Asia Stocks Shrug Off Fed Rate Jitters; Japan Leads Rally

GLOBAL MOOD: Risk On
Drivers: US–Iran Nuclear Diplomacy, US Data Trims Fed Rate Hopes

Asian markets opened higher on Thursday, signalling a selective risk-on tone even after stronger-than-expected US payrolls data dampened hopes of early Federal Reserve rate cuts and weighed on Wall Street overnight.

Japan’s Nikkei 225 crossed the 58,000 mark for the first time, extending its post-election rally as investors bet on policy continuity and pro-growth measures under the ruling administration.

While US bond yields climbed and the dollar firmed on resilient labour data, markets drew comfort from continued US–Iran engagement, which has so far limited geopolitical escalation. Improved US fiscal numbers also supported sentiment around Treasury supply and deficit sustainability.

Overall, investors appear willing to add risk in Asia, viewing firm US data as supportive of growth rather than a threat to stability, even as rate-cut expectations are pushed further out.

TODAY’S WATCHLIST
 - India January CPI Inflation Data
 - US Weekly Jobless Claims Data
 - Oct-Dec Earnings: Coal India, Hindalco, HUL, ONGC

THE BIG STORY
President Donald Trump said talks with Israeli Prime Minister Benjamin Netanyahu yielded no “definitive” agreement on the next steps regarding Iran, though negotiations with Tehran will continue. Netanyahu, in his seventh meeting with Trump since the latter’s return to office, pushed for broader limits beyond Iran’s nuclear programme, including constraints on missile capabilities. However, no public commitment was made to widen the scope of diplomacy. The discussions come ahead of further US–Iran engagement following last week’s nuclear talks in Oman.

Separately, US fiscal data showed a notable improvement. The federal government posted a $95 billion deficit in January, down 26% year-on-year as stronger revenues, including customs duties, outpaced spending growth. On a calendar-adjusted basis, the deficit would have narrowed by 63%. For the fiscal year to date (October–January), the deficit declined 17% to $697 billion, with receipts up 12% and outlays rising just 2%.

Data Spotlight
US labour data pointed to near-term resilience, though prior revisions painted a softer medium-term picture. Non-farm payrolls rose by 130,000 in January, above expectations of 70,000, while the unemployment rate edged down to 4.3%, signalling a stable labour market that could allow the Federal Reserve to keep rates on hold. However, annual benchmark revisions showed the economy added just 181,000 jobs in 2025, sharply lower than the previously estimated 584,000 and well below 2024’s 1.459 million gain, suggesting momentum has cooled materially.

In energy markets, US crude inventories surged by 8.5 million barrels to 428.8 million, the largest weekly build in a year and far above expectations. Cushing stocks rose 1.1 million barrels, gasoline inventories increased 1.2 million, while distillates fell 2.7 million.

Takeaway: US headline payroll strength supports a patient Fed stance, but softer annual revisions and a sharp crude build highlight underlying moderation in growth and demand dynamics.

WHAT HAPPENED OVERNIGHT

• US stocks finish flat as strong jobs data dampens Fed rate cut hopes
  • S&P 500 up 0.1%, Dow down 0.1% from highs, Nasdaq +0.3% as jobs cheer faded.
  • Jan payrolls beats estimate to report +130,000, unemployment at 4.3%; healthcare-led, prior months revised down.
  • AI hardware rose with Micron up 9.9%, Lam rose 3.8%, Applied Materials gained 3.3%, while Nvidia was up 0.8%.
  • Software shares plummeted with Salesforce falling 4.4%, Intuit down 5.2%, Palantir dropped 2.7%; Zillow slumped16.5% post-earnings.

• US Treasury yields rises as jobs data trims rate-cut bets
  • The benchmark 10-year US Treasury yields climbed nearly 5bps to 4.19%.
  • Stronger-than-expected January payrolls signalled labour market resilience.
  • Unemployment rate unexpectedly fell to 4.3%.
  • Markets pushed back rate-cut expectations, now fully pricing a 25bps reduction by July vs June previously.
  • Firmer data reduced conviction around near-term Fed easing.

• US Dollar rebounds on strong jobs data, yen outperforms
  • The US dollar index recovered to near 97, snapping a three-session slide after firmer US payrolls trimmed Fed rate-cut expectations.
  • Euro slipped 0.1% to $1.1882 against a dollar, while Swiss franc weakened, with the dollar up 0.29% to 0.77.
  • However, the yen strengthened sharply, with the dollar falling 1.02% to 152.79, extending gains after PM Sanae Takaichi’s landslide election win
  • Divergence reflects stronger US data supporting the greenback, while Japan-specific political dynamics boosted the yen.

• Crude oil prices edges higher on Iran tensions despite inventory build
  • Brent crude prices settled at $69.40/barrel, up 0.87%, while WTI closed at $64.63 a barrel, up 1.05%.
  • Geopolitical premium resurfaced as markets monitored renewed US–Iran tensions ahead of fresh negotiations.
  • Gains were capped by a large build in US crude inventory, tempering immediate supply concerns.

Day’s Ledger

Economic Data

• US Weekly Jobless Claims Data
• India January CPI Inflation Data
• Japan PPI Data

Corporate Actions

• Oct-Dec Earnings: Bharat Forge, Biocon, Coal India, Hindalco, Hindustan Aeronautics, HUL, IRCTC, Indian Hotels, Indraprastha Gas, Lupin, Muthoot Finance, ONGC, PI Industries, 

Policy Events

• US Fed Logan Speech

Tickers to Watch

• Linde seeks shareholder approval for ₹4.17 billion RPTs with Praxair India
• Aditya Birla Group hospitality arm to bring JOE & THE JUICE to India
• Bombay HC stays ₹1.70 billion GST recovery against Gateway Terminals
• Sterlite moves Madras High Court after TNPCB rejects green copper plan
• Avantel wins ₹1.23 billion antenna order from ISRO arm NewSpace India
• Ashok Leyland Q3 results: Net profit rises 5% to ₹8.62 billion, revenue up 22%
• Mahindra Q3 result: PAT up 47% at ₹46.75 billion on highest quarterly revenue 

Must Read

• DFS drafts Financial Inclusion 2.0 roadmap, focuses on universal banking
• Sebi flags misuse of SME platform, plans simpler rules to deepen mkt access
• Except Trump, nobody has stated India's refusal to buy Russian oil: Lavrov
• Banks issue over ₹1 trillion worth of CDs in February as rates soften
• Oman pitches downstream aluminium opportunities to Indian industry
• US Added 130,000 Jobs in January, Starting Year off on Stronger Footing
• Ford Aluminum Supplier Expects Fire-Damaged Plant to Be Repaired in June
  
  

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

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Is it time to shift the debate from symmetry to strategy?