Daily Comment (April 9, 2021)

by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Good morning.  Equity markets are expected to open higher this morning as Treasury yields will likely drop for a fourth consecutive day.  We begin our coverage with the Alabama warehouse union vote and the Biden administration’s proposal for a global minimum tax.  Next is a news roundup, including economics and policy, international news, and China news.  We also include a summary of COVID-19 developments.

Union vote: The most recent tally from the Amazon (AMZN, $3,299.30) warehouse union election has the tech giant far ahead.  With more than half of the ballots counted, 70% came in against unionization, according to a Wall Street Journal tally.  The vote has been closely watched by policymakers as workers in the Alabama warehouse could potentially be the first Amazon employees to unionize and thus spark a national push for unionization.  So far, the tally suggests that Amazon has prevailed this time, but other warehouses could still look to unionize.

Global minimum tax: On Thursday, the Biden administration released its plan for a global minimum tax that would be applied to all multinational companies across the world.  The tax is seen as an alternative to the current system, which allows countries to levy taxes based on their own laws.  The push for a global minimum tax is designed to dissuade countries from targeting individual industries where they don’t have a vested interest in special taxes.  Most recently, Europe has pushed for a national digital tax which would have disproportionately impacted U.S. Big Tech companies.  In addition, the proposal is also designed to prevent corporate tax avoidance.  The OECD pushed a similar plan last year, with the biggest difference being that the Biden administration’s version would like a 21% minimum tax, while the OECD proposed a 12.5% tax.  That being said, the global tax rate is below the top statutory corporate tax rate for a majority of countries within the OECD.

The Biden administration would like to see an agreement reached sometime this year as it is relying on the revenue from the potential repatriation to fund its infrastructure plan.  At this time, we are pessimistic about whether this is a reasonable timeline.  The U.K. and Ireland will likely push back against the proposal as it will make these countries less attractive for foreign investment.  Additionally, any agreement will likely take a long time to implement as the bill would still need to pass local legislatures.  Financial markets have largely ignored the proposal for that reason.  Nevertheless, as the proposal gains traction we expect to see a stronger market reaction, especially from Big Tech and pharmaceutical companies, which have largely been able to avoid taxes by registering intellectual property rights in low-tax countries.

 Economic and policy news:

  • On Friday, the Biden administration is expected to request $715 billion in defense spending over the next fiscal year.  Although the request reflects a 1.2% rise in defense spending, it falls shorts of the amount requested by the preceding administration.  Members of the GOP are expected to push for defense spending.  They believe the current budget is inadequate in dealing with growing threats posed by Russia and China.
  • General Motors (GM, $60.09) is expected to halt production of several factories as it struggles to deal with the chip shortage.  Three plants are expected to close or have their output severely reduced.  The chip shortage hasn’t had a major impact on car sales as stimulus checks and increased value for trade-ins have bolstered automotive revenue.  However, this is unlikely to continue if the chip shortage persists.
  • During a panel discussion hosted by the International Monetary Fund, Fed Chair Jerome Powell argued that the economic recovery is not helping everyone equally.  He elaborated on this claim by stating that there are still a lot of people who don’t have jobs, and he will do whatever it takes to make sure people don’t feel left behind.  The remarks were taken positively by financial markets.  It suggests the Fed has no intention to raise rates in the foreseeable future.
    • Mary Daly, the CEO of the Federal Reserve Bank of San Francisco, mirrored that sentiment during an interview on Bloomberg Television.
  • A report from the CDC shows that suicide rates have dropped by the most in four decades.  The cause for the drop is unknown, but it is speculated that during the early stages of the pandemic, people were more likely to reach out to check on friends and family.
  • House Speaker Nancy Pelosi is expected to split the infrastructure bill in half and push each one through Congress before the August recess.  Although she has not ruled out the possibility of pushing the bill through reconciliation, she is believed to be looking for some Republican support, at least for physical infrastructure.

COVID-19:  Official data show confirmed cases have risen to 133,755,255 worldwide, with 2,899,782 deaths.  In the United States, confirmed cases rose to 30,998,579, with 560,065 deaths.  Vaccine doses delivered in the U.S. now total 229,398,685, while the number of people who have received at least their first shot totals to 112,046,611.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


  • Michigan is seeing a surge in COVID-19 cases despite the rise in vaccinations.  Policymakers are starting to become more concerned that vaccines may not be effective in combatting variants of the virus.  So far, 200 vaccinated people in Michigan have been infected by the virus, with three deaths being investigated.
  • More countries have begun scaling back administering the AstraZeneca (AZN, $49.50) vaccine for young people as the vaccine has been linked with causing blood clots.  South Korea, Spain, the Netherlands, Belgium, and Portugal have reserved the vaccine for its older residents, typically aged 60 and up.
  • On Thursday, new research from the Center for Disease Control and Prevention contradicted an earlier claim from the previous year.  According to the study, it is highly improbable that a person can contract the virus from surfaces.
  • New York City has expanded the amount of COVID-19 cases that would trigger a school closure from two to four cases in a week.  The change has drawn lots of scrutiny as a rise in COVID-19 cases has been linked to school activity, particularly sports.
  • COVAX, an entity of the World Health Organization, has dispersed vaccines to over 100 low and middle-income countries within six weeks of beginning its rollout.

 International news:

  • Iran released a South Korean ship on Friday after South Korea agreed to release Iranian frozen funds from its bank.  Diplomatic ties have been strained between the two countries after Iran seized a South Korean tanker in the Strait of Hormuz on accusations that the tanker polluted the water.
  • U.S. Defense Secretary Lloyd Austin is expected to meet with Israeli officials later today to discuss growing tensions between Israel and Iran.  It is believed that the Israeli Navy carried out an attack on an Iranian spy ship earlier this week.  While Israel claims the attack was retaliatory, it has been suggested the U.S. isn’t convinced.  Israel and the U.S. have been at loggerheads in recent weeks after the Biden administration opened informal talks with Iran regarding its nuclear program, something Israel vehemently opposes.
  • Prince Philip, the Duke of Edinburgh, died Friday morning.  He was 99 years old.  His death will mark the start of eight days of official mourning.
  • Italian Prime Minister Mario Draghi sparked outrage in Turkey after he labeled Turkish President Recep Tayyip Erdogan “a dictator.”  The comment was made in reference to ill treatment of European Commission President Ursula von der Leyen.  He stated that officials need to be frank with expressing diversity of views, while also be willing to cooperate to ensure the interests of their respective countries.  Turkish officials have criticized the remark as unproductive and have requested it be retracted.
  • Tensions between Russia and the Ukraine over Donbas have escalated, with Russia amassing troops near the eastern Ukraine border.  The two sides failed to reach a peace agreement, and it appears that Russian President Vladimir Putin is prepared to invade Donbas in order to gain leverage in negotiations.
  • Police in Northern Ireland were forced to break up a riot Thursday as tensions between loyalists and nationalists continue to escalate.  Conflict has risen between the two sides since the conclusion of the Brexit agreement, which created a trade barrier in the Irish Sea.  The barrier has caused difficulty among businesses, as it requires all goods entering Northern Ireland from the U.K. to follow EU customs rules.  As a result, loyalists have called for the protocol governing the deal to be scrapped because they believe it undermines their place in the U.K.


  • China has upped the ante in its attempt to stymie criticism of detention centers in Xinjiang as it prepares to host the Winter Olympics in 2022.  Recently, it has released videos of Uighurs asking their family members living abroad to stop criticizing China and to return home.  China has also targeted critics with sanctions.
  • Chinese officials have intensified the crackdown on Jack Ma’s empire by targeting the university he founded, Hupan.  The elite business school has been forced to halt new enrollment following pressure from Beijing.  The former Alibaba (BABA, $228.24) CEO hasn’t been seen since October after his criticism of Chinese regulators.  Chinese officials say the school could be a modern-day Donglin Academy, which was known for allowing open debates and has been credited with bringing down the Ming Dynasty.

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