Asia Opens Cautiously Risk-On as US Shutdown Fears Ease

GLOBAL MOOD: Cautiously risk on
Drivers: Iran tensions, Global realignment, US Trade Deficit

Asia-Pacific markets opened in a cautious risk-on mood, supported by a provisional deal in Washington to avert a US government shutdown, which eased near-term political uncertainty and encouraged selective risk-taking.

Gains were tempered, however, by elevated geopolitical risks, particularly around Iran, where rising US military posturing kept investors alert to escalation. Mixed signals from US assets reinforced the guarded tone: tech-led weakness on Wall Street offset by falling Treasury yields and a softer dollar. Strong but volatile US trade data and a still-stable labour market underpinned expectations of a Fed on hold.

Overall, sentiment leaned constructive, but conviction remained fragile amid geopolitical and policy crosscurrents.

TODAY’S WATCHLIST

• India Fiscal Deficit Data
  
• Oct-Dec Earnings: Ambuja Cements, Bajaj Auto, Bank of Baroda, NTPC
  
• US Fed Bowman Speech

THE BIG STORY
Geopolitical tensions remained front and centre after US President Donald Trump signalled that Washington may open direct talks with Iran even as a substantial US military presence builds up in the region. Trump said powerful US naval assets were moving toward Iran, stressing that he hoped force would not be required, while Defence Secretary Pete Hegseth reiterated that the military stands ready to act should Iran pursue nuclear weapons capabilities. US officials indicated Trump is weighing options but has yet to decide on military action, keeping markets alert to escalation risk in the West Asia.

At the same time, a contrasting note emerged from Europe and Asia, where Britain and China announced a reset in relations following Prime Minister Keir Starmer’s visit to Beijing, the first by a UK leader in eight years. The two sides pledged closer cooperation on trade, investment and technology, with China granting visa-free access for Britons and cutting tariffs on whisky, while AstraZeneca unveiled a $15 billion investment in China. The dual developments underscore a global backdrop shaped by rising geopolitical risk around Iran alongside efforts by major economies to diversify partnerships amid uncertainty over US policy direction.

Data Spotlight
US trade deficit widened sharply to $56.8 billion in November 2025, the largest gap in four months, rebounding from October’s unusually narrow $29.2 billion deficit and far exceeding expectations of $40.5 billion. The swing highlights ongoing volatility in trade flows amid the Trump administration’s shifting tariff stance. Imports rose 5% to $348.9 billion, driven by a sharp rebound in pharmaceutical preparations and higher computer imports, while exports fell 3.6% to $292.1 billion, weighed down by declines in non-monetary gold, pharmaceuticals and crude oil. On the labour front, initial jobless claims edged down to 209,000, while continuing claims fell to 1.83 million, the lowest since September 2024, reinforcing the picture of a labour market that is cooling but stable.

Takeaway: Trade data remain highly volatile amid tariff uncertainty, but the labour market continues to signal a “low-hire, low-fire” equilibrium—supporting the Fed’s stance that policy can remain on hold while growth gradually moderates.

WHAT HAPPENED OVERNIGHT

• US tech stocks drag offsets earnings beats; markets close mixed
  • US stocks ended mixed, with the S&P 500 down 0.1%, the Nasdaq falling 0.5%, and the Dow edging 0.1% higher.
  • Technology stocks led declines as investors reassessed AI-related valuations amid heavy earnings, weighing particularly on Nasdaq.
  • Microsoft slumped 10% after flagging slower cloud growth and higher AI infrastructure spending, reviving margin concerns across software and growth stocks.
  • Meta surged 10.4% after delivering a stronger-than-expected revenue outlook, providing a key offset to broader tech weakness.
  • IBM (+5.1%) and Caterpillar (+3.4%) outperformed following earnings beats, supporting the Dow.
  • Apple gained 0.7% ahead of results after the close, as investors positioned cautiously into earnings.

• US Treasury yield ease as shutdown risks recede, focus shifts to payrolls
  • The benchmark US 10-year Treasury yields edged lower, with the 10-year yield down 2.4 bps to 4.226% and the 2-year yield falling 2.9 bps to 3.551%.
  • The move followed a wider-than-expected US trade deficit for November, which weighed modestly on growth expectations.
  • Sentiment was also supported by steps from government officials to avert another shutdown, reducing near-term political risk.
  • President Donald Trump said he will announce his pick for Fed Chair next week, keeping policy uncertainty in focus.

• US Dollar eases as policy uncertainty caps Fed support
  • The US dollar slipped against the yen and euro, with the dollar index down 0.3% to around 96, though it remained above recent multi-year lows.
  • A mildly hawkish Fed offered limited support, as markets continue to price in further rate cuts later this year.
  • Policy uncertainty remains a key drag, with tariff risks and mixed signals from Washington weighing on sentiment.
  • Treasury Secretary Scott Bessent’s reaffirmation of a strong-dollar stance provided only brief relief, contrasting with President Trump’s apparent comfort with a weaker currency.

• Crude oil prices jumps to five-month high on Iran supply risk
  • Brent crude prices surged 3.4% to $70.71/bbl, its highest close since July 31, while WTI rose 3.5% to $65.42/bbl, the highest since September 26.
  • Gains were driven by rising fears of supply disruptions if the U.S. escalates action against Iran, a key OPEC producer.
  • The rally pushed both benchmarks into technically overbought territory, reflecting heightened geopolitical risk premia.

Day’s Ledger

Economic Data

• Eurozone GDP Growth Rate
• India Fiscal Deficit Data
• India Bank Credit-Deposit Growth 
• India Foreign Exchange Reserves
• US PPI

 
Corporate Actions

• Oct-Dec Earnings: Ambuja Cements, Bajaj Auto, Bank of Baroda, Cholamandalam Investment, Exide Industries, Glenmark Pharma, Godfrey Phillips, Jindal Steel, LIC Housing, National Aluminium, Nestle India, NTPC, Power Grid, Steel Authority
• Muthoot Microfin board to consider fund raising
• Sical Logistics board to consider rights share issue

 
Policy Events

• ECB Machado Speech
• ECB Buch Speech
• US Fed Bowman Speech

 
Tickers to Watch

• ITC Q3FY26 results: Profit flat at ₹49.31 billion, dividend declared
• Tata Motors Q3FY26 results: Net profit falls 48% to ₹7.05 billion, revenue up 16%
• Vedanta Q3FY26 results: Profit jumps 60% to ₹78.07 billion, revenue up 19%
• Gillette India Q3FY26 profit surges 37% to ₹1.72 billion, declares dividend
• Paytm Q3 net profit at ₹225 cr, revenue from ops grows to ₹21.94 billion
• Colgate Palmolive India profit flat in Q3 on GST, labour code impact
• Voltas Q3 net profit falls 35.4% to ₹844.6 million, revenue dips 1.1%
• Blue Star Q3FY26: Net profit drops 39% to ₹805.5 million, revenue rises 4%
• Indian Oil eyes Africa and Europe for petro exports: CMD AS Sahney
• Dabur targets high single-digit growth next year on GST tailwinds

Must Read

• New CPI Weights May Lift Headline Inflation by 20–30 bps on Average: SBI Research
• Critical minerals, nuclear push crucial to India's climate plan: Eco Survey
• Indian Goods Get One-Way Duty-Free Entry Into Turkey Via EU-FTA: GTRI
• Economic Survey Flags Fiscal Strain on States from Cash Transfers
  
• Eco Survey seeks modest hike in urea price, raises concerns on farm income
• Eco Survey sees FY27 GDP growth at 6.8-7.2% as demand, investment pick up
• European aircraft maker Airbus says regional turboprop market would grow
• India should focus beyond tariffs to boost trade: World Bank's Ajay Banga
• 'India is an oasis of macro stability in a turbulent world': CEA Nageswaran
• US Companies Are Still Slashing Jobs to Reverse Pandemic Hiring Boom

See you tomorrow with another edition of The Morning Edge.

Have a great trading day.

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