Asian Markets Extend Rally as Falling Oil Prices Lift Sentiment

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By Nandinee Keluskar

August 4, 2026 at 2:24 AM IST

Global Mood: Cautiously Risk-on
Drivers: Iran Talks Disputed, Gaza Deal Unravels

Asia-Pacific markets opened higher on Tuesday as investors embraced a cautiously risk-on mood, supported by falling oil prices and renewed optimism surrounding large technology companies. South Korean shares led regional gains, while Japanese and Australian markets also advanced after Wall Street closed at record highs. The decline in crude oil prices eased concerns over inflation and helped strengthen expectations that global central banks could maintain a less restrictive policy stance.

Investor sentiment was further supported by strong gains in leading technology stocks, with continued enthusiasm over artificial intelligence-related spending underpinning broader market confidence. However, geopolitical risks remained firmly in focus. Conflicting statements from Washington and Tehran regarding possible negotiations continued to cloud the outlook for the conflict in West Asia, while ongoing hostilities in Gaza and renewed tensions between Russia and Ukraine highlighted the fragile geopolitical environment. Even so, investors appeared more willing to focus on easing energy prices, resilient corporate earnings and improving risk appetite, rather than the prospect of further geopolitical escalation.

THE BIG STORY
The prospect of a diplomatic resolution to the US-Iran war dimmed further Monday as Trump insisted talks were under way at Iran's request while Tehran flatly denied any negotiations were planned or scheduled, with its foreign minister on a religious pilgrimage in Iraq. The contradictions reflect a now-familiar pattern: Trump announces breakthroughs, Iran denies them, and markets briefly rally before reality reasserts itself. Gulf analysts say Iran's strategy is deliberate, using energy chokepoints and regional proxies to steadily raise the economic cost of confrontation and outlast Washington's political will. Trump called Iran's leadership "unbelievably duplicitous" and reiterated that the US Navy holds total control over Hormuz, framing any resolution as a choice between a deal and "total surrender."

On the ground, the gap between Trump's diplomatic declarations and reality was equally stark. In Gaza, Israel killed at least 18 people in one of the deadliest days since the October ceasefire as Israeli officials insisted troops would not withdraw before Hamas disarms and tunnels are destroyed — while Hamas insists attacks must stop before it implements any disarmament. Mediators Egypt, Qatar and Turkey jointly condemned the ongoing strikes as a breach of the agreement. In Ukraine, Russia accused Kyiv of a deliberate drone strike on the Black Sea resort of Gelendzhik, killing seven people including three children on a busy beach, in an incident that carries significant escalatory risk given its civilian character. Ukraine did not immediately comment, though it has stepped up long-range strikes deep into Russia as part of a campaign to raise the domestic cost of the war.

Data Spotlight
The ISM Manufacturing PMI rose to 55.6 in July from 53.3 in June, the strongest reading since May 2022 and above expectations of 54.0, as output accelerated to its fastest pace since November 2021 and employment returned to expansion for the first time since January 2025. Front-loading ahead of West Asia supply disruptions and strong AI-related investment drove momentum, while cost pressures eased modestly.

German retail sales fell 1.1% month-on-month in June, the sharpest monthly decline since May 2025 and well below expectations of a 0.5% drop, as food and non-food sales both declined. Annual retail sales slipped 0.2%, the second yearly decline this year, pointing to persistent weakness in German consumer spending.

South Korea's annual inflation rate eased to 2.8% in July, a three-month low and below expectations of 3.0%, as transport and food price pressures moderated. Consumer prices fell 0.2% month-on-month, the first monthly decline since November 2025, though inflation remained above the central bank's 2% target.

Takeaway: A surge in US manufacturing activity to multi-year highs, driven by front-loading and AI investment, contrasts with softening consumer demand in Germany and easing but above-target inflation in South Korea. The divergence underscores an uneven global recovery, with West Asia supply risks and AI-driven demand reshaping industrial and trade dynamics across economies.

WHAT HAPPENED OVERNIGHT

US stocks rally to kick off August as Iran talks optimism pulls oil and yields lower

The Dow rose 1.32% to a record close, S&P 500 gained 1.48%, and Nasdaq climbed 2.13%, as signs of US-Iran de-escalation drove oil down 5% and pushed Treasury yields lower.
Trump said talks with Iran to reopen the Strait of Hormuz would take place on Monday, though Iran disputed that talks were planned, keeping the situation uncertain.
Communication services led S&P 500 sector gains at 4.3%, driven by Meta and Alphabet, while energy was the worst performer, dropping 1.2% on the oil price decline.
April-June earnings season continues to impress, with 304 S&P 500 companies reporting a 29.3% growth rate so far, with 85.2% beating analyst expectations.
NY Fed President Williams expressed optimism that inflation pressures would ease gradually, while reports that Warsh raised the idea of fewer annual rate-setting meetings added to uncertainty around Fed clarity.

US Treasury yields ease as Iran diplomacy hopes and lower oil prices reduce inflation concerns

The 10-year yield fell to 4.68% after Trump said negotiations with Iran would begin Monday afternoon and cancelled a planned attack, easing West Asia tension fears.
September Fed hike odds stand at 63%, down from 80% before last week's hold, as Warsh's lack of forward guidance left markets reassessing the rate path.
Reports that Warsh is considering reducing Fed policy meetings from eight to fewer per year added to uncertainty around central bank communication and policy clarity.
This week's US jobs report is the key data focus for further clues on labour market strength and the Fed's tightening timeline.

Dollar falls to seven-week low as yen surges on US Treasury intervention and Fed uncertainty

The dollar index dropped to 99.8, its lowest in seven weeks, as foreign investors extended last week's partial pivot out of dollar positions following the Fed's hold.
The yen surged after the US Treasury bought Japanese currency using its euro holdings, amplifying Tokyo's initial market intervention and adding to the dollar's broad weakness.
Warsh's reluctance to confirm a rate hike as his preferred inflation response led foreign markets to trim dollar-denominated asset holdings, compounding the post-Fed selloff.
Rate futures show over half the market still positioned for a September Fed hike, providing a floor under the dollar's decline.

Oil falls 7% to three-week low as Trump cancels Iran attack, but deal remains elusive

Front-month Brent settled at $83.77/bbl, down 7.0%, and WTI at $80.34, down 5.1%, their lowest closes since July 13, as Trump held off on strikes citing imminent talks Iran denied were planned.
Six Saudi supertankers diverted around southern Africa following Houthi threats, though two tankers managed to cross the Bab el-Mandeb over the weekend while Hormuz traffic slowed on vessel attack reports.
OPEC+ approved a further 188,000 bpd production quota increase from September, though successive monthly hikes have failed to add meaningful supply due to export disruptions from the Gulf, Russia, and Kazakhstan.
Russia said it was stepping up protection of ships in the Azov-Black Sea basin and developing alternative cargo routes amid escalating attacks in the Ukraine war theatre.
A Russian naphtha tanker attempted to transit Bab el-Mandeb in late July before diverting around Africa, reflecting the growing disruption to Russian energy trade routes

Day’s Ledger*
Economic Data

US Trade Data
US JOLTS Job Openings
US Factory Orders

Corporate Actions

Earnings: BASF India, Bharti Airtel, Bharti Hexacom, BSE Limited, Castrol India, Godrej Properties, Marico Limited, Pidilite Industries, PNB Housing Finance, PTC India Limited, Safari Industries (India), Tata Investment Corporation,

Tickers to Watch

ONE 97 COMMUNICATIONS (PAYTM): SAIF Partners likely to sell 2.3% stake via block deals, deal size 20.02 billion rupees, floor price at 1,339.65 rupees/share, per CNBC-TV18 sources.
MEESHO: Peak XV Partners and Elevation Capital likely to sell 2.3% stake (10.5 crore shares) via block deals, deal size ~19 billion rupees, floor price at 182.08 rupees/share, per CNBC-TV18 sources.
LIFE INSURANCE CORPORATION OF INDIA: Government to sell up to 6.5% stake via OFS on August 4-5 — base offer of 2.5% (31.62 crore shares) plus 4% green shoe option (50.59 crore shares); floor price at 382 rupees/share.
ARVIND: Launches QIP on August 3 with floor price fixed at 518.58 rupees/share.
VVIP INFRATECH: Receives LOI for sewerage works at proposed STP at Mohammadpur Majri and Kanjhawala, Delhi, valued at 1.985 billion rupees; completion in 24 months.
UPL: CEO Mike Frank resigns to relocate to the US for personal reasons; association with UPL Group to conclude effective August 31, 2026, after a four-and-a-half-year tenure.

Must Read

(*Compiled from various media sources)

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