Global Mood: Cautiously Risk-off
Drivers: US-Iran tensions, oil above $100, Fed hike expectations

Asian stocks opened lower on Wednesday as higher oil prices, rising Treasury yields and escalating US-Iran tensions kept risk appetite under pressure. The S&P/ASX 200 fell 1.38%, Nikkei 225 declined 0.71% and KOSPI dropped 0.50%.

Brent traded near $102 a barrel after settling above $100 for the first time since July, while WTI was around $97. SGX Nifty was at 23,220, up 17.5 points, or 0.08%, pointing to a largely flat opening for Indian equities.

The oil surge is reviving inflation concerns and could limit expectations for monetary easing.

THE BIG STORY
West Asia's energy shock is spreading beyond the Strait of Hormuz. Iran-aligned Houthis stepped up attacks on southern Saudi Arabia and expanded their presence along Yemen's Red Sea coast, raising concerns over the Bab el-Mandeb as an alternative oil-shipping route.

Saudi Arabia has also faced disruption to its East-West Pipeline, while Hormuz shipping remains severely constrained. Brent briefly rose above $108, and US diesel prices reached a record near $6.27 a gallon.

The key market risk is now simultaneous disruption across Hormuz and Bab el-Mandeb, which could keep crude, fuel and freight costs elevated.

Regional tensions are also widening, with Saudi Arabia seeking greater US and regional support and continued Israel-Hezbollah tensions adding to uncertainty.

Russia-Ukraine attacks on energy infrastructure are adding another layer to global supply risks.

Data Spotlight
US crude inventories: surged to 7.14 million barrels last week, reversing a 300,000-barrel draw. Production rose to a record 13.947 million bpd.

Japan exports rose 19.3% on year in August, beating expectations, helped by a 31.5% rise in electrical machinery exports amid strong AI-related semiconductor demand.

US Empire State index fell to 7.6 in September from 20.6, below expectations of 14.75. Prices paid rose to 63.1.

Takeaway: US inventory and production gains offer some supply relief, but geopolitical disruptions remain the dominant risk. Japan's export strength contrasts with softer US manufacturing activity.

WHAT HAPPENED OVERNIGHT

US stocks extend losses as yields, oil weigh

• The Dow fell 0.63%, S&P 500 lost 0.45%, and Nasdaq dropped 0.78%, extending Monday’s losses as risk-off sentiment persisted.
• Markets expect the Fed’s upcoming hike may not be “one-and-done”, with oil-driven inflation raising the prospect of further tightening.
• The Philadelphia Semiconductor Index gained 0.4%, remaining under pressure from AI concerns and higher borrowing costs.
• Energy rose 2.3%, the only S&P 500 sector to gain, while consumer discretionary led losses.

US Treasury yields hit 5% as oil, Fed hike expectations weigh

• The 10-year Treasury yield breached 5%, it’s highest since 2007, while September Fed hike odds rose to 94.5% from 33.1% a month ago.
• The 10-year yield reached 5.04% before easing to 5.01%, as oil above $100 clouded the inflation outlook.
• Investors are focused on the Fed’s updated economic projections and rate-path guidance.

US Dollar rises for fifth session above 99.6

• The dollar index extended gains as markets priced a 94.5% chance of a 25bps Fed hike.
• The move would mark the first Fed rate increase since 2023.
• Diverging Fed, BoE and BoJ policy expectations also supported the greenback.
• AI safety warnings from major tech CEOs added pressure on equities and boosted safe-haven dollar demand.

Oil around $110 keeps inflation risks elevated

• Persistent oil gains are strengthening expectations of further Fed tightening beyond this week’s expected hike.
• Brent approached $110/bbl after Libya halted operations at three oil fields.
• Physical oil prices surge above $130 amid supply squeezes
• Physical crude prices remain above futures, highlighting the acute near-term supply squeeze.
• North Sea Forties crude jumped to $136.75/bbl as buyers sought alternatives to disrupted West Asian supplies.
• Saudi Arabia cancelled late-September European cargoes after its East-West Pipeline disruption halted Yanbu loadings.

Day’s Ledger*

Economic Data 

• UK August CPI Data
• Eurozone July Industrial Production
• US August Retail Sales
• US Crude Oil Inventories
  

Corporate Actions 

• Earnings: Tempsens Instruments (India), Supreme Engineering, CMI Limited
• Equitas Small Finance Bank to consider fund raising

Policy

• US FOMC Policy Decision
• ECB's Elderson Speaks
• German Buba President Nagel Speaks
• ECB President Lagarde Speaks
  

Tickers to Watch

• VEDANTA Ltd’s Committee of Directors to meet September 18 to consider NCD issuance via private placement.
• TATA COMMUNICATIONS subsidiary TC Canada and Canada Revenue Agency reach agreement in principle to settle tax claims on international telecom services income.
• BHARAT FORGE partners with RTX's Pratt & Whitney Canada to evaluate integrating advanced turboprop engines into DRDO's HALE UAV programme.
• BHEL signs a JV agreement with Titagarh Rail Systems for comprehensive maintenance of Vande Bharat sleeper trainsets over 35 years.
• NBCC (INDIA) receives work orders worth ~144.98 million rupees (excl. GST) from NEEPCO, SAIL, Enforcement Directorate and DVC.
• AUROBINDO PHARMA informs that USFDA concludes inspection of Unit-II, an API facility of subsidiary Apitoria Pharma, in Telangana.

Must Read

• RBI Must Begin Rate Hike Cycle as Inflation Accelerates
• Tata Sons Has a Cargill Option but RBI Has Changed the Rules
• RBI's Approach to Restructuring Revolving Credit and What It Means for NBFC Balance Sheets
• August CPI Turns October RBI Meeting Into a Live Rate-Hike Call
• AI Will Kill Humanity Only if We Allow It To
• India's Next Growth Story May Have Already Begun

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day