Fragile Ceasefire Keeps Markets on Edge Amid Fresh Hostilities

GLOBAL MOOD: Cautiously Risk-Off
Drivers: Ceasefire Tensions, Fed Caution 

Asia-Pacific markets reflected a risk-off mood on Friday as renewed clashes between the US and Iran heightened concerns over the fragile ceasefire in West Asia. Investor sentiment weakened after both sides exchanged fire in the Strait of Hormuz, reviving fears of disruptions to global energy supplies and a broader geopolitical escalation.

Oil prices resumed their rally, with Brent Crude rising above $102 per barrel and WTI Crude nearing $97, reinforcing worries about inflationary pressures and slower global growth. Although Donald Trump maintained that the ceasefire remained intact and negotiations were continuing, his warnings of stronger military action if Iran failed to sign a nuclear deal kept markets cautious.

At the same time, hawkish commentary from Federal Reserve officials added to uncertainty around the interest-rate outlook. The combination of geopolitical instability, elevated oil prices and tighter monetary expectations pushed investors toward defensive positioning, limiting appetite for risk assets.

THE BIG STORY
The US and Iran exchanged fire in the most serious confrontation since their ceasefire began in early April, raising concerns about the durability of ongoing peace negotiations. Iran accused the US of targeting vessels entering the Strait of Hormuz and carrying out strikes on Iranian territory, while Washington said its actions were defensive responses to Iranian attacks.

Despite the escalation, Donald Trump insisted negotiations were continuing and described the exchange as limited in scope, signalling that both sides were still attempting to preserve the diplomatic process. Iranian state media later reported that conditions around the Strait of Hormuz had stabilised after several hours of clashes, helping calm immediate fears of a broader regional escalation.

Oil prices briefly jumped as markets reacted to renewed threats around one of the world’s most critical shipping routes. However, the absence of a full breakdown in talks helped contain panic across financial markets.

Separately, Beth Hammack reinforced a hawkish policy stance, saying interest rates may remain unchanged for an extended period due to persistent uncertainty and inflation risks. Her comments reflected broader divisions within the Federal Reserve after the largest number of dissents at a Fed meeting since 1992, underscoring growing debate over the future direction of US monetary policy.

Data Spotlight
US labour market data presented a mixed picture in April, with announced job cuts rising to 83,387, the highest level in three months, led primarily by the technology sector. Artificial intelligence remained a major driver of restructuring, accounting for roughly 26% of announced layoffs during the month. Despite the increase in planned cuts, total layoffs for the year remained significantly below last year’s levels, suggesting broader labour conditions were still relatively stable.

Underlying employment indicators continued to show resilience. Initial jobless claims rose modestly to 200,000 but remained near historic lows, while continuing claims fell to their lowest level in more than two years. Productivity growth slowed in the first quarter, though manufacturing productivity remained strong, supported by robust durable goods output.

Meanwhile, unit labour costs increased less than expected, easing some wage inflation concerns. However, consumer credit expanded sharply in March, driven by continued growth in both credit card borrowing and non-revolving loans, indicating consumers were still relying on borrowing to support spending.

Takeaway:
The US labour market remained fundamentally strong despite increasing AI-related job restructuring, while resilient credit growth and stable claims data continued to support economic activity.

WHAT HAPPENED OVERNIGHT

• US stocks slipped as chip weakness and peace uncertainty weighed on markets
  • S&P 500 fell 0.38%, while Nasdaq declined 0.13% and Dow Jones lost 0.63%.
  • Semiconductor stocks retreated after strong recent gains, pressuring broader market sentiment.
  • Intel and Advanced Micro Devices both dropped around 3%.
  • US-listed shares of Arm Holdings fell sharply despite strong guidance amid supply concerns for AI chips.
  • Markets assessed ongoing US–Iran negotiations, with reports suggesting a temporary agreement remained under review.
  • Nvidia and Microsoft gained nearly 2%, reflecting continued confidence in major AI leaders.
  • Datadog surged 31% after raising annual earnings outlook.
  • Cybersecurity stocks CrowdStrike and Palo Alto Networks posted strong gains.

• US Treasury yield declined as softer oil prices eased hawkish rate expectations
  • The 10-year US Treasury yield fell to 4.32%, lowest level in around two weeks.
  • Decline extended for a third straight session as lower oil prices reduced inflation concerns.
  • Markets monitored Iran’s response to a US proposal aimed at reopening Gulf shipping routes and easing port blockades.
  • Easing geopolitical tensions in West Asia supported demand for Treasuries.
  • Investors awaited the upcoming US jobs report for further signals on labour market strength.
  • Markets continued to expect the Federal Reserve to keep rates unchanged through year-end.

• US Dollar weakened as Iran deal hopes reduced safe-haven demand
  • The US dollar index slipped below 98, extending recent decline.
  • Markets increased expectations of a potential US–Iran agreement to end the conflict.
  • Reports suggested negotiators were nearing a 14-point memorandum covering shipping access and future nuclear talks.
  • Falling oil prices eased inflation concerns and reduced demand for defensive dollar positioning.
  • Donald Trump warned military action could resume if Iran fails to comply with any agreement.
  • Chicago Fed President Austan Goolsbee cautioned that inflation pressures had picked up since the conflict began.
  • Softer geopolitical risks tempered expectations for prolonged restrictive monetary policy.

• Oil eased as diplomacy hopes and shipping access reduced supply fears
  • Brent crude fell 1.2% to settle at $100.06 per barrel, while WTI declined 0.3% to $94.81.
  • Prices traded sharply lower earlier in the session amid optimism over a temporary US–Iran agreement.
  • Saudi Arabia and Kuwait reportedly lifted restrictions on US military access and airspace use.
  • Move could allow the US to restart commercial ship escort operations through the Strait of Hormuz.
  • Improved prospects for stabilising Gulf shipping routes reduced immediate supply disruption concerns.
  • Oil markets remained volatile as traders balanced diplomacy optimism against ongoing geopolitical uncertainty.

Day’s Ledger* 

Economic Data

• Germany March Industrial Production Data
  
• UK April Halifax House Price Index
  
• India FX Reserves
  
• US April Non-farm Payrolls Data

 Corporate Actions

• Earnings: 3i Infotech, ABB India, Balkrishna Industries, Bank of Baroda, Bank of India, Bombay Dyeing, Cera Sanitaryware, Creditaccess Grameen, Hyundai Motor India, JSW Infrastructure, Shipping Corporation of India, Shree Renuka Sugars, State Bank of India, Swiggy, Tata Consumer Products, Titan Company, Ujjivan Small Finance Bank, and Urban Company

 

Policy

• US FOMC Member Bowman Speaks
  
• BoE Gov Bailey Speaks
  
• German Buba President Nagel Speaks

Tickers to Watch

• DABUR Jan-Mar net profit rose 15.1% YoY to ₹3.69 billion from ₹3.20 billion.
• SONATA SOFTWARE Jan-Mar net profit increased 25% YoY to ₹1.31 billion from ₹1.04 billion.
• BSE Jan-Mar net profit surged 32.5% YoY to ₹7.97 billion from ₹6.02 billion.
• PIDILITE INDUSTRIES Jan-Mar net profit jumped 37.2% YoY to ₹5.79 billion from ₹4.22 billion.
• MAHANAGAR GAS Jan-Mar net profit declined 46.1% YoY to ₹1.30 billion from ₹2.41 billion.
• OBEROI REALTY completed Horizon Hotel acquisition; consortium paid ₹9.19 billion under resolution plan and acquired ~50% stake in HHPL for ₹4.60 billion.
• PACE DIGITEK secured ₹7.02 billion order from Damodar Valley Corporation for a 250 MW BESS project in Jharkhand.
• PNC INFRATECH emerged as L1 bidder for a Lucknow Development Authority EPC project worth ₹1.94 billion.
• CCL PRODUCTS Jan-Mar consolidated net profit rose 12.4% YoY to ₹1.15 billion from ₹1.02 billion.

 Must Read

• Restraint as Strength: India’s Strategic Message to the World
• Op Sindoor and the Resetting of India’s Engagement with the West
• Why India Inc Isn’t Investing in the Growth Story
• The Business Holding Blinkit's Margins Together Is Amazon's Home Turf
• Who Speaks for Markets Inside the RBI?
• From Firepower to Fragility
• Fitch Sees Indian Banks Well Prepared for Shift to ECL Regime in 2027
• US-proposed Iran resolution at UN faces likely vetoes from China, Russia
  
• New York state set to ban law enforcement, including ICE, from wearing masks
  
• Pope Leo, Rubio commit to stronger ties, Vatican says, amid Trump tensions
  
• US trade court rules Trump tariffs illegal, but issues narrow block

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

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(*Compiled from various media sources)