The United Kingdom (UK) is among the top five countries that have reported the most cases of the deadly coronavirus, with infections almost reaching 7 million since the country started recording early last year. This large number of COVID-19 cases has put tremendous pressure on the UK government as it has stretched its spending on the National Health Service (NHS) and frontline workers fighting the pandemic head-on.
Due to this, the UK government is looking at generating more revenue to fund its budget and operations, one of these being an increase in taxes. The UK Prime Minister, Boris Johnson, who was also once infected with the coronavirus sometime last year, is set to announce a new tax hike of more than £10 billion (over $13.8b) a year.
Johnson and Chancellor of the Exchequer, Rishi Sunak, plan to raise national insurance rates by 1.25 percentage points for both employers and employees. The new tax rise will raise money to finance a new tranche of spending on health and social care, as well as help the UK government break on the speed of public borrowing that had shot up during the COVID-19 pandemic.
Since this proposal became public knowledge, it has received tremendous opposition from the Conservative Members of Parliament. Still, it has not been enough to make Johnson and his team call it off.
Conservative legislators are not the only ones opposing the proposal. The European broader stock markets seem to be in opposition after opening today’s morning trading session lower than they closed.
The Financial Times Stock Exchange (FTSE) 100 Index opened Tuesday’s trading session 0.3% lower after dropping 23.60 points in London. Germany was trading down 0.1%, and it has sunk even lower, currently trading down 0.53% after falling at 84.85 points. The same trend has been followed by the CAC in France, which opened today’s trading 0.1% lower.
Naeem Aslam, the Chief Market Analyst at online forex trading broker AvaTrade, said that investors should remember that there is a major event coming up this week on Thursday, September 9, 2021, when the European Central Bank (ECB) will release its monetary policy statement, and that they should look for clues as to how and when the bank plans to end its massive stimulus programme. According to Aslam, the current government bond prices in Europe show that the ECB is soon deciding on exiting the stimulus program introduced at the height of the pandemic last year to help cushion European economies against its effects.
The US stock market has had its own factors that have influenced its ups and downs in recent weeks; The takeover of the Afghan government over three weeks ago, the passing of the infrastructure bill, the August jobs report, the surge in infections of the delta variant of the coronavirus, and the Federal Reserve Bank Jackson Hole Symposium, among others, are some of the significant events that have happened in the US last month. They have slightly swayed the stock market in both directions, but the broader market has generally managed to hold on to its upward movement, trading to near all-time record highs.
Likewise, the US stock market has not been affected by what is happening in Europe, particularly the UK. US stock futures were trading slightly higher at the opening bell in London this morning. The S&P 500 Futures were up 0.1%. The Dow Futures opened 0.1% higher this morning. The biggest gainer was the Nasdaq Futures, which opened 0.2% higher in the morning trading session in London today, Tuesday, September 7, 2021.
Mark Haefele, the Chief Investment Officer at UBS Global Wealth Management, acknowledged the effect of the rise of the coronavirus infection on the US economy but also noted that “most gauges continue to show the US economy in good health.”
Haefele added that this would support stocks, especially in cyclical industries like energy and financials, and he advised investors to brace themselves for full reopening and recovery of the economy.
The performance of Asian markets in the last month has been overshadowed by the constant news of Chinese regulators’ continued crackdown on tech giants like e-commerce giant Alibaba (ticker: BABA), entertainment giants Tencent Holdings Limited (HKG: 0700, TCEHY)), ride-hailing company Didi Group (ticker: DIDI), among others. These and many other companies have seen their stock drop, and according to market data by CNN Business, China’s tech giants lost more than $50 billion in market value on August 17 alone.
However, now that the regulators have taken a back seat to observe the companies’ operations under new regulations, markets are in a recovery mode. Yesterday, Asian markets closed the regular trading session higher, with the Hang Seng in Hong Kong trading up 0.9% by the draw of the closing bell. In China, the SSE Composite Index closed with gains of 1.6%, and the Nikkei in Tokyo, Japan also closed with gains of 0.9%. It should be noted that the SSE Composite Index comprises all stocks traded at the Shanghai Stock Exchange.
Yesterday, China’s Vice Prime Minister Liu He said that the government would continue supporting businesses in any way possible and necessary amid regulatory crackdown. His statements improved the investor outlook on the Chinese stock market, which had deteriorated in the recent months, with some considering the option of dropping their Chinese holdings altogether.
In Japan, the abrupt resignation of the country’s Prime Minister Yoshihide Suga also positively impacted investor sentiment for Japanese stocks, with the question of who will be the next Prime Minister of Japan filling up the country’s news space. The country has just concluded hosting the delayed 2020 Tokyo Olympics amidst criticism from some sections of the public calling out the government to abandon it due to the coronavirus that is ravaging the country.