Equities, bonds, and the brave new higher tax world

Posted by: Paul Donovan

29 May 2019
  • It is worth repeating: equity markets do not like being taxed. US President Trump's trade taxes are taxes on equities. Equity markets do not like this. Recent moves suggest that uncertainty caused by this policy may outweigh any benefits from any trade deal. China is hinting that rare earths could be a weapon in the US trade dispute.
  • The uncertainty caused by trade policy is likely to continue to delay investment, slowing economic growth. It is logical for bond markets to react to this. It is not logical to price in a recession. The consumer (far more important to the economy) remains strong. It is also worth remembering that an inverted yield curve does not have to signal a recession.
  • In the Euro area there is the financial stability review. Italian manufacturing confidence data will demonstrate that Italy still has a manufacturing sector. It is not expected to show it still has confidence.
  • France has inflation numbers that will be ignored, and revised GDP. French consumer spending should improve – confidence picked up, and while that is an unreliable indicator it does suggest French consumers are prepared to bypass the gilet jaune protestors and spend some money. German unemployment numbers are also due.

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