Core Points - The U.S. budget deficit for fiscal year 2025 remains high at $1.8 trillion, showing minimal reduction compared to the previous year [1] - The Congressional Budget Office (CBO) reported that federal government total revenue increased by $308 billion (6%), while total spending also rose by $301 billion (4%) [1] - Interest payments on public debt exceeded $1 trillion for the first time in history, significantly impacting overall spending [1] - The deficit is projected to be approximately 5.9% of GDP, posing challenges for the Treasury Secretary who aims to reduce this to 3% by 2028 [1] Revenue and Expenditure Analysis - Tariff policies under the Trump administration contributed significantly to revenue growth, with tariff income expected to reach $195 billion in 2025, up from $77 billion in the previous fiscal year [2] - Despite the increase in tariff revenue, overall spending growth, particularly in social security benefits and debt interest, overshadowed this revenue boost [2] - Social security spending increased by $121 billion (8%) due to cost-of-living adjustments and new legislation effective January 2025 [2] - Education department spending saw a drastic reduction of $234 billion (87%) due to changes in student loan accounting and administrative cuts [2] Corporate Tax Revenue Impact - Corporate income tax revenue is projected to decline by 15% compared to 2024, negatively affecting overall fiscal health [3] - This decline is attributed to a tax reform allowing larger pre-tax deductions for certain investments, reducing estimated tax payments [3] - Some tax revenues originally due in 2023 have been postponed to 2024, further contributing to the decrease in corporate tax revenue for 2025 [3] Outlook on Deficit Management - Despite the high deficit level, which is rare during non-crisis periods, the Treasury Secretary remains optimistic about continued growth in tariff revenue [4] - The Secretary anticipates that tariff revenue could reach an annualized amount of $500 billion by the end of the year [4] - However, potential legal challenges to tariff policies could pose significant risks to revenue projections, with the Secretary acknowledging the potential negative impact of unfavorable court rulings [5]

Group 1 - The FOMC will release the minutes from its mid-September meeting, which may provide insights into future monetary policy decisions [1] - The University of Michigan will release the results of its consumer survey, which is expected to reflect consumer sentiment and spending trends [1] - This week will also bring earnings reports from Constellation Brands, which could impact the beverage industry and investor sentiment [1]

Core Viewpoint - The ongoing Russia-Ukraine war has led to significant budget deficits in Russia, prompting the government to propose an increase in value-added tax (VAT) to bolster state revenue [3][6]. Group 1: Tax Policy Changes - The Russian Ministry of Finance has proposed raising the VAT from 20% to 22% starting next year, which is expected to generate approximately 1.3 trillion rubles annually [3][6]. - Essential goods such as bread, dairy products, meat, pharmaceuticals, and children's items will maintain a reduced VAT rate of 10% [6]. Group 2: Economic Implications - The increase in VAT is anticipated to have a moderate and limited impact on consumer prices, according to the Ministry of Finance [3][6]. - The Central Bank of Russia has expressed concerns that previous VAT increases have led to inflationary pressures, with a 2% increase in 2019 resulting in a 0.6 percentage point rise in inflation [6][9]. - VAT is projected to account for 40% of the Russian government's total revenue by 2025, highlighting the significance of this tax source [6]. Group 3: Broader Economic Context - Despite declining energy revenues and increasing budget deficits, President Putin remains committed to continuing the war, which raises concerns about the sustainability of Russia's economic situation [9][11]. - Initial economic benefits from the war, such as increased resource demand and low unemployment, are not expected to last, and there is a lack of dissent within the political sphere regarding the ongoing conflict [11].

Group 1 - Fitch Ratings confirmed Kenya's long-term credit rating at "B-" with a stable outlook as of the end of July [1] - High debt repayment costs, weak governance, and low income are expected to lead to a budget deficit of 5.2%, significantly higher than the "B" median of 3.6% [1] - The Kenyan government aims to reduce spending to 22% of GDP by the fiscal year 2025/26, a decrease of nearly one percentage point [1] Group 2 - Fitch anticipates limited progress in spending control due to rising debt repayment costs and increased social and security demands [1] - The revenue outlook is conservative, with total revenue projected to slightly increase to 17.2% of GDP in the fiscal year 2025/26, below the government's target of 17.5% and the "B-" level corresponding 17.7% [1]

Core Insights - The Russian federal budget deficit for January to July 2025 decreased by approximately $47.6 billion year-on-year, primarily due to reduced oil and gas revenues [1] Budget Overview - Total budget revenue for the period was 20.315 trillion rubles (approximately $255.9 billion), reflecting a year-on-year increase of 2.8% [1] - Total budget expenditure reached 25.19 trillion rubles (approximately $317.3 billion), marking a year-on-year increase of 20.8% [1] - The budget deficit amounted to 4.88 trillion rubles (approximately $61.4 billion), which is a reduction of 3.78 trillion rubles (approximately $47.6 billion) compared to the same period last year [1] Revenue Breakdown - Oil and gas revenues for the federal budget totaled 5.52 trillion rubles (approximately $69.5 billion), showing a year-on-year decline of 18.5% [1] - The decline in oil and gas revenues is attributed to the strengthening of the ruble and falling oil prices [1] - Non-oil and gas revenues increased by 14% year-on-year, reaching 14.79 trillion rubles (approximately $186.3 billion) [1]

Economic Policy and Interest Rates - The central bank of Russia cut its benchmark interest rate by one percentage point to 17% to support the economy amid slowing growth and increased war spending [1] - The bank previously raised its key rate to 21% to combat inflation but is now retreating due to concerns from business leaders and legislators about the negative impact on economic activity [1][2] Inflation and Economic Growth - Inflation in Russia eased somewhat to 8.2% in July and August, but expectations remain elevated, which may hinder a sustainable slowdown in inflation [2] - Year-over-year economic growth slowed to 1.1% in Q2 from 1.4% in Q1 and 4.5% at the end of the previous year, with a negative 0.6% growth compared to the previous quarter [4] Budget Deficit and Spending - The budget deficit increased to 4.9 trillion rubles ($58 billion) in the January-July period, significantly up from 1.1 trillion rubles the previous year, with spending at 129% of the planned amount [5] - Oil and gas revenues fell by 19% compared to the same period last year, partly due to lower global oil prices [5] Economic Resilience - Despite sanctions and the loss of natural gas sales to Europe, the Russian economy has performed better than expected, with record low unemployment and rising household incomes [6] - Recruitment bonuses have injected cash into poorer regions, and oil shipments have remained steady despite price fluctuations [6] Financing the Deficit - The government is financing its deficit by selling ruble bonds to domestic banks, which are eager to purchase them in anticipation of falling interest rates [7]

Market Performance - The market experienced significant gains with the Dow increasing by 617 points, the S&P 500 jumping 85%, and the Nasdaq climbing 72%, all closing at record highs [1] Investor Sentiment - There is a prevailing skepticism among investors, particularly those who have historically been bearish, making it difficult for them to adopt a bullish stance despite positive market movements [2][3] - The challenge in shifting from a negative to a positive outlook is compounded by the historical context of market crashes and the fear of being ridiculed for optimistic predictions [4] Economic Context - The current economic backdrop includes a substantial federal debt of $37 trillion and geopolitical tensions, which contribute to a cautious investor sentiment [5] - Ongoing conflicts, such as the war in Ukraine and Gaza, along with strained international relations, add to the complexity of the market environment [6] Interest Rates and Inflation - Despite a slightly higher than expected consumer price index, Treasury yields decreased, which has puzzled skeptics who believe that such inflation readings should lead to higher yields [7]

Economic Context - Indonesia's economy is currently facing challenges, with a target growth rate of 8% for 2025 appearing increasingly unattainable due to weak household consumption and a significant decline in investment [1][6] - The economy grew by 4.87% year-on-year in the first quarter, but this represented a 0.98% contraction compared to the previous quarter, marking the lowest growth since Q3 2021 [6] - The government's "free lunch" program for students is expected to cost approximately $30 billion annually, which is about 14% of the national budget, raising concerns about the budget deficit nearing the legal limit of 3% of GDP [6] Social Unrest - The recent protests in Indonesia were triggered by the high housing allowance of 50 million Indonesian rupiah (approximately 21,795 RMB) provided to members of parliament, which is nearly ten times the minimum wage in Jakarta [3] - The protests escalated into violence after a tragic incident where a motorcycle taxi driver was killed by a military vehicle, leading to attacks on the homes of lawmakers, including Finance Minister Mulyani Indrawati [3][4] - Over 700 people were reported injured due to the protests, with damages to infrastructure estimated at around 55 billion Indonesian rupiah (approximately 23.96 million RMB) [4] Government Response - President Prabowo emphasized the need to maintain social order and public safety, announcing the cancellation of certain allowances for parliament members and the suspension of overseas trips for lawmakers [3][5] - The government is attempting to address public grievances and restore stability, with officials urging unity among citizens and a commitment to listening to public opinion [4][5] - Despite the unrest, the Coordinating Minister for Economic Affairs reassured that the economy remains on track, projecting a growth target of 5% to 5.2% for the year [6]

Core Insights - In August, U.S. tariff revenue exceeded $31 billion, setting a new monthly record, with total revenue for the fiscal year reaching $183.56 billion [1] - The U.S. Congressional Budget Office projected that Trump's tariff policies could reduce the budget deficit by approximately $4 trillion over the next decade, significantly higher than previous estimates [3] - Treasury Secretary Mnuchin indicated that annual tariff revenue could surpass $500 billion, with potential estimates approaching $1 trillion [3][4] Group 1 - The U.S. tariff revenue for August reached $31.37 billion, marking a historical high for a single month [1] - Cumulative tariff revenue for the fiscal year has already hit $183.56 billion [1] - The Trump administration is actively working to address fiscal challenges through increased tariff revenues [1] Group 2 - The Congressional Budget Office's updated forecast suggests a $4 trillion reduction in the budget deficit due to tariff policies, including $3.3 trillion in basic deficit reduction and $700 billion in interest cost savings [3] - Treasury Secretary Mnuchin's forecast for annual tariff revenue has been revised upward to potentially exceed $500 billion, compared to earlier estimates of $300 billion [3] - Mnuchin expressed confidence that the government could achieve tariff revenues close to $1 trillion [4] Group 3 - A recent court ruling deemed most of Trump's tariff measures illegal, stating that the President exceeded the authority granted by the International Emergency Economic Powers Act [4] - The ruling is set to take effect on October 14, providing time for the White House to appeal to the Supreme Court [4] - The Trump administration plans to request expedited review from the Supreme Court regarding the recent ruling [5] Group 4 - If the Supreme Court does not support the President's use of the International Emergency Economic Powers Act, alternative methods for implementing import taxes will be considered [5] - The administration may turn to the Trade Expansion Act's Section 232 as a more established legal framework for imposing tariffs based on national security threats [5][6] - There is potential for the Trump administration to expand the scope of Section 232 tariffs to ensure the continuation of its trade agenda [6]

Market Overview - Following the end of the three-day "Labor Day" holiday, major institutions are preparing for increased market volatility as the VIX index rose over 11% on Tuesday after a more than 6% increase on Friday [1] - The upcoming non-farm payroll data release is expected to further influence market volatility, with rising risk aversion leading to increased demand for gold [1][9] - Historically, September is the worst-performing month for U.S. and global stock markets, with concerns over Trump's potential threats to the Federal Reserve's independence and uncertainty surrounding his tariff policies contributing to market declines [1][2] Economic Indicators - The VIX index has reached its highest level in over a month, reflecting heightened investor anxiety regarding trade policies and upcoming economic data [9][10] - Long-term U.S. Treasury yields have surged, with the 10-year yield rising nearly 5 basis points to 4.269% and the 30-year yield approaching 5%, indicating pressure on stock valuations [3][4][6] Trade Policy Concerns - Doubts about the legality of Trump's tariffs have intensified market fears of potential global trade disruptions and increased budget deficits, leading to a sell-off in stocks and bonds [2][3] - The recent court ruling against Trump's tariffs has raised concerns about the future of U.S. trade negotiations and the potential for increased budget deficit anxiety [10] Non-Farm Payroll Data - The upcoming non-farm payroll report is critical for assessing the Federal Reserve's potential interest rate cuts, with expectations of job growth below 100,000 for the fourth consecutive month [8][11] - Economists predict that the August non-farm payroll will show an increase of only 75,000 jobs, marking the weakest employment data since 2020 [10][11] Investment Strategies - Investors are seeking alternative assets to protect their portfolios amid market turbulence, with gold reaching a historical high of approximately $3,540 per ounce [9] - The rise in long-term bond yields is seen as a key level that could sway stock market demand, with a 10-year yield around 4.5% being a critical threshold [4][6]