Global Mood: Cautiously Risk- on
Drivers: Trump rejects Hormuz plan, Saudi oil flows via Hormuz

Asia-Pacific markets opened mixed on Monday, with Japan's Nikkei 225 adding 0.29% and the Topix rising 0.17%. South Korea's Kospi slipped 0.41% on its return from a two-day holiday, and the Kosdaq edged 0.16% lower. Australia's ASX 200 was flat. SGX Nifty futures pointed to a mildly lower open for Indian markets, trading at 23,145, down 0.19% in early Monday trade. 

The cautious open came despite a strong week for US tech, with Meta Platforms rallying nearly 13% on enthusiasm over its Muse AI agent, Microsoft climbing more than 4%, and Apple and Nvidia each advancing over 1%. 

However, the gains were tempered by surging Treasury yields, with the 10-year note hitting levels last seen in 2007 and the 30-year bond reaching a 2004 high, as expectations of further Federal Reserve rate hikes increased amid persistent inflation pressures.

THE BIG STORY
Iran said only a negotiated solution can resolve the conflict, while Trump rejected Tehran's proposal to reopen the Strait of Hormuz but said US negotiators would hold more talks this week. Gulf crude exports rose to 12.8 million barrels per day in September, the highest since the war began, as Saudi Arabia and the UAE boosted shipments. 

However, exports remain about 6 million bpd below February levels.

Saudi crude exports are expected to rebound to about 5.4 million bpd in September from 2.45 million bpd in August, with Ras Tanura shipments rising sharply. Nineteen very large crude carriers carrying about 38 million barrels of Saudi oil crossed Hormuz last week.

Houthi forces have advanced in Yemen and continued attacks on Saudi Arabia, threatening the kingdom's Red Sea oil-export route. Houthi authorities said seven people were killed and 40 wounded in a strike on a market in Taiz.

Russian drones killed five people across Ukraine, including two at a market outside Kyiv, while attacks also hit residential buildings, data centres and communications infrastructure.

Data Spotlight
The University of Michigan's consumer sentiment index fell to 48.1 in September from 51.7 in August, its lowest level in four months. Assessments of current and year-ahead personal finances deteriorated by around 10%, while concerns over high prices intensified.

Consumers’ year-ahead inflation expectations rose to 4.6% from 4.0% in August, the highest since June. The five-year expectations edged up to 3.4% from 3.3%, indicating persistent inflation concerns.

US durable goods orders were flat at $338.6 billion in August, defying expectations for a 0.4% decline.  Excluding transportation, orders rose 0.3%, while non-defence capital goods orders excluding aircraft, a proxy for business investment, increased 1.6%, well above expectations.

Gains in business-equipment orders were led by machinery, electrical equipment, primary metals and computers, partly offsetting declines in transport equipment and fabricated metal products.

Consumers’ near-term outlook for business conditions deteriorated sharply, with elevated fuel prices and escalating trade disputes adding to concerns over the broader economy.  Buying conditions for durable goods improved modestly as households sought to purchase before prices rise further.

Takeaway: The data show a US economy where business investment remains resilient while consumer confidence remains fragile. Strong capital-goods orders suggest corporate spending is supporting activity, but weak sentiment and rising inflation expectations highlight growing pressure on households from prices and fuel costs.

For the Federal Reserve, persistent inflation expectations and softer consumer confidence complicate the policy trade-off between supporting demand and containing inflation.

WHAT HAPPENED OVERNIGHT

US stocks end higher as AI deals and Microsoft rally cap volatile week

• The S&P 500 gained 0.51%, Nasdaq rose 0.48%, and the Dow climbed 0.93%, with tech leading as Microsoft rallied 3.7% after unveiling new Copilot coding and agentic AI tools.
• Akamai surged 3.2% on an $11.6 billion cloud deal with Anthropic; Qualcomm gained 4%, and Dell advanced 5%; Meta dipped 3.3% after its 13% weekly surge on Muse AI momentum.
• For the week, the S&P 500 gained 1.2%, and Nasdaq rose 2%, with the S&P 500 trading at 19x forward earnings, its lowest since 2023.
• Reports of continued US-Iran phased war exit talks and strong AI-related capex in August durable goods data supported sentiment.
• Brent eased but held above $100, while the 10-year yield hit a fresh 19-year high at 5.196%, with October hike odds rising to 66%.
• Trump described the Trump-Xi summit as "very productive," with personal diplomacy on display but no major economic breakthroughs.

US Treasury yields hold near 19-year highs as inflation expectations and fiscal concerns weigh

• The 10-year yield hovered at 5.2%, near its highest since mid-2007, as hawkish Fed speak and lack of concrete US-Iran progress kept inflation fears elevated.
• University of Michigan's September survey confirmed a sharp rise in consumer inflation expectations, adding to the case for further Fed tightening.
• Strong economic data, worsening fiscal conditions, and rising government debt continued to pressure the long end, with Bessent's Treasury buyback programme widely seen as having had limited impact.
• October Fed hike odds stand at 66%, with markets expecting a 25bps move next month.

US Dollar pauses five-session rally as Iran deal hopes and yen commitment cap gains

• The dollar index slipped below 101, pausing after a five-session rally to July highs, as signs of US-Iran phased Hormuz deal exploration eased near-term oil inflation fears.
• The dollar still gained 1% on the week, its second consecutive weekly advance, supported by Fed tightening expectations, West Asian uncertainty, and resilient US economic data.
• The greenback fell against the yen after Japanese authorities reaffirmed Tokyo and Washington's commitment to the stance underpinning July's joint interventions.
• Finance Minister Katayama said Trump had expressed concerns about yen weakness during a meeting with PM Takaichi earlier this week.

Oil falls 2% as US-Iran talks raise hopes of reopening Hormuz

• Brent fell 2.1% to $104.32/bbl, while WTI declined 2.3% to $92.41 as markets weighed prospects of a phased US-Iran deal and a possible reopening of the Strait of Hormuz.
• US and Iranian negotiators are exploring a phased path out of the war that could see Tehran reopen Hormuz and Washington lift its economic blockade, sources close to the talks said.
• Crude flows through Hormuz reached 33.7 million barrels in the week starting September 20, broadly in line with the previous week, according to Kpler data, despite transit disruptions.
• The Brent-WTI spread widened to its highest since May as talk of a possible US diesel export ban raised expectations of lower US refinery runs and weaker domestic crude demand.
• Saudi Arabia faced renewed supply risks as Houthi attacks intensified, with Saudi, Turkish and Pakistani military chiefs set to discuss support for Riyadh.
• A potential Russia-Ukraine ceasefire also remained a supply-side risk, as ending the war could let Russia increase energy exports.

Day’s Ledger*

Economic Data

• India August IIP
  
  

Corporate Actions

• Ola Electric Mobility to consider fund raising

Policy

• ECB President Lagarde Speaks
• ECB's Elderson Speaks
• UK MPC Member Ramsden Speaks
• US FOMC Member Bowman Speaks
• US Fed Governor Cook Speaks
• US FOMC Member Barkin Speaks

Tickers to Watch

• SAIL signs MoU with Bharat Coking Coal to jointly develop and operate two coal blocks in West Bengal.
• ADANI POWER completes merger of 10 wholly owned subsidiaries with the company as part of group restructuring effective Sep 25.
• Rashtriya Chemicals and Fertilisers approves a 7.97 billion rupees purchase order to LARSEN & TOUBRO to revamp its ammonia plant, with a 36-month execution period.
• EDELWEISS FINANCIAL SERVICES completes Carlyle’s investment of over 20 billion rupees in Nido Home Finance, giving Carlyle-affiliated funds a strategic majority stake.

Must Read

• A Century of Excellence and a Rather Eventful Two Decades: Notes From Inside the Tata Group
• Why Corporate India Should Look Beyond the Headline GDP Numbers
• Airtel Needs More Than a ₹50 Upgrade to Defend Its Premium
• A Tale of Two (Debt) Burdens
• Distorted Price Signals: Tariffs, Interest Rates, and Global Inflation in 2026
• India’s Push for Manufacturing Medical Devices Moves From Crisis Management To Technology Development

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day