Global Mood: Cautiously Risk-on
Drivers: US-Iran tensions, Saudi pipeline restart

Asian markets leaned risk-on Wednesday, supported by easing crude prices and lower bond yields as investors looked for signs of de-escalation in the US-Iran conflict. South Korea’s Kospi rose 1.79%, Kosdaq gained 0.84% and Australia’s ASX 200 advanced 0.34%, while Japan was closed. SGX/GIFT Nifty was down 57.5 points, or 0.25%, at 23,342.5, pointing to a mildly negative opening for Indian equities.

US equity futures were little changed after oil prices and Treasury yields eased. Tehran said it could reopen the Strait of Hormuz within seven days if US military pressure and the blockade on Iranian ports were eased, while Saudi Arabia restarted its East-West Pipeline and increased some Hormuz shipments. These developments helped pull crude towards $100 a barrel. However, Houthi advances in Yemen continue to threaten Saudi oil exports through the Red Sea.

THE BIG STORY
President Donald Trump threatened further military action against Iran while diplomatic efforts continued at the UN.  Tehran said it could reopen the Strait of Hormuz within seven days if US military pressure and the blockade on Iranian ports were eased.

Saudi Arabia restarted its East-West Pipeline and could resume exports from Yanbu at reduced volumes, easing pressure from the disruption to Hormuz. Saudi shipments through Hormuz have also increased, helping pull crude prices back towards $100 a barrel. While the pipeline restart and higher Gulf flows have eased immediate oil-supply pressure, Houthi advances in Yemen continue to threaten Red Sea shipping and keep the broader energy outlook fragile.

Washington has so far resisted Saudi requests for direct military support against the Houthis.

Richmond Fed President Tom Barkin told US economic conditions were firming, with consumer spending and activity outside AI remaining strong. He said inflation was broadening beyond energy and tariffs, keeping the prospect of further rate hikes open.

Data Spotlight
US crude inventories rose by 1.79 million barrels in the week ended September 18, according to API data, following a 7.14-million-barrel increase in the previous week. Commercial inventories have still declined by 39 million barrels over the past 23 weeks but remain nearly 12 million barrels higher year-to-date. Cushing crude inventories increased by 2.08 million barrels, while another 400,000 barrels were released from the SPR, taking total SPR holdings to 284.6 million barrels. US crude production stood at 13.944 million bpd, up 462,000 bpd from a year earlier.

The Richmond Fed's manufacturing index slipped into contraction in September as shipments and new orders weakened, although employment and forward expectations remained positive.

Takeaway: US crude stocks are building, and Cushing inventories are higher, pointing to some near-term easing in physical oil-market tightness, although falling gasoline and distillate stocks suggest refined-product demand remains firm.

WHAT HAPPENED OVERNIGHT

US stocks mixed as chip rally drives Nasdaq to second record close; Muse AI fears weigh on software

• The Nasdaq gained 0.45% to a second straight record close while the S&P 500 ended flat, less than 0.5% below its August 13 record, and the Dow fell 0.36%.
• JPMorgan and Wells Fargo both lost over 3%, dragging financials down 1.68% to lead sector losses.
• Trump warned at UNGA he could "annihilate the Islamic Republic" if no deal is reached, keeping oil near $100 and the 10-year yield at 4.94%.
• Investors await Thursday's US-China summit, with speculation around a trade truce extension and potential AI regulation framework.
• Boston Fed's Collins backed last week's hike citing elevated inflation risks; NY Fed's Williams said the rate control toolkit is working well.
• October hike odds stand at 53% per CME FedWatch.

US Treasury yields inch higher as UNGA remarks and Fed speak keep markets on edge

• The 10-year yield settled slightly higher at 4.97% as traders weighed West Asia developments, oil prices, and Fed commentary.
• Trump told UNGA he expects a deal with Iran right after the November midterms and that oil will "plummet" once the conflict ends.
• He also said more oil is flowing than at any point since the war began, offering a cautiously optimistic near-term supply outlook.
• Goolsbee warned the Fed cannot overlook persistent supply shocks; Musalem said further hikes may be needed to bring inflation back toward target.

US Dollar holds near July highs as hawkish Fed speak and rate hike expectations underpin greenback

• The dollar index edged up to 100.6, near its highest since late July, as Austan Goolsbee of Fed warned against overlooking persistent supply shocks.
• Alberto Musalem of the Fed called for further rate increases to hit the inflation target.
• Last week's unanimous Fed hike and signal of more tightening this year continue to anchor dollar strength.
• Falling oil prices offered some inflation relief but remained off session lows as West Asia diplomacy stayed in focus.
• Traders stayed alert to yen intervention risk, keeping dollar-yen positioning cautious.

Oil settles below $100 as Saudi flows through Hormuz increase and East-West pipeline restarts

• Brent settled at $99.25/bbl, down 1.09%, while WTI fell 1.24% to $94.99/bbl as rising Saudi crude flows eased supply concerns.
• Saudi Arabia restarted its East-West pipeline and could resume crude exports from Yanbu, three sources said, after drone attacks forced a shutdown on September 13.
• Saudi crude flows through the Strait of Hormuz averaged 2.9 million bpd over the past six days, up sharply from around 700,000 bpd in August, according to satellite and tanker-tracking data cited by Reuters.
• Aramco loaded about 14 million barrels of crude onto seven VLCCs inside the Gulf, signalling a partial recovery in Saudi exports despite continued disruption to regional flows.
• Oil pared losses after Trump said a peace deal with Iran would come only after the US midterm elections.
• Iran said it could reopen the Strait of Hormuz within seven days if Washington eases military pressure and lifts its port blockade.

Day’s Ledger*
Economic Data

• India September Manufacturing & Services flash PMI
• Germany September HCOB PMI
• US September S&P Global Manufacturing PMI
• US September S&P Global Services PMI
• US Crude Oil Inventories

Corporate Actions

• ESAF Small Finance Bank to consider fund raising

Policy

• Eurozone ECB Supervisory Board Member Tuominen Speaks
  
• US Fed Vice Chair for Supervision Barr Speaks
  
• German Buba Mauderer Speaks
  
• ECB member Philip Lane Speaks

Tickers to Watch

• ADANI GROUP STOCKS in focus as SEBI settles adjudication proceedings against five Adani companies for 15.1 million rupees over RPT and governance issues flagged in the Hindenburg Report.
• OMCs STOCKS in focus as Brent crude falls below $98/barrel on reports of a possible US-Iran diplomatic opening.
• TATA GROUP STOCKS dispute over N Chandrasekaran's reappointment as Tata Sons chairman continues. NCP (SP) chief Sharad Pawar calls for preserving the group's trust-based ownership structure and Tata Trusts' institutional role. Tata Chemicals shares closed 2.98% lower Tuesday.
• HDFC BANK board has submitted two MD & CEO candidate names to the RBI, in order of preference, seeking approval for a three-year term. Names not officially disclosed.

Must Read

• India and the Changing Geometry of Great-Power Relations
• GIFT City’s Regulatory Paradox
• Surviving the Global Energy Squeeze: Why India Must Keep Its Guard Up
• Can India shape the next commodity super-cycle?
• India’s Copper Capacity Has Been Built on an Imported Foundation

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day