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What Happened In The World Of Finance Over The Past Week

Photo credit: Rafael Matsunaga. Licence: http://creativecommons.org/licenses/by/2.0/

Let’s take a look at interesting developments over the past week in the world of finance that investors should take note of.

First, there’s the tax reform plan in the US. Then, we’d move on to production cuts by oil producers.

US Tax Reform

On 9 February, new US president Donald Trump affirmed that there would be a “phenomenal” tax-cut plan coming. But, he did not give any details on what the plan would look like.

When Trump was campaigning in the lead up to the November 2016 US presidential elections, he said that he would boost economic growth in the US through several measures, such as increasing infrastructure spending, cutting red tape, and slashing taxes. With regard to taxes, his campaign proposal included a reduction of the corporate tax rate in the US to just 15%.

The US currently has a corporate tax rate of 35%. Consulting firm PwC has stated that the average corporate tax rate amongst OECD (Organisation for Economic Cooperation and Development) countries, excluding the US, is 24%. A relatively high corporate tax rate in the US has discouraged many large US companies from repatriating money they have generated outside the country.

Many stock markets in the world climbed in the following trading day after Trump made his statement. According to the Business Times, the US dollar also powered ahead on Friday, with “the greenback buying 113.75 yen, as compared with 112.67 yen in New York and 112.00 yen in Asia earlier on Thursday.”

Oil producers lower production

The International Energy Agency (IEA) released a report last Friday, stating that OPEC (Organization of the Petroleum Exporting Countries) members had reduced their output of oil in January by 90% of the agreed volume-reduction.

In late 2016, members of OPEC, along with other non-OPEC oil producers such as Russia, agreed to cut their production of oil in a landmark deal. The deal was supposed to take effect in January this year and last for six months.

According to the IEA, the volume reduction seen is a record high for the first month of implementation of such deals. The IEA also said that Russia, which had agreed to a production cut of 300,000 barrels per day (over half the reduction of 558,000 barrels per day promised by the members of OPEC) that will be phased in gradually, has already lowered its output by 100,000 barrels per day in January.

The IEA’s report also stated that inventories of oil around the world will fall by 600,000 barrels per day in the first six months of 2017 if OPEC members adhere to their deal to lower their output of oil. Inventories of oil are still much higher than average despite stock piles in industrialised nations having declined by five months in a row.

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