Global Mood: Cautiously risk-off
Drivers: US-Iran talks, Fed rate-hike outlook, Elevated crude oil prices 

Asian markets traded lower on Friday, tracking overnight losses on Wall Street as concerns over the artificial intelligence boom and elevated crude oil prices weighed on sentiment. The MSCI Asia-Pacific index excluding Japan fell 0.1%, while Japan’s Nikkei 225 declined 0.61% and the Topix eased 0.09%. Hong Kong’s Hang Seng futures pointed to a marginally higher opening, while markets in South Korea and Taiwan were closed for a holiday. The GIFT Nifty was trading at 22,352, up 97 points or 0.44%, pointing to a positive opening for Indian equities.

Japanese technology stocks led the declines, tracking losses in US tech shares after an underwhelming revenue report from OpenAI renewed questions over the pace of AI-driven growth and investment returns. Elevated oil prices and rising bond yields added to investor caution.

THE BIG STORY
Trump said the US would not attack Iran before the November 3 midterm elections, citing productive talks. Negotiations remain stalled over Tehran’s uranium enrichment and the reopening of the Strait of Hormuz.

Christopher Waller said more hikes would likely be needed to bring inflation back to 2%, but increases need not come at consecutive meetings. Markets expect rates to remain unchanged in October, with a possible hike in December.

Data Spotlight
Most Fed policymakers expect another rate hike by year-end, following September’s 25-bps increase to 3.75%-4%, as inflation remains elevated and economic activity expands at a solid pace. Policymakers see inflation risks tilted to the upside, while labour-market risks have become broadly balanced. Future decisions will remain data dependent.

US year-ahead inflation expectations rose 0.3 percentage points to 3.9% in September, the highest since May 2023. Price expectations increased for gasoline to 4.6%, food to 5.3%, medical care to 9.1% and rent to 6.6%. Five-year inflation expectations remained at 3.0%.

The US 30-year fixed mortgage rate climbed to 7.4%, its highest since November 2023, marking seven consecutive weekly increases. The 15-year rate rose to 6.73%.

Initial jobless claims fell to 197,000 in the week ended October 3, below expectations of 200,000 and the lowest since mid-July. Continuing claims edged up to 1.716 million but remained near multi-year lows.

Takeaway: Rising inflation expectations and a resilient labour market strengthen the case for the Fed to maintain a hawkish stance, with another rate hike possible by year-end. Higher borrowing costs are already pushing mortgage rates to multi-year highs, increasing pressure on housing demand. Persistent price concerns, particularly around energy and essential expenses, could make inflation harder to contain and limit the scope for monetary easing.

WHAT HAPPENED OVERNIGHT

US stocks mixed as oil spike and chip selloff weigh on Nasdaq; Dow edges higher

• The S&P 500 lost 0.47% and Nasdaq dropped 1.25%, two days after its record close, while the Dow eked out a 0.10% gain as energy stocks offset tech weakness.
• The Philadelphia Semiconductor Index fell 3.4% after the FT reported OpenAI's annualised revenues were $20 billion below previously signalled figures, denting AI revenue expectations; Micron dropped 4.8%.
• Broadcom and Oracle fell 4.4% and 5.5% respectively after the WSJ reported $50 billion in Broadcom-led OpenAI financing, stoking fears of massive tech debt supply crowding out capital.

US Dollar holds near April 2025 highs as oil-driven inflation and Fed hike expectations underpin greenback

• The dollar index held at 102.2, near April 2025 highs, as rising oil prices reinforced Fed tightening expectations with October hold odds at 78% and December hike odds at 69%.
• September FOMC minutes showed most policymakers expect another hike this year; Waller reiterated the need for additional increases while emphasising "flexibility" on timing.
• Higher European government bond yields continued to weigh on the euro, providing an additional tailwind for the dollar.

US Treasury yields hover near 24-year highs as oil fuels Fed tightening bets

• The 10-year Treasury yield fluctuated around 5.3% after touching a fresh 24-year high of 5.35%, as rising oil prices added to inflation concerns.
• September FOMC minutes showed most policymakers expected another rate hike this year, although the timing remained uncertain.
• Fed Governor Christopher Waller said further hikes would likely be needed to bring inflation back to target, while stressing flexibility over the pace of tightening.
• The US Treasury’s $22 billion 30-year bond reopening drew solid demand, with a bid-to-cover ratio of 2.54 and a yield of 5.618%. The strong auction helped pull Treasury yields lower.

Oil rises 4% as Iran tensions and Hurricane Isaias threaten supply

• Brent crude settled 4.1% higher at $104.28 a barrel, while WTI rose 3.6% to $91.49, as renewed concerns over the Iran conflict and hurricane-related disruptions lifted prices.
• Prices eased from session highs after US President Donald Trump said Washington was having productive discussions with Iran and would not attack the country before the November 3 midterm elections.
• The US imposed fresh sanctions on Iran, targeting individuals, networks and 17 vessels involved in transporting Iranian crude, oil products and petrochemicals, keeping pressure on Tehran elevated.
• Tanker attacks in the Strait of Hormuz reached their highest weekly level since the war began, raising concerns over a route that handled about 20% of global oil and fuel shipments before the conflict.
• Hurricane Isaias forced US Gulf of Mexico producers to shut in around 1.3 million barrels per day of oil output, or 62.9% of current production, as companies evacuated personnel and curtailed offshore operations.
• The gains came a day after prices fell after the IEA decided to accelerate oil stock releases, underscoring how persistent geopolitical and weather-related supply risks continue to offset efforts to ease shortages.

Day’s Ledger*

Economic Data

• India Weekly FX Reserve Data
• US October Michigan Consumer Expectations
  
  

Policy

• Eurozone ECB's Schnabel Speaks

Corporate Actions

• Earnings: Canara HSBC Life Insurance Company, Canara Robeco Asset Management Company, and Poonawalla Fincorp

Tickers to Watch

• NCC Receives Letter of Acceptance from Hyderabad Growth Corridor for a 12.86-billion-rupee road construction contract in Telangana.
• JSW STEEL July-September 2026 consolidated crude steel production up 5% YoY to 7.27 MT. Up 10% sequentially.
• TCS Constant currency revenue growth at 0.5%, against CNBC-TV18 poll estimate of 0.6%. AI revenue crosses $3 billion in the September quarter. It now contributes over 10% of topline.
• CUMMINS INDIA appoints Adegbile Adedapo Adewunmi as Additional Director and MD for three years.
• PACE DIGITEK receives LoI from BSES Rajdhani Power for a 57.5 MW/115 MWh standalone BESS in Delhi.
• AVIATION STOCKS IndiGo, Air India and Air India Express raise domestic fuel surcharges amid surging ATF prices. New range is 400-1,200 rupees by distance, applicable to bookings from October 9.

Must Read

• If This is a Bear Market, I Am Amitabh Bachchan
• The RBI Still Understates Inflation
• India's Foreign Capital Exodus: A Wage Story, Not Just a Confidence One
• A Terminal Repo Rate of 6% Should Be Enough, for Now
• RBI Rate Hike Cycle Starts; How Far Can It Go?
• US and Russia explore gas sale to Europe amid Ukraine war
  
  

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day