Asian Markets Mixed as Iran Tensions and Hawkish Fed Weigh on Sentiment

GLOBAL MOOD: Risk Off
Drivers: US-Iran tensions, Private Equity concerns impact Wall Street, Fed Rate-Cut Path

Asian markets traded mixed on Friday, reflecting a cautious risk-off undertone after Wall Street declined overnight amid weakness in private credit stocks and escalating US–Iran tensions. Investors remain wary as US President Donald Trump signalled a decision on potential military action against Tehran within 10 days, pushing oil prices to multi-month highs and lifting the dollar.

Stronger US labour data and hawkish Federal Reserve minutes have further dampened hopes for near-term rate cuts, driving Treasury yields higher and tightening financial conditions. While resilient jobless claims point to a still-firm US economy, a widening trade deficit and surging crude prices have added to inflation concerns.

With geopolitical risks intensifying and policy easing bets fading, sentiment remains fragile across regional equities.

TODAY’S WATCHLIST
 - India Flash Composite, Services and Manufacturing PMI Data
 - ECB President Lagarde Speech
 - US Fed Bostic Speech

THE BIG STORY
US President Trump convened the first meeting of his Board of Peace on Thursday, announcing that nations had pledged $7 billion to a Gaza reconstruction fund contingent on Hamas disarming, a goal that remains far from reality. Key unresolved questions around Hamas disarmament, Israeli troop withdrawal, fund disbursement, and humanitarian aid flow will test the board's effectiveness in the months ahead. The Washington meeting forms part of Trump's broader effort to build a reputation as a global peacemaker, even as his administration simultaneously threatens military action against Iran.

Trump issued a stark warning to Tehran on Thursday, demanding a nuclear deal within 10 to 15 days or face consequences he described as "really bad things." Iran responded by threatening to strike US bases in the region if attacked. Despite a massive US military buildup in the West Asia fuelling fears of a wider war, Trump struck a measured tone saying negotiations were progressing well while insisting on a "meaningful" agreement. The dual posture of diplomacy and military pressure reflects Washington's high-stakes gamble in the region, with oil markets and global risk sentiment watching closely.

Data Spotlight
The US trade deficit widened sharply to $70.3 billion in December 2025, well above the $55.5 billion forecast and up from $53 billion in November, as exports fell 1.7% on a drop in non-monetary gold while imports rose 3.6% led by computer accessories. For full year of 2025, the deficit came in at $901.5 billion, marginally below 2024's $903.5 billion but still among the largest since 1960. The goods trade deficit told a similar story, widening 19% to $98.5 billion in December, the largest since July, driven by a 15.9% surge in industrial supply imports.

On the labour market front, initial jobless claims fell sharply by 23,000 to 206,000, well below the 225,000 estimate and back to levels comfortably below last year's average. Continuing claims edged up 17,000 to 1,869,000, consistent with the Fed's view of a stable market where slow firing momentum offsets soft hiring.

Meanwhile, US crude inventories posted a surprise draw of 9.014 million barrels, the largest drop in five months against expectations of a 2.1-million-barrel build with gasoline stocks also falling 3.213 million barrels, well above the 0.3-million-barrel draw forecast.

Takeaway:
Resilient labour market data and surging import volumes paint a picture of an economy still running warm, even as the widening trade gap and unexpected inventory drawdowns add to inflationary pressures and support oil's ongoing rally.

WHAT HAPPENED OVERNIGHT

• US stocks slips as private equity rout and Apple weakness offset industrial gains
  • The S&P 500 closed lower, with private equity, Apple, and Walmart leading losses.
  • Blue Owl tumbled 6% after selling $1.4 billion in assets and freezing redemptions at one of its funds to manage debt.
  • The move sparked a sector-wide selloff with Apollo, Ares, KKR, and Carlyle all fell between 1.9% and 5.2%, amplifying existing worries about credit quality and lender exposure to software stocks.
  • Apple fell 1.4%, the single biggest drag on the S&P 500.
  • Walmart dipped 1.4% after new CEO John Furner opened with a conservative fiscal 2027 outlook, despite announcing a $30 billion buyback plan.

• US Treasury yields ended up for third straight session as rate-cut bets fade
  • The 10-year Treasury yield rose above 4.1%, its highest level in a week, extending to a three-session climb.
  • Strong jobless claims data, falling to 206K, well below estimates reinforced the case for the Fed to hold rates steady.
  • Hawkish FOMC minutes showed policymakers divided, with some raising the possibility of further hikes if inflation stays persistently high.
  • Surging oil prices amid US-Iran tensions added to inflation concerns, putting further upward pressure on yields.
  • The 2025 US trade deficit remained among the largest on record, adding a note of caution on the broader fiscal outlook. 

• US Dollar rises for fourth session amid strong data, hawkish Fed stance
  • The US dollar index rose toward 98, near a four-week high, marking a fourth consecutive session of gains as resilient US economic data and hawkish Fed rhetoric reduced appetite for rate-cut bets.
  • Weekly jobless claims fell sharply, signalling a labour market that remains on stable footing and giving the Fed room to hold rates steady.
  • Fed minutes show a hawkish stance, with policymakers split on rates; some suggest hikes if inflation stays high, lowering hopes for several cuts this year.
  • Rising US-Iran tensions added a further tailwind to the dollar, as surging oil prices stoked inflation concerns. 

• Crude oil prices hit multi-month highs amid rising US-Iran tensions
  • Brent crude prices rose to $71.50/barrel and WTI climbed to $66.50/barrel, both hitting their highest levels since early August 2025 as West Asia risk premium build rapidly.
  • Markets anticipate possible supply disruptions from West Asia, as officials indicate the US may soon launch a military operation there.
  • Israel is reportedly pushing for regime change in Tehran, significantly raising the stakes beyond a diplomatic resolution and amplifying supply risk fears.
  • The head of the UN's nuclear watchdog warned that Iran's window for a diplomatic deal is narrowing, as a US military build-up in the region continues to accelerate.
  •  Asia-Pacific markets were mixed on Friday, after all three major Wall Street indexes declined overnight pressured by a drop in private credit stocks and Iran-U.S. tensions.
  • Prospects of a strike on Iran have risen with US President Donald Trump saying that he would take a call to decide on military action on Tehran in the next 10 days.

Day’s Ledger

Economic Data

• Japan Inflation Rate 
• India Flash Composite, Services and Manufacturing PMI Data
• India Credit-Deposit Data
• India FX Reserves 
• Euro Composite, Services and Manufacturing PMI Data

Corporate Actions

• Bazel International board to consider allotment of securities 
• Cosyn board to consider fund raising
• JSW Infrastructure board to consider fund raising

Policy Events

• ECB President Lagarde Speech
• Fed Bostic Speech

Tickers to Watch

• Indian Bank consortium seeks bids to sell ₹7.38 billion BLA Power bad loans
• Govt sets up high-level committee to monitor progress of PFC-REC merger
• Reliance to invest ₹10 trillion in seven years to cut intelligence cost
• Swiggy shuts Snacc instant delivery service to refocus on core areas
• JioHotstar teams up with OpenAI to bring ChatGPT-driven content discovery in India
• Puravankara launches 6.99-acre Purva Silversky premium project in Bengaluru
• Embraer, Mahindra Group plan to set up MRO base for C-390 aircraft in India

Must Read

• AI Impact Summit Day 4: Modi redraws AI roadmap; Ambani pledges ₹10 trillion
• India well positioned to lead, shape future of AI: OpenAI's Sam Altman
• India may attract $200 billion in data centre investment by 2030: Deloitte
• Healthcare, education to flourish with AI: Bharti Chairman Sunil Mittal
• Brazil pushes deeper agri-tech, livestock ties with India amid US tariffs
• Rare earth permanent magnet production to begin by year-end: Mines Minister
  
  

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See you tomorrow with another edition of The Morning Edge.

Have a great trading day

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