCs in focus after the US strikes three Iranian oil tankers following Iranian IRGC ballistic missile attacks on two US Navy ships.

Must Read

• India’s New GDP Series Is a Black Box Without the Underlying Data
• Why Aren’t the Data Centres Paying Us?
• Economists and Modern-Day Court-Poets
• India’s Investment Cycle Is Stirring. Can It Deliver Lasting Growth?
• When Banking Changes Faster Than Bankers
• The Small-Scale Opportunity for Indian Business

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day