Global Mood: Cautiously risk-off
Drivers: US-Iran nuclear deadlock, Fed rate-hike expectations, Russian strikes on Kyiv

Asian markets traded lower on Monday as concerns over the sustainability of the artificial intelligence boom weighed on technology stocks following a sharp sell-off on Wall Street last week. Japan’s Nikkei 225 fell 1.65% and the Topix declined 1.12%, while South Korea’s Kospi dropped 1.29% and the Kosdaq lost 0.93%. Australia’s S&P/ASX 200 bucked the trend, rising 0.37%.

The weakness followed a difficult week for US equities, with the S&P 500 falling nearly 2% and the Nasdaq tumbling 4.5%, its biggest weekly decline since late June. Investor concerns intensified after reports that Anthropic’s third-quarter revenue reached $16.8 billion, up from $11.6 billion in the previous quarter, raised questions over whether growth from heavy AI investment is keeping pace with expectations. The GIFT Nifty was trading at 23,122, up 27.5 points or 0.12%, pointing to a largely flat opening for Indian equities.

The Big Story
Iran’s offer to reopen the Strait of Hormuz within six days, followed by talks on the seventh, remains on the table, but negotiations are stalled over US demands concerning Tehran’s nuclear programme. Iran is seeking an end to the US blockade of its ports and sanctions on oil exports. The impasse threatens energy flows through a key global shipping route.

The risk of wider disruption is growing as Iran-allied Houthis intensify attacks on Saudi Arabia. Egypt has offered Riyadh military support following strikes targeting the Saudi capital’s airport and Saudi Aramco. Any Egyptian involvement could widen the conflict and raise risks to the Bab el-Mandeb shipping route, adding to pressure on global energy supplies.

Separately, Fed Chair Kevin Warsh offered no clear signal on the near-term rate path despite stronger-than-expected US inflation. He cited AI-led investment as a source of economic resilience but warned that demand was rising ahead of productivity gains, adding to inflationary pressure. Markets expect the Fed to hold rates this month, while pricing in the possibility of a hike in December.

Russia’s latest overnight strike killed a woman in Kyiv, hit a subway station and damaged a residential building. The US has resumed intelligence-sharing with Ukraine as Washington continues efforts to mediate an end to the war.

Data Spotlight
US industrial production rose 0.7% month-on-month in September, its strongest increase in five months and above expectations of 0.4%. Manufacturing output increased 0.3%, while utilities output jumped 3.5%. Capacity utilisation improved to 76.9%, and industrial production grew at an annualised 2.8% in the third quarter, pointing to resilient industrial activity.

US import prices rose 1.1% month-on-month in September, the sharpest increase in four months and above forecasts of 0.8%. Non-fuel import prices increased 0.7%, suggesting broad-based external cost pressures, while fuel import prices surged 4.8% amid supply disruptions linked to the US-Iran conflict. Annual import-price inflation accelerated to 8.1%, adding to concerns over imported inflation and the impact of tariffs.

Takeaway: Stronger industrial output points to continued resilience in the US economy, while rising import prices add to inflation risks. Higher energy costs and tariffs could complicate the Fed’s outlook, although the next policy move will depend on whether price pressures persist and how activity evolves.

WHAT HAPPENED OVERNIGHT

US Stocks Slide as AI Debt Concerns and Rising Oil Deepen Sell-Off

• US stocks fell on Friday as concerns over AI companies’ debt burdens and rising oil prices weighed on sentiment. The S&P 500 dropped 1.22%, the Nasdaq fell 2.19% and the Dow lost 0.55%.
• The Nasdaq was on track for a weekly loss exceeding 4%, while the S&P 500 faced its steepest weekly decline since January. 
• Higher borrowing costs raised concerns that debt-heavy AI infrastructure firms may struggle to generate profits fast enough to repay loans.
• CoreWeave plunged 12%, taking its five-session loss to about 25%, while its bond yields climbed above 15%. 
• Broadcom fell 3.6% and the semiconductor index dropped 2.5%, extending its losing streak to eight sessions.
• Hotter-than-expected US consumer and producer inflation data also strengthened concerns over persistent price pressures.
• Markets increasingly expect the Fed to hold rates steady in October. Barclays now forecasts 25-basis-point rate hikes in December and January.
• Investors are turning to next week’s earnings from Tesla, Meta Platforms and Procter & Gamble. 
• Analysts expect third-quarter earnings to rise more than 30%, led by AI-focused megacaps.

US Dollar Falls for First Week in Four as Markets Expect Fed to Hold Rates

• The dollar index fell to 101.6 on Friday, its lowest in two weeks, and declined around 0.4% for the week, ending a three-week winning streak.
• Concerns over AI spending amid high borrowing costs weighed on investor sentiment, triggering a flight to safety early in the week that dragged stocks, bond yields and the dollar lower.
• Hotter-than-expected US CPI and PPI readings added to evidence of persistent inflationary pressures, complicating the Federal Reserve’s policy outlook.
• Markets priced in an 85% probability of the Fed holding rates in October and nearly a 77% chance of a 25-basis-point hike in December.
• Fed Chair Warsh reinforced expectations of an October hold at the IMF summit, declining to signal whether another hike was under consideration but saying stronger-than-expected inflation had not changed his assessment of the US economy.

US Treasury Yields Rebound After Sharp Drop, Remain Lower for the Week

• The US 10-year Treasury yield edged up to 5.12% on Friday after falling 11 basis points in the previous session, but remained down around 14 basis points for the week.
• Yields stayed below highs reached earlier this month, their highest since 2002, as investors reassessed the Fed’s policy outlook amid volatile markets.
• Fed Chair Warsh’s comments at the IMF summit reinforced expectations of an October rate hold. He declined to indicate whether another hike was under consideration, saying hotter-than-expected inflation had not changed his assessment of the US economy.
• Hotter-than-expected US CPI and PPI readings fuelled inflation concerns, while a rotation away from AI-related trades triggered a broader flight to safety.

Oil Hits $110 as Hormuz Attacks, Russian Refinery Disruption Fuel Supply Fears

• Brent crude rose 3.7% to settle at $109.86 a barrel on Friday, after touching $110 for the first time since May 19.
• US WTI gained 3.5% to $101.41, its highest since September 17. For the week, Brent rose 4.9% and WTI 10.4%.
• Renewed concerns over supply disruptions in the Gulf supported prices after a Saudi-led coalition intercepted a ballistic missile launched towards Yanbu, a key Red Sea port that allows Saudi Arabia to bypass the Strait of Hormuz. Initial reports indicated no damage to infrastructure.
• Attacks around the Strait of Hormuz have intensified over the past 10 days, with Iran stepping up strikes in response to the US blockade of its ports. 
• Analysts expect a slower, uneven recovery in Gulf oil flows without a comprehensive political agreement.
• Supply concerns extended to Russia, where the Ryazan refinery suspended operations at a primary crude distillation unit following a Ukrainian drone attack. Traders also weighed uncertainty over how much Russian diesel could reach global markets.
• To ease supply pressures, the International Energy Agency agreed to release more than 20 million barrels of fuel, while the US offered up to 17 million barrels of crude from its Strategic Petroleum Reserve through an exchange programme. However, the measures have yet to offset concerns over disruptions to physical flows.

Day’s Ledger*

Economic Data

• India Gilt Switch Auction
• India States bond Auction
• China Jul-Sep GDP Data
  

Corporate Actions

• Earnings: Bajaj Finance, Hindustan Zinc, L&T Technology Services, Piramal Finance, UltraTech Cement, Union Bank of India.

Policy

• ECB's Elderson Speaks

Tickers to Watch

• HDFC BANK net profit rose 4.7% y/y to 195.10 billion rupees in the July-September quarter, while net interest income grew 9.7%. Net interest margin hit a record low of 3.16%, and treasury trading income plunged 67.4%.
• AXIS BANK net profit rose 37.6% y/y to 70.03 billion rupees, while net interest income grew 11.8% to 153.72 billion rupees, beating estimates. Gross NPA improved to 1.16%, while net NPA eased to 0.35%.
• ICICI BANK net profit rose 20.1% y/y to 148.43 billion rupees, while net interest income increased 17.7% to 253.39 billion rupees. Both figures beat estimates, alongside an improvement in asset quality.
• YES BANK net profit rose 65.14% y/y to 10.80 billion rupees, while net interest income grew 22.7% to 28.22 billion rupees. Gross NPA eased to 1.2% from 1.3% sequentially, while net NPA remained at 0.2%.
• IDBI BANK reported net profit fell 39% y/y to 22.06 billion rupees, but rose 14% excluding a one-off gain from an NSDL investment sale in the year-ago period. Net interest income grew 28.7%, while net interest margin expanded to 4.11%.
• CENTRAL BANK OF INDIA net profit rose 21.1% y/y to 14.69 billion rupees, supported by 26.3% growth in net interest income. Gross NPA eased to 2.39%, while the board approved fundraising of up to 70 billion rupees through bonds.
• BAJAJ HEALTHCARE net profit rose 26.9% y/y, while revenue grew 18.9%. EBITDA increased 15.8% to 310 million rupees, but margin narrowed to 17.7% from 18.2%.
• LTM declares an interim dividend of 25 rupees per share as revenue rose 1.7% sequentially to 118.08 billion rupees. Net profit fell 4.8% to 13.98 billion rupees, while EBIT increased 2.2% to 18.38 billion rupees.
• PUNJAB NATIONAL BANK net profit rose 12.8% y/y to 55.32 billion rupees, while net interest income grew 10.8% to 116.01 billion rupees. Domestic net interest margin edged up to 2.74%, and gross NPA declined to 2.55%.
• DLF net profit rose 10.3% y/y to 13.01 billion rupees, while revenue fell 23.3% to 12.61 billion rupees. EBITDA plunged 91.9% to 230 million rupees, with margin narrowing to 2% from 17%.
• RBL BANK receives RBI approval to amalgamate Emirates NBD Bank's Indian branches, with the merger set to take effect on Dec 1, 2026.

Must Read

• SC Blames RBI, Govt for Slip-up, But Who Pays for YES Bank AT-1 Verdict
• YES Bank’s Rescue Did Not Give Its Administrator a Free Hand
• Corporate India Needs Buyers, Not Just Tax Breaks
• Restoring Monetary Balance: The Case for Calibrated Tightening
• RBI’s Liquidity Lever Could Deliver More Tightening Without a Sharp Repo Hike
• India widens cancer drug price caps, lowering prices of 137 medicines
• Gold set for a weekly drop as traders assess Fed signals
• India sets zero sugar diversion for ethanol in 2026/27 tender
• Festive demand drives India's diesel sales in October, data shows
• Indian refiners' fuel exports to West rise 43% amid Russian crude use
• India to keep Russian oil imports near current levels after Trump waiver
• FCNR(B) deposit inflows weigh on private banks' margins in Q2FY27 results

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day