Economy

WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission on Thursday settled charges against hedge fund Two Sigma over failure to address known vulnerabilities in its investment models, the regulatory agency said.Two Sigma voluntarily repaid $165 million to impacted funds and accounts during the SEC’s investigation and agreed to pay $90 million in civil penalties to settle the SEC’s charges, the agency said in a statement.The SEC said that in or before March 2019, Two Sigma employees identified and recognized vulnerabilities in certain Two Sigma investment models that could negatively impact clients’ investment returns, but the hedge fund waited until August 2023 to address the issues.Despite recognizing these vulnerabilities, Two Sigma failed to adopt and implement written policies and procedures to address them and failed to supervise one of its employees who made unauthorized changes to more than a dozen models, which resulted in Two Sigma making investment decisions that it otherwise would not have made on behalf of its clients, the SEC added.”After proactively reporting the issue in 2023 and promptly remediating negatively impacted clients, Two Sigma is pleased to have reached a resolution with the SEC, putting this matter behind us,” a spokesperson of the hedge fund said. “We are committed to acting with the utmost integrity and have made a range of enhancements to our operational policies, procedures, and oversight,” the hedge fund, which has $60 billion in assets under management, added. More

(Reuters) – Scott Bessent, U.S. President-elect Donald Trump’s choice to head the Treasury Department, on Thursday said the question of eliminating the U.S. debt limit is “nuanced,” but said if Trump wants to do so he will work with him and with Congress to get it done.”The debt limit is a very nuanced convention,” Bessent told the U.S. Senate Finance Committee in response to a question from U.S. Senator Elizabeth Warren about whether he would support its repeal. “Look, the United States is not going to default on its debt if I’m confirmed. But I will tell you that, for people who don’t understand the debt limit, it might be like taking out your handbrake in your car, that you can still hit the brakes, but it’s one less feature.” More

Climate-related natural disasters are dramatically driving up insurance costs for homeowners in the most-affected regions, according to a Treasury Department report Thursday.
For consumers living in the 20% of zip codes with the highest expected annual losses, premiums averaged $2,321, or 82% more than those living in the 20% of lowest-risk zip codes from 2018-22.
“This report identifies alarming trends of rising costs of insurance, all of which threaten the long-term prosperity of American families,” said outgoing Treasury Secretary Janet Yellen.

Firefighters battle flames during the Eaton Fire in Pasadena, California, U.S., Jan. 7, 2025.
Mario Anzuoni | Reuters

Climate-related natural disasters are driving up insurance costs for homeowners in the most-affected regions, according to a Treasury Department report released Thursday.
In a voluminous study covering 2018-22 and including some data beyond that, the department found that there were 84 disasters costing $1 billion or more, excluding floods, and that they caused a combined $609 billion in damages. Floods are not covered under homeowner policies.

During the period, costs for policies across all categories rose 8.7% faster than the rate of inflation. However, the burden went largely to those living in areas most hit by climate-related events.
For consumers living in the 20% of zip codes with the highest expected annual losses, premiums averaged $2,321, or 82% more than those living in the 20% of lowest-risk zip codes.
“Homeowners insurance is becoming more costly and less accessible for consumers as the costs of climate-related events pose growing challenges to both homeowners and insurers alike,” said Nellie Liang, undersecretary of the Treasury for domestic finance.
The report comes as rescue workers continue to battle raging wildfires in the Los Angeles area. At least 25 people have been killed and 180,000 homeowners have been displaced.
Treasury Secretary Janet Yellen said the costs from the fires are still unknown, but noted that the report reflected an ongoing serious problem. During the period studied, there was nearly double the annual total of disasters declared for climate-related events as in the period of 1960-2010 combined.

“Moreover, this [wildfire disaster] does not stand alone as evidence of this impact, with other climate-related events leading to challenges for Americans in finding affordable insurance coverage – from severe storms in the Great Plans to hurricanes in the Southeast,” Yellen said in a statement. “This report identifies alarming trends of rising costs of insurance, all of which threaten the long-term prosperity of American families.”
Both homeowners and insurers in the most-affected areas were paying in other ways as well.
Nonrenewal rates in the highest-risk areas were about 80% higher than those in less-risky areas, while insurers paid average claims of $24,000 in higher-risk areas compared to $19,000 in lowest-risk regions.
In the Southeast, which includes states such as Florida and Louisiana that frequently are slammed by hurricanes, the claim frequency was 20% higher than the national average.
In the Southwest, which includes California, wildfires tore through 3.3 million acres during the time period, with five events causing more than $100 million in damages. The average loss claim was nearly $27,000, or nearly 50% higher than the national average. Nonrenewal rates for insurance were 23.5% higher than the national average.
The Treasury Department released its findings with just three days left in the current administration. Treasury officials said they hope the administration under President-elect Donald Trump uses the report as a springboard for action.
“We certainly are hopeful that our successors stay focused on this issue and continue to produce important research on this issue and think about important and creative ways to address it,” an official said. More

The final tax rate keeps the essence of the text approved by congress, he said, adding that all vetoes were justified by technical adjustment or a constitutionality question.Estimates from the Ministry of Finance indicate that the standard rate of the new consumption tax will be around 28%, he added. More

(Reuters) – A look at the day ahead in Asian markets. Relief from the positive U.S. and UK inflation surprises this week appears to have evaporated, at least as far as equity markets are concerned, even as Treasury yields and the dollar continue to drift lower into the last trading day of the week.Asian markets open on Friday against a mixed global backdrop. Yields are softening and Fed Governor Chris Waller on Thursday again signaled his willingness to cut rates, while U.S. bank earnings are beating expectations. But more evidence is needed that the global bond and inflation respite is anything other than temporary, and investors are nervy ahead of U.S. President-elect Donald Trump’s inauguration on Monday.Investors in Asia, therefore, could be forgiven for playing safe, minimizing exposure to risky assets ahead of the weekend, especially as it is a three-day break in the U.S. where markets are closed Monday for Martin Luther King Jr. Day.But the monthly Chinese ‘data dump’ lands on Friday. Beijing releases the December readings of house prices, industrial production, fixed-asset investment and retail sales, all of which will contribute to the big one: fourth-quarter and full-year GDP. Citi’s China economic surprises index is currently in positive territory, lifted by the series of policy pledges and market-boosting measures announced since September. But that boost has faded, and the index is its lowest in two months.Could Friday’s raft of indicators stop the drift? It’s possible that some, like export and new loans data released earlier this week, are on the strong side as businesses and households ramp up activity before tariff-threatening Trump takes office.On the other hand, the wider trend suggests negative surprises are more likely, and it’s worth noting that December was characterized by strong capital outflows, sluggish stock markets, and the biggest fall in bond yields since December 2008.Investors will also be keeping an eye on the TikTok saga for signs of how cool or otherwise U.S.-Sino relations are ahead of Trump’s return to the White House.The Chinese-owned video app, which is used by more than 170 million Americans monthly, is set to be banned on Sunday under a law mandating that it find a non-Chinese owner. But Trump’s incoming national security adviser said on Thursday the new administration will keep TikTok alive in the U.S. if there is a viable deal, in a potential reprieve for the firm.Currency volatility in Asia, meanwhile, is ticking higher after two central bank policy surprises this week from South Korea and Indonesia, and as the Japanese yen rallies strongly ahead of a possible Bank of Japan rate hike next week.Here are key developments that could provide more direction to markets on Friday:- China ‘data dump’ (December)- China GDP (Q4, full-year 2024)- New Zealand manufacturing PMI (December) More

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WASHINGTON (Reuters) -The World Bank on Thursday warned that U.S. across-the-board tariffs of 10% could reduce already lackluster global economic growth of 2.7% in 2025 by 0.3 percentage point if America’s trading partners retaliate with tariffs of their own.U.S. President-elect Donald Trump, who takes office Monday, has proposed a 10% tariff on global imports, a 25% punitive duty on imports from Canada and Mexico until they clamp down on drugs and migrants crossing borders into the U.S., and a 60% tariff on Chinese goods. Some countries including Canada have already vowed to retaliate.The World Bank said simulations using a global macroeconomic model showed a 10-percentage point increase in U.S. tariffs on all trading partners in 2025 would reduce global growth by 0.2 percentage point for the year, and proportional retaliation by other countries could worsen the hit to growth.It said those estimates were consistent with outside studies which showed a 10-point increase in U.S. tariffs could “reduce the level of U.S. GDP by 0.4%, while retaliation from trading partners would increase the total negative impact to 0.9%.”But it noted that U.S. growth could also increase by 0.4 percentage point in 2026 if U.S. tax cuts were extended, it said, with only small global spillovers.The Bank for International Settlements on Thursday also chimed in, warning of increased “frictions and fragmentation” in global trade and calling a broad-based trade war between Washington and other countries “a tangible risk scenario.”The World Bank’s latest Global Economic Prospect report, issued twice yearly, forecast flat global economic growth of 2.7% in 2025 and 2026, the same as in 2024, and warned that developing economies now faced their weakest long-term growth outlook since 2000.The multilateral development bank said foreign direct investment into developing economies was now about half the level seen in the early 2000s and global trade restrictions were five times higher than the 2010-2019 average.It said growth in developing countries is expected to reach 4% in 2025 and 2026, well below pre-pandemic estimates due to high debt burdens, weak investment and sluggish productivity growth, along with rising costs of climate change.Overall output in emerging markets and development economies was expected to remain more than 5% below its pre-pandemic trend by 2026, due to the pandemic and subsequent shocks, it said.”The next 25 years will be a tougher slog for developing economies than the last 25,” World Bank chief economist Indermit Gil said in a statement, urging countries to adopt domestic reforms to encourage investment and deepen trade relations.Economic growth in developing countries dropped from nearly 6% in the 2000s to 5.1% in the 2010s and was averaging about 3.5% in the 2020s, the bank said. It said the gap between rich and poor countries was also widening, with average per capita growth rates in developing countries, excluding China and India, averaging half a percentage point below those in wealth economies since 2014.The somber outlook echoed comments made last week by the managing director of the International Monetary Fund, Kristalina Georgieva, ahead of the global lender’s own new forecast, to be released on Friday.”Over the next two years, developing economies could face serious headwinds,” the World Bank report said. “High global policy uncertainty could undercut investor confidence and constrain financing flows. Rising trade tensions could reduce global growth. Persistent inflation could delay expected cuts in interest rates.”The World Bank said it saw more downside risks for the global economy, citing a surge in trade-distorting measures implemented mainly by advanced economies and uncertainty about future policies that was dampening investment and growth. Global trade in goods and services, which expanded by 2.7% in 2024, is expected to reach an average of about 3.1% in 2025-2026, but to remain below pre-pandemic averages. More

In a note to clients on Thursday, the analysts estimated that the US economy grew at an annualized rate of 2.7% in the fourth quarter, slowing from a 3.1% in the third quarter. If accurate, then this would mean that real gross domestic product expanded 2.8% on an annual average basis in 2024, they added.They argued that, considering real output increased at an average rate of 2.4% per year during a period of economic expansion from 2010-2019, “the American economy appears to be in solid shape at present.”Meanwhile, most businesses are looking strong, they suggested, pointing to data indicating that even though the pace of hiring has eased in recent months, most firms neither need workers nor “want to cut staff.”Progress has also been made on returning inflation to the Federal Reserve’s 2% target level, the analysts added.So-called “core” consumer price growth, which strips out volatile items like food and fuel, edged up by 0.2% month-on-month and 3.2% year-over-year in December, data from the Labor Department’s Bureau of Labor Statistics showed on Wednesday. Economists had estimated the numbers would match November’s pace of 0.3% and 3.3%, respectively.However, the deceleration in inflation may be halted if the incoming Trump administration follows through on a threat to impose sweeping new import tariffs on both allies and adversaries alike, the analysts said.They added that “higher prices resulting from [the] tariffs” would subsequently weigh on real income growth, denting consumer spending activity.”Higher tariffs, if imposed, would impart a modest stagflationary shock to the economy,” the analysts argued, predicting that the levies could lead to a downshift in economic growth in the second half of 2025.But they still see activity accelerating in 2026 thanks to the impact of a possibly more business-friendly environment, including looser regulations and tax cuts, during Trump’s second term in the White House. More