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GM proposing $2.8 billion investment in South Korea

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General Motors vehicles go through assembly after GM celebrated the official launch of the Chevrolet Volt hybrid electric vehicle at GM's Detroit-Hamtramck Assembly November 30, 2010 in Detroit, Michigan.

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General Motors vehicles go through assembly after GM celebrated the official launch of the Chevrolet Volt hybrid electric vehicle at GM’s Detroit-Hamtramck Assembly November 30, 2010 in Detroit, Michigan.

General Motors (GM) has proposed a $2.8 billion fresh investment in South Korea over the next 10 years as part of its plan to restructure its embattled Korean unit, according to a South Korean senior government official.

The official with direct knowledge of the matter added that the U.S. car maker had requested South Korea to inject funds into GM Korea, in which the country’s state bank also holds a stake.

The offer comes as the Detroit carmaker and the South Korean government discuss restructuring options at loss-making GM Korea, one of GM’s largest offshore operations.

However, the official added that a close look into GM’s proposal was necessary to determine whether the investment plan was sufficient to rescue the unit, which directly employs some
16,000 workers.

“We need to have a closer look through the audit,” the official said.

South Korea’s trade minister Paik Un-gyu had said on Wednesday that the government has asked for an audit into General Motors “opaque” management in the country in the wake of
the car maker’s decision to shut down a factory in a city southwest of Seoul.

“By opaque we mean the high rate of profits to raw material costs, interest payments regarding loans and unfair financial support made to GM’s headquarters,” Paik told lawmakers in parliament.

Paik added that taxpayers’ money would not be wasted in government efforts linked to the GM issue.

GM, which is based in Detroit, has said that its factory in Gunsan will be closed by May, and it is mulling the fate of its three remaining plants in South Korea.

– CNBC contributed to this report.

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Treasury makes U.S. aid to Afghanistan easier amid Taliban sanctions

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Men are pictured as Afghanistan’s Taliban-controlled central bank seizes a large amount of money in cash and gold from former top government officials, including former vice president Amrullah Saleh, in Afghanistan, in this handout obtained by Reuters on September 15, 2021.

Da Afghanistan Bank | Handout | via Reuters

WASHINGTON – The Treasury Department issued licenses on Friday that facilitate the movement of U.S. humanitarian aid and financial assistance to the people of Afghanistan while upholding sanctions on the Taliban, after the Islamist militant group seized control of the country last month.

The two general licenses are aimed at alleviating the crushing U.S. sanctions placed on the Taliban from impacting Afghan civilians. The sanctions freeze any U.S. assets belonging to the Taliban and bar U.S. citizens from engaging in transactions with them, including the contribution of funds, goods or services.

“Treasury is committed to facilitating the flow of humanitarian assistance to the people of Afghanistan and other activities that support their basic human needs,” wrote Andrea Gacki, director of the U.S. Treasury’s Office of Foreign Assets Control, in a statement.

Gacki added that the Biden administration will work with financial institutions, NGOs and international organizations to ease the flow of agricultural goods, medicine and other resources while denying assets to the Taliban and other sanctioned entities.

The United Nations Children’s Fund has warned that 1 million Afghan children are at risk of starvation this year, calling on wealthy nations to put political considerations aside and increase humanitarian assistance to Afghanistan.

“Nearly 10 million girls and boys depend on humanitarian assistance just to survive,” UNICEF’s executive director Henrietta Fore said earlier this month at a United Nations’ ministerial-level meeting on the humanitarian crisis unfolding in Afghanistan.

“At least 1 million children will suffer from severe acute malnutrition this year and could die without treatment,” Fore said.

Earlier this week, President Joe Biden defended his decision to end the U.S.-led war in Afghanistan in his debut address to the United Nations.

“As we close this period of relentless war, we’re opening a new era of relentless diplomacy,” Biden told the 193-member body on Sept. 21. Biden explained that U.S. military power “must be our tool of last resort, not our first. It should not be used as an answer to every problem we see around the world.”

As foreign and U.S. troops withdrew from Afghanistan, the Taliban carried out a succession of shocking battlefield gains which resulted in their seizure of the presidential palace in Kabul on Aug. 15.

Biden administration officials have since said that the U.S. will continue to allow humanitarian work in Afghanistan despite blacklisting the Taliban as a global terrorist group.

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Huawei CFO Meng Wanzhou to be released after agreement with U.S. in fraud case

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Huawei chief financial officer Meng Wanzhou arrives at British Columbia Supreme Court with her security detail for the afternoon session of her extradition hearing, August 4, 2021 in Vancouver, Canada.

Don MacKinnon | AFP | Getty Images

The chief financial officer of Chinese tech firm Huawei will be released and allowed to return to China after reaching an agreement with the U.S. government on fraud charges, prosecutors said Friday in a Brooklyn federal court.

A U.S. district judge accepted the deferred prosecution agreement, which will last until Dec. 1, 2022. Under the deal, the executive, Meng Wanzhou, affirmed the accuracy of a statement of facts and agreed not to commit other crimes, or risk prosecution.

Meng, the daughter of Huawei’s founder, was arrested in Canada in December 2018. The U.S. sought to extradite her on bank and wire fraud charges, claiming she was misled a financial institution to violate American sanctions on Iran. The U.S. said Friday it plans to withdraw its extradition request.

Meng pleaded not guilty to the charges on Friday. As part of the agreement, however, she took “responsibility for her principal role in perpetrating a scheme to defraud a global financial institution,” acting U.S. Attorney for the Eastern District of New York Nicole Boeckmann said in a statement.

According to Boeckmann, Meng admitted to making “multiple material misrepresentations” while CFO of Huawei about the company’s business in Iran, in conversations with the senior executive of a financial institution. The government claimed she did this to continue Huawei’s business relationship with the firm.

Boeckmann said the admission confirms the core allegations against Meng. Media reports have linked Hong Kong-based HSBC to the case, though the bank has previously said the DOJ has confirmed it is not under investigation in the case.

A Huawei spokesperson declined to comment.

A lawyer representing Meng said he was “pleased” with the agreement.

“She has not pleaded guilty and we fully expect the indictment will be dismissed with prejudice after fourteen months,” attorney William W. Taylor III said. “Now, she will be free to return home to be with her family.”

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Stocks face another turbulent week as the third quarter winds down

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A trader works inside a post on the floor of the New York Stock Exchange (NYSE), August 27, 2021.

Brendan McDermid | Reuters

After recent turbulence, markets are likely to close out the final week of the third quarter with another bout of volatility.

Stocks in the past week traded with big extremes. First, fears of financial contagion coming from Chinese developer Evergrande sent stocks skidding Monday. Losses were reversed by Thursday, when the market ripped higher. The S&P 500 and the Dow Jones Industrial Average were positive for the week, while the Nasdaq eked out a gain.

“I think this market turmoil has yet to conclude,” said Sam Stovall, CFRA chief investment strategist. “Certainly September is doing what it normally does. It frustrates investors.”

The three major stock indices were also higher for the third quarter so far.

Strategists say how the market trades in the coming week may be the most important development, after the wild swings in stocks and also the rapid rise in Treasury yields late in the week. The 10-year, at about 1.3% on Wednesday shot up to nearly 1.46% by Friday.

The S&P 500 was down about 1.4% for the month of September so far. “We are getting long in the tooth. The technical indicators are pointing to distribution. We’re seeing prices roll over, breadth roll over. You’re seeing sentiment roll over,” said Stovall. He said the breadth needs to improve, and many stocks are trading below their 200-day moving average.

October is a ‘seismic’ month

“I think October will be true to itself, which is a very volatile month. October’s volatility is 36% higher than the average of the other 11 months of the year,” Stovall said. “Volatility is higher and you have a greater number of pullbacks, corrections and bear markets that either start or end in the month. It is a seismic month.”

Wealth management firm Wellington Shields warns that the fact many stocks have fallen below their 200-day moving average is a negative for the market. Just 59% of the stocks on the New York Stock Exchange remain above it, or in an uptrend, according to the firm. The 200-day moving average is the average of the last 200 closing prices of a stock or index, and it’s viewed as a momentum indicator.

“The rule is that when this 200-day number drops from above 80% to below 60%, it usually goes below 30%. Forgetting that, the real point is that while most stocks may be advancing, barely more than half are advancing enough to be in uptrends. With the market just a few percent below its highs, this is a concern,” Wellington said in a note.

What to watch

In the coming week, there are a few key economic reports including including durable goods Monday and ISM manufacturing Friday. There is also personal consumption expenditure data Friday, which the Federal Reserve monitors for its inflation index.

The Federal Reserve will remain a big focus in the week ahead. There will be a host of Fed speakers, including Fed Chairman Jerome Powell who testifies twice before Congress on the pandemic and the policy response to it. Treasury Secretary Janet Yellen will join him for the hearings Tuesday and Thursday. Powell also appears on a European Central Bank panel with other central bank leaders Wednesday.

Investors will also be watching Congress in the week ahead as it attempts to pass a funding plan in time to avert a government shutdown Oct. 1. The debt ceiling is expected to be part of that debate, but strategists do not expect it to be resolved at the same time. They say this could hang over the markets for several weeks before Congress raises the debt ceiling.

Fed speakers are not expected to provide any new information, but they could fine tune their message after the central bank signaled this past Wednesday that it expects to begin paring down its $120 billion in in monthly bond purchases soon. The Fed also released a new forecast for interest rates, which revealed that half of the 18 Fed officials expect to raise interest rates next year.

“I think what the Fed’s achieved so far is a taper without a tantrum,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.

“I think a lot of people who invest in the market have a sense they are skating on thin ice, and any crack could be a big one… people are highly sensitive and nervous because they know valuations are stretched,” he said. “That means we should expect these episodic jumps in volatility.”

Chandler said the market will need to digest the recent moves, particularly the move higher in Treasury yields.

“What we’ve got to wait for now is finding this new equilibrium. What kind of market should we expect? Trending? Or do we try to find a range?” he said. “I think we find a range. We need some hurdles to pass.” Chandler said one hurdle is the September jobs report on Oct. 8.

The Fed is expected to taper its $120 billion monthly bond purchases unless there is shockingly weak employment data. “That is the only thing that stands in the way of Fed tapering,” Chandler said.

Wells Fargo’s Michael Schumacher, said the quarter end could be quiet in terms of big funds rebalancing. “The equity market bounced around. It’s up on the quarter. That wasn’t much when you compare it to the bond performance,” he said.

The 10-year yield made an unusually volatile round trip move in the third quarter. It was 1.47% on June 30, and it was as high as 1.46% Friday. In between it dipped to 1.12% in early August. Schumacher said the bond market could be quieter ahead of the quarter end, and the 10-year yield could then resume its move higher.

Some strategists watch the 10-year Treasury yield as a leading indicator for stocks. It is also linked to moves in technology and other high-growth stocks.

What’s next

Katie Stockton, founder of Fairlead Strategies, said high growth and tech are susceptible now to moves in the 10-year Treasury yield. She said the technology sector is the most overbought in relative terms, when comparing the sector to the S&P 500. The S&P tech sector was up about 0.8% for the week, and it was up nearly 6% for the quarter.

“We would consider reducing exposure to growthy ETFs like ARKK and would be respectful of any breakdowns,” said Stockton.

Investors have been fixated on the S&P 500’s 50-day moving average. For the first time this year, the index broke below and closed under the average for multiple sessions this past week. By Thursday, it regained the 50-day and finished above it. The broad-market index closed above the 50-day moving average on Friday.

The 50-day is literally the average of the last 50 closing prices, and it is viewed as an important momentum indicator, just as the 200-day moving average is. A break above could signal a positive move, and a break below it could mean more downside.

Stockton said the relief rally in the S&P 500 could resume in the coming week. “But we think it will fade by the end of the week given the downturns in our intermediate-term indicators. We expect the SPX to make a lower high,” she wrote in a note.

She expects the 10-year Treasury yield could continue higher. “Momentum appears to be shifting to the upside and next resistance is near 1.53%. The breakout should benefit the financial sector, which saw significant outperformance [Thursday],” Stockton noted.

Week ahead calendar

Monday

Earnings: Aurora Cannabis

8:00 a.m. Chicago Fed President Charles Evans

8:30 a.m. Durable goods

12:50 p.m. Fed Governor Lael Brainard

Tuesday

Earnings: IHS Markit, Micron, Cal-Maine Foods, Thor Industries, United Natural Foods, FactSet

8:30 a.m. Advance economic indicators

9:00 a.m. Chicago Fed’s Evans

9:00 a.m. S&P Case-Shiller home prices

9:00 a.m. FHFA home prices

10:00 a.m. Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen before Senate Banking, Housing and Urban Affairs Committee on pandemic response

10:00 a.m. Consumer confidence

1:40 p.m. Fed Governor Michelle Bowman

3:00 p.m. Atlanta Fed President Raphael Bostic

7:00 p.m. St. Louis Fed President James Bullard

Wednesday

Earnings: Jabil, Cintas, Herman Miller

10:00 a.m. Pending home sales

11:45 a.m. Fed Chairman Powell on European Central Bank panel

2:00 p.m. Atlanta Fed’s Bostic

Thursday

Earnings: Jefferies Financial, CarMax, Bed Bath & Beyond, Paychex

8:30 a.m. Initial jobless claims

8:30 a.m. Real GDP Q2

9:45 a.m. Chicago PMI

10:00 a.m. Fed Chairman Powell and Treasury Secretary Yellen before House Financial Services Committee

11:00 p.m. Atlanta Fed’s Bostic

11:30 p.m. Philadelphia Fed President Patrick Harker

12:05 p.m. St. Louis Fed’s Bullard

12:30 p.m. Chicago Fed’s Evans

Friday

Monthly vehicle sales

8:30 a.m. Personal income and spending

10:00 a.m. Manufacturing PMI

10:00 a.m. ISM manufacturing

10:00 a.m. Consumer sentiment

10:00 a.m. Construction spending

11:00 a.m. Philadelphia Fed’s Harker

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