Asian Markets Turn Risk-Off as Long-End Yields Resume Rise 

Global Mood: Cautiously Risk-off
Drivers: US Vows Toughest Iran Sanctions, US Treasury climb back

Asian markets turned risk-off Friday as renewed selling in long-dated government bonds pushed yields higher and weighed on equity valuations. Japan’s Nikkei fell 0.92%, South Korea’s Kospi declined 1.07% and Australia’s ASX 200 slipped 0.21%, while the Kosdaq dropped 2.44%. The bond selloff reflected persistent inflation concerns and rising government borrowing costs, keeping global financial conditions tight. 

Geopolitical risks added to the pressure. The US signalled tougher sanctions on Iran, raising the prospect of a wider economic confrontation with China, its largest buyer of Iranian oil. Washington also imposed fresh sanctions linked to Hezbollah. Meanwhile, Russia’s latest missile and drone barrage on Kyiv, which killed at least 17 people, reinforced concerns over intensifying geopolitical instability. Markets are therefore balancing elevated yields and tighter financing conditions against the potential economic fallout from sanctions and prolonged conflicts. The immediate mood remains defensive, with bond-market volatility and geopolitical risks limiting appetite for equities.

THE BIG STORY
Treasury Secretary Bessent pledged "the toughest sanctions in history" on Iran Thursday, framing the economic campaign as an alternative to resumed large-scale military strikes and promising details at a Monday press conference. Trump had a day earlier threatened "economic warfare" against any country providing Iran a lifeline, a barely veiled warning to China, which buys over 80% of Iran's shipped oil. Bessent said a successful sanctions campaign would collapse the Iranian regime, while China's embassy responded that "sanctions and pressure do not help resolve the problem," setting up a potential secondary sanctions confrontation with Beijing that could have significant implications for US-China trade relations at a time when rare-earth mineral flows remain a point of leverage. The US simultaneously imposed fresh sanctions on Hezbollah, redesignating it as an agent of Iran's IRGC Quds Force and targeting a Turkish businessman running cash smuggling networks across the region.

Russia launched one of the most devastating attacks of the war on Kyiv Thursday night, killing 17 people and injuring over 40 in a massive wave of cruise, ballistic and hypersonic missiles alongside 168 drones. A nine-storey residential block was destroyed, with a school, children's hospital and kindergarten among the 30 buildings damaged across the capital and surrounding region. Zelenskiy declared Friday a day of mourning and called the strike one of the most "cynical and calculated" of the entire war, again pleading with allies for Patriot interceptors as Ukraine's stocks run critically low. The air force downed nearly 90% of drones and most cruise missiles but did not confirm any ballistic missile intercepts, underscoring the asymmetric vulnerability that is now costing Ukrainian civilian lives at an accelerating rate.

Data Spotlight
Initial jobless claims fell 6,000 to 206,000 in the second week of August, below expectations of 210,000 and maintaining the streak of low claim counts since July's near 60-year low. Continuing claims rose 18,000 to 1,799,000, though the data overall continued to point to labour market resilience despite July's unexpected payroll contraction.

The Philadelphia Fed Manufacturing Index surged to 47.4 in August from 41.4 in July, its highest since April 2021 and far above expectations of 25, with nearly 57% of firms reporting higher activity. Employment jumped to its strongest reading since April 2022, while price pressures moderated. The future general activity index surged 39 points to 73.6, its strongest reading since August 1983.

Japan's annual inflation rose to 1.9% in July, a seven-month high, as government energy subsidy reductions slowed the decline in electricity prices and food, transport and household goods costs accelerated. Core inflation, excluding fresh food, rose to 1.8%, matching expectations but remaining below the Bank of Japan's 2% target for a sixth consecutive month.

Takeaway: Philadelphia manufacturing's surge to multi-year highs and resilient jobless claims contrast with July's weak payroll print, pointing to an uneven US economic picture. Japan's rising inflation, driven partly by subsidy withdrawal, adds pressure on the Bank of Japan to reassess its policy stance as price pressures broaden. 

WHAT HAPPENED OVERNIGHT

US stocks fall as Walmart miss, surging yields, and oil price gains compound consumer worries

• The Dow fell 1.32%, S&P 500 lost 0.87%, and Nasdaq dropped 1.00%, with the S&P 500 now 2% below its recent record and Nasdaq more than 3% below its June 2 peak.
• Treasury yields resumed their climb despite Wednesday's buyback announcement, with Bessent flagging possible further buyback increases, though yields quickly reversed their brief pullback.
• Oil gained for a fifth consecutive session on stalled US-Iran talks, lifting energy stocks 0.4% as the sole sector gainer alongside real estate.
• Crypto stocks surged, with Strategy and Coinbase each rallying over 7% after Trump called on Congress to pass a crypto bill.

US Treasury yields rebound to erase buyback-driven drop as structural pressures reassert

• The 10-year yield rose back to 4.70%, just 5bps from this week's 20-month high, while the 30-year climbed to 5.25% as markets quickly reversed Wednesday's buyback-driven decline.
• The Treasury confirmed it would at least double long-maturity buybacks to $4 billion next quarter, adding to a package of measures including the US-Japan joint yen intervention and the push to expand the Fed's FIMA facility.
• Structural drivers of the long-end selloff: soaring AI company debt issuance, higher federal deficit spending, and elevated energy prices from the Persian Gulf tanker blockade, reasserted after the brief reprieve.
• Warsh's signals that rate hikes may not be his preferred inflation tool continued to fuel concerns over unanchored inflation, keeping upward pressure on longer-dated yields.

Dollar holds near three-month lows as Treasury bond buyback expansion signals active yield management

• The dollar index hovered at 98.8 as the Treasury announced it would at least double long-maturity buyback operations covering 10-to-30-year securities, signalling readiness to actively cap long-term yields and improve global dollar liquidity.
• FOMC minutes confirmed some policymakers favoured raising rates this year to prevent stronger inflationary pressures from emerging later, keeping tightening risk alive despite the dollar's weakness.
• Ongoing US-Iran stalemate and elevated Middle East uncertainty kept inflation risks in focus, limiting the dollar's downside from more aggressive repricing of Fed expectations.

Oil surges over 2% to one-month high as Trump threatens economic warfare against Iran supporters

• Brent settled at $93.78/bbl, up 2.4%, and WTI at $87.83, up 2.3%, both at their highest since July 24 and marking a fifth consecutive session of gains.
• Trump threatened “economic warfare” against countries supporting Iran, with Treasury Secretary Bessent set to detail measures Monday.
• Analysts said the threats are unlikely to force Iran to give up control of the Strait of Hormuz without major U.S. concessions.
• The UAE suspended all financial and economic transactions with Iran, deepening the region’s economic isolation.
• The U.S. push could strain ties with China, the biggest importer of Iranian crude.
• Hormuz traffic remained unchanged at far below pre-war levels, while U.S. distillate stocks fell for a third week despite a 4.4-million-barrel crude inventory build.
•  

Day’s Ledger*

Economic Data

• India August S&P Global flash Services PMI
• India August S&P Global flash Manufacturing PMI
• India weekly FX Reserves
• UK July Core Retail Sales
• UK August S&P Global Manufacturing PMI
• EuroZone August HCOB Eurozone Manufacturing PMI
• US August S&P Global Manufacturing PMI

Corporate Actions

• Earnings: Innova Captab Limited
• Emkay Global Financial Services, Federal Bank, and ICICI Bank to consider fund raising 

Tickers to Watch

• MANIPAL HEALTH ENTERPRISES: April-June net profit down 7.7% YoY to 2.31 billion rupees; revenue up 38.1% to 30.91 billion rupees; EBITDA up 25.6% to 7.365 billion rupees, margin narrows to 23.8% from 26.2%.
• SAATVIK GREEN ENERGY: Subsidiary Saatvik Solar Industries bags 1.9 billion rupee order from a domestic IPP/EPC player for solar PV modules, executable by March 2027.
• KRISHNA INSTITUTE OF MEDICAL SCIENCES (KIMS): Signs O&M agreement with Aurevia Hospitals to operate 250-bed Arete Hospital in Gachibowli, Hyderabad, for 5 years (extendable by 5 more years), earning a fee of 9% of hospital net revenue.
• RAILTEL: Secures 164.79 million rupee order from Western Coalfields for a 60-month MPLS VPN network on a rental basis, execution through September 2031.
• TATA MOTORS PASSENGER VEHICLES: Restores normal operations at Sanand plants and Gujarat suppliers after flooding disruption; expects non-material damage of 35-40 million rupees, insurance claim below 30 million rupees; no material impact on production or financials.
• LEMON TREE HOTELS: Opens Lemon Tree Hotel in Bharuch, taking Gujarat portfolio to 12 properties; 20 more hotels in pipeline in the state, managed via subsidiary Carnation Hotels.
• HINDUSTAN AERONAUTICS: NCLT Bengaluru orders dissolution of dormant JV Infotech HAL (50:50 with Cyient); winding-up began March 2024, no material impact on HAL's defence programmes or balance sheet expected.
• TORRENT POWER: CFO Saurabh Mashruwala resigns effective August 20, 2026; Vikas Poddar appointed CFO effective August 21, 2026.
• RALLIS INDIA: CFO Bhaskar Swaminathan to resign effective November 4, 2026, to join another Tata Group company; Shridhar Radhakrishnan appointed new CFO from the same date.
• FMCG STOCKS (ADANI WILMAR, PATANJALI FOODS, MARICO, AGRO TECH FOODS): In focus after Maharashtra FDA Commissioner advises against buying loose/unsealed edible oil, calling it unsafe; FDA issues compliance order for edible oil sector following adulteration violations.
• NIVA BUPA HEALTH INSURANCE: IRDAI warns company for breaching EoM limits in FY26, bars it from opening new business places for six months from August 19, 2026.
• AMAGI MEDIA LABS: In focus after launching 6 billion rupee block deal representing 5% of total equity.
• KFIN TECHNOLOGIES: Block deal sees General Atlantic Singapore sell 8.8% stake (1.51 crore shares) for 14 billion rupees; Invesco MF buys 2.5% stake for 4 billion rupees; Mirae Asset MF, Kotak Mahindra MF and HSBC MF buy 1.5%, 1.2% and 1% stakes for 2.37 billion, 1.85 billion and 1.65 billion rupees respectively; deal executed at average price of 925 rupees/share on NSE. 

Must Read

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(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day