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Asia markets struggle for direction after US tax hike reports

·4-min read
Hong Kong saw gains in Friday trade despite Wall Street's overnight retreat

Asian shares struggled to find clear direction on Friday after a week spent seesawing to match the prevailing momentum on Wall Street, where trade faltered overnight after tax hike reports.

Washington is said to be developing a plan to slap new levies on wealthy investors, including a near doubling of the tax on stock transaction profits to 39.6 percent for people earning more than $1 million.

Any tax plan faces a long process on Capitol Hill before becoming a reality, but analysts said the reports indicate hikes are very much in the mix in Washington.

President Joe Biden also called for an increase in corporate taxes to finance his $2 trillion infrastructure package.

The news hit 10-year US Treasury yields and the greenback while leaving all three main New York stock benchmarks down nearly one percent by the Thursday close.

It also sent jitters through digital currency markets, with Bitcoin dipping below $50,000 in Friday morning trade just days after clocking a record high above $63,000.

But "past instances of tax-related selling around capital gains tax hikes suggest any equity weakness is likely to be short-lived," said Stephen Innes of Axi.

"The biggest problem might be a near-term liquidity drain as active traders and hedge funds pull back on a high-frequency activity to reevaluate strategy. But this should be a temporary speed bump."

Tokyo led losses with the Nikkei down 0.6 percent by the close, finishing 2.2 percent lower for the week. Singapore, Bangkok and Manila also saw modest losses.

But Hong Kong saw gains of 1.12 percent by the closing bell, marking a 0.9 percent rise for the week.

Shanghai was up 0.3 percent for the day and 2.2 percent for the week while Seoul and Taipei also posted gains.

London was 0.2 percent down in the morning ahead of lacklustre retail sales data expected later Friday.

"It's highly unlikely that the first quarter of 2021 will see a positive number for consumer spending, given the 8.2 percent decline seen in January, and the fact that the UK has been locked down for all of the quarter," said CMC Markets chief analyst Michael Hewson.

- 'Subtle acknowledgements' -

Oil benchmarks saw a rise after a two-day slump, though Innes warned signs of a diplomatic rapprochement between the US and Iran were putting downward pressure on prices, with expectations growing that Washington could ease sanctions on Tehran.

The snowballing Covid-19 outbreak in India was also hurting fuel demand, he added.

"But as the market moves past these concerns and expectations for a US-Iran deal become consensus, the oil market may be poised to catch up with base metals back at the highs," Innes said.

Euro-dollar trades were softer after the European Central Bank kept its massive pandemic-fighting stimulus package in place at a Thursday meeting, as the continent's ailing economies face slow coronavirus recoveries.

"There were a couple of subtle acknowledgments today that an upgrade to forecasts is likely coming at the June 10 meeting," said Ray Attrill of the NAB.

After Thursday's meeting, bank chief Christine Lagarde "did highlight the pick-up in vaccinations and noted high frequency data are confirming to ECB staff that their previous view of an improvement in the medium-term being on course" was correct, he added.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: DOWN 0.6 percent at 29,020.63 (close)

Hong Kong - Hang Seng Index: UP 1.1 percent at 29,078.75 (close)

Shanghai - Composite: UP 0.3 percent at 3,474.17 (close)

London - FTSE 100: DOWN 0.2 percent at 6,921.51

Dollar/yen: DOWN at 107.92 yen from 108.03 yen

Pound/dollar: DOWN at $1.3888 from $1.3903

Euro/dollar: UP at $1.2053 from $1.2050

Euro/pound: UP at 86.80 pence from 86.67 pence

West Texas Intermediate: UP 0.8 percent at $61.91 per barrel

Brent North Sea crude: UP 0.6 percent at $65.77 per barrel

New York - Dow: DOWN 0.9 percent at 33,815.90 (close)

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