Risk-Off Tone as geopolitical tensions intensifies and Policy Curbs Rattle Markets

GLOBAL MOOD: Risk-Off
Drivers: Oil sanctions enforcement, US–Russia geopolitical strain, Venezuela energy leverage

Markets leaned risk-off as geopolitical tensions and policy uncertainty weighed on sentiment. Asian equities were mixed after Wall Street fell, defence stocks slid on Trump’s restrictions, and oil dropped on prospects of higher Venezuelan supply. While US data showed a resilient services-led economy, easing labour demand and sanctions-driven energy risks kept investors cautious.

TODAY’S WATCHLIST
 - US October Trade Data
 - US Weekly Initial Jobless Claims Data

THE BIG STORY
The United States has seized two Venezuela-linked oil tankers, including a Russian-flagged vessel, Marinera, after a prolonged pursuit across the Atlantic and Caribbean, as part of an aggressive push by the Donald Trump administration to control oil flows tied to Venezuela and enforce sanctions. US forces, supported by the Coast Guard and allied surveillance, intercepted the Russian-flagged tanker formerly known as Bella-1 after a two-week chase, and a second sanctioned vessel near South America, marking one of the most forceful applications of US maritime sanctions in years and signalling a sharp escalation in pressure on Caracas.

The operations form part of a broader effort to assert control over Venezuelan oil exports, with Washington also in talks to market and sell crude under US-controlled accounts, potentially diverting supplies previously bound for China and challenging Moscow’s influence in the region. The Kremlin has criticised the seizures as violations of international maritime law, while US officials frame them as necessary to crack down on sanctions-evasion and secure Venezuela’s energy assets moves that are reshaping geopolitical risk dynamics in global energy markets

Data Spotlight
The US Job openings fell to a 14-month low of 7.15 million in November (JOLTS), signalling softer labour demand amid tariff uncertainty and AI adoption. However, layoffs remain contained, keeping the market in a “no-hire, no-fire” equilibrium. Quits rose to 3.16 million, the highest since July, led by hospitality and construction, suggesting worker confidence is uneven but not collapsing. Private payrolls rebounded by 41K in December, driven by health, education and leisure, reinforcing expectations that the Federal Reserve is likely to stay on hold near term.

The Institute for Supply Management Services PMI climbed to 54.4, the strongest since October 2024, with all sub-indices in expansion as year-end activity picked up. In contrast, factory momentum weakened, with manufactured goods orders down 1.3% MoM in October, dragged by a sharp fall in durable goods, especially non-defence aircraft. The divergence highlights an economy increasingly supported by services while manufacturing remains under pressure.

Takeaway: US data point to a cooling but resilient economy, with labour demand easing without a spike in layoffs and services activity providing a firm growth buffer. The mix supports a Fed pause in the near term, even as manufacturing remains a drag.

WHAT HAPPENED OVERNIGHT

• US stocks mixed as financials drag, AI names support Nasdaq
  • The S&P 500 closed lower on Wednesday, weighed down by sharp declines in major financial stocks, while the Nasdaq found support from gains in AI-linked names.
  • Financials underperformed after President Donald Trump said he would move to ban large housing acquisition firms from buying single-family homes, pressuring real estate-linked investors.
  • In contrast, Nasdaq was lifted by strength in AI-related stocks, with Nvidia and Alphabet posting gains as investors rotated toward growth and technology.
  • Defence stocks dropped after Trump banned dividends and buybacks until production issues are resolved, with Northrop Grumman down 5.5% and Lockheed Martin down 4.8%.

• US Treasury yields steady as mixed data clouds Fed cut outlook
  • The benchmark 10-year US Treasury yield hovered around 4.15%, paring earlier losses and staying close to four-month highs as investors weighed conflicting economic signals.
  • ISM data revealed strong December growth, with employment rebounding.
  • The ADP report showed a recovery in private payrolls, suggesting continued labour market strength.
  • In contrast, the JOLTS data showed job openings fell more than expected to the lowest level in over a year, underlining persistently low hiring demand.
  • The mixed data backdrop has clouded expectations around the scale and timing of rate cuts by the Federal Reserve, keeping Treasury yields range-bound.

• US Dollar steady as labour data keeps Fed bets in check
  • The dollar index traded largely steady against major peers as markets positioned ahead of a heavy slate of US labour market data this week.
  • The dollar index was little changed, up 0.07% at 98.68, as softer labour signals were balanced against still-resilient growth and uncertainty over the timing of future Fed rate cuts.
  • US job openings in November dropped more than forecast, and hiring also slowed, showing labour demand is easing.
  • The dollar edged 0.24% higher against the Swiss franc to 0.797 and rose 0.08% versus the yen to 156.75.

• Crude oil prices slide on Venezuela supply deal, oversupply fears persist
  • Brent crude prices fell for a second consecutive session as markets digested a deal announced by Donald Trump to import up to $2 billion of Venezuelan crude, potentially boosting supplies to the US.
  • Brent crude settled 1.2% down at $59.96 per barrel, while WTI dropped 2.0% to $55.99 per barrel.
  • The Venezuela deal reinforced expectations of ample global supply in 2026, weighing on sentiment despite ongoing geopolitical risks.

Day’s Ledger

Economic Data

• ECB Consumer Inflation Expectations
• Eurozone November Unemployment Rate
• Eurozone November PPI
• US October Trade Data
• US Weekly Initial Jobless Claims Data 

Corporate Actions

• Oct-Dec Earnings: Elecon Engineering, Transformers And Rectifiers 
• Ugro Capital to consider Commercial Papers issue  

Policy Events

• ECB Guindos Speech

 Tickers to Watch

• Tata Steel reports 'best-ever' quarterly production at India operations
• Our aim is to be in pole position in lab-grown diamond space: Titan MD
• Proxy firms back Shriram Finance stake dilution plan in favour of MUFG
• Voting advisory firms back MUFG's $4.4 bn investment in Shriram Finance
• Inox Clean Energy ties up ₹3,100 crore in equity for capacity expansion
• United Breweries plans to step up visi-cooler deployment by nearly 50%
• Eternal gets GST demand order of ₹3.7 crore with interest, penalty
• Tata Power to set up ₹6,675 crore 10 GW manufacturing facility in Andhra
• Infosys ties up with AWS to scale enterprise use of generative AI

Must Read

• CCPA proposes February 1 Union Budget presentation despite Sunday
• India’s economy to outperform in FY26 with 7.4% growth: HDFC
• FY26 GDP to grow at 7.4%, shows resilience despite external headwinds
• Govt issues new draft of Pesticides Management Bill to curb spurious sales
• Fiscal deficit target in reach despite lower nominal GDP growth estimate
• E-way bill generation hits fresh high in December on strong goods movement
• Rupee strengthens below 90/$ amid RBI intervention via dollar sales
• UBS cuts rupee March forecast to 92, expects short-lived US deal relief 

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See you tomorrow with another edition of The Morning Edge.

Have a great trading day

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