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Second COVID-19 Wave Hits Europe. What Are The Potential Economic Implications?

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On the latest edition of Market Week in Review, Senior Quantitative Research Analyst Abraham Robison and Research Analyst Laura Bardewyck discussed rising COVID-19 cases in Europe, the potential implications of next month’s U.S. elections and recent economic data releases from China and the U.S.

Will the latest coronavirus lockdowns jeopardize Europe’s economic recovery?

In Europe, concern over a second wave of COVID-19 infections has led several countries to reimpose lockdown measures in recent weeks, Robison said, as the rate of new coronavirus cases in the region continues to increase. “England is implementing a three-tier lockdown system, which divides the country into three tiers based on infection rates, with each tier subject to different levels of restrictions,” he noted. Northern Ireland, meanwhile, is going a step further with a circuit-breaker lockdown – wherein schools, restaurants and bars are either closed or greatly restricted in their activities for a few weeks in order to slow infection rates, Robison explained.

Elsewhere, the Spanish capital of Madrid recently declared a state of emergency that limits non-essential travel, while France has ordered bars and gyms in its major cities to close. “Even Germany, which fared relatively better than most of its European counterparts back in the spring, is now imposing some restrictions on businesses in the hospitality sector,” Robison remarked.

So, what are the possible economic implications of all of these measures? “Broadly speaking, these new restrictions mean that Europe’s economic recovery is likely to move forward in fits and starts, as lockdown measures wax and wane,” Robison said. He explained that while the latest lockdowns could interrupt the pace of the recovery, they’ll likely have less of an impact on the European economy than those imposed back in March and April. However, given that the northern hemisphere is about to enter the winter months – which typically represent the peaks of cold and flu season – the situation bears close watching, Robison stated.

Potential market impacts of U.S. elections

Shifting to Election Day in the U.S., Robison and Bardewyck discussed the potential implications of the possible outcomes. “If the Democratic party wins control of the Senate, the House of Representatives and the White House in a so-called Democratic sweep, I believe a calmer U.S. foreign policy is more likely, as well as higher corporate taxes,” Robison said. In addition, an even-larger second U.S. stimulus package – perhaps higher than the $2.2 trillion CARES Act passed in March – is possible, he added.

“A giant stimulus package of this magnitude could lift bond yields and provide a boost for more traditional, cyclical stocks – such as bank names – which are more sensitive to the state of the economic recovery,” Robison explained. He added that a shift to a quieter foreign policy may also be beneficial to non-U.S. stocks.

On the flip side, if the Republican party retains control of the White House and the Senate, markets can expect a retention of most of the current administration’s policies, including the nation’s tax code, which features a corporate income tax rate of 21%. Robison said that a second U.S. stimulus package would still be likely, although it would probably be smaller in scope.

“At the end of the day, regardless of the election outcome, we believe it’s important to stay invested throughout this upcoming period,” Robison said, stressing that in times of uncertainty, a diversified multi-asset portfolio may be worth considering.

Strong September for U.S. retail sales

Economic data released the week of Oct. 12 was largely positive, Robison said, noting that China reported a substantial increase in corporate credit during September. “This bodes well for Chinese growth amid the economic recovery,” he remarked.

Meanwhile, in the U.S., the Philadelphia Fed’s manufacturing index for October crushed consensus expectations, rising to a level of 32.3 – up from a reading of 15 in September, Robison noted. In addition, U.S. retail sales during September expanded at a 1.9% clip from August, also topping expectations. “The American economy is consumption-driven, so it’s great to see numbers like this,” he said, “as it lends further proof to the notion that the U.S. economic recovery is still ongoing.”

In general, both the U.S. and global economy have recovered faster than most people expected, Robison stated – primarily due to the historic injections of fiscal and monetary stimulus. “All in all, the economic recovery remains broadly on track – and this should lead to a positive environment for equities over the medium-term,” he concluded.

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How Samsung’s ownership may change as heirs take over from late Chairman Lee By Reuters

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© Reuters. A flag bearing the logo of Samsung flutters in front of its office building in Seoul

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By Hyunjoo Jin and Joyce Lee

(Reuters) – South Korea’s powerful Lee family faces a battle to maintain control of Samsung Group, the country’s biggest conglomerate, following the death of patriarch and group Chairman Lee Kun-hee.

From the astronomical inheritance tax bill to potential legal obstacles, here are some of the issues the family faces as it seeks to stay on top of the business empire founded back in 1938.

CROWN JEWEL

The family is expected to focus on maintaining control of the conglomerate’s crown jewel Samsung Electronics (OTC:) Co Ltd (KS:), but family members’ combined direct stake ownership is only at 5.8%.

Their outsized control is made possible through their shareholding in Samsung Life Insurance (KS:), which holds 8.5% of the flagship chipmaker, and Samsung C&T Corp (KS:), which owns 5%.

The majority of the late chairman’s assets were a 4.18% stake in Samsung Electronics, worth about 15 trillion won ($13.3 billion), which the family is expected to try to inherit entirely.

Heir apparent Jay Y. Lee’s direct stake in Samsung Electronics is just 0.7% but he exercises control primarily through his 17.3% stake in Samsung C&T, which in turn is the second-largest shareholder of Samsung Life Insurance – a major shareholder of Samsung Electronics.

HEFTY INHERITANCE TAX

If the family inherits Lee’s stocks, the total tax bill is estimated to top 10 trillion won ($9 billion). It can be paid in instalments; one-sixth must be paid initially, then the rest over five years, meaning annual payments can exceed $1 billion.

MONEY TO PAY THE TAX

The Lee family can sell their stocks in information service provider Samsung SDS (KS:) and other non-core affiliates to pay the tax.

Dividends totalling about 702 billion won a year from their combined holdings in Samsung affiliates can also be used, which will add up to about 32% of the annual tax bill, according to Choi Nam-kon, an analyst at Yuanta Securities.

The shortfall may have to be covered with loans or partial sales of stakes they hold or will inherit in Samsung Life Insurance and Samsung Electronics.

“The view is that selling part of the stake in Samsung Electronics during the inheritance process may be unavoidable,” said Jeong Dae-ro, analyst at Mirae Asset Daewoo Securities.

Such stake sales could weaken the family’s direct control of Samsung Electronics.

LEGAL OBSTACLES

Proposed legislation making it tougher for insurance companies to hold large stakes in non-financial affiliates relative to their assets could force Samsung Life to sell about $20 billion in shares in Samsung Electronics and cripple the Lee’s family’s grip on the chipmaker.

To ensure the Lee family keeps control, Samsung Life may try to sell its stake to Samsung C&T, which would in turn unload stakes in other units to come up with the funds.

The passage of the law remains uncertain as it could be unpopular with retail investors ahead of a presidential election in early 2022.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Asian Stocks Over Mounting U.S.-China Tensions, Fall in U.S. Stocks By Investing.com

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© Reuters.

By Gina Lee

Investing.com – Asia Pacific stocks were down on Tuesday morning over rising tensions between the U.S. and China. The region followed the tumble in U.S. stocks as talks over the latest U.S. stimulus measures faltered and the Nov. 3 presidential election draws closer.

China’s was down 0.37% by 11:47 PM ET (3:47 AM GMT) and the inched down 0.04%. Tensions between the U.S. and China flared up after China imposed sanctions on U.S. companies, including Lockheed Martin (NYSE:), Boeing Defense and Raytheon (NYSE:) “in order to uphold national interests,” Chinese Foreign Ministry spokesman Zhao Lijian said on Monday. China’s move comes as the U.S. contemplates a potential $2.4 billion sale of U.S. anti-ship missiles to Taiwan, potentially encompassing as many as 100 Harpoon Coastal Defense Systems built by Boeing (NYSE:). The systems in turn include up to 400 land-based missiles.

On the economic front, Chinese authorities will set the nation’s next five-year plan through Oct. 29.

Hong Kong’s fell 1.30%.

Japan’s was down 0.33%. The Bank of Japan will announce its monetary policy on Thursday, with Governor Haruhiko Kuroda also due to deliver a briefing.

South Korea’s inched down 0.02% and in Australia the slid 1.72%.

House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin were unable to reach a consensus on the measures with White House economic advisor Larry Kudlow saying that whilst differences between the two sides “have narrowed … [but] the more it narrows, the more conditions come up on the other side,” White House economic adviser Larry Kudlow said.

“The challenge for markets is that in most cases they are already pricing a very strong economic bounce. The new [COVID-19] outbreaks, and the potential for a double-dip recession, directly contradict this [Kudlow’s] assumption,” CMC Markets chief market strategist Michael McCarthy told Reuters.

The number of COVID-19 cases continues its incessant rise, with over 43.4 million cases globally as of Oct. 27, according to Johns Hopkins University data.

“The COVID-19 case news flow has clearly resonated … the reflation trade which was working so beautifully is being part unwound, not because of election repricing, but due to the new wave of COVID-19 cases,” Pepperstone head of research Chris Weston said in a note.

President Donald Trump saw a boost to his campaign as the Senate confirmed his third Supreme Court nominee, Amy Coney Barrett, on Monday. However, polls show that Trump is trailing behind Democrat candidate Joe Biden a week left before Americans head to the polls. The U.S. will release data, including for the third quarter on Thursday, expected to be the strongest on record after seeing a record plunge in the previous quarter.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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HSBC third-quarter profit tumbles 35% as bad loan provisions rise By Reuters

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© Reuters. An HSBC bank is pictured in New York

HONG KONG/LONDON (Reuters) – HSBC Holdings PLC (L:) posted a 35% drop in quarterly profit, better than expected, as higher loan loss provisions on the economic fallout from the coronavirus pandemic were cushioned by the reining in of expenses.

Reported pretax profit for Europe’s biggest bank by assets came in at $3.1 billion for the quarter ended Sept. 30, down from $4.8 billion in the same period a year earlier.

The profit was higher than the $2.07 billion average of analysts’ estimates compiled by the bank.

While economic conditions improved in some markets in the third quarter as lockdowns were lifted and forbearance measures helped businesses and consumers, global banks’ provisions have remained high as they assess the impact of the pandemic.

Asia-focused HSBC said it expected losses from bad loans to be at the lower end of the $8 billion to $ 13 billion range it set out earlier this year.

Faced with fewer options to bolster revenue growth, HSBC has been looking to reduce costs globally and in June resumed plans to cut around 35,000 jobs it had put on ice after the coronavirus outbreak.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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