Global Mood: Cautiously Risk-on
Drivers: Fed rate hike, elevated oil prices, US-Iran tensions

Asian stocks traded mostly higher on Thursday as investors assessed the Federal Reserve’s latest rate decision and its outlook for further policy tightening. Japan’s Nikkei 225 rose 0.87% and the Topix gained 0.71%, while South Korea’s Kospi advanced 1% and the Kosdaq rose 0.57%. Hong Kong’s Hang Seng fell 0.49%, China’s CSI 300 declined 0.16% and Australia’s S&P/ASX 200 edged up 0.16%.

The Fed raised its benchmark rate by 25 basis points to 3.75%-4% on Wednesday, the first hike since 2023, with 16 of 18 officials projecting at least one more increase this year as inflation remains elevated. The SGX Nifty was at 23,221, down 46 points or 0.20%, pointing to a mildly negative opening for Indian equities. 

Persistent US-Iran tensions and oil prices above $100 a barrel are adding to inflation risks, potentially limiting expectations for monetary easing. US stock futures rose after Wednesday’s selloff, providing some support to Asian equities.

THE BIG STORY
Fed turns hawkish as inflation remains elevated. The Federal Reserve raised rates by 25 bps to 3.75%-4.00%, with 16 of 18 policymakers seeing at least one more hike this year.  The Fed now expects inflation to return to its 2% target only in 2029.

West Asia's energy shock is adding to inflation risks, with Brent around $108 a barrel and US diesel prices above $6.30 a gallon.

Houthis continued missile and drone attacks on Saudi Arabia as they consolidate control of Yemen's Red Sea coast near the Bab el-Mandeb.  The escalation threatens Saudi oil flows already being rerouted from the disrupted Strait of Hormuz.

Russia and Ukraine continued attacks on each other's energy infrastructure despite a proposed halt. Ukraine targeted a Russian refinery and Russian strikes damaged fuel facilities in Kyiv.

Data Spotlight
PCE inflation forecasts were revised up to 3.7% for 2026, while the unemployment rate projection was lowered to 4.1% for both 2026 and 2027.

US retail sales rose 1.2% in August, the strongest gain in five months and above forecasts of 0.8%, led by gasoline stations (up 3.1%) and nonstore retailers (up 2.6%). 

The GDP-linked control group jumped 1.4%, well above forecasts of 0.4%.

The 30-year fixed mortgage rate rose to 6.97% in the week ending September 11th, the highest since May 2025, as Treasury yields briefly touched 5%. 

Mortgage applications fell 4.1%, the steepest weekly drop since July, with refinancing down 8.8%.

Takeaway: The Fed's first-rate hike since 2023 and a hawkish dot plot signal further tightening ahead, even as strong retail sales point to resilient consumer demand. Mortgage rates approaching 7% keep housing affordability under severe pressure.

 

WHAT HAPPENED OVERNIGHT

US stocks whipsaw lower as Fed delivers first rate hike in over three years

• The Dow fell 1.21%, S&P 500 lost 0.44%, and Nasdaq slipped 0.01%, as markets reversed pre-announcement gains after the FOMC's unanimous hike.
• Warsh said the economy has strengthened but inflation has shown little improvement, signalling more hikes are likely near-term.
• Energy fell 3.0% as the worst S&P 500 sector after Saudi Arabia offered crude via Oman; Chevron, Exxon, Devon, and ConocoPhillips fell 2.9%-5%.
• Tech led sector gains with the Philadelphia Semiconductor Index up 0.6%, its first clear advance since AI executives called for a development slowdown.
• Intel jumped 4.0% on SK Hynix memory chip manufacturing talks; IBM fell 4.4% after its Anderon chip unit signed a US government funding deal.
• Robinhood dropped 5.5% after crypto legislation failed in the Senate; Boeing slid 3.7% on 737 MAX production delays.

US Treasury yields hit 19-year high as Fed delivers unanimous 25bps hike

• The 10-year yield rose above 5.01%, its highest in 19 years, with FOMC projections pointing to one or two additional hikes alongside upward inflation and downward unemployment revisions.
• Longer-maturity yields rose less than shorter-dated ones, modestly steepening the curve as the unanimous decision restored some Fed credibility.
• Warsh acknowledged structural Treasury pressure from surging corporate debt supply competing for capital allocation.

Dollar breaks above 100 for first time in seven weeks as Fed hike restores credibility

• The dollar index crossed 100 after the unanimous hike, with projections pointing to at least one more increases this year alongside lower unemployment and higher growth revisions.
• The decision reversed earlier dollar weakness after Warsh's scepticism about inflation tools sparked a dash into precious metals and safe-haven currencies.
• The BoE is expected to hold Thursday while the BoJ is due to hike, with diverging central bank paths adding further dollar support.

Oil retreats as Saudi Oman workaround and inventory data ease supply fears

• Brent settled at $105.83/bbl, down 2.7%, and WTI at $102.43, down 3.2%, as Saudi Arabia offered crude via ship-to-ship transfers off Oman's Sohar port.
• Hormuz transits fell to four on Tuesday, below the 10-day average of 18, while US crude stocks fell just 640,000 barrels against a 1.62-million-barrel draw expected.
• Diesel remains the top concern, with European gasoil and US ULSD futures at record highs on West Asia and Russian refinery disruptions.
• Russia extended its diesel export ban to end-October; Citi expects Hormuz to reopen in October-December with regional diplomatic support.

Day’s Ledger*
Economic Data 

• Eurozone August CPI
• US September Philadelphia Fed Manufacturing Index
• US Initial Jobless Claims

Corporate Actions 

• Emami to consider buyback
• Federal Bank to consider fund raising

Policy

• Bank of England Interest Rate Decision
• ECB's Lane Speaks
  
  

Tickers to Watch

• INFOSYS announces expansion of its development centre in Indore.
• RBL BANK approves allotment of 350 million dollars of senior unsecured notes.
• SHRIRAM FINANCE board to meet on Sep 21 to consider buyback of debt securities.
• COROMANDEL INTERNATIONAL issues a 15.5-million-dollar corporate guarantee for its Senegal arm.
• MAZAGON DOCK SHIPBUILDERS signs MoU with NSHIPML to participate as anchor shipyard in the Dighi greenfield shipbuilding cluster.
• HDFC BANK draws investor attention as the shortlist of candidates to succeed CEO Sashidhar Jagdishan takes shape; shares ended 0.62% higher at 721 rupees on Sep 16.

Must Read

• UPI's MDR: Wrong Instrument at the Wrong Rate
• NSE IPO Tests the Price of Market Dominance
  
• Tata Sons Has a Cargill Option but RBI Has Changed the Rules
  
• How GST Data Is Helping Solve India’s MSME Credit Problem
  
• Trump lashes out at Fed after Warsh backs rate hike 

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day