Essential Insights 

  • Dollar Index fails to hold to earlier gains from European morning session, falling sharply from 92.48 to 92.20.
  • European and US equity bourses climb , with Japanese equities outperforming Asian peers.
  • Though covid-19 cases are dropping in developed countries, they remain high in developing countries – the battle is far from over
  • Tax hike rumours in the UK?

Japan vs Asian Equities + JPY

Warren Buffet , CEO of Berkshire Hathaway has bought more than 5% stakes in five leading Japanese trading firms (5% stakes in each company), causing the Nikkei to close up by more than 1% on the day, providing some elevation from last Friday which saw Japanese equities taking a beating following Prime Minister Shinzo Abe’s resignation. During a conversation with Bloomberg this morning, analysts at Blackrock expect good returns from Japanese tech companies. The JPY (Japanese Yen) reversed its sharp bid on Friday following the resignation, we mentioned this Japanese strength would be short lived due to it being highly unlikely that monetary/fiscal policy stances would be changed by Abe’s replacement.

US Equities 

US equity bourses performed well, continuing gains from last Friday. Though Microsoft and walmart shares slipped following a press release that revealed China could have the authority to block the sale of TikTok, whilst apple share gained a bid following its stock split 4 for 1. Generally speaking, market participants are growing more confident in the global economic recovery story supplemented by softer number in cases (at least in the domestic US side ) and vaccine developments , is propping US equity bourses up. Though note, there are key data releases this week such as NFP and unemployment rates to be aware of, providing a better clue as to the current recovery in the US economy. Coupled with this, central banks , especially the FED have made their supportive long term stances clear with low interest rate environments that corporate entities will be able to take advantage of in terms of borrowing and paying lower interest.

UK 

Rumours have arose that UK chancellor Sunak is planning on rising taxes as part of budget plans, this was immediately slammed by UK Tories. The challenge Sunak has is to continue supporting the UK economy whilst managing a £2 Trillion national debt, a historical never seen before level. It is rumoured this tax hike would target corporate companies, increasing taxes from 19% to 24%, which could result in a £20 billion contribution annually. It is worth noting that there are other considerations on the table too such as capital gains tax, incoming tax and raising fuel duties.

John Redwood, a Tory MP and former cabinet minister said :

“You cannot tax your way to faster growth and more prosperity,” Redwood said on Twitter. We need policies to promote more jobs and activity to get the deficit down.”

Conservative Member of Parliament Marcus Fysh tweeted

“Tax rises are the wrong response to the current situation, we need to help the economy not strangle it.”

Sunak’s deputy, Steve Barclay , though did not address the backlash directly or acknowledge the reports around tax hikes, said:

“The real objective is reduce the economic scarring from Covid, What we’re focused on is how do we get the economy firing up again.”

The FTSE 100 could be in for a harsh battering if these rumours are confirmed as a legitimate consideration by Sunak, companies are already trying to recover from the economic fall out from Covid-19 , will have to prepare for a no-deal Brexit scenario and now face higher tax rates. It is going to be particularly damaging for small businesses that are relying on government funding.