Wall St falls on capital tax hike angst; the dollar goes up

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An index of stocks across the world fell on Thursday, weighed by Wall Street after reports that the Biden administration will propose a big capital gains tax hike, while the dollar index rose as the euro and the pound returned their recent gains.

Oil prices rose as concerns over Libyan production more than offset concerns that rising coronavirus cases in India and Japan would lead to lower energy demand.

On Wall Street, indexes ended lower after reports that the Biden administration is seeking to raise capital gains taxes to nearly 40% for high net worth individuals, nearly double the current rate.

The proposal would require congressional approval, and analysts expected it to be watered down as it worked its way through Congress.

“If they’re going to tax people more and their net is going to drop, the value of that instrument is lower. The incentives are important,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.

“A lot of the money that’s in the market at this point isn’t taxable, and I don’t think people do that math. Every time they see news (like this), they just sell, they want to take the winnings this year.”

The Dow Jones Industrial Average fell 321.41 points, or 0.94%, to 33,815.9, the S&P 500 lost 38.44 points, or 0.92%, to 4,134.98 and the Nasdaq Composite fell 131.81 points, or 0.94%, to 13,818.41. The MSCI gauge of stocks across the world lost 0.23% and the pan-European STOXX 600 index rose 0.68%. Emerging market stocks rose 0.34%.

MSCI’s broadest index of Asia-Pacific stocks outside Japan closed 0.4% higher, while the Japanese Topix rose 1.82%. Nikkei futures were little changed.

Treasury yields fell along with stocks on the capital gains tax issue.

Benchmark 10-year notes were last up 7/32 to 1.5416% from 1.564% late Wednesday, remaining range-bound so far this week.

Oil prices ended higher as lower production in Libya more than offset concerns over demand from India, the world’s third-largest consumer, where a second wave of coronavirus infections overwhelmed hospitals.

U.S. crude rose 0.52% to $61.67 a barrel and Brent to $65.60, up 0.43% on the day.

In currency markets, the dollar rose as the pound gave up some of its recent strong gains while the euro was weighed down by an ECB statement that was bullish on the economic recovery but lacked detail on the removal of stimulus measures.

US Federal Reserve and Bank of Japan meetings will follow next week.

The dollar index rose 0.178%, with the euro falling 0.15% to $1.2015.

The Japanese yen strengthened 0.10% against the greenback to 107.96 to the dollar, while the pound last traded at $1.3841, down 0.63% on the day.

The Russian ruble appreciated against the dollar after Moscow signaled the end of military exercises near the Ukrainian border, mitigating some of the geopolitical risk premium.

The ruble strengthened by 1.78% against the greenback to 75.29 per dollar.

Turkish markets suffered under the weight of expectations that US President Joe Biden would officially recognize the massacre of Armenians by the Ottoman Empire during World War I as an act of genocide.

The lira lost 1.64% against the US dollar to 8.31.

Spot gold fell 0.6% to $1,783.68 an ounce. Silver fell 1.71% to $26.12.

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