Latest news with #USMarkets
Bloomberg
2 days ago
- Business
- Bloomberg
Trump ‘Revenge' Tax Would Cut Foreign Investment, Congressional Panel Says
Congress's own official tax scorekeeper is predicting a 'revenge' tax buried in Donald Trump's massive fiscal package would realize Wall Street's fears and drive foreign investors away from US markets. The item — introduced in legislation that passed the House last week as Section 899 — would increase tax rates for individuals and companies from countries whose tax policies the US deems 'discriminatory.' This includes raising tax rates on passive income, such as interest and dividends, earned by investors who are potentially sitting on trillions in American assets.
Forbes
3 days ago
- Business
- Forbes
The End Of Privilege - Has The Dollar Peaked And Can The Euro Replace It
A bunch of American dollars banknotes (1$), US, circa 1985. (Photo by) In the last week, I have fielded questions from audiences in Frankfurt and Dublin on the net effect of Donald Trump's economic policies on investment portfolios. Such is the day to day rhythm of policy chaos that many investors likely overestimate the effect of Trump on markets, and the oddity is that as I write, US equity and bond markets are at roughly the same levels they traded at in March….though investor confidence has taken a battering. Indeed, the luxury of financial markets is that some of the risks that Trump has unleashed can be hedged, whereas it is harder for societies, economies, and the body politic to offset the implications of his behaviour on foreign direct investment flows and the quality of political debate for example. From an investment point of view, I term the net effect of Trump on portfolios as 'The End of Privilege' which is to say that the idea of US assets in general and the dollar in particular befitting from what Giscard d'Estaing had famously referred to as 'exorbitant privilege' is coming to a slow end. In concrete terms we can expect investors to question the role of US Treasuries as a safe haven, and for the dollar to slowly weaken (from a very expensive level) over time. The set of economic policies that Trump is pursuing are confusing and damaging to long term American growth and the fabric of its society (his 'big, beautiful' budget bill will disproportionately favour wealthy over poorer households). Moreover, any sense of accountability has been snuffed out and corruption is shamelessly creeping into public life (Evan Osnos' article in the New Yorker on this topic is excellent). In short, America risks taking on the economic traits of a badly run emerging economy (look at how the Turkish lira and bond market have performed in the past five years as an extreme comparison). To take the long view, Trump has decisively smashed the Bretton Woods system that had elevated the US financial system to be first amongst equals. The Bretton Woods conference was a tussle between Britain and America to shape the new world financial order and with it, bodies like the IMF. The US was very much the winner, and effectively the meeting formalised the transfer of 'world power' from Britain to the US, or as Keynes (Britain's chief negotiator) wrote to his mother 'In another year's time we shall have forfeited the claim we had staked out in the New World and in exchange this country will be mortgaged to America'. Keynes job was to negotiate a deal for Britain that would rescue it from 'losing face altogether and appearing to capitulate completely to dollar diplomacy.' From this point onwards, American financial dominance grew, manifested in the broad international use of its currency which has risen to a very particular place as the linchpin of the financial system. Indeed, one of the most important tenets of the twentieth-century world order and the rise of globalization has been the position of the dollar as the international reserve currency. The dollar has become so important to the financial system, that two economists (Pierre-Olivier Gourinchas and Hélène Rey) have taken the notion of 'exorbitant privilege' a step further in a relatively recent paper, and introduced the idea of 'exorbitant duty', which refers to the role that the dollar and US financial system play in times of crisis as the provider of a safe haven, even when those crises emanate from the US itself. Alarmingly, there is a section in the trump budget (sec. 899) that permits the administration to tax holders of US assets in certain circumstances, which can only erode confidence further. The question then is which assets and currencies stand to benefit from a less 'privileged dollar'. First, my sense is that when something goes wrong in emerging countries like Turkey, capital flows to countries like Switzerland (simply because much of it is held by a small number of individuals). As far as much greater institutional flows are concerned, the obvious destination should be the euro-zone. But, this is not the case. At the end of 2024, I spent a week in Singapore and also the UAE and was surprised by the number of investors who considered the euro-zone as barely investable, this might reflect some ignorance on their part, but it is also redolent of a greater problem of international credibility for the euro-zone. In that context I was interested to see that Christine Lagarde, the president of the ECB gave a very good speech on currencies in Berlin on Monday 26th, entitled 'Earning Influence – lessons from the history of international currencies'. In the speech she noted three properties of dominant currencies – they are issued by large economies (zones), they have deep pools of financial assets which foreigners can buy and they are backed by sound legal systems. There are two important contemporaneous facets to the speech – the first is the expectation that the actions of the Trump administration will structurally weaken the dollar and the second is the very grown-up admission by the ECB president that the euro-zone (Bulgaria will become a member in 2026) has failed to deepen its capital markets and become the provider of safe assets in an increasingly unsafe world. The backdrop to these comments is a renewed push by the euro-zone on capital markets union, or the savings and investment union (SIU) as it is now called. In essence it has three components – single regulators across EU financial services, the creation of poles of expertise in different EU financial capitals (i.e. Amsterdam is the equity hub, Paris is where PE is, etc) and the sanctioning of retail savings and pensions flows into private assets. In many respects, SIU is a strange phenomenon – a policy critical to the future of Europe that most Europeans have very little attention span for (who would blame them). Apart from the releasing of hundreds of billions of euros in German savings banks for example, into private and private investments, what Europe also needs is a structural shift in the appetite for risk. For that to happen, we might need a European Donald Trump.
Bloomberg
23-05-2025
- Business
- Bloomberg
Ed Yardeni Says It's Not as Bad as You Think
Think it's all over for US markets? Think they're finally going to sink under high valuations, inflated expectations and now a nervous bond market? Maybe think again, says Ed Yardeni of the eponymous firm Yardeni Research, who joins this week's Merryn Talks Money.
Reuters
23-05-2025
- Business
- Reuters
Pound trades at highest since early 2022, boosted by unease over US assets
LONDON, May 23 (Reuters) - The pound traded at its highest in over three years on Friday, heading for its largest weekly gain against the dollar since early April, thanks in part to unexpectedly robust UK retail sales data and to ongoing investor unease around U.S. assets. Sunny weather boosted British consumer spending in April. Retail sales volumes jumped by 1.2% month-on-month, the Office for National Statistics said on Friday after a downwardly revised 0.1% increase in March. Economists had forecast a rise of 0.2%. Sterling has gained 1.5% this week and on Friday hit a high of $1.3468, the most since February 24, 2022, when Russia invaded Ukraine, sparking a global flood of money into safe-havens like the dollar. Just over three years later and the investor nervousness about the outlook for the global economy that would normally have funnelled cash into the dollar is sucking capital out of U.S. markets, which are now the epicentre of the uncertainty. U.S. President Donald Trump's erratic application of hefty tariffs on trading partners - even with the pauses and outlines of deals that have ensued - have generated the most uncertainty among investors in years. To boot, Trump's sweeping tax and spending bill that will strain U.S. government finances even further by adding trillions of dollars in debt, has made investors wary of long-dated government bonds, even those outside elsewhere, such as UK gilts. Higher gilt yields have made sterling more attractive to non-UK investors, but the concerns around public finances mean Britain has the highest government borrowing rates in the developed world, with 30-year gilt yields topping 5.5% on Friday, despite news that energy bills were set to drop. "This is a sign that the market remains wary of lending to the UK while the government still does not have control of public spending, even if the decline in the energy price cap is adding downward pressure on short term yields this morning," Kathleen Brooks, XTB research director, said. "The bond market has dictated UK fiscal policy before, and it could do so again now that bond markets remain volatile." Further underpinning sterling this week was Britain agreeing the most significant reset of ties with the European Union since Brexit on Monday, removing some trade barriers and collaborating on defence but also touching on sensitive issues including fishing rights. Data on Wednesday that showed UK consumer inflation picked up faster than expected in April, thereby reducing the Bank of England's ability to quickly cut rates to protect growth. The futures market shows traders see UK rates falling by around 38 basis points by the end of this year, which would imply one quarter-point cut and a roughly 50/50 chance of a second, compared with 50-bp drops in both U.S. and euro zone interest rates in that time.
Reuters
22-05-2025
- Business
- Reuters
Morning Bid: Hammer comes down
LONDON, May 22 (Reuters) - What matters in U.S. and global markets today By Mike Dolan, opens new tab, Editor-At-Large, Financial Industry and Financial Markets Bond markets creaked again after the hammer came down on a lukewarm sale of 20-year U.S. Treasuries on Wednesday with President Donald Trump's sweeping tax and spending bill clearing a crucial hurdle overnight. n today's column, I discuss how a long-standing trend of U.S. corporations acting as cash-rich net lenders might reverse due to increased investment in AI and re-industrialisation efforts, opens new tab , potentially creating new competition for funds with ever-expanding U.S. government borrowing. But now onto all the market news. Today's Market Minute * U.S. President Donald Trump's sweeping tax and spending bill cleared a crucial hurdle on Thursday, as the House of Representatives voted roughly along party lines to begin a debate that would lead to a vote on passage later in the morning. * Foreign investors could once barely imagine that China would invade neighbouring Taiwan, but with Donald Trump as president of the United States, many view it as a tail-risk scenario they must prepare for, although they cannot find ways to do so. * Stocks and the U.S. dollar fell on Thursday, while longer-dated Treasury yields steadied near their highest in 18 months as worries of a worsening fiscal outlook in the world's biggest economy remained at the top of investors' minds. * Bitcoin rose to its highest level on record on Wednesday, eclipsing the previous high from January, as risk sentiment continues to improve after last month's tariff-induced selloff. * Oil prices fell more than 1% on Thursday following a report that OPEC+ is discussing a production increase for July, stoking concerns any potential increase in global supply would exceed demand growth. * Solar farms are set for a record stretch of power sector dominance in Germany after becoming the single largest generation source in the country at the earliest point of the year ever. Hammer comes down Markets fear the bill will bake in elevated deficits and rising debt piles over the remainder of the administration's term at least. The proposed legislation lifts the $36.2 trillion debt mountain by another $3.8 trillion over the next decade, according to the nonpartisan Congressional Budget Office. Lawmakers were due to vote again to pass the measure later today and send it on to the Republican-led Senate, which could take weeks to act. And it was not yet clear whether House Speaker Mike Johnson would secure the necessary support from his own narrow 220-212 seat Republican majority. But bond markets are getting restive, as the poor 20-year auction displayed. The U.S. 30-year yield reached 5.108%, its highest since October 2023, and the 20-year yield hit 5.126%, its highest since November 2023. The 30-year 'long bond' yield is now just 7 basis points from 2023's peaks. A break above that would put it at its highest since the 2007 banking crash unfolded - a shock which forced the Federal Reserve to spend years in bond buying support. Trouble at the long end of the Treasury market was reflected in government bond markets around the world, with Japan still grappling with surging ultra-long yields to record levels too and Britain's 30-year yield hitting its highest since April's volatility. Bank of Japan board member Asahi Noguchi said on Thursday he saw no need for the central bank to intervene in the bond market to stem recent sharp rises in super-long yields, describing the moves as "rapid but not abnormal". Compounded by aggravated inflation readings and tariff-related price concerns, the debt worries unnerved stock markets again too. Wall Street stock indexes (.SPX), opens new tab fell back more than 1% on Wednesday and markets in Asia and Europe were all lower earlier today. There was some respite from crude oil prices, however. U.S. benchmark retreated 1% after a report that OPEC+ is discussing a production increase for July, stoking speculation that global supply could exceed demand growth. The dollar (.DXY), opens new tab got a modest lift meantime as signals from the G7 finance chiefs in Canada suggested Washington held back from demanding a higher yen in bilateral trade talks with Japan, as some pre-meeting speculation had fretted about. U.S. Treasury Secretary Scott Bessent and Japanese Finance Minister Katsunobu Kato issued a statement on Wednesday that the dollar-yen exchange rate currently reflects fundamentals, a rare and explicit statement on the prevailing market situation. Bessent and Kato "reaffirmed their shared belief that exchange rates should be market determined and that, at present, the dollar-yen exchange rate reflects fundamentals", the Treasury Department said in a statement. The somewhat contradictory statement also said that they did not discuss foreign exchange levels. On Wednesday, South Korea's won rose sharply against the dollar after a media report that Washington had demanded that Seoul come up with measures to boost the won as part of any trade deal. The won gave up most of those gains today, however. Elsewhere, attention was on worldwide business surveys for May. Composite readings for euro zone and Japanese firms showed activity there unexpectedly slipping back into contractionary mode this month, due largely to fresh weakness among service sector companies. U.S. equivalents are due out later, along with weekly jobless numbers. Be sure to check out today's column, which looks at potential rumblings in U.S. government debt markets from the perspective of domestic U.S. corporate demand for credit going forward. Chart of the day Longer-dated U.S. Treasury yields climbed again after a $16 billion sale of 20-year bonds on Wednesday met lukewarm demand from investors just as Congress thrashed out the details of Donald Trump's fiscal bill. With long-term debt yields rising across the world, investors are concerned about mounting deficits, debt piles and tariff-related inflation risks. The New York Fed's estimate of the 10-year term premium - the compensation investors demand for holding 10-year debt to maturity as opposed to just rolling over short-term securities - is close to its highest in more than a decade and almost twice its 20-year average. Today's events to watch * U.S. weekly jobless claims (0830EDT), flash May manufacturing surveys from S&PGlobal(0945EDT), Kansas City Federal Reserve May manufacturing survey (1100EDT), April existing home sales (1000EDT); Canada April producer prices (0830EDT) * U.S. Treasury sells 10-year inflation-protected securities * G7 finance ministers and central bankers meet in Banff in Alberta, Canada * New York Federal Reserve President John Williams and Richmond Fed President Thomas Barkin speak; European Central Bank Vice President Luis de Guindos speaks; Bank of England Chief Economist Huw Pill speaks * U.S. corporate earnings: Analog, Autodesk, Copart, Deckers, Intuit, Ralph Lauren, Ross, Workday Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, opens new tab, is committed to integrity, independence, and freedom from bias.
