Weekly global market focus
Infrastructure negotiations continue this week
G-7 reaches deal on 15% minimum corporate tax
U.S. Covid infections fall to another new 14-month lowWeekly global market focus — The U.S. markets this week will focus on (1) the progress of an infrastructure bill in Washington, (2) anticipation of next week’s FOMC meeting where Fed officials may start discussing QE tapering, (3) the improving U.S. Covid statistics, (4) Thursday’s CPI report and whether it puts fresh pressure on the Fed to begin QE tapering, (5) the Treasury’s sale of $130 billion of 3, 10 and 30-year securities, and (6) oil prices, which posted a new 2-3/4 year high last week as OPEC+ maintains a tight supply situation as demand recovers.
In Europe, the focus will mainly be on Thursday’s ECB meeting, which is expected to produce an unchanged policy. The ECB is expected to hold a steady course as it seeks to prevent any fresh surge in European bond yields that could threaten the Eurozone economic recovery.
In Asia, the focus will be on Tuesday’s Chinese May CPI report, which is expected to jump to +1.6% y/y from April’s +0.9%. The Chinese stock market could react negatively if a stronger-than-expected inflation figure puts pressure on the Chinese central bank to slightly tighten its monetary policy.
Infrastructure negotiations continue this week — Bipartisan negotiations will continue this week on an infrastructure bill. President Biden and Republican Senator Capito will speak again today after Mr. Biden last Friday rejected Ms. Capito’s revised infrastructure proposal that raised the cost of the deal by only $50 billion from the original nominal size of $928 billion. However, that bill re-purposes unspent pandemic aid money and includes already-planned spending measures, including only about $257 billion of new money.
President Biden last Friday reportedly told Senator Capito that he plans to also engage with a separate bipartisan group of Senators that includes Democratic Senators Manchin and Tester and Republican Senator Romney. That group may release a proposal this week totaling $878 billion, according to reporting by Bloomberg. Senate Manchin on Sunday said that he is “very confident” there will be a bipartisan compromise on infrastructure.
Commerce Secretary Gina Raimondo on Sunday said, “There is no hard-wired deadline” for a bipartisan infrastructure deal. She said, “So we won’t do this forever, but right now there are good-faith efforts and both sides and we’re going to continue the work of doing our job and trying to get a bipartisan agreement.”
However, time is running out for a bipartisan deal if Speaker Pelosi plans to meet her goal of passing an infrastructure bill in the House by the fourth of July. Senate Majority Leader Schumer has said he wants the Senate to consider an infrastructure bill in July.
In a parallel track to the bipartisan negotiations, the House is moving forward with writing legislation for President Biden’s $2.25 trillion infrastructure and jobs proposal. The House Transportation and Infrastructure Committee last Friday unveiled a $547 billion transportation funding package. That Committee will begin to mark up that package this Wednesday. That package would be part of the larger Biden infrastructure bill.
G-7 reaches deal on 15% minimum corporate tax — G-7 finance ministers over the weekend announced a deal for a global 15% minimum corporate tax. The agreement is only a start because a larger deal is necessary among all the countries that are involved in the long-running OECD tax talks. A final OECD deal might come late this year but would then require national legislatures to pass legislation implementing the deal. The minimum-tax deal, therefore, still has a long way to go.
However, the G-7 deal on a corporate minimum tax was still a big step in the direction of a final deal. While the global stock markets never like higher corporate taxes, a deal would be positive for the markets in the sense that it would alleviate the move by many countries to specifically tax U.S. technology companies. A deal would also remove the U.S. threat of retaliatory tariffs. The deal for a 15% minimum tax would apply regardless of a company’s business type and would not be targeted at U.S. technology companies.
The progress on a 15% global minimum tax might also make President Biden’s job easier on convincing Congress to pass an infrastructure bill funded by higher corporate taxes. President Biden last week floated the idea of a minimum 15% corporate tax to finance a bipartisan infrastructure program, as opposed to his proposal of raising the U.S. corporate tax all the way to 28% from the current 21% level. The U.S. stock market saw some support last week from hopes that the U.S. corporate tax rate may not be raised all the way to 28%.
U.S. Covid infections fall to another new 14-month low — The 7-day average of new daily U.S. Covid infections fell to a new 14-month low of 14,765 last Friday, the lowest level since March 2020 and down by -94% from January’s peak of 250,558. Meanwhile, the 7-day average of daily Covid deaths fell to a 14-month low of 439 last Friday, down by -86% from January’s peak of 3,496.
The CDC reports that 41.6% of the U.S. population has now been fully vaccinated and 51.3% of the U.S. population has received at least one vaccination dose. The U.S. vaccination pace continues to slide due to reduced demand. Bloomberg reports that an average of 937,669 doses per day were administered over the past week. At that pace, Bloomberg says it will take another six months to vaccinate 75% of the U.S. population, which is a benchmark for herd immunity.