Trump-era corporate tax cuts should not be reversed

Evergrande, Fantasia, Sinic and now Modern Land: the list of Chinese real estate developers unable to repay their USD debt on time is growing. This is a reminder that China’s real estate market cleanup is just beginning and will have, at best, lasting negative consequences on growth.

In the US, it appears that the repeal of Donald Trump’s corporate tax cuts is definitely off the table. The Biden administration’s social plan would be considerably reduced compared to the initial project and should be partly financed by a tax on the wealth of the richest and the elimination of tax loopholes. The equity markets continue to applaud while long term bond yields are leveling off: the 10 year US yield is down to 1.63% from 1.7% last Thursday. With central bank meetings approaching, the bond market is concerned about the growth outlook. The EUR/USD exchange rate plunged to 1.16 yesterday after the IFO index fell to its lowest level in 6 months, which should reinforce the ECB’s caution.

Household confidence and housing prices in the US will be the main economic reports of the day. They could reinforce the decline in long-term bond yields if they confirm the negative impact of inflationary pressures on growth.