Highlight of the Day
What is a global minimum tax and how could it affect companies, countries?
U.S. Treasury Secretary Janet Yellen has thrown the weight of the U.S. government behind a push for a global corporate minimum tax rate
Yellen had said earlier this month that she is working with G20 countries to agree on a global minimum, which she said could help end a “30-year race to the bottom on corporate tax rates.”
Multinational companies are seen to shift profits – and tax revenues – to low-tax countries regardless of where their sales are made. Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries
With a broadly agreed global minimum tax, the Biden administration hopes to reduce such tax base erosion without putting American firms at a financial disadvantage, allowing them to compete on innovation, infrastructure and other attributes
The Biden administration wants to raise the U.S. corporate tax rate to 28%, so it has proposed a global minimum of 21% – double the rate on the current GILTI or “Global Intangible Low-Taxed Income” tax of 10.5% set up by the Trump administration
That proposal is far above the 12.5% minimum tax that had previously been discussed in OECD (Organization for Economic Cooperation and Development) talks – a level that happens to match Ireland’s corporate tax rate, which falls under low-tax countries
The minimum tax is expected to make up the bulk of the $50 billion-$80 billion in extra corporate tax that the OECD estimates companies will end up paying globally if deals on both efforts are enacted
Market Highlights at 07:00 a.m. I.S.T.
• The MSCI Asia Pacific ex-Japan is trading higher 0.21%, and the MSCI Emerging Market index is up 0.20%
• Trends on SGX Nifty look poised for a gap-up opening for Nifty 50 in India. The Nifty futures are trading 119 points or -0.82% lower at 14,659 on the Singaporean Exchange at 07:00 a.m. I.S.T.
• U.S. equity futures rose slightly in early morning trade; alongside a higher start in Asia-Pacific benchmarks in early Thursday trade with shares advancing in Japan, South Korea but declining in Australia and Hong Kong; a positive MSCI Asia-Pacific ex-Japan index; U.S. dollar weakening to 91.60 with 10-Yr Treasury Yields sticky at 1.64%; Indian rupee nursing earlier earlier losses at 75.0220 and Gold futures wobbling at $1,740 an ounce indicate a positive but volatile outlook in Indian equity markets amid a channel-wise resistance and a decoupling from global benchmarks
India Markets
India’s equity benchmarks were closed on Wednesday trade to mark Dr. Baba Saheb Ambedkar Jayanti
Under Liquidity Operations by RBI, Reverse Repo for the week (Mar 29 to Apr 04) rose above 6 lakh crores (6.13 lakh crores), marking higher surplus liquidity in the market
Yield curve on the benchmark 10-Yr government bond stayed flat at 6.01%, while the rupee steadied at 75.0690 per U.S. dollar
America Markets
Investors sold technology shares on Wednesday trade sapping momentum from major stock indexes, as volatility continued to reverberate across the market
The broad-based S&P 500 slid into the red, shedding 16.93 points, or -0.4%, to 4124
The Dow Jones Industrial Average, composed mostly of cyclical stocks, ended the session up 53.62 points, or 0.2%, to 33730
The Dow held on to a gain largely thanks to bank earnings. Goldman Sachs accounted for a significant chunk of the blue-chip index’s advance, rising $7.67, or 2.3%, to $335.35, after the bank reported sharply higher profits for the first quarter, benefiting from a turbocharged market and an economic recovery
The tech-heavy Nasdaq Composite Index fell further, declining 138.26 points, or -1%, to 13857
U.S. equity futures edged higher in early Thursday trade. S&P500 futures is up 0.19%; Dow Jones futures is up 0.23% and Nasdaq futures is up 0.21%
Government bonds strengthened. 10-Yr U.S. Treasury yields, which move in the opposite direction to bond prices, was little changed at 1.64% in early Thursday, close to 3-weeks low, as bond demand continues to be strong. Dollar is weak at 91.60 due to high inflation numbers for March
The Cboe Volatility Index, known as Wall Street’s “fear gauge,” moved up 2.04% to 16.99 on Wednesday
Mortgage applications in the US were down 3.7% in the week ended April 9th, 2021, the 6th consecutive decline, as higher mortgage rates dent the market. “Purchase and refinance applications declined, with most of the pullback coming earlier in the week when rates were higher”, said Joel Kan, MBA’s associate vice president of economic and industry forecasting
Import prices in the US increased 1.2% month-over-month in March of 2021, after advancing 1.3% in February and slightly above market forecasts of 1%. Import fuel prices rose 6.3%, petroleum advanced 6.7% and natural gas 3.6%
With global equities hovering near all-time highs, investors are looking to the earnings season for further catalysts. Expectations of a strong profit rebound have helped markets rally
“We’re going to get some really strong corporate earnings numbers in this quarter most likely, and the question is, Is there anything in there that is going to be sustained or is this a one-time surge as we emerge from Covid?” said Matt Forester, chief investment officer of BNY Mellon’s Lockwood Advisors. “We’re going to need earnings to be really strong to justify these valuations.”
“No one can deny how big the elephant in the room is in terms of fiscal stimulus,” Nela Richardson, ADP’s chief economist, said by phone. “Companies didn’t do this themselves – they got a big lift from the Fed and a big lift from the U.S. government.”
Asia-Pacific Markets
Most Asian stocks traded higher in early Thursday trade after opening muted following U.S. stocks closing off at all-time peaks as a drop in cryptocurrency exchange Coinbase overshadowed strong bank earnings
Shares advanced in Japan, South Korea and kept lower in Australia and Hong Kong
Japan’s Nikkei 225 added 0.34% to 29,720 and Topix 500 added 0.70% to 1,527
South Korea’s Kospi added 0.35% to 3,193
In Hong Kong, Hang Seng dropped -0.41% to 28,782 and Hang Seng China Enterprises dropped -0.62% to 10,934
In China, CSI 300 added 0.57% to 4,980 and Shanghai Composite dropped -0.56% to 3,396
Australia’s S&P/ASX 200 dropped -0.15% to 7,012
Foreigners continued to purchase Asian bonds in March, but the inflows were mainly focused on South Korean bonds. South Korean bonds tend to see outsized inflows during times of market volatility, due to foreign investors rebalancing from higher-beta Asian bonds into the safer Korean bonds
Despite a rise in U.S bond yields this year, South Korean bonds have been getting heavy inflows, bolstered by the country’s stronger current account position, lower fiscal deficits, and better yields compared with other countries with same sovereign ratings
China Exports soared 30.6% YoY to $241.1 billion in March 2021, slowing from a record 154.9% growth in February and missing market consensus of a 35.5% growth
China Imports jumped 38.1% YoY to an all-time high of $227.3 billion in March 2021, the fastest pace since February 2017 and compared with market consensus of a 23.3% rise, on higher commodity prices and improving domestic demand. Purchases were up for crude oil (20.8%), natural gas (26.1%), unwrought copper (25.0%), copper ore & concentrates (22.0%), iron ore (18.9%), steel products (16.3%), soybeans (81.6%), edible oil (66.1%), rubber (18.1%), and meat (11.4%)
China economic growth, industrial production and retail sales figures are due on Friday
“The expectations for the reopening of the economy shrank because rollouts of vaccines in Japan is much slower than other countries, while the number of new COVID-19 cases is on the rise,” said Shoichi Arisawa, general manager of the investment research department at IwaiCosmo Securities. “The interest rates could fall if the economy slows down. That has sent bank and insurer shares lower on Wednesday.”
EU Markets
European stocks traded along the flatline on Wednesday trade after being little changed in the previous two sessions as investors digest the beginning of the earnings season, prospects for global growth, a slow vaccination campaign and high infection rates in the continent
The pan-European Stoxx Europe 600 added 0.23% to 432 and Stoxx 50 added 0.29% to 3,978
Germany’s DAX30 dropped -0.13% to settle at 15,210
London’s blue-chip FTSE 100 added 0.71% to settle at 6,939
France’s CAC40 added 0.40% to settle at 6,208
The euro zone economy is still standing on the “two crutches” of monetary and fiscal stimulus and these cannot be taken away until it makes a full recovery, European Central Bank President Christine Lagarde said on Wednesday. In March, the ECB upped the pace of its Pandemic Emergency Purchase Programme to stem a rise in bond yields and keep credit cheap for governments, companies and households
Industrial production in the Euro Area dropped 1.0% from a month earlier in February 2021, following a 0.8% increase in January and compared with market expectations of a 1.1% fall. It was the largest decline in industrial activity since April’s record contraction. Output contracted for all categories: capital goods (-1.9% vs 1.2%); energy (-1.2% vs 0.3%); durable consumer goods (-1.1% vs 0.9%); intermediate goods (-0.7% vs 0.0%); and non-durable consumer goods (-0.1% vs 0.5%)
Britain’s biggest retailer Tesco fell 2.7% after reporting a 20% drop in full-year pretax profit
Shares in Credit Suisse dropped 1.3% to a fresh five-month low as it continued to unwind positions in several companies related to last month’s meltdown of Archegos Capital
SAP jumped 4.2% as it nudged its outlook for 2021 revenue higher after reporting first-quarter results that showed a rise in cloud sales
Britain’s GDP shrank by 1.6% in the three months to February 2021, the steepest period of contraction since May-July but better than market expectations of a 1.9% fall. In February alone, the GDP rose by 0.4%, compared with forecasts of a 0.6% increase, as government restrictions affecting economic activity remained broadly unchanged
“Markets seem to be erring on the side of taking positive views rather than negative,” said Connor Campbell, analyst at SpredEx. “Investors pretty much seem focused on optimism around post-COVID recovery.”
Oil & Natural Gas Markets
Crude-oil prices rose in early Thursday trade, after the International Energy Agency and the Organization of the Petroleum Exporting Countries raised their 2021 oil demand forecasts by 230,000 bpd and 100,000 bpd, respectively
WTI Crude is trading at $62.79 per barrel
Brent Crude, the international benchmark for oil, is trading at $66.26 per barrel
Natural Gas futures rose slightly to $2.625/MMBtu
“The rise in geopolitical tension will only have a notable bullish impact on oil prices if it is coupled with actual physical supply disruption,” PVM analysts said.
“We’ve been trading in a range, and need clear demand data and direction on U.S. inventories to break out of this trough,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.
Commodities Markets
Gold prices fell in early Thursday trade, as several Federal Reserve officials, including Chair Jerome Powell, were set to speak in the wake of the latest inflation data
Gold’s pullback looks more technical in nature with the $1,750 level being both a technical and a psychological level of resistance in the short term
Gold is in a “bottoming-out phase” with support at a low of $1,680 an ounce and an upper bound of $1,760 an ounce
U.S. Gold futures (Comex) is trading at $1,736 an ounce
Silver futures (Comex) is trading at $25.37 an ounce
Copper futures (Comex) rebounded to $4.1170 per pound
In India, Spot Gold is trading at INR 46,555 per 10 grams
“While overall, gold market is bullish short-term, with expectations of a break higher through $1,760-65, caution about fresh 10- and 30-year (Treasury) auctions and the CPI report next week are keeping yields supported, keeping gold’s advance in check,” said Tai Wong, head of base and precious metals derivatives trading at BMO. “Yields are driving most markets at (the) moment, directly impacting U.S. dollar and stocks and all three matter to gold with varying impact.”
Currency Markets
U.S. dollar index, DXY nursed losses near a one-month low at 91.59 in early Thursday trade, as strong demand at a U.S. bond auction fuelled a widespread drop in Treasury yields, reducing the interest rate advantage the greenback held over other major currencies
April has been a month of “mean reversion” trades among major currencies with the yen and the euro recovering most of their sharp losses sustained in March. Compounding the dollar’s losses has been a broad pick-up in inflationary pressures that showed U.S. consumer prices rising by the most in more than 8 years in March at 2.6%
INR weakened with USD / INR at 75.0690
EUR strengthened with EUR / USD at 1.1974
GBP strengthened with EUR / GBP at 0.8679
GBP strengthened with GBP / USD at 1.3789
GBP is expected to be moving closer an over two-month low of $1.367 hit last week, following the Bank of England’s announcement that its chief economist, Andy Haldane, will be leaving the central bank after the June meeting. Haldane was seen as the most hawkish member of the MPC and investors believe he might be replaced by a dovish policymaker
“The Fed’s continued commitment to loose monetary policy remains a key assumption behind our view that it is still too premature to expect a sustained U.S. dollar rally at the current juncture,” MUFG strategists said.
| 3-Month LIBOR Rate | As on 14 Apr 2021 |
| US DOLLAR | 0.19 per cent |
| Euro | – 0.54 per cent |
| British Pound | 0.09 per cent |
| Swiss Franc | – 0.75 per cent |
| Japanese Yen | – 0.07 per cent |
Bitcoin
Bitcoin / U.S. Dollar rose 0.08% in early Thursday trade to $63,057 as of 07:00 a.m. I.S.T.
Bitcoin breached the $64,000 level for the first time as investor demand for all things crypto surged amid Coinbase Global Inc.’s public debut
The direct listing of the biggest U.S. crypto exchange is seen pushing tokens even more into the mainstream of investing, exposing legions of potential buyers to the digital asset class that have grown into a $2 trillion industry in little more than a decade. Bitcoin, the original and biggest crypto coin, is valued at more than $1 trillion alone after a more than 800% surge in the past year
Bond Markets
Americas : 10 – Year Govt Bond Yields
United States : 1.64%
Canada : 1.53%
Europe, Middle East & Africa : 10 – Year Govt Bond Yields
Germany : -0.27%
United Kingdom : 0.81%
France : -0.01%
Asia Pacific : 10 – Year Govt Bond Yields
India : 6.01%
Japan : 0.08%
Australia : 1.74%
South Korea : 2.00%
Fund Flows on NSE, BSE and MSEI — 14 Apr 2021
Indian equity benchmarks were closed on Wednesday to mark Dr. Baba Saheb Ambedkar Jayanti
Where We’ve Been Reading —
- Bloomberg
- The Wall Street Journal
- Reuters
- Trading Economics
- Seeking Alpha
- Axios
- Tech Crunch
- NSE Indices India
- Morningstar India
- The Star
- Harvard Business Review
- The Economic Times
