Global Mood: Cautiously risk-off
Drivers: Hormuz shipping attacks, hot US CPI

Asian markets traded sharply lower on Thursday as hawkish signals from the US Federal Reserve revived expectations of further monetary tightening, while renewed US-Iran tensions pushed oil prices higher. South Korea’s Kospi fell 3.06%, and Japan’s Nikkei 225 declined 2.07%, while the Topix lost 0.7%. Australia’s S&P/ASX 200 was little changed, bucking the broader regional weakness.

Sentiment weakened after Fed Chair Kevin Warsh’s hawkish remarks strengthened expectations of a possible rate hike this month. Meanwhile, renewed military action around the Strait of Hormuz heightened concerns over energy supply disruptions, lifting Brent crude 1.4% to $89.30 a barrel. Higher oil prices risk adding to inflationary pressures and could keep global interest rates elevated for longer. The GIFT Nifty was trading at 22,625.5, up 3 points or 0.01%, pointing to a largely flat opening for Indian equities.

THE BIG STORY
US consumer prices rose 0.6% in September from August and 3.7% year on year, up from 3.4% in August, as surging fuel costs and broader price pressures complicated the inflation outlook ahead of the November midterm elections. The data pushed the probability of a Federal Reserve rate hike at its October 27–28 meeting to about 37% from 22% before the release. Most economists still expect the Fed to hold rates this month and raise them in December.

A container ship and a dry bulk carrier sank in separate incidents after being hit by projectiles near the Strait of Hormuz, with one crew member killed and 21 others safely evacuated from the container vessel. Attacks on commercial shipping have intensified over the past 10 days as Iran seeks to counter the US blockade and tighter sanctions.

The threat has widened beyond oil tankers to container ships and bulk carriers, increasing risks to maritime trade and energy flows through a route that previously handled about a fifth of global oil and LNG trade. Yemen's Houthis threatened further attacks on Saudi airports and oil facilities after a strike caused extensive damage to Saudi Aramco's headquarters in Dhahran, according to sources.

Saudi-led forces said they intercepted a ballistic missile aimed at Riyadh, while the capital's airport remains closed until October 17 following repeated attacks. The escalation threatens Saudi Arabia's energy infrastructure and economic diversification plans, while intensifying fighting in Yemen has disrupted humanitarian assistance to more than 600,000 people in Taiz.

Data Spotlight
US annual inflation accelerated to 3.7% in September, from 3.4% in the previous two months, exceeding expectations of 3.6% as energy prices surged.  Gasoline prices jumped 34.2% year-on-year, and fuel oil rose 74.2%. Core inflation also increased to 2.6% from 2.4%, while monthly core CPI held at 0.3%, above forecasts of 0.2%.

US crude inventories fell by 11.12 million barrels in the week ended October 9, the largest draw since late January, defying expectations for an increase of 1.9 million barrels.  Gasoline stocks rose by 1.1 million barrels, while distillate inventories declined by 1.5 million barrels. Crude production edged up to 13.98 million barrels per day.

China’s trade surplus widened to 133.53 billion dollars in September, from 88.72 billion dollars a year earlier, beating forecasts of 118.1 billion dollars.  Exports surged 36.3% to 447.18 billion dollars, supported by demand for high-tech products amid the global AI infrastructure boom, while imports rose 31% to a record 313.66 billion dollars. The year-to-date surplus reached 938.11 billion dollars, putting it on track to exceed last year’s record.

Takeaway: Higher US energy prices are adding to inflationary pressures, with core inflation also exceeding expectations, strengthening the case for the Federal Reserve to keep interest rates higher for longer. Rising Treasury yields and mortgage rates are already weighing on housing demand, while the sharp crude inventory draw points to tighter near-term US oil balances. In China, strong export growth—particularly in high-tech goods—continues to support external demand and widen the trade surplus, even as Beijing faces pressure over industrial overcapacity. Together, the data highlight persistent inflation risks in the US alongside continued strength in China’s export engine.

WHAT HAPPENED OVERNIGHT

US Stocks Slide as Hot Inflation Fuels Fed Rate-Hike Bets

• US stocks fell on Wednesday after September inflation exceeded expectations, lifting the probability of a Fed rate hike this month to 37% from 22% on Tuesday.
• The S&P 500 fell 1.11%, the Nasdaq dropped 1.88% for its biggest daily loss since July 23, and the Dow slipped 0.09%.
• AI-linked stocks led losses as higher borrowing costs threatened valuations. Oracle fell 8.8%, CoreWeave dropped 15%, and Nebius lost 10%. The semiconductor index slid 4.3% for a sixth consecutive session.
• Dell and Hewlett Packard Enterprise fell 11.4% and 8.2%, respectively, after Barclays downgraded both AI server makers.
• Bank of America declined 4.8% after setting aside $1.2 billion for potential regulatory fines, while Morgan Stanley fell nearly 3% despite higher quarterly profit.
• Apple rose 0.5%, taking its market capitalisation above $5 trillion for the first time. Berkshire Hathaway’s additional $330 million investment sent Bending Spoons up 41%.

US Dollar Hits 18-Month High as Hot US Inflation Fuels Fed Rate-Hike Bets

• The US dollar index rose as much as 0.7% to 102.88 on Wednesday, its highest since April 2025, after hotter-than-expected inflation strengthened expectations of further Fed tightening.
• US CPI rose 0.6% month-on-month in September, its fastest increase in five months, while annual inflation reached 3.7%, above the 3.6% forecast. Core CPI rose 0.3% monthly and 2.6% annually.
• Markets priced in roughly a 50% chance of a Fed rate hike later this month, up from 22.1% a day earlier. However, Fed Vice Chair Michelle Bowman said there was no immediate need for another increase following September’s hike.
• Rising oil prices amid escalating Saudi-Houthi hostilities added to inflation concerns, as the threat of further supply disruptions heightened energy-market risks.

US Treasury Yields Surge as Hot Inflation Raises Fed Hike Bets

• The 10-year US Treasury yield rose as much as 10 basis points to 5.3% on Wednesday, nearing highs last seen in early 2002, after US inflation exceeded expectations.
• Annual CPI accelerated to 3.7% in September, above the 3.6% forecast, while core inflation rose to 2.6%, exceeding the 2.5% estimate. Monthly core CPI increased 0.3%, also above expectations.
• Higher energy prices drove inflation, while broader price pressures added to concerns over persistent inflation.
• Markets raised the probability of a Fed rate hike this month to around 50%, from about 22% before the data, putting further upward pressure on Treasury yields.

Oil Rises as Saudi Attacks and Iran’s Tanker Tactics Heighten Supply Risks

• Brent crude rose 0.35% to $106.06 a barrel on Wednesday, while WTI gained 1.01% to $95.09, its highest in three weeks, amid escalating attacks on energy infrastructure and shipping.
• Houthi strikes hit a Saudi Aramco administrative building, while Iran signalled new tactics to target ships near the Strait of Hormuz, heightening fears of further supply disruptions.
• Gulf crude flows excluding Iran recovered to more than 81% of prewar levels in September, led by higher Saudi exports. However, the IEA said increased exports partly reflected a redistribution of available oil rather than higher production.
• Expectations of increased Russian diesel exports could limit further price gains, although Russian crude output remained 870,000 barrels per day below year-ago levels in September.
• US crude inventories fell by 11.1 million barrels in the week ended October 9, according to API data. Traders await Thursday’s EIA report for confirmation of the drawdown.

Day’s Ledger*

Economic Data

• India September Trade Data
• India August BoP Data
• UK August GDP
• UK August Trade Balance
• Eurozone August Industrial Production
• US September PPI
• US September Retail Sales
• US Initial Jobless Claims
• US Crude Oil Inventories

Policy

• German Buba Vice President Buch Speaks
  
• US FOMC Member Bowman Speaks
• BoE Deputy Governor Woods Speaks
• BoE MPC Member Pill Speaks
• BoE Gov Bailey Speaks
• BoE Breeden Speaks
  
  

Corporate Actions

• Earnings: HDFC Asset Management Company, HDFC Life Insurance Company, Indian Bank, Indian Railway Finance Corporation, Jio Financial Services, Karur Vysya Bank, L&T Finance, Nestle India, South Indian Bank, Tata Communications, Tech Mahindra, UCO Bank, Wipro Limited

Tickers to Watch

• RELIANCE INDUSTRIES subsidiary Jio Platforms will launch its 301.88 billion rupees IPO on Oct 21, with a price band of 1,065–1,119 rupees per share. The anchor book opens on Oct 19.
• IDBI BANK Fairfax-backed Canada Inc gets approval as strategic buyer for a 60.72% stake held by the government and LIC for 528.78 billion rupees at 81 rupees per share.
• CSB BANK may be merged with IDBI Bank or Fairfax may exit its holding, as RBI rules restrict promoters from controlling stakes in multiple banks. The approved framework envisages a merger within two years.
• HDB FINANCIAL SERVICES net profit rose 34% y/y to 7.8 billion rupees in the July-September quarter, while net interest income grew 15.5% to 25.34 billion rupees. The board declared an interim dividend of 2 rupees per share.
• TATA TECHNOLOGIES net profit fell 5% y/y to 1.71 billion rupees in the July-September quarter. US dollar revenue rose 22% in constant-currency terms, while services revenue grew 26%; the company expects strong double-digit full-year growth.
• BAJAJ CONSUMER CARE net profit rose 67.1% y/y to 702 million rupees in the July-September quarter, while revenue grew 25.7% to 3.33 billion rupees. EBITDA increased 70.8% to 820 million rupees, with margin expanding to 24.7% from 18.1%.
• CAPRI GLOBAL CAPITAL board approves raising up to 40 billion rupees through equity, debt or convertible securities via routes including QIP, rights issue, public issue and overseas borrowings.
• MANGALORE REFINERY AND PETROCHEMICALS net profit nearly tripled y/y to 18.81 billion rupees in the July-September quarter, while revenue rose 37.1% to 355.9 billion rupees. Profit before tax increased to 25.19 billion rupees from 9.75 billion rupees.

Must Read

• SEBI proposes market cap-based SME listing norms, lower application size
• US oil, gas supplies to India fall 43% as West Asia imports rebound
• Canada races to seal India trade pact by year-end, deepen EU ties
• As Long as Retail Investors Stay in La-La Land, It’s Always Summer for OPM Wallahs
• The RBI Buys Time, but Can It Turn the Rupee Around?
• Barua Says Must Rethink 4% Inflation Target
• India Eases TV Ad Rules But Broadcasters Still Have To Sell Attention
• ITLA: Can India Turn Transport Infrastructure into Economic Gains?

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day