Biden’s tax proposal sends markets tumbling

President Joe Biden announced a proposed tax increase which would see capital gains tax almost doubled to 39.6% for people earning more than $1m while increasing the top marginal income tax rate to 39.6% from 37%. While this was always considered a possibility with a democratic presidency, investors did not respond kindly to this news and global stocks have pulled back with a return to risk-off moods today. Global indices have retreated from recent highs while Cryptocurrencies appear to have taken the largest hits with Bitcoin price dropping below the key $50,000 mark and reaching the lowest level since the beginning of March at around $48,000. While the reaction to the US tax hike news has been significant, it is important to remember that the proposal will most likely be met with resistance by Republicans and may even be opposed by some Democrats holding marginal seats and this could threaten its rollout given the slim Democrat majority in the house. This could lead to a situation where the actual implemented tax raise is lower than what is currently being proposed in an effort to compromise with other lawmakers.   

European Flash PMI data beats expectations 

Today’s Flash PMI readings were expected to show a slight increase from the previous reading but managed to exceed expectations indicating better than expected economic conditions. The biggest surprise seems to be a big jump in French services PMI with the gauge returning above the 50 threshold and reaching expansion territory. While the German services reading disappointed, it remained above 50, signalling that the sector continued to expand in April despite the recent lockdowns further made worse by a shortage in vaccine supplies in mainland Europe. Shortly after we also received the UK readings which managed to exceed expectations despite the lockdown being eased just recently. As we await the US readings this afternoon, it will be essential to keep an eye on those to see if they will echo the readings from Europe this morning or if they will paint a different picture of the ongoing pandemic recovery which could be impacted as news emerges of record increases in new cases in India and other countries.