G7 supports global minimum tax rate
Market players today
- Today we will listen attentively to the speech by French central bank governor Villeroy on the future monetary policy of the ECB at our Nordic summit.
- We will also look for German ifo numbers taking another leap forward, as the ZEW index indicates.
- We expect Hungary’s central bank to keep rates unchanged at a policy meeting this afternoon.
- Early tomorrow morning, we expect the Reserve Bank of New Zealand to do the same.
The 60 seconds overview
Global minimum corporate tax: Officials representing the G7 countries have negotiated an agreement in recent weeks that will pave the way for a final agreement on a global minimum tax rate later this year (note that the G7 countries did not no formal role in the decision-making process). Last week, the Biden administration lowered its demand for an upcoming deal from a low of 21% to 15% to garner more support from the 139 countries currently negotiating at the OECD / G20 level. . G7 finance ministers will meet in person in 10 days, after which a final deal could be sealed at the Cornwall summit June 11-13.
The Fed and Inflation: Yesterday, Fed officials once again downplayed the risk that high inflationary impressions were more than transient. Governor Lael Brainard said she still hadn’t seen long-term inflation expectations rise significantly and that if they did, the Fed had the tools to affect them. Atlanta Fed Chairman Raphael Bostic said higher price levels do not seem “sustainable.”
Benchmark reform: Libor rates are phased out in recent years, and in the United States, regulators are encouraging the Secured Overnight Financing Rate (SOFR) to replace USD Libor. However, in recent times a range of other benchmark rates have emerged such as Bloomberg Short Term Bank Yield (BSBY) and Ameribor. Common to alternative benchmarks is an element of credit risk that is largely non-existent in SOFR. A myriad of new benchmarks could complicate the process of phasing out Libor.
Stocks: Stocks were mostly higher in a very quiet Monday session, and after finishing largely lower last week. Growth is back in fashion, extending last week’s outperformance. Small caps beat large caps and cyclicals outperformed defenses. Technology and communications services stood out, while utilities and health care lagged behind. In the US, S&P closed 1.0% higher, Dow 0.6%, S&P 500 1%, Nasdaq 1.5% and Russell 2000 underperforming 0.6%. Asian markets are solidly higher this morning, with technology the focus and China leading the gains. US futures also point to another green opening and Nasdaq futures are outperforming.
FI: With most of Europe out yesterday, EGBs were moving mostly sideways, with a slight rally in the afternoon, closing about 1bp lower than Friday’s close. The ECB’s net PEPP purchases last week stood at € 21.7 billion (4.3 billion / day), indicating a continued rather mechanical implementation of PEPP purchases at the ECB . We expect this to continue as the ECB meeting approaches in two weeks. The bullish US curves flattened yesterday.
FX: The Euro rose against the USD, GBP and JPY yesterday. EUR / USD climbed above 1.22, EUR / GBP hit 0.865 and EUR / JPY 133.
Credit: Only very moderate credit movements since Thursday. iTraxx Xover tightened 1bp (to 257bp) and Main is unchanged at 52bp. HY and IG bonds are slightly tighter than Thursday.
Macro and Nordic markets
The Danish Ministry of Finance yesterday released the update on the funding requirement for 2021. The net funding requirement has been revised up from DKK 42 billion for the full year to DKK 54 billion despite an improvement over the course of the year. of the first four months of about DKK 20 billion. The higher financing needs mainly reflect the maintenance of corporate liquidity facilities linked to the government foreclosure.