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Morning Brief
UK retail sales figures beat market expectations and the most encouraging data point so far was month-on-month retail sales as they rose 5.4% in March, with a positive revision in the February data to 2.2%. Today’s retail figures are the largest increase since a record jump in June last year and show what will potentially keep happening going forward as the economy opens up fully out of these covid-19 restrictions.
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The GBPUSD looks set to test the 1.4000 level having found support in the recent range between 1.3700 to the big figure above. We have further data out today which could affect the price action, and we should wait for the UK PMI data and then the US PMI data before looking for any trading opportunities.
The ActivTrader sentiment indicator is relatively even so the mixed views are in line with the trading within the middle of the range we find ourselves in.
President Biden’s tax plans put the cat amongst the pigeons last night and the equities sell-off is indicative of who is likely to suffer financially should the tax rate hikes get passed. The wealth distribution from the richest to the poorest was part of the President’s manifesto and just days before the US election he took aim at the largest US corps. Citing Amazon and Netflix as the types of companies he will be targeting, saying in a tweet that “Let me be clear: Hardworking Americans should not be paying more in federal income taxes than Amazon or Netflix. It’s time for big corporations to finally pay their fair share.”
Whether or not the richest 1% would stand for a 40% tax rate on capital gains is to be seen and I am sure a lot of lobbying will be done in the coming days, weeks, and months.
What the moves last night do show is that the market is fragile and as with the USDCAD moves on the back of a hawkish BoC, these thinly traded markets will move dramatically.
The tax hike will not be put into place for some time so the market has time to adjust and the fact of the matter is there have been trillions of dollars pumped into the markets this last year or so, and a tax rate hike which may or may not remove some of those dollars, will if we are to believe President Biden be put back into the economy. So net-net, the fiscal spending should not be lower in the coming years. If anything, it looks still to rise and at least be at these current elevated levels.
The tax plan will try and deter companies from relocating or using foreign business and labour to avoid the tax, so there should not be a flight of dollars out of the country, as we recently saw the likes of Apple repatriate their enormous cash reserves back towards the USA under the Trump administration. If anything, the capital gains will hit middle America more and anyone who is becoming a 17-year-old Bitcoin millionaire in the next few months may want to consider keeping their gains locked in their crypto wallet.
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US equities dropped last night on the proposed tax news and this has put a pause on any major moves to the upside in the Nikkei and DAX though they are both above today’s opening prices, indicating we could end the week red across the major indices but not necessarily at the week’s lows.
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The US dollar index looks set to go lower now that it has found resistance at the 91.30 level having pushed dramatically lower through support. The next target for US dollar bears will be the swing low printed on March 3rd, 2021.
