Equities really do not like being taxed

Posted by: Paul Donovan

24 May 2019
  • Equity markets do not like being taxed. Trade taxes are taxes on equities. Equity markets do not like trade taxes. Investors are signaling that the costs of uncertainty exceed the benefits of any possible trade deal. President Trump was sounding more positive – but investors seem to remember the story of the boy who cried "wolf."
  • The US administration signaled it would like to increase taxes on goods from countries with undervalued currencies. Problems include: 1) economists rarely agree on "fair value" for a currency; 2) currencies only trade at fair value by accident; 3) what if the dollar is undervalued? The signal of the proposal, not the proposal itself, should worry markets – trade taxes remain a big issue.
  • The timetable for the departure of UK Prime Minister May is expected to be set today. The European election results will be known on Sunday, along with the rest of Europe. The consumer seems to wisely ignore the political nonsense – UK retail sales are due today.
  • US durable goods orders are due. Trade tax uncertainty has hurt investment (which contributes to this data). The data is B.T. (before tax hikes). Indian Prime Minister Modi seems to have won an absolute majority in the general election.