Trump Unveils Tax Plan

The Dow Jones and S&P 500 closed higher as President Trump announced that the Republican party have agreed on a plan that will cut America's corporate tax rate to 20%. Although these two main indices rose, the increase was relatively small at 0.25% and 0.4% respectively, perhaps reflecting some scepticism around the plan. The most obvious problem is that there has so far been no mention of how the tax cuts will be paid for as the US government already runs a substantial budget deficit. This means increased deficits that will add to an already huge debt. Regardless of this problem, the plan would certainly increase the valuation of most companies, especially those who currently aren't able to make use of substantial deductions that reduce their effective tax rate. It may also encourage some American companies that moved offshore to move back to the US as a 20% tax rate is very competitive relative to most other countries. If the plan makes it into law, it may increase pressure on Australia's government to revisit the plan to reduce our corporate rate to 25%.

Gold was sold off heavily again while the bullish run in oil prices continues. Oil inventory data showed a drawdown in crude inventories despite expectations for an increase. OPEC compliance on the production cuts agreed to last year has surged in August and OECD oil inventories have declined substantially this year. Concerns about the Kurdish referendum and the possible shutting of a pipeline that transports Kurdish oil to a Turkish port for export have also fuelled oil prices. WTI oil is currently trading at $52.07. The fall in gold prices has been cushioned when measured in Australian dollars as a result of a weaker AUD. The AUD USD rate is currently 0.7852.

Tonight the final estimate of US second quarter GDP will be released although it is forecast to remain unchanged relative to the prior estimate at 3.0%.

Data Releases:

–    US Final GDP 10:30pm AEST

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This article was written by William O'Loughlin – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.