Today on Wall Street: 15% global corporate tax raises many questions

06/07/2021 | 07:59am

Technology stocks accelerated significantly on Friday, as the world's stock markets continue their gradual ascent, supported by economic recovery. Headwinds remain few and far between, with the exception of the inflationary threat. Meanwhile, the G7 is driving a new global fiscal deal.

The row over the sustainability of rising prices will not abate this week, with Thursday being anxiously awaited by investors, when the United States will publish its May inflation figures. U.S. Treasury boss Janet Yellen still considers it transitory. Prices will remain up by about 3% year-on-year until the end of the year in the United States, before easing, she predicted at the G7 meeting in London.

At this meeting, world leaders gave their support to a global tax of at least 15% for companies, based on the results generated in each country. This is a significant step forward for tax fairness and public finances, but it still requires several steps. First, it must be validated by the G20 (which also includes Russia, Turkey and China), whose meeting will take place in Venice in a month. Then, a convention must be drafted, a task entrusted to the OECD. Then it will have to go through the domestic political debates. It will probably take a year before the draft is implemented. It must guarantee both a minimum tax rate (Amazon, for example, is only taxed at 9.4% on average) and a better distribution of taxes, which means, if everything goes according to plan, that profits can no longer be repatriated to a tax haven to be taxed there. Obviously, this is an excellent idea on paper. It remains to be seen how the rule will be applied, what loopholestax experts will exploit and whether authorities across the world will play along with their own flagship companies, beyond the apparent fine consensus.

Economist Erik Nielsen believes that the agreement is excellent news for two reasons. First, it will reduce the distortions caused by the very low effective tax burden on multinationals compared to other companies, including SMEs. Secondly, because tax revenues will be distributed more fairly among the countries in which they operate. The Unicredit specialist recalls that the EU Tax Observatory estimates that the 15% minimum tax rate will generate €48 billion in additional revenue in the EU. It is worth noting that the G7 seems to have taken a much more proactive turn than in the past, with several other announcements, including a possible requirement for companies to publish their climate-related financial data.

Finally, a few words about EY's annual survey on foreign investment in Europe. For the second year in a row, France has attracted the most investment, ahead of the UK and Germany, with 985 projects (compared to 975 and 930 respectively for its two neighbors). Unsurprisingly, logistics and healthcare projects dominated the ranking, due to the pandemic. The United Kingdom and Germany experienced less erosion than France in 2020, and industrial relocation projects in France are still modest, even though 55% of the professionals surveyed plan to relocate in the coming months or years.

 

Economic highlights of the day

German factory orders is the main indicator of the day. Earlier today, China announced very dynamic figures for imports and exports for the month of May, but slightly below expectations.

The euro/dollar pair is trading at EUR 0.8224. Gold is down slightly at USD 1886 per ounce. Oil reverses to USD 71.6 per barrel for Brent and USD 69.45 per barrel for WTI. US light crude touched the symbolic USD 70 mark over the weekend. The T-Bond is yielding 1.57% over 10 years. Cryptocurrency prices were heckled over the weekend, but Bitcoin is recovering 2% to USD 36500.

 

On markets:

* Alphabet also reached an agreement with the French competition authority to settle a dispute over abuse of a dominant position in online advertising, while agreeing to pay a fine of 220 million euros.

* Apple CEO Tim Cook and his team kick off an annual conference of app developers on Monday, a highly anticipated speech as the California giant faces legal action over the management of its app store.

* Microsoft got the green light from U.S. authorities to buy artificial intelligence and text-to-speech specialist Nuance Communications for $16 billion, according to a Nuance filing.

* Tesla has canceled the launch of the "Plaid+" version of its Model S, which would have offered the longest range in its lineup, Elon Musk, the electric carmaker's chief executive, announced Sunday on Twitter.

* Biogen is up 3.4% in pre-market trading as it awaits the Food and Drug Administration's opinion on its Alzheimer's treatment.

* A consortium of private equity funds led by Blackstone and Carlyle has signed a definitive agreement to buy a majority stake in the medical equipment group Medline Industries at a total valuation of more than $30 billion, according to several sources close to the matter.

* Australian software company Altium rejected a takeover offer from Autodesk for $3.9 billion, which it said was not enough, but left the door open for an improved proposal.

* Macquarie Infrastructure is about to sell its unlisted subsidiary Atlantic Aviation to KKR for about $4.5 billion, sources close to the matter said.

 

Analyst recommendations:

American Express : Wolfe Research adjusts PT to Street-High $197 from $191, keeps Outperform rating

Asana : Jefferies & Co change PT to $45 From $43, keeps Buy rating

BRP : CIBC lowers price target to C$108 from C$117, stays Neutral 

Ciena : Evercore ISI lifts PT to $65 from $60, remain Outperform 

CrowdStrike : Berenberg Bank changes PT to $264 from $260, maintains Buy rating

DocuSign : Oppenheimer drops PT to $260 From $300, maintains Outperform rating

EasyJet: AlphaValue remains accumulate with a price target reduced from 1175 to 1042 GBp.  

Five Below : Deutsche Bank changes PT to $254 from $252, maintains Buy rating

IGM Biosciences : Baird starts coverage at Outperform with $102 Price Target

JD Sports Fashion: Morgan Stanley starts tracking at Overweight with a target of GBp 1000.

The J. M. Smucker Company : Barclays raises PT to $135 from $118, maintains Equalweight rating

Johnson Matthey: Berenberg remains Buy with a price target raised from GBp 3,700 to GBp 3,800.

Kingfisher: Morgan Stanley starts tracking with an in-line weighting, targeting 400 GBp. 

Leap Therapeutics : Baird starts coverage at Outperform with $5 Price Target

Lululemon athletica : Exane BNP Paribas changes PT to $357 from $359, maintains Neutral rating

 

Romain Fournier
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