DUBAI
The tax overhaul is likely to provide additional boost to US equities, which are already at their record high.
A sweeping legislation, which is expected to go to vote on Tuesday, is likely to overhaul the taxation system in the US. The corporate tax will be cut to 21 per cent from the earlier 35 per cent is one of the few the changes proposed under the new legislation, that would deliver $1.5 trillion in tax cuts over a decade.
Market participants say the tax cut will feed in the earnings growth of companies in the near-term, providing the continued underlying support to US equities. Earnings growth could exceed 15 per cent on year in 2018, if the corporate tax cut is fully phased in, according to UBS, which manages $2.8 trillion of clients money.
“The tax reform package could drive a further 6-10 per cent rise in corporate profits, comprised of a lower tax rate and the redeployment of overseas cash into higher returning assets,” Chief Investment Office wealth management of UBS said.
“Faster economic growth as a result of the tax cuts could also drive an increase in interest rates, which would benefit financial sector profits,” the UBS said in a monthly outlook.
Record spree
The Dow Jones Industrial Average has been on a record breaking spree due to higher than expected growth, and on the back of Trump Trades triggered by hopes of more than expected spending on infrastructure amid record low interest rates.
The DJIA has gained nearly 25 per cent since the start of the year, and on Friday the index hit another record at 24,689. The S&P 500 also managed to hit another record of 2,680, after gaining nearly 20 per cent since January.
Vaqar Zuberi, head of Hedge Funds at Mirabaud Asset Management said the US equities markets are riding a wave of strong growth in corporate profits, healthy levels of employment, continued low interest rates, and the potential of tax reform.
“Should the bill pass as expected, US equities markets are likely to respond positively, but with limited gains given the already substantial gains this year,” Zuberi said.
Volatility ebbs in Bitcoin
DUBAI: Volatility in Bitcoin prices, which is notorious for their wild swings, has ebbed with the introduction of future contracts.
Bitcoin prices, according to coindesk.com, was at $19,569.10, after trading in the range of $18,927.25-$19,593.74, far cry from the normal difference of $2,000 between the upper and the lower end of the range.
In the CBOE futures, narrowing spreads in the near and far month contracts also indicates falling volatility.
On Friday, the difference between January and February contract was at $100, which at one point was as high as $2000.
“This confirms that the volatility has eased off massively and in the coming days, we would not be shocked if the margin requirements are even lowered and the transaction cost reduced,” said Naeem Aslam, chief market analyst with Think Markets in London.
— S.S.M.
