The U.S. replaces France to get its hands on power in steering the market.
As the US government is faced with the risk of coming to a standstill, US President Donald Trump vows to make “the tax reform plan pay for itself with economic growth”. Trump’s tax reform plan might be released on Wednesday (local time). Analysts believe that the US dollar and US stocks might plunge if the anticipating tax reform plan disappoints the market again.
Corporate income tax rate cut to 15 pct
As reported by the Wall Street Journal, Trump requires to cut corporate income tax rate from the current 35 percent to 15 percent to be in line with his campaign promises.
US Treasury Secretary Steven Mnuchin claimed on the press conference held in the White House on Monday that corporate tax reform will make the US business taxes more competitive and encourage US firms to repatriate trillions of US dollars back to the U.S.
As to the reform of individual income tax, Mnuchin claimed that there will be a big tax cut for the middle class, and the tax system will be largely simplified to let the US people file taxes on a “large postcard”. The Trump Administration can advance the economy to achieve a sustainable growth over 3 percent by implementing tax reform and relaxing supervision.
Considering that the tax reform plan to be released soon will boost investors’ confidence and risk preference, and results of the first round of French presidential election are known, political uncertainties decrease and stock markets in the Europe and the U.S. all rose on Monday. The Dow Jones Industrial Average and the S&P 500 closed up 1.05 percent and 1.08 percent, respectively, and the Nasdaq Composite Index closed up 1.24 percent to a historical new high.
Boosted by the rising stock markets in the Europe and the U.S., stock markets in the Asian-Pacific region all closed up too on Tuesday (April 25). The Nikkei225 Index, the Korea Composite Stock Price Index (KOSPI), the TSEC Weighted Index in Taiwan, China and the Hang Seng Index in Hong Kong, China surged 1.08 percent, 1.06 percent, 1.27 percent and 1.31 percent, respectively.
Be vigilant against “strong in will but weak in power”
Trump claimed last Friday that he hoped that Obamacare issue can be addressed and big tax reform plan can be released this week. In the meantime, the US government might “come to a standstill” this Friday.
Reuters believed that the market will be more confident and investors will be rosy about further progress of tax cut and infrastructure expenditure plans in the future if Trump can successfully settle the three issues. But the whole market will be disappointed if Trump is “strong in will but weak in power” on implementing these measures.
David Bloom, global head of foreign exchange strategy at HSBC, claimed that few achievements have been made by Trump after he assumed office, and Trump is constantly suspected of being whether able to implement the policies. It might mark that weaker US dollar enters a new stage. In fact, people anticipating tax reform might have to wait for very long time since Trump once claimed that tax reform won’t be put into practice before Obamacare issue is addressed. Funds are needed.
“The victory of Trump in presidential election means the victory of Populism, but up to now Trump is still far from effectively advancing his own or others’ plans. The political situation in the U.S. and France has two meanings. Anyway, central banks remain to be “adult in the room” and they are supposed to stabilize the market. But efforts made by the European Central Bank and the Federal Reserve in the U.S. in resuming normal monetary policy stance are threatened. The valuation of stock markets might constantly decline to mirror dislocation of political functions after tension in France is eased and excitement in the U.S. fades away”, James Saft, columnist with Reuters, wrote in an article.
Translated by Jennifer
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