Tepid finish in Europe as Biden's tax plans spook investors
European stock markets staged a mild recovery on Friday but still ended the week in the red, after news of planned tax reforms in the US and concerns about rising COVID-19 case loads in India sent a chill wind blowing through international equity markets.
The FTSE 100 (^FTSE) closed flat in London, having been down over half a percent earlier in the session. The CAC 40 (^FCHI) finished down 0.2% in Paris and the DAX (^GDAXI) was 0.3% lower in Frankfurt.
"It’s been a lacklustre end to what has been a negative week for European stocks, with concerns about surging COVID-19 infection rates in Asia weighing on sentiment over the past few days," said Micheal Hewson, chief market analyst at CMC Markets.
Europe had opened much lower after a sell-off on Wall Street overnight. Markets had all closed down almost 1% after reports that US President Joe Biden was planning tough new tax rises. The New York Times reported that the Biden administration was planning to increase the top rate of income tax and almost double the rate of capital gains taxes for the wealthiest Americans.
"While one could argue that the prospect of higher taxes is never welcome, and a doubling of a key tax rate even more so, the likelihood of anything of this nature passing through an evenly split Congress lies somewhere between slim and none," said Hewson. "However, in these highly uncertainty times it doesn’t take much to spook a little bit of profit taking in what has already been a very choppy week."
US stocks staged a recovery on Friday. The S&P 500 (^GSPC) was up 1% by the time markets shut in Europe, the Nasdaq (^IXIC) was 1.4% higher, and the Dow Jones (^DJI) was up 0.5%.
Biden's planned tax increases hit cryptocurrency hard. Bitcoin (BTC-USD) and ethereum (ETH-USD) were both down around 10%, while other cryptos suffered even steeper losses. Any increases to capital gains would mean higher taxes for crypto investors.
Coinbase (COIN) sunk 6% in New York on Thursday but was trading 2.3% higher at the end of the week.
In the UK, sales data showed the economic recovery was on track. It came as the government reported a historic annual spending deficit. The UK state borrowed £303bn in the tax year just ended — the highest total since 1947.
Stocks in Asia were mixed overnight. Japan's Nikkei (^N225) dropped 0.6%, but the Hong Kong Hang Seng (^HSI) rose 0.6%, China's Shanghai Composite (000001.SS) climbed 0.25%, and the KOSPI (^KS11) rose 0.3% in South Korea.
