What's going on?
The Indian government announced a surprise $20 billion in corporate tax cuts on Friday – and the country’s stocks rose by their most in a decade, hip-swivelling up 5.3%.
What does this mean?
Long-time Finimizers will remember the positive effect US tax cuts had on the market back in 2017, and this situation is more of the same. The effective corporate tax rate will drop from 35% to 25% – and save companies billions. The rule of Thumka is that they’ll then invest that cash in growing their businesses, which should boost the overall economy.
That’s sorely needed in India, where economic growth is at a six-year low. And since the country’s dependent on oil imports, recent price increases aren’t helping matters. India’s prime minister even met the US president at the weekend to discuss whether increasing imports from the US might help India deal with the global drop in oil supplies (tweet this).
Why should I care?
For markets: China’s balancing act.
China was dancing to India’s beat on Friday, announcing a cut of its own to boost its economy. Its 0.05% interest rate cut was still much smaller than the US Federal Reserve’s 0.25% last Wednesday, and the European Central Bank’s the week before. That’s because the Chinese government is wary of fuelling a property bubble, or adding to its humongous debt burden. But the US-China trade war is holding growth back: if there isn’t an economy-boosting resolution soon, investors will be clamoring for more government stimulus.
The bigger picture: Pricey palladium.
The potential for a US-China trade deal might be what pushed palladium’s price to fresh highs last week. Looming labor disputes among South African miners already have investors worried about a shrinking supply. If richer consumers in India, China, and the US all suddenly want more cars, auto manufacturers – who use the metal to reduce emissions – could push prices up too. No wonder some manufacturers are locking in today’s price…