Global Mood: Cautiously risk-off
Drivers: Earnings, Russia-Ukraine ceasefire uncertainty, Saudi-Houthi escalation

Asian markets turned risk-off on Tuesday, led by a sharp sell-off in South Korean equities as investors braced for a busy US earnings week and weighed geopolitical risks. Japan’s Nikkei 225 fell 1.20%, South Korea’s Kospi dropped 3.29%, and the Kosdaq lost 2.49%. Australia’s S&P/ASX 200 slipped 0.33%, while the Topix was flat. GIFT Nifty rose 54.5 points, or 0.24%, to 22,425, signalling a mildly positive opening for Indian equities.

US equity futures were subdued ahead of results from major banks, including JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo, and healthcare group UnitedHealth. Expectations of nearly 30% year-on-year S&P 500 earnings growth raise the risk of disappointment.

Geopolitical tensions added to caution as Russia struck Ukrainian energy targets despite a proposed ceasefire, while fresh EU sanctions increased pressure on Moscow. Attacks on Riyadh airport also heightened concerns over Saudi Arabia’s ability to protect critical infrastructure.

THE BIG STORY
Russia hit at least six Ukrainian energy targets after Trump announced an immediate energy ceasefire.  Moscow has not confirmed the agreement, while the Kremlin rejected Kyiv's proposal for a 60-day truce. The European Union approved its largest set of sanctions listings since Russia's 2022 invasion, adding 1,569 individuals and businesses.  European leaders said continued pressure was needed to bring Moscow to serious negotiations.

Trump's envoys told Ukrainian officials that allowing Russian diesel exports could help soften Moscow's position and restart negotiations. The deal, involving more than 2.25 million barrels of diesel, has drawn criticism over the revenue it could provide Russia.

At least 18 people have been killed in attacks on Riyadh airport over the past week, with Saudi Arabia's public warning system having remained silent before the strikes. The attacks have raised concerns about the kingdom's ability to protect airports and energy infrastructure.

Data Spotlight
Japan’s producer price inflation eased to 6.8% year-on-year in September, the slowest pace since May and below market expectations of 7.6%. Prices fell 0.3% month-on-month for a second consecutive month, defying expectations of a 0.5% increase. Moderation in petroleum and coal prices helped ease overall cost pressures, although inflation accelerated across chemicals, steel, electrical machinery and electronic components.

Japan’s bank lending growth remained at 5.3% year-on-year in September, matching August’s revised reading but falling short of expectations of 5.5%. Lending growth at major and regional banks eased marginally, while foreign-bank lending growth slowed sharply to 14.5% from 25.6%. 

Takeaway: Japan’s softer producer inflation and subdued monthly price movements suggest some easing in upstream cost pressures, although broad-based price increases in several industrial sectors remain a risk. Slower lending growth also points to a moderation in credit momentum.

WHAT HAPPENED OVERNIGHT

US stocks mixed as oil rally revives inflation concerns

• The Dow rose 0.38% to 51,850.55, while the S&P 500 slipped 0.06% to 7,807.24 and the Nasdaq fell 0.44% to 27,245.90 as investors weighed rising oil prices against upcoming earnings and economic data.
• Oil prices climbed after deadly attacks on Riyadh's international airport heightened supply concerns, overshadowing prospects of increased Russian diesel exports.
• Higher energy prices also reinforced inflation worries as investors awaited September US consumer and producer inflation data and retail sales figures.
• Third-quarter earnings season begins in earnest with major US banks, including JPMorgan Chase, Goldman Sachs, and Citigroup, reporting. 
• Technology stocks underperformed, with the Philadelphia semiconductor index falling 2.7% to a three-week low. 
• Microsoft gained 1.1%, taking its market capitalisation above $4 trillion for the first time in a year, after announcing plans for a major deployment of its own AI chips.
• Cleveland Fed President Beth Hammack called for a relatively swift move toward a more restrictive monetary stance to curb broadening inflation pressures. 
• Markets priced in a 22% chance of an October rate hike, up from 17.7% on Friday.

US Dollar strengthens as oil rally and West Asia tensions boost safe-haven demand

• The US dollar index rose to 102.5 on Monday, holding near its highest level since April 2025, as escalating geopolitical tensions and expectations of persistent inflation supported demand for the greenback.
• Crude oil rose for a third consecutive session amid renewed supply concerns, with Ukraine accusing Russia of violating an energy ceasefire and Saudi Arabia reporting fresh drone and missile attacks following a deadly strike on Riyadh's airport.
• Investors awaited US consumer and producer inflation data due this week for clues on the Federal Reserve's policy outlook. 
• Markets largely expect rates to remain unchanged in October but price in another hike in December, following the Fed's September increase, its first since 2023.
• The euro weakened further amid fiscal concerns and political unrest in France, adding to the dollar's strength.

US Treasury yields edge higher as inflation risks keep Fed tightening bets alive

• The US 10-year Treasury yield edged up to 5.26% on Friday after falling 6 basis points on Thursday from its highest level since 2002. The benchmark yield declined around 5 basis points over the week.
• Investors assessed developments in West Asia and their implications for energy prices and inflation. 
• Oil prices eased after US President Donald Trump pledged not to attack Iran before the November midterm elections, tempering concerns over further supply disruptions.
• The US Treasury cash market was closed on Monday for a public holiday, while Treasury futures trading remained open.

Oil rises as Saudi attacks and tanker strikes outweigh prospects of higher supply

• Brent crude rose 1.8% to $106.65 a barrel, it’s highest since September 15, while WTI gained 2% to $93.74, as attacks on Saudi Arabia and shipping through the Strait of Hormuz heightened supply concerns.
• Iran-aligned Houthis claimed responsibility for a strike on Riyadh's international airport that killed 13 people, while further attacks and reported tanker strikes near Oman and in the Strait of Hormuz raised concerns over renewed disruption to regional oil exports.
• Goldman Sachs raised its December Brent forecast to $90 a barrel from $85, estimating a geopolitical risk premium of just over $20 a barrel. It expects WTI to remain cheaper than Brent because of high US-Europe shipping costs.
• Prospects of additional Russian diesel supplies offered some relief to fuel markets. Russia is expected to supply more than 300,000 metric tonnes of diesel, while Moscow has partially lifted its export ban, but analysts questioned the immediate impact given damage to Russian refining capacity.
• US President Donald Trump announced a Russia-Ukraine ceasefire covering energy infrastructure, but Ukraine accused Russia of violating the agreement. 
• The International Energy Agency urged members to accelerate pledged stock releases and prioritise diesel supplies.
• Shell, Chevron and BP were preparing to restore Gulf of Mexico production after Hurricane Isaias disrupted offshore operations, potentially easing supply constraints as output resumes.

Day’s Ledger*

Economic Data

• German September CPI
• US OPEC Monthly Report
• US ADP Employment Change Weekly
• US September Existing Home Sales

Policy

• RBI OMO Gilt sell auction
• ECB's Elderson Speaks
• US Fed Waller Speaks
• BoE MPC Member Dhingra Speaks
• US FOMC Member Barkin Speaks
• ECB's Lane Speaks

Corporate Actions

• Earnings: Hero Motors, ICICI Prudential Life Insurance Company, Tata Elxsi and TRF Limited

Tickers to Watch

• RBL BANK July-September 2026 net profit at 4.817 billion rupees vs 1.79 billion rupees. NII up 37.4% to 21.31 billion rupees. Gross NPA down 28 bps to 1.02% QoQ. Net NPA down 8 bps to 0.29%. Provisions at 7.665 billion rupees vs 5.992 billion rupees QoQ.
• HCL TECH Sees FY27 revenue growth at 2.5-4%. July-September 2026 PAT up 11% QoQ to 51.32 billion rupees, ahead of 49.63 billion rupees estimate. Revenue up 3% QoQ to 356.2 billion rupees, below the 358.19 billion rupees estimate. EBIT margin at 18.2% vs 17.8% estimate. Advanced AI added 32 bps to margin.
• KARUR VYSYA BANK signs agreement with Zurich Kotak General Insurance to distribute general insurance products to its customers.
• ICICI PRU AMC July-September 2026 net profit down 7.8% QoQ to 8.889 billion rupees. Revenue up 7% QoQ to 16.767 billion rupees. Board approves record interim dividend of 30 rupees/share.
• INDIAN HOTELS COMPANY signs 47 hotels and opens 20 in April-September 2026. Portfolio now at 670 hotels. Luxury signings include four Taj, one Brij and one Atmantan. Ginger and Tree of Life account for 19 mid-scale signings.

Must Read

• The Dangers and Benefits of Forward Guidance
• RBI Borrows a Page from China’s Currency Playbook
• Prudence Penalised, Leverage Encouraged
• Can the AI Boom Sustain Its Own Ambitions?
• RBI Takes Currency Defence into the Derivatives Book with a Reserve Rule
• The Rupee Needs Resolve, Not Reprimands
• Banks flag liquidity concerns over RBI's new forex derivative reserve rule
• The 2026 Nobel-winning insights into how Govts should stabilise economies
  
• Russia to supply diesel to US, global markets: What it means for India
  
• SEBI nudges brokerage firms to join return verification platform
   

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day