Asian Stocks Choppy as Ceasefire Expiry Revives Oil, Inflation Risks

Global Mood: Cautiously Risk- off
Drivers: Iran Threatens Full Offensive, Gaza Talks Stall

Asian markets were mixed Tuesday as the expiry of the US-Iran ceasefire revived geopolitical and inflation risks, keeping overall sentiment cautious. South Korea’s Kospi gained 2%, while Japan’s Nikkei fell 0.9% and Australia’s ASX 200 edged lower. Oil prices rose more than 2% as the truce ended without an extension, raising concerns over energy supplies and inflation. Higher crude prices also pushed the 30-year US Treasury yield to its highest level since June 2007, tightening financial conditions and weighing on risk appetite.

The diplomatic outlook deteriorated further as Iran warned it could adopt a more offensive military posture, while Washington ruled out extending the interim accord and maintained pressure over Hormuz and compensation demands. Investors are also monitoring the stalled Gaza peace process, with disagreements over Hamas disarmament and Israeli withdrawal unresolved. Overall, markets remain defensive, with higher oil prices, rising long-term yields and renewed geopolitical uncertainty offsetting pockets of strength in Asian equities.

THE BIG STORY
The June interim peace accord between the US and Iran expired Monday with no extension agreed, and no path forward, as a senior Iranian official warned Tehran would shift to a "fully offensive" military posture and conduct a "timely and precise" attack to break the US naval blockade if diplomacy continued to fail. Trump flatly ruled out extending the agreement and threatened to bomb Oman if it "gets in the way," a remarkable threat against a key mediator that underscores how far the diplomatic environment has deteriorated. The Trump administration is reportedly exploring back-channel discussions with Iran, but with the 60-day window now elapsed, both sides deadlocked on Hormuz control and compensation demands, and Iran explicitly preparing for escalation, the conflict is entering a new and potentially more dangerous phase just as the US signals it will rely on economic rather than military pressure.

In Gaza, Kushner's two-day shuttle between Cairo and Jerusalem ended Monday without a breakthrough. Netanyahu, facing an upcoming election, showed no sign of flexibility on his core demand that Israel will not withdraw until Hamas fully disarms and tunnels are destroyed. Hamas told mediators "all the right things," in Kushner's words, but continues to condition any weapons moves on Israel halting attacks and pulling back first. Kushner expressed hope for progress within 30 to 90 days on weapons removal and tunnel destruction, but the fundamental sequencing dispute between the two sides remains unresolved, and Israeli airstrikes in Gaza continued through the weekend of talks.

Data Spotlight
Canada's annual inflation rate edged up to 2.9% in July from 2.8% in June, as gasoline price inflation surged to 25.7% from 20.5% following the resumption of US-Iran strikes and tanker blockades. Core inflation measures ticked marginally higher, with the median rate at 2.0% and trimmed-mean at 1.9%, while food and shelter inflation both eased.

The NAHB Housing Market Index rose to 25 in August from 34 in July, contrasting with expectations of a decline to 33, as current sales conditions edged up two points to 39. Price cuts were reported by 35% of builders, down two percentage points from July, with the average reduction holding at 6%.

The NY Fed Empire State Manufacturing Index surged to 20.6 in August from 15.6 in July, far above expectations of 11 and the strongest reading since late 2021. New orders and shipments grew solidly, though delivery times lengthened sharply and supply availability deteriorated further, pointing to intensifying supply chain pressures.

Takeaway: Renewed US-Iran hostilities are again feeding through to energy prices, as seen in Canada's rebounding gasoline inflation, while New York manufacturing's acceleration signals continued front-loading demand amid worsening supply conditions. The combination of supply disruptions and price pressures keeps the inflation outlook uncertain for North American policymakers.

WHAT HAPPENED OVERNIGHT

US stocks slip as rising oil prices and consumer spending caution dampen sentiment

• The Dow fell 0.51%, S&P 500 lost 0.52%, and Nasdaq dropped 0.31%, as investors awaited retail earnings for direction on consumer health amid recent soft jobs and sales data.
• Energy was the sole S&P 500 sector to gain, rising 0.87% on oil's $2-plus settlement gain, while communication services and consumer staples both fell ~1.5% to lead sector declines.
• The Philadelphia Semiconductor Index rallied 1.6%, with Micron up 4% and Applied Materials up 5.5%, while the S&P 500 Software & Services index sank 2.8%, with Microsoft and Meta each falling over 3%.
• Anthropic's reported 2028 revenue forecast of $190-200 billion, ahead of its IPO, added to broader AI valuation debate as investors remained anxious about AI spending returns. 
• Nvidia's results, due next week, remain the key upcoming catalyst for the AI trade, with the world's most valuable company's outlook closely anticipated.

US Treasury yields rise past 4.7% as inflation concerns and surging bond supply pressure the long end

• The 10-year yield climbed back above 4.7%, approaching last week's 19-month high of 4.75%, as Trump signalled no urgency to lift the Iran energy blockade, pushing oil prices higher.
• Warsh's signals that rate hikes may not be his preferred inflation tool continued to fuel concerns over Fed complacency, keeping long-end yields elevated despite last week's softer CPI.
• AI companies raising $1.5 trillion in bonds this year added significant dollar-denominated fixed-income supply, limiting relative appetite for Treasury securities and adding upward pressure on yields.

Dollar falls for a third straight session as soft data and fading hike bets weigh on greenback

• The dollar index slipped to 99.5 as last week's subdued inflation, weak retail sales, and poor consumer sentiment pushed September Fed hold odds to 67% from below 50% a month ago.
• Investors now await the FOMC minutes and Warsh's Jackson Hole speech for further policy guidance, with Empire State Manufacturing and NAHB Housing data due Monday.
• The dollar weakened broadly, falling most against the Australian and New Zealand dollars and the British pound.

Oil settles up over 2% as Trump demands Iran's surrender and threatens to bomb Oman

• Brent settled at $90.87/bbl, up 2.65%, and WTI at $84.50, up 2.55%, as Trump said the US was not seeking an MOU extension and that Iran should "put up the white flag of surrender."
• A senior Iranian official told Reuters Tehran would escalate Hormuz tensions and launch attacks if the US fails to fully implement the interim deal within weeks.
• Strait of Hormuz traffic fell to five vessels on Saturday and zero on Sunday, against 31 the prior weekend, as negotiations reached a stalemate with Iran-Oman talks proceeding slowly due to complexity and multiple actors.
• Analysts see prices consolidating near $90/bbl as markets weigh deeper disruption risk against the possibility of a Hormuz reopening deal that could drive sharp price declines.
• ADNOC sold at least 14 million barrels of spot crude to Asian refiners at premiums, while Saudi Aramco offered crude outside the Strait of Hormuz to select Asian buyers.
• US SPR stocks fell 5.3 million barrels to 293.4 million barrels, the lowest since December 1982, as drawdowns continued under the 172 million barrel release agreement.
• US Energy Secretary Wright said Iran cannot export any oil under current sanctions, adding that the president is "playing the long game" and the world does not need Iranian oil.

Day’s Ledger*
Economic Data

• UK June Unemployment Rate
• German August ZEW Economic Sentiment
• US July Export Price Index
  
• US July Industrial Production

Corporate Actions

• International Gemological Institute and Piccadilly Agro Industries to consider dividends 
• Bharat Petroleum Corporation Limited to consider fund raising 

Policy

• ECB's Lane Speaks

Tickers to Watch

• Airtel Payments Bank announces leadership transition — Sunil Bharti Mittal to step down as Non-Executive Chairman effective September 30, 2026; Shabnam Sinha to take over as Chairperson for a 3-year term from October 1, 2026, following RBI approval.
• CEIGALL INDIA informed that Delhi PWD cancels tender worth 330.84 million rupees (incl. GST) for road strengthening works under South Maintenance Zone for 2026-27.
• DCX SYSTEMS receives purchase orders worth 151.9 million rupees from customers for cable and wire harness assemblies, covering domestic and export orders.
• NELCO, Tata Group satellite services firm signs agreements with Lunar Holdco, Inc. for $20 million investment via subscription to Compulsorily Convertible Debentures.
• ONE97 COMMUNICATIONS (PAYTM) informed that Resilient Asset Management B.V. (Vijay Shekhar Sharma's promoter entity) likely to sell up to 4.98% equity via block deal — base offer 3%, upsize option 1.98%.
• PVR INOX / REAL ESTATE FIRMS informed that Delhi notifies new SOP introducing single-window, fully online licensing system for cinema halls and multiplexes via the e-District portal, replacing multiple NOC requirements.
• SAMVARDHANA MOTHERSON INTERNATIONAL to acquire a controlling 64.76% stake in Shenzhen Autocruis Technology via subsidiary SMR Automotive (Langfang), through a CNY 153.3 million ($22.6 million) primary capital increase.
• SHRIRAM PISTONS launches QIP to raise 10 billion rupees, indicative price range of 4,216.30-4,436.60 rupees/share; lower end reflects up to 4.97% discount to current market price.
• WIPRO, PCBL CHEMICAL, SYRMA SGS: Government approves 31 investment proposals worth 78.77 billion rupees under ECMS, expected to generate 822.43 billion rupees in production; Wipro Global Engineering approved for 14.01 billion rupees, Micromax Precision Moulding for 5.65 billion rupees, PCBL Chemical for 3.29 billion rupees, Minda Instrument for 2.7 billion rupees.

Must Read

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• How Parliamentary Gridlock is Turning India’s Youth Away From the Ballot
• Markets Are Paying a Growing Price for Their Retreat From Transparency
• The Law Of Tomorrow: When Economic Growth Creates Legal Complexity
• RBI’s FCNR Reversal Puts Its Guidance Under Scrutiny
• Avenue Supermarts Stays Off Quick Commerce, Takes a Valuation Risk

 

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day