Game-changer, really?

While the fanfare of the G7 leaders’ summit has taken place in picturesque Cornwall, UK last week, the a bigger event happened a few days before.: the minimum global corporate tax for multinationals, I mean. The OECD has been working on this proposal for the last two years. The minimum global tax is simply one in which governments collect taxes from their multinational companies that are headquartered overseas in low-tax jurisdictions. Hence, if a U.S. company headquartered in Ireland pays the local corporate tax rate of 12.5%, the US government would claim the extra 2.5% from the company if the minimum global rate were 15%. Low-tax jurisdictions have no incentive to lower the tax rate even more, but those countries that sign up to the minimum tax do have an incentive to renege, which is why it is important that agreement is at a global level and also why the U.S.’s collaboration is crucial. The U.S. initially proposed a 21% global minimum corporate tax rate but has since reduced this to 15%. The amount of revenue governments can expect to recoup at a rate of 15% is subject to many different estimates. The OECD believes a minimum tax will help countries receive up to USD50bn-USD80bn more per year in corporate tax revenues but it is notable that estimates suggest some 60% of these extra revenues will go to G7 countries. The regulatory arbitrage is the biggest game of the multinational firms, to avoid taxes. The new tax regime may help to government revenues. Tax havens could clearly lose out if a minimum global tax rate forces multinationals to reshore back to their original country.


While the ‘transitory’ versus ‘permanent’ inflation debate in DM is unlikely to be settled anytime soon – and yesterday’s U.S. CPI print does little to swing the needle either way – but absent an early Fed shift in tone next week, global bond and FX volumes are set to push lower further as the calendar shifts to Jackson Hole. Meanwhile, EM local bond returns (GBI) have clocked 6%+ already this quarter and are set to push toward the 10%+ returns last seen in the final two months of 2020. Flows into EM local bond funds (ex-China) tend to follow performance more closely than other asset classes.

Ankit Jain, strategist, Deutsche Bank, June 11


We expect EM to continue to trade well into summer on the back of rangebound U.S. rates and DXY and a narrowing growth performance gap versus the U.S. during the second half of the year (EMFX at a fork in the road). However, it is worth noting that EM data surprises are already very high: from the temporary low in March, they have almost re-climbed to the December 2020 peak which was the highest reading in 20 years. Activity surprises are clearly mean-reverting, and a peak in the summer does not bode well for asset prices in the autumn. To be clear, we are more concerned about a peak in the global re-opening momentum in the autumn than about the Fed starting their taper discussion. It really shouldn’t be a surprise.

David Hauner, strategist, BofA ML, June 11

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