Global Mood: Cautiously risk-on
Drivers: Softer crude prices, Energy supply risks 

Asian markets traded with a cautious bias on Tuesday, as lower oil prices supported sentiment but rising US Treasury yields kept investors wary. Japan’s Nikkei 225 gained 0.22%, Topix rose 0.26% and Australia’s S&P/ASX 200 advanced 0.32%, while South Korea’s Kospi slipped 0.15%. GIFT Nifty rose 75 points, or 0.33%, to 22,651, signalling a mildly positive opening for Indian equities.

Brent crude fell 1.9% to $100.32 a barrel, easing some inflation concerns. However, the US 10-year Treasury yield climbed above 5.3%, its highest since 2002, while the 30-year yield briefly topped 5.7%. Investors await the Federal Reserve’s September meeting minutes for policy signals. Geopolitical risks remain elevated despite Saudi-backed forces pushing the Houthis away from parts of the Bab el-Mandeb coast. Disruptions to oil and gas flows through the Strait of Hormuz persist. A weakening US labour market and subdued real income growth add to concerns over household spending and economic momentum.

THE BIG STORY
Saudi-backed Yemeni forces pushed the Houthis out of parts of the Bab el-Mandeb coast and reached the outskirts of Mocha.  A reversal of Houthi gains could ease risks to a key Red Sea oil route, though the group can still attack shipping from other positions. Houthis claimed attacks on Riyadh airport, an Aramco refinery and other Saudi sites, while Saudi Arabia continued airstrikes in Yemen. 

Saudi Arabia, Turkey and Pakistan also agreed to rapidly deploy military capabilities under their joint defence pact.

Shipping through the Strait of Hormuz has increased, but crude, refined product and LNG flows remain significantly disrupted. The continued threat to both Hormuz and Bab el-Mandeb keeps global energy supply risks elevated.

The US enters the midterm election period with unemployment at 4.2%, but a less dynamic labour market. Hiring has slowed, labour-force growth has stagnated, and real disposable-income growth remains below 2%. Layoffs remain low, but workers have fewer opportunities to switch jobs for higher pay.  Inflation has also eroded wage gains, leaving households with limited improvement in real purchasing power.

Data Spotlight
US ISM Services PMI eased to 54.9 in September from 55.4 but remained in expansion for the 27th consecutive month. ISM business activity fell sharply to 56.5 from 61.7, while new orders moderated to 59.8. Employment returned to growth at 50.1.  S&P Global Services PMI rose to 58.8 from 56.5, marking the strongest services expansion since July 2021.

S&P Composite PMI rose to 58.4 from 56.0, confirming the strongest private-sector expansion in more than five years, with growth broad-based across manufacturing and services.

Takeaway: US economic activity remains robust, led by strong domestic demand, new orders and hiring, despite some moderation in the ISM services gauge. However, the sharp rise in input and selling prices signals renewed inflation risks, with tariffs, fuel and labour costs adding to pressures. The combination of strong growth and sticky inflation could make the Fed’s easing path more cautious.

WHAT HAPPENED OVERNIGHT

US stocks rally to record as falling oil and low October hike odds boost sentiment ahead of earnings

• The Nasdaq gained 1.05% to a record close, its highest since September 22, while the S&P 500 rose 0.66% to within 0.3% of its August 13 record; the Dow added 0.18%.
• Nvidia climbed 2.1% to a record close, lifting its market cap to $5.76 trillion; Microsoft added 1.5% and Meta and Tesla each gained 2%.
• Analysts are projecting S&P 500 July-September earnings growth of over 30% year-on-year as bank results kick off next week.
• PTC surged 33% after Schneider Electric agreed to acquire it in a $22.6 billion all-cash deal.

US Treasury yields climb to 5.33% as services PMI and inflation pressures reassert upward pressure

• The 10-year yield rose to 5.33%, near its highest since March 2022, as September ISM services PMI of 54.9 showed continued expansion alongside intensifying cost pressures, offsetting Friday's jobs-driven relief.
• Markets see an 82% probability of a Fed hold at the October meeting, with Wednesday's September FOMC minutes the next key focus for policy direction.

US Dollar hits April 2025 highs as euro weakness and safe-haven demand override soft jobs data

• The dollar index climbed to 102.5, its highest since April 2025, as sharp euro weakness on Spanish political uncertainty and French fiscal concerns drove safe-haven flows into the greenback.
• The soft September jobs report pushed October hold odds to 82% but did little to dent the dollar given European headwinds.

Oil falls as West Asia exports rise, G7 stocks release weighs

• Brent fell 1.89% to $100.32/bbl, while WTI declined 1.84% to $89.43 as rising crude exports eased supply concerns.
• West Asian crude exports exceeded pre-war levels on four of the seven days in the final week of September, despite continued attacks on vessels in the Strait of Hormuz.
• G7 nations agreed to release 100 million barrels of diesel and crude from emergency reserves and pledged to avoid energy export restrictions.
• The market remained sceptical about the impact of the release, with uncertainty over how much would come from the remaining volumes of the IEA-coordinated 400-million-barrel emergency release.
• Saudi Aramco CEO Amin Nasser said crude and refined-fuel supplies would remain stretched, with rebuilding global inventories after emergency withdrawals potentially taking two years.
• US Strategic Petroleum Reserve inventories fell to 283 million barrels, the lowest since October 1982, underscoring tight global stock levels.
• Renewed fighting between Saudi Arabia and Iran-backed Houthis is keeping risks to energy infrastructure and shipping elevated, supporting a geopolitical risk premium.
• OPEC+ postponed its review of 2027 output quotas after the Iran war disrupted capacity-expansion projects, adding uncertainty over future supply potential.
• Aramco unexpectedly cut November crude prices for Asia to six-year lows, signalling weaker regional demand or an effort to protect market share despite the broader supply squeeze.

Day’s Ledger*

Economic Data

• India Cabinet meeting
• India September S&P Services and Composite PMI
• German August Factory Orders
• UK September S&P Global Construction PMI
• US August Trade Balance
• US ADP employment data

Corporate Actions

• Earnings: Asset Reconstruction Company (India)

Policy

• BOJ Governor Ueda Speaks
  
• BoE MPC Member Mann
  
• German Buba Vice President Buch Speaks
  
• ECB's Elderson Speaks
  
• US FOMC Member Bowman Speaks

Tickers to Watch

• AXIS BANK July-September 2026 gross advances up 8.8% QoQ and 22.7% YoY to 13,840 billion rupees. Total deposits up 5.8% QoQ and 20.7% YoY to 14,520 billion rupees.
• VEDANTA Board to meet on October 8 to consider first interim dividend for FY27. October 14 fixed as record date for eligible shareholders.
• KOTAK MAHINDRA BANK net advances up 24.7% YoY to 5,770 billion rupees. CASA deposits up 11.3% YoY to 2,490 billion rupees; total deposits up 23.2% YoY to 6,510 billion rupees.
• TRENT Q2 standalone revenue up 23% YoY to 57.88 billion rupees from 47.24 billion rupees. Added 10 Westside and 17 Zudio stores, taking total count to 1,342 as of September 30, 2026.
• GAIL Appoints Rajeev Kumar as Non-Executive Director, effective October 1, 2026.

Must Read

• RBI’s Policy Compass Set for a Swing
• What Is the RBI Hiking For?
• Ready to Sign an Interim Deal or Stuck at a Plateau?
• An Inspection Is Not an Assurance
• Operational Realities in Monetary Policy Transmission

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day