Asia Turns Risk-Off as AI Rotation and Key US Data Loom

GLOBAL MOOD: Risk-Off
Drivers: Ukraine Peace Talks, Fed Policy Outlook

Asia-Pacific markets leaned risk-off as investors pared exposure amid an ongoing rotation out of US AI stocks and caution ahead of key US jobs data. A stronger yen, expectations of a Bank of Japan rate hike, and uncertainty over the Fed’s easing path weighed on regional risk appetite. 

TODAY’S WATCHLIST

• RBI FX Swap Auction 
• Euro Balance of Trade
• US Payrolls Data

THE BIG STORY
The United States has offered NATO-style security guarantees to Ukraine during talks in Berlin, marking a significant shift as U.S. and European negotiators seek to end Russia’s war. While the proposal has lifted optimism among European leaders, major hurdles remain, particularly over territorial concessions, with Moscow yet to signal any willingness to compromise. President Donald Trump said discussions with Russian President Vladimir Putin suggest talks are closer than ever, though no agreement is in place.

Beyond geopolitics, markets are also watching structural shifts in the US financial system. Nasdaq said it plans to seek regulatory approval for round-the-clock stock trading, aiming to tap rising global demand for US equities, which already account for nearly two-thirds of global market value and $17 trillion in foreign holdings.

On the monetary front, New York Fed President John Williams defended last week’s rate cut, saying policy is now closer to neutral and well positioned for 2026. He acknowledged cooling labour markets and easing inflation risks, while stressing the need to return inflation to the 2% target without undermining employment.

Data Spotlight
The NAHB/Wells Fargo Housing Market Index in the US edged up to 39 in December 2025 from 38 in November, marking an eight-month high but remaining below the 50 thresholds for the 20th straight month. Builders continued to face affordability constraints, elevated construction costs, and economic and tariff-related risks.

In contrast, the NY Empire State Manufacturing Index fell sharply to -3.9 in December from 18.7 in November, swinging back into contraction and missing expectations of 10. Shipments declined meaningfully, inventories rose slightly, and supply availability worsened, although employment and hours worked showed modest improvement. The data pointed to renewed weakness in regional manufacturing after a brief recovery.

Takeaway: US housing shows tentative stabilisation but remains constrained by weak affordability and heavy use of incentives. Manufacturing momentum appears fragile, reinforcing a mixed and uneven US growth outlook.

WHAT HAPPENED OVERNIGHT

• US equities ended mixed as investors stayed cautious ahead of key US macro data.
  • S&P 500 rose 0.1% and Dow gained 0.2%, while the Nasdaq fell 0.2% on tech weakness.
  • AI stocks dragged sentiment, with BROADCOM down 5.6% and ORACLE off 2.6% on margin and guidance concerns.
  • Semiconductor and software shares remained under pressure amid questions over AI investment profitability.
  • SERVICENOW slid 11.6% after acquisition reports and a broker downgrade. 

• US Treasury yields stayed near lows, with the 10-year yield at 4.16%.
  • Investors weighed whether the Fed is nearing the end of its easing cycle after three rate cuts.

• The US dollar held near multi-week lows, with the dollar index around 98.4.
  • The greenback weakened against safe havens, slipping 0.3% versus the yen to 155.35. 

• Crude oil prices eased on oversupply concerns.
  • Brent fell 0.9% to $60.56 a barrel, while WTI declined 1.1% to $56.82 a barrel.
  • Expectations of a Russia–Ukraine peace deal and potential supply additions capped gains.
    
    

Day’s Ledger

Economic Data

• Japan Flash PMI
• India Flash PMI
• Euro Flash PMI
• Euro Balance of Trade
• US Payrolls Data
• US Flash PMI
• India State Bonds Auction

Corporate Actions

• BF Utilities Jul-Sep Earnings
• Canara Robeco board to consider interim dividend

Policy Events

• ECB Machado Speaks
  
  

Tickers to Watch

• RBL BANK CFO Tharashankar resigns to pursue opportunities outside bank
• Panel approves appointment of Ravi Ranjan as MD of STATE BANK OF INDIA
• Engineering firm BHEL pays ₹110-cr final dividend for FY25 to govt
• IHH eyes expansion in India post Fortis open offer, to add 2K beds by 2028
• MTNL board clears ₹350.72 cr sale of Mumbai's BKC housing block to Nabard
• BIOCON launches drugs for diabetes and obesity treatment in Netherlands
• GALAXY HEALTH INSURANCE launches Galaxy Twin 360 with IPD and OPD cover
• WHEELS INDIA signs tech assistance deal with Japan's Topy Industries

Must Read

• Joblessness Hits Sub-5% after 8 Months; Youth and Urban Gender Gaps Persist
  
• Will Customer Ever be the King in India?
• Crew Planning and Fatigue Management on Indian Railways: Why Trains Never Stop Running
  
• India’s November Trade Deficit Narrows to Five-Month Low; Exports to US Rebound
• Govt proposes Insurance Laws Amendment Bill to tighten dividend payout curb
• Consumer companies expect GST 2.0 to drive demand for the next few quarters
• WPI inflation remains in negative territory for 2nd month in a row in Nov
• India rejects US dumping claim, says basmati rice exports are premium-grade
• China’s Economy Is Deteriorating on Several Fronts

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

What Is India’s IPO Boom Telling Us?

India’s IPO boom reflects domestic confidence, rising retail participation and improving market depth, writes former RBI Deputy Governor Michael Debabrata Patra. But exuberance, mispricing and volatility warrant caution.