President Trump’s remarks on tax were perfectly timed for the Australian stock market. Bargain hunting had lifted the ASX 200 up off support over the past 3 days. The prospect of a near term announcement on stimulatory US tax reform has added urgency to buying momentum this morning.
Markets had been developing a lingering concern that US corporate tax cuts may become a second order issue for the new Administration. News that a “phenomenal” plan on business tax may be released soon has required a rethink. However, it remains very unclear what the nature of tax reform may be. A border adjustment tax would be a far reaching reform having more complex implications than simple cuts to the rates on existing taxes.
Last night’s positive reaction to President’s Trump’s remarks underscores the fact that what the President says will remain a source of potential market volatility. Traders will not be able to adopt the simple strategy of ignoring all the President’s tweets and remarks. Each one will need to be assessed in the context of its potential market impact and its timing in relation to current market conditions.
Strong momentum has seen the Australia 200 index testing the late January peak at 5721. A clear move above this over the next couple of days would be a positive development, creating potential for the current rally to extend towards 5800.
REA Group’s share price has staged a turn around this morning with the initial rally attracting profit takers. While the REA’s profit result was solid enough, it is clear that although revenue is benefiting from improvements in product mix, it’s being constrained by the lack of property listings in Sydney and Melbourne. Current valuation multiples in REA are attracting sellers given its modest growth of 6% in underlying profit.