Asian Markets Rally as Falling Oil Prices Lift Risk Appetite

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By Nandinee Keluskar

August 5, 2026 at 2:38 AM IST

Global Mood: Cautiously Risk-On
Drivers: Iran Deal Progress, Kyiv Struck Again, RBI MPC Outcome

Asia-Pacific markets rallied sharply on Wednesday as investors embraced a risk-on mood amid growing optimism that diplomatic efforts could ease tensions in West Asia and pave the way for the reopening of the Strait of Hormuz. Equities across South Korea, Japan and Australia advanced after a strong session on Wall Street, while oil prices fell sharply on expectations that disruptions to global energy supplies could ease.

The decline in crude prices helped alleviate concerns over inflation and supported expectations that major central banks could maintain a more accommodative policy stance. Investor sentiment was also buoyed by solid corporate earnings and growing confidence in the resilience of the technology sector, which helped propel US stock indices to fresh highs.

However, uncertainty over the geopolitical outlook remained. Although officials in Washington, Doha and Tehran pointed to progress in negotiations, attacks in the region continued, underscoring the fragility of any potential agreement. Investors also monitored escalating tensions in Ukraine and concerns over US military preparedness, although these risks were largely overshadowed by hopes of de-escalation.

THE BIG STORY
Hopes for a diplomatic resolution to the US-Iran war edged higher Tuesday as Qatar said mediators were making progress, sending oil prices down more than 5% to extend Monday's steep losses. Treasury Secretary Bessent said a Hormuz reopening deal could come as early as Tuesday or Wednesday, while Rubio struck a similarly optimistic tone. Iran's foreign ministry confirmed positive talks with Oman on safe shipping lanes were continuing, a more constructive signal than its flat denials of recent days. Trump and Qatar's emir spoke directly on narrowing differences, keeping diplomatic momentum alive even as another ship was struck attempting to cross Hormuz and the strait remained virtually shut. The contradictions between public statements and the situation on the ground persist, but the tone from mediators represents the most substantive progress signal since the June accord collapsed.

Against that backdrop, a significant military constraint emerged: the US has used virtually all of its ATACMS and Precision Strike Missiles and nearly half its global Tomahawk stockpile during five months of strikes on Iran, according to three sources familiar with the data. The revelation, not previously reported, means Trump would have to rely increasingly on riskier piloted bombing missions if he resumes large-scale attacks, and has prompted internal concern about US readiness should conflicts with Russia or China flare. Trump publicly dismissed the concerns, saying the US had "far more munitions than anyone in the world," but analysts cautioned that production increases may fall short of what a prolonged war requires. Russia meanwhile struck Kyiv again overnight with waves of ballistic missiles, killing one person, injuring twelve, and triggering fires and an ammonia leak across several districts as Moscow's bombardment of the capital intensifies.

Data Spotlight
US factory orders fell 0.3% in June, a second consecutive monthly decline and below expectations of a 0.2% rise, as lower non-durable goods orders driven by cheaper chemicals and petroleum products outweighed a modest uptick in durable goods. Energy cost pressures from the West Asia conflict and lingering tariff impacts were cited as key drags.

US job openings fell to 7.359 million in June, below expectations of 7.40 million, with declines led by healthcare, leisure and hospitality and wholesale trade. Hires held steady at 5.3 million while total separations were little changed at 5.4 million, pointing to a labour market that remains stable but is gradually losing momentum.

The US trade deficit narrowed to $73.3 billion in June from $77.6 billion in May, as imports fell 1.8% and exports declined 0.9%. The first-half cumulative trade gap narrowed to $371.2 billion from a record $560.5 billion a year earlier, reflecting gradual normalisation following last year's tariff-driven front-loading.

The US Logistics Managers' Index eased to 68.9 in July from 71.1 in June, as inventory levels fell sharply after firms pulled forward stockbuilding ahead of July tariff increases. Inventory costs rose further to 77.0, with the 22-point gap between costs and inventory levels highlighting persistent tariff and geopolitical cost pressures.

Takeaway: Softening factory orders, cooling logistics activity and declining job openings point to a gradual loss of momentum in the US economy, even as the trade deficit continues to narrow. Tariff-driven front-loading distortions and West Asia energy costs remain key sources of uncertainty heading into the second half of 2026.

WHAT HAPPENED OVERNIGHT

US stocks rally to kick off August as Iran talks optimism pulls oil and yields lower

The Dow rose 1.32% to a record close, S&P 500 gained 1.48%, and Nasdaq climbed 2.13%, as Trump's Iran talk signals drove oil down 5% and pushed Treasury yields lower.
Communication services led S&P 500 sector gains at 4.3% on Meta and Alphabet strength, while energy was the worst performer, dropping 1.2%.
Amazon rose 4.6% as its market cap surpassed $3 trillion for the first time, while SpaceX jumped 5.6% ahead of its first quarterly results since going public on Tuesday.
April-June earnings season remains strong, with 304 S&P 500 companies reporting 29.3% growth and 85.2% beating analyst expectations.
NY Fed President Williams expressed optimism inflation would ease gradually, while reports of Warsh considering fewer annual policy meetings added to uncertainty around Fed communication.
September Fed hike odds stand at 64.5%, with this week's jobs report the key data focus for labour market signals.

US Treasury yields pull back from 18-month highs as Iran deal signals ease energy inflation fears

The 10-year yield fell to 4.65% from Tuesday's 18-month high of 4.75% as Qatar said the US and Iran were close to a short-term agreement, with Treasury Secretary Bessent saying a deal could be announced imminently.
Fuel and natural gas prices extended declines on the diplomatic signals, limiting risks that energy-driven inflation would continue feeding into broader consumer prices as seen in April-June data.
Rate traders trimmed Fed hike bets for the September meeting, though a move remains in slight consensus, with yields still above pre-Fed-decision levels.
Warsh's reluctance last week to confirm rate hikes as his preferred inflation tool continues to weigh on yields as a residual concern.

Dollar holds near 100 as Iran deal optimism and soft economic data trim September hike bets

The dollar index hovered around 100 as Qatar reported mediator progress and Bessent said a Hormuz deal could be reached as early as Tuesday or Wednesday, driving oil lower.
June job openings fell more than expected to 7.36 million, the trade deficit narrowed on declining imports, and factory orders unexpectedly fell 0.3% for a second straight monthly decline.
The combination of deal optimism and soft data pushed September Fed hike odds down to 57%, with the ADP report and Friday's nonfarm payrolls the next key focus for policy direction.

Oil falls over 5% to three-week low as US-Iran diplomatic signals ease supply risk premium

Brent settled at $79.36/bbl, down 5.3%, and WTI at $75.77, down 5.7%, as Rubio cited progress in Hormuz shipping talks and Bessent said a deal could come as early as Tuesday or Wednesday.
Qatar's Emir and Trump discussed de-escalation efforts, with Qatar's foreign ministry confirming diplomatic efforts were continuing, though a final agreement had yet to be reached.
Iran demanded control over inbound Hormuz shipping and visibility over outbound traffic with intervention rights, as part of a plan being discussed with Oman, briefly lifting prices earlier in the session.
Strait of Hormuz and Bab el-Mandeb traffic remained little changed at the start of the week, with Iranian vessel attacks continuing to constrain Gulf exports at extremely depressed levels.
The world has lost more than 2.6 billion barrels of oil since the Iran war began in February, Saudi Aramco's head said on Tuesday.
Goldman Sachs expects Brent to trade in an $80-$90/bbl range until either a new US-Iran agreement is confirmed or a significant escalation in attacks occurs.
US-facilitated talks between Israel and Lebanon began on Tuesday and will continue through Thursday, adding another diplomatic thread to the West Asia de-escalation narrative.

Day’s Ledger*
Economic Data

India July S&P Global Services PMI
Euro Zone July HCOB Composite PMI
UK July S&P Global Composite PMI
US July S&P Global Composite PMI
US Crude Oil Inventories

Corporate Actions

Earnings: Berger Paints (I), Cummins India, Gujarat Narmada Valley Fertilizers and Chemicals, Whirlpool of India

Policy

RBI MPC Interest Rate Decision

Tickers to Watch

BHARTI AIRTEL: April-June consolidated revenue up 5.7% sequentially to 585.39 billion rupees, ahead of CNBC-TV18 poll estimate of 570.54 billion rupees.
BHARTI HEXACOM: April-June consolidated net profit up over 23% YoY to 482.4 million rupees from 391.6 million rupees.
CASTROL INDIA: April-June (Q2 CY26) net profit up 42.5% YoY to 347 million rupees from 244 million rupees; revenue up 25% to 1.871 billion rupees; EBITDA up 40.8% to 599.4 million rupees.
DEEPAK NITRITE: April-June net profit surges to 345 million rupees from 112.2 million rupees; revenue up 36.4% YoY to 2.5776 billion rupees; EBITDA nearly triples to 540.2 million rupees from 189.4 million rupees.
FSN E-COMMERCE VENTURES (NYKAA): April-June consolidated net profit more than triples YoY to 797 million rupees from 244 million rupees.
HDFC BANK: 32nd AGM on August 5, gains significance after former non-executive chairman Atanu Chakraborty's resignation citing "ethical concerns"; bank to seek approval for fundraising via Perpetual Debt Instruments (AT1), Tier II Capital Bonds and Long-Term Bonds via private placement.
MARICO: April-June consolidated net profit up 27% YoY to 652 million rupees, beating estimate of 587 million rupees; revenue up 23% YoY to 3.957 billion rupees, also ahead of estimate.
NHPC: April-June consolidated net profit up 2.9% YoY to 1.09587 billion rupees from 1.06502 billion rupees.
ONGC: April-June profit more than doubles sequentially, aided by higher realisations from premium-priced new well gas; production stays largely flat.

Must Read

(*Compiled from various media sources)

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