Global Mood: Cautiously risk-off
Drivers: Houthi attacks on Saudi airports, Global yields, GST Council Meeting

Asian markets traded lower on Thursday as rising sovereign bond yields and renewed gains in oil prices weighed on risk sentiment. Japan’s Nikkei 225 fell 0.9% and South Korea’s Kospi declined 0.6%, while MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1% and Australia’s S&P/ASX 200 slipped 0.4%, tracking a weaker Wall Street close. Higher borrowing costs kept equities under pressure, with investors also watching reports that major technology companies were seeking to raise billions of dollars in debt.

Pressure on bond markets intensified as higher oil prices fuelled inflation concerns, although a strong US 10-year Treasury auction helped pull yields back from 24-year highs. Elevated yields supported the dollar, while the euro slipped towards a 17-month low as concerns over French public finances spread to Italian and Greek debt markets. Tech stocks also remained in focus, with Samsung shares lower despite the company flagging a nine-fold jump in quarterly profit.

The GIFT Nifty was at 22,547.5, down 44.5 points or 0.20%, pointing to a mildly negative opening for Indian equities. 

THE BIG STORY
Houthi attacks on Riyadh and Abha airports killed three people, prompting Saudi Arabia to vow retaliation. Saudi-backed forces are trying to regain territory around the strategic strait, raising risks for Red Sea shipping and oil flows. Saudi-led forces said they struck more than 80 Houthi military sites, while Turkey is providing defensive support to Riyadh.

Russian missile and drone attacks killed at least 28 people, including five children, and damaged energy infrastructure.US FOMC Minutes showed some officials want plans and tools ready for Treasury-market stress, while limiting direct Fed intervention.

Data Spotlight
Most Fed policymakers saw another rate hike as likely by year-end, after unanimously raising the federal funds target by 25 bps to 3.75%-4% in September. Policymakers said inflation remains elevated, while the labour market appears close to full employment and economic activity is expanding at a solid pace.US 30-year mortgage rates jumped 19 bps to 7.49%, the highest since November 2023, marking a seventh consecutive weekly increase.

Mortgage rates have risen 140 bps since late February, while total mortgage applications fell 4.2% for a fifth straight week. Refinancing applications dropped 7.5%, while purchase applications fell 2.1%, pointing to growing pressure on housing demand.

US crude inventories fell 3.19 million barrels in the week ended October 2, sharply reversing expectations for a 1.7-million-barrel build.

Refinery crude runs increased by 223,000 bpd, the strongest rise in 10 weeks, while gasoline stocks unexpectedly increased and distillates declined only marginally.

Cushing crude inventories rose 444,000 barrels, while net crude imports declined by 53,000 bpd.

Takeaway: The Fed minutes reinforce a hawkish policy outlook, with another hike likely as inflation remains elevated and labour-market risks appear more balanced. Higher Treasury yields and energy-driven inflation are already feeding through to mortgage rates, with housing activity weakening sharply. Meanwhile, the larger-than-expected US crude draw and stronger refinery runs point to tighter near-term oil-market balances, adding another potential source of inflation pressure and complicating the Fed’s path.

WHAT HAPPENED OVERNIGHT

US stocks pull back from record highs as yields resume climb and Fed minutes reveal divisions

• The Dow fell 0.66%, S&P 500 lost 0.22%, and Nasdaq dropped 0.22%, snapping multi-day winning streaks as the 30-year Treasury yield hit a 24-year high and Brent settled back above $100.
• September FOMC minutes showed divisions over the hike rationale. Some saw it as countering energy price shocks, others as curbing demand-driven inflation.
• Stocks pared losses after the IEA agreed to accelerate oil stock releases, prioritising diesel, helping crude turn lower.
• The 30-year fixed mortgage rate hit a near three-year high; housing and homebuilder indexes fell 2.3% and 2.9% respectively; the Russell 2000 dropped 1.3%.
• Chip stocks fell 1.2% despite an over 80% year-to-date gain; SpaceX lost 2.5% on reports it is seeking $40 billion in financing to fund Nvidia chip purchases.
• July-September earnings season begins next week, with S&P 500 earnings growth expected at 30.6% year-on-year per LSEG.

US Treasury yields ease from 24-year highs as oil decline and strong auction offer brief relief

• The 10-year yield eased to 5.28%, about 5 basis points below its 24-year high, as softer oil prices reduced inflation pressure.
• A strong 10-year Treasury auction, which stopped through by 1.7 basis points, provided temporary demand support and helped yields retreat.
• September FOMC minutes showed broad agreement that rates need to remain restrictive while the labour market is at full employment.
• Policymakers also flagged risks to financial markets from elevated Treasury yields, underscoring concerns over market functioning.
• Structural pressures remain, with robust growth, widening fiscal deficits and heavy corporate debt issuance keeping long-term yields near millennium highs.
• More than 80% of rate futures remained positioned for at least one further Fed hike by year-end, limiting the scope for a sustained decline in yields.

US Dollar rises to 19-month high as oil inflation risks lift-for-longer bets

• The dollar index traded around 102.3, its highest since March 2025, as volatile oil prices reinforced concerns over persistent inflation.
• September FOMC minutes showed most Fed officials backed another rate hike this year, although policymakers saw no urgency to act.
• October hike odds fell to 17% from around 70% after the September decision, while December 25-basis-point hike odds rose to about 70%.
• The greenback strengthened broadly, with the biggest gains against the euro as political and fiscal concerns in Spain and France weighed on the common currency.

Oil settles lower as IEA accelerates stock release, US crude stocks draw

• Brent fell 0.38% to $100.20/bbl, while WTI declined 1.3% to $88.28 as the IEA moved to accelerate previously announced stock releases.
• The IEA said speeding up existing releases could bring around 100 million barrels to market, although analysts said this did not necessarily represent a fresh release of that size.
• France plans to release 10 million barrels of diesel from strategic stocks, adding to efforts to ease record-high fuel prices.
• US crude inventories unexpectedly fell 3.2 million barrels to 424.1 million barrels last week, against expectations for a 1.7-million-barrel build.
• Houthi attacks on Aden airport and continued fighting in West Asia kept concerns over crude and refined-product supply elevated.
• Strikes on Russian energy infrastructure and lost West Asian refinery runs have tightened global fuel markets, Vitol CEO Russell Hardy said.
• A storm approaching the US Gulf is expected to become the first Atlantic hurricane of 2026 and could disrupt oil and gas production and refining.
• The Gulf of Mexico accounts for about 15% of US crude output, with as much as 11.2 million barrels of production potentially at risk over the storm's duration.

Day’s Ledger*

Economic Data

• German August Trade Balance
• US Initial Jobless Claims
  
  

Corporate Actions

• Earnings: Tata Consultancy Services 
• Vedanta Limited to consider dividend

Policy

• India GST Council meetings
• US Fed Waller Speaks
• ECB's Lane Speaks
• BoE MPC Member Pill Speaks
• BoE Governor Bailey Speaks

Tickers to Watch

• FINO PAYMENTS BANK September 2026 loan referral disbursals up 223% YoY to 2.78 billion rupees from 860 million rupees.
• GUJARAT PIPAVAV PORT Jul-Sep containers cargo volume grows 17% to 1.92 lakh TEUs Vs 1.64 lakh TEUs
• TD POWER SYSTEMS launched its qualified institutions placement issue to raise up to 6 billion rupees.
• TATA POWER COMPANY partnered with Norway-based renewable energy technology company Ocean Sun to bring its innovative membrane-based floating solar technology.

Must Read

• A Terminal Repo Rate of 6% Should Be Enough, for Now
• RBI Rate Hike Cycle Starts; How Far Can It Go?
• The RBI Is Making Haste Slowly
• The Business Risks Are Bigger Than 25 bps
• A Pragmatic Hike With a Hawkish Tail
• RBI Unambiguously Signals Rate Tightening Cycle

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day