Asia Opens Lower as Yen Surge and Dollar Weakness Dampen Risk Appetite

GLOBAL MOOD: Risk-Off
Drivers: Fed Chair succession risk and Policy independence concerns, Ukraine peace conditionality 

Asian markets started cautiously, with Japan leading losses due to currency volatility. The Nikkei 225 dropped 0.8%, and the Topix lost 1%, erasing prior gains. A strong yen up nearly 4% in three sessions hurt exporters, amid speculation about possible US–Japan intervention. The yen strengthened further as the US dollar weakened following President Trump’s comments downplaying the dollar's decline. Elsewhere in Asia, sentiment was subdued as investors remained wary of elevated currency volatility and awaited clearer signals from US policy and central banks.

TODAY’S WATCHLIST

• FOMC Interest Rate Decision
• BoC Interest Rate Decision
• India IIP Data
• Oct-Dec Earnings: Larsen & Toubro, Maruti Suzuki, SBI Cards, SBI Life, ACC

THE BIG STORY
Markets are bracing for renewed volatility after US President Donald Trump said he will soon announce his pick for the next Federal Reserve chair, openly predicting that interest rates would “come down a lot” once the new leadership takes over. Speaking in Iowa, Trump’s comments reinforced investor concerns about the future independence of US monetary policy, coming just a day ahead of the Federal Open Market Committee decision. Speculation around the succession race intensified in prediction markets. BlackRock’s Rick Rieder has emerged as the clear frontrunner, with betting platform Kalshi assigning him a 48% probability of becoming the next Fed chair. Former Fed Governor Kevin Warsh, long seen as a Trump ally, holds roughly 31% odds, while current Fed Governor Christopher Waller trails with single-digit probabilities, despite strong support among market participants for policy continuity.

At the same time, geopolitical risk remains elevated. The US has privately told Ukraine that US security guarantees would depend on Kyiv signing a peace deal with Russia, according to sources cited by Reuters. US-brokered talks in Abu Dhabi reportedly made progress, but any agreement could require Ukraine to concede control over parts of the Donbas region, a condition that risks political backlash in Europe and renewed uncertainty around the durability of a settlement.

Data Spotlight
US home prices show a tentative stabilisation, but real values continue to erode. The Case-Shiller 20-City Home Price Index rose 1.4% y/y in November, slightly firmer than October but still near a multi-year low, highlighting a housing market that is cooling rather than re-accelerating. With CPI at 2.7%, real house prices remain in decline, confirming affordability pressures and muted pricing power.

Agency-backed price data echo modest momentum with wide regional dispersion. Fannie Mae/Freddie Mac single-family prices rose 0.6% m/m, the strongest gain since September 2024, but year-on-year growth stayed modest at 1.9%, with some regions still posting outright declines, underlining an uneven recovery.

Crude inventories surprised to the downside. US oil stocks fell 0.25 mb last week, defying expectations for a build, offering limited near-term support to prices but doing little to change the broader oversupply narrative.

Takeaway:
US housing prices are no longer falling outright but remain under inflation, implying continued real-terms weakness, while the unexpected crude draw provides only marginal relief amid structurally ample supply.

WHAT HAPPENED OVERNIGHT

US stocks hit record as tech leads, Dow dragged by healthcare rout

• The S&P 500 rose 0.5% to a fresh record close, while the Nasdaq gained 1%, driven by strength in mega-cap technology ahead of a heavy earnings and policy week.
• Microsoft (+2.2%) and Apple (+1.1%) advanced into results, while semiconductors outperformed on continued AI optimism, with Micron jumping 5.4% and Broadcom up 2.4%.
• General Motors surged 8.8% after raising its 2026 guidance, providing a notable boost outside the tech space.
• Gains were uneven across indices as the Dow fell 0.8%, dragged down by a sharp selloff in healthcare. UnitedHealth plunged 19.6% after a profit warning and CVS slid 14.1% on concerns over proposed Medicare Advantage reimbursement changes.

US Treasury yield edge higher as Fed decision and political risk loom

• The benchmark US 10-year Treasury yields rose to around 4.23%, snapping a short run of declines as investors positioned ahead of the Federal Reserve’s policy meeting, where rates are widely expected to remain on hold.
• Attention is increasingly focused on Fed independence, amid speculation that President Donald Trump could announce a new Fed chair as early as this week.
• Fiscal risk resurfaced, with Democratic leaders threatening to block a $1.2 trillion funding package if it includes additional Homeland Security spending, reviving shutdown concerns.
• Broader geopolitical and trade uncertainty continues to underpin the so-called “sell America” narrative, helping keep long-end yields supported despite recent pullbacks.

US Dollar slides to multi-year low on policy rhetoric and intervention fears

•  The US dollar index extended its sell-off on Tuesday, falling 1.4% to 95.77, its lowest level since February 2022.
• Pressure intensified after President Donald Trump said the dollar was “great,” reinforcing market perceptions that the administration is comfortable with a weaker currency.
• The greenback has already been under strain amid speculation over a possible coordinated US–Japan currency intervention, adding to downside momentum.
• Investors are now turning cautious ahead of the Federal Reserve’s two-day policy meeting, watching for signals on rates and any response to the sharp dollar weakness.

Crude oil prices jump on US winter storm supply shock

• Brent crude prices rose 3.0% to $67.57/barrel; WTI climbed 2.9% to $62.39/barrel.
• Severe winter storm disrupted US energy infrastructure, halting Gulf Coast crude exports over the weekend.
• US producers lost up to 2 mbpd, roughly 15% of national output, tightening near-term supply.

Day’s Ledger

Economic Data

• India Industrial Production 
• India Manufacturing Production 

Corporate Actions

• Oct-Dec Earnings: ACC,Bharat Electronics, Cochin Shipyard, Larsen & Toubro, Lodha Developers, M&M Financial Services, Maruti Suzuki, Phoenix Mills, SBI Cards, SBI Life, TVS Motor Company
• Milestone Furniture board to consider fund raising
• Vertex Securities board to consider rights issue

Policy Events

• FOMC Interest Rate Decision
• BoC Interest Rate Decision
• ECB Elderson Speech
• ECB Schnabel Speech

 

Tickers to Watch

• Asian Paints Q3FY26 results: Net profit declines 4.6% to ₹10.59 billion
• Vodafone Idea Q3FY26 results: Loss narrows to ₹52.86 billion, Arpu rises 7.3%
• Tata Consumer Q3 results: Net profit jumps 36% to ₹3.85 billion
• Marico Q3FY26 results: Profit rises 12% to ₹4.47 billion, revenue jumps 27%
• Adani, Embraer sign MoU to establish aircraft making facility
• ONGC floats TSP tender for western offshore blocks to revive output
• TCS to set up one of its largest delivery centres in Brazil with $37 mn
• Vedanta to sell 1.59% stake in Hindustan Zinc worth ₹45.9 billion via OFS
• Swiggy enables grocery, food delivery via ChatGPT and other AI tools
• Hindalco Industries announces ₹210 billion smelter expansion in Odisha
• Alembic Pharmaceuticals gets USFDA nod for generic eye treatment drug
• DLF yet to recognise over ₹550 billion revenue from sales booked till Q3

 

Must Read

• EU trade deal may stitch India's $100 billion textile export dream by 2030
• India-EU FTA to boost marine exports with tariff cuts of up to 26%
• India-EU FTA to benefit industry on both sides, spur investments: Goyal
• Parliament's Budget session opens Wednesday with no new Bills listed
• Stakeholders seek further tax reforms, higher standard deduction in Budget
• Amazon to Shut Down All Amazon Go and Amazon Fresh Stores
• Fed Set to Pause Rate Cuts, With No Clear Path to Resuming
  
  

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See you tomorrow with another edition of The Morning Edge.

Have a great trading day.

Gold Fantasies vs. Financial Reality: The Reserve Narrative That Doesn’t Add Up

GURUMURTHY R writes, social media is buzzing with claims that gold will “mean revert” to 60–70% of global reserves, just like the 1970s, as the dollar supposedly fades.

Sounds compelling. The math doesn’t agree.