Russian Finance Ministry Proposes Raising VAT To Help Fund Ukraine War

Samantha Luan

Economic

Forex

Political

Russia-Ukraine Conflict

Summary:

Russia's finance ministry proposed raising the rate of value-added tax on Wednesday to 22% from 20% in 2026 to fund military spending in what would be the fifth year of the war in Ukraine.

● Proposal would raise VAT to 22% from 20%

● Analysts estimate increase would generate around $11.9 billion

● Putin signalled last week he was open to raising certain taxes

● Trump says Russia in 'big economic trouble' in Truth Social post

Russia's finance ministry proposed raising the rate of value-added tax on Wednesday to 22% from 20% in 2026 to fund military spending in what would be the fifth year of the war in Ukraine.

The proposal comes as U.S. President Donald Trump called Russia a "paper tiger" for "fighting aimlessly for three and a half years" and said that President Vladimir Putin and Russia were in "big economic trouble".Putin signalled last week that he was open to raising certain taxes to make financial ends meet during the war, noting that the United States had raised taxes on wealthy people during the Vietnam and Korean wars.

TAX HIKE PRIMARILY TO FUND 'DEFENCE AND SECURITY'

The proposal is in line with a Reuters report last week. VAT accounted for 37% of federal budget revenues in 2024 and analysts estimate that the increase would generate about 1 trillion roubles ($11.9 billion) in additional revenue.The finance ministry, which said the tax hikes would be "aimed primarily at financing defence and security," said in a statement that it was also proposing other tax increases, including on gambling businesses.

Putin had pledged no major changes to the tax system before 2030 following the tax hikes introduced in 2025. He asked the government on September 5 to increase revenues through higher productivity, not taxes.After meeting Ukrainian President Volodymyr Zelenskiy on the sidelines of the U.N. General Assembly in New York, Trump posted on his Truth Social platform: "Putin and Russia are in BIG Economic trouble, and this is the time for Ukraine to act".The U.S. president's tone was in stark contrast to his red-carpet treatment for Putin at a summit in Alaska last month, part of an ostensible push to expedite an end to the war.

'NO SUCH THING AS A PAPER BEAR'

Kremlin spokesman Dmitry Peskov told RBC radio on Wednesday that there were statements about the Russian economy collapsing before, but said that the economy had adapted to the "special military operation" in Ukraine.Brushing off Trump's "paper tiger" comment, Peskov said Russia was a bear, not a tiger, and "there is no such thing as a paper bear", while adding Putin valued Trump's efforts to resolve the conflict.The finance ministry said the draft 2026 budget was "balanced and sustainable". The ministry has so far not released the key figures in the draft budget nor estimates of how much its proposal would generate in revenues.

"The strategic priority is to provide financial support for the country's defence and security needs and social support for families of participants in the special military operation," it said in a statement."The resources planned in the budget will make it possible to equip the armed forces with the necessary weapons and military equipment, pay salaries to military personnel and support their families, and modernise defence industry enterprises."($1 = 83.7500 roubles)

Source: Reuters

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Michelle

Economic

Forex

“The Government risks losing the battle against inflation and working families are understandably worried,” said Helen Dickinson, Chief Executive of the British Retail Consortium (BRC), highlighting growing concerns over rising costs that continue to outpace wages.

Retailers warn that urgent action is needed to prevent further increases in food and household prices.

A recent survey of 2,000 people conducted by Opinium for the BRC found that 57% of respondents were most concerned about “prices rising faster than wages,” with 61% of working adults agreeing.

Concerns about tax rises (49%) and unemployment (26%) were lower. Dickinson emphasised the human impact:

“With many people barely recovering from the last cost of living crisis, the Chancellor will want to protect households and enable retailers to continue doing everything they can to hold back prices.”

Inflation rates remain above target

Official figures show UK inflation at 3.8%, almost double the Bank of England’s 2% target. Food inflation is even higher, reaching 5.1%, the highest since the 2022/23 cost of living crisis.

Dickinson warned that businesses are under significant pressure:

“The biggest risk to food prices would be to include large shops – including supermarkets – in the new surtax on large properties. This would effectively be robbing Peter to pay Paul, increasing costs on these businesses even further and forcing them to raise the prices paid by customers.”

The BRC notes that previous rises in employment costs and new packaging regulations have already contributed to retail price inflation, making the upcoming budget decisions particularly critical.

Looming budget proposals could affect high street prices

The Treasury is finalising plans to support the high street, including reductions in business rates for retail, hospitality, and leisure premises.

Dickinson urged careful policy choices: “Removing all shops from the surtax can be done without any cost to the taxpayer, and would demonstrate the Chancellor’s commitment to bring down inflation.”

The BRC has cautioned that if the surtax is applied to large stores, food inflation could remain above 5% well into 2026.

Retailers are calling on the government to balance fiscal policy with measures that prevent further price rises, particularly as public concern about the cost of living continues to grow.

Source: Yahoo Finance

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Glendon

Economic

Forex

German business confidence unexpectedly dropped, highlighting the fragility of Chancellor Friedrich Merz’s plan to restore growth in Europe’s biggest economy.

After four months of gains, an expectations index by the Ifo institute dropped to 89.7 in September from a revised 91.4 in August. Analysts polled by Bloomberg had predicted an increase to 92. A measure of current conditions also slipped.

“Companies were less satisfied with current business, while their expectations clouded noticeably,” Ifo president Clemens Fuest said on Wednesday in a statement. “Prospects for an economic recovery have suffered a setback.”

The report is at odds with a separate survey this week from S&P Global showing private-sector activity picked up this month. Some economists cautioned, however, that the number may overstate the strength of the rebound.

The government in Berlin is trying to bring an end to Germany’s underperformance after two years of shrinking output. While it’s agreed on wide-ranging spending plans to bolster defense and modernise infrastructure, companies have urged more progress on other initiatives like curbing bureaucracy.

The Organisation for Economic Co-operation and Development slightly lowered its outlook for the country this week, predicting gross domestic product will rise 1.1% in 2026 after a 0.3% advance in 2025. Germany’s leading research institutes are due to present their joint forecast on Thursday.

With a strong reliance on exports, the country’s manufacturing sector is particularly exposed to US President Donald Trump’s protectionism. Most European Union goods now face a 15% tariff on the other side of the Atlantic under a deal struck in July.

Source: Theedgemarkets

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Gerik

Economic

Commodity

The Strain on the U.S. Power Grid

Energy consumption by data centers, particularly driven by AI technologies, is projected to double by 2028, according to Lawrence Berkeley National Laboratory. However, the U.S. power grid burdened with aging infrastructure, long waiting periods for grid connections, and stagnant industrial development is largely unequipped to meet this rising demand. The need for reliable and quick power sources has pushed data centers to consider off-grid energy solutions.

Natural gas has emerged as a leading option to power these off-grid data centers. Chad Zamarin, CEO of Williams Companies, highlighted the importance of directly powering facilities to avoid long delays in waiting for grid connections. Unlike renewable energy projects such as solar or nuclear, which can take decades to come online, natural gas plants can be developed in approximately five years, making them a faster and more viable option to meet growing demand.

The natural gas industry has already seen a positive market response. Expand Energy, the largest natural gas producer in the U.S., saw its shares rise by more than 24% in the past year. Other key players, including EQT Corporation and Williams Companies, have seen significant increases in their stock prices as demand for natural gas to support data centers grows.

Big Tech’s Investment in Natural Gas

In response to the energy needs of their expanding AI data centers, major tech companies are making significant investments in natural gas. For example, Meta has begun developing a massive data center in Louisiana, committing $10 billion to the project, with the Louisiana Public Service Commission approving plans for three new natural gas turbines to power it. In Texas, Energy Transfer signed an agreement to provide 1.2 gigawatts of off-grid natural gas power to a data center operated by CloudBurst.

In addition to these efforts, Chevron has partnered with Engine No. 1 to build natural gas plants to meet the needs of data centers across the country. As AI-driven demand continues to increase, natural gas is becoming essential for powering these facilities efficiently and quickly.

The Growing Role of Natural Gas in the U.S. Economy

Natural gas, being cleaner than coal and more cost-effective than nuclear energy, is seen as a key driver of the energy sector's future. As the U.S. economy increasingly relies on AI innovation, natural gas is emerging as a fundamental enabler of this growth. Domenic Dell'Osso, CEO of Expand Energy, emphasized the significant role gas plays in supporting power demand growth and fueling economic innovation.

With the world’s largest tech companies increasingly relying on natural gas to power their data centers, the energy sector is bracing for a boom. As natural gas continues to meet the immediate energy needs of AI developments, its role in the U.S. economy is expected to grow significantly in the coming years.

Source: Yahoo Finance

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Gerik

Economic

Stocks

Trump’s Comments Fuel Defense Stock Rally

On September 24, 2025, defense stocks rose sharply after President Trump suggested that NATO countries should shoot down Russian aircraft violating their airspace. He also expressed a more sympathetic stance on Ukraine’s ability to win the war, boosting investor confidence in the defense sector. In Europe, the Goldman Sachs basket of defense firms gained as much as 2.8%. Key players like Rheinmetall AG and BAE Systems Plc saw increases of 1.4% and 1.6%, respectively. Notably, Sweden’s Saab AB surged 5.8% to a record high, reflecting the broader optimism in the sector.

In Asia, defense stocks were led by South Korea’s major defense contractors, with Hanwha Aerospace Co. rising 5.9%, reaching an all-time high. Korea Aerospace Industries Ltd. and Hyundai Rotem Ltd. both saw gains of at least 4%. Japanese defense stocks also saw strong performances, with IHI Corp. climbing almost 10% and Mitsubishi Heavy Industries Ltd. rising over 5%. Australia’s DroneShield Ltd. surged by more than 7%.

Geopolitical Tensions Drive Continued Interest in Defense

The surge in defense stocks can be attributed to the growing geopolitical tensions, particularly related to Russia’s actions in Ukraine. As military budgets expand globally in response to these tensions, defense firms are expected to see increased demand for their products and services. The MSCI World Aerospace & Defense Index has risen 51% in 2025, outpacing the 17% gain in global equities, highlighting the sector's strong performance.

Jung In Yun, CEO of Fibonacci Asset Management Global, noted that Trump’s comments have brought geopolitical risks back into focus, driving defense stocks higher. With no signs of de-escalation in global tensions, Yun predicted that defense firms' order books will remain full for the foreseeable future, continuing to fuel investor optimism.

As geopolitical risks persist and military spending rises, defense stocks are likely to remain a key focus for investors. With global tensions showing no signs of abating, the sector is expected to continue benefiting from increased demand, particularly in the wake of Trump's remarks and the broader strategic shifts in military policies.

Source: Bloomberg

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IC Markets

Commodity

Forex

Economic

What happened in the U.S. session?

The overnight U.S. session was characterized by mixed economic data showing deceleration but resilience. While the PMI data and Richmond Fed survey pointed to slowing growth momentum, the significant improvement in the current account deficit provided a positive offset. Powell’s cautious approach to future rate cuts created uncertainty in markets, leading to profit-taking in tech stocks despite continued record highs. Gold emerged as the standout performer, benefiting from multiple tailwinds, including Fed dovishness, geopolitical tensions, and safe-haven demand. The U.S. dollar remained under pressure near multi-year lows, while oil markets found support from supply concerns and geopolitical risks.

What does it mean for the Asia Session?

Wednesday’s session will be dominated by Australia’s crucial inflation data, which could significantly impact RBA policy expectations and regional currency markets. The broader environment of US dollar weakness, record-high gold prices, and divergent central bank policies creates both opportunities and risks for Asian traders. While global equity momentum remains positive, economic data from China and Europe will provide important clues about global growth trajectories. Traders should particularly watch for any shifts in Fed policy expectations and ongoing developments in geopolitical tensions that could drive safe-haven flows.

The Dollar Index (DXY)

The US Dollar faces continued headwinds as markets digest the Fed’s shift toward an easing cycle amid persistent inflation and labor market weakness. While technical analysis suggests potential for a near-term rebound from current levels, the fundamental backdrop of expected rate cuts, policy uncertainty, and reduced safe-haven demand continues to pressure the greenback. Key economic data releases this week, including core PCE inflation data on Friday, will be crucial for determining the dollar’s near-term direction and the Fed’s October policy decision.

Central Bank Notes:

● The Federal Open Market Committee (FOMC) voted, by majority, to lower the federal funds rate target range by 25 basis points to 4.00%–4.25% at its September 16–17, 2025, meeting, marking the first policy rate adjustment since December 2024 after five consecutive holds.

● The Committee maintained its long-term objective of achieving maximum employment and 2% inflation, acknowledging recent labor market softening and continued tariff-driven price pressures.

● Policymakers expressed elevated concern about downside risks to growth, citing a stalling labor market, modest job creation, and an unemployment rate drifting up toward 4.4%. At the same time, inflation remains above target, with CPI at 3.2% and core inflation at 3.1% as of August 2025; higher energy and food prices, largely attributable to tariffs, continue to weigh on headline measures.

● Although economic activity expanded at a moderate pace in the third quarter, the growth outlook has weakened. Q3 GDP growth is estimated near 1.0% (annualized), with full-year 2025 GDP growth guidance revised to 1.2%, reflecting slowing household consumption and tighter financial conditions.

● In the updated Summary of Economic Projections, the unemployment rate is projected to average 4.5% for the year, with headline PCE inflation revised up slightly to 3.1% for 2025. The Committee anticipates core PCE inflation to remain stubborn, requiring sustained vigilance and a flexible approach to risk management.

● The Committee reiterated its data-dependent approach and openness to further adjustments should employment or inflation deviate meaningfully from current forecasts. Several members dissented, either advocating a larger 50-basis-point cut or preferring no adjustment at this meeting, revealing heightened divergence within the Committee.

● Balance sheet reduction continues at a measured pace. The monthly Treasury redemption cap remains at $5B and the agency MBS cap at $35B, as the Board aims to support orderly market conditions in the face of evolving global and domestic uncertainty.

● The next meeting is scheduled for 28 to 29 October 2025.

Next 24 Hours Bias

Medium Bearish

Gold (XAU)

Gold’s record-breaking performance reflects a confluence of factors, including dovish Federal Reserve expectations, China’s strategic gold initiatives, persistent central bank buying, and ongoing geopolitical uncertainties. While technical indicators suggest potential for near-term consolidation around current levels, the fundamental backdrop remains supportive for higher prices. Key resistance at $3,800 represents the next major test, with many analysts projecting further gains toward $4,000 or higher in the coming months. The upcoming PCE inflation data on Friday will provide crucial insights into the Fed’s policy trajectory and could significantly influence gold’s near-term direction.Next 24 Hours Bias

Strong Bullish

The Australian Dollar (AUD)

The Australian Dollar enters the final week of September 2025 at a critical juncture. While the currency has shown resilience with monthly gains, upcoming data releases, including the September 24 CPI indicator and the September 30 RBA decision will be pivotal. The combination of slowing domestic economic momentum, mixed Chinese data, and global trade uncertainties suggests continued volatility ahead. Market participants are closely watching for signs that August’s inflation spike was temporary rather than indicative of broader price pressures, which could significantly influence the RBA’s policy trajectory and the AUD’s direction through year-end.

Central Bank Notes:

● The RBA held its cash rate steady at 3.60% at its September meeting on 8–9 September 2025, following a 25 basis point reduction at the August meeting. This maintains a cautious yet supportive stance, with the decision largely anticipated given recent evidence of inflation settling within the target band.

● Inflation readings continue to ease, with headline CPI most likely tracking near 2.1–2.3%—comfortably within the 2–3% target range. September quarter figures are pending, but leading indicators show further moderation in non-housing components, even as insurance and housing-related costs remain sticky.

● The RBA’s preferred trimmed mean inflation is estimated at around 2.7%–2.9%, further reflecting progress toward the midpoint of the target range. Energy and food volatility still create some short-term uncertainty, but underlying inflation is broadly on track.

● Global conditions are a key source of risk. While U.S.–EU trade tensions have stabilized slightly, volatility in equities and commodities persists, with uncertainty feeding through to Australia’s trade and export outlook.

● Domestic demand shows tentative improvement. Real household incomes and a stabilizing housing sector have underpinned modest consumption growth, though business investment remains uneven—service sectors outperforming manufacturing and construction.

● Labor market tightness persists, but momentum continues to slow from earlier in the year. Employment gains remain, but job vacancies and hiring intentions have softened, with underutilization rising marginally for the second straight month.

● Wage growth has slowed in line with easing labour pressures, but unit labour costs remain elevated due to weak productivity. The RBA continues to flag subdued productivity as a medium-term cost risk.

● Forward indicators suggest household consumption may be softer than previously forecast. Elevated rents and high borrowing costs are dampening discretionary spending, despite modest income recovery.

● The Board continues to highlight the risk that household spending could underperform, potentially weighing on business investment and job creation if confidence remains subdued.

● Monetary policy remains mildly restrictive, in line with greater inflation control and ongoing economic rebalancing. The decision to hold rates recognizes both progress and ongoing uncertainties, with future moves explicitly tied to incoming data.

● The Reserve Bank reinforced its goals of price stability and full employment, stating readiness to adjust policy if economic or inflation outcomes diverge from baseline projections.

● The next meeting is on 29 to 30 September 2025.

Next 24 Hours Bias

Medium Bullish

The Kiwi Dollar (NZD)

The New Zealand Dollar faces a challenging environment with several critical developments converging. The historic appointment of the first female RBNZ Governor represents a significant institutional milestone, but the new leader will inherit substantial challenges, including economic weakness, market pressure for aggressive rate cuts, and the need to restore central bank credibility.Central Bank Notes:

● The Monetary Policy Committee (MPC) agreed to cut the Official Cash Rate (OCR) by 25 basis points to 3.00% on 20 August 2025, marking a three-year low and continuing the easing cycle after July’s pause. The vote was split 4-2, with two members advocating a 50-basis-point cut, highlighting diverging views within the Committee.

● Policymakers indicated that significant uncertainty and a stalling economic recovery prompted this move, leaving the door open for further rate cuts later in the year, with a possible trough around 2.5% by December.

● Annual consumer price index inflation rose to 2.7% in the June quarter and is expected to reach 3% for the September quarter—at the upper end of the MPC’s 1 to 3% target band—but medium-term expectations remain anchored near the 2% midpoint.

● Despite the near-term uptick, headline inflation is projected to return toward 2% by mid-2026, as tradables inflation pressures ease and significant spare capacity continues to dampen domestic price momentum.

● Domestic financial conditions are broadly aligning with MPC expectations, as lower wholesale rates have translated into reduced borrowing costs for households. However, declining consumption and investment demand, higher unemployment, and subdued wage growth reflect ongoing economic slack.

● GDP growth stalled in the second quarter of 2025, contrasting with earlier projections. High-frequency indicators point to continued weakness driven by rising prices for essentials, weakening household savings, and constrained business lending.

● The MPC cautioned that ongoing global tariff uncertainties and policy shifts, especially recent changes in US trade regulations, could amplify market volatility and present both upside and downside risks to New Zealand’s recovery.

● Subject to medium-term inflation pressures continuing to ease as projected, the MPC signaled scope for further OCR cuts, possibly down to 2.5% by year-end, consistent with the latest Monetary Policy Statement outlook.

● The next meeting is on 22 October 2025.

Next 24 Hours Bias

Medium Bullish

The Japanese Yen (JPY)

The Japanese Yen faces a complex environment heading into late September 2025. While the BoJ maintains its cautious approach to rate hikes, growing hawkish sentiment within the board and the decision to begin asset sales signal a gradual shift toward policy normalization. Inflation remains above the 2% target but is showing signs of moderation, particularly in energy costs due to government subsidies. The manufacturing sector continues to struggle with trade headwinds, though services remain resilient. Market participants are closely watching the upcoming Tokyo CPI data and any further signals from BoJ officials regarding the timing of future rate adjustments.Central Bank Notes:

● The Policy Board of the Bank of Japan decided on 17 September, by a unanimous vote, to set the following guidelines for money market operations for the inter-meeting period:

● The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5%.

● The BOJ will continue its gradual reduction of monthly outright purchases of Japanese Government Bonds (JGBs). The scheduled amount of long-term government bond purchases remains unchanged from the prior decision, with a quarterly reduction pace of about ¥400 billion through March 2026 and about ¥200 billion per quarter from April to June 2026 onward, aiming for a purchase level near ¥2 trillion in January to March 2027.

● Japan’s economy continues to show a moderate recovery, with household consumption supported by rising incomes, although corporate activity has softened somewhat. Overseas economies remain on a moderate growth path, with the impact of global trade policies still weighing on Japan’s export and industrial production outlook.

● On the price front, the year-on-year rate of change in consumer prices (excluding fresh food) remains in the mid-3% range. Inflationary pressures remain broad-based, with persistent cost-push factors in food and energy, alongside solid wage pass-through. However, input cost pressures from past import surges are showing early signs of easing.

● Short-term inflation momentum may moderate as cost-push effects diminish, though rent increases and service-related price gains tied to labor shortages are likely to provide support. Inflation expectations among firms and households continue a gradual upward drift.

● Looking ahead, the economy is projected to grow at a slower-than-trend pace in the near term due to external demand softness and cautious corporate investment plans. However, accommodative financial conditions and steady increases in real labor income are expected to underpin domestic demand.

● In the medium term, as overseas economies recover and global trade stabilizes, Japan’s growth potential is likely to improve. With persistent labor market tightness and rising medium- to long-term inflation expectations, core inflation is projected to remain on a gradual upward trend, converging toward the 2% price stability target in the latter half of the projection horizon.

● The next meeting is scheduled for 30 to 31 October 2025.

Next 24 Hours Bias

Weak Bearish

Oil

A pivotal moment for oil markets emerged as multiple factors converged to create complex price dynamics. While short-term supply disruption concerns from the Kurdistan pipeline delay and geopolitical tensions provided upward pressure, the outlook of fundamental oversupply continued to weigh on longer-term price expectations. The market demonstrated the dual nature of current oil dynamics: immediate supply risks supporting prices in the near term, while structural oversupply from OPEC+ production increases and modest demand growth point toward significantly lower prices by late 2025 and into 2026.Next 24 Hours Bias

Weak Bearish

Source: IC Markets

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Gerik

Economic

Market Reaction to Powell’s Comments

European shares are set to lose ground on Wednesday after Powell's remarks on Tuesday, where he expressed concerns over the elevated levels of asset prices, including equities. Powell noted that equity prices are "fairly highly valued" based on various measures, prompting market jitters.

London’s FTSE 100 is expected to open 0.2% lower, while Germany’s DAX and France’s CAC 40 are forecasted to fall by 0.3% and 0.4%, respectively. This sentiment shift follows Powell’s assessment of the broader market, which has led to global market volatility.

Global Market Trends and Political Developments

In Asia, shares largely moved lower, while U.S. stock futures remained flat in early trading on Wednesday. The reaction to Powell's comments reflected broader concerns regarding the sustainability of asset price growth. Additionally, political tensions heightened when U.S. President Donald Trump expressed confidence in Ukraine's potential to reclaim its territory from Russia, adding further uncertainty to the global political landscape.

Back in Europe, investors are closely monitoring economic indicators. Germany’s Ifo Business Climate report is set to be released later on Wednesday, along with the September Swiss Economic Sentiment Index. These reports will provide insights into the economic sentiment in two key European economies, further influencing market reactions and investor decisions throughout the session.

Overall, Powell's warning about high equity valuations and political developments are adding to the volatility in global markets, particularly in Europe, where investors are preparing for potential economic signals from upcoming data releases.