Trump’s Tremendous Tax Plan

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What's going on here?

A senior figure in the Trump administration said on Thursday that the White House expects to pass a “very significant” tax reform (tweet this) for companies and households into law by the end of this summer. You’ve got our attention.

What does this mean?

In his first televised interview as head of the US Treasury, Steven Mnuchin highlighted plans to overhaul the US tax code through simpler rules and lower taxes for companies. This could especially benefit small and medium enterprises, which make up over 95% of all businesses in the US. He also said that the White House was looking for ways to get US companies to bring some of their profits made overseas back into the country by lowering taxes on those profits.

Why should I care?

For markets: Companies stand to benefit if Trump’s tax reform goes according to plan.

If things pan out as expected, the corporate tax rate for US companies could drop from about 35% to around 20%, which would give a big boost to companies’ bottom lines. In theory, higher profits should also pass through to better economic growth, as companies would have more money to hire workers and pay for new investments. Similarly, profits brought back from overseas could be spent on the same initiatives, thus boosting the economy even further.


The bigger picture: Whether or not the US economy picks up meaningfully is a key question for Trump’s economic agenda.

The Trump administration aims to hit an annual economic growth rate of at least 3% – a rate that the US hasn’t experienced since before the 2008 financial crisis. The stock market, which hit another record high on Thursday, is almost certainly reflecting some of this optimism that tax cuts, regulation, and (maybe) higher government spending will give the economy a serious boost. To what extent those plans pan out, however, is still very much up in the air (e.g. it’s not clear what Congress will agree to).

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Barclays’ Burgeoning Turnaround?

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What's going on here?

Despite signalling the end of its recent restructuring, British bank Barclays saw its stock fall almost 3% on Thursday after it reported profits that fell short of expectations.

What does this mean?

According to Barclays’ CEO, Britain’s second largest bank is emerging from a turnaround plan that started last year, which re-focused its efforts on investment banking (e.g. trading stocks and bonds and advising big corporations). The good news is that those parts of the business saw revenues jump 21% versus a year ago, and its CEO has said the bank is ready to expand by hiring more employees. However, Barclays still has a ways to go to convince markets of its turnaround.

Why should I care?

For the stock: Markets will be looking to see if Barclays can sustainably boost its profits.

Investors were likely concerned by the bank’s higher-than-expected spending in the fourth quarter, since higher costs typically translate into lower profits (all else being equal). The key for Barclays is whether those costs will come down in the future (as some of them were reportedly “one-offs”), and if it can grow its revenue at the same time. In short, investors want it to become more profitable than it is right now.


The bigger picture: Investment banks benefited from the market volatility associated with Donald Trump last quarter.

As middlemen, investment banks’ profits tend to increase when more trades occur – and Trump’s election sparked huge waves in the market that led to an increase in customer trading. Barclays benefited more than many other European banks since it recently shifted more resources to its investment banking arm (while others, like Deutsche Bank, have pulled back). Most of the big US banks, like Goldman Sachs, also benefited.

This article was published as part of Finimize's daily email. You can sign up for free to receive it in your inbox every day: www.finimize.com.

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