Risk-off Mood Grips Asia as Chip Selloff Outweighs Easing Oil Prices

Global Mood: Cautiously Risk Off
Drivers: Chip Selloff, Iran Talks Stall on Hormuz, US Manufacturing Cools

Asian markets opened in a risk-off mood on Thursday, led by sharp losses in technology-heavy markets after a broad selloff in US semiconductor stocks reignited concerns over the sustainability of artificial intelligence-driven spending. South Korean equities underperformed, triggering a temporary trading halt, while Japanese and Australian markets also retreated as investors reduced exposure to export-oriented technology shares. Attention has now shifted to Friday's US payrolls report, which could shape expectations for the Federal Reserve's policy path.

Geopolitical developments provided little support to sentiment. Fresh US-Iran talks in Doha ended without meaningful progress, delaying negotiations on a permanent settlement and leaving unresolved disputes over the Strait of Hormuz and sanctions relief. While easing tensions have pushed oil prices to four-month lows, uncertainty over the durability of the ceasefire continues to linger. Meanwhile, renewed Russian missile and drone attacks on Kyiv reinforced broader geopolitical risks. Adding to market caution, Fed Chair Kevin Warsh reiterated a data-dependent policy approach and signalled reduced forward guidance despite easing inflation pressures.

THE BIG STORY
Two days of indirect talks in Doha ended Wednesday with no visible breakthrough, as US and Iranian negotiators spent their time relitigating issues like Hormuz shipping rights and frozen assets that both sides had claimed were already settled under the June 17 accord. Nuclear discussions, which Trump publicly framed as progressing well, did not come up at all, and Kushner and Witkoff didn't even attend the sessions. The next round won't happen until after Khamenei's funeral on July 9, adding further delay to a 60-day negotiating window that is already burning down. Iran reiterated its intent to impose tolls from mid-August and its determination to win international recognition of sovereignty over the strait, while Hormuz traffic remains patchy and unpredictable despite partial resumption. Oil fell to four-month lows on Trump's de-escalatory tone, with analysts cutting price forecasts for the first time since the war began.

Elsewhere, Russia struck Kyiv overnight with drones and missiles, hitting residential buildings and setting a hotel on a central boulevard ablaze, injuring five. The attack came as Ukraine's top commander warned of a likely Russian offensive from the north, underscoring that the war in Europe remains as active as ever.

Fed Chair Kevin Warsh noted that inflation risks have eased in recent weeks but reaffirmed the Fed's commitment to its 2% target, while stressing its independence from political pressure. Warsh signalled a shift in communication approach, saying the Fed will no longer provide traditional forward guidance, with future decisions driven by incoming data. The Fed held rates steady last month but growing support among officials for additional hikes later this year reflects persistent inflation concerns.

Data Spotlight
US private sector payrolls rose by just 98,000 in June, below May's 122,000 and forecasts of 113,000, with education and health services leading gains at 48,000. Leisure and hospitality posted a sixth consecutive month of weak hiring at just 2,000, while natural resources and mining shed 5,000 jobs. Annual pay gains held steady at 4.4% for job stayers, while job switchers saw pay rise 6.6%.

US employer job cut announcements fell to 45,849 in June, a six-month low and down 53% from May, with tech leading at 15,503 cuts. Year-to-date cuts of 443,604 remain 40% below the same period in 2025, as AI continues to reshape headcount decisions in the technology sector. Hiring announcements of 10,933 in June pushed the year-to-date total 10% above first-half 2025 levels.

Takeaway: The US labour market showed a mixed picture in June, with announced layoffs falling sharply but private sector hiring disappointing and manufacturing job cuts accelerating. The Fed's data-dependent stance and abandonment of forward guidance add uncertainty to the policy outlook, even as easing inflation risks offer some relief alongside still-elevated price pressures.

WHAT HAPPENED OVERNIGHT

• US stocks edge lower as chip selloff offsets Meta's surge ahead of jobs report
  • The Dow fell 0.03%, S&P 500 lost 0.22%, and Nasdaq dropped 0.66% as tech weakness weighed despite support from Meta.
  • The Philadelphia Semiconductor Index tumbled 6.3% as lofty AI valuations and heavy capex spending continued to weigh on chipmakers.
  • Meta surged 8.8% after Bloomberg reported it is building a cloud business to sell excess AI computing capacity to third parties.
  • Warsh reaffirmed the Fed's 2% inflation target and said he would "disappoint" anyone expecting loose monetary policy, though he noted inflation risks had eased recently.
  • Traders slightly pared rate hike bets after Warsh's comments but still expect at least one Fed hike this year.
  • US and Iran concluded a round of indirect talks in Doha with no sign of meaningful progress toward a lasting peace deal.
  • ISM data showed US manufacturing activity slowed in June but remained solid.
  • Alcoa fell 8.9% after agreeing to acquire most of South32's aluminium assets.
  • Thursday's jobs report is the next key focus, with markets closed Friday for the Fourth of July holiday.
    
    
• US Treasury yields ease from session highs after Warsh signals softening inflation risks
  • The 10-year yield pulled back to 4.47% after testing 4.5%, as Warsh noted easing inflation risks.
  • ISM PMI data also showed softer price pressures, aligned with wholesale energy prices returning to pre-war levels.
  • Refined fuel costs remain sharply elevated, keeping yields 10bps above Monday's seven-week low.
  • The ADP report showed 98,000 private-sector jobs added, giving the Fed leeway to maintain its restrictive stance.
  • Rate traders retain a loose consensus of one Fed hike by December, though a portion of the market still prices multiple moves.
  • Warsh reiterated the Fed's balance sheet is too large and hampers policy transmission, flagging potential future note and bond sales.
    
    
• US Dollar holds steady as markets await June jobs report for Fed policy cues
  • The dollar index was little changed at ~101.4 as investors awaited the June jobs report for labour market clarity.
  • ADP data showed private-sector hiring slowed more than expected in June, while Warsh said inflation expectations had eased, signalling no urgency to hike rates.
  • Warsh nonetheless reaffirmed the Fed's commitment to price stability, keeping rate hike expectations intact with markets pricing a >60% chance of a September move.
  • Rising Hormuz oil shipments and progress in indirect US-Iran talks pushed oil prices lower, though the dollar remained resilient on the back of Fed hawkishness.
    
    
• Oil falls over 1% to four-month lows as US-Iran talks progress and Hormuz flows recover
  • Brent settled at $71.57/bbl, down 1.89%, and WTI at $68.58, down 1.32%, both at their lowest levels in four months.
  • Trump said the US was getting along "very well" with Iran and that Qatar talks had gone well, with technical discussions focused on Hormuz shipping and a lasting ceasefire.
  • Vance said oil flows through the Strait of Hormuz had returned to pre-war levels, reinforcing the supply recovery narrative.
  • US commercial crude inventories fell 3.8 million barrels to 408.4 million barrels, the lowest since September 2018, though the draw was smaller than the 4.5 million barrel estimate.
  • Analysts cut their 2026 oil price forecasts for the first time since the Iran war began, citing easing supply disruption concerns as Hormuz reopens.
  • Brent fell ~$45/bbl in Q2, its largest quarterly drop since the 2008 global financial crisis, while WTI posted its biggest quarterly decline since 2020.
  • OPEC+ is likely to agree on a further output target hike from August when it meets on Sunday, according to three sources 

Day’s Ledger*

Economic Data

• Eurozone May unemployment Rate
  
• US June Non-farm Payrolls Data
  
• US May Factory Orders Data

Corporate Actions

• IRB InvIT Fund board to consider fund raising options
  
• Khadim India to consider fund raising options

Policy

• German Buba Vice President Buch Speaks
  
• ECB's Elderson Speaks
  
• BoE MPC Member Mann 

Tickers to Watch

• ASHIANA HOUSING reported Q1 booking value declined to ₹3.58 billion from ₹4.31 billion a year earlier, while booked area fell to 0.36 mln sq ft from 0.60 mln sq ft.
• BHARTI AIRTEL said wholly owned subsidiary Airtel Money commenced commercial operations as a Type II-NBFC-ND, expanding its digital financial services business.
• COAL INDIA allocated 10.88 mln tn of coal through the SWMA e-auction platform in June against 26.62 mln tn offered, implying a 41% allocation rate.
• DHANLAXMI BANK reported total deposits rose 17.1% on year to ₹194.03 billion, while gross advances increased 26.5% to ₹157.85 billion in Q1.
• INDIAN BANK reported 13.6% on-year growth in total business to ₹15.28 trillion in Q1, with advances up 13.9% to ₹6.85 trillion and deposits up 13.3% to ₹8.43 trillion.
• LUPIN said the European Medicines Agency approved expanded marketing authorisation for NaMuscla for paediatric patients with non-dystrophic myotonic disorders.
• NMDC reported June iron ore production rose to 5.15 mln tn from 3.57 mln tn a year earlier, while sales increased to 3.98 mln tn from 3.58 mln tn.
• PUNJAB & SIND BANK reported total business grew 15.3% on year in Q1, supported by healthy growth in advances and deposits.
• SAI PARENTERALS said subsidiary Noumed Pharmaceuticals signed an exclusive OTC medicines supply agreement with a leading Australian pharmacy network.
• SWIGGY appointed Gautam Swaroop as Chief Business Officer of Instamart.
• TAMILNAD MERCANTILE BANK reported healthy Q1 growth in deposits and advances, driven by sustained lending momentum.

Must Read

• Genset Maker Turns Data Centre Uptime Paranoia Into Predictable Payouts
• The Deposit Squeeze Is Exposing Banks’ Balance Sheet Blind Spots
• From NYAY to AI: How Jobless Growth Is Forcing Universal Basic Income Back on the Table
• India's Fiscal Stress Predated the West Asia Shock
• When Precision Technology Becomes The Weapon of The Weak
• How Modi Has Remade India
• Xi Casts China’s Ruling Party as Force for Global Prosperity
• Warsh Says Inflation Risks Are Down, Vows Price Stability

(*Compiled from various media sources)

---

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

The Deposit Squeeze Is Exposing Banks’ Balance Sheet Blind Spots 

Credit is growing.
Deposits are changing.
Customer behaviour is evolving.

The bigger challenge for banks may not be any one of these trends, but how they reshape the balance sheet over time.

kembai Srinivasa Rao writes, as new risks emerge beyond traditional financial metrics, should banks move from managing quarterly performance to anticipating the structural risks hidden beneath it?