Wall Street was knocked lower late Thursday after news Biden was going to propose a hefty increase in capital gains taxes on the “wealthy” (We think it will most likely affect all Americans. The major indexes finished with slightly better than -0.9% losses, though declines topped -1% earlier.
The tax reportedly will double the current 20% rate, surging to 43.4% reportedly. This could cause a market crash.
Goldman reported the last time capital gains taxes were hiked in 2013, the wealthiest households sold 1% of their equity assets.
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Taking a look at the Fed’s financial account data, the top 1% held $17.79 trillion of equities and mutual funds in the fourth quarter of 2020.
Thus we could be looking at 1% selling of stocks this time would be $178 billion.
It will definitely cause a market dip, it is uncertain as to whether it will cause a more significant drop.
Investors were quick to exit positions, just as optimism on the recovery was again overshadowing concerns over rising virus cases, especially in India and Japan.
It’s not clear yet whether losses will cascade on profit-taking in case the proposal becomes law. Treasuries captured only a small bid on the drop in risk appetite.
Uncertainties over the possible tax hike is likely to keep Wall Street nervous and choppy near term. Earnings will continue to be closely monitored.
The dollar has remained on softening tack, with the narrow trade-weighted DXY index reversing much of the gains seen yesterday. The low so far today is 91.01, which is 1 pip from yesterday’s low is at 91.00 and the seven-week nadir seen earlier in the week is at 90.86.
The 10-year U.S. Treasury yield ticked higher and then ticked lower, continuing to bump along near one-month-plus lows.
EUR-USD lifted to a high at 1.2063 on the back of the dollar’s weakening, extending a rebound from yesterday’s four-day low at 1.1993. USD-JPY remained heavy, testing the seven-week low that was pegged yesterday at 107.81. AUD-USD also rose, reversing most of Thursday’s decline, while USD-CAD printed a two-day low at 1.2468.
Oil prices lifted out of lows, with front-month WTI futures recouping to the $62.0 level, up from yesterday’s nine-day low at $60.62, but remaining some 2% down from week-ago levels. Base metals have also ticked higher today following recent weakness.
The pound lifted into the release of preliminary April PMI data out of the UK, with market participants recognizing there were good grounds to anticipate upside risk. The report duly smashed expectations, with the composite reading rising to seven-and-a-half-year high of 60.0 in the headline reading.
Cable posted a high at 1.3891, which more than retraced half of yesterday’s decline. UK retail sales also came much stronger than forecast, rising 5.4% in March in a sign that consumers are starting to unleash lockdown savings as Covid restrictions are lifted and confidence rises amid the sharp tumble in Covid cases the UK has seen. In other data, Eurozone preliminary PMI April PMI readings also beat forecasts.
Today’s calendar has Honeywell, American Express, Kimberly-Clark, Schlumberger, and Regions Financial.
Data is thin. March new home sales are on tap and are expected to rise to a 0.830 mln clip from 0.775 mln in February. April flash Markit manufacturing and services PMIs are also due.