Trump Weighs Military Action as Iran Protests Intensify

James Riley

Remarks of Officials

Political

Middle East Situation

Summary:

Iran's clerical regime confronts widespread unrest as the U.S. considers military options, drawing Tehran's stern warnings. The escalating tensions raise significant regional concerns.

As widespread unrest challenges Iran's clerical leadership in one of the most significant movements since the 1979 Islamic Revolution, U.S. President Donald Trump has signaled that a range of strong responses, including military options, are under consideration. The administration has also confirmed contact with opposition figures as tensions escalate.

Trump stated that Iran had initiated contact to negotiate its nuclear program, a point of contention that led to a 12-day war in June involving U.S. and Israeli bombing campaigns. He issued a stark warning to Iranian leaders, threatening a U.S. attack if security forces open fire on protesters.

US Considers Forceful Options

President Trump was scheduled to meet with senior advisers on Tuesday to deliberate on the U.S. strategy for Iran. According to a U.S. official and reports from The Wall Street Journal, the options on the table are comprehensive and include:

• Direct military strikes

• Deployment of covert cyber weapons

• Expanded economic sanctions

• Providing online support to anti-government activists

"The military is looking at it, and we're looking at some very strong options," Trump told reporters aboard Air Force One on Sunday.

Iran Issues Stern Warning Against Attack

In response, Iranian officials have cautioned Washington against any military intervention. Parliament Speaker Mohammad Baqer Qalibaf, a former commander in the elite Revolutionary Guards, warned the U.S. not to "miscalculate."

"Let us be clear: in the case of an attack on Iran, the occupied territories (Israel) as well as all U.S. bases and ships will be our legitimate target," Qalibaf declared.

Protests and Casualties Mount on the Ground

The protests, which began on December 28 over soaring prices, have since evolved into a direct challenge against the country's clerical rulers. Iranian authorities have accused the United States and Israel of instigating the turmoil and organized a nationwide rally on Monday to condemn what state media called "terrorist actions."

The U.S.-based human rights group HRANA reported it had verified the deaths of 490 protesters and 48 security personnel, with over 10,600 people arrested. Iran has not released an official death toll, and Reuters has been unable to independently confirm these numbers.

Figure 1: Footage shared on social media captures the scale of nighttime protests in Tehran, as large crowds march in defiance of a government crackdown.

Information flow has been severely restricted by an internet blackout imposed since Thursday. Trump said Sunday he would speak with Elon Musk about potentially restoring internet access via the Starlink satellite service. Despite the blackout, social media footage from Tehran on Saturday showed massive crowds marching at night.

State TV aired footage of dozens of body bags at the Tehran coroner's office, attributing the deaths to "armed terrorists." Meanwhile, families gathered at the Kahrizak Forensic Medical Centre to identify the deceased. Authorities declared three days of national mourning for "martyrs killed in resistance against the United States and the Zionist regime."

Regional Tensions and Expert Analysis

The crisis has put the region on high alert. Three Israeli sources confirmed that Israel's security establishment was on high alert over the weekend for any potential U.S. intervention. The situation follows a 12-day war in June 2025 between Israel and Iran, during which the U.S. attacked Iranian nuclear sites and Iran fired missiles at Israel and an American air base in Qatar.

The unrest finds Tehran in a vulnerable position, still recovering from last year's war and with its regional influence diminished following setbacks for allies like Lebanon's Hezbollah.

Despite the scale of the protests, some experts remain skeptical they will unseat the government. Alan Eyre, a former U.S. diplomat and Iran expert, told Reuters it was unlikely the establishment would be toppled.

"I think it more likely that it puts these protests down eventually, but emerges from the process far weaker," Eyre said, noting the cohesion among Iran's elite and the lack of an organized opposition.

President Trump, however, projected a different outcome on social media. "Iran is looking at FREEDOM, perhaps like never before," he posted on Saturday. "The USA stands ready to help!!!"

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Gerik

Economic

Powell Confirms Criminal Investigation, Calls Out Political Pressure

Federal Reserve Chair Jerome Powell disclosed on Sunday that the U.S. Department of Justice has served him with grand jury subpoenas, threatening criminal indictment. The investigation is reportedly tied to his June 2025 congressional testimony regarding the Federal Reserve’s $2.5 billion headquarters renovation in Washington, D.C. However, Powell made clear in his statement that he believes the probe is not about the renovation itself, but an effort to coerce the Fed into aligning its monetary policy with the Trump administration’s preferences.

In a striking video posted on the Fed’s official account, Powell warned that this case is a litmus test for whether U.S. monetary policy will remain governed by economic evidence or be manipulated through political intimidation. His remarks underscore a fundamental concern: if the investigation proceeds as politically motivated, it could set a precedent that undermines the credibility of the central bank.

Political Tensions Reach Breaking Point

The investigation surfaced months after Representative Anna Paulina Luna (R-FL) accused Powell of perjury during his Senate testimony, claiming he misled Congress about the scale and details of the renovation project. These claims were bolstered by a referral to the DOJ, triggering the current grand jury process. Powell denies any wrongdoing, emphasizing that the Fed has been transparent with Congress throughout the project.

President Donald Trump, during a Sunday interview, denied any involvement in the DOJ’s actions but reignited criticism of Powell’s leadership. Trump called Powell “not very good at the Fed” and mocked the cost of the Fed’s renovation project, stating it would exceed $4 billion despite official estimates being $2.5 billion. In a December statement, Trump floated the idea of suing Powell for “incompetence” and reiterated his desire to remove him from office when his term expires in May.

Although Trump claimed the subpoenas were unrelated to interest rates, his consistent pressure on Powell to cut rates more aggressively since his return to the White House has created an environment of persistent tension. Trump’s criticism began early in Powell’s chairmanship, branding Fed officials as “boneheads” and ridiculing Powell as an inept golfer.

Senate Backlash and Legal Uncertainty Mount

The political backlash has been swift and bipartisan. Republican Senator Thom Tillis, a member of the Senate Banking Committee, condemned the investigation as an attack on Fed independence and pledged to oppose any Trump nominee for the Fed Board until the legal matter is resolved. Democratic Senators Elizabeth Warren and Chuck Schumer also blasted the administration, with Schumer calling the probe “bullying” and Warren accusing Trump of orchestrating a “corrupt takeover” of the Fed to install a loyalist.

The Senate’s skepticism points to broader institutional concerns. Powell’s term as Chair ends in May 2026, but his governorship runs through January 2028. Analysts suggest Powell may choose to remain on the Board even after his chairmanship ends an unconventional but legal move that could prevent Trump from reshaping the Fed’s leadership unchallenged.

Simultaneously, controversy is brewing over Trump’s attempt to remove Fed Governor Lisa Cook, who is contesting her removal in a case that will be reviewed by the Supreme Court later this month. Cook has denied the fraud allegations made by Bill Pulte, the Trump-appointed Director of the Federal Housing Finance Agency, further entangling the Fed in political and legal crossfire.

Market Reactions and Economic Implications

Financial markets reacted swiftly. Stock futures dipped after Powell’s statement, while analysts predicted further risk aversion in the trading week ahead. Krishna Guha of Evercore ISI warned of a "sell-America" reaction, likening the scenario to market dislocations seen during tariff escalations and past threats to Fed independence. A weaker dollar, falling bond prices, and rising gold already at record highs are all expected to reflect investors’ flight from U.S. risk.

The credibility of U.S. financial governance is now under pressure. If political actors can directly influence the Fed through legal intimidation, it risks unanchoring inflation expectations and destabilizing capital flows. The correlation between institutional stability and market confidence becomes central: Powell’s legal troubles, if perceived as politically engineered, may amplify volatility far beyond interest rate expectations.

A Defining Test for Fed Independence and U.S. Governance

The criminal probe into Jerome Powell is no longer a mere legal proceeding it has evolved into a defining test of the Federal Reserve’s institutional autonomy. While Powell maintains that he will serve his role with integrity and uphold the Fed’s dual mandate, the Trump administration’s posture suggests it is pursuing a more aggressive strategy to reconfigure the central bank’s leadership and priorities.

The broader impact of this standoff is both political and economic. With markets on edge, central bank independence in question, and the DOJ’s neutrality under scrutiny, the outcome of this confrontation will shape the credibility of U.S. monetary policy for years to come. Whether Powell remains as a board member after May or exits under pressure, the conflict marks a historic turning point in the relationship between American economic governance and political power.

Source: Reuters

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Gerik

Forex

Economic

Currency Pressures Deepen with Oil and Political Risks

The Indian rupee ended last week nearly unchanged at 90.1625 per U.S. dollar but faces renewed downside risk in the coming days as traders weigh the Reserve Bank of India’s (RBI) willingness to continue defending the currency amid intensifying global headwinds. The rupee’s muted performance masks underlying fragility, particularly given a steep $9.8 billion drop in foreign reserves the largest weekly decline in over a year which now stand at $686.8 billion.

This deterioration coincides with external pressures. Oil prices surged approximately 4% last week, driven by rising unrest in Iran and military escalations in Ukraine. Tehran's threat to retaliate against U.S. and Israeli targets in response to potential American strikes adds a volatile geopolitical layer. Historically, rising crude prices have been a causal factor in weakening the rupee, given India’s status as a major oil importer. This pattern appears likely to persist unless oil prices stabilize.

RBI’s Intervention Strategy in Focus

Despite the rupee's stability around the 90.20–90.30 zone, market commentary suggests the RBI is actively intervening at these levels. However, as noted by IFA Global, there’s speculation that the central bank may soon ease its intervention stance if U.S. dollar demand remains elevated. Should this materialize, it would allow USD/INR to adjust to a higher trading range, further pressuring the rupee and potentially triggering broader market recalibrations.

Adding to the complexity is the fallout from the U.S. Justice Department’s criminal probe into Fed Chair Jerome Powell. The dollar weakened on Monday following Powell’s statement, which emphasized threats to central bank independence. While this might temporarily ease upward pressure on USD/INR through correlation rather than causation, it is unlikely to offer lasting relief unless followed by dovish Fed signals or a decisive shift in global risk sentiment.

Bond Yields Rise as Supply Surges and RBI Plans Purchases

Indian sovereign bond yields continue to climb under the weight of heavy borrowing and uncertain liquidity management. The 10-year benchmark bond yield (6.48% 2035) closed at 6.6401% on Friday, rising for the second week in a row. Traders anticipate the yield to fluctuate within the 6.60% to 6.70% range in the near term, driven by ongoing state and federal debt issuances and the RBI’s liquidity operations.

India’s government plans to raise over ₹8 trillion in the January–March quarter ₹5 trillion from state governments and more than ₹3 trillion from the central government. The magnitude of this supply is not only pressuring benchmark yields but also widening spreads between state and central borrowings. According to Axis Max Life Insurance’s CIO, Sachin Bajaj, the elevated spread is largely a product of both the volume and tenor of state debt, with more long-dated securities being issued than in past years.

The RBI is attempting to manage liquidity pressures through open market bond purchases. A ₹500 billion operation is scheduled for Monday, followed by another on January 22. Traders will closely monitor which bonds are selected, as the RBI’s actions may provide partial relief to yields in targeted maturities, but cannot entirely counteract the supply-driven pressure unless accompanied by broader liquidity injections.

Index Inclusion and Macro Data in Spotlight

Investors are also watching developments related to the potential inclusion of Indian bonds in Bloomberg’s Global Aggregate Index. Such inclusion would open the door to increased foreign participation in India’s debt markets. While the timeline remains unclear, any formal movement in this direction could provide structural demand support and act as a medium-term stabilizer for yields.

Near-term sentiment, however, will be shaped by key macroeconomic releases. On the domestic front, December CPI inflation is due Monday (forecasted at 1.50%), followed by WPI inflation on Tuesday. Meanwhile, U.S. CPI and retail sales data will guide global bond and currency markets, influencing rate expectations ahead of the Federal Reserve’s upcoming policy meeting.

Cautious Outlook for Rupee and Bonds

Both the rupee and Indian bond markets remain exposed to a confluence of global and domestic risks. The rupee's trajectory will depend on the RBI’s tolerance for further depreciation, oil price trends, and external political developments. Simultaneously, the bond market is navigating a challenging supply environment, awaiting clarity on liquidity operations and potential index inclusion.

For now, the rupee shows little sign of meaningful relief, and bond yields are likely to stay firm unless supply expectations ease or the RBI signals a more aggressive easing stance. The coming days will offer critical cues, but the underlying pressures appear entrenched for the time being.

Source: Reuters

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Gerik

Economic

Forex

Powell Probe Sparks Dollar Retreat Amid Policy Turmoil

The U.S. dollar slid sharply at the start of the week after news broke of a criminal investigation into Federal Reserve Chair Jerome Powell, with the dollar index falling 0.2% to 99.011. The drop reversed a five-day rally and marked the steepest daily decline in three weeks, driven not by economic fundamentals alone, but by political and legal uncertainty now surrounding the Fed’s leadership.

The announcement triggered a broader reassessment of institutional stability in the U.S. monetary framework, with markets interpreting the Department of Justice’s probe as a direct challenge to the Fed’s independence. Powell’s own video response, which strongly defended the central bank’s autonomy and accused the Trump administration of political interference, further fueled investor anxiety. The causal connection here is direct: the investigation undermines investor faith in neutral monetary policy, leading to capital rotation away from the U.S. dollar.

Gold Breaks Records as Safe Haven Demand Surges

In contrast to the weakening dollar, gold prices surged to an unprecedented $4,600.33 per ounce, reflecting a global flight to safety. This movement was amplified by both domestic instability and international uncertainty, particularly following reports of escalating violence in Iran. While such geopolitical tensions typically benefit the dollar as a reserve asset, the concurrent U.S. political risks appear to have canceled out this safe-haven appeal, creating a divergent outcome that favors gold instead.

Kyle Rodda, a market analyst from Capital.com, emphasized that geopolitical developments alone should have supported the greenback, but investor attention has shifted to the credibility of U.S. governance, dampening traditional dollar resilience.

Economic Data and Fed Outlook in Flux

The initial upward momentum in the dollar earlier on Monday was fueled by Friday’s U.S. jobs report, which reaffirmed a relatively stable labor market and diminished expectations for an immediate rate cut. However, this macro narrative was overtaken by the Powell investigation, shifting the primary market driver from economic fundamentals to political risk.

With U.S. CPI data for December scheduled for release on Tuesday, market participants are now watching closely to gauge whether inflation remains sticky enough to constrain future Fed easing. Standard Chartered analysts noted that inflation still exceeding the Fed’s 2% target combined with a labor market that hasn’t deteriorated may delay further rate cuts, barring a sharp downturn in economic activity.

This introduces a correlation-based tension: while stable macro indicators suggest a strong dollar, political turmoil introduces conflicting pressures that dilute this effect.

Currency Reactions Highlight Shifting Risk Preferences

The ripple effects across currency markets reflect the reassessment of U.S. risk. The Japanese yen saw limited movement, with the dollar trading slightly higher at 158.135 yen, amid speculation about a potential snap election in February. Despite rising domestic political uncertainty in Japan, it appears insufficient to counterbalance concerns surrounding U.S. credibility.

The euro, meanwhile, gained 0.2% to $1.1656, rebounding from a one-month low. The Chinese offshore yuan strengthened slightly to 6.9706 per dollar, nearing its strongest level since May 2023. These shifts illustrate a relative repositioning by global investors, who are moving cautiously away from the U.S. dollar toward other major currencies despite their own localized political or structural vulnerabilities.

Looking Ahead: Supreme Court Ruling and Market Catalysts

The upcoming week is dense with additional catalysts that could further influence dollar positioning. These include the U.S. CPI report, major bank earnings that may influence risk appetite, and a possible Supreme Court ruling on Trump’s emergency tariff authority. Each of these events could either reinforce or mitigate current concerns about U.S. economic and institutional stability.

However, unless there is clear resolution to the Powell investigation or a restoration of investor confidence in the Fed’s policy autonomy, the dollar may remain under pressure despite fundamentally supportive macro data. The gold rally underscores the depth of investor unease and signals a shift in the default risk hedge away from the dollar at least temporarily.

While U.S. economic indicators remain relatively solid, the criminal probe into Fed Chair Powell introduces a destabilizing force that challenges the traditional correlation between macro strength and dollar performance. This marks a turning point where political credibility, rather than inflation or jobs data, may become the dominant driver of currency markets. The dollar’s retreat and gold’s breakout illustrate how investor focus has shifted decisively toward institutional risk and the consequences may linger well beyond this week’s data cycle.

Source: Reuters

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Gerik

Economic

Urgency Intensifies as U.S. Leads Push Against Chinese Mineral Dominance

Ahead of a high-level summit involving finance leaders from the G7, European Union, Australia, India, South Korea, and Mexico, U.S. Treasury Secretary Scott Bessent is calling for a swifter and more coordinated international response to reduce strategic dependence on China for critical minerals. According to a senior U.S. official, Bessent is growing increasingly frustrated with what he views as a lack of urgency among key partners following the G7 leaders’ summit in June 2025.

This renewed push comes at a time when the participating nations collectively account for roughly 60% of global demand for critical minerals such as lithium, cobalt, graphite, and rare earth elements materials vital for defense systems, semiconductors, electric vehicles, and renewable energy infrastructure.

G7 Lagging Despite Earlier Commitments

Although an action plan to secure supply chains was agreed upon at the Canadian G7 summit, Bessent believes that tangible progress has been slow, with Japan being the only nation that has taken decisive action since its own 2010 crisis, when China abruptly halted critical mineral exports. In contrast, most G7 members remain heavily exposed to China’s mineral dominance.

China’s role remains central in the global supply chain, refining between 47% and 87% of major critical minerals. These figures, based on data from the International Energy Agency, highlight the structural dependency that Western economies have yet to effectively address. China’s recent move to restrict rare earth exports to Japanese firms, and its ban on dual-use item shipments to Japan’s military, underscores the vulnerability of strategic industries to supply-side disruptions.

The timing of the meeting is particularly consequential. As China tightens its grip on outbound flows, the stakes for alternative supply networks grow. The relationship here is causal China’s export behavior directly shapes the urgency and trajectory of diversification efforts by its rivals.

U.S. Strategy: Move First, Invite Others to Follow

The United States is positioning itself as the lead actor in the diversification initiative, already advancing bilateral agreements with key resource holders such as Australia and Ukraine. In October, Washington signed a critical minerals partnership with Canberra, which includes an $8.5 billion pipeline of projects and support for Australia’s proposed strategic reserve of metals.

While the official declined to specify future Trump administration steps, the message was clear: the U.S. is prepared to move forward with “those who feel a similar level of urgency,” leaving the door open for others to join later. This approach reflects a layered strategy initiating a core coalition and applying soft pressure through exclusion rather than consensus.

International Interest Grows, But Action Still Lags

Canberra’s alignment with the U.S. has already drawn interest from Europe, Japan, South Korea, and Singapore, suggesting a growing recognition of the geopolitical and economic risks posed by China’s mineral leverage. However, no joint announcement or binding commitment is expected from Monday’s meeting. Instead, the U.S. is likely to issue a solo statement outlining its intentions and readiness to deepen supply chain cooperation with willing partners.

The strategic calculus for other nations hinges on both correlation and causality. While current Chinese actions correlate with geopolitical frictions, the underlying causation stems from long-standing inaction on mineral independence and the overconcentration of refining infrastructure in China.

A Crossroads for Global Mineral Security

The upcoming meeting represents a turning point for efforts to reshape the global critical mineral landscape. While the U.S. has made significant headway in building alternative alliances and demonstrating leadership, the broader international coalition has yet to catch up in terms of speed and commitment.

As global demand for rare earths and strategic minerals accelerates amid technological shifts and rising defense needs, any failure to diversify could carry long-term consequences. Whether this summit catalyzes concrete action or merely amplifies rhetoric remains to be seen. But the cost of inaction may be one that global supply chains and national security can no longer afford.

Source: Reuters

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Christopher Hayes

Remarks of Officials

Economic

Central Bank

Political

In a move that dramatically escalates the conflict between the White House and the Federal Reserve, the U.S. Department of Justice has launched a criminal investigation into Fed Chair Jerome H. Powell. The news, first reported by The New York Times and later confirmed by Powell, sent shockwaves through financial markets, causing S&P 500 futures to drop 0.6% and Nasdaq futures to fall 0.8% Sunday night.

The investigation centers on whether Powell misled Congress during his testimony last June about renovations at the Federal Reserve's historic headquarters in Washington, D.C.

Justice Department Targets Powell Over Testimony

According to officials familiar with the matter, the U.S. Attorney's office for the District of Columbia is heading the criminal inquiry. The investigation, which involves reviewing Powell's public statements and the central bank's spending records, was reportedly approved in November by Jeanine Pirro, a prominent ally of President Trump who was appointed to lead the office last year.

On Friday, the Justice Department served the Federal Reserve with grand jury subpoenas, signaling a serious threat of a potential criminal indictment against the nation's top central banker.

Powell Fires Back: "This is About Political Pressure"

In an unprecedented video statement, Powell directly addressed the investigation, framing it not as a legal matter but as an attempt to undermine the Federal Reserve's independence. He argued that the scrutiny of his testimony and the building renovations were merely pretexts.

Powell's core message was that the true motive behind the investigation is political intimidation. He stated that the threat of criminal charges is a direct consequence of the Federal Reserve setting interest rates based on economic analysis rather than presidential preferences.

Key points from his statement include:

• A Pretext for Pressure: Powell asserted, "This new threat is not about my testimony... Those are pretexts."

• Defending Fed Independence: He framed the issue as a fundamental choice: "This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation."

• Commitment to Mandate: He reiterated his non-partisan approach, having served under both Republican and Democratic administrations, and vowed to continue performing his duties with integrity and a focus on price stability and maximum employment.

Trump Denies Knowledge, Republicans Push Back

When asked about the investigation in a brief interview with NBC News, President Trump claimed to have no knowledge of the DOJ's actions. "I don't know anything about it," he said, before adding, "but he's certainly not very good at the Fed, and he's not very good at building buildings."

The move drew a swift and sharp rebuke from within the Republican party. Senator Thom Tillis of North Carolina, a member of the Senate Banking Committee, issued a strong statement condemning the investigation.

"If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none," Tillis declared. He also raised concerns about the Justice Department's own credibility.

In a significant move, Tillis pledged to oppose the confirmation of any future nominee to the Federal Reserve Board of Governors, including the next Chair, until "this legal matter is fully resolved."

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Winkelmann

Stocks

Chinese battery shares fell after Beijing unveiled a plan to reduce export tax rebates, while South Korean materials companies advanced.

Contemporary Amperex Technology Co. led the drop with a decline of as much as 4.8% in onshore trading Monday, among the worst performers on the MSCI China Index. Its smaller peers including Eve Energy Co. and Gotion High-Tech Co. also slid more than 4% at one point.

China announced a rejig of its value-added tax rebates on hundreds of export products starting from April, with discounts on 22 battery-related goods to be cut to 6% from 9%. A complete removal is planned from 2027.

"The decline in Chinese battery stocks today appears to be a knee-jerk reaction," said Gary Tan, portfolio manager at Allspring Global Investments LLC. "Investors view it as an early signal of tighter oversight on overseas battery shipments, a key demand driver last year."

The measure comes as Beijing takes voluntary moves to rein in the exports of some goods, including battery-related items, as trade tensions with partners such as the European Union remain intense despite a tariff truce with the US. This could also add pressure to the battery sector when China is already urging the industry to curb excessive capacity expansion and avoid cutthroat competition.

Lithium, meanwhile, extended its recent rally on Monday, aided by expectations of a potential rush of battery-related exports ahead of the April policy changes. The most-active lithium carbonate futures rose by the 9% limit on the Guangzhou Futures Exchange to 156,060 yuan ($22,372) a ton. Share of producers including Tianqi Lithium Corp. and Ganfeng Lithium Group Co. surged as much as 6% in Shenzhen.

"The latest policy should open a potential front-loading export window during the year," analysts at Citigroup Inc. wrote in a note.

Some observers pointed to limited impact of the tax changes to CATL, the world's biggest electric vehicle battery maker, given the company's stronger pricing power and scale advantages. The policy may potentially be more challenging to tier-two manufacturers.

"Smaller players have historically leveraged the higher VAT refund to implement aggressive low-pricing strategies to win ESS orders," analysts at Morgan Stanley wrote in a note, referring to energy storage systems. The lower rate will leave them exposed to margin compression and competitive pressure, they added.

Meanwhile, shares of South Korean battery-materials makers rose as Beijing's policy move narrowed the cost advantage of the Chinese companies. Ecopro BM Co. and POSCO Future M Co. each gained more than 6% on Monday.