Asian Markets Gain Despite Rising West Asia Risks

Global Mood: Cautiously Risk- on
Drivers:  Russia-Iran CIA Strike Link, Houthis Hit Saudi Tankers, Dual Chokepoint Risk

Asia-Pacific markets opened higher on Thursday, reflecting a cautiously risk-on mood as investors extended the global technology-led rally despite escalating geopolitical tensions in West Asia. Gains across South Korea, Japan and Australia were supported by optimism around corporate earnings and continued demand for AI-related stocks, although rising crude oil prices limited broader risk appetite. Investors remained focused on oil, as sustained gains could revive inflationary pressures and complicate the Federal Reserve's monetary policy outlook.

Geopolitical risks, however, continued to cast a shadow over markets. The US launched another round of strikes against Iran after Washington questioned Tehran's commitment to negotiations, while reports that US intelligence is examining possible Russian support for Iranian military operations added a new layer of uncertainty. Meanwhile, Houthi attacks on Saudi oil tankers heightened concerns over disruptions at the Bab al-Mandeb Strait, alongside continuing tensions in the Strait of Hormuz. Although equity markets remained resilient, investors stayed alert to the potential impact of energy supply disruptions, inflation and broader geopolitical escalation on global growth.

THE BIG STORY
US intelligence analysts are investigating whether Russia provided targeting data or advanced drone technology to Iran for strikes on CIA facilities in the Gulf — a finding, if confirmed, that would represent a dramatic widening of the conflict's geopolitical dimensions. Four people familiar with the matter said no firm conclusions have been reached, but the precision and effectiveness of the strikes, combined with Russia's documented broader technical support for Iran, have raised serious questions. The possible Russia-Iran targeting coordination on CIA facilities had not previously been disclosed, and its confirmation would fundamentally alter Washington's calculus on both the Iran war and its posture toward Moscow.

On the ground, the Houthis claimed strikes on two Saudi oil tankers in the Red Sea on Thursday as part of their declared naval blockade on Saudi Arabia, raising the spectre of a simultaneous second chokepoint alongside Hormuz — a scenario that would dramatically deepen the global energy supply crisis already pushing US pump prices above $4 and stoking inflation worldwide. The US carried out a twelfth consecutive night of strikes on Iran, while Trump attended a ceremony for four service members killed in Iranian attacks and warned that Iranian infrastructure would be hit if ships continued to be targeted. With Hormuz near-totally blocked, Bab al-Mandeb now under active threat, a possible Russia-Iran military nexus emerging, and congressional elections six months away, the conflict is entering its most strategically complex and politically combustible phase yet.

Data Spotlight
The 30-year fixed mortgage rate rose 4 basis points to 6.69% in the week ending July 17th, an 11-month high, as renewed Iran hostilities reignited inflation concerns and pushed Treasury yields higher. Rates have climbed 0.60 percentage points since US and Israeli strikes against Iran began in late February. Despite higher borrowing costs, total mortgage applications rose 1.9%, with purchase applications up 5.5%.

US Trade Representative Jamieson Greer signalled plans to secure interim trade arrangements with Canada and Mexico by year-end, while deferring contentious USMCA revisions including automotive rules of origin, labour standards and environmental regulations to 2027. Greer said options would be presented to the leaders of all three countries before December, though no details on scope were offered.

South Korea's economy expanded 0.6% quarter-on-quarter in Q2 2026, beating expectations of 0.4%, driven by semiconductor and IT export growth of 1.4%. Private consumption rose 0.4% while construction investment declined. Year-on-year, GDP grew 3.7%, easing slightly from Q1's 3.8% but above market estimates of 3.5%.

Takeaway: South Korea's resilient GDP growth, driven by AI and semiconductor exports, contrasts with mounting US housing affordability pressures as mortgage rates hit 11-month highs on renewed West Asia tensions. Uncertainty over North American trade arrangements adds another layer of complexity to the US economic outlook heading into the second half of 2026.

WHAT HAPPENED OVERNIGHT

US stocks edge lower as markets await Alphabet and Tesla earnings amid oil-driven inflation fears

• The Dow fell 0.01%, S&P 500 lost 0.14%, and Nasdaq dropped 0.57%, as choppy trading reflected caution ahead of key Magnificent Seven earnings after the bell.

• The Philadelphia Semiconductor Index rose 0.4% for a third straight session of gains, while software stocks weighed on the Nasdaq, with investors becoming more selective within the AI trade.

• Crude settled at a six-week high, up 3%, as Houthi threats to Red Sea shipping added to Hormuz disruption fears, with Trump vowing to destroy Iranian infrastructure for every ship attacked.

• A Reuters poll showed economists expect the Fed to hold rates for the rest of 2026, though the risk of a hike remains elevated with traders pricing a 66% chance of a hold at next week's meeting.

US Treasury yields hit fresh two-month high as West Asia hostilities keep oil and inflation fears elevated

• The 10-year yield rose to 4.64% for a third straight session, driven by persistent US-Iran hostilities pushing oil to six-week highs with no near-term peace talks in sight.

• Last week's softer CPI and PPI offered some offset, but the continued oil price surge keeps the inflation outlook uncertain.

• Markets price a 61% chance of a September Fed hike, with the central bank in blackout ahead of next week's widely expected hold

US Dollar holds steady at 101.1 as West Asia tensions and inflation fears keep markets on edge

• Oil extended gains to a six-week high as both the US and Iran signalled peace talks are unlikely near-term despite ongoing mediation, keeping inflationary pressure fears elevated.

• Markets price a 61% chance of a September Fed hike, with the central bank in blackout ahead of next week's widely expected hold.

• The dollar held near 40-year highs against the yen and one-week highs against the pound, while edging slightly lower against the euro.

Oil settles at six-week high as dual-strait threat drives mounting supply fears

• Brent settled at $94.07/bbl, up 3.36%, and WTI at $86.83, up 2.95%, with Brent touching a session high of $95.47, its highest since June 11.

• The Brent three-month timespread widened to $9.26/bbl, its deepest backwardation since May 22, signalling tightening near-term supply conditions.

• The US carried out an 11th consecutive night of strikes on Iran, with Trump vowing to destroy a bridge or power plant for every ship targeted in the Strait of Hormuz.

• Iran's Revolutionary Guards warned shipping companies the Hormuz southern route is mined, while five tankers diverted in the Red Sea following Houthi threats to block Saudi oil exports.

• The EU's naval force Aspides advised vessels linked to Israel, the US, or Saudi Arabia to avoid the Red Sea and Gulf of Aden amid escalating Houthi attack risks.

• Asian refiners are seeking alternative routes through the Suez Canal and around Africa to move Saudi crude from Yanbu as both key energy chokepoints face simultaneous disruption.

• US crude inventories rose 2 million barrels to 411.7 million barrels last week, against expectations for a 1.1 million barrel draw, as refinery runs eased and exports dropped.

Day’s Ledger* 

Economic Data

• US Initial Jobless Claims
  

Corporate Actions

• Earnings: Capital Small Finance Bank, Chennai Petroleum Corporation, Cipla Limited, Coromandel International, Indiabulls Limited, InterGlobe Aviation, Infosys, Suryoday Small Finance Bank, Ujjivan Small Finance Bank

Policy

• ECB July Interest Rate Decision

• German Buba Mauderer Speaks

Tickers to Watch

• DR REDDY'S LABORATORIES: April-June 2026 profit, revenue and operating performance miss estimates by a wide margin, with a sharp YoY decline across key financial metrics.

• HCLTECH: Selected by TIM Brasil, Brazil's 5G leader, to enable South America's first cross-platform eSIM transfer capability, enhancing mobile telephony experience for millions of users across Brazil.

• HINDUSTAN PETROLEUM CORPORATION: April-June 2026 net loss at 115.264 billion rupees, versus net profit of 49.015 billion rupees in the preceding quarter, hit by weak marketing margins.

• IIFL FINANCE: April-June 2026 consolidated net profit up 189.3% YoY to 6.751 billion rupees from 2.334 billion rupees.

• INDUSIND BANK: April-June 2026 net profit up 46.5% YoY to 10.025 billion rupees from 6.84 billion rupees, beating CNBC-TV18 poll estimate of 7.25 billion rupees.

• NACL INDUSTRIES: April-June 2026 consolidated net profit after tax up 59.8% YoY to 208.4 million rupees from 130.4 million rupees.

• NIPPON LIFE INDIA ASSET MANAGEMENT: April-June 2026 net profit up 27.2% YoY to 5.04 billion rupees from 3.96 billion rupees.

• SHOPPERS STOP: April-June 2026 revenue from operations up 11.2% YoY to 12.914 billion rupees from 11.611 billion rupees.

• SONA BLW PRECISION FORGINGS (SONA COMSTAR): Partners with DENSO Corporation, Japan, to set up two joint ventures for developing, designing, manufacturing and marketing advanced electric and hybrid powertrain systems.

• UCO BANK: April-June 2026 net profit up 8% YoY, aided by strong NII growth, lower provisions and improving asset quality.

Must Read

• The Government Earned ₹1.29 Trillion Taxing Equities. Why Will It Let It Go?

• Market Depth Can Turn Rainfall Shocks into Smaller Price Spikes

• Trump's Generic Drug Tariff Threat: Two Years Is a Long Time

• One Exam's Lost Credibility is Becoming a System-Wide Trust Question

• India's Healthcare Crisis: Why Insurance Coverage Fails the Insured

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

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