The markets are facing another challenging US employment report. Just 266,000 jobs were added in April, which falls significantly short of the forecast one million increase, which means tat the US is still 8.2 million short of their pre-Covid level. The forecast for payrolls increase in May is 700,000, and here is where the conundrum begins. It is very likely that due to the impotent growth in April, a much bigger increase is possible in May, which will add fuel to the fire over fears the economy is overheating, which the markets tend not to appreciate. At all. Should we experience a second month of limp growth, then the markets will also, not love it, as this eventuality will likely see concerns increase over the lack of growth! Talk about your rock and a hard place. Reports in the US from both surveys and the media intimate that the corporates are trying and failing to employ, or even attract staff back into the office. The reluctance is being attributed to either Covid fear, or enhanced state income support offsetting incomes, the latter of which is due to being wound down in most states, which will be reflected in the numbers as people look to offset that drop in income. In any event, the temperamental nature of the current non farms jobs report, and the over sensitivity of the market to it, means we are in for a bumpy ride.
Here in the UK, finance minsters from the G7 are meeting in London today, and over the weekend, to decide how they are going to change the rules to be able to facilitate extracting more tax from the likes of Google, Facebook and Amazon. Chancellor of the Exchequer, Rishi Sunak, will chair the first face to face meeting of all finance ministers since the start of the global pandemic. Make no mistake, this is a quagmire of policies and politics, which ultimately is derived from the US, who want to prevent Britain, France and Italy, who are deemed to be unfairly targeting US tech firms for tax practices that are being adopted by European companies too. Enter Joe Biden. Biden is in intense negotiations with the Republicans to agree $1 trillion in infrastructure spending, and to achieve enough consensus to get the deal over the line, he has conceded that he cannot hike corporate tax rates as high as 28%, instead agreeing that there will be a minimum tax rate of 15%, which in turn will mean that if a corporate paid tax somewhere with a lower rate, they would most likely have to top up taxes. Do not worry; this episode has another chapter. Once an agreement in principle is made, or if, then it needs to be presented to the broader group of countries at the G20 summit in Venice in July. It is likely we will see some sort of agreement between June 11-13, when heads of governments meet in South West England.
Staying in the UK, there has been the first review over which countries are safe for Brits to travel to. This has been long awaited, with many people looking to finally get away. No new countries were added to the safe travel list, however Portugal was downgraded from Green to Amber. For the more adventurous of you, Afghanistan has been added to the red list, along with Bahrain, Costa Rica, Egypt, Sri Lanka, Sudan, Trinidad and Tobago. A Tweet from the Portuguese Minister of Foreign Affairs account said “Portugal continues to carry out its prudent and gradual deconfinement plan, with clear rules for the safety of those who live here and those who visit us.” Ironically, it is likely to have been Portugal’s decision to host the all English Champions League Final, which swayed the decision, as two planes of worth of British tourists have been instructed to isolate upon return.
This Morning Report was brought to you by Alex Ayoub