Asia Rallies in Risk-On Mood as Oil Falls, Diplomacy Gains Traction

GLOBAL MOOD: Cautiously Risk-On
Drivers: US-Iran Diplomacy Progress, Geopolitical Tensions 

Asia-Pacific markets reflected a risk-on mood on Wednesday, supported by easing geopolitical tensions and a pullback in oil prices. Regional equities tracked Wall Street gains, with the Kospi hitting fresh record highs as investor sentiment improved.

Optimism was driven by signs of diplomatic progress in the Middle East, after Donald Trump announced a temporary pause in “Project Freedom,” the US initiative to escort vessels through the Strait of Hormuz. The move signalled confidence that negotiations with Iran could advance, even as the broader naval blockade remains in place.

Energy markets responded positively, with WTI Crude and Brent Crude declining, easing concerns over supply disruptions and inflation pressures. However, the fragile nature of the truce, alongside ongoing tensions in Ukraine, suggests risks remain.

Overall, markets are leaning risk-on, but the sustainability of the rally hinges on concrete diplomatic outcomes, keeping volatility risks elevated. 

TODAY’S WATCHLIST
 - India April S&P Global Services PMI
 - US April ADP Non-farm Employment Data
 - Bajaj Auto to consider share buyback
 - Earnings:  Bajaj Auto, Hexaware Technologies, One 97 Communications

THE BIG STORY
US President Donald Trump said he would temporarily pause “Project Freedom,” the operation aimed at escorting commercial vessels through the Strait of Hormuz, citing progress toward a potential agreement with Iran. While the broader naval blockade remained in place, the pause signalled a tactical shift to allow space for diplomacy and assess whether a deal could be finalised.

US officials maintained a firm stance on maritime security, with Marco Rubio reiterating that Iran would not be allowed to control shipping flows through the strait. The move followed recent military exchanges, including US strikes on Iranian boats and missile systems, underscoring the fragile nature of the situation despite signs of engagement.

Separately, geopolitical risks remained elevated beyond West Asia. Intensified Russian strikes in eastern Ukraine ahead of proposed ceasefire timelines highlighted continued instability in Europe, with Volodymyr Zelenskyy urging a broader and sustained cessation of hostilities. The coexistence of tentative diplomacy in West Asia and renewed escalation in Eastern Europe kept global uncertainty high, particularly for energy markets and risk sentiment.

Data Spotlight
US labour market indicators showed early signs of moderation, with job openings declining slightly to 6.87 million in March, although still above expectations. Hiring activity improved, while quits rose modestly, signalling continued worker confidence despite softer momentum in certain sectors such as professional services.

Service sector activity remained resilient, with the ISM Services PMI easing marginally to 53.6, still firmly in expansion territory. Business activity strengthened, but new orders recorded their sharpest decline in three years, reflecting demand pressures from rising costs linked to the conflict in West Asia. Input prices remained elevated, with the price index holding at 70.7, driven by higher fuel, freight and raw material costs.

Housing data provided a mixed picture, with new home sales rising 7.4% to 682,000, supported by strong demand in the South and Northeast. However, the median home price declined 6.2% year-on-year, indicating ongoing affordability pressures.

Takeaway:
The US economy remained resilient, supported by services activity and housing demand, but rising inflation and early signs of labour market cooling pointed to emerging headwinds.

WHAT HAPPENED OVERNIGHT

• US stocks hit record highs as ai rally and ceasefire optimism lifted sentiment
  • S&P 500 gained 0.81% and Nasdaq rose 1.03% to fresh record closes.
  • Dow Jones advanced 0.73% as broader market sentiment improved.
  • Ceasefire between the US and Iran held, easing fears of further escalation in West Asia.
  • Investors focused on strong earnings and momentum in AI-related stocks.
  • Intel surged 13% on reports of potential chipmaking partnership with Apple.
  • AMD climbed 4% ahead of results amid strong revenue expectations.
  • DuPont jumped 8.4% after raising annual profit outlook.
  • Pinterest gained 6.9% on upbeat revenue forecast.

• US Treasury yield eased as oil pullback tempered inflation concerns
  • The 10-year US Treasury yield edged down to 4.42% after recent multi-month highs.
  • Decline followed a sharp drop in oil prices, easing immediate inflation pressures.
  • Ceasefire between the US and Iran appeared to hold despite intermittent exchanges of fire.
  • Two US commercial vessels transited the Strait of Hormuz safely with military support.
  • Investors assessed softer ISM Services PMI alongside slightly stronger job openings data.
  • US Treasury raised its Q2 borrowing estimate to $189 billion, higher than prior projections. 

• US Dollar steadied as easing tensions offset policy divergence
  • The US dollar index held near 98.4, pausing recent gains.
  • Ceasefire signals between the US and Iran reduced immediate safe-haven demand.
  • Safe passage of US-linked vessels through the Strait of Hormuz provided some reassurance.
  • Currency markets remained cautious as geopolitical situation stayed fragile.
  • Dollar weakened against euro, pound and Australian dollar after Reserve Bank of Australia raised rates again.
  • Greenback strengthened against yen amid suspected intervention by Japanese authorities.

• Oil fell as limited shipping resumed despite fragile ceasefire
  • Brent crude declined 4.0% to $109.87 per barrel, while WTI dropped 3.9% to $102.27.
  • Prices reversed after prior session surge as two vessels successfully transited the Strait of Hormuz.
  • US signalled that the ceasefire with Iran remained in place despite intermittent exchanges of fire.
  • Partial resumption of shipping eased immediate supply disruption concerns.
  • Markets remained volatile amid uncertainty over durability of ceasefire.
  • Geopolitical risk premium persisted despite short-term relief.

Day’s Ledger* 

Economic Data

• India April S&P Global Services PMI
  
• US April ADP Non-farm Employment Data
  
• US Cushing Crude Oil Inventories Data

Corporate Actions

• Brigade Enterprises to consider bonus share issue
  
• Bajaj Auto to consider share buyback
• Earnings:  Bajaj Auto, Blue Star, Brigade Enterprises, CESC,  Godrej Consumer Products,  Greaves Cotton, Hexaware Technologies, Kansai Nerolac Paints, Meesho, One 97 Communications, PB Fintech, and Shree Cement

Policy

• German Buba Vice President Buch Speaks

  

Tickers to Watch

• HERO MOTOCORP delivered strong Jan-Mar earnings, beating estimates on robust volumes and improved product mix.
• JAMMU & KASHMIR BANK Jan-Mar net profit rose 36.5% YoY to ₹7.98 billion; NII stood at ₹14.88 billion.
• KEC INTERNATIONAL secured new orders worth ₹10.02 billion across segments.
• LARSEN & TOUBRO reported mixed Jan-Mar results with steady revenue growth but earnings missed estimates due to margin pressures.
• POONAWALLA FINCORP Jan-Mar net profit surged 309% YoY to ₹2.55 billion from ₹620 million.
• RAYMOND REALTY Jan-Mar net profit rose to ₹1.61 billion from ₹670 million QoQ.
• SPANDANA SPHOORTY FINANCIAL reported Jan-Mar profit of ₹50 million versus a loss of ₹4.34 billion YoY.
• SRF Jan-Mar net profit rose 10.6% YoY to ₹5.82 billion from ₹5.26 billion; revenue increased 7% to ₹46.15 billion.
• UCO BANK secured significant GST relief with a sharp reduction in tax liability following an appellate ruling.
• UNITED BREWERIES Jan-Mar net profit rose 4.4% YoY to ₹1.02 billion from ₹970 million, below estimates.

Must Read

• India’s Financial Digitalisation Has Scaled; Regulation Must Keep Pace
• Anti-Incumbency Poll Outcomes Signal Need for Governance Recalibration
• From Data to Intelligence: India’s Missing Link in the AI Economy
• D-Mart’s Store Count Soars, but Returns Slide
• Congress Finds an Opening as Rivals Fade, but Time is Running Out
• Cabinet Clears Semiconductor Units, Cotton Plan, FRP Hike for Sugarcane & More
  
• RBI’s Gupta Flags Possible Tweaks to Inflation Framework at 2031 Review
• India Among Most Resilient Emerging Markets to Global Shocks, Says Moody’s
• IMF urges Asia, including India, to allow fuel price hikes to pass through
• Congress claims TVK chief Vijay has sought its support for govt formation in Tamil Nadu

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See you tomorrow with another edition of The Morning Edge.

Have a great trading day

Expected Credit Loss Framework: Reform or Reckoning for Banks?

India’s shift to an ECL framework marks a structural change in how banks recognise and prepare for risk. Moving from backward-looking indicators to forward-looking assessment strengthens balance sheets, but also demands sharper models, better data, and a shift in risk culture. The real test will lie not in regulation, but in execution.

Rahul Ghosh analysis, are Indian banks ready to transition from incurred loss to truly forward-looking risk assessment? And will supervision keep pace to ensure consistent and credible implementation?

(*Compiled from various media sources)