Risk appetite mixed as AI rally offsets lingering Middle East tensions

Here’s your quick read to start the day: a chatty, no-fuss look at overnight moves, the big story, what’s on the docket, and the tickers you need to watch.

Kagenmi

istock.com

By Richard Fargose

July 1, 2026 at 2:53 AM IST

Global Mood: Cautiously Risk Off
Drivers: Iran Talks Deadlock, Hormuz Toll Dispute, Russia Northern Threat

Asian markets displayed a selective risk-on tone on Wednesday, with investors favouring technology shares despite lingering geopolitical uncertainty in the Middle East. Japanese equities outperformed as chipmakers and AI-linked stocks tracked Wall Street's technology rally, while improving business confidence added to optimism. However, gains across the region were uneven, with South Korean shares pressured by persistent foreign selling and currency weakness despite record semiconductor exports, and Australian equities slipping after the Reserve Bank of Australia's minutes reinforced expectations that interest rates could remain higher for longer.

Investor sentiment was supported by easing oil prices, indicating markets continue to expect disruptions to energy supplies will remain limited despite stalled US-Iran negotiations. However, the failure of high-level talks in Doha and renewed disagreement over control of the Strait of Hormuz underscored that key geopolitical risks remain unresolved. Additional concerns over a potential Russian offensive in northern Ukraine also kept investors cautious, limiting broader risk appetite even as enthusiasm for AI-driven technology stocks continued to underpin global equities.

THE BIG STORY
US envoys Kushner and Witkoff arrived in Doha Tuesday only to find Iran unwilling to meet them, with Tehran insisting the two sides must first resolve the basic terms of their two-week-old ceasefire before tackling harder issues like nuclear limits. Qatar confirmed only lower-level technical talks were on the table, leaving the high-level diplomatic push effectively stranded. The Hormuz toll dispute sharpened further, with Iran's top negotiator asserting sovereign control over the waterway and threatening to impose tolls from mid-August when the 60-day framework expires — a position JD Vance flatly rejected. With oil prices falling despite the impasse, markets appear to be pricing in resolution, but the fundamental gaps between the two sides on Hormuz control, nuclear oversight, and the Lebanon-Hezbollah conflict remain wide.

Meanwhile, Ukraine's top military commander warned Tuesday that Kyiv is preparing for a possible Russian offensive from the Bryansk region in the north, aimed not at capturing the capital but at seizing territory in Chernihiv and stretching Ukrainian front-line reserves thin. Commander Syrskyi assessed a Belarus-based attack as unlikely given recent political dynamics, but said the northern threat was being taken seriously across multiple intelligence sources. He noted Russian frontline activity had declined 30%, suggesting exhaustion in Moscow's forces, even as Ukraine continues its long-range strike campaign targeting Russian oil infrastructure.

Data Spotlight
US job openings rose to 7.594 million in May, a two-year high and well above expectations of 7.30 million, signalling labour market resilience despite rising energy costs from the Iran conflict. Gains were led by wholesale trade, accommodation and food services and the Midwest and South regions, while healthcare and finance saw declines. Hires and total separations were broadly unchanged at 5.2 million and 5.1 million, respectively.

The S&P Case-Shiller 20-City Home Price Index rose 1.1% year-on-year in April, the first acceleration since November 2025, though prices remained near a three-year low. Chicago led gains at up 6.5%, followed by New York at up 3.8%, while Seattle fell 2.3% and Denver, Tampa, Dallas and Phoenix all posted notable declines. Notably, inflation outpaced home price growth for an 11th consecutive month, continuing to erode real housing wealth.

The Dallas Fed Services Index rebounded to 2.9 in June from -7.7 in May, with the company outlook index jumping 12 points to 6.1 and future activity expectations strengthening markedly. Selling price pressures edged up to 7.7 from 5.0 as input costs and wages rose faster, while employment and capital expenditure expectations remained firmly positive.

Takeaway: The US labour market and services sector showed encouraging resilience in May and June, with job openings hitting a two-year high and Dallas services activity rebounding strongly. However, cooling home prices, persistent inflation eroding housing wealth and uneven regional trends point to an economy navigating meaningful pockets of stress beneath the surface.

WHAT HAPPENED OVERNIGHT

US stocks close out their best quarter since 2020 as earnings optimism offsets geopolitical uncertainty
- The Dow rose 0.26% to a second straight record close, S&P 500 gained 0.79%, and Nasdaq climbed 1.52%, with the semiconductor index surging 3.9% on the day.
- For Q2, the Dow gained 13%, S&P 500 rose 14.9%, and Nasdaq surged 21.4%, the biggest quarterly gains since 2020 for the S&P 500 and Nasdaq, and since 2022 for the Dow.
- Both the S&P 500 and Nasdaq posted losses for June, weighed down by tech valuation concerns and AI capex worries.
- US and Iranian envoys arrived in Doha but a Qatari official said no high-level meeting was scheduled, keeping ceasefire uncertainty alive despite the June 17 MOU.
- Investors remain optimistic heading into Q2 earnings season, with strong Q1 results and resilient economic activity underpinning sentiment.
- The semiconductor index rose 3.9% as tech led S&P 500 sector gainers, recovering some of its recent sharp losses.
- BofA strategists flagged energy and financials as potentially better bets for H2, favouring cyclical and value-oriented sectors.
- Nike fell 2% after the bell following its quarterly results.
US Treasury yields rebound from seven-week lows as strong jobs data supports hawkish Fed outlook
- The 10-year yield rose to 4.40%, bouncing from the prior session's seven-week low of 4.37%, as robust economic data reinforced rate hike expectations.
- JOLTS showed job openings at their highest in two years, well above expectations, consolidating strong labour market momentum ahead of Thursday's jobs report.
- Despite easing energy prices, elevated core inflation and low layoffs have driven multiple FOMC members to project rate hikes this year.
- Warsh's push to reduce Fed holdings of Treasury notes and bonds added upward pressure on longer-term yields, offsetting the disinflationary relief from falling energy prices.
US Dollar holds pullback from 15-month highs as easing energy prices trim rate hike bets
- The dollar index held at 101.1, consolidating below its June 24 peak of 101.6, as recovering Persian Gulf tanker flows lowered oil costs and led rate traders to pare multiple hike bets.
- Satellite data showed tanker traffic leaving the Persian Gulf picking up following the US-Iran MOU and the lifting of naval blockades.
- Strong labour market data and stubborn core inflation kept hawkish FOMC projections intact, limiting the dollar's pullback.
- A fiscally dovish Japan pushed the yen to a four-decade low, providing additional dollar support against the Japanese currency.
- Softer-than-expected Eurozone inflation prints capped euro strength, limiting broader dollar losses against G10 peers.
Oil little changed but posts biggest monthly and quarterly losses since COVID-19
- Brent settled at $72.92 per barrel (-0.3%) and WTI at $69.50 (-1.8%), with both benchmarks near pre-war levels from February 27.
- Brent fell 21% in June and 38% in Q2, its biggest monthly and quarterly declines since the COVID-19 pandemic in early 2020.
- Top US envoys arriving in Doha will not hold a high-level meeting with Iran, with only technical talks scheduled this week that could later be elevated to senior level.
- Weekend exchanges of fire between the US and Iran tested the June 17 interim accord, casting doubt on progress toward a lasting ceasefire.
- Both benchmarks remained in technically oversold territory, with Brent for 13 consecutive days and WTI for 11.
- Morgan Stanley modelled an implied global oil surplus of 4.8 million bpd in 2027, adding to the bearish supply outlook.
- US crude production rose to a monthly record of 13.93 million bpd in April as producers ramped up output in response to war-driven price spikes.
- Analysts estimated US crude stockpiles fell 4.5 million barrels last week, which would mark 10 consecutive weeks of draws, tying a record set in January 2018.

Day’s Ledger*

Economic Data

India June S&P Global Manufacturing PMI
India June GST Collection Data
Eurozone June CPI Data
US June ADP Nonfarm Employment Data
US June ISM Manufacturing PMI
US Weekly Cushing Crude Oil Inventories Data

Corporate Actions

Adani Energy Solutions to consider fund raising options
Zee Entertainment Enterprises to consider fund raising options

Policy

Fed Governor Warsh Speaks
ECB President Lagarde Speaks
BoE Gov Bailey Speaks
ECB's Lane Speaks
BoC Gov Macklem Speaks

Tickers to Watch

BANK OF MAHARASHTRA will consider raising up to ₹75 billion in equity capital through multiple modes.
DCM SHRIRAM approved acquiring 100% equity in four companies engaged in industrial salt manufacturing and sales.
H.G. INFRA ENGINEERING acquired 100% of WR ER Part C Power Transmission SPV from REC Power Development for an awarded transmission project.
MAX HEALTHCARE acquired 100% voting rights and a 50.22% economic interest in Yerawada Properties, making it a subsidiary to develop a 450-bed super speciality hospital in Pune.
MUTHOOT MICROFIN approved raising up to ₹30 billion through private placement of NCDs and ₹10 billion via a public issue in FY27.
NEWGEN SOFTWARE TECHNOLOGIES received a Letter of Award worth $1.71 million for a Retail Loan Origination Solution.
NTPC GREEN ENERGY said subsidiary Ayana Renewable Power won a 193 MW wind project in the MPPMCL auction at a tariff of ₹4.17/unit.
PFC transferred Kakinada I Transmission SPV to POWER GRID for ₹205.1 million for the Kakinada green hydrogen/ammonia transmission project.
RAILTEL received a ₹1.08 billion order from Mahanadi Coalfields to establish an MPLS VPN network on a 60-month rental basis.
RANE (MADRAS) agreed to acquire Hindustan Composites' Friction Business for an enterprise value of ₹3.7 billion.

Must Read

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

Dark Patterns, Customer Trust and the Future of Conduct Regulation

Financial regulation is entering a new phase.

It's no longer just about what institutions disclose—it's also about how they influence customer decisions.

Anupam Sonal writes, with the RBI's latest conduct framework targeting dark patterns and manipulative digital design, the focus is shifting from compliance to customer outcomes, trust and informed choice.

As financial services become increasingly digital, can customer protection rely on disclosures alone—or must regulation also govern the architecture of decision-making itself?