Asian markets steady as softer US inflation tempers volatility

GLOBAL MOOD: Cautiously Risk On
Drivers:  US inflation, US–Iran Geopolitical Developments, AI-sector volatility

Asian equities fluctuated between modest gains and losses as investors absorbed softer US inflation data that reinforced expectations of Federal Reserve rate cuts later this year. The cooling price pressures helped stabilise sentiment after recent volatility tied to concerns over artificial intelligence-driven disruption in US technology stocks.

Japan and Australia stocks gained in holiday-thinned trade, while mainland China remains closed for the Lunar New Year. Lower US Treasury yields and a softer dollar offered support, though gains were capped by lingering caution around AI-heavy sectors and mixed signals from Chinese earnings.

Geopolitical developments, including renewed US–Iran diplomacy alongside heightened military positioning, also kept risk appetite measured. Overall, the tone is cautiously constructive, with easing inflation providing a floor but not yet sparking a decisive risk-on move.

TODAY’S WATCHLIST
 - India January WPI Inflation Data
 - India January Trade Balance Data
 - China January FDI Data
 - FOMC Member Bowman Speaks

THE BIG STORY
Iran indicated it is seeking a durable nuclear agreement with the US that delivers tangible economic benefits to both sides, days ahead of a second round of talks aimed at defusing tensions over Tehran’s nuclear programme. An Iranian foreign ministry official said any sustainable deal must generate “high and quick economic returns” for Washington as well.

The diplomatic push comes alongside a visible build-up in US military posture, with a second aircraft carrier deployed to the region as contingency planning continues in case negotiations fail. At the same time, President Trump and Israeli Prime Minister Benjamin Netanyahu reportedly agreed to intensify efforts to curb Iranian oil exports to China, which currently absorbs more than 80% of Iran’s crude shipments.

China pushed back, stating that lawful trade cooperation should be respected. Any successful move to restrict Iranian flows to China would materially squeeze Tehran’s oil revenues and tighten global crude balances.

Talks are being mediated through Oman, underscoring a dual-track strategy: diplomatic engagement paired with maximum economic and military leverage.

Data Spotlight
US headline inflation slowed to 2.4% y/y in January 2026, down from 2.7% previously and below expectations of 2.5%, marking the lowest level since May. The moderation was largely driven by base effects and a sharp easing in energy prices, with energy falling 0.1% annually after a 2.3% rise in December. Gasoline prices declined 7.5% y/y, while fuel oil dropped 4.2%.

On a monthly basis, CPI rose 0.2% m/m, softer than the expected 0.3%. Shelter and food both increased 0.2%, with modest gains across airline fares, medical care, recreation and communication services. Core inflation edged down to 2.5% y/y, the lowest since March 2021, while shelter inflation slowed to 3.0%.

Takeaway:
US inflation continues to moderate, driven primarily by energy and base effects, while core and services pressures remain contained but sticky, supporting expectations of gradual Fed easing rather than aggressive cuts.

WHAT HAPPENED OVERNIGHT

• US Stocks ended mixed as AI volatility caps broader rebound
  • The S&P 500 and Dow ended little changed, while the Nasdaq added 0.2%.
  • Softer January headline and core inflation reinforced expectations for multiple Fed rate cuts this year but failed to materially revive risk appetite.
  • Mega cap tech and semiconductors stayed under pressure: Nvidia (-2.2%), Apple (-2.3%), Alphabet (-1.1%), Meta (-1.6%), Broadcom (-1.8%).
  • Investors continue reassessing the sustainability of aggressive AI-driven data center capex.

• US Treasury yields fall as softer inflation revives cut hopes
  • The benchmark US 10-year Treasury yields fell 5.6 basis points to 4.048%, down from 4.104% on Thursday.
  • January headline CPI slowed to 2.4% y/y (vs 2.6% prior; 2.5% expected).
  • Monthly inflation eased to 0.2% m/m, below expectations of 0.3%.
  • Cooler price pressures reinforced expectations for multiple Fed rate cuts this year, supporting demand for longer-dated bonds. 

• US Dollar Index steady after softer inflation, set for weekly loss
  • The US dollar index edged down 0.07% to 96.85, and 0.84% weekly decline after January inflation came in softer than expected.
  • Data reinforced expectations that the Federal Reserve can afford to stay on hold in the near term, limiting upside momentum for the greenback.
  • The Japanese yen posted its strongest weekly gain in roughly 15 months, reflecting repositioning into defensive currencies.
  • The euro ticked up 0.02% to $1.1873, heading for a 0.5% weekly gain, while the dollar weakened 0.22% against the Swiss franc, set for a 1% weekly loss. 

• Crude oil prices rose as inflation relief offsets OPEC+ supply signals
  • Brent crude prices settled up 0.3% at $67.75/barrel, while WTI edged 0.08% higher to $62.89/barrel.
  • Softer US inflation data supported prices by reinforcing expectations for eventual Fed rate cuts and steadier demand.
  • Gains were capped as OPEC+ signalled it is leaning toward resuming production increases, reviving supply concerns.
  • Market tone remains balanced between macro-driven demand optimism and forward-looking supply risks. 

Day’s Ledger
Economic Data

• Japan December Industrial Production Data
• India January WPI Inflation Data
• India January Trade Balance Data
• China January FDI Data

Corporate Actions

• Oct-Dec Earnings: Amit Spinning Industries, Sejal Glass

Policy Events

• FOMC Member Bowman Speaks
• German Buba President Nagel Speaks 

Tickers to Watch

• ADANI ENTERPRISES arm Horizon Aero Solutions acquires Indamer Technics for ₹3.30 billion to expand MRO presence.
• ALKEM LABORATORIES subsidiary Enzene Biosciences completes USFDA pre-approval inspection with six procedural observations, none on data integrity.
• ASHOKA BUILDCON wins $45.27 million Liberia road upgrade project from Ministry of Public Works.
• AUROBINDO PHARMA arm Acrotech Biopharma gets USFDA nod for ADQUEY ointment for atopic dermatitis.
• DEEP INDUSTRIES secures Oil India order worth about ₹1.48 billion for 1,000 HP mobile drilling rig package.
• FORTIS HEALTHCARE Oct-Dec consolidated profit declines 21.9% to ₹1.94 billion vs ₹2.48 billion, revenue rises 17.5% to ₹22.65 billion vs ₹19.28 billion.
• HINDUSTAN COPPER faces ₹9.29 billion demand notice from Jharkhand government over Surda mine output; company contests claim.
• JUBILANT PHARMOVA USFDA classifies Montreal facility as OAI; operations resume in Q4FY26 after remediation.
• LODHA DEVELOPERS to acquire 80% stake in Solidrise Realty for ₹2.94 billion, making it a subsidiary.
• MANAPPURAM FINANCE receives RBI’s final approval for BC Asia Investments to acquire up to 41.66% stake.
• NATCO PHARMA receives CDSCO approval for generic Semaglutide injection, India launch slated for March 2026.
• NLC INDIA signs MoU with NALCO to collaborate on thermal and renewable energy projects.
• OLA ELECTRIC MOBILITY Oct-Dec consolidated loss narrows to ₹4.87 billion vs ₹5.64 billion, revenue falls 55% to ₹4.70 billion vs ₹10.45 billion.
• RELIGARE ENTERPRISES approves demerger of financial services and insurance units, with Religare Finvest to issue shares 1:1.
• SIGNATURE GLOBAL (INDIA) forms 50:50 JV with RMZ for Gurugram mixed-use project, RMZ to invest ₹12.83 billion.
• ZYDUS LIFESCIENCES receives USFDA final approval for Ammonium Lactate Cream 12%.

Must Read

• Bangladesh After the Verdict: Normalisation, Borders and Strategic Patience
  Bangladesh’s Verdict Opens Door to Reset with India
• SaaSocalypse Fears Put Indian IT into an AI Reckoning
• SBI The Elephant That Compounds When Banking is Boring
• SBI’s Reset Took Years. Markets Took Longer.
• The Hidden Risks of Simplifying US Bank Supervision
• Is the AI Panic Artificial?
• Risk-Based Deposit Insurance Framework Could Reshape Bank Behaviour
• Kerala 2026: When History Favours Congress, But Politics Doesn’t
• Iran says potential energy, mining and aircraft deals on table in talks with US
  
• China’s Wang Warns Takaichi Over Japan’s ‘Ghosts of Militarism’
  
• Europe aims to rely less on US defense after Trump's Greenland push
  
• Merz, Macron eye new European security framework 

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

Indian IT’s AI Reckoning Is Painful but Not Terminal

With the Nifty IT index down sharply and nearly ₹9 trillion erased, markets seem to be pricing in structural damage as AI compresses billing models built on headcount and hours. If large language models can automate meaningful parts of coding, testing and maintenance, what happens to a revenue model that scales with effort?

But is this extinction — or transition?

Dhananjay Sinha writes, every wave, from Y2K to cloud, forced Indian IT to adapt. This time the shift is deeper because AI questions the revenue engine itself, not just the technology stack. Yet enterprises deploying AI still need integration, governance, cybersecurity and domain customisation. If firms pivot from labour arbitrage to outcome engineering, could margins hold even if growth moderates? The real question isn’t whether AI disrupts — it’s who reinvents fast enough.

This is not a sunset industry. It is an industry confronting the end of a comfortable model.