Risk-Off Mood Grips Asia Amid US Tech Sell-Off and Iran Tensions

GLOBAL MOOD: Risk off
Drivers: Geopolitical Tension, US-Iran Developments, AI Concerns

Asian markets opened mostly lower on Wednesday, setting a risk-off tone as a sharp sell-off in US technology stocks spilled over from Wall Street and geopolitical tensions resurfaced in West Asia. 

Investor caution deepened after the US military shot down an Iranian drone near a US aircraft carrier, reviving concerns over escalation just as Washington and Tehran weigh renewed nuclear talks. Safe-haven demand strengthened, pushing gold higher for a second day, while oil prices jumped on fresh supply-risk fears.

Weakness in global tech sentiment, rising US Treasury yields near five-month highs, and uncertainty surrounding the Federal Reserve leadership transition further weighed on risk appetite. While improving US consumer optimism offered a modest counterbalance, markets remained defensive ahead of key PMI data and the start of the RBI’s policy meeting.

TODAY’S WATCHLIST

• RBI MPC’s 3-day Monetary Policy Meeting Begins
• India PMI Data
• US PMI Data
• Oct-Dec Earnings: Bajaj Finserv, NHPC, Tata Power

THE BIG STORY
Geopolitical tensions in the West Asia flared after the US military shot down an Iranian drone that approached the USS Abraham Lincoln aircraft carrier in the Arabian Sea, injecting fresh risk into markets already sensitive to US-Iran developments. The Pentagon said the Shahed-139 drone was intercepted by a U.S. F-35 fighter jet after flying toward the carrier with “unclear intent,” framing the action as self-defence to protect US personnel and assets. The incident occurred as Washington and Tehran were exploring the possibility of renewed nuclear talks, even as President Donald Trump warned that “bad things” could happen if diplomacy fails while US naval forces move closer to Iran. Oil prices reacted immediately, rising more than $1 a barrel on renewed supply-risk concerns.

Adding to policy uncertainty in Washington, Democratic members of the Senate Banking Committee urged a delay in confirmation proceedings for Kevin Warsh, President Trump’s nominee to lead the Federal Reserve. Lawmakers cited concerns over political pressure on the central bank, pointing to ongoing Justice Department probes involving senior Fed officials. 

Data Spotlight
US crude oil inventories plunged by 11.1 million barrels in the week ended January 30, marking the sharpest draw since August 2023 and extending the prior week’s decline. The move sharply contrasted with expectations for a modest build, underscoring tight near-term supply dynamics. Separately, US consumer sentiment showed signs of improvement, with the RealClearMarkets/TIPP Economic Optimism Index rising to 48.8 in February, its highest level since August and above forecasts. Gains were broad-based, led by a stronger personal financial outlook and a modest improvement in confidence around federal economic policies, suggesting households are becoming slightly more optimistic about the economic trajectory despite lingering uncertainty.

Takeaway:
The outsized crude reinforces near-term supply tightness and supports oil prices. Improving consumer optimism points to stabilising sentiment, even as it remains below the expansionary threshold.

WHAT HAPPENED OVERNIGHT

• US stocks slide as AI competition fears hit software names
  • US stocks closed sharply lower, led by technology stocks, as investors grew uneasy about intensifying AI-driven competition ahead of earnings from Alphabet and Amazon.
  • AI heavyweights retreated, with Nvidia and Microsoft each down nearly 3%, while Alphabet fell 1.2% ahead of its results and Amazon slipped 1.8% before its Thursday report.
  • Software stocks bore the brunt of selling after concerns that AI tools could pressure margins and disrupt business models.
  • Salesforce, Datadog and Adobe dropped around 7%, while Synopsys and Atlassian slid about 8%, and Intuit plunged 11%.
  • Palantir bucked the trend, jumping nearly 7% after reporting strong quarterly results late on Monday.

• US Treasury yields test five-month highs
  • The benchmark US 10-year Treasury yields rose above 4.29%, moving closer to the five-month high of 4.3% seen on January 20.
  • Treasuries softened as investors rotated out of safe havens, with renewed strength in precious metals after exchanges raised margin requirements following last week’s selloff.
  • Markets continue to reassess the growth and policy outlook under incoming Fed Chair Kevin Warsh.
  • Expectations of a steeper yield curve persist as investors price a less accommodative policy stance over the year ahead.

• US Dollar steadies after sharp rebound
  • The US dollar index hovered around 97.6, consolidating after a 1.2% surge over the past two sessions.
  • Recent gains driven by Trump’s nomination of Kevin Warsh as Fed chair and a strong ISM Manufacturing PMI, which pushed back expectations of rapid rate cuts.
  • Focus turns to US labour market signals, though JOLTS and payrolls data face delays due to the partial government shutdown.
  • House Republicans are set to vote on a government funding package, reducing near-term shutdown uncertainty.

• Crude oil prices jumps on Strait of Hormuz tensions
  • Brent crude prices rose 2% to $67.33/barrel; WTI closed at $63.21/barrel after the US shot down an Iranian drone.
  • Armed Iranian boats approached a US-flagged vessel in the Strait of Hormuz.
  • Incident raised fears of disruption to US-Iran de-escalation talks.
  • Geopolitical risk premium returned to crude markets.

Day’s Ledger

Economic Data

• India PMI Data
• Eurozone PMI Data
• Eurozone Inflation Rate
• US PMI Data

Corporate Actions

• Oct-Dec Earnings: Bajaj Finserv, Bajaj Holdings, Cummins India, NHPC, Tata Power, Trent, Tube Investment 

Policy Events

• ECB Monetary Policy Meeting Begins
• RBI MPC’s 3-day Monetary Policy Meeting Begins

Tickers to Watch

• Infosys to help US bank Citizens set up AI innovation hub in India
• Gold financier Muthoot Finance raises $600 million via overseas bond issue
• Paytm receives RBI compounding order, company to pay ₹1.87 million
• Bajaj Finance Q3FY26 results: Net profit declines 6% to ₹40.66 billion
• Adani Ports Q3 results: Profit grows 21% to ₹30.53 billion on higher revenue
• Nazara's net profit slides to ₹98.4 million, revenue from ops declines 24%
• Aditya Birla Capital Q3 results: Net profit rises 33.3% to ₹9.66 million
• Mankind Pharma Q3 PAT up 9.5%, revenue rises 11.5% on chronic drugs sales
• Adani Enterprises Q3FY26 profit jumps 90x to ₹56.27 million on one-time gain 

Must Read

• Trade deal details being finalised; agri, dairy sectors protected: Goyal
• India–US Trade Deal, the EU Trigger and the Limits of Celebration
• Trump’s Trade Tweet Hands India Tariff Relief, But at a High Strategic Cost
• India-US trade deal could boost FY27 growth by 20-40 basis points
• Falling Russian crude oil imports drag down pvt ports' growth to 2% in FY26
• Friendship, Peace and the Careful Politics of Modi–Trump Signalling
• US trade deal could push India's growth above forecast: CEA Nageswaran
• Rupee sees best day in 6-years; analysts see more gains on US trade deal
• Scrapping revenue deficit grants may strain fragile states: Economists
  
  

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See you tomorrow with another edition of The Morning Edge.

Have a great trading day.

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