Economy

Israel’s war on Gaza, triggered by the Islamist group Hamas-led cross-border attack on Oct. 7, has cost thousands of lives and unfolded into a humanitarian crisis.”In our view, the conflict in Gaza could last well into 2025 and there are risks of it broadening to other fronts,” the ratings agency said in a statement.”The downgrade following the war and the geopolitical risks it creates is natural,” Israeli Finance Minister Bezalel Smotrich said on X.Fears that the conflict in Gaza could turn into a broader Middle East war have escalated after the killing of Hamas leader Ismail Haniyeh in Iran and top Hezbollah military commander Fuad Shukr in Beirut.Israel’s shekel fell as much as 1.7% against the dollar on Monday and stocks ended over 1% lower in Tel Aviv as investors fret over a possible attack on Israel.Heightened tensions between Israel and Iran and its allies could imply significant additional military spending, destruction of infrastructure and damage to economic activity and investment, Fitch said.The ratings agency expects the Israeli government to permanently increase military spending by close to 1.5% of GDP versus pre-war levels as the country strengthens its border defenses. “Public finances have been hit and we project a budget deficit of 7.8% of GDP in 2024 and debt to remain above to 70% of GDP in the medium term,” Fitch said. It forecast the country’s debt will remain on an upward trend beyond 2025 if higher military spending and economic uncertainties continue. More

WASHINGTON (Reuters) – U.S. President Joe Biden supports the idea of eliminating taxes on tips for service and hospitality workers, the White House said on Monday.”Absolutely,” said White House spokesperson Karine Jean-Pierre, asked at a briefing if Biden would sign legislation doing so were it passed by Congress. “This is something that the president supports. He supports eliminating taxes on tips for service and hospitality workers,” as well as raising the minimum wage.The statement came after Vice President Kamala Harris, the Democratic presidential candidate, said in Nevada on Saturday that she supported eliminating taxes on tips, taking a similar position to her rival Donald Trump in an effort to win over service workers.That group is a large and politically influential constituency in the state, which is expected to be closely contested in the 2024 election.Support for the policy marks a rare area of agreement between the two major party’s presidential candidates.Harris’ version of the proposal – exempting tip income from federal income taxes and raising the minimum wage – could increase deficits by $100 billion to $200 billion or more over 10 years, according to the Committee for a Responsible Federal Budget.Some 2.2 million Americans worked as wait staff in 2022, according to the U.S. Labor Department, many drawing some of their income through tips.Trump, who told a rally in Las Vegas in June that he would seek to end taxation of income from tips, accused Harris of stealing his policy proposal.”Kamala Harris, whose ‘Honeymoon’ period is ENDING… just copied my NO TAXES ON TIPS Policy,” Trump said on his Truth Social app. “The difference is, she won’t do it, she just wants it for Political Purposes!”A Harris campaign official said her proposal would require legislation to be passed by Congress.”As president, she would work with Congress to craft a proposal that comes with an income limit and with strict requirements to prevent hedge fund managers and lawyers from structuring their compensation in ways to try to take advantage of the policy,” the official said. More

(Reuters) – A look at the day ahead in Asian markets. Markets looked a whole lot more placid on Monday, a week after equities plunged and volatility measures spiked, but intensifying geopolitical tensions and looming economic data threaten to disrupt the relative calm.The U.S. benchmark S&P 500 ended virtually unchanged on the day, as gains in Nvidia (NASDAQ:NVDA) and other tech stocks offset declines in most other sectors. The index is now down 5.7% from its July all-time high, recovering after being down 8.5% from its peak a week ago. MSCI’s gauge of stocks across the globe also was little changed on Monday.The Cboe volatility index was last at 20.71 points, falling during the session to its lowest point since the start of the month. The VIX a week ago logged its largest ever intraday jump and closed at over 38 points, its highest closing level since October 2020.Part of Monday’s calm may have stemmed from a market holiday in Japan, with the country’s Nikkei index and yen currency at the center of the latest global storm in markets.But investors were looking ahead: Wednesday’s U.S. consumer price index report will give a crucial read on inflation with markets now worried that an overly depressed CPI number will fan fears of a downturn. A weaker-than-expected jobs report was one of the catalysts for the recent market selloff, as some investors suspect the Fed may be too late in cutting interest rates.Tuesday’s report on U.S. producer prices provides an inflation-data appetizer ahead of Wednesday’s main course.Inflation also was top of mind in India, where data on Monday showed retail inflation fell in July to a near five-year low.Tensions in the Middle East were keeping markets edgy. The U.S. Defense Department said over the weekend it had ordered the deployment of a guided missile submarine to the Middle East as the region braces for possible attacks by Iran and its allies after the killing of senior members of Hamas and Hezbollah.Oil prices jumped on Monday, with U.S. crude settling up over 4%, on concerns the conflict would tighten global crude supplies. The U.S. presidential race was also a focus. Here are key developments that could provide more direction to markets on Tuesday:- Singapore GDP (Q2)- Japan corporate goods price index (July)- US producer price index (July) More

“We expect further signs of easing inflation in July,” RBC said, forecasting the headline price growth held at 3% on an annual basis but with a second straight small 0.1% monthly increase in core (excluding food and energy) prices.”That should reassure the Fed that those annual rates will continue to move lower,” it added, as factors putting upward pressure on inflation have narrowed. The Labor Department is set to release consumer price index for July on Wednesday at 08:30 EDT.Home rents, which make up a “disproportionate share of the remaining annual price growth,” RBC adds, is slowing as the impact of “earlier easing in market rent increases eventually passes through to lease agreements.”On the economic front, there’s little to suggest that the Fed should hit the panic button in the wake of rent jobs-led growth scare, but the U.S. central bank’s higher for longer rate regime is becoming difficult to justify. “Evidence is building that broader economic conditions have already normalized and inflation is more likely to drift lower,” RBC said. The case for the Fed to justify keeping rates at more than 200 basis points above its own estimate of the long-run ‘neutral’ rate’ is becoming “increasingly difficult.”The Fed believes the current neutral rate, one that neither boosts nor holds back economic growth, is 2.5%, which is nearly 300 basis points below the current rate of 5.25% to 5.5%, or 5.375% at the midpoint.While a 25 basis point cut is priced in for September, RBC believes the “risks of a larger cut are contingent on further downside in economic growth or inflation surprises.” More

The quake hit near the LA neighborhood of Highland Park, northeast of downtown, and was at a depth of 12.1 km (7.5 miles). The shaking was felt throughout the Los Angeles area. The Los Angeles Fire Department said it went into “Earthquake Mode” and reported that “there are currently no initial reports of structural damage or injuries.” More

NEW YORK (Reuters) – The U.S. Securities and Exchange Commission on Monday sued the cryptocurrency company NovaTech and its married co-founders, saying they fraudulently raised over $650 million from more than 200,000 investors worldwide, including many Haitian-Americans.NovaTech and co-founders Cynthia and Eddy Petion allegedly promised investors their money would be safe, with Cynthia Petion assuring they would be “in profit from day one.”The SEC said the Petions instead used new money mainly to repay earlier investors and pay commissions to promoters, while siphoning millions of dollars for themselves. It said the scheme lasted for four years until NovaTech’s May 2023 collapse.Monday’s lawsuit in Miami federal court came two months after New York Attorney General Letitia James sued NovaTech and the Petions in a state court in Manhattan, estimating their fraud at more than $1 billion.The regulators said NovaTech tried to appeal to victims’ religious faith through social media, Telegram and WhatsApp, and sometimes in the Haitian Creole language, with Cynthia Petion branding herself “Reverend CEO” and saying NovaTech was “God’s vision.”Lawyers for NovaTech and the Petions, who are believed to live in Panama, could not immediately be identified.Both regulators called the fraud a pyramid scheme, where companies pay bonuses or commissions to recruit new investors.The SEC also charged six NovaTech promoters with fraud, saying they kept recruiting investors despite “red flags,” such as delayed withdrawals and U.S. and Canadian regulatory actions, that raised questions about NovaTech’s legitimacy.One promoter, Martin Zizi, agreed to pay a $100,000 civil fine. His lawyer did not immediately respond to a request for comment.Both lawsuits seek restitution for victims and civil fines.The case is SEC v Nova Tech Ltd, U.S. District Court, Southern District of Florida, No. 24-23058. More

“We also maintain that the nervousness about US slow down is overdone,” Macquarie said in a recent note, following the recent growth economic scare. A slew of softer reports including the July jobs report triggered fears that a U.S. was headed for recession, prompting many to call for aggressive Federal Reserve rate cuts. Following economic data including last week’s better-than-feared jobless claims data, recession fears have receded.   While acknowledging that the U.S. economy is slowing and the Fed is behind the curve, Macquarie believes that the doesn’t rally matter as “strong fundamentals, excess capital, instantaneous repricing and an immense policy toolkit, can reverse positions quickly with limited damage.”Macquarie’s outlook echoes of that of the Fed chairman Jerome Powell, who has previously mentioned the central bank would be prepared to act should the softness in the labor market unexpectedly accelerate. “If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond. Policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate,” Powell said at the FOMC press conference on Jul. 31.  The current backdrop reflects a “twilight of no recessions but also no “strong recoveries, complemented by lower rates and higher liquidity,” Macquarie said, marking fertile ground for speculation across asset classes.In this “twilight of abundance”, however, investors need to opt for stock picking rather than factor and style strategies as the latter would “likely fail due to degradation of economic and capital market,” Macquarie added. More

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