New business taxes are coming. Wall Street isn’t worried – CNN | Vette Leader

“Business Roundtable opposes the ‘Inflation Reduction Act,’ which includes tax provisions that would undermine America’s economic growth and competitiveness,” the group said in a statement shortly before the Senate passed the measure.

However, analysis by Wall Street institutions released last week indicated that the impact on corporate earnings would likely be limited, although some sectors could be more affected than others.

Breakdown: The two provisions in focus are a 15% minimum corporate tax and a 1% tax on share buybacks, which would help fund climate investments.

In particular, the Business Roundtable claimed the minimum tax would “squelch domestic investment when higher investment is needed to fuel a strong recovery.”

Strategists at Citi said their “general view is that higher taxes are a drag on economic activity.” However, when they examined which S&P 500 companies would be affected by the new tax rate, they concluded that it would have a “neutral” effect on overall profits and that an economic slowdown and the Federal Reserve were “more relevant” to the outlook. be.

Citi found that 358 companies in the index make enough money to be subject to the minimum tax, which is expected to bring in more than $220 billion over the next 10 years. Still, only 50 are expected to be taxed below a 15% rate in 2023. Applying the new minimum rate would reduce their income by about 0.4% next year, according to current forecasts.

Looking ahead to its 2021 share buybacks, Citi noted that a 1% tax would have cut the S&P 500’s earnings by just 0.35%, all else being equal.

A team from Goldman Sachs made a similar finding. It said the buyback tax and minimum corporate tax rate would cut earnings per share of S&P 500 companies by just 1.5% over the next year.

That doesn’t mean that individual companies aren’t struggling with the consequences. Moody’s Investors Service found that 9% of investment-grade companies in the United States “can expect to pay higher cash taxes under the bill” and that oil and gas producers, as well as software and semiconductor manufacturers “will be hit hardest.” will”.

“This tax will have the greatest negative impact on large, growing companies that have only recently reached the income threshold,” the analysts said.

The share buyback tax would also affect oil and gas companies. Moody’s Investors Service noted that while its implementation “is unlikely to materially impact the volume of share buybacks, it could be a significant source of tax revenue over the next several years.”

In its analysis, the Tax Foundation found that the real estate sector is also facing a sharp increase in taxes as a proportion of its income.
However, the think tank noted that the average effective corporate tax rate in the United States will rise from 18.7% today to 19.3% in 2023 due to the Inflation Reduction Act. That’s a fairly marginal increase, although it could help revive talks on a global minimum corporate tax.

China cuts rates as lockdowns take their toll

China’s central bank cut interest rates on Monday, as new data showed the world’s second-largest economy lost steam over the past month amid renewed Covid lockdowns and a worsening real estate downturn.

This just arrived: The People’s Bank of China has lowered the main interest rate at which it provides short-term liquidity to banks. The central bank also lowered the interest rate on its one-year lending facility to “maintain adequate and sufficient liquidity in the banking system,” it said in a statement.

It was the first time those rates had been cut since January, and it’s as other major central banks are in hike mode, reports my CNN Business colleague Laura He.

The move surprised investors. The central bank previously appeared reluctant to cut rates further amid concerns about rising debt levels, consumer inflation and pressure on the yuan, even as the economy stalled between April and June.

But the new data released on Monday was much worse than expected. According to the National Bureau of Statistics, retail sales rose 2.7% year over year in July and slowed from June. Economists polled by Reuters had expected a 5% increase. Industrial production also fell month-on-month, missing market forecasts.

Chinese authorities began reopening the country’s economy in early June, fueling hopes from foreign investors that President Xi Jinping could ease his strict “zero-Covid” policy. But several cities have been quick to reintroduce coronavirus curbs. Nomura noted that 41 cities have implemented lockdown measures as of July 18, up from 31 cities the previous week.

Also of concern is the strain on the country’s real estate sector, which accounts for up to 30% of China’s economic output. Real estate investment by developers fell 6.4% in the first seven months of this year, and new home prices in 70 major cities fell for the 11th straight month in July.

Meanwhile, extreme heat and severe flooding are disrupting food production and inflation, according to an NBS spokesman.

Investor Insight: Chinese stock markets fell on Monday. Hong Kong’s Hang Seng Index slipped 0.7% and the Shanghai Composite ended slightly lower. The yuan weakened against the US dollar. The news also weighed on US stock futures.

Saudi Aramco’s earnings blow Exxon out of the water

As readers of this newsletter know, soaring crude oil prices brought staggering gains to the world’s largest oil majors last quarter.

Exxon made nearly $17.9 billion between April and June, nearly quadrupling what it made in the same period in 2021. Chevron posted a profit of $11.6 billion while Shell earned $11.5 billion.

But those numbers pale in comparison to Saudi Aramco’s transport. Saudi Arabia’s state-owned oil giant said Sunday it earned $48.4 billion in the second quarter, a 90% year-over-year increase and an all-time high for the company.

Aramco CEO Amin Nasser pointed to an “increasing demand” for the company’s products. Despite ongoing “global market volatility and economic uncertainty,” the company expects oil demand “to continue to grow for the remainder of the decade,” he said.

What happens next: Oil prices remain high. But they have fallen significantly in recent weeks as recession fears have come to the fore as economic growth and fossil fuel demand go hand in hand. Brent crude futures, the global benchmark, were last trading below $95 a barrel after ending June near $115.

That means the latest quarter could be as good as it gets for Saudi Aramco, which has a market value of nearly $2.4 trillion. Nasser said Aramco still has room to increase oil production if directed to do so by the government, but that spare capacity is “very limited” due to a lack of global investment.


The NAHB Housing Market Index for August arrives at 10am ET.

Investors keep a close eye on house prices while assessing the course of inflation. US home prices hit a record high in the second quarter, although rising mortgage rates dampened sales.
Coming tomorrow: result of home depot (HD) and Walmart (WMT).

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