Central Banks of the largest economies already announced that further stimulus will be required to keep the economy stable and adhere the positive inflation rates.
US is ready to pump into the economy with the new Heroes Act, a $2.2 trillion stimulus pack. While House Speaker Pelosi and Treasury Secretary Mnuchin continue to negotiate, Covid-19-infected president Trump has asked to sign the Act and provide stimulus to the economy, tweeting on his Twitter: “OUR GREAT USA WANTS & NEEDS STIMULUS. WORK TOGETHER AND GET IT DONE. Thank you!” The urgency of signing the bill is not only flanked by the contagion of the President but the Presidential election which is less than a month away.
Trump is still behind the democrat opponent Joe Biden, and if Biden is elected, the economy might face further difficulties as Biden’s tax plans will most likely to stifle business as the US presidential nominee is planning to increase the business tax.
Biden-proposed business tax changes:
- Increases the corporate income tax rate from 21 percent to 28 percent.
- Creates a minimum tax on corporations with book profits of $100 million or higher. The minimum tax is structured as an alternative minimum tax—corporations will pay the greater of their regular corporate income tax or the 15 percent minimum tax while still allowing for net operating loss (NOL) and foreign tax credits.
- Doubles the tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of US firms from 10.5 percent to 21 percent.
- In addition to doubling the tax rate assessed on GILTI, Biden proposes to assess GILTI on a country-by-country basis and eliminate GILTI’s exemption for deemed returns under 10 percent of qualified business asset investment (QBAI).
- Establishes a Manufacturing Communities Tax Credit to reduce the tax liability of businesses that experience workforce layoffs or a major government institution closure
- Expands the New Markets Tax Credit and makes it permanent.
- Offers tax credits to small business for adopting workplace retirement savings plans.
- Expands several renewable-energy-related tax credits, including tax credits for carbon capture, use, and storage as well as credits for residential energy efficiency, and a restoration of the Energy Investment Tax Credit (ITC) and the Electric Vehicle Tax Credit. The Biden plan would also end tax subsidies for fossil fuels.
Increasing the tax charges might hit hard on returns of the Nasdaq-listed corporations, which in other hands may proceed with labor layoffs and wage cuts to maintain the positive return. Hence, post-election drop in the US Indices is very possible.
US Indices are probably going to show positive signs today amid Trump recovery hopes, though mid-term shows that the indices are about to show deeper correction.
Nasdaq-100 on a daily chart might continue the drop towards 10800 to test the dynamic resistance and a neckline of the Head and Shoulders pattern, and proceed towards 10100 if below the neckline.
Even if the US indices drop, the US Dollar index might continue the uptrend as increased CIT will pump money back to the treasury, though investors will closely monitor the core US data and if the FOMC plan on economic recovery continues to proceed as planned under Biden. Undoubtedly, during the pre-election and election days the market will be highly volatile and the Dollar Index might as well test the resistance at 95 or drop to 92.80 if breaks the 93.60 support.
The closer gets the election, the more pressure is on the commodities market. Gold investors are looking for any signal from the USA to proceed with their next move. Further Covid-19 prevention measures and stimulus bills might nudge the Gold’s surge. Yet XAU / USD is still locked in a downtrend channel and in order to continue the uptrend, Gold should breakout from the downtrend channel with a strong impulse.
Currently Gold is traded at $1899, Gold quote on Overbit, retraced on October 2 after testing of the MA100 and a resistance of September 22 at $1917 and was able to keep above the mid-line of the Pitchfork – an important support and resistance zone, bringing new hopes of the further surge.
If XAU / USD remains above the mid-line and is able to break the $1906 resistance, it will proceed towards $1928 to test the dynamic resistance (upper edge of the channel) and the MA200. Closing above $1928 and $1930 might bring another stimulus for investors to pump the price higher to $1950 and $1966.