Asian Markets Tumble as West Asia War Sparks Global Risk-Off

GLOBAL MOOD: Extreme Risk Off
Drivers: Iran war

Asian markets led a sharp global risk-off move Monday as escalating conflict between Iran and the US.-Israel axis rattled investors. Japan’s Nikkei tumbled nearly 2% at the open, with broader regional indices under heavy pressure as markets struggled to price the assassination of Iran’s Supreme Leader and the risk of a wider West Asia war.

Safe-haven flows dominated. Oil prices surged more than 8%, with Brent approaching $80 a barrel amid fears of supply disruption through the Strait of Hormuz, while gold climbed 2.3%. US stock futures slid over 1%, signalling deeper losses ahead on Wall Street. The combination of geopolitical shock, energy supply risk and the threat of multi-front regional escalation has triggered a broad flight from equities into commodities and defensive assets.

TODAY’S WATCHLIST
 - HSBC India February Manufacturing PMI
 - India January Industrial Production Data

THE BIG STORY
Israel launched a sweeping new wave of strikes on Tehran on Sunday, killing Iran's Supreme Leader Ali Khamenei and dismantling the majority of aerial defence systems across western and central Iran. The Israeli military said its air force had opened the "path to Tehran," with spokesperson Lieutenant Colonel Nadav Shoshani warning that Israel had both the capabilities and targets to continue "for as long as necessary." Iranian retaliation struck multiple Gulf states, killing three in the UAE and one in Kuwait, while a missile strike on the Israeli town of Beit Shemesh killed eight. The death of Khamenei leaves Iran facing its most significant leadership crisis in five decades, with the Islamic Republic scrambling to rebuild its command structure amid an active military assault.

The shockwaves are spreading rapidly beyond the immediate conflict zone. Oil surged toward $80 a barrel over the counter on Sunday with analysts warning of a potential move to $100, as fears of supply disruption through the Strait of Hormuz intensified. Shipping, air travel, and regional trade face severe disruption as the conflict escalates.

Compounding the instability, Afghanistan reported firing on Pakistani jets over Kabul on Sunday following a week of cross-border Pakistani strikes, the heaviest fighting between the two neighbours in years. With conflicts now igniting across multiple fronts from the Levant to South Asia, Qatar and Saudi Arabia are calling for restraint and offering to mediate, but a path to de-escalation remains deeply uncertain.

Data Spotlight
US producer prices rose 0.5% month-on-month in January 2026, above the 0.3% forecast and following a downwardly revised 0.4% gain in December, as a 0.8% surge in services prices, the steepest since July more than offset a 0.3% drop in goods prices driven by a 5.5% fall in gasoline. Services inflation was led by a sharp 14.4% jump in professional and commercial equipment wholesaling margins, with further gains across apparel, chemicals, healthcare retail, and food and alcohol. Core PPI told an even more concerning story, climbing 0.8% month-on-month double the 0.3% forecast and the steepest rise since July 2025 pushing the annual core rate to 3.6%, up from 3.3% in December and above the 3% market estimate.

Takeaway:
The broad-based acceleration in producer prices, particularly the surge in core PPI, signals that upstream inflation is re-intensifying and has yet to peak. With companies already passing tariff costs to consumers, the pipeline from producer to consumer prices looks uncomfortably hot, leaving the Fed with little room to ease and raising the risk that the next CPI print surprises to the upside.

WHAT HAPPENED OVERNIGHT

• US stocks posts steep weekly losses as inflation, AI doubts and tariffs converge
  • The S&P 500 and Nasdaq each fell 0.4%, while the Dow tumbled 1.1%, its biggest weekly drop since mid-November.
  • A hotter-than-expected inflation print suggested companies are passing tariff costs to consumers, complicating the Fed's rate-cut path.
  • Nvidia slid a further 4.1%, extending Thursday's post-earnings drop as skepticism over AI capex sustainability deepened.
  • CoreWeave sank 18.6% after disappointing guidance, while Block announced massive layoffs, further denting sentiment.
  • Apollo and Jefferies fell 8.6% to 9.3% on growing private credit contagion fears.
  • Dell surged 21.8%, a rare bright spot, on record AI server demand and a sizeable buyback announcement.

• US Treasury yields breaks below 4% for first time in four months on broad safety bid
  • The 10-year Treasury yield fell below 4%, its lowest in four months, capping February 25 basis points lower, the strongest monthly performance in a year.
  • Safe-haven demand persisted across three fronts, trade policy uncertainty, West Asia tensions, and growing concerns over US economic resilience.
  • Producer prices rose more than expected for a second straight month in January, adding to sticky inflation concerns and complicating the Fed's rate path.
  • The rare combination of falling yields and rising inflation reflects a market increasingly pricing in stagflation risk over near-term rate policy.

• US Dollar holds above 97.7 as hot PPI and tight labour market reinforce Fed hold
  • The US dollar index stayed above 97.7, largely unchanged throughout the week as sticky inflation kept rate-cut expectations firmly in check.
  • January PPI rose 0.5% month-on-month, above the 0.4% prior reading and the 0.3% forecast, signalling persistent upstream price pressures.
  • Both initial and continuing jobless claims came below expectations, pointing to a stable labour market with solid worker retention.
  • The combination of hot producer prices and a tight jobs market reinforce the Fed's case for holding rates steady, underpinning the dollar's floor.

• Crude oil prices surge toward $80 as US-Israeli strikes on Iran ignite war fears
  • Brent crude prices jumped 10% to around $80/barrel over the counter on Sunday after US and Israeli strikes on Iran plunged the West Asia into a new war.
  • Analysts are now predicting prices could climb as high as $100/barrel if the conflict escalates further.
  • Prior to the strikes, Brent had risen above $72/barrel and WTI climbed to around $67/barrel on Friday to a near seven-month highs, as US-Iran nuclear talks were extended.
  • Friday's gains put Brent on track for a second straight monthly gain, reflecting the persistent geopolitical risk premium that has underpinned crude through February.

Day’s Ledger*

Economic Data

• HSBC India February Manufacturing PMI
  
• India January Industrial Production Data
  
• US February ISM Manufacturing PMI

Corporate Actions

• Balkrishna Industries to consider fund raising
  
• DCM Shriram Fine Chemicals to detail earnings
  
• Sheela Foam to consider dividend

Policy Event

• Bank of Canada Deputy Governor Kozicki Speaks
  
• UK MPC Member Ramsden Speaks

Tickers to Watch

• MARUTI SUZUKI INDIA February total sales up 7.3% YoY at 213,995 units vs 199,400 units.
• HYUNDAI MOTOR INDIA February total sales rise 12.6% YoY to 66,134 units, highest-ever February sales.
• HERO MOTOCORP February total sales jump 43.8% YoY to 558,216 units vs 388,068 units.
• EICHER MOTORS (ROYAL ENFIELD)  February total sales grow 11% YoY to 100,905 units vs 90,670 units.
• TATA MOTORS – COMMERCIAL VEHICLES February total sales surge 32% YoY to 42,940 units vs 32,533 units.
• TATA MOTORS – PASSENGER VEHICLES February total sales climb 35% YoY to 63,331 units vs 46,811 units.
• MAHINDRA AND MAHINDRA February total sales advance 18% YoY to 97,177 units vs 82,319 units.
• M&M TRACTOR February tractor sales rise 34% YoY to 34,133 units vs 25,527 units.
• TVS MOTOR COMPANY February total sales increase 31% YoY to 529,000 units vs 403,000 units.
• BHARAT COKING COAL February raw coal production edges up 0.1% YoY to 3.50 MT vs 3.49 MT.
• BHARTI AIRTEL partners with Google to roll out RCS messaging with enhanced spam protection and interactive features for users in India.
• BHARAT ELECTRONICS declares interim dividend of ₹1.95 per share for FY26.
• BRIGADE ENTERPRISES launches Brigade Stellaris residential project in Chennai with gross development value of ₹17 billion.
• NIVA BUPA HEALTH INSURANCE COMPANY receives IRDAI show cause notice and advisory following February 2025 inspection; no financial or operational impact reported.
• ELEGANZ INTERIORS secures interior fit-out order worth ₹1.22 billion from Global Information Technology Organisation.
• AUROBINDO PHARMA informed that US FDA inspects Eugia Pharma’s Unit-I facility in Telangana; concludes with four observations.

Must Read

• Oil Shock Arithmetic Under a Wider West Asia Conflict
  
• Trump’s Risky War of Choice in Iran
• No change in Tata Trustees’ support for N Chandrasekaran
• Escalation Pathways and Strategic Risk in the Middle East
• Trump’s Iran Strikes Usher in an Era of Unrestrained American Power
• A Crisis Lurks as Asians Bring Money Back Home
• The AI Power Struggle Is Out of Silicon Valley’s Control
• China’s Honor Shows Humanoid and Robot Phone Demo in AI Pivot  

See you tomorrow with another edition of The Morning Edge.
Have a great trading day


Tamil Nadu 2026: The Three-Cornered Battle That Could Rewrite History

Amitabh Tiwari writes, Tamil Nadu 2026 might be the most unpredictable state election India has seen in decades.

The famous "revolving door" that has defined the state's politics for 40 years? It may finally be breaking. 
A movie star is pulling massive crowds. A Chief Minister is fighting history itself. And survey data shows a margin so thin, it fits inside the margin of error.

Three parties. One electorate. Zero certainty.

What makes this especially fascinating isn't just who's ahead — it's who's playing spoiler, and which side bleeds more because of it.

(*Compiled from various media sources)