marctomarket.com / by Marc Chandler / Feb 19, 2017
The week ahead is short on economic data and long on anticipation. It could make for some choppy price action. The dollar’s uptrend of the first part of the month yielded to corrective forces last week, though the greenback finished the week on a firm note. Even among dollar bulls, the near-term outlook for the dollar is not clear. However, many, including ourselves, remain bullish over the medium-term.
President Trump is expected to provide details of his tax plan when he addresses both houses of Congress at the end of the month. Remember, many economists has argued that the border adjustment would “automatically” send the dollar sharply higher. Also, lowering corporate tax schedules may get the headlines, but it is the effective tax rate that is key. Will loopholes by closed? Will it be revenue neutral, as scored by nonpartisans such as the Congressional Budget Office (CBO)? Will debt servicing remain tax deductible?
We are persuaded that the reason that capital expenditures are not more robust is not that interest rates are too high or that businesses do not have access to capital. Therefore, even if tax reform boosted after-tax profits, it would not necessarily boost investment or growth or employment. It would more likely boost returns to shareholders by funding share buyback programs and dividend payouts.
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