Reports of Joe Biden’s tax hike plans unsettled markets, but stock futures are regaining a measure of composure this morning. Crypto prices are slumping, with Bitcoin dipping below $50,000. Pat Gelsinger’s first quarterly report as CEO of Intel (NASDAQ:INTC) was a mild disappointment. New home sales data are due, along with earnings from Honeywell, Kimberly-Clark (NYSE:KMB) and Schlumberger. And Russia becomes the latest big emerging market central bank to raise interest rates aggressively to rein in inflation. Here’s what you need to know in financial markets on Friday, April 23rd.
1. Markets unsettled by tax hike report
Stocks faltered in response to reports that the U.S. administration is planning to increase capital gains taxes on wealthier investors in its next package of economic measures.
Bloomberg reported that the marginal rate of capital gains tax could rise to 39.6%, compared to a current base rate of 20%, and would only apply to those earning more than $1 million a year.
President Joe Biden had campaigned last year on a platform of taxing labor and capital more equally, and plans to reverse a key element of his predecessor’s 2017 tax cuts do not come as a surprise. They nonetheless prompted fears that investors could liquidate current stock holdings in the near to medium-term to lock in a lower tax rate on their gains.
A further implication of the plans, according to Bloomberg, was the end of the so-called carried interest benefit for private equity, which may weaken PE’s ability to offer chunky buyouts to publicly owned companies.
2. Intel's report hints at a long road back to primacy
Intel stock fell after the chipmaker reported disappointing guidance for the current quarter, which hinted at a loss of market share in the key segment of data center chips.
Reporting for the first time under new CEO Pat Gelsinger, the company said it expects to earn only $1.05 a share, rather than the $1.09 average forecast, a foretaste of the pressure on margins to come as Intel spends heavily to build new capacity.
The company echoed warnings from Taiwan Semiconductor Manufacturing that the global shortage of chips is likely to run at least into 2022.
Among chip buyers, Audi followed Volvo and Hyundai this week in warning that the shortage is likely to hit production of new vehicles. However, the prospect of higher input costs didn’t stop
Germany’s Daimler (OTC:DMLRY) from raising its operating margin target to 10%-12% from 8%-10% previously for its main car and van unit.
3. Stocks set to bounce a little; Honeywell, Kimberly-Clark, Schlumberger due to report
U.S. stocks are set to open moderately higher Friday as the market regains a measure of composure after the ‘shock’ of the looming tax hike.
The data calendar is headed by new home sales data (which come on the heels of a second straight drop in existing home sales on Thursday) and IHS Markit’s purchasing managers index for the U.S. European PMIs released earlier turned out stronger than expected, with the services sector signaling growth for the first time since September.
4. Bitcoin below $50,000 as crypto slumps across the board.
Bitcoin prices fell below $50,000 for the first time since early March as the reverberations from last week’s power outage in Xinjiang and fears of capital gains tax increases undermined the cryptocurrency’s momentum further.
By 6:30 AM ET, Bitcoin traded at $49,277, down 9.3% from late Thursday and down over 23% from its peak. Other digital assets were also affected, with Ethereum falling 10.5% to $2,247 and XRP falling 15.6% to $1.0763. Dogecoin lost 10% to trade at just under 24c.
The volatility is a fresh reminder of the shortcomings of crypto with regard to all three of the traditional functions of a currency: to act as a store of value, a means of exchange and a unit of account. The asset class’s image was arguably not helped by a spectacularly self-serving research blog issued by Cathie Wood’s firm ARK trying to justify the energy intensity of Bitcoin mining.
5. Russia hikes rates to rein in inflation
Russian assets gained across the board as President Vladimir Putin started to withdraw troops from the country’s border with Ukraine, easing fears of a fresh invasion.
Russia had massed over 100,000 troops on the border, according to European sources, seven years after it annexed Crimea and established two client breakaway states in eastern Ukraine, in what appeared a first test of the new U.S. administration’s approach to what is effectively a frozen conflict.
The ruble traded below 75 to the dollar for the first time in a month, also helped by a larger-than-expected interest rate hike from the Russian central bank, which raised its key rate to 5% from 4.5%. It’s the latest big emerging central bank to move to rein in inflation, in contrast to advanced economy central banks which – with the exception of Canada this week – are in no hurry to withdraw monetary accommodation.
The RTS stock index rose 0.4% to its highest in a month.