Monday Morning Reads
- Here’s What’s At Stake
- Bitcoin’s Price Declines
- Now Thinks It’s Alive
- Yellen Passes Deal-Making Test
- Why Wall Street Fears A...
- Trade to Bet Against AMC Without Getting Burned
- Confronting the Richest Man in India
- No More Bear Markets
G7 nations reached an agreement on a global minimum tax over the weekend after years of discussions at the OECD. At a basic level, the framework would prevent companies from shifting profits to low tax jurisdictions and ensure the biggest multinationals pay more tax in the countries in which they operate. In return, the U.S wants European nations and others to drop their Digital Service Taxes that target American Big Tech companies, but many negotiations still await.
Bigger picture: In its current form, the deal would require that companies pay at least a 15% tax on income, regardless of where they are based, making it less advantageous to relocate operations to countries with lower tax rates. The rules would apply to multinationals that have a profit margin of at least 10%, while governments would share the right to tax 20% of profits above that threshold. For example, an online company that has no physical presence in a country, but has significant sales there via digital advertising, would be obligated to pay some taxes to the government of that nation.
The debate touches on the ongoing friction in international taxation: whether to tax companies based on the location of their income or the location of their headquarters. While administration officials like Treasury Secretary Janet Yellen said the new framework will halt a global "race to the bottom" on corporate taxes, others feel that it could be hard to enact and enforce on an international scale. The fine print is also in question, such as accounting rules, subsidies and exemptions for R&D and capital investment.
More hurdles: The new tax rules would have to apply globally, meaning the support from other large economies like China and India. Treasury chiefs are hoping for breakthroughs at the G20 and OECD by mid-year, as well as the backing of over a hundred countries that have been negotiating the new rules as part of the so-called Inclusive Framework. Some big obstacles also lie ahead, like in Ireland, which has a low tax rate to encourage foreign investment, and in China, which wants to retain control over its tax policy, but if the effort picks up speed it may be hard not to bow to the pressure.
Go Deeper: The new tax approach could run into opposition in the U.S., where Janet Yellen needs to sell the deal to Congress. The changes could require the U.S. Senate to alter existing tax treaties, which would take a two-thirds vote and at least some GOP support. Republicans have already expressed opposition to any rise in taxes, while some lawmakers have condemned the idea of ceding taxing authority to other governments. Business groups have also complained that higher taxes could threaten the economic recovery as American companies navigate their way out of the coronavirus pandemic.
Going virtual again this year due to COVID-19, Apple (NASDAQ:AAPL) will kick off its annual Worldwide Developer Conference at 1 p.m. ET. The event is catered to software developers, so don't expect any hardware announcements, though they are a possibility (new MacBook Pros or silicon chips?). WWDC will also be an opportunity for Apple to address its developer community following two contentious disagreements with app makers, including a legal battle with Epic Games over its App Store fees and a feud with Facebook (NASDAQ:FB) over its new privacy policies.
Cue the keynote: CEO Tim Cook and other executives will take the stage for a two-hour presentation. The introduction of iOS 15 will include scores of new updates and features, as well as iPadOS 15, watchOS 8, macOS 12, and tvOS 15. Another product of interest is iMessage, which might get a social media makeover to better compete with WhatsApp. On the privacy front, Apple will also reportedly unveil "a control panel that provides in-depth detail on what data are being collected by each third-party app installed on a user's device" (echoes of Privacy Dashboard in Android 12?).
Price movement: Apple shares have been struggling since hitting a peak in late January, and they remain in correction territory. The stock is down 12% from the top seen on Jan. 26, while from a momentum point of view, it's fighting its 200-day simple moving average. Morgan Stanley analyst Katy Huberty is also pulling out the history books, saying in a research note that WWDC hasn't been a great catalyst for Apple over the past decade. In both the week and two weeks following the event, the stock on average has underperformed the S&P 500 by a little over a percentage point.
Closing out the prior week near record highs, U.S. stock futures pulled back on Monday as it became more likely that the Fed could raise interest rates earlier than expected. Fresh off her return from the G7 finance minister meeting in London, Treasury Secretary Janet Yellen went on Bloomberg News with a message that Biden should push ahead with his infrastructure plans valued at $4T, even if that pushes inflation into 2022. While the Fed is "operationally independent" from the Treasury, their roles have been becoming more enmeshed since the coronavirus crisis (and even before), and the central bank would have to respond to any economic changes the heavy spending would bring. Dow -0.1%; S&P 500 -0.3%; Nasdaq -0.5%.
Quote: "If we ended up with a slightly higher interest rate environment it would actually be a plus for society's point of view and the Fed's point of view. We've been fighting inflation that’s too low and interest rates that are too low now for a decade. We want them to go back to a normal interest rate environment, and if this helps a little bit to alleviate things then that's not a bad thing - that's a good thing."
"I will not give up on the next packages," Yellen continued. "They're not meant as stimulus, they're meant as investments to address long-standing needs of our economy." For his part, Jerome Powell - who took the reigns at the Fed from Yellen in 2018, has tried to assure investors that he wouldn't waver on easy monetary policy anytime soon. He has also pledged to keep interest rates near zero through 2023 as the American economy comes out of the COVID-19 pandemic.
What else to watch: Friday’s jobs report showed 559K jobs were added in May, while the unemployment rate fell to 5.8% (from 6.1%). The non-farm payrolls figure - which missed expectations - appeared light enough to keep the Fed from acting, but strong enough to maintain investor confidence in the economy. Also keep an eye on memeland. Volatile plays like AMC (AMC), BlackBerry (BB) and GameStop (GME) are marginally higher this morning, but anything can play out in the regular session.
El Salvador President Nayib Bukele made a surprise appearance during Jack Mallers' talk at the Bitcoin 2021 Conference on Saturday, promising to send a bill to the legislature next week to make Bitcoin (BTC-USD) legal tender in his country. Bukele's party's control over the legislature makes passage nearly certain. The move would also make El Salvador the first sovereign nation on the planet to recognize Bitcoin as legal tender.
Bigger picture: Mallers is founder of the lightning payments network Strike that is working in partnership with El Salvador. Well more than 50% of the country's citizens are unbanked, and remittances from overseas account for more than 20% of GDP. Legacy players charge 10% or more fees on those remittances, and several days can go by before the money becomes available. Those same remittances via Bitcoin would be instant and the fees would be microscopic.
Fine print: Mallers additionally took note of the most important part of Bukele's proposed bill: "Central banks are increasingly taking actions that may cause harm to the economic stability of El Salvador... In order to mitigate the negative impact from central banks, it becomes necessary to authorize the circulation of a digital currency with a supply that cannot be controlled by any central bank." (349 comments)
Seeking Alpha's Stephen Alpher was in Miami this weekend to cover the conference. Check out more headlines from the event: Focusing on adoption, not the price and Bitcoin's trillion-dollar issue: ESG takes the stage.
Ever since the coronavirus vaccine rollout, companies have been debating whether to require staff to get vaccinated against COVID-19 or incentivize workers to get the jab. States and cities are also targeting Americans who might be reluctant to get the vaccine with pot, beer and savings bonds. The Biden administration has even set a goal of having 70% of American adults receive at least one vaccine dose by July 4 as demand for the jabs slow across the nation.
The latest? United Airlines (NASDAQ:UAL) will require external candidates with job offers made after June 15 to confirm they have been fully vaccinated by their start date, following a similar move by Delta Air Lines (DAL).
"As we welcome new employees to the company, it's important we instill in them United's strong commitment to safety," tweeted aviation specialist Brian Sumers, who uploaded a company memo. "Those who are unable to be vaccinated for medical or religious reasons will have access to a reasonable accommodation process to evaluate their circumstances."
Outlook: While United is not requiring current employees to be vaccinated, it's adding some policies that encourage it. Last month, the carrier reached an agreement with its pilots' union that does not make the jab mandatory, but provides extra pay and vacation days to those who receive it. The deal also restricted unvaccinated pilots from working on trips to destinations that require them to get vaccinated. (149 comments)
What else is happening...
Biden infrastructure plans imperiled by labor, material shortages.
Policygenius planning IPO sooner rather than later.
U.S. to weigh COVID-19 shots for children after vaccine milestones.
Beige Book sees lending starting to revive as credit remains solid.
Overdraft fees likely to come under pressure - Jefferies.
Private equity consortium agrees to buy Medline for more than $30B.
Charts make the historical case for an S&P 500 summer rally.
In Asia, Japan +0.3%. Hong Kong -0.3%. China +0.2%. India +0.4%.
In Europe, at midday, London +0.2%. Paris +0.1%. Frankfurt flat.
Futures at 6:20, Dow -0.1%. S&P -0.3%. Nasdaq -0.5%. Crude -0.5% to $69.25. Gold -0.3% at $1886.80. Bitcoin +0.7% to $36444.
Ten-year Treasury Yield +2 bps to 1.58%
Today's Economic Calendar