US mega-tech comes under fresh pressure from G7 Tax Accord

Digital assets have continued to consolidate. Ethereum has resumed its recent outperformance of Bitcoin over the last week. The Miami crypto conference brought announcements of fresh institutional adoption and hedge-fund positioning has significantly reduced – one of the key factors sparking the recent correction. Several studies indicate technical ‘exhaustion’ in the recent selling pressure whilst Stanley Druckenmiller highlighted the relevance of the HODLing culture within Bitcoin as exacerbating the constrained supply. There is growing awareness of the timing of sell orders trying to drive the price lower during periods of low liquidity. Whilst by no means a new phenomenon, a report by Plan B will strengthen the support that has been building. The impact of celebrity tweets, an inevitable dynamic for digital assets that derive their value from the internet - has also been put in fresh focus with a youtube video from Anonymous claiming Elon Musk’s true motivations for his recent ‘environmental concerns’ were to protect Tesla’s government subsidies.

In the first coordinated policy decision recently beyond Covid-related steps, the G7 Finance Ministers have agreed on a proposal to introduce a minimum of 15% global corporate profit tax, a move targeting the tax-minimisation of tech giants like Google and Amazon. A key move long sought after by some European governments, the move will prove controversial with low-tax jurisdictions such as Ireland. The Nasdaq +1.8% Friday, outperformed the S&P +0.9% on the relief rally after the Non-Farms report. This taxation news will add pressure to US mega-cap tech names and spur fresh interest into Russian, Chinese and other EM tech; ITI expects fresh buyers of the dip in EMQQ LN and several EM tech names. The release of below-consensus payrolls data is seen as easing the pressure on the Fed for an early tightening of policy.

The US non-farm payrolls added 559K new jobs in May, below the 675K consensus with clear inflationary pressure continuing on wages. The US interest rates staged a relief rally after the weaker-than-expected payrolls data, with 10-year yields falling by some 7bps, to close at 1.55%, a 10-day low. The DXY dollar index dropped 0.5% on the weak payrolls release and was down 0.35% on the day. Gold was buoyed +1% by the sharp drop in yields. Oil prices rose on Friday, on a combination of favourable US data, bullish comments from senior executives and a weaker dollar. Brent was up 0.8% at $71.8. The week ahead has plently of important data in the US, Europe and China, as well as the ECB decision and President Lagard’s press-conference. In the US, the most significant data release is May CPI on Thursday. Consensus is for yet another sharp increase in core CPI, to 3.4%. Presumably, market reaction for a possible overshot of consensus is likely to be less dramatic than with April’s CPI a month ago, thanks to the underwhelming payrolls and the Secretary Yellen suggested that the US Treasury would be relaxed with the continuing climb in inflation indicators. In Europe, the focus is on both Euro area and UK GDP, on Tuesday and Friday, accordingly as well as the ECB decisions and the President‘s statement on Thursday. The ECB will consider whether to trim its PEPP operations size which on the margin appears likely given the steady progress with vaccinations and reopening of the bloc’s economy.

In the EM space, the key data releases are China’s foreign trade today and monetary indicators on Wednesday. Russia’s CPI for May, due later today, is unlikely to show a large deviation from the prelimiary estimate, of 0.6% mom / 5.9% yoy. The policy rate decision in Russia, on 11 June, is still finely balanced but the more modest pace of increase, by 25bps, isincreasingly likely, including thanks to the recent RUB strength (the currency rose to 72.8/bbl at Friday’s close, the strongest since late July 2020. Friday’s address by Putin at the St Petersburgh Economic Forum focused primarily on domestic policy issues and with strong focus on the need for further significant progress reducing Russia’s hydrocarbon footprint. This has been long advocated by liberally inclined policymakers and experts but resisted by state-appointed managers in the energy sector. Ahead of the US-Russia bilateral summit in Geneva 15-16 June, US officials stressed the need to address the cyberthreats and Russia’s human rights record.