Asia Leads Global Rally After Japan’s Landmark Political Shift

GLOBAL MOOD: Cautiously Risk On
Drivers: Japan Election Outcome, Ukraine–Russia Peace Push

Asian markets kicked off the week in a clear risk-on mode, led by a powerful rally in Japan after Prime Minister Sanae Takaichi secured a decisive election victory. The result revived reflation expectations, lifted confidence around fiscal support and structural reforms, and pushed Japanese equities to record highs.

The Nikkei surged past 57,000, with bond yields rising and the yen firming, signalling a shift toward growth-positive domestic policy. The upbeat Asian lead was reinforced by a sharp rebound in US equities, where dip-buying returned to technology and semiconductor stocks after last week’s sell-off. Improving US consumer sentiment and easing near-term inflation expectations supported hopes of eventual Fed rate cuts, even as data remained mixed.

Geopolitical risks--from Ukraine diplomacy to unresolved US–Iran tensions, kept a residual risk premium in commodities, but did little to derail equity optimism. Overall, policy clarity in Japan and stabilising US macro signals set a constructive tone for global risk assets.

TODAY’S WATCHLIST

• Oct-Dec Earnings: BSE Limited, GlaxoSmithKline Pharmaceuticals,  Pfizer
• ECB President Lagarde Speech
• Fed Waller Speech

THE BIG STORY
Ukraine is pushing to fast-track peace efforts with Russia, with Kyiv signalling that only a direct meeting between Presidents Volodymyr Zelenskiy and Vladimir Putin can resolve the most contentious remaining issues. Ukrainian Foreign Minister Andrii Sybiha said progress in US-brokered talks has narrowed disagreements to just a handful of sensitive points but stressed that only US President Donald Trump has the leverage to bring the war to an end. Kyiv is keen to capitalise on the current diplomatic momentum before political distractions, including the US mid-term election cycle later this year, complicate negotiations.

Data Spotlight
US consumer sentiment continued to recover at the start of 2026, with the University of Michigan’s index rising to 57.3 in February, its third consecutive monthly increase and above market expectations. The improvement, however, remained uneven: gains were concentrated among households with stock market exposure, while sentiment among non-equity holders stayed subdued. Encouragingly, year-ahead inflation expectations fell sharply to 3.5%, the lowest since January 2025, though longer-term inflation expectations edged higher. Separately, US consumer credit expanded sharply in December, with total borrowing surging $24.05 billion, driven by a strong rebound in revolving credit and continued growth in auto and student loans pointing to resilient consumption despite lingering pressures.

Takeaway:

US Sentiment is improving but remains fragile and uneven, with confidence skewed toward wealthier households. Falling short-term inflation expectations support the Fed’s easing narrative, while strong credit growth underscores continued consumer resilience.

WHAT HAPPENED OVERNIGHT

• US stocks stage sharp snapback; Dow hits record
  • Dow Jones surged 2.5% to a record high, leading to a broad-based rebound after a tech-led selloff earlier in the week.
  • S&P 500 jumped 1.9% and Nasdaq rose 2.1%, driven by a sharp recovery in semiconductors.
  • Nvidia, Broadcom, AMD rallied 7%+ each as dip-buying returned and near-term AI disruption fears eased.
  • Cyclicals outperformed, with Caterpillar (+7.1%) and Goldman Sachs (+4.3%), signalling rotation toward value and economically sensitive stocks.

• US Treasury yields edge higher as risk appetite returns
  • The benchmark 10-year US Treasury yields rose 4 basis points to 4.22%, partially reversing Thursday’s sharp rally.
  • Risk sentiment improved on Friday, supported by a rebound in technology stocks.
  • University of Michigan consumer sentiment surprised to a six-month high, easing growth concerns.
  • Focus ahead on the delayed US jobs report and this week’s CPI data for signals on economic momentum and the Fed’s policy path.

• US Dollar steadies, set for weekly gains
  • The US dollar index edged slightly lower below 98 on Friday but held near two-week highs.
  • Safe-haven demand supported the dollar earlier in the week amid weaker-than-expected US labour data.
  • University of Michigan consumer sentiment unexpectedly rose to a six-month high, tempering recession fears.

• Crude oil prices rebound as Iran tensions stay unresolved
  • Brent crude prices recovered on Friday, reversing earlier losses as markets reassessed geopolitical risks.
  • US–Iran talks failed to meaningfully ease fears of a potential military confrontation, keeping a risk premium in place.
  • Brent settled up 0.74% at $68.05 a barrel, WTI closed 0.41% higher at $63.55/barrel.
  • Traders remain cautious, with diplomacy offering limited clarity and Middle East supply risks still in focus. 

Day’s Ledger

Economic Data

• US January CB Employment Trends Index

Corporate Actions

• Oct-Dec Earnings: Amber Enterprises, Aurobindo Pharma, Bata India, BSE Limited, Cholamandalam Financial, GlaxoSmithKline Pharmaceuticals, Graphite India, Happiest Minds, Jyothy Labs, KPR Mill, Linde India, Navin Fluorine, Neuland Laboratories, Pfizer, PNC Infratech, Route Mobile, Ramco Cements, Trident, Zydus Lifesciences

Policy Events

• ECB Lane Speech
• ECB President Lagarde Speech
• Fed Waller Speech
• Fed Miran Speech

Tickers to Watch

• ACME Group forays into packaged foods with snacks under ACME Poshan
• L&T plans 32 MW data centre capacity by March-end, eyes electrolyser orders
• Sun Pharma to maintain disciplined approach for acquisitions: Chairman
• Titan expects sharp rise in Swiss watch sales in India post EU trade pact
• ONGC opens 4,000-seat convention centre in Goa, eyes Filmfare-scale events
• Tata Motors PV to hike prices in coming weeks amid rising costs: CEO
• Shree Cements eyes Q4FY26 volume rebound, plans aggressive RMC expansion
• RIL arm Model Economic Township to build 100-acre project at Jhajjar

Must Read

• US market remained a drag for Indian pharma in Q3 amid pricing pressure
• Gold holds the ground as traders track US inflation data: Analysts
• CBDT draft rules overhaul transfer pricing reporting, raise perquisite caps
• Japan's 'Iron Lady' Sanae Takaichi forges stunning election win
• India, US to increase trade in GPUs, goods used in data centre infra
• Trade thaw apart, road ahead for India's energy imports from US not easy
• India now negotiates trade deals from position of strength: Piyush Goyal
   

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

India Opens Its Market, the US Keeps Its Levers

The new US–India interim trade framework offers relief—but not on equal terms.

Sangeeta Godbole writes, India has opened its market with structural tariff cuts across industrial and agri goods. In return, US concessions are partial, reversible, and tethered to future reviews or executive discretion. As trade policy increasingly overlaps with strategy, India must match market access with enforceable reciprocity—tying it to outcomes in investment, tech transfer, and defence collaboration. Trade deals can’t just be about openness—they must secure leverage.