Global Mood: Cautiously risk-off
Drivers: West Asia Uncertainty, AI Investments Concerns

Asian equities fell sharply on Friday, tracking overnight losses on Wall Street as concerns over the sustainability of AI investments triggered a broad sell-off in technology shares. Semiconductor makers and other AI-linked companies led declines, with Japan’s Nikkei 225 and South Korea’s KOSPI Composite each falling nearly 2%. Sentiment was also pressured by reports that the US and Israel had drawn up plans for possible renewed strikes against Iran after next month’s midterm elections.

Japan’s flash manufacturing PMI fell to 53.3 in October from 54.1 in September, though the reading remained above the 50-threshold, indicating expansion. The yen strengthened to 156 per dollar, reaching a five-week high as investors sought safe-haven assets.

GIFT Nifty was trading at 22,880, up 165.5 points, or 0.73%, today.

THE BIG STORY
Global firms and governments rushed to patch critical flaws in PHP, the programming language underpinning much of the internet, after cloud providers reported a surge in hacking attempts following the disclosure of  vulnerabilities. Several governments took websites offline as a precaution on Wednesday, disrupting banking, airline, rail, tax and public services from Tokyo to Helsinki. The vulnerabilities, which had remained undetected for years, were uncovered using AI, prompting PHP developers to release fixes and urge users to update immediately.

The emergency shutdowns highlighted the dependence of governments and companies on decades-old software that few people fully understand. Website operators scrambled to secure systems running PHP, while cloud firms reported increased attempts to exploit the flaws. The vulnerabilities prompted one of the most dramatic tests of the software tools that underpin much of the web.

Russia and Ukraine continued their attacks despite the latest US push to end the conflict. Russia fired at least 21 ballistic missiles at Kyiv, while Ukraine launched hundreds of drones toward Moscow. US President Donald Trump said SpaceX CEO Elon Musk had restored Ukraine’s Starlink access, an issue linked to tensions between Washington and Kyiv. Ukraine said three Russian missiles carried cluster munitions, while Russia said Ukraine launched 630 drones toward Moscow overnight. The two sides also exchanged war dead, with Russia handing over 252 bodies and Ukraine 25, according to Belarus’ Belta news agency.

Data Spotlight
US initial jobless claims dropped by 6,000 to 194,000 for the week ending October 17, below expectations and at the lowest level since mid-July. While corporate profits and demand helped avoid layoffs, hiring slowed due to higher energy costs, the Iran conflict, Fed policy, and trade issues. Continuing claims rose by 25,000 to 1.728 million for the week ending October 10.

US energy companies added 77 billion cubic feet of natural gas to storage in the week ending October 16, less than the market expected and below last year’s and the five-year averages. Total inventories reached 3.644 trillion cubic feet, 4% lower than last year but 1% above the five-year average.

The UK GfK Consumer Confidence Index fell by 11 points to -24 in October, the largest drop since April 2020 and well below expectations. Consumer sentiment weakened due to inflation, higher energy prices, and conflict in West Asia, causing economic confidence and willingness to make big purchases to fall to multi-year lows.

Takeaway: The US labour market's resilience remains evident as initial jobless claims fall to their lowest since July, although rising continuing claims point to some pressure on unemployed workers. A smaller-than-expected natural gas inventory build leaves stocks below year-earlier levels, while UK consumer confidence has weakened sharply amid inflation and energy-cost concerns.

WHAT HAPPENED OVERNIGHT

US stocks tumble as AI spending fears trigger a sharp technology sell-off

• The S&P 500 fell sharply, and the Nasdaq dropped 2.6%, its steepest daily decline since early June. The Dow eked out a marginal gain.
• US stock fell as high-profile earnings reignited concerns over the scale and returns of AI-related spending.
• The Philadelphia Semiconductor Index plunged 6.7%, its biggest daily percentage decline since June 23, dragging the tech-heavy Nasdaq lower.
• Meta Platforms fell 7% despite beating earnings expectations after reporting its first cash outflow in more than a decade amid AI-related expenditure and plans to issue non-voting shares to raise capital.
• Tesla declined 3.1% despite unexpectedly positive free cash flow and lower 2026 capital spending plans.
• Houthi attacks on Saudi targets pushed crude prices to a five-month high, adding to inflation concerns and fears that the Federal Reserve may continue raising interest rates.

US Treasury yields plunge as tech sell-off sparks flight to safety

• US Treasuries rallied on Thursday, pushing yields sharply lower as a technology-led equity sell-off boosted demand for safe-haven government debt.
• The 10-year Treasury yield fell 19.3 basis points to 4.953%, its biggest daily decline since March 10, 2023, and moved below 5% for the first time in a month.
• The 2-year yield dropped 17.5 basis points to 4.648%, while the 30-year yield declined 15.1 basis points to 5.286%.
• The retreat followed a sharp rise in yields earlier this month, with the 10-year reaching 5.3645% on October 7, its highest since April 2002.
• Concerns over France’s public finances and heavy capital spending by major AI platforms added to market uncertainty, while investors sought the relative safety of government bonds.

US dollar holds near a three-week low as AI concerns weigh on sentiment

• The US dollar index traded little changed around 101.7, hovering near a three-week low as earnings from mega-cap companies failed to ease concerns about the sustainability of the AI trade.
• Geopolitical tensions also intensified, with reports suggesting the US and Israel were preparing further strikes on Iran after the US midterm elections.
• Risk aversion and safe-haven demand supported the Japanese yen and Swiss franc, while the euro was among the weakest-performing major currencies.
• Markets are pricing in an 89% probability that the Federal Reserve will hold rates steady next week, while the odds of a 25-basis-point hike in December have risen to around 76%.

Oil jumps 4% to five-month high as Houthi attacks raise supply risks

• Brent crude rose $4.35, or 4%, to settle at $113.17 a barrel, its highest close since May 4, while US West Texas Intermediate gained $2.32, or 2.4%, to $99.47.
• Brent remained in technically overbought territory for the third time in a week.
• Houthi attacks on Saudi Arabia heightened concerns over energy supply disruptions from the key exporting region.
• Saudi Aramco asked staff to evacuate its headquarters in Dhahran as fighting between Saudi Arabia and the Iran-aligned group intensified.
• Clashes have also centred on the Houthis’ push towards Bab el-Mandeb, a key shipping chokepoint at the entrance to the Red Sea.
• Valero Energy reported its highest-ever quarterly profit, as fuel supply disruptions linked to the wars in Iran and Ukraine boosted refining margins in the third quarter.

Day’s Ledger*

Economic Data

• India October flash S&P Global Services PMI
• India October flash S&P Global Manufacturing PMI
• India Weekly gilt auction
• India Weekly FX Reserves Data
• UK September Retail Sales
• US October S&P Global Composite PMI                        

Policy

• Russia Interest Rate Decision

Corporate Actions

• Earnings:  Adani Power, Bank of India, Bharat Petroleum Corporation, Coforge, CSB Bank, DCB Bank, Dr. Reddy's Laboratories, Godrej Properties, IndusInd Bank, Infosys, Jindal Steel, JSW Steel, SBI Cards and Payment Services, SBI Funds Management, Shree Cement, Shriram Finance, Tata Motors, and Torrent Pharmaceuticals,
• Atul Ltd to consider buyback for equity shares

Tickers to Watch

• ADANI TOTAL GAS Jul-Sep net profit rose 3.2% to ₹1.67 billion; revenue grew 34.1% to ₹19.36 billion, but margins contracted.
• CIE AUTOMOTIVE INDIA Jul-Sep revenue rose 11% to ₹26.33 billion and net profit increased 14% to ₹2.44 billion; margins narrowed.
• COLGATE-PALMOLIVE INDIA Jul-Sep net profit rose 4.1% to ₹3.415 billion; EBITDA margin fell to 28%, with key metrics missing estimates.
• CREDITACCESS GRAMEEN Jul-Sep net profit jumped 298.7% to ₹5.02 billion; assets under management increased 19.5% to ₹309.46 billion.
• CYIENT Jul-Sep revenue rose 7.7% q/q to ₹22.35 billion; net profit increased 22% to ₹1.325 billion. Declared ₹12 interim dividend.
• eMUDHRA decided to exit the global SSL/TLS certificate business, citing rising compliance costs and reduced business potential.
• HPCL Jul-Sep net profit stood at ₹34.826 billion against an April-June loss of ₹115.26 billion; revenue fell 4.3% sequentially.
• JINDAL STAINLESS Jul-Sep net profit rose 11.1% to ₹8.98 billion; revenue increased 18.2% to ₹128.74 billion. Exports jumped 36%.
• RELIANCE INDUSTRIES: Jio Platforms IPO bids crossed ₹1 trillion by the halfway mark on day two; all investor categories were fully subscribed.
• SWIGGY Jul-Sep net loss narrowed to ₹9.22 billion; revenue rose 54.4% to ₹55.61 billion. Instamart expanded to 1,240 dark stores.

Must Read

• The RBI Has an Information Advantage; it is not in any Panic
• The RBI’s Diagnosis is Stronger Than Its Policy Signal
• Snabbit’s Cash Burn Is No Surprise in India’s Startup Wars
• The Kitchen and the Dealing Room: Two Inflation Realities in India
• The End of Abundance
• The RBI’s Familiar Dilemma Returns as Its Liquidity Cushion Wears Thin
• Steep bill for AI buildout punishes Meta, other tech favorites

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day