US stocks declined as investors grew nervous over a global minimum tax rate, taper fears remain following hawkish comments from Treasury Secretary Yellen, and as meme stock mania enters its third wild week.
Biogen shares soared after its Alzheimer drug Aduhelm (aducanumab) won FDA approval, the first new treatment for Alzheimer’s disease in nearly two decades. Apple’s Worldwide Developers Conference didn’t deliver any major surprises. Apple announced its new iOS updates, major improvements with FaceTime, and enhanced privacy reporting.
The world just got a lot closer to a global minimum tax rate after the G-7 agreed on a minimum tax of at least 15% which paves the way to tax the profits of digital companies. The next step is for the G-20 to discuss the proposed global tax rate in early July. Resistance from tax haven countries such as Ireland is expected, but that might not matter if the majority of large developing countries approve the global tax.
Even if G-20 supports the global tax rate, the US can’t sign off the global tax without Congressional support, which could see resistance from antitax GOP members. A lot needs to go right for this new tax to get implemented, which seems at the earliest would be around 2023.
It appears that Amazon, who has a profit margin around 5.5%, well below the 10% proposed threshold, won't be exempt to the proposed global tax. If this global minimum tax rate was a baseball game, they'd be in the bottom of the second inning.
Crude’s rally came to a screeching halt overnight after WTI tested the $70 level and as China’s imports dropped to a five-month low. The weakness in Chinese demand appears to be more of a story about China’s private refining sector tentatively slowing purchases as they deal with investigations to address structural overcapacity. China’s economic recovery is moderating but is still strong when compared to the rest of the world. China’s May trade data showed imports had the fastest pace in a decade as the demand for raw materials remains elevated.
The energy market remains fixated over the Iranian nuclear deal talks with both sides doing a lot of posturing. US State Secretary Blinken noted that it is unclear whether Iran is willing, prepared to do what is necessary to come back into compliance with the Iran nuclear deal. IAEA Chief Grossi voiced concern that Iran is hiding nuclear material and that he is ‘deeply concerned’ with Iran’s lack of engagement.
At some point this week, a make-or-break moment will present itself over Iranian nuclear talks and that should help determine if bullish momentum continues to send oil much higher. Both sides are incentivized to get a deal done, but if a breakthrough does not occur before the June 18th Iranian presidential elections, Brent crude could easily rally above the $75.00 level.
Gold prices shrugged off earlier losses that stemmed from US Treasury Secretary Yellen saying that President Biden's $4.0 trillion spending plan would be good for the US, even if it contributed to rising inflation and results in higher interest rates.
If financial markets are already in the summer doldrum mode, that could mean gold prices could steadily rally over the next couple of months. Even if the upcoming inflation report later this week doesn’t show a significant deceleration in pricing pressures, it probably won’t change anyone’s opinion on inflation at the Fed. The May reading is expected to increase by 0.4%, a big drop from April's 0.8% gain, which was the largest monthly gain since 2009.
Wall Street should see investor demand improve for safe-havens such as gold, as global tax and inflation concerns intensify. Gold faces short-term resistance at the $1,925 level.
Bitcoin shrugged off weekend pressure that stemmed from the acceleration in the crypto crackdown in China. The microblogging platform Weibo restricted around a dozen popular cryptocurrency accounts over the weekend. This is not the first Weibo banned accounts but has helped many crypto traders anticipate further actions from Beijing.
The news however is not all negative for cryptocurrencies, El Salvador is poised to become the world’s first country to adopt bitcoin as legal tender. El Salvador, like many LATAM countries, pays significant fees with international transfers, so the embracement of cryptos should not come as a surprise.
Bitcoin continues to stabilize between the $30,000 and $40,000 and that should be healthy for the entire crypto market as a whole.