Risk-On Mood Lifts Asia, Though Fed and Oil Risks Linger

GLOBAL MOOD: Risk On
Drivers: Ukraine-Russia talks stall, hawkish Fed minutes, Iran conflict fears

Asian markets opened firmly higher, led by a record surge in South Korea’s benchmark, as investors took cues from Wall Street’s tech-led rebound. Seoul’s rally was powered by gains in chip heavyweights, reflecting renewed confidence in artificial intelligence-linked demand and easing concerns after recent volatility.

The broader tone is cautiously risk-on. Strong US manufacturing and industrial output data reinforced the view of resilient growth, supporting equities. However, a hawkish tilt in Federal Reserve minutes, firmer Treasury yields and a stronger dollar tempered expectations for near-term rate cuts.

At the same time, a sharp jump in oil prices on Iran tensions and stalled Ukraine–Russia talks added a geopolitical risk premium, potentially capping further upside.

TODAY’S WATCHLIST
 - US Balance of Trade
 - US Weekly Initial Jobless Claims
 - Fed Bostic Speech
 - Fed Kashkari Speech

THE BIG STORY
Ukraine–Russia peace talks in Geneva concluded after two days without a breakthrough, with President Zelenskiy expressing dissatisfaction while Washington described "meaningful progress." Delegations from both sides acknowledged the discussions were difficult, agreeing only to meet again without setting a date. Ukraine continues to face sustained pressure from President Trump to accept a deal that could involve painful concessions, even as Russian forces maintain battlefield advances and target its power grid.

Minutes from the Federal Reserve's January 2026 meeting revealed a central bank deeply divided over the path ahead. Policymakers were near-unanimous in holding the federal funds rate steady at 3.5%–3.75%, but sharply split on next steps, several members left the door open to rate hikes if inflation stays elevated, others favoured further cuts if disinflation continues as expected, and the full table grappled with the uncertain economic implications of artificial intelligence. A vast majority judged that downside risks to employment had moderated, while the risk of persistent inflation remained front of mind. The divisions add complexity for Kevin Warsh; Trump's pick to succeed Jerome Powell in May,  who will need to build consensus for the rate cuts he and the President have publicly backed.

Data Spotlight
US manufacturing output rose 0.6% in January 2026, the strongest gain since February 2025 and ahead of the 0.4% market forecast, with durable manufacturing leading at 0.8% on broad-based gains across industries including motor vehicles and parts, which posted its first increase since August 2025. Nondurable manufacturing added 0.4%, with gains in paper, printing, chemicals, and plastics offsetting declines elsewhere. Overall industrial production climbed 0.7% month-on-month, also the strongest reading since February 2025 and well above consensus.

Separately, US crude oil inventories fell by 0.61 million barrels in the week ended February 13th, only partially unwinding the prior week's sharp 13.4-million-barrel surge, the largest single-week build since January 2023.

Takeaway:
January's industrial data paints a picture of resilient US economic activity, with output gains broad enough to challenge the narrative of a slowing economy. The modest crude inventory drawdown, however, remains small relative to the prior week's outsized build, keeping near-term supply dynamics in focus for energy markets.

WHAT HAPPENED OVERNIGHT

• US stocks steady as AI optimism and rate-cut expectations persist
  • The Nasdaq 100 jumped 0.8%, the S&P 500 added 0.5%, and the Dow edged up 0.2%, as markets steadied after recent AI-driven volatility.
  • Rate traders continued to price in multiple Fed cuts this year, though minutes from the last FOMC meeting cautioned that disinflation may be slow and uneven.
  • Nvidia rose 1.6% after Meta announced plans to use millions of Nvidia chips in its new data centre, boosting the stock amid doubts about AI infrastructure monetisation.
  • Amazon rose 1.8% and Micron surged 5.3% after major asset managers disclosed increased positions in both companies.
  • Palo Alto Networks tumbled 6.8% after issuing earnings forecasts that came in below market expectations, bucking the broader tech rally.
    
    
• US Treasury yields rise as robust data; Fed minutes reduce rate-cut expectations
  • The 10-year Treasury yield rose 3.3 bps to 4.087%, pulling back from the over-two-month low of 4.04% touched on February 16th.
  • The 2-year yield, a key barometer of Fed rate expectations, gained 3.1 bps to 3.468%, reflecting reduced confidence in near-term policy easing.
  • Solid durable goods and housing start data reinforced expectations that the Fed will keep rates on hold for longer, pushing yields higher.
  • A 20-year bond auction drew lackluster demand, adding upward pressure on yields at the longer end of the curve.
  • Fed minutes struck a notably hawkish tone, many FOMC members indicated that disinflation in consumer prices may take longer than previously anticipated, warranting patience before any restart of rate cuts.
    
    
• US Dollar firms above 97.5 on strong macro data; euro slips on Lagarde exit reports
  • The US dollar index rose 0.61% to 97.73, with the euro falling 0.58% to $1.1784.
  • Gains were driven by upbeat durable goods and housing starts data, reinforcing the dollar's recovery narrative.
  • The index has now extended its rebound since touching a near four-year low of 96 in late February, as global markets reassess their aversion to the greenback.
  • The euro came under additional pressure following reports that ECB President Christine Lagarde may leave her post early, adding uncertainty to the eurozone policy outlook.
  • Markets are also trimming expectations for Fed rate cuts this year, lending further support to the dollar.
    
    
• Crude oil prices surged 4% on Iran conflict fears and stalled Ukraine peace talks
  • Brent crude prices settled up 4.35%, at $70.35/barrel; WTI rose 4.59%, to $65.19/barrel.
  • Both contracts posted their highest settlements since January 30, snapping back sharply from two-week lows hit in the prior session.
  • Traders priced in potential supply disruptions as concerns mounted over a possible conflict between the US and Iran.
  • Separately, Ukraine–Russia peace talks in Geneva concluded without a breakthrough, adding to geopolitical risk premium in energy markets.

Day’s Ledger

Economic Data

• US Balance of Trade 
• US Initial Jobless Claims 
• Euro Current Account

Corporate Actions

• Oct-Dec Earnings: ABB India, CIE Automotive
• Alka India board to consider fund raising 
• Arihant Foundations board to consider fund raising 

Policy Events

• ECB Cipollone Speech
• ECB Guindos Speech 
• Fed Bostic Speech 
• Fed Kashkari Speech

Tickers to Watch

• L&T, Nvidia to set up gigawatt-scale AI data centre infrastructure in India
• HUL to invest ₹2,000 crore to scale manufacturing for premium categories
• Higher new well gas output seen as key positive for ONGC despite weak Q3
• SAIL moves court after CCI flags suspected cartelisation in steel industry
• Zydus Life gets FDA nod for children’s lung treatment drug bosentan
• BL Kashyap secures ₹300 crore order from CRC Greens for Greater Noida housing project

Must Read

• Optimism for AI in India, anxiety in West, says Rishi Sunak at AI Summit
• India's crude oil import bill drops 19% in January on softer global prices
• Ind-Ra projects states' fiscal deficit to rise to 3% of GDP in FY27
• DoT orders Navi Mumbai Airport to allow telecom firms to establish networks
• Risk-based deposit rules may dent bank profits by up to ₹12k cr: ICRA
• Relaxed ECB framework by RBI expected to boost offshore borrowings

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

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