Ukraine is currently fighting along three fronts at once: against Russia along the front lines, against exhaustion in the rear, and against a mounting governance crisis in the capital. The latter may prove to be the most important. It’s not just a story of wartime fatigue or unpopular reforms anymore. Rather, it increasingly resembles a standoff between the presidency and parliament. The government remains loyal to the president, but appears unable to negotiate with lawmakers or convert presidential authority into legislation.

The immediate trigger is fiscal. On March 18, an IMF mission began talks with Ukraine as Kyiv struggled to pass unpopular tax measures tied to a new $8.1 billion program. Ukraine will require between $45 billion and $52 billion in external financing this year to cover its budget deficit. In a war economy where domestic revenue is largely consumed by defense, this is not a secondary issue.

Yet parliament is increasingly refusing to act as the presidency’s political shock absorber. On March 24, MP Zhelezniak said Ukraine would miss 25 end-of-quarter commitments under IMF, World Bank, and Ukraine Facility programs, placing around €7 billion at risk. He was unusually blunt: “During all this time, no one has even tried to solve the problem. There has been no communication from the government, nor has the president attempted to gather the faction to coordinate actions.” He added that many deputies in the presidential faction “no longer feel obligated to the president.”

That is the deeper story. Many parliamentarians do not see why they should take the blame for laws originating with a presidency whose authority has become politically costly and unstable. Meanwhile, the presidency still seems to govern as though executive command should automatically produce legislative obedience. It no longer does. The result is paralysis at a time when wartime governance requires political brokerage and competence, not just administrative discipline.

Attrition is now political as well as military

The military situation remains grim but not hopeless. Russia is still advancing, albeit slowly and at great expense. On March 16, Valery Gerasimov, Russia’s chief of the general staff, announced that Russia had seized 12 settlements during the first two weeks of March and was advancing “in all directions.” However, Ukrainian forces claim to have recaptured around 400 square kilometers and eight settlements on part of the southern front since late January, so this broader interpretation is not undisputed, and the situation on the battlefield remains mixed. Russia is making progress but is not achieving a decisive operational Ukrainian collapse.

This is precisely what makes Ukraine’s institutional deterioration so dangerous. Wars of attrition are not decided by who takes a village this week. They are decided by manpower, fiscal endurance, industrial depth, political cohesion, and a state’s ability to convert pain into organized action. Ukraine still shows tactical resilience. Yet it is unclear whether the country has the institutional resilience for a prolonged struggle.

The rear is also under growing pressure. Since Monday evening, Russia has launched nearly 1,000 long-range drones at Ukraine, including a significant daytime attack on March 24. This is a notable departure from Russia’s usual nighttime pattern. Zelenskyy quickly noted that the scale of the attack clearly shows that “Russia has no real intention of ending this war,” seemingly implying that a smaller number of fired drones would suggest otherwise. Ultimately, though, this matters not only militarily. Russia is demonstrating that it can continue to degrade daily life far from the front lines and force Ukraine to allocate its limited resources toward survival rather than rebuilding.

Iran exacerbates this situation in at least two ways. Firstly, a war involving Iran will divert U.S. air defense capacity away from Ukraine. A prolonged conflict could and is already reducing the availability of Patriot interceptors for Kyiv. Secondly, a war with Iran is helping Russia financially as the oil price surge has allowed Moscow to delay planned changes to its fiscal rule because higher energy revenues have eased the immediate pressure on state finances. In other words, the same Middle Eastern crisis that could weaken Ukraine’s air defense is improving Russia’s short-term war financing position.

There is a further implication. As Washington once again becomes consumed by military intervention and regime-change logic in the Middle East, Moscow is more incentivized to advance in Ukraine and end the war on its own terms. This is partly a straightforward wartime calculation: a United States engaged in a broader regional confrontation will have fewer resources, less focus, and less patience for Ukraine. The Kremlin’s decision to put peace talks on hold amid the war with Iran reflects this logic. However, there is also a political and emotional layer. To Moscow, the United States once again appears to be an overbearing, interventionist behemoth that asserts its interests by force while demanding restraint from others. This perception strengthens the Kremlin’s belief that it has the right and necessity to impose its will within its strategic sphere. The result is not a moment that encourages compromise but one that encourages Russia to press harder.

Europe’s support is fueled by fear

Europe is blunter in private than in public. In my closed-door conversations with German and European decision-makers, including diplomats and advisers to prime ministers, the underlying logic has been unmistakable: continued support for Ukraine’s military effort is increasingly viewed as a matter of self-preservation rather than solidarity. Europe fears that a Russian victory, or even a release of military pressure from Ukraine, would pose a direct threat to Europe itself. In December, Reuters clearly captured this logic: “Most EU countries believe that as long as Moscow is militarily engaged in Ukraine, it will not attack any EU countries, giving Europe time to prepare its defense.”

This logic helps to explain Europe’s current position. According to the Kiel Institute, U.S. aid allocations to Ukraine decreased by 99% in 2025 compared to the average from 2022 to 2024, while European military aid increased by 67%, and European financial and humanitarian aid increased by 59%. Europe has stepped up because it increasingly views Ukraine as a strategic buffer that it needs.

That strategy has a price. If Europe’s main goal is to maintain Ukraine’s ability to fight because Europe itself is not yet ready, then there is a strong temptation to overlook Ukraine’s coercive mobilization practices, democratic deficiencies, governance failures, incompetence, and corruption. Publicly, the rhetoric remains moral and ideological, pitting democracy against authoritarianism and victim against aggressor. This rhetoric is useful, but it also allows Europeans to avoid acknowledging their harder motive: time-buying self-interest.

The longer-term risk is that this approach may preserve Ukraine militarily while degrading its institutions. Europe is vehemently resistant to any suggestion of political convergence between Ukraine and Russia because it would complicate the moral clarity of its narrative. Yet, prolonged war, unchecked executive power, coercive wartime practices, and suspended accountability can produce dangerous forms of democratic decay. This would not be happening in isolation either: According to V-Dem, the current “third wave of autocratization” is deepening, with the average global citizen’s access to democracy regressing to roughly 1978 levels. Meanwhile, Freedom House reports that freedom has declined globally for the 20th consecutive year. Ukraine could become another case in this broader pattern—not a failed democracy in the conventional sense, but rather, a war-distorted state whose institutional weakening is steadily justified by external necessity. Such a country would be difficult to integrate into the EU.

States can fail strategically before they collapse tactically

The historical analogy is uncomfortable, but worth making. Germany did not lose the First World War because of one dramatic battlefield catastrophe that suddenly erased its army. Rather, it lost because the war exhausted its resources, weakened its social and political resilience, and overwhelmed its system. The same could happen to Ukraine. A country can fail strategically before it collapses tactically. It can resist, avoid a decisive battlefield defeat, and still lose the larger contest through depletion, fiscal strain, and institutional decay.

That is the real danger now. Ukraine may not lose because Russia achieves a spectacular breakthrough. Rather, it may lose because the state can no longer bear the total burden placed on it by Russia, the attritional logic of the war, and a European strategy that requires Ukraine to endure while increasingly overlooking the toll that endurance is taking on Ukraine itself.

The uncomfortable truth is that Ukraine could pose a medium- to long-term security challenge for Europe itself, even if it never falls under Russia’s control. If the current trends of militarization, coercive state practices, and democratic decay continue, the EU may eventually find itself facing a heavily armed, institutionally damaged, and politically volatile state on its border rather than a stable democracy forged by war. This risk is still far off, but it is real. Ignoring it now could make managing it much more difficult later.

finformant view

1. The Iran-Ukraine connection is more significant than many investors realize. Higher oil prices help improve Russia’s fiscal position in the short term, and a prolonged escalation in the Middle East will divert U.S. air defense and policy resources away from Ukraine. This combination modestly supports Russia’s external resilience, and it negatively affects the probability of faster or cleaner stabilization in Ukraine.

2. Ukraine-specific risk is no longer only a front-line variable. The bigger question is whether Kyiv can function as a wartime financing machine. If parliament continues to stall IMF- and EU-linked measures, investors and policymakers should anticipate greater volatility surrounding external disbursements, reform conditionality, and state capacity. This does not mean an imminent collapse. However, it does mean higher institutional risk premia surrounding any Ukraine-related reconstruction, sovereign exposure, or defense industrial project.

3. Europe’s self-interest is now the key anchor of support for Ukraine. This makes continued support more durable than a purely moral narrative would suggest, but it also makes Europe more likely to prioritize battlefield continuity over governance quality inside Ukraine. Hence, in addition to watching headlines about aid, markets should also watch for signs of institutional decay in Ukraine, such as legislative paralysis, fiscal slippage, mobilization backlash, corruption, and executive overreach. These are no longer side issues. They are becoming core variables in the war’s medium-term trajectory.

For once, the most dangerous news about Ukraine does not come from Pokrovsk or Zaporizhzhia; it comes from Kyiv’s ministries and boardrooms. The $100 million Energoatom corruption scandal is more than just another case of wartime graft. It reveals how Ukraine’s leadership has weakened institutions, obscured lines of responsibility, and made European support politically toxic—all while Russian forces advance across the eastern and southern fronts and Ukraine’s war effort deteriorates.

The question now is whether the current leadership is capable of fixing the mess or if it has become part of the problem that makes a Russian victory more likely.

This question is even more urgent when two uncomfortable realities are factored in:

1. On the other side of the front line, Russia’s economy is not on the verge of collapse despite triumphant declarations by many. Moscow is now spending roughly 7–8% of its GDP on defense and security (close to 40% of its federal spending) yet it has managed to keep the system functioning. It has done so by using higher taxes, redirected oil revenues, and a “guns over butter” social contract to finance the war for at least several more years, according to multiple independent estimates.

2. Meanwhile, inside Ukraine, the mobilization crisis is deepening. Since February 2022, prosecutors have opened over 50,000 desertion cases and more than 110,000 investigations for absence without leave (AWOL) in the first months of 2025. Desertion-related offenses now account for more than a fifth of all registered crimes.

Against this backdrop, the recent verdict of major wartime volunteer Sternenko is brutally concise: “Our defense is falling apart. The question of when Russian tanks will enter Zaporizhzhia or Dnipro is only a matter of time—all under a stunning silence about it.”

Operation “Midas” and the Mindich connection

The Energoatom case is straightforward and devastating. After a 15-month investigation, Ukraine’s National Anti-Corruption Bureau (NABU) and the Specialized Anti-Corruption Prosecutor’s Office (SAPO) revealed that intermediaries had allegedly skimmed 10–15% in kickbacks from Energoatom contracts. These contracts included those for protective structures around substations intended to shield energy infrastructure from Russian attacks. According to investigators, the network routed around $100 million through a criminal group that controlled procurement at the nuclear company.

Timur Mindich, a longtime business associate and co-owner of Zelenskyy’s former Kvartal-95 studio, is among those charged. He is accused of orchestrating the scheme and fleeing the country just before searches began.

Two ministers, Justice Minister Galushchenko (formerly Energy Minister) and Energy Minister Hrynchuk, resigned after Zelenskyy publicly demanded their removal. NABU released audio suggesting that Galushchenko and Mindich joked about the president calling during a group call related to the scheme. The tapes cut through the carefully built image of a reformist wartime president floating above corruption.

Zelenskyy has since imposed sanctions on Mindich and his associate, Oleksandr Tsukerma, an extraordinary move against a former business partner, and the government has dismissed Energoatom’s entire supervisory board, promising audits and a relaunch.

On paper, the anti-corruption system is working. NABU investigates, SAPO prosecutes, and ministers resign. Brussels dutifully points to this as proof that Ukraine’s watchdogs are functioning.

But this is the polite, official narrative. It misses the deeper problem.

Scapegoats, and the missing prime minister

The government’s response follows a well-rehearsed pattern: wait, deny, minimize, then fire a few ministers once the scandal becomes unmanageable. As more details emerged, Zelenskyy shifted from downplaying Mindich’s role to imposing sanctions and placing ministers on “temporary leave,” to ultimately demanding their resignations in a video address.

Almost no one in Kyiv believes that the responsibility ends with two ministers and a fugitive businessman.

At the political center of this story is prime minister Svyrydenko. Before assuming the role of head of government this summer, she spent years as economy minister and first deputy prime minister. In those roles, she oversaw the corporatization of Energoatom and the appointment of its supervisory board. That board included foreign independents and two state representatives, including Tymofiy Mylovanov, president of the Kyiv School of Economics and former economy minister.

Now that the scandal has broken, Svyrydenko is dissolving the very board she personally constructed. She has ordered an audit of all state-owned companies and insists that the supervisory board, not the cabinet, bears responsibility for Energoatom’s failures.

However, there is an even more uncomfortable reading of the situation:

• As economy minister and then prime minister, Svyrydenko oversaw the structure that allowed this scheme to flourish.

• She has also had long-standing ties to the Kyiv School of Economics, from which she received income (a substantial boost to her moderate ministerial salary) while Mylovanov, the school’s president, obtained a seat on Energoatom’s board as a state representative. Ukrainian media and MPs have repeatedly flagged this relationship as a conflict of interest and a de facto quid pro quo.

• Mylovanov has now publicly been fired from Energoatom’s board (and from another major state defense holding), claiming that his proposals for anti-corruption oversight were ignored and that the company “did not wake up” even after NABU’s investigations.

While everyone is pointing the finger at someone else, Ukraine’s partners have a clear understanding of the situation: this mess happened under Zelenskyy’s management, in companies designed and overseen by his closest allies.

A gift to Moscow in a long war

The timing could not be worse.

On the battlefield, Russia is advancing around Pokrovsk, claiming “house-to-house” gains and partial encirclement. Meanwhile, Ukrainian sources are admitting to painful losses and describing the situation as “extremely difficult.” Independent mapping projects confirm Russian advances in the area, though Moscow’s propaganda exaggerates how close it is to achieving a full breakthrough.

Further south, in Zaporizhzhia, Ukrainian troops are engaged in what the Defense Ministry calls “exhausting battles” as Russian forces attack along the Orikhiv–Robotyne axis and attempt to push Ukrainian artillery out of the line of sight of key logistics routes. Although Ukraine has used drones to repel several recent assaults, the line is under constant pressure.

Strategically, this is a classic attritional moment, and the contrast between Russia’s war economy and Ukraine’s domestic situation is striking here.

Russia’s military spending surged by nearly 40% in 2024, reaching approximately $149 billion (roughly 7% of its GDP) and is expected to remain at this level in 2025–26. This level of spending is painful and unsustainable in the long run, but not a short-term death sentence. Economists at major institutes and the IMF now talk in terms of years, not months, of remaining fiscal capacity.

Ukraine, by contrast, spends about a third of its GDP on the military and depends on external financing for even basic social spending. While Moscow can still mobilize internal resources, albeit at the cost of slower growth and higher taxes, Kyiv’s budgetary survival depends on the goodwill of parliaments in Berlin, Brussels, and Washington, all of which are under mounting pressure from their constituents.

This fragile situation has now been further complicated by a scandal that, to European voters, reads like the worst cliché: $100 million in kickbacks skimmed from funds intended to protect substations and power plants from Russian missiles amid rolling blackouts.

Russian propaganda barely needs to work; it can simply translate NABU press releases and Western headlines and tell European taxpayers, “This is what your money pays for.”

The risk is not that Europe will abandon Ukraine overnight. Rather, the risk is that support will become slower, more conditional, and more politically costly, just as Kyiv needs a predictable, multiyear financial and military framework to stabilize the front and address rising desertion, fatigue, and economic exhaustion.

The “Ukrainian Practitioner” and the cost of devalued institutions

Behind the scandal lies a deeper institutional story.

In recent years, Zelenskyy and his team have personalized the system around the presidency. They have turned the cabinet, including the prime minister, into an extension of the president’s office rather than an independent center of policymaking. Svyrydenko’s appointment was based solely on loyalty and resulted in the tragic arrival of an incompetent bureaucrat.

As a result, key offices have been completely devalued. When prime ministers, ministers, and supervisory boards are viewed as interchangeable loyalists rather than as the foremost custodians of institutions, every scandal ends the same way: a few expendable individuals are sacrificed, the president distances himself, and everyone moves on until the next crisis.

This reminds me of when I advised the president on economic reform. Around 2020, a prominent partner and friend of the president, who had also been ousted in a scandal in 2024, insinuated to me that I wasn’t qualified to contribute to Ukraine’s development. According to him, the main skill of a real “practitioner,” as opposed to a mere “theorist,” was the ability to survive in jail. He believed that I was somehow less trained than he and his chosen officials in this special art form. According to him, their great comparative advantage was their ability to navigate prisons, prosecutors, and kompromat.

This mindset has culminated in the current system: a narrow circle of “practitioners” who take pride in surviving raids and investigations rather than building resilient institutions that prevent such scandals. It is no coincidence that Energoatom, corporatized and supervised by precisely this ecosystem of insiders, has become the emblematic case.

Ukraine’s partners quietly understand all of this. The conventional wisdom in Berlin, Brussels, and elsewhere is that pushing for a change in leadership during wartime is too risky. The argument is that any shock in Kyiv would open the door to Russian advances.

However, the emerging reality may be the opposite. Leaving a discredited, incompetent, and factionalized leadership in place could pose a greater risk. This approach erodes morale, undermines the legitimacy of mobilization and taxation, and makes it more difficult to justify the use of each new euro or dollar at home.

At some point, whether during or after the war, Ukraine will require a complete political and institutional reset, not just a reshuffle:

• a genuine separation between presidency and government,

• a rethinking of the prime minister’s role (towards a parliamentary “chancellery” model, including a “rebranding” to break with the degraded symbolism and historical memory of the current Zelenskyy office),

• and real consequences for those who sat atop failing structures like Energoatom, not just for the middlemen who took the envelopes.

finformant view

The Energoatom and Mindich scandal is not “just another corruption story.” It is a symptom of the system Zelenskyy chose: one that centralized power, personalized loyalty, and treated institutions as stage props while Russia prepared for a long war, and Ukraine’s mobilization and economy were pushed to their limits.

Ukraine’s soldiers are buying time around Pokrovsk and Zaporizhzhia. Whether that time is used to clean out a deeply compromised ruling circle or merely to reshuffle scapegoats will reveal more about Ukraine’s future than any map of the frontlines this winter.

No compromise on offer

Today marks the 1,312th day of the full-scale war, and the central reality remains unchanged: there is no middle ground. For Moscow, a sovereign Ukraine aligned with the West poses an existential threat to Putin’s regime. For Kyiv, any settlement short of victory risks national collapse and a new invasion. The conflict has hardened into an all-or-nothing struggle of exhaustion and adaptation.

Russia has expanded its theater of pressure. Recently, Denmark experienced a surge in suspected drone incursions, prompting the temporary closure of Copenhagen Airport. Officials also reported drone sightings over multiple military facilities, and Russian jets probed Baltic airspace, including an “unprecedentedly brazen” violation of Estonian airspace last week. These are deliberate tests of NATO’s vigilance and capacity. The Kremlin’s strategy is to remind Western governments and citizens that their skies are vulnerable. This would force NATO to allocate more resources to protecting its member states than to Ukraine. The subtext is clear: continued support for Kyiv could lead to a global war, which Putin believes the West will ultimately avoid.

Sanctions discipline is fraying at the margins. Satellite and AIS data show a Chinese-operated cargo ship, Heng Yang 9, docking in Sevastopol multiple times this summer—the first documented Chinese calls at Crimean ports since 2014. This is not just commerce; it is a signal that Russia is becoming increasingly embedded in a parallel trade network stretching through Asia. Far from buckling under economic pressure, Moscow is finding new lifelines.

Washington’s rhetoric has shifted. President Trump said Ukraine could regain all occupied territory “with the support of the EU and NATO,” a statement widely interpreted as prompting the EU to take the lead as U.S. support for Kyiv wanes. Although the Kremlin has publicly dismissed the comment, it is still stepping up pressure on NATO’s borders.

In Kyiv, politics are hardening. Zelenskyy now says he is “ready to leave office once the war ends” and would push for elections during a ceasefire. However, under martial law, no national elections can be held, and his mandate continues by statute. This means there will be no imminent electoral test while the war drags on, fueling criticism that power is concentrating around the wartime presidency.

The uncomfortable reality is that none of these developments—Russian brinkmanship, sanctions fatigue, Western political shifts, or Ukraine’s internal strains—point toward negotiation. This situation is not trending toward compromise. Instead, it is trending toward a confrontation between systems measured in years, not months.

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What happened?

Russia hit the Donetsk village of Yarova, killing at least 24 people, mostly pensioners waiting in line for their benefits, hours after launching the largest air assault of the war. This attack set the central Kyiv government building on fire for the first time since 2022. Ukraine says the barrage combined drones and missiles, reflecting a shift toward glide bomb and mass drone tactics.

Why does this matter?

• War over engagement: Striking a seat of government and civilian queues underscores Moscow's preference for war while diplomacy stalls, and only serves as a strategy to gain time.

• Air-defence saturation: Ukraine intercepted many projectiles, but missiles and ~60 drones penetrated, exposing gaps around the capital.

• Energy war 2.0: Kyiv warns that Russia is refocusing on power and gas assets, replaying the strategy from previous winters. This strategy is designed to reduce output and morale. Meanwhile, members of Ukraine's elite are secretly beginning to advocate for capitulation to save the cities.

What’s next?

Ukrainian authorities expect renewed mass missile and drone raids against energy and other critical infrastructure. Regional officials have already reported power outages around Kyiv following recent strikes. Air-raid alerts and civil guidance to prepare for outages persist as Russia rotates aircraft and maintains Kalibr-capable platforms on duty.

finformant view

Moscow's strategy is clear: attrition plus winter grid pressure to force concessions. Near-term peace prospects are fading as battlefield leverage and urban terror are outpacing diplomacy. The EU budget will need to shift further toward defense and Ukraine support as financing gaps are likely to emerge.

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What happened?

UK long bonds spiked: the 30‑year gilt yield pushed to ~5.72–5.75%, the highest since 1998, while 10‑year yields hovered around the high‑4s; sterling fell more than 1% at one point. The move came alongside a global bond sell‑off. At the same time, the Debt Management Office launched a new 4¾% 2035 gilt via syndication—its largest issuance event—raising ~£13.8bn cash on £14.0bn nominal with total orders of ~£141bn; year‑to‑date gilt sales reached ~£144.1bn against a £299.1bn remit. July public finances showed borrowing of £1.1bn (lowest July in three years) but cumulative borrowing of £60.0bn in FY‑to‑July (third‑highest on record), with public debt around 96% of GDP. The Bank of England continues active gilt sales from its QE portfolio, with a Q3 schedule across short, medium, and long maturities.

Why does this matter?

• Higher debt‑servicing squeeze: Elevated yields lift the government’s interest bill—already around £105bn in 2024–25 on OBR projections—tightening room for manoeuvre as tax‑to‑GDP sits near historic highs.

• Supply overhang and QT: The 2025–26 plan implies ~£299bn of gilt issuance plus net T‑bill supply, while the BoE is simultaneously selling APF gilts, adding duration to the market and potentially amplifying term premia.

• FX and spillovers: Higher UK rates and fiscal jitters pressured sterling and contributed to equity wobble, underscoring how gilt volatility can ripple through broader UK risk assets.

• Policy constraints into Budget: With the Budget fixed for 26 November and debt near six‑decade highs as a share of GDP, fiscal choices on taxes, spending, and investment will be judged against tighter market tolerance.

What’s the counterpoint?

The financing machine still works: July borrowing was below a year ago and year‑to‑date is broadly in line with OBR profiles; debt interest as a share of revenue remains below the pre‑2007 median, tempering the alarmist read‑through from headline cash numbers. And the record 2035 syndication drew ~£141bn of orders—evidence of deep demand even at higher yields—while the BoE has shown flexibility to tweak its sales cadence when volatility bites. Much of the rate move also reflects a global sell‑off, not UK idiosyncrasy alone.

finformant view

The UK’s challenge is less about market access and more about price and credibility: elevated term premia and heavy net supply will keep long yields sticky unless policy signals deliver a clearer, multi‑year consolidation-and‑growth mix. Expect issuance tactics (maturity mix, syndication use), BoE QT pace, and November’s fiscal arithmetic to drive whether 30‑year yields settle back—or entrench near late‑1990s levels.

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What happened?

At a showpiece SCO summit, China pitched a “new global order.” Xi Jinping urged Russia and India to align on alternatives to U.S.-led rules and proposed a Shanghai Cooperation Organization (SCO) development bank. Putin and Modi supported closer coordination. Meanwhile, a plane carrying European Commission President von der Leyen reportedly experienced Russian GPS jamming en route to Bulgaria and landed safely. Both Brussels and Bulgaria confirmed the incident and linked it to “blatant interference” by Russia. In the meantime, open-source mapping data indicates that Russia has gained about 460–550 km² over the past month, with attacks intensifying around Lyman, Pokrovsk, and Novopavlivka.

Why does this matter?

• Thicker Russia-China-India ties: Xi’s pitch, delivered with Putin and Modi at his side, signals the formation of a more solidified non-Western bloc, despite U.S. tariff pressure on India regarding Russian oil.

• Hybrid pressure on Europe: The von der Leyen incident underscores an expanding electronic warfare threat over EU airspace.

• Negotiating leverage from the front: Incremental Russian gains and pressure near key axes sustain Moscow’s bargaining power. Additionally, Putin’s aide Ushakov stated today that no meeting with Zelenskyy or trilateral talks were ever arranged in Alaska.

• Policy spillovers: A firmer Eurasian alignment complicates supply chains, energy routing, and foreign exchange dynamics for Europe, all while fiscal and defense spending rise.

What’s the counterpoint?

Sanctions still bite: Russia’s metallurgy output fell 10.2% y/y in July, with firms reporting heavy losses amid lost export markets, weak domestic demand and tight monetary policy. This is evidence of structural strain even as Moscow adapts. Analysts also caution that Sino-Indian strategic frictions persist despite summit optics, limiting how far New Delhi will lean toward a Beijing-Moscow axis.

finformant view

Breaking the tight Russia-China-India triangle with tariff and sanctions pressure alone will be a slow process and may prove counterproductive, especially if it pushes India to hedge harder. Expect the West to double down on air defense, electronic warfare resilience, and grid support for Ukraine after the GPS incident. Modest Russian battlefield gains keep the odds of peace slim unless front-line pressure permanently abates.

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What happened?

Russia launched one of its deadliest mixed missile-and-drone barrages on Kyiv, killing at least 18 people (including four children) and damaging buildings housing the EU mission and the British Council, as rescuers pulled bodies from a collapsed residential block on the city's left bank. Zelenskyy called the assault "Moscow's answer" to peace efforts. The UK and the EU condemned the strike and summoned senior Russian diplomats over the damage to European institutions. The attack followed a wider campaign hitting energy and gas-transport infrastructure across six regions, leaving more than 100k without power. At the same time, Russia signaled hard negotiating lines: Lavrov outlined "big-power" security guarantees for Ukraine with no NATO presence and questioned Zelenskyy's legitimacy as a negotiating partner.

Why does this matter?

• Escalation over engagement: Striking EU-linked sites while diplomacy stalls suggests that Moscow prioritizes battlefield leverage over negotiations. By casting Zelenskyy as illegitimate and demanding "no NATO," Moscow narrows the path for any enforceable security deal.

• Winter energy risk: Fresh attacks on the electricity grid and gas facilities foreshadow a winter campaign to degrade Ukraine's economy and morale, amplifying humanitarian and macro risks.

• Western patience tested: A new poll shows that 52% of Germans would accept Ukraine ceding occupied territory for peace—an attitude shift that could soften Europe's bargaining stance.

What's next?

Expect further Russian targeting of transformers, substations, and gas transport nodes as temperatures fall. Rolling outages are likely if the attack tempo persists. Diplomatic prospects remain fragile. Moscow says that any meeting between leaders must be "thoroughly prepared," demands guarantees that NATO troops will be excluded, and continues to question Zelenskyy's mandate. These positions impede the design process for security assurances. European capitals will attempt to provide additional air defense while monitoring whether public opinion drifts further toward territorial concessions.

finformant view

Portraying Zelenskyy as illegitimate allows Moscow to shift the blame if talks fail. Meanwhile, a shift in public opinion in Europe further erodes Kyiv's leverage. Economically, a winter grid war will sap Ukraine's output and morale. Ukraine's withdrawal from the Donbas region would mean surrendering its most fortified and hard-won defenses. This would give Moscow what it has struggled to achieve militarily through diplomacy. Even worse, once those positions are vacated, Russia could easily provoke a new escalation, advance deep into Ukraine in a renewed blitz, and reclaim the very territories supposedly "traded for peace."

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The annual Jackson Hole Central Bank symposium kicks off today with the theme “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy.” Powell speaks Friday in what is widely billed as his final Jackson Hole address as Fed chair; he’s expected to give monetary guidance for the remainder of the year which is keenly anticipated by markets. The Fed tone into the event has turned mixed-to-cautious. Today, Kansas City Fed President Jeff Schmid said there is “no urgency” to cut with inflation still nearer 3% than 2%, arguing policy remains only modestly restrictive—and should stay that way until there’s “clear and convincing” evidence inflation is returning to target.

Why does this matter?

• Pivotal Moment for Markets: Financial markets have been insistent on a dovish Fed ahead, with odds for a September rate cut hovering above 80%, and 5 cuts priced in until Dec' 26, despite many signs for an inflation rebound under way.

• Independence at Stake: Powell's speech is an opportunity for the Chair to push back against the admin's pressure to cut rates aggressively now.

What's the counterpoint?

Whatever stance Jerome Powell chooses tomorrow, markets may be right that a dovish Fed lies ahead either way as US economic data could weaken over the coming months. Today's initial jobless claims showed a step-up in long-term unemployment, and Walmart missed earnings due to tariff charges.

finformant view

While there are some signs of a weakening US economy, markets may be ahead of themselves expecting Powell to be dovish tomorrow. It seems more likely that he takes his chances to get into history books by pushing back against the pressure applied on him.

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What happened?

Yesterday at a White House summit, Trump told Zelenskyy that the US would help ensure Ukraine's security in any peace deal, saying Europeans would be "first line of defence" with US support. Zelenskyy called this a "major step" and said the guarantees would be formalized within seven to ten days, adding that Ukraine had offered to buy about $90bn of US weapons. European leaders pressed for a ceasefire first; Trump said talks could proceed while fighting continues. Trump also began arranging a Putin-Zelenskyy meeting, potentially in Hungary, though Moscow has made no commitment and ruled out NATO troops in any arrangement. On the ground, Russia continues to grind forward in eastern Ukraine.

Why does this matter?

• A pledge without details: US support for "Article 5-like" guarantees would strengthen Kyiv diplomatically, but the scope, enforcement, and deployment remain unclear. Trump himself acknowledged during his opening remarks that all his efforts may be in vain, hedging his bets.

• Sequencing split: Europe wants a ceasefire before talks, but Trump prefers to negotiate amid combat. This shifts the balance of power at the negotiating table in Russia's favor.

• Moscow's posture: Foreign Minister Lavrov says Russia is "not rejecting formats," but any leaders' meeting must be thoroughly prepared, and no long-term deal is possible without "respect for Russia's security" and the rights of Russians in Ukraine.

• Frontline reality: Continued Russian advances, however incremental, harden bargaining positions and test Ukraine's ability to trade space for time.

What's next?

The drafting of the security-guarantee text begins this week in Washington and European capitals. Trump is pursuing a direct meeting between Putin and Zelenskyy. However, Russia's lack of public commitment and its conditions mean that timelines are fluid. Any framework addressing the deployment or monitoring of forces must consider Russia's rejection of NATO troops and the legal and political limitations of its allies. According to close associates of the Ukrainian president, he is reaching out to Trump's business contacts and friends in an attempt to sway Trump because they believe the American president favors Putin over Zelenskyy.

finformant view

The day produced headlines, not solutions. This was a big PR stunt, and not a triumph for Zelenskyy, who did not want to agree to give up any territory, especially unoccupied areas. Given Russia's responses, they are just buying time and will continue the war. However, Putin is getting closer to ensuring that Trump will blame Zelenskyy for the failure. The root causes of the war remain unaddressed. For Europe and the markets, that means lingering uncertainty.

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What happened?

Following the Alaska summit, Trump dropped his pre-meeting demand for a ceasefire and said Ukraine "has gotta make a deal." This shift aligns with Putin's preferred approach of moving straight to a peace agreement. No new US sanctions were announced after the talks. Meanwhile, Russia probed Ukrainian lines near Dobropillia, but Kyiv says the front has since stabilized.

Why does this matter?

• US posture shift: Trump adopted Putin's preference for a peace deal without a prior ceasefire. This reduces Kyiv's leverage.

• Battlefield asymmetry: In the absence of new US sanctions after the summit, Moscow can maintain pressure on the battlefield and buy time while negotiations continue. The Russian advance near Dobropillia (≈10km) continues to pose additional risks for Ukraine, even if it is partially contained.

• Domestic strain in Kyiv: Ukrainian politicians and civil society reject the idea of trading territory, citing their obligations to citizens in occupied cities. Zelensky reiterates that the constitution prohibits ceding land. European allies fear a settlement that cements Russian gains and will join Zelensky in Washington to ensure that Ukraine remains central to any deal.

What's next?

Later today, Trump will host Zelensky and European leaders at the White House to determine if there is a path forward for a framework reportedly involving conceding control of all of Donetsk to Russia in exchange for freezing other lines. Intense negotiations regarding security guarantees for Ukraine and the reinstatement of sanctions if talks stall are expected.

finformant view

Putin is ahead on points: he avoided new sanctions, convinced the US to accept his approach, and maintained battlefield momentum as leverage. Kyiv faces stark domestic constraints—constitutional red lines and public resolve—while negotiating under fire. Much depends on today's meeting, but the war will almost certainly continue.

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U.S. producer prices shocked to the upside yesterday: headline PPI rose 0.9% m/m , a 8-sigma surprise vs. expectations. The surge was broad, as services rose +1.1% m/m, goods +0.7% m/m, and the “core” gauge that strips out food, energy, and trade services jumped 0.6% m/m, its biggest rise since 2022. Tariff-sensitive categories (metals like steel/aluminum and other import-heavy durables) led notable price appreciation, while trade margins leapt 2.0%, signaling wholesalers are beginning to pass on tariff costs.

Why does this matter?

• Tariff Pass-Through Arrives: A 0.9% monthly print (~11% annualised) with outsized gains in metal and import-exposed goods suggests tariff costs are now being pushed along the supply chain rather than absorbed. The key question will be whether the consumer accepts these.

• Fed Cut Odds Trimmed: The upside surprise reduces appetite for aggressive easing. Markets have largely taken a 50bp September cut off the table and pared back overall cut odds.

What's the counterpoint?

PPI can be jumpy and this report had big one-offs: fresh/dry vegetables +38.9% m/m and a 2.0% spike in trade margins did a lot of lifting. If margins normalise and food volatility fades, the July burst could prove transitory—especially with consumer inflation still cooler.

finformant view

With a material US inflation upturn now clearly under way, the rate cut debate faces serious headwinds and the market may be dissappointed in its currently max dovish expectations. In particular long term bonds seems poised to sell off as long until the Fed starts talking hawkish again.

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What happened?

Ahead of their Alaska summit, Putin publicly lauded Trump's "energetic and sincere efforts" to end the war. In parallel, he told Russian media the US is making "sincere efforts" and floated scope for a nuclear arms deal as part of "strengthening peace." On the ground, Russian forces made a sudden advance near Dobropillia in Donetsk, advancing roughly 10 km and occupying 110 km² in one day—a yearly record. Putin fundamentally believes that additional US pressure won't alter his plans. He was also told by his General Staff that Ukraine's lines could crumble within two to three months, which would further bolster his bargaining stance.

Why does this matter?

• Leverage at the table: Fresh gains in the Donbas region raise Moscow's bargaining power just before the talks, narrowing Kyiv's options. At the same time, NATO allies fear a deal that trades territory for a ceasefire.

• Sanctions calculus: Trump has warned of "severe consequences" if Putin blocks a deal. However, the only real levers are additional tariffs that could reshape oil flows.

• Growth and inflation: Any tariff-style "secondary sanctions" would put pressure on global goods prices at a time when Europe is relying on a prospective Fed rate cut to support risk assets.

What's next?

If talks stall, expect Washington to escalate economic pressure, with oil and EM FX (notably INR) the first barometers. On the battlefield, a further Russian push west of Pokrovsk/Dobropillia would strengthen their negotiating position, and current Russian troop movements indicate additional preparation for a renewed offensive, despite the rhetoric around a ceasefire.

finformant view

Battlefield momentum and the calibrated oil-market risk keeps Moscow in no hurry. The efficacy of tariff-based pressure depends on India's compliance and China's tolerance. A deal that freezes the current frontline remains unlikely, but it would boost risk assets and reduce crude premiums. A breakdown would lead to creeping sanctions and further global escalation risks.

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US inflation data was released today, which printed a 3.1% year-on-year and 0.32% month-on-month increase for "Core CPI" which excludes the volatile categories food and energy. Many Fed governors came out over the past weeks arguing for several rate cuts this year; Today's data is within their forecast range permitting this dovish stance, making a September rate cut likely unless Fed Chair Jerome Powell leans against them at next week's Jackson Hole Central Bank symposium.

Why does this matter?

• Fed Cutting into Inflation Resurgence: The 32bps month-on-month Core print represents a ~4% annualised reading, which is bound to go up in the coming months as tariff-related price increases are pushed through. Thus, the Fed is likely, literally, cutting into an inflation resurgence.

• Stagflation Vibes: While an inflation resurgence seems likely, there are also serious cracks in the labor market and growth is sluggish.

What's the counterpoint?

Fed Chair Jerome Powell could surprise markets next week with a hawkish speech that takes September rate cuts off the table. If he sticks to his previous framing which centered on a currently low unemployment rate and inflation risks, it would be at odds with agree to rate cuts at this stage.

finformant view

With the Fed cutting into an inflation resurgence, bonds across the curve should sell off and high-risk equities such as the Russell 2000 be bid. This may change if Powell's Jackson Hole speech is hawkish.

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What happened?

Putin has secured an invitation to an Alaska summit while Washington tests whether a ceasefire is possible before Trump's ultimatum expires; Moscow's requests include security guarantees and sanctions relief. Europe, meanwhile, fears a unilateral US-Russia deal and has lobbied Vice President Vance ahead of the meeting. Days earlier, Putin hosted Trump envoy Witkoff in Moscow for "productive" talks centered on a ceasefire and new economic pressure on Russia's oil revenues. According to Kremlin sources, Putin will ignore the deadline and still seeks full control of Donetsk, Luhansk, Kherson and Zaporizhzhia. Independent trackers estimate that Russia gained roughly 500 km² in July, even as oil and gas income fell sharply.

Source: AFP and Getty Images Composite

Why does this matter?

• Oil flow risk: Trump's threat matrix targets buyers of Russian crude; India is already subject to a 25% US tariff on its purchases. Indian refiners are weighing cuts to Russian imports to avoid further escalation, a shift that would ripple through crude benchmarks and freight.

• Endurance factor: Levada–Chicago Council polling shows that most Russians expect a Russian victory and are prepared to bear the costs, blunting the effectiveness of economic coercion.

• Escalation backdrop: Russia and Belarus are scheduled to conduct strategic drills in September, with OSCE-notified participation and broader scenarios identified by analysts.

What's next?

If the Friday ultimatum expires, expect a tiered escalation rather than a single event: the White House could impose higher "secondary" tariffs, alongside OFAC designations on shipowners and insurers and implement stricter regulations on ship-to-ship transfers and port access. Delhi's initial response is unlikely to be capitulation, but rather hedging, such as trimming spot Urals lifts, demanding deeper discounts, and backfilling with more Saudi and Iraqi barrels.

finformant view

Tariff-driven secondary pressure can dent Russia's cash flow if India bends. If not, it taxes US consumers while the Kremlin trades economic pain for battlefield time. In the event of a misstep in Alaska, a bias toward higher oil volatility and wider European credit spreads seems logical. Until policy clarity emerges, defensive stocks and energy transport appear to be better bids.

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What happened?

Two days before President Trump's August 8 cease-fire deadline, which threatens sweeping new sanctions and 100% "secondary tariffs" on buyers of Russian exports, US special envoy Steve Witkoff met with Vladimir Putin in the Kremlin. According to Kremlin insiders, Putin will ignore the ultimatum. He believes that Ukrainian lines could collapse within two to three months and that additional sanctions are survivable. In other news, Russia and Belarus confirmed that the strategic exercise "Zapad-2025" will begin next month with 13,000 troops, though Western estimates are as high as 100,000. These estimates include scenarios involving the use of tactical nuclear weapons.

Source: Putin's Meeting with US President's Special Envoy Steve Witkoff on Aug 6, 2025.

Why does this matter?

• Secondary sanctions play: Tariff threats against India and China aim to reduce Russia's oil revenue just as July energy income fell 27%. Previous tariff headlines lifted Brent by $2/bbl and widened European credit spreads; another round could compound inflation risks that are already troubling the Fed.

• Escalation signal: Zapad drills preceded the 2022 invasion, and rehearsing nuclear and hypersonic strikes raises the likelihood of miscalculation in deterrence. Foreign Policy analysis estimates that Russia can fight for at least three years under current sanctions, calling into question the leverage of Trump's deadline.

• Diplomatic optics: Moscow's confidence, as well as its recent record of drone and missile strikes on Kyiv, undermines Washington's claim that the pressure is working.

What's next?

If Putin rejects the Friday ultimatum, the White House is expected to announce tariff hikes and secondary measures within 48 hours. India would then have to choose between cheaper Urals crude and access to the US market. This decision could disrupt oil flows and currencies across Asia. NATO will monitor Zapad-2025 for evidence of Iskander-M live-fire exercises near Belarus. Any missile overflight of Ukraine or Poland would increase risk premiums and prompt emergency EU energy consultations.

finformant view

Trump's tariff leverage is potent but limited; it only squeezes Moscow's cash reserves if major importers comply. Without compliance, the Kremlin trades higher economic pain for tactical depth on the battlefield, and Zapad-2025 demonstrates a readiness to escalate. Hedging exposure to commodities and favoring defense and cybersecurity companies seems wise.

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President Trump lit a fresh fuse under global trade by decreeing a 15% baseline duty on most imports, as well as headline rates of 39% on imports from Switzerland and 25% on imports from India. A separate White House memo warned India that higher "secondary tariffs" would follow unless it reduced its purchases of Russian crude oil, which still supplies more than one-third of India's oil demand. Hours after the order was issued, Russia launched its heaviest strike on Kyiv this year, firing over 300 Shahed drones and eight Iskander-K missiles. The attack killed at least 31 people and injured 159 others.

Source: Official White House Photo

Why does this matter?

• De-facto secondary sanctions: By weaponizing tariffs, Washington attempts to reduce Moscow's oil revenue without relying on the unstable UN price cap. Kremlin media framed the attack on Kyiv as "retribution" for US economic warfare, demonstrating how trade tools can provoke military responses.

• Collateral hits: Swiss pharmaceutical exporters face higher costs, and the franc dropped 0.4% on the news. European equities and US futures dipped due to fears that the global economy has yet to experience the worst effects of protectionism.

• Supply-chain inflation: New tariffs increase import costs just as US CPI accelerates again, complicating the Fed's path.

What's the counterpoint?

Supporters argue that tariffs fund US tax cuts (~$300 billion in annual revenue) and give Trump leverage without deploying troops. India can hedge by buying discounted Urals crude oil or turning to Middle Eastern blends. Russia has also proven adept at rerouting crude oil via "dark fleet" tankers. Markets largely absorbed earlier tariff rounds, and the S&P 500 remains near record highs.

finformant view

Using customs duties as a substitute for sanctions is an ingenious yet fragile strategy. Current success hinges on India. If New Delhi complies, Russian oil revenue will shrink. Otherwise, tariffs will merely tax US consumers and anger allies. Meanwhile, Moscow's initial response in Kyiv shows that economic pressure can escalate conflict rather than deter it.

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According to Parliament Speaker Stefanchuk, Ukraine is negotiating a "mega-deal" in which the United States would purchase Ukrainian-made drones in exchange for advanced weapons. Stefanchuk described the potential agreement as a "new page" that would establish Ukraine as a global security supplier. Industry officials expect the deal to focus on exporting the long-range UJ-26 Bober drone, which has a range of 621 miles (1,000 km) and costs approximately $110k per unit. It would also include the new DeepStrike models that Kyiv plans to mass-produce by 2025. Ukraine plans to produce 30,000 attack UAVs by that year.

Source: US Army National Guard photo by Spc. Amy Carle (Ukrainian soldiers with a drone)

Why does this matter?

• Mutual leverage: Low-cost Ukrainian drones provide the Pentagon with an attritable swarm option, while Kyiv secures precision munitions that it cannot afford.

• Industrial scale-up: Matching Russia's Shahed output requires contracts, operators, and AI upgrades in 15–20 day cycles, which Ukraine cannot currently achieve. Additionally, each strike drone requires a crew, and operator shortages are already impeding deployment.

• Governance risk: Watchdogs warn that the procurement of drones has shifted to allies of Minister-turned-kingmaker Fedorov. Transparency is fading as friends of the government reportedly benefit from lucrative contracts while the public remains distracted by the war.

• Macro squeeze: A projected $19 billion budget deficit in 2026 will limit Kyiv's ability to co-finance production. Meanwhile, the new PM, Svyrydenko, insists that fears of corruption are "exaggerated," revealing her misunderstanding of the importance of anti-corruption and structural reforms.

What's the counterpoint?

US officials have not formally expressed interest, and export-control hurdles and questions about battlefield reliability remain. Integrating Ukrainian AI-guided drones with NATO C2 and radar networks is challenging, and each shipment risks being seized by Russia. Some analysts argue that Washington could source similar systems domestically with fewer political restrictions.

finformant view

Kyiv's proposal is understandable: swap combat-tested drones, which Ukraine has in abundance, for air-defense interceptors and precision-guided munitions (PGMs), which Ukraine lacks. However, opaque contracting and a widening fiscal gap could undermine confidence before the first airframe is shipped. Tighter congressional scrutiny of Ukrainian procurement is urgently needed, or Ukraine may simply export new hardware alongside its entrenched corruption.

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After marathon negotiations at Trump's Turnberry resort, Washington and Brussels reached an agreement to impose a 15% "baseline" tariff on nearly all EU goods, including cars. Meanwhile, tariffs on steel and aluminum will remain at 50%. In exchange, the EU pledged $600 billion in investments and additional purchases of US energy and defense equipment. Internal divisions left the bloc "scrambling" and ultimately accepting terms that critics dub a "tariff steamroller." The effective US tariff rate increased from 2.5% to around 15%, generating $300 billion in annual revenue, while the dollar has weakened, not strengthened, confounding textbook forecasts.

Source: Associated Press (Trump and von der Leyen reaching a trade deal on July 27, 2025)

Why does this matter?

• Structural precedent: The first across-the-board tariff imposed on an ally sets a minimum tariff rate of 15% for US trade, far above the pre-Trump average. The $300 billion in annual tariff revenue provides a new source of income at a time when election-year tax cut proposals are increasing the deficit.

• Corporate winners and losers: German carmakers avoid the threatened 30% tariff but still face rising costs. Meanwhile, EU steelmakers receive partial relief through quotas, and US LNG and arms suppliers receive guaranteed orders. Brussels estimates that higher import costs and re-routed supply chains will lower GDP by 0.3 percentage points in 2026.

• Currency dynamics: Continued foreign divestment from dollar assets, linked to tariff uncertainty, explains the dollar's decline despite a goods surplus.

What's the counterpoint?

EU officials argue that the 15% ceiling averts a ruinous trade war and delivers predictability. They also claim that steel quotas safeguard a strategic sector. Meanwhile, US analysts claim that AI-driven capital expenditures and prospective corporate tax relief offset the drag of tariffs and keep the odds of a recession low.

finformant view

The deal buys peace but establishes a new protectionist baseline. Expect: 1. EU diversification via deeper talks with CPTPP members. 2. Fed headache: Tariff-driven inflation and a weaker dollar complicate the path of interest rates. 3. Countries selling to both blocs may adopt dual pricing to absorb the tariff difference. Euro-area exporters, who are caught between tariffs and a sagging currency, are likely to lose out.

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Overnight, OpenAI unveiled its latest model iteration GPT-5, pitching sturdier reasoning, tighter tool use, and smoother multimodal performance. While some had expected a significant step towards AGI, the first wave of hands-ons and analyst takes framed it as an incremental upgrade rather than a breakthrough. Notably, Semianalysis’ Dylan Patel characterized the release as “somewhat underwhelming” versus the pre-launch hype and hoped-for cost/performance step-change.

Why does this matter?

• AI Capex ROI Debate: Many enterprises modeled a fresh 2× leap in quality or price/performance. A more evolutionary release stretches deployment paybacks and could slow green-lighting of new AI projects.

• Infrastructure Buildout Expectations: If token costs and latency don’t reset meaningfully, hyperscaler AI infra demand could wobble near-term as buyers optimize GPT-4-era stacks instead of expanding for GPT-5.

What's the counterpoint?

For most production workloads, reliability matters most. If GPT-5 truly reduces hallucinations, improves tool calling, and integrates well with enterprise controls—even without headline-grabbing benchmarks—that can unlock material business value (fewer guardrails, cheaper human review, faster time-to-market). Also, OpenAI tends to quiet-launch platform features (pricing tiers, context, modalities) that compound over weeks, so there may be more to come.

finformant view

Tech equities are priced for a radical acceleration of the AI theme. Thus, this more incremental evolution may create some near-term headwinds for them. However, the medium-term potential of AI applications in an enterprise context remains strongly in play.

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Over the past weeks, Walmart put through considerable price increases on many everyday items. This is likely only the beginning of a broader wave of prices hikes, as the retailer's pre-tariff inventory gradually runs low. With Walmart holding a signalling function within the retail space, its competitors will likely follow suit, essentially creating an inflation wave in the goods economy space that may cause a severe challenge to the US economy.

Source: CNBC

Why does this matter?

• Fragile Economy: The US economy has been slowing all year. A negative supply shock owed caused by retailer price hikes could tip it into recession.

• Fed's Hand Tied: Unless the price increases in the goods economy are overcompensated by price declines in services, inflation readings will likely move up considerably. This would make it very hard to the Fed to cut rates to cushion the blow.

What's the counterpoint?

While tariffs are now hitting the US economy more forcefully, there are also several growth-positive dynamics at work. Enhanced capex deductibility within the "Big Beautiful Bill" boosts cash flows for investment-heavy corporates such as telcos or utilities. The AI data center boom continues and many foreign companies have committed to re-shoring plans into the US.

finformant view

Capital markets have ignored tariffs for some time. The price shock in the goods economy may take them by surprise, and a sell-off in the coming quarter is not unlikely.

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