Taxes are not popular

Posted by: Paul Donovan

08 May 2019
  • Equities do not like being taxed. A tax on trade is a tax on equity markets, and the threat of rapid tax increases has produced the inevitable result. But if equity markets are supposed to discount the future, should the hope of a changing trade environment offset the tax costs?
  • The trade tensions created uncertainty. Uncertainty has delayed investment. Delayed investment has reduced exports and slowed manufacturing. Even if this dispute is resolved, companies looking to invest in the US (or elsewhere) longer term will worry that trade taxes might come back. Equity markets today seem to be discounting that longer-term costs from trade taxes are bigger than any possible gains.
  • Chinese Vice Premier Liu will still visit Washington this week, which gives hope to those opposed to paying more tax. It is a very short visit – perhaps too short to produce substantial change. Meanwhile, China's exports for April were weaker than expected, with imports stronger than expected.
  • German industrial production is due. This data refers to a simpler time, two tweets and USD 500bn of US equity value ago. German data has been mixed, but European data had been showing stabilization. That stabilization could continue, but it is threatened by uncertainty.

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