Russian Attack On Kyiv Kills Two As US Resumes Arms Deliveries To Ukraine

Political

Russia-Ukraine Conflict

Summary:

Russian drones and missiles bore down on the Ukrainian capital early on Thursday, with officials reporting two deaths, 16 injured and fires in apartment and non-residential buildings as Washington resumed weapons deliveries to the war-torn country.

Escalating Russian attacks have strained Ukrainian air defences at a perilous moment in the war and forced thousands of people to seek bomb shelters overnight.

"Residential buildings, vehicles, warehouse facilities, office and non-residential buildings are on fire," head of Kyiv's military administration, Tymur Tkachenko, said on the Telegram messaging app.

Russia launched 18 missiles and around 400 drones in an attack which primarily targeted the capital Kyiv, according to Ukrainian President Volodymyr Zelenskiy.

There was no comment from Moscow about the attack, which came a day after Russia launched a single-night record number of drones targeting its smaller neighbour in what Ukrainians describe as terror tactics.

"Approaches to warfare changed a long time ago, and in its quest to break our society through terror, Russia has opted for combined strikes," the head of Ukrainian presidential office Andriy Yermak said.

Russia says its attacks aim to degrade Ukraine's military. The Russian defence ministry said its own air defence units had destroyed 14 Ukrainian drones overnight, RIA state news agency reported.

After U.S. President Donald Trump pledged earlier this week to send more defensive weapons to Kyiv, Washington was already delivering artillery shells and mobile rocket artillery missiles to Ukraine, two U.S. officials told Reuters on Wednesday.

Zelenskiy held a "substantive" meeting on Wednesday with Trump's Ukraine envoy, Keith Kellogg, in Rome ahead of a Ukrainian recovery conference.

On Thursday, he will hold more meetings with American officials to discuss the adoption of the next package of U.S. sanctions against Russia in the near future, according to the Ukrainian foreign minister.

Trump has been growing increasingly frustrated with President Vladimir Putin, saying that the Russian leader was throwing a lot of "bullshit" at the U.S. efforts to end the war that Moscow launched against Ukraine in February 2022.

U.S. Secretary of State Marco Rubio will meet with Russian Foreign Minister Sergei Lavrov on the sidelines of the ASEAN foreign ministers' meeting in Kuala Lumpur on Thursday, the U.S. State Department and Russia's foreign ministry said.

The Russian attack on Kyiv on Thursday rattled the city with explosions, Reuters' witnesses said. Videos showed windows blown out, devastated facades and cars burned down. Ukrainian officials said that damage was reported in eight of the city's 10 districts.

"I turned around and saw that the apartment was gone, and a fire had also broken out," said Karyna Volf, a 25-year-old Kyiv resident who rushed out of her place moments before shards of glass went flying.

"This is terror, because it happens every night when people are asleep."

Thick smoke covered parts of Kyiv, darkening the red hues of a sunrise over the city of three million, Reuters' witnesses reported. Air raids in the capital lasted more than four hours, according to Ukraine's air force data.

Closer to the battle zone, a Russian air strike killed three people and injured one late on Wednesday in the front-line town of Kostiantynivka in Ukraine's east, the national emergency services said.

Source: Reuters

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Glendon

Economic

President Donald Trump’s latest extension of tariff negotiations once again stretches out the policy limbo that US businesses are being forced to endure. In a flurry of letters this week, Trump effectively kicked the can on his much-hyped July 9 “reciprocal tariff” deadline until Aug. 1. In other words, Trump wants nations to come forward with concessions by that date. Meanwhile, American businesses and consumers are already juggling current levies that are up some 11 percentage points to around 13% on average.

Who will pay the price for Trump’s destructive policy and this persistent uncertainty? Odds are decent that the titans of the US stock market will adapt, but the nation’s small businesses could suffer lasting damage.

Small businesses, which collectively employ about half of America’s private workforce, account for about a third of the value of goods imported into the US. They include many wholesalers, some manufacturers and companies operating in a variety of other industries. (Here I define small businesses as those with fewer than 500 workers, but this group includes very small companies too, such as the 94,000 importers with just 1-19 employees.)

Unlike the publicly traded giants who can often secure a private audience at Mar-a-Lago or at least have officials lobby on their behalf, small businesses have neither the policy influence, the negotiating leverage with suppliers, nor the fat profit margins to weather large cost increases and haphazard policy implementation. So while tariffs and trade uncertainty haven’t held back the S&P 500 Index or had an obvious impact (yet) on the consumer price index, one plausible thesis is that small businesses will take the brunt of the blow.

Some of the more sobering evidence comes from surveys. Around 44% of small and medium-sized businesses say their revenues are taking a hit, according to the latest wave of a study from Alignable and researchers at the Massachusetts Institute of Technology and Harvard Business School. The National Federation of Independent Business’ monthly survey, whose small-business respondents always seem to perk up when a Republican is in office, has seen optimism swoon in 2025 (though it’s still up a lot from before Trump’s election win). Just a net 7% expect higher real sales volumes, versus 22% in December, while a net 32% plan to increase prices, the most since March 2024.

Admittedly, survey interpretation can be tricky in our age of partisan politics and social media silos, and other data seem to paint a picture of a small business ecosystem that’s hanging in there for now, but clearly not firing on all cylinders.

The Paychex Small Business Employment Watch jobs index — which focuses on businesses with under 50 workers — slipped slightly to 99.65 in June, the lowest since 2021, with values under 100 signaling that jobs are being shed. That index was consistent with similar data from the ADP National Employment Report, which showed that those under-50-employee businesses shed 47,000 jobs in June, the most since March 2022, even as larger firms continued to grow. Small business employment has mostly been treading water for a few years now, and the risk is that the tariff upheaval will turn a tenuous yet stable situation into a downright bad one with layoffs and business closures.

For now, earnings are still in decent shape. Using proprietary internal bank data, Bank of America Institute researchers use the account inflow-to-outflow ratio as a proxy for small-business profitability, and they found that the ratio has been above 1 for most of 2025. However, the study also noted that in the subset of companies that themselves pay tariffs directly to Customs and Border Protection, those payments have soared.

Like it or not, Trump appears to view all the uncertainty — the rolling deadlines, constantly changing tariff rates and blustery social media posts — as part of his negotiating strategy. Investors on Wall Street seem to be assuming, at this point, that the ultimate tariffs probably won’t be quite as bad as his threats (i.e., on the final accounting, they may “only” be as bad as the 1930s, rather than the 1890s). In the near-term, levies will probably go up as product-level investigations are completed and deadlines pass, but no one should be taking the bluster at face value, appears to be the calculus. And many of the levies are so intrinsically temporary that — worst comes to worst — they’ll never outlast the Trump administration itself, if they even make it past the 2026 midterm election.

But that’s cold comfort to small business owners, who oftentimes find themselves operating with no more than one month’s cash buffer held in reserve. To them, the existing tariffs and the months of uncertainty are a near-and-present danger, and Trump is playing with fire each time he draws it all out for another month.

Source: Bloomberg Europe

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Gerik

Economic

Auction Metrics Suggest Stability, But Caution Persists

The 20-year Japanese government bond (JGB) auction held on July 10, 2025, delivered a muted but stable result. The bid-to-cover ratio stood at 3.15 below the annual average, yet the highest since March while the auction’s tail narrowed to 0.18, marking its tightest level since January. These figures suggest that demand, while not robust, showed signs of resilience. Yields remained steady at 2.51%, following a 2.5 basis point decline prior to the auction, and bond futures ticked higher, reflecting modest confidence.

The Ministry of Finance has subtly reduced the issuance of long-duration bonds in recent months, aiming to temper volatility in the super-long end of the curve. This reduction in supply, coupled with more attractive yield levels and temporary yield curve stabilization, made conditions more palatable for buyers. However, investors remain on alert, especially with Japan's Upper House election scheduled for July 20, where pledges for fiscal stimulus or tax cuts could significantly alter debt dynamics.

Investor Sentiment Anchored by Election Risks and Policy Direction

Though the auction's outcome did not raise immediate alarm, underlying unease among bond investors remains rooted in the nation’s ballooning debt and shifting political landscape. The causal concern lies in the prospect of post-election fiscal expansion, which could prompt higher bond issuance and upward pressure on yields. This sentiment was echoed by Meiji Yasuda Life Insurance Co., which publicly stated its intention to refrain from increasing exposure to super-long JGBs over the next two years due to the risk of rising interest rates and supply increases.

This apprehension comes at a moment when the Bank of Japan historically the largest JGB holder is gradually stepping back from aggressive bond purchases. The anticipated reduction in central bank support introduces a structural shift in the bond market’s demand side, leaving longer-dated maturities more vulnerable to external sentiment and political developments.

Foreign Influences and Comparative Pressure from Global Markets

Japan’s bond market tension is not occurring in isolation. Sovereign yields globally have been trending higher, with the US 30-year Treasury yield approaching the 5% mark earlier this week. Fiscal sustainability fears mirrored in the US after a 10-year auction revealed strong demand are increasingly defining yield curve movements. While Japanese yields remain low by comparison, the international context reinforces domestic caution. Any perception that Japan may follow a path of expansive fiscal policy could push investors to reprice long-term risk more aggressively.

Moreover, the upcoming election coincides with fresh 25% US tariffs set for August 1, imposed by President Donald Trump. The dual impact of trade uncertainty and fiscal stimulus risks places added strain on investor outlooks. US Treasury Secretary Scott Bessent’s remarks about “domestic constraints” tied to the Japanese vote underscore the broader geopolitical implications of the current fiscal stance.

Auction Participants Indicate Support, But Not Full Conviction

A partial breakdown of winning bidders reveals Nomura Securities Co. securing over 16% of the bonds, followed by Mitsubishi UFJ Morgan Stanley Securities Co. with just above 11%. These large allocations suggest that domestic institutions, particularly those aligned with long-term liability structures, continue to provide foundational support for JGBs. However, the absence of broader participation from foreign investors and cautious tones from major insurers temper the overall optimism.

Market strategist Ken Matsumoto from Crédit Agricole assessed the situation as contained for now, suggesting that 30-year yields around 3% remain within a justifiable range, though a move toward 4% appears unlikely in the near term. Still, this assessment hinges on the assumption that post-election policies will not introduce unexpected fiscal shocks a condition far from guaranteed.

Japan’s latest 20-year bond auction delivered a surface-level stability that belies deeper structural and political uncertainties. With a pivotal election just days away, and fiscal promises likely to define future debt trajectories, investors remain in a holding pattern. While auction metrics signal momentary calm, the market’s longer-term stability depends on both the evolution of Japan’s political leadership and the government’s ability to manage its debt without overburdening an already fragile demand base for super-long securities.

Source: Reuters

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Gerik

Economic

Glavprodukt’s Ownership Battle and Strategic Redirection

In October 2024, Russia seized Glavprodukt, a leading canned food producer founded by Los Angeles-based Leonid Smirnov. The Kremlin justified its intervention by citing the company’s strategic importance to national food security. However, internal documents and testimonies now reveal a sharp contrast between the original justification and the company’s actual operations since the takeover. While production levels have remained steady, sales have declined markedly, indicating that supply has outstripped domestic demand. This disconnect has forced Glavprodukt’s new state-appointed managers to consider expanding exports, especially to China, North Korea, and emerging markets in Africa and South Asia.

This decision to pivot externally raises questions about the original intention of the seizure. If the stated rationale was to guarantee food for Russian citizens, then why is the company now focusing on markets outside Russia? The causal relationship here points to an internal failure to manage sales and distribution effectively, leading to surplus inventory. That surplus, in turn, has necessitated a search for international buyers, making the initial justification appear more symbolic than operational.

Shifting Trade Alignments and Contradictions in Policy Messaging

The new strategy also reflects a broader shift in Russia’s geopolitical and economic alignments since its invasion of Ukraine. With growing sanctions from the West, Russia has increasingly leaned on non-aligned countries, particularly those without sanctions, as alternative trading partners. The decision to engage North Korea and expand to China where Glavprodukt’s previous market share was just one percent illustrates a deliberate pivot away from Western spheres of influence.

Yet this new direction seems at odds with President Vladimir Putin’s statement in Minsk on June 27, where he publicly invited American companies to return to Russia. The treatment of Glavprodukt, currently the only US firm officially seized by the Russian state, sends a contradictory message. The ongoing legal battle, with Smirnov fighting for ownership in the Moscow Court of Arbitration, underscores the deepening trust deficit between the two countries.

Impact on US-Russia Relations and Commercial Confidence

The U.S. government has explicitly linked the outcome of Glavprodukt’s case to the future trajectory of US-Russia relations. Following a July 3 phone call with President Putin, President Donald Trump expressed dissatisfaction with stalled negotiations, reinforcing the symbolic weight of the Glavprodukt issue.

The company’s financial data paints a troubling picture. Once modestly profitable, Glavprodukt has slid into consistent monthly losses. The Russian Ministry of Agriculture has even demanded an explanation for the drop in sales, further illustrating the internal pressure on seized enterprises to remain viable. This economic decline correlates with state mismanagement, as assets handed over to interim administrators struggle to adapt to new mandates and accountability standards.

The broader pattern mirrors other cases in which Western companies such as Carlsberg and Danone had their Russian operations seized and later sold to Kremlin-affiliated buyers at heavily discounted prices. In all these cases, the causal factor behind poor performance appears to be abrupt changes in governance and misaligned incentives under state-appointed managers.

Future Prospects and Export Strategy Challenges

Looking forward, Glavprodukt has developed a plan to increase e-commerce and explore high-demand regions such as Africa and South Asia, focusing on products like canned fish and condensed milk. The company has even moved to register its trademark in China, signaling a more formal commercial intent. However, these ambitions are not without complications. A recent pre-paid shipment to China failed to arrive on schedule, illustrating the logistical and diplomatic risks of rapid export expansion.

This export push is less an expression of commercial opportunity and more a response to domestic dysfunction. The correlation between state intervention and commercial underperformance is strong, and in the case of Glavprodukt, efforts to reorient toward international markets appear more like damage control than a long-term growth strategy.

Glavprodukt's current state is emblematic of the challenges facing foreign-owned assets under Russian state control. While the initial seizure was justified in national security terms, the company’s pivot to China, North Korea, and beyond indicates a reactive adaptation to internal failure rather than a proactive strategy. As Glavprodukt's financials continue to deteriorate and its legal status remains contested, its case will likely remain central in shaping both bilateral relations and broader foreign investor sentiment toward Russia.

Source: Reuters

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Gerik

Economic

High Tariff Threatens Vital Export Sector

Sri Lanka’s apparel sector, responsible for $4.8 billion in exports in 2024 and employing around 300,000 workers (predominantly women), is facing serious disruption after President Donald Trump announced a 30% tariff on imports from Colombo, effective August 1. According to data from the Joint Apparel Associations Forum (JAAF), U.S. buyers accounted for 40% of the sector’s output, contributing $1.9 billion in earnings last year, and $747 million in just the first five months of 2025.

The tariff, part of a broader trade realignment strategy by the U.S., is significantly higher than the 20% imposed on Vietnam, one of Sri Lanka’s fiercest apparel competitors. Even Bangladesh, which also faces higher tariffs at 35%, maintains larger export volumes and stronger price advantages due to economies of scale and lower labor costs. India, another major player in South Asia’s garment trade, has yet to receive its final tariff rate, but early indicators suggest it could be lower than Sri Lanka’s.

Industry Leaders Warn of Disproportionate Impact

Yohan Lawrence, secretary general of JAAF, expressed concern that Sri Lanka would be pushed into an uncompetitive position if it fails to secure a more favorable tariff rate. He highlighted that Sri Lanka's value proposition lies not in price leadership but in ethical manufacturing and high labor standards, factors that are easily undermined when facing a double-digit tariff disadvantage.

“If this is the end number, Sri Lanka is in trouble,” Lawrence emphasized, noting that continued dialogue with U.S. trade officials is the industry's only hope. The sudden increase from an initial threatened rate of 44% in April to a finalized 30% still leaves some room for negotiation though pressure is mounting as the implementation date nears.

Government Response and Economic Context

Although Sri Lanka's government has yet to issue an official response, a press briefing involving the central bank governor Nandalal Weerasinghe and trade officials was scheduled to address the issue. The stakes are high not only for trade but for Sri Lanka's broader economic recovery, which remains fragile following a recent IMF-supported stabilization program.

The International Monetary Fund has described the country’s outlook as cautiously positive, but warns that ongoing trade disruptions such as these tariffs could pose renewed risks to macroeconomic stability, job creation, and foreign currency inflows.

Negotiation or Margin Compression

If no deal is reached, Sri Lankan exporters may face eroded profit margins, forced price cuts, or even order reallocation to competing nations. Apparel firms may also consider shifting operations partially to countries with more favorable access to the U.S. market, though such transitions are neither cheap nor immediate.

In the weeks ahead, the outcome of discussions between Colombo and Washington could determine whether Sri Lanka's apparel sector continues as a cornerstone of the national economy or faces a painful contraction. With global competition rising and political uncertainty high, both industry and government must act swiftly to protect one of the country’s most strategic export industries.

Source: Reuters

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Economic

Initial Tariff Impact Contained, But Clouds Loom Over Outlook

In a report issued Thursday, the Bank of Japan revealed that while the current fallout from U.S. tariffs on Japanese exports remains modest, growing uncertainty about the global economy and foreign demand is starting to influence corporate sentiment. According to the summary from its quarterly meeting of regional branch managers, the central bank acknowledged that businesses across Japan are increasingly anxious about the indirect effects of tariff-induced price hikes in the United States.

At present, companies across Japan’s nine regional blocs are not reporting severe disruptions. Exports and manufacturing have held up better than expected despite the early rounds of trade restrictions. However, the BOJ's summary cautioned that many firms are beginning to delay or reconsider capital investment plans, particularly in export-driven sectors that anticipate a slowdown in demand due to higher U.S. prices and weakening global consumption.

Mixed Capex Signals Reflect Uneven Sentiment

Although some companies are pulling back, others are accelerating capital spending particularly in automation and productivity-enhancing technologies to address Japan’s chronic labor shortages. This divergence in capital expenditure behavior illustrates the dual pressures Japanese firms face: the need to remain competitive while bracing for a possible global economic downturn.

The BOJ’s regional reports collectively maintained the stance that economic recovery is continuing at a “moderate” pace, in line with assessments from three months ago. This suggests that domestic fundamentals particularly services and consumer demand are still providing enough support to offset external headwinds in the short term.

Policy Implications Ahead of July Meeting

This cautious optimism will inform discussions at the BOJ’s next policy meeting on July 30-31, when policymakers will release updated quarterly forecasts on GDP growth and inflation. While inflation remains within the BOJ's target zone, any indication of softening global trade flows, especially from the United States, Europe, or China, could push the bank to delay further tightening or tapering actions, particularly if yen volatility or capital flight re-emerges.

The BOJ’s assessment strikes a balance between reassurance and prudence. Although Japan’s export sector is currently weathering the tariff storm better than many feared, the forward-looking tone reveals a deeper concern: that the real damage from U.S.-led trade protectionism may manifest more clearly in the months ahead. With Japan’s economic engine still reliant on global trade, the central bank’s July meeting will be a key moment to evaluate whether recent resilience can be sustained amid broader geopolitical and economic turbulence.

Source: Reuters

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Gerik

Economic

Markets Test Highs Despite Growth Headwinds

As second-quarter earnings kick off, European markets sit near record highs, with the STOXX 600 index up 8% year-to-date outpacing the S&P 500 and marking one of the region’s strongest relative performances in two decades. Yet this rally masks deeper uncertainties. According to LSEG I/B/E/S data, earnings for STOXX 600 constituents are projected to shrink 0.2% in Q2, a stark reversal from the 2.2% growth recorded in the previous quarter.

This anticipated contraction comes as tariff reprieve from the U.S. expired, reigniting fears of retaliatory trade policies. While Europe has so far avoided direct U.S. tariff action, the broader risk environment including levies on pharmaceuticals, copper, and semiconductors has kept markets alert. Investors are now turning to forward guidance for clarity, as many companies had previously withdrawn outlooks during the 90-day uncertainty window following Trump’s initial April tariff declaration.

Guidance, Not Results, Will Drive Market Reaction

Economists and strategists suggest that guidance sentiment will outweigh headline earnings this quarter. Jefferies’ Mohit Kumar noted that Q2 data may be noisy, but future outlooks will determine whether the STOXX rally holds. Barclays analysts observed that forecast confidence has not recovered meaningfully, citing guidance sentiment at its weakest level since the pandemic.

Luke Barrs of Goldman Sachs Asset Management added that while markets grasp the conceptual impact of tariffs, the full earnings transmission mechanism has not yet been tested. If corporate outlooks deteriorate under prolonged trade strain, valuations could come under pressure.

Earnings Downgrades and Positioning Set the Stage

Analysts have been revising earnings forecasts downward for 55 consecutive weeks, reducing full-year growth expectations for European corporates from 8% to 3%. However, the slower pace of downgrades since May, coupled with light investor positioning, could provide upside surprise potential if results modestly exceed expectations.

Deutsche Bank’s Binky Chadha suggested that current investor exposure to equities is slightly below neutral, increasing the likelihood of a "beat-and-rally" scenario. This would mirror past reporting cycles where reduced expectations made even flat results appear impressive.

Valuation Optimism Faces Currency Reality

The STOXX 600 now trades at 14.2 times forward earnings, its highest multiple in three years but still considerably below the S&P 500’s 21.9. This valuation gap reflects both the defensive nature of European equities and market belief in limited downside, provided earnings stabilize.

Yet the strengthening euro is emerging as a pressure point. Up over 13% in 2025, the euro’s appreciation driven by a weaker dollar amid Trump’s aggressive tariff rhetoric poses risks to multinational revenue streams. Unlike the S&P 500, where 70% of revenue is domestic, only 40% of STOXX 600 revenue is generated within Europe, making it highly sensitive to FX shifts.

UBS analysts warn that margin compression may follow, particularly in export-heavy sectors, though GSAM’s Barrs remains optimistic that large-cap European firms are well-hedged. Nonetheless, companies with poor currency risk management may deliver unexpected earnings disappointments, especially in sectors like industrials and consumer goods.

European equities are approaching a critical juncture. The market has priced in a soft landing for earnings, supported by dovish monetary expectations and favorable capital flows from the U.S. But with earnings forecasts still being revised downward and tariff uncertainties re-emerging, investor confidence may be tested if guidance remains weak or FX pressure undermines profitability. The Q2 season will be less about EPS numbers and more about whether corporates can articulate a roadmap through rising trade and currency volatility a narrative that will define the trajectory of European equities in the second half of 2025.