Rising Geopolitical Tensions Lift Oil Prices, Keep Market Mood Cautious

GLOBAL MOOD: Cautiously Risk-on
Drivers:  Geopolitics tensions, EU sanctions, Gaza unrest, Fed Rate-cut expectations

Investors are cautious amid escalating geopolitical tensions and mixed economic signals. The Polish airspace incident and continued unrest in Gaza have added a layer of uncertainty to global markets, while economic data from the US suggests moderating inflation and a softer labor market.

TODAY’S WATCHLIST
 - US Aug CPI
 - Infosys share buy back
 - ECB Interest Rate Decision

THE BIG STORY
Poland intercepted suspected Russian drones in its airspace on Wednesday, marking the first known instance of a NATO member firing during Russia’s war in Ukraine. The operation involved Polish F-16 fighter jets, Dutch F-35s, Italian AWACS surveillance planes, and NATO mid-air refuelling aircraft, which engaged the drones from Tuesday evening into Wednesday morning.

Polish Prime Minister Donald Tusk described the incident as “the closest we have been to open conflict since World War Two,” while emphasising that there is currently “no reason to believe we’re on the brink of war.”

Meanwhile, European Commission President Ursula von der Leyen announced plans to propose sanctions and a partial trade suspension on Israel over the ongoing conflict in Gaza. She also stated that the Commission will establish a Palestine donor group next month, partly focused on Gaza’s reconstruction, highlighting the humanitarian toll of the crisis on children and families. The 27-member EU remains divided over its approach to the Israel-Palestine situation, leaving the approval of sanctions uncertain. 

Data Spotlight 
The US producer prices unexpectedly fell in August, driven by a compression in trade services margins and only a mild increase in the cost of goods, suggesting domestic firms may be absorbing some import tariffs. The Producer Price Index for final demand declined 0.1% last month, following a downwardly revised 0.7% rise in July, according to the Labor Department. Economists had expected a 0.3% increase after July’s previously reported 0.9% surge. Services prices fell 0.2%, with trade services margins down 1.7%, reflecting a 3.9% drop in machinery and vehicle wholesaling margins.

Takeaway: US PPI decline signals easing inflationary pressures and suggests the Fed could have room to cut interest rates, especially as domestic demand shows signs of softening.

WHAT HAPPENED OVERNIGHT

• US tech stocks lead S&P 500 and Nasdaq to record highs
  
  • US stocks hit record-high closes on Wednesday led by Tech stocks.
  • Oracle surged 36%, marking its largest one-day gain since 1992.
  • Nvidia rose 3.8% and AMD gained 2.4% on AI-driven demand.
  • Apple fell 3.2% after a lukewarm iPhone 17 launch.
  • Cooler-than-expected inflation data and soft labor market signals boosted bets on a potential 50 basis points Fed rate cut next week.

• US treasury yields ease on softer inflation data
  
  • The 10-year US Treasury yield fell to a five-month low of 4.04% on Wednesday.
  • Softer inflation and strong demand at the recent auction supported the decline.
  • Markets now expect the Fed to resume rate cuts next week with a likely 25 basis point reduction.
  • Softer PPI data and weak August jobs figures prompted some market participants to price in a possible 50 basis  point cut.
    
    
    
• US dollar mixed as producer prices fall
  
  • The US dollar was mixed on Wednesday, showing no clear direction.
  • Producer prices unexpectedly fell in August, supporting expectations of Fed rate cuts later this month.
  • The dollar index slipped slightly to 97.74.
    
    

• Crude oil prices rises on supply concerns amid geopolitical tensions
  
  • Brent crude oil prices climbed over $1 a barrel on Wednesday amid concerns of potential supply disruptions after Poland downed drones in its airspace.
  • The US push for new sanctions on buyers of Russian oil added to supply worries.
  • Gains were partially capped by a report showing rising US crude inventories.
  • Brent crude settled up 1.7%, at $67.49 per barrel while US West Texas Intermediate crude rose 1.7%, to $63.67 per barrel.

Day’s Ledger
Economic Data

• Japan Aug PPI
• US Aug Inflation Rate
• US Aug CPI
• US Initial Jobless Claim
• OPEC Monthly Report

Corporate Actions

• Gujarat Hy-Spin to consider fund raising
• Veefin Solutions to consider fund raising

Policy Events

• ECB Donnery Speech
• ECB Interest Rate Decision

TICKERS TO WATCH

• RBI clears YES BANK board rejig; Sumitomo Mitsui to nominate 2 directors, SBI 1
• Focus Energy and others file ₹5.29 billion claim against GAIL over gas supply dispute
• JINDAL STAINLESS delivers stainless steel for Bengaluru Metro expansion
• HAL signs technology transfer pact with ISRO, Indian National Space and NewSpace India
• TATA MOTORS and subsidiaries acquire 26% each in step-down units TP Paarthav and TP Marigold
• MUTHOOT FINANCE subsidiary allots ₹2 billion worth of shares to parent company
• RAIL VIKAS emerges lowest bidder for ₹1.69 billion West Central Railway project
• EICHER MOTORS’ unit VE Commercial to reduce vehicle prices by up to ₹600,000
• JUPITER WAGONS secures ₹1.13 billion order with letter of acceptance

MUST READ:

• When Happy Couples Hurt the Bottom Line
  
• A New Approach in Trump’s War On Powell
  
• Condescension Toward Gen Z is an Unmanaged Risk — Ask Nepal
  
• NBFCs see minimal relief in borrowing costs despite aggressive rate cuts
• India's crude oil supply from Russia steady despite Western sanctions
• SEBI allows co-investment window inside alternative investment funds
• India's reforms give cushion against global uncertainty: CEA Nageswaran
• Tariff Case Could Give Trump Massive New Fiscal Powers
• Global Trade Is Winning Trump's War On It
  
• France's Manufactured Debt and Government Drama

See you tomorrow with another edition of The Morning Edge.

Have a great trading day.

Israel’s Doha Strike: Hard Power, Safe Havens, and the Future of Warfare 

Lt Gen Syed Ata Hasnain (Retd) argues, Israel’s strike on Hamas leadership in Doha was more than a tactical operation. It shattered the sanctity of safe havens, undermined mediation efforts, and exposed the fragility of international norms.