Asia Turns Risk-Off as Tech Selloff and Geopolitics Rattle Markets

GLOBAL MOOD: Risk-Off
Drivers: Geopolitical tensions, Ukraine peace uncertainty, West Asia risk escalation

Asia-Pacific markets slipped into a risk-off mood as technology-led losses on Wall Street revived concerns over stretched AI valuations. Escalating geopolitical tensions involving Iran, Russia and Ukraine lifted oil but weighed on equities, while mixed US data and subdued holiday trading kept investors cautious and defensive.

TODAY’S WATCHLIST
 -FOMC Minutes

THE BIG STORY
Geopolitical tensions escalated sharply after US President Donald Trump warned that Washington could back another major strike on Iran if Tehran resumes rebuilding its ballistic missile or nuclear weapons programmes. Speaking alongside Israeli Prime Minister Benjamin Netanyahu in Florida, Trump said US intelligence was closely tracking Iranian activity following the large US strike in June, cautioning that further action would be taken if Iran continued weapons development. In parallel, the Pentagon announced an $8.6 billion contract awarded to Boeing to supply Israel with up to 50 new F-15IA fighter jets, underscoring deepening US-Israel defence cooperation amid rising regional risks.

Meanwhile, prospects for peace in Ukraine dimmed after Russia accused Kyiv of attempting to attack President Vladimir Putin’s residence, a claim Ukraine dismissed as baseless. Moscow said it was reviewing its negotiating stance following the alleged incident, dealing a blow to fragile peace efforts. Trump confirmed he discussed the matter with Putin in a phone call and said he was angered by the alleged attack, though he maintained that a peace deal could still be within reach, highlighting the fragile and volatile backdrop for global diplomacy.

Data Spotlight 
US manufacturing weakened in December, with the Dallas Fed business activity index dropping to -10.9 and the outlook index falling to -11.9. Production contracted, new orders and shipments declined, and capacity utilisation dropped. Labour conditions held steady, but firms shortened workweeks, reflecting softer demand. Prices remained stable while wage growth edged up.

In contrast, housing data offered a more constructive signal. US pending home sales rose 3.3% month-on-month in November, marking a fourth straight increase and beating expectations. Gains were broad-based across regions, led by a sharp rebound in the West, suggesting that easing mortgage rates and improved affordability are beginning to support housing demand despite wider economic uncertainty.

Takeaway:
The latest data underline a divergent US economic picture. Manufacturing activity continues to lose momentum, with weakening orders, output, and shorter workweeks pointing to subdued demand and cautious business sentiment heading into 2026. In contrast, the housing sector is showing clear signs of stabilisation, supported by easing financial conditions and improving buyer confidence.

WHAT HAPPENED OVERNIGHT

• US stocks slip as tech retreats
  • US stocks ended lower to start the final week of the year, with profit-taking in large-cap tech after last week’s record highs.
  • The S&P 500 was dragged down by the information technology sector, as AI-linked names came under pressure.
  • Nvidia slipped 1.2%, while Palantir Technologies fell 2.4%, weighing on sentiment across growth stocks.
  • Tesla dropped 3.3% after hitting a record high last week, pressuring the consumer discretionary sector.

• US Treasury yields steady as rate-cut bets linger
  • US Treasury yields fell to 4.1%, with holiday-thinned trading keeping moves muted.
  • Markets continue to price in two rate cuts in 2026, though officials at the Federal Reserve remain divided, with most policymakers projecting only one reduction.
  • Attention now turns to Tuesday’s FOMC minutes, which could offer clearer signals on the timing and extent of future policy adjustments.

• US Dollar hovers near multi-month lows
  • The dollar index fell below 98, trading sideways near its lowest level since early October amid holiday-thinned volumes.
  • Markets continue to price in rate cuts next year, keeping pressure on the greenback despite limited fresh catalysts.
  • Attention is also on leadership at the Federal Reserve, with Donald Trump expected to announce Chair Powell’s successor in early 2026, a move that could shape the future rate path.
  • Traders now look to the FOMC minutes due Tuesday for clearer guidance on policy thinking.

• Crude oil prices jump on geopolitical tensions
  • Brent crude price rose 2.1% to settle at $61.94/bbl, while WTI crude gained 2.4% to close at $58.08/bbl.
  • Russia–Ukraine tensions escalated after Moscow accused Kyiv of attacking President Vladimir Putin’s residence, lifting geopolitical risk premiums.
    
  • Middle East risks added support, with markets bracing for potential supply disruptions linked to rising tensions in Yemen.

Day’s Ledger

Economic Data

• M3 Money Supply
  
• RBI State Loan Auctions

 Corporate Actions

• Finkurve Financial board to consider raising funds via NCDs
• Steel Exchange board to consider raising funds

Tickers to Watch

• BPCL may dilute 30-40% in Andhra refinery; Aramco, OIL seen as partners
• Ducati bets on India-EU FTA as 40% GST weighs on luxury motorcycles
• Ceigall India bags over ₹10 billion infra project in Madhya Pradesh
• Arvind Fashions to acquire 31.25% stake of Flipkart in Arvind Youth Brands
• L&T wins order for Hyderabad Greenfield Radial Road phase-2 project
• High growth potential may lead to more gains in Hindustan Copper stock
• Govt claims $30 billion from Reliance, BP for underproduction from gas field
• Waaree Energies arm commissions 3.05 GW solar inverter facility in Gujarat

Must Read

• DAC okays defence procurement proposals worth ₹79K cr to boost capabilities
• 100% FDI in insurance likely to reduce premiums, attract global players: DFS Secy Nagaraju
• Industrial production grows 6.7% in November, highest in two years
• India's IPO fundraising up 12x, 373 issues raise ₹1.95 trillion in 2025
• Domestic airlines may log ₹170-180 billion net loss in FY26: ICRA
• Intel completes $5 billion share sale to Nvidia following Sept agreement
• Bank NPAs at multi-decade lows as gross NPA ratio falls to 2.1%: RBI data
• FinMin to hold colloquium on rising pendency of debt recovery cases in DRTs
• China to Pay Interest on Digital Yuan in Bid to Boost Adoption
   
  

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See you tomorrow with another edition of The Morning Edge.

Have a great trading day

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