Weekly View - Tax deal reached
Economic momentum in Europe continues to accelerate, with very strong European purchasing manager index (PMI) readings PMIs, especially in services. Meanwhile US manufacturing PMIs show some indications of peaking, implying that the US could be near the top of its economic recovery. Chinese PMIs confirm that the world’s second largest economy has already reached its post-pandemic growth peak. Friday’s US non-farm payroll reports also came out lower than expected, with private payrolls falling further short than public ones. The US unemployment rate declined from 6.1% to 5.8% and on the cost side, hourly earnings rose by 2%, from 0.3% previously (consensus estimates were 1.6%). Consequently, US 10-year yields fell back below 1.6%, the US dollar declined and gold prices rebounded. We are negative on the USD. These factors could add further support to US equities.
The OPEC members agreed on further production discipline, pushing oil prices above USD 71 per barrel. This is positive for oil companies and supports a positive stance on US high-yield bonds. More generally, commodities remain strong, favouring commodity-related currencies (e.g., Latin American), and some emerging-market equities, like Brazil. Another rich members’ club, the G7, reached an agreement on a global minimum corporate tax rate of 15%. While this is only the starting point of further negotiations, it fits in with our Who pays the bill? theme for 2021.
President Biden extended the list of Chinese companies excluded from US investments, clearly demonstrating that tensions between the world’s two biggest economies are here to stay. The process of exclusion has been transferred to the Treasury from the Department of Defense. Even as two Chinese names were dropped from the previous list (composed under the Trump administration), the new list has expanded from 31 to 59 companies. US investors have 60 days to divest.