Aurelia Butler

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NEW YORK (Reuters) -Wall Street is anticipating a hit to corporate earnings and the stock market if Democratic presidential candidate Kamala Harris wins in November and enacts promised tax increases. Tax policy has emerged as a key focus for investors ahead of the Nov. 5 election. Republican candidate and former President Donald Trump and Harris, who debate on Tuesday night, are in a statistical dead heat. Wealth advisers say they have been fielding questions from investors about how to prepare for potential changes. “Tax policy is a huge, huge concern for investors,” said chief investment officer Yung-Yu Ma of BMO U.S. Wealth Management, which is hearing questions from clients across the country about potential tax hikes. “Tax policy is something that is front and center in this election.” For Wall Street, the greatest attention is on corporate earnings and capital gains taxes. Trump cut the corporate tax rate to 21% from 35% during his presidency and last week said he favors cutting it to 15% for companies that make their products in the U.S. Harris, meanwhile, last month outlined plans to raise the corporate tax rate to 28% from 21%, to ensure “big corporations pay their fair share,” as they are “often paying a lower tax rate than our teachers and our nurses and our firefighters.” Goldman Sachs analysts said in a note last week that at Harris’ 28% rate, earnings of S&P 500 companies would take a 5% hit while Trump’s proposed cut would boost them about 4%.Ma said that higher taxes would mean lower corporate profits and lower stock valuations. “Essentially, what you have is the likelihood of a significant pullback in the stock market due to higher taxes,” said Ma.The winner will still need congressional approval for tax law changes. Trump’s campaign said Harris’ tax plan includes a large tax hike and would add to the national debt. It did not comment on how Trump’s plan would impact the deficit. The Harris campaign did not immediately respond to requests for comment. In a memo reviewed by Reuters, Brian Nelson, the Harris campaign’s senior policy advisor, said Trump’s proposal would give “massive tax windfalls” to “billionaires and big corporations.” CAPITAL GAINSAnother investor concern is that Harris’ higher capital gains tax, which is levied on profits from selling an asset held for more than a year, will eat into clients’ net gains.The Democrat last week proposed raising the capital gains rate for people earning above $1 million to 28%, lower than President Joe Biden’s plan of 39.6%. Trump has not announced any plans to change it from a maximum 20%.“In terms of revenue for the government, capital gains tax hikes have typically under-delivered,” said Brian Gardner, chief Washington policy strategist at investment bank Stifel. “But it would be a broad negative for the market. How much is tough to say.”Morgan Stanley said in a note last week that the correlation between capital gains taxes and stock market performance is statistically insignificant, but the tax debate could drive volatility in equity markets in the near term. If capital gains taxes go up a lot, investors are likely to more aggressively use tax-minimizing trading strategies, said a wealth management executive at a large bank who declined to be named.OVERALL ECONOMIC IMPACTA Trump presidency is seen by the market as stoking inflation and raising the U.S. federal budget deficit, which would spur more Treasury debt issuance.“All the models seem to believe that Trump would increase deficits by more than Harris,” said Bruce Mehlman, partner at bipartisan government relations firm Mehlman Consulting.“Businesses and corporations prefer lower than higher taxes. But there is just general recognition that sooner or later, we’re going to have a debt crisis.”Goldman Sachs has said the broader economy would get the biggest boost in the next two years if Democrats win the White House and Congress. New federal government spending and expanded middle-income tax credits would more than offset by a slight margin lower investment caused by higher corporate tax rates, it said.Economic output would take a hit next year under a Republican administration, mostly as a result of Trump’s proposals for higher import tariffs and tighter immigration policies, Goldman has said. INDIVIDUAL TAXESNext year, parts of the Tax Cuts and Jobs Act, signed by Trump in 2018, expire. It cut taxes for both corporations and individuals but the wealthiest households and big businesses benefited disproportionately.Trump intends to extend those cuts, and he has floated the idea of replacing personal income taxes with tariffs. Harris has said she would leave the tax cuts in place only for people earning less than $400,000 a year.”That current tax law sunsetting at the end of next year is at the center of so many questions we’re fielding from clients,” said Nicole Webb, senior vice president at financial planning firm Wealth Enhancement. “It’s on the forefront of a lot of people’s minds.” More

BEIJING (Reuters) -China’s exports grew at their fastest pace in nearly 1-1/2 years in August, suggesting manufacturers are rushing out orders ahead of tariffs expected from a growing number of trade partners, while imports disappointed amid weak domestic demand.The mixed trade data highlights the challenge facing Beijing as policymakers try to bolster overall growth without becoming too reliant on exports, especially given the tightening of consumers’ purse strings.China’s economy has failed to fire over the past year amid a prolonged property sector downturn, and a survey last week showed exports in the doldrums and factory gate prices at their worst in 14 months, pointing to producers slashing prices to find buyers.Outbound shipments from the world’s second-largest economy grew 8.7% year-on-year in value last month, the quickest since March 2023, customs data showed on Tuesday, beating a forecast 6.5% increase in a Reuters poll of economists and a 7% rise in July.But imports increased by just 0.5%, missing expectations for a 2% boost and down from the 7.2% growth a month prior.”The strong export performance and trade surplus are favourable to economic growth in the third quarter and whole year,” said Zhou Maohua, a macroeconomic researcher at China Everbright (OTC:CHFFF) Bank.”However, the global economic and geopolitical environment is complicated and China’s exports face a lot of headwinds.”Economists have warned that Beijing risks undershooting its growth target if it becomes too reliant on exports, following a series of lacklustre data, raising pressure on policymakers for more stimulus to revive China’s economy.”The continued strong run of exports may actually delay near-term policy support, and we continue to expect bolder measures to be released in Q4,” Nomura analysts said in a note.Outbound shipments to the European Union grew 13.4% in August year-on-year, which represented the biggest increase out of China’s major export markets, followed by an 8.8% lift in sales to the Southeast Asian economies. Chinese exports to the U.S. rose by just an annual 4.9% last month but imports grew 12.2% over the same period, the most of any major import market.TRADE BARRIERSMounting trade barriers are emerging as another significant obstacle, threatening China’s price-driven export momentum.China’s trade surplus with the United States widened to $33.81 billion in August from $30.84 billion in July. Washington has repeatedly highlighted the surplus as evidence of the one-sided trade favouring the Chinese economy.Brussels’ trade policy has turned more protective too, and Beijing’s efforts to negotiate with the EU to ease tariffs on Chinese electric vehicles (EVs) have made little headway.Last month Canada announced a 100% tariff on Chinese EVs, along with a 25% tariff on Chinese steel and aluminium.As China attempts to direct more exports towards Southeast Asia and South Asia, it is also facing pushback there. India is planning to raise tariffs on Chinese steel, Indonesia is eyeing heavy duties on textile imports, and Malaysia opened anti-dumping investigations into plastic imports from China and Indonesia.Still, some analysts expect outbound shipments to ride out the storm, given the relative inexpensiveness of China’s yuan and the relative ease with which exporters can re-route their wares to avoid tariffs.”Outbound shipments are likely to remain strong in the coming months. Admittedly, more barriers are being erected,” said Zichun Huang, China Economist at Capital Economics.”We doubt the tariffs announced so far will prevent real effective exchange rate declines from fuelling further gains in China’s global export market share,” she added. SLOW IMPORTS The lower-than-expected imports might not bode well for exports in the coming months, as just under a third of China’s purchases are parts for re-export, particularly in the electronics sector.China’s commodities purchases also pointed to a bleak domestic picture, with iron ore imports down 4.73% last month from a year earlier, as weak demand in the country’s construction sector pinched steelmakers.Furthermore, while China bought in a record 12.14 million metric tons of soybeans in August, there were ominous signs for the production powerhouse’s future export performance.Analysts say the buying spree was motivated by traders taking advantage of lower prices to stock up amid concerns that trade tensions with the U.S. could intensify if Donald Trump returns to the White House next year.On the whole, while August exports were positive for growth, “it is still uncertain if this momentum can last,” said Lynn Song, ING’s chief economist for China.”Aside from incoming tariffs and the sluggish export orders data of the last few months, if global growth momentum begins to slow too, this could also drag export momentum.”  More

OTTAWA, Sept 10 (Reuters) – Global trade disruptions could make it harder for the Bank of Canada to consistently meet its 2% inflation target, and it will have to balance the risks of controlling higher prices with ensuring economic growth, Governor Tiff Macklem said on Tuesday.Inflation in Canada has been consistently falling this year, pushed down by interest rates that were at a two-decade high of 5% for more than a year before the central bank cut rates three times in a row from June.Macklem said with globalization slowing, the cost of global goods might not decline to the same degree and this could put more upward pressure on inflation. “Trade disruptions may also increase the variability of inflation,” he said in a speech to the Canada-UK Chamber of Commerce in London, citing the effect that supply shocks can have on prices.”Trade disruptions may mean larger deviations of inflation from the 2% target.”This means the bank is focusing on risk management to balance inflation and growth and investing to better understand global supply chains, he said.Overall inflation in Canada in July fell to a 40-month low of 2.5%.Canada is a small open economy which relies heavily on trade and is therefore particularly vulnerable to disruptions.Supply shocks such as the one seen during the pandemic are creating a difficult trade-off for central banks since monetary policy cannot stabilize growth and inflation at the same time, Macklem said.”We’re updating our models to use scenarios when periods of uncertainty make central forecasts less reliable,” said Macklem, adding that the bank was using more micro-data to track and understand the consequences of trade and industrial policy.Canada needs to be ready for the trade disruptions that seem inevitable amid a changing trade landscape, he said. It has to ensure inflation is “low, stable and predictable even as global trade is being rewired, recast and redirected.”He said while the BoC does not set trade policy, it needs to understand shifts in global trade because they affect Canadians and drive costs and inflation. The BoC in June became the first G7 central bank start to trim borrowing costs as inflation continued to stay within its target range of 1-3% since this year. The bank has cut its key policy rate by 75 basis point to 4.25% this year. (Reuters editorial)((Reuters Ottawa bureau, [email protected])) More

LONDON (Reuters) – Global shares dipped on Tuesday, struggling to draw momentum from a rally on Wall Street as concerns about faltering economic growth dampened investor sentiment, which also weighed on oil. Data from China showed exports grew at their fastest since March 2023 in August, suggesting manufacturers were rushing out orders ahead of tariffs expected from a number of trade partners, while imports missed forecasts amid weak domestic demand.That followed Monday’s inflation figures that pointed to still-fragile domestic demand as producer price deflation worsened, keeping alive calls for further stimulus from Beijing to shore up its economy.This took a chunk out of Asian shares, as well as commodities such as copper and crude.Across the broader equity market, MSCI’s All-World index was flat, reflecting modest gains in Europe, where the STOXX 600 fell 0.3% and as U.S. stock futures tilted into negative territory.Investors are anticipating a series of rapid interest rate cuts from the Federal Reserve in the coming months, after last week’s U.S. jobs report painted a picture of a labour market that was slowing. “Markets are now on hard-landing alert essentially and we’ve seen a return to ‘good news is good news’,” Investec chief economist Philip Shaw said.Stocks had traded at record highs just two weeks ago, as expectations built for the Fed to deliver some fresh stimulus to the economy by cutting borrowing costs. But with the all-important labour market slowing, activity across the manufacturing sector in contraction and inflation subsiding, the mood has shifted.Futures show traders are banking on U.S. rates dropping by a full percentage point by the end of the year, with a near-30% chance of a half-point cut coming as early as next week, according to CME’s Fedwatch tool.Wall Street had staged an impressive rebound in the previous session, after all three major U.S. stock indexes surged more than 1%, recovering from last week’s selloff.Later on Tuesday, Democrat Kamala Harris and Republican Donald Trump will debate for the first time ahead of the presidential election on Nov. 5, with the two locked in a tight race.THE CASE FOR CUTSInvestors now turn their attention to Wednesday’s U.S. inflation report, which could provide more clarity on whether the Federal Reserve would deliver an outsized 50-basis-point cut when it meets next week.”(Inflation) numbers have been pretty critical over past few months, but it is arguably less this time around. Markets have it firmly established in their minds that price pressures are easing back. What matters more are the projected trends in U.S. economy and the extent to which activity holds up or slows down,” Investec’s Shaw said.Expectations are for headline inflation in the United States to have slowed to an annual rate of 2.6% in August, compared with July’s 2.9%.”If the inflation number is any different, or significantly different from expectations, then the number of rate cuts (priced in) will be changed,” Jun Bei Liu, a portfolio manager at Tribeca Investment Partners, said.”At the moment, I think the market is reasonably aggressive in pricing quite a lot this side of the year, and so that probably opens up for a bit more … volatility that we have seen in the last couple of weeks.”Oil, which has lost nearly 20% in the last two months alone, driven by concern about global energy demand, was down another 1% at $71.13 a barrel.Copper futures fell 0.2% to $9,076 a tonne, while iron ore futures dropped 0.5% to $91.30 a tonne, after data showed a drop in Chinese imports. In currencies, the U.S. dollar surrendered earlier gains against the yen to fall 0.1% to 143.03. The euro was flat at $1.10323, while sterling rose 0.2% to $1.3095. Data earlier showed UK wage growth cooled in the three months to July but remained above 5%. More

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