Global Mood: Cautiously risk-off
Drivers: Central Banks Meetings, West Asia Uncertainty

Asian markets traded mixed on Monday as investors braced for a week of major central bank decisions, including policy announcements from the US Federal Reserve, European Central Bank and Bank of Japan. Japan’s Topix rose 0.37%, while the Nikkei 225 fell 0.2%. South Korea’s Kospi declined 0.3%, and the Kosdaq dropped 1.18%, while Australia’s S&P/ASX 200 slipped 0.26%. US equity futures advanced, with Nasdaq-100 futures up 0.6% and S&P 500 futures gaining 0.4%, despite losses on Wall Street at the end of last week.

Oil prices eased after Brent crude hit its highest level since April on Friday amid reports of possible US-Israeli strikes on Iran after the US midterm elections. However, geopolitical uncertainty and elevated energy prices remain risks to inflation and the global growth outlook. Investors are also watching this week’s central bank decisions for signals on the path of interest rates. The GIFT Nifty was trading at 22,587, down 21 points or 0.09%, pointing to a mildly negative opening for Indian equities.

THE BIG STORY
Brent crude holding above $110 a barrel, and the US Federal Reserve's policy decision will shape the rupee and government bonds this week.  A hawkish Fed outlook could lift US yields and the dollar, while elevated oil prices will keep pressure on India's external balances and the rupee, which closed at 94.94 per dollar. The 10-year government bond yield rose 9 basis points last week to 7.474%, marking its 10th consecutive weekly increase. 

Persistent oil-price pressures, tight liquidity and expectations of further RBI rate hikes could push the yield towards 7.50%, with markets increasingly pricing in a 50-basis-point hike in December.

Russian forces struck two cargo vessels bound for Ukrainian Black Sea ports and logistics facilities in Kharkiv, according to Moscow's Defence Ministry.  Meanwhile, Volodymyr Zelenskiy said US warnings of imminent Russian ballistic missile strikes had been restored, while disagreements over territorial concessions and military restrictions remain key obstacles to peace talks.

Data Spotlight
US year-ahead inflation expectations were confirmed at 4.7% in October, the highest since May, up from 4.6% in September.  Five-year expectations rose to 3.5% from 3.4%, signalling growing concerns over persistent inflation. US consumer sentiment was revised up to 48.0 in late October from the preliminary 46.3 but remained at a five-month low. Buying conditions for durable goods plunged 18% amid high interest rates and affordability concerns, while sentiment remained 10% below its year-ago level.

US business activity remained strong, with the Composite PMI easing to 57.6 in October from 58.4, a two-month low but still signalling robust expansion.  New orders grew at their fastest pace in more than four-and-a-half years, while employment rose at its quickest pace since June 2022.  However, input costs and selling-price inflation accelerated, with selling prices rising at their fastest pace since August 2022.

Business activity growth in the Eurozone slowed, with the Composite PMI falling to 51.9 in October from 53.1, below expectations of 52.7. Growth weakened across manufacturing and services, while new-order growth slowed and hiring nearly stagnated.  Higher energy prices pushed up input costs and selling prices, while business confidence fell to a five-month low.

Takeaway: US activity remains resilient, but elevated inflation expectations and rising business costs could keep the Fed cautious on easing. In the eurozone, slower growth, weaker orders and near-stagnant hiring point to softer momentum, while higher energy costs continue to add inflation pressure.

WHAT HAPPENED OVERNIGHT

US Stocks End Lower as AI Spending Concerns Persist; Investors Brace for Fed, Earnings

• US stocks fell on Friday, with the Dow down 1.23% to 52,215.16, the S&P 500 losing 0.52% to 7,623.68 and the Nasdaq slipping 0.21% to 25,955.34. 
• For the week, the S&P 500 fell 0.5%, and the Nasdaq lost 0.7%, while the Dow gained 0.4% for a third consecutive weekly advance.
• Concerns over the cost and profitability of artificial intelligence investments continued to weigh on sentiment, despite a 0.35% gain in the S&P 500 technology sector. 
• Investors will scrutinise results and capital-spending forecasts from Alphabet, Microsoft and Amazon next week, when about a third of S&P 500 companies report earnings.
• Telecom stocks slumped after a report that SpaceX was seeking thousands of cell sites for a potential fourth US wireless carrier. 
• The energy sector rose 2.5% to a record high as Brent crude climbed to its highest since late April amid concerns over Houthi attacks and potential supply disruptions.
• SLB gained 7% after beating quarterly profit estimates, while American Express fell 3.7%, weighing on the Dow.
• The Fed is expected to hold rates steady, with markets looking for signals on a possible December hike. US consumer sentiment remained near a record low in October as higher prices linked to the Iran conflict weighed on household confidence.

US Dollar Holds Near Three-Week Low as Oil Risks and AI Concerns Weigh

• The dollar index was little changed at around 101.6 on Friday, near a three-week low and down nearly 0.2% for the week, as investors remained cautious amid rising oil prices, geopolitical risks and uncertainty ahead of the US midterm elections.
• Concerns over heavy artificial intelligence spending continued to weigh on sentiment, while markets awaited next week’s Federal Reserve policy decision.
• Markets priced in a 91% probability of the Fed holding rates steady next week, while assigning around a 76% chance of a 25-basis-point hike in December.
• The yen strengthened against the dollar on safe-haven demand, while the euro edged lower as political uncertainty in France and continued selling pressure in French government bonds weighed on the currency.

US Treasury Yields Rebound to 5% as Oil Risks Offset Previous Session’s Rally

• The US 10-year Treasury yield rose to 5% on Friday after falling 17 basis points in the previous session, its biggest single-day decline in more than a year.
• Caution persisted amid rising oil prices and concerns over a potential escalation of hostilities in West Asia, with the US midterm elections less than two weeks away. Heavy AI-related spending concerns also weighed on sentiment.
• Markets priced in a 91% probability of the Federal Reserve holding rates steady next week, while the odds of a 25-basis-point hike in December stood at around 76%.

Oil Jumps More Than $3 to Six-Month Highs on Houthi Attacks, Supply Risks

• Brent crude rose 3.14% to settle at $116.72 a barrel, its highest since April 29, while WTI gained 3.8% to $103.27. Brent rose 6% for the week, while WTI gained 2.3%.
• Houthi attacks across Saudi Arabia, including on energy infrastructure, heightened concerns over supply disruptions. 
• An oil spill was also reported off the UAE coast, while October marked the worst month for attacks on commercial shipping in the Strait of Hormuz and nearby waterways.
• The US authorised an emergency exchange of up to 400,000 barrels of crude from its Strategic Petroleum Reserve to address a supply disruption at Phillips 66’s Lake Charles refinery. Germany also moved to sell oil products from strategic reserves.
• Ship-tracking data showed a tanker carrying Russian diesel heading to New York, the first such shipment since Washington and Moscow reached an export agreement. 
• Libya also reported reduced production after a pipeline valve serving the Hamada and Tahara oilfields was shut.

Day’s Ledger*

Economic Data

• US Chicago Fed September National Activity Index
• German October Business Expectations

Policy

• Eurozone ECB's Elderson Speaks

Corporate Actions

• Earnings: Ather Energy, Dhanlaxmi Bank, Indian Overseas Bank, ITC Hotels, Bank of Maharashtra, REC, Tata Consumer Products.

Tickers to Watch

• INFOSYS revenue rose 2.1% sequentially to 492.44 billion rupees in the July-September quarter, while net profit increased 0.7% to 78.23 billion rupees. The company cut FY27 constant-currency revenue growth guidance to 1–2% from 1.5–3%.
• BHARAT PETROLEUM CORPORATION reports net profit of 49.93 billion rupees in the July-September quarter, against a loss of 39.62 billion rupees in the previous quarter. EBITDA turned positive at 89.71 billion rupees, beating estimates.
• KOTAK MAHINDRA BANK net profit rose 29.5% y/y to 42.12 billion rupees in the July-September quarter, while net interest income grew 15.7% to 84.59 billion rupees. Gross NPA improved to 1.04% from 1.18% in June.
• COFORGE revenue rose 11.6% sequentially to 61.71 billion rupees in the July-September quarter, while net profit increased 13.4% to 5.88 billion rupees. Dollar revenue grew 10.1% to 652.2 million dollars but missed estimates.
• TORRENT PHARMACEUTICALS revenue rose 50.8% y/y to 49.79 billion rupees in the July-September quarter, while net profit fell 9.6% to 5.34 billion rupees. EBITDA increased 54.1% to 15.83 billion rupees, with margin at 32.33%.
• APOLLO MICRO SYSTEMS net profit rose 55.6% y/y to 484 million rupees in the July-September quarter, while revenue grew 72.2% to 3.88 billion rupees. EBITDA jumped 87.6% to 1.11 billion rupees, with margin expanding to 28.6%.
• DR REDDY'S LABORATORIES revenue fell 1.5% y/y to 86.71 billion rupees in the July-September quarter, while net profit declined 36% to 9.13 billion rupees. EBITDA fell 24.2% to 17.83 billion rupees, with margin narrowing to 20.6%.
• IDFC FIRST BANK net profit rose to 10.45 billion rupees in the July-September quarter from 3.52 billion rupees a year ago, while net interest income grew 21% to 61.85 billion rupees. Gross NPA eased to 1.32% from 1.51% in June.
• AU SMALL FINANCE BANK net profit rose 53% y/y to 8.58 billion rupees in the July-September quarter, while net interest income grew 31.5% to 28.20 billion rupees. Gross NPA improved to 1.99%, but net NPA rose to 0.81%.
• BANK OF INDIA net profit rose 25.3% y/y to 32.02 billion rupees in the July-September quarter, while net interest income grew 18.5% to 70.07 billion rupees. Gross NPA eased to 1.6% from 1.81% in June.
• RELIANCE INDUSTRIES subsidiary Jio Platforms' IPO attracted bids worth over 7.4 trillion rupees, including 2.5 trillion rupees from anchor investors. Share allotment is scheduled for Oct 26, with listing set for Oct 28.
• ORACLE FINANCIAL SERVICES SOFTWARE net profit fell 50.4% sequentially to 7.02 billion rupees in the July-September quarter, while revenue declined 39% to 19.07 billion rupees.
• SBI FUNDS MANAGEMENT revenue rose 3.4% sequentially to 11.93 billion rupees in the July-September quarter, while net profit fell 20.3% to 7.01 billion rupees. EBITDA margin narrowed to 77% from 80.1%.
• LUPIN US FDA concludes inspection of its Goa manufacturing facility with one Form 483 observation. The company says it will address the observation and respond within the stipulated timeframe.
• JANA SMALL FINANCE BANK net profit more than doubled y/y to 1.70 billion rupees in the July-September quarter, while net interest income rose 34.7% to 8.19 billion rupees. Gross NPA improved to 2.34%, but net NPA rose to 1.17%.

Must Read

• IRDAI’s Consultation Paper Has the Right Intent but Half the Cure
• AI FOMO Is Creating A Cyber Blindspot
• Rising Yields Signal Dislocation, Not the Market Doing the RBI’s Work
• An India-Based Engineer, Seychelles and a Global Patent
• Satellite lights, Google Trends can help estimate state growth: RBI report
• Govt extends deadlines for cos to file annual financial statements, returns
• India private sector growth hits four-month high in Oct: HSBC flash PMI
• Upper-layer NBFCs must list on stock exchanges: RBI Guv Sanjay Malhotra
• India stays net finished steel importer in April-September, government data shows
• India central bank to impose new leverage rules for banks from April 1, 2027
• Freight discounts prompt India's HPCL to buy oil on delivered basis

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day