Asia Stocks Slip as Elevated Oil Prices Stoke Inflation Concerns

Global Mood: Risk-Off
Drivers: Iran Threatens Gulf Energy Assets, Brent Nears $100

Asian markets traded mostly lower on Tuesday as elevated crude prices revived inflation concerns and weighed on risk sentiment. Japan’s Nikkei 225 fell 0.27% and Australia’s ASX 200 declined 0.33%, while South Korea’s Kospi bucked the trend to rise 0.51%.

The weakness came as Brent remained near $98 a barrel after briefly crossing the mark, while WTI rose 1% to $92.44. Uncertainty over shipping through the Strait of Hormuz remained the key concern after Iran indicated that an agreement with Oman to oversee shipping was close, while tensions with Washington remained elevated. Persistent disruption risks are keeping oil prices high, raising concerns that a prolonged energy shock could feed inflation and complicate the outlook for US monetary policy.

THE BIG STORY
Iran escalated its warnings Monday, with parliament speaker Qalibaf telling the US directly that "American oil and gas companies across these waters and facilities share that exposure" after Washington struck three Iranian tankers near Kharg Island at the weekend. Tehran also announced it would declare a new restricted zone in the Gulf extending from the US naval blockade perimeter, with any vessel entering subject to Iranian sanctions. Hormuz transits fell to their lowest since May at just 10 commodity vessels per day, even as US Energy Secretary Wright claimed two-thirds of pre-war flows were getting through via alternative routes. Oil surged nearly 8% last week, and Brent touched $97.5 on Monday, its highest in seven weeks and 35% above pre-war levels, while diesel prices hit record highs roughly 90% above pre-war levels, a combustible backdrop for central banks already navigating sticky inflation. Israeli strikes on southern Lebanon killing at least 12 added a further escalation risk, with Tehran insisting any final deal with Washington must include an end to Israeli attacks there.

The geopolitical and energy shock is now translating directly into monetary policy across major economies. Markets price a 58% chance of a Fed hike on September 16 following a strong 162,000 August payrolls print, with Thursday's US CPI the decisive data point. The ECB is expected to lift rates to 2.5% on Thursday, with another move priced by December; the Bank of Japan faces 75% market odds of a hike on September 18, and global bond yields remain at multi-decade highs. European political risk added a further layer of uncertainty as Germany's AfD surged to first place in Saxony-Anhalt state elections, and polls showed Marine Le Pen leading France's first-round presidential standings, putting the euro's long-term stability in question and keeping it the weakest-performing major currency of 2026.

Data Spotlight
Japan's GDP grew 0.4% quarter-on-quarter in April-June, revised up from a flash estimate of 0.3%, marking a third consecutive quarter of expansion. External demand contributed positively as imports fell 1.7%, while business investment declined less than initially estimated. Private consumption was flat, however, as elevated cost pressures continued to weigh on households.

Japan's average cash earnings surged 4.7% year-on-year in July, the fastest pace since January 1997 and well above expectations of 3.9%, with regular pay rising at its quickest rate since April 1992. Real wages grew 2.4%, a seventh consecutive monthly gain and the strongest since May 2021, with construction, mining and transport leading sectoral gains.

South Korea's April-June GDP growth was confirmed at 0.6% quarter-on-quarter, easing from 1.8% in previous quarter but driven by semiconductor and IT export growth of 1.3% and solid intellectual property investment of 3.4%. Annual growth held at 3.7%, slightly below january-March's 3.8% but above market estimates.

Takeaway: Japan's upward GDP revision and record nominal wage growth point to a meaningful broadening of its economic recovery, raising the prospect of further Bank of Japan policy normalisation. South Korea's confirmed Q2 growth, underpinned by AI-driven semiconductor exports, reinforces the resilience of Asia's technology-driven economies even as domestic demand remains uneven across the region.

WHAT HAPPENED OVERNIGHT

US Markets were closed on Monday on account of Labour Day.

Dollar holds near 99 as strong jobs data, US-Iran strikes lift Fed hike bets

• Dollar index held near 99 after US payrolls rose 162,000 in August, well above the 56,000 forecast, while July jobs were revised up to 23,000.
• September Fed hike odds rose to 60% from 50% before the jobs report, with CPI and PPI data this week now key for policy expectations.
• Safe-haven demand also supported the dollar after fresh US-Iran strikes, while wage growth slowed to 3.1% but remained above expectations, keeping inflation risks elevated.

Oil rises to six-week high as Iran threatens Gulf energy infrastructure

• Brent settled 1.1% higher at $97.31/bbl after touching $98.06, while WTI rose 1.3% to $92.65, with both at their highest since July 24 after strong weekly gains.
• Oil prices rose as Iran threatened further attacks on US assets and energy infrastructure, while traffic through the Strait of Hormuz fell to the lowest since May.
• Goldman Sachs warned oil could reach $120/bbl if shipping attacks intensify, while Iran plans a restricted zone outside Hormuz, adding to supply disruption risks.
• Saudi Aramco's Jazan refinery was attacked, while Israeli strikes in southern Lebanon killed at least 12 people; the UAE is also developing alternative export routes.
• US gasoline and distillate inventories remain below year-ago levels, while OPEC+ left its October output policy unchanged ahead of talks on 2027 production quotas.

Day’s Ledger*
Economic Data 

• China August Trade Balance
• German July Trade Balance

Corporate Actions 

• Century Extrusions, Ganga Forging, Melstar Information Technologies, Udayshivakumar Infra and Raymond Limited to consider fundraising 

Policy

• MPC Member Ramsden Speaks
• BoE Governor Bailey Speaks
• ECB's Elderson Speaks

Tickers to Watch

• ADANI POWER receives LoI to acquire GVK Energy after CoC approves resolution plan under insolvency process; GVK Energy owns 330 MW hydro project in Uttarakhand via subsidiary Alaknanda Hydro Power Company.
• SWIGGY subsidiary Swiggy Networks to sell entire stake in Lynks Logistics to Singapore-based Trustroot Internet for ~$52.4 million, involving 166,534 Series R CCPS; deal expected to close by October 22.
• MANKIND PHARMA subsidiary Bharat Serums and Vaccines gets shareholder approval for voluntary liquidation, subject to creditor and IBC approvals.
• SHIPROCKET April-June net loss narrows to 137 million rupees from 180 million rupees; revenue up 33.8% YoY to 5.92 billion rupees; EBITDA loss narrows to 210 million rupees from 260 million rupees; first quarterly result since August 19 listing.
• NEULAND LABORATORIES approves 1.26 billion rupee capex to acquire ~134 acres at Auro Industrial City, Kakinada, Andhra Pradesh, with right of first refusal on an additional 66 acres; funded via internal accruals.
• GE VERNOVA T&D INDIA emerges as L1 bidder for Power Grid's 6,000 MW, ±800 kV HVDC LCC terminal station project for evacuating renewable power from Barmer II to South Kalamb.
• PVR INOX clarifies preliminary examination into employee impropriety allegations found no evidence of kickbacks; anonymous April complaints did not name former CEO Pramod Arora or cite specific instances.
• ARISINFRA SOLUTIONS subsidiary ArisUnitern RE Solutions secures 280 million rupee order from O2 Spaces for Developer-as-a-Service.
• ASIAN ENERGY SERVICES holding/amalgamating company Oilmax Energy receives LoI from Arunachal Pradesh government for Pakro Vanadium and Graphite Block (155.46 hectares, Pakke Kessang district); LoI awarded to Oilmax, not directly to Asian Energy Services.
• KNOWLEDGE REALTY TRUST approves a plan to raise up to 10 billion rupees via NCDs on a private placement basis, across one or more tranches.

Must Read

• Measuring What GDP Leaves Out
• What Makes a Nation Difficult to Coerce?
• Beyond GDP Perception: How Administrative Data Is Reshaping Trade Facilitation Policy
• Modi’s Gold Gamble Pits Economic Restraint Against Political Comfort
• CRR Hike May be RBI’S Cleanest Option to Drain Liquidity – I-Sec PD
• Iran Says Strait of Hormuz Deal With Oman Just Days Away
• Warning signs abound for Trump's Republicans as midterm campaign begins final sprint

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day