Risk Aversion Rises as Hormuz Tensions Flare Again

GLOBAL MOOD: Cautiously Risk-Off
Drivers: Negotiation Uncertainty, Strait of Hormuz Closure

Asia-Pacific markets displayed a mixed but broadly risk-off undertone on Monday, as escalating US–Iran tensions kept investors cautious. Sentiment weakened after US President Donald Trump confirmed the seizure of an Iranian-flagged vessel in the Gulf of Oman, marking a sharp escalation in the ongoing naval blockade. Iran’s response, including firing on commercial ships in the Strait of Hormuz, further heightened fears of prolonged disruption to a key global energy route.

The breakdown of planned negotiations added to uncertainty, with Tehran viewing the blockade as a breach of the earlier ceasefire. Oil markets reacted sharply, with WTI Crude and Brent Crude surging nearly 8%, signalling renewed concerns over supply shocks and inflation pressures.

Risk sentiment was also reflected in weaker US futures, indicating a spillover into global equities. While some Asian markets showed resilience, the overall tone remained defensive, with investors closely tracking geopolitical developments and bracing for heightened volatility in both energy prices and financial markets.

TODAY’S WATCHLIST
 - ECB Lagarde Speech

THE BIG STORY
Negotiations between the US and Iran are showing tentative progress, but key sticking points around nuclear commitments and control of the Strait of Hormuz remain unresolved. US President Donald Trump described recent engagements as “very good conversations”, even as he warned against any attempt by Tehran to use the strategic waterway as leverage. With the ceasefire nearing expiry, both sides appear to be testing the limits of diplomacy without offering concrete breakthroughs.

The broader conflict continues to cast a long shadow, with the war now in its eighth week and still disrupting global energy flows through the Strait of Hormuz, which typically carries around 20% of global oil shipments. Ongoing military activity, including clashes in Lebanon, highlights the fragility of the ceasefire and the risk of renewed escalation if talks falter in the coming days.

Compounding the uncertainty, geopolitical tensions are widening beyond West Asia, with North Korea ramping up missile tests in a show of strength amid the ongoing conflict. The developments suggest a more complex global risk environment, where multiple flashpoints could influence market sentiment, keeping volatility elevated even as negotiations continue.

Data Spotlight 
The Euro Area trade surplus narrowed sharply to €11.5 billion in February 2026 from €23.1 billion a year earlier, slightly below expectations, reflecting a broad-based slowdown in external demand. Exports declined 6.7% year-on-year to €232.4 billion, while imports fell 2.2% to €220.9 billion, leading to a significant contraction in the surplus. Sector-wise, the chemicals surplus dropped to €16.2 billion from €30.4 billion, while machinery and vehicles also weakened, with the surplus falling to €10.2 billion from €14.2 billion.

On the positive side, the energy deficit improved to €20.0 billion from €25.2 billion, providing some offset. However, cumulative data shows the trade balance weakening, with the surplus at €10.6 billion in the first two months of 2026, down from €21.8 billion a year ago.

Takeaway:
Weak export demand is weighing on the Euro Area trade balance, highlighting softer global growth momentum despite some improvement in energy dynamics.

WHAT HAPPENED OVERNIGHT

• US stocks hit record highs as supply relief and risk-on sentiment drive rally
  • Dow Jones surged 1.9%, S&P 500 gained 1.2%, and Nasdaq rose 1.5% to fresh record highs.
  • Rally driven by reopening of Strait of Hormuz, easing fears of energy-driven stagflation.
  • Donald Trump signals progress on Iran deal, including potential nuclear rollback.
  • Sharp fall in oil prices boosts sentiment and supports equities.
  • AI and mega-cap tech stocks advanced, including Amazon, Microsoft, Nvidia and Tesla.
  • Oracle declined by over 3%, while Netflix dropped more than 10% on weak guidance.

• US Treasury yield falls as oil slump boosts rate cut expectations
  • The 10-year yield declines 7 bps to around 4.25%, nearing one-month low.
  • Yields drop as reopening of Strait of Hormuz eases near-term inflation concerns.
  • Oil prices tumble over 10%, reducing pressure on energy-driven inflation.
  • Confirmation from Abbas Araqchi supports supply normalisation outlook.
  • Markets increase bets on Fed easing, with ~50% probability of a 25-bps cut by year-end.
  • Rate expectations shift sharply from earlier outlook of prolonged higher rates.

• US Dollar drops to multi-week lows as risk appetite surges
  • The US dollar index falls 0.3% to 97.96, after touching a seven-week low of 97.63.
  • Weekly decline of 0.6%, with 2.1% drop over past two weeks, largest since January.
  • Weakness driven by strong risk-on sentiment after Strait of Hormuz reopening.
  • Iran confirms safe passage for commercial vessels during ceasefire period.
  • Safe-haven demand fades as markets price in de-escalation of West Asia conflict.
  • Currency moves reflect broad unwind of geopolitical risk premium.

• Oil plunges as Hormuz reopening removes supply risk premium
  • Brent crude falls 9.1% to $90.38 per barrel, while WTI drops 11.5% to $83.85.
  • Sharp decline driven by Iran signalling free passage through Strait of Hormuz during ceasefire.
  • Donald Trump says Iran has agreed not to close the strait again.
  • Markets unwind significant geopolitical risk premium built during conflict.
  • Intraday lows reflect aggressive repositioning on easing supply disruption fears.
  • Oil is now sharply off recent highs as supply outlook improves materially. 

Day’s Ledger*
Economic Data

• India Infrastructure Output 

Corporate Actions

• Jan-Mar Earnings: Bank of Maharashtra, Billionbrains Garage, Indosolar, Navkar Corp, PNB Gilts, PNB Housing, Ugro Capital
• Bank of Maharashtra board to consider fund raising
• Spandana Sphoorty board to consider fund raising 
• Satin Creditcare board to consider fund raising 

Policy

• ECB Lagarde Speech

Tickers to Watch

• Shriram Finance cuts FD rates across tenures, new rates effective May 6
• HDFC Bank to sustain credit growth momentum, cautious on FY27
• Adani Enterprises arm sets up three hotels, real estate airport city units
• HDFC Bank January-March profit up 9% to ₹192.21 billion on lower provisions
• ICICI Bank's January-March net profit up 8.5% in Q4 FY26 to ₹137.02 billion
  
• Network18 January-March loss widens to ₹296 million, revenue up 9.7% Y-o-Y
• YES Bank January-March net profit rises 45% to ₹10.68 billion
  
  

Must Read

• US negotiators will be in Pakistan on Monday for talks with Iran: Trump
• Forex curbs cannot last as rupee internationalisation is RBI's top agenda
• Industrial credit growth seen at 9-13% in January-June: FICCI-IBA survey
• Rupee may come under pressure as Strait of Hormuz blockade continues
• India, US chief negotiators to begin 3-day trade pact talks from April 20
• Cabinet clears ₹129.80 billion maritime insurance pool with 'war risk' cover
  
  
  

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

𝐃𝐞𝐥𝐢𝐦𝐢𝐭𝐚𝐭𝐢𝐨𝐧: 𝐓𝐡𝐞 𝐀𝐫𝐢𝐭𝐡𝐦𝐞𝐭𝐢𝐜 𝐨𝐟 𝐑𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐨𝐧 𝐑𝐞𝐦𝐚𝐢𝐧𝐬 𝐔𝐧𝐬𝐞𝐭𝐭𝐥𝐞𝐝

The failure of the delimitation amendment is not just about numbers falling short in Parliament.

TK Arun writes, it exposes a deeper unresolved question in India’s political architecture. Representation has been frozen to 1971 population shares even as the country has changed dramatically. Any move to update that arithmetic risks shifting power across states.

(*Compiled from various media sources)