Historic deal to tax multinational companies properly


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By Interest.co.nz, Interest.co.nz / Podcasts NZ, and David Chaston. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.

Kia ora,

Welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news there is an historic deal to tax multinational companies properly.

But first we should note that today is a public holiday in New Zealand.

The G7 has agreed to implement a global minimum rate that ensures multinationals pay tax of at least 15% in each country they operate, as proposed by Janet Yellen and the Biden Administration. Now pressure on countries like Ireland and other tax havens will grow intense to respect the deal. In addition, the G7 is rushing to set rules for digital currency issues, partly to counter China's lead in this area.

Meanwhile, China is moving to clean up and clear out bitcoin miners.

In addition, the Chinese central bank governor is backing a push for climate risk disclosure among Chinese banks. He did so after starting stress tests of financial sector.

The infant nutrition business in China isn't the pot of gold it was anymore and some international major players are exiting, Reckitt selling to a local investment company.

On Friday the Indian central bank reviewed its policy positions and made no change. India is in a tough COVID fight and that is battering their economy as well as their health systems. The central bank made no formal policy rate changes but it did turn dovish - the economic expansion they were expecting will now be a more subdued version in 2021. Their GDP forecast was trimmed from the recovering +10.5% to +9.5% and their inflation forecast was raised from +4.9% to +5.1%. These seem heroic adjustments in the circumstances but local analysts suggest they are realistic.

Singapore has reported uninspiring retail data for April, a clear sign normality is a way off for them yet. But Singapore still seems on track to achieve a +6% economic expansion despite recently going into another lockdown. The industrial sectors driving their growth are not likely to be affected too much by the new restrictions.

In Australia, home loan growth has been strong, according to the latest data for April. This is adding to the eye-catching trend that started in October 2020.

In the US, the widely anticipated May non-farm payrolls report for the US has come in decidedly 'average' with employment growing by +559,000 from April. This comes after a surprisingly weak +278,000 rise in April from March. In both months analysts had expected the gains to be very much higher, at almost +1 mln in each month. The net result is disappointment. The participation rate is little-changed. Job growth is bouncing along at a modest rate and may continue its uneven progress through their summer months. That is the revised expectation now.

Stocks rose and benchmark bond yields fell as this suggests policy makers will need to retain easy money policies for longer.

This hiring data is in contrast to the strong expansionary PMIs we have been reporting earlier in the week, both for factories and their service sector. Those other reports indicated healthy employment growth.

So how are the two reconciled? Firstly you should note that the reported payrolls are 'seasonally adjusted' - and perhaps the historical basis for this isn't quite right now, post pandemic. A look at the actual data reveals a more up-beat situation. In March, non-farm payrolls were actually a bit over 143 million according to the unadjusted B.1 table. In April they rose to over 144 million. In May they rose again to over 145 million. That means in April, payrolls actually rose by +1.1 million. In May they actually rose by +933,000. These are far, far different changes than the seasonally adjusted numbers reported. Seasonal adjustment makes sense to get rid of the noise in month-on-month data, but when an economy is upended by a pandemic, perhaps it creates its own new distortion? Time will tell - the seasonal adjustment process has been reliable though many economic crises over the years, But the bald fact is, American payrolls have actually risen by more than +2 mln in the past two months. And in any assessment, that is significant and a lot more than how most news outlets are reporting it.

But then again, perhaps some of those PMI reports were overdoing it. The official April data on US factory orders has them slipping slightly, down -0.6% from March. Looking through the pandemic base effect, the April level is -2.1% lower than in April 2019. So either way, factory orders are weaker than you would expect in a recovering or recovered economy. Still, this is April data and the PMI and payroll data is for May, so we need to be careful about jumping to early conclusions.

In Canada, they also reported May payroll data, and there was only disappointment there. In April they had a large drop in payroll employment (-207,000). Unfortunately the May data follows this with another -68,000 fall. Their participation rate, while higher than for the US, fell. Their jobless rate is a high 8.2%.

The UST 10yr yield starts today still down at 1.56%.

The price of gold starts today at US$1892/oz, and unchanged.

Oil prices start today little-changed at just under US$69.50/bbl in the US, while the international Brent price are just under US$71.50/bbl.

The Kiwi dollar opens today marginally firmer at 72.1 USc but trading will be very light. Against the Australian dollar we have firmed slightly to 93.2 AUc. But against the euro we are at 59.3 euro cents. That means our TWI-5 starts today at 73.7.

The bitcoin price is now at US$35.990 and another -3.0% lower than this time Saturday. In China, under pressure from Beijing social media platform Weibo has blocked the accounts of some large crypto trading companies. Volatility in the past 24 hours has been moderate at +/- 2.3%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.

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