Asia Takes Breather as Geopolitics Temper Risk Appetite

GLOBAL MOOD: Risk-Off
Drivers: Sanctions enforcement, Energy security, Military posturing

Markets shifted into a mild risk-off pause after a strong start to the year, with Asian equities easing as Japan–China trade tensions resurfaced and oil slid on oversupply fears. While Wall Street remained buoyant on AI-led gains, softer US activity data and rising geopolitical frictions kept investors cautious despite expectations of Fed easing later in 2026.

TODAY’S WATCHLIST
 - India FY26 Preliminary GDP Growth Data

THE BIG STORY
Russia has reportedly deployed a submarine and naval vessels to escort an aging oil tanker, Bella 1, as it attempts to evade a US-led blockade of sanctioned tankers near Venezuela, as per WSJ. Although the vessel is currently empty, the move marks a sharp escalation in US–Russia tensions, with Washington pursuing the ship as part of a broader crackdown on illicit oil flows linked to Russia and sanctioned states. At the same time, US and Venezuelan officials are in early talks to redirect Venezuelan crude exports toward US refiners, potentially reducing shipments to China and easing pressure on PDVSA amid threats of deeper US intervention if Caracas does not open its oil sector to American companies.

Separately, the White House confirmed that Donald Trump is actively exploring options to acquire Greenland, including the possible use of the US military, citing national security concerns in the Arctic. The renewed push has drawn objections from European leaders and adds another layer of geopolitical uncertainty, reinforcing investor concerns around military escalation, energy security, and great-power rivalry heading into 2026.

Data Spotlight 
The US Services PMI slowed to 52.5, the weakest expansion in eight months. New business growth hit a 20-month low, with tariffs, demand uncertainty, and softer consumer spending weighing on activity. Employment also dipped for the first time in nine months. The Composite PMI fell to 52.7, its lowest in eight months, confirming a broad-based slowdown across both manufacturing and services, with new orders and hiring barely expanding.

The Logistics Manager’s Index slipped to 54.2, the slowest expansion since April 2024, driven by a sharp post-holiday inventory rundown and lower warehousing utilisation, pointing to softer goods demand into early 2026.

US crude stocks fell by 2.8 million barrels, defying expectations of a build and snapping a two-week rising trend. While supportive near term, this draw looks more technical than structural given broader oversupply conditions.

Takeaway: US activity is still expanding, but momentum is clearly moderating, with tariffs and demand uncertainty emerging as key drags supportive of expectations for Fed easing later in 2026.

WHAT HAPPENED OVERNIGHT

• US stocks finish higher led by AI stocks
  • US Stocks closed higher on Tuesday, with the Dow Jones reaching a fresh record high, supported by strong gains in technology and healthcare stocks.
  • Chip and storage stocks rallied sharply after Nvidia CEO Jensen Huang, speaking at CES, outlined advances including a new layer of storage technology, reviving enthusiasm around the AI theme.
  • SanDisk (+27%), Western Digital (+17%), Seagate Technology (+14%), and Micron Technology (+10%) all surged, with each stock hitting record highs.
  • Moderna jumped nearly 11% after BofA Global Research raised its price target, lifting the S&P 500 healthcare index by almost 2%.

• US Treasury yields steady near four-month highs as data, Fed signals stay in focus
  • The benchmark 10-year US Treasury yield rose 1.2 bps to 4.175%, from 4.163% late on Monday, holding just below the recent four-month high of 4.19%.
  • Investors continue to balance geopolitical developments with a slate of key US economic data that could clarify the growth outlook and the Fed’s next steps.
  • Recent indicators, including a weaker-than-expected ISM Manufacturing PMI and downward revisions to services activity, point to cooling economic momentum.
  • Policymakers have stressed the need for finely calibrated decisions, with some officials flagging inflation risks while others argue that deeper rate cuts may be required in 2026 as growth slows.

• US Dollar firms ahead of key data, despite growth concerns
  • The dollar index rose 0.17% to 98.56, hovering near a two-week high as investors positioned ahead of key US economic releases.
  • Richmond Fed President Barkin highlighted the need for “finely tuned judgments” on policy.
  • Fed Governor Miran said rate cuts in 2026 could exceed 50 bps, reinforcing expectations of a gradual easing cycle.
  • The dollar found short-term support from positioning and data anticipation, even as underlying growth indicators remain fragile.

• Crude oil price slide on oversupply fears, Venezuela uncertainty
  • Brent crude prices moved lower on Tuesday. Brent crude fell 1.7% to $60.70 a barrel, while WTI crude declined 2.0% to $57.13 a barrel.
  • Markets continue to price in ample global crude supply in 2026, weighing on sentiment.
  • Uncertainty around Venezuelan output following the US capture of Nicolas Maduro added volatility, but fears of major near-term disruptions eased.
    

Day’s Ledger

Economic Data

• Euro Construction PMI 
• Euro Dec Flash CPI
• India Money Supply Data
  India FY26 Preliminary GDP Growth Data

 Corporate Actions

• Paradeep Pari to consider warrants issue
• Senores Pharmaceuticals to consider fund raising

Tickers to Watch

• Revenue miss in Q3 to keep apparel retail major Trent under pressure
• Lodha Developers pre-sales increases 25% to ₹5,620 crore in Q3 FY26
• Dr Reddy's Laboratories launches hepatitis E vaccine Hevaxin in India
• Reliance Industries posts biggest one-day decline since June 2024
• Devyani International expects merged entity to cross $1 billion in revenue
• Mahindra bets on SUVs, new launches to sustain sales growth in 2026
• Annapurna Swadisht to buy 75% stake in Andri Agro Foods for ₹150 million
• Wipro leases 145K sq ft office in Navi Mumbai's Mindspace SEZ for 5 years
• Tata Steel's future rests on a former PSU company it bought

Must Read

• 'No threat to Indians in Iran': Tehran's envoy after MEA travel advisory
• 33% growth in AI hiring; govt working on all AI layers: Ashwini Vaishnaw
• Sebi overhaul of broker rules may allow wider cross-regulator activities
• DEA creates three-year PPP projects pipeline of ₹17 trillion: FinMin
• India's FMCG sector likely to see 5% volume growth in coming months
• India's GDP to grow 6.9% in FY27, goldilocks situation to persist: Ind-Ra
• Ind-Ra sees 'Goldilocks' FY27 as domestic reforms offset tariff risks
• NHAI asks telecom dept to fix mobile network snags on national highways
• Fed rate cuts may spur buyers to get a boat. Jefferies says pick up this stock
• Venezuela turmoil: Indian IT firms remain unaffected in Latin America
• Trump wants to take over Greenland — but the island’s economy faces ‘major challenges’
• Fed’s Miran says more than full point of cuts needed in 2026
  
  

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

Rupee Depreciation: How Much More?

India’s recent rupee depreciation is not a typical bout of capital flight but reflects deeper unease among global investors despite strong headline growth.

Abheek barua writes, questions around earnings visibility, data credibility, and the limits of India’s exchange-rate management are now converging on the currency.