- USTR’s Section 301 digital tax probe raises new threat of U.S. tariffs
- OPEC+ may be moving towards short 1-month extension of the 9.7 mln bpd production cut
- Pessimism prevails on Brexit negotiations but there is still plenty of time
- May ADP expected to show the loss of 9 million more U.S. jobs
- ISM non-manufacturing index expected to stabilizeÂ
USTR’s Section 301 digital tax probe raises new threat of U.S. tariffs — The U.S. Trade Representative’s office in Washington on Tuesday announced a Section 301 investigation into the raft of countries that are looking to impose a tax on digital companies, most of which would be U.S.-based companies such as Google, Amazon, Apple, and others.
A Section 301 finding would give the Trump administration the pretext for imposing tariffs on countries that levy taxes on digital companies that the U.S. determined were unfair. President Trump came very close to slapping tariffs on France for its digital tax. However, the U.S. and France are currently observing an uneasy truce on France’s digital tax while they wait to see if there is a global agreement on digital taxes under the auspices of the OECD.
The OECD has a goal of reaching a global agreement on digital taxes by year-end. However, Bloomberg reports that some OECD officials have already said they think the negotiations will drag into 2021.
With the new 301 investigation, the Trump administration will have more leverage in dealing with the long list of countries that are looking to tax digital companies. The fact that the USTR is gearing up the investigation now suggests that the Trump administration could announce tariffs as soon as this autumn.
OPEC+ may be moving towards short 1-month extension of the 9.7 mln bpd production cut — OPEC+ members are continuing their haggling about extending the 9.7 million bpd production cut. The original plan was for a 9.7 million bpd production cut in May-June and then to trim the production cut to 7.7 million bpd during July-December 2020 and to 6 million bpd for January 2021 through April 2022. Saudi Arabia and its close partners voluntarily implemented productions of 1.2 million bpd more than required under the OPEC+ agreement, resulting in an overall cut of almost 11 million bpd for May-June.
OPEC+ may hold a meeting to ratify any new plan before the originally-scheduled date of next Tuesday and Wednesday.
Russia does not want to extend the 9.7 million bpd production cut, but is reportedly willing to accept a 1-month extension through July. Saudi Arabia is reportedly pushing for a 3-month extension. However, Saudi Arabia can’t afford to push Russia too hard for fear of causing another collapse of their cooperation agreement, which would likely cause oil prices to plunge below $15 again. OPEC+ members have brought the oil market back from the brink of disaster and can’t afford to get into a new fight.
Pessimism prevails on Brexit negotiations but there is still plenty of time — Another round of Brexit negotiations began yesterday with pessimism all around. EU Trade Commissioner Phil Hogan told an EU parliamentary committee last Thursday, “We’re not making much progress at the moment. Perhaps the United Kingdom has come to the conclusion that there’s not going to be a deal.”
This will be the last round of talks before a summit later this month where political leaders will decide on how to move forward. In theory, the UK has a deadline of this month to ask for an extension of the current transition period that ends in December 2020. There appears to be no real chance of a breakthrough this week, suggesting there will be an acrimonious summit later this month.
The crux of the problem is that the UK wants a Canada-style free trade agreement whereas the EU is insisting on a “level playing field” where the UK complies with at least some EU regulations since the UK is right on its door step. The EU does not want to reward countries that leave the EU, nor does it want a Singapore-upon-Thames on its doorstep.
The only good news is that there are still seven months left until the end of the year when a no-deal Brexit will occur, if there is no UK-EU trade agreement or extension. Both the UK and EU are still preening with their initial negotiating positions, and it appears that there will be a few more months of brinkmanship before the two sides get down to brass tacks about whether there will be an agreement. In the meantime, the markets are preoccupied with the global pandemic and have only a mild interest in Brexit at this early stage.
May ADP expected to show the loss of 9 million more U.S. jobs — Today’s May ADP employment report is expected to show a decline of -9.0 million jobs, adding to April’s plunge of -20.236 million jobs. Today’s expected plunge in ADP jobs to the 100 million area would leave the level of jobs below even the trough seen during the Great Recession of 107 million jobs.
The only good news on the labor front is that weekly continuing unemployment claims in last Thursday’s report fell by -3.9 million to 24.912 million. The decline may not be sustained, but it at least indicated that some people are being called back to work and are being removed from the unemployment rolls.
ISM non-manufacturing index expected to stabilize — The consensus is for today’s May ISM non-manufacturing index to rise by +2.6 points to 44.4, recovering part of April’s -10.7 point drop to an 11-year low of 41.8. Business sentiment remains dismal, but is at least showing signs of stabilizing as the country slowly reopens. Monday’s ISM manufacturing index rose by +1.6 points to 43.1, which was a small gain but still a step in the right direction.
