US tax cuts are coming (probably)

Posted by: Paul Donovan

18 Apr 2019
  • US tax cuts may be just around the corner. There is talk of a US-China trade deal being concluded in early May. This would presumably entail tax cuts for US companies and consumers. The upside for financial markets from a deal would be limited (unless it is a very comprehensive agreement). The Trump Twitter Feed has been signalling this for a while now.
  • US President Trump's past tax increases were cited in the Federal Reserve's Beige Book of economic gossip as creating negative sentiment amongst companies. The burden does appear to have hit companies more than consumers. Today's retail sales report should show that the US consumer is still spending money.
  • UK retail sales data is also due. British consumers are sensibly ignoring the political nonsense and spending money, supported by the strength of the labor market. Corporate investment is the area of weakness in the UK.
  • German producer price inflation has been stuck in a 2–3% range, and today's data is not likely to change that much. There is no evidence of rising corporate pricing power. Assorted business sentiment opinion polls are due – the gap between survey data and reality has been especially wide of late.