TheChek News Flow

Accord would curtail the ability of companies to shift profits to low tax jurisdictions

The Group of Seven top advanced economies are close to an accord on the corporate taxation of multinationals, paving the way for a global deal later in the year creating new rules for the imposition of levies on the world’s largest companies.

A G7 pact could be sealed as early as Friday after progress was made among top officials in recent days — and would be a powerful force and prerequisite for a deal in the formal negotiations taking place at the OECD in Paris and directed by the wider G20.

An OECD agreement would probably see the largest shake-up in international corporate taxation for a century, severely curtailing the ability of companies to shift profits to low tax jurisdictions and ensuring that US digital giants paid more tax in the countries where they made sales. 

Under the Biden administration, the US has been pushing hard for the G7 to reach its own consensus as a way of spurring the OECD talks so a final deal can be reached in the coming months.

The US last week scaled back its ambitions on a global minimum corporate tax rate, lowering it from 21 per cent to an effective rate of 15 per cent to increase its appeal internationally.

It also reassured other countries that it was serious in its offer to allow a slice of the global profits of the largest multinationals to be taxed based on the location of sales, and the two “pillars” of the deal are inseparable.

In recent weeks, the US has grown increasingly confident that it has most of the G7 on board with its plans, which built on blueprints drawn up by the OECD last year. Germany and Italy have been vocal supporters of a global minimum tax. Daniele Franco, the finance minister of Italy, which is chairing the G20, said on Friday that the latest US proposal was “another important step” and the prospects for a global deal on international tax reform were “now concrete”.

France and the UK have put more weight on the location of tax payments. International officials describe the UK as having been “difficult” in the negotiations. But in London, ministers and officials insist they want to make sure that both elements of the deal are prioritised and the US administration is serious in pushing the change to the location of corporate tax payments through Congress. 

UK officials said at the weekend that their position had not changed, but those close to the negotiations said that in the past week there had been something of a meeting of minds and an accord, initially at the G7, was looking likely.

The G7 does not have a formal role in the process, but the nations of the US, Japan, Germany, the UK, France, Italy and Canada make a powerful bloc in other forums. The group is holding a virtual meeting of finance ministers on Friday and an in person meeting on June 4 and 5 in London where the central elements of a deal can be agreed, officials said. 

If a deal can be agreed informally by finance ministers, the G7 leaders could formally sign it off at the Cornwall summit on June 11 to 13 presenting a plan to the 135 nations negotiating under the “inclusive framework” at the OECD.

In a sign of growing interest in the chances of a global deal on corporate taxes, Jake Sullivan, the US national security adviser, on Saturday tweeted: “The world is closer than ever before to a global minimum tax. Great to hear positive reception to our proposal and thanks to Secretary Yellen and our partners all around the world for their work on this. This is what it looks like to lead the world to end the race to the bottom.”

The G20 has said it wants to strike a deal by the summer and the progress at the G7 makes this ambitious timetable still just possible, although officials close to the talks think that October might be a more realistic date for a full international agreement.

Finance minister outlines plan to boost revenue and narrow yawning budget deficit

Saudi Arabia hopes to raise about $55bn over the next four years as it plans to step up its nascent privatisation programme with the government seeking to boost revenue and narrow its yawning budget deficit.

Mohammed al-Jadaan, the finance minister, told the Financial Times that Riyadh had identified a pipeline of 160 projects across 16 sectors, including asset sales and public-private partnerships, through to 2025.

Riyadh’s aim is to outsource the management and financing of health infrastructure and services to the private sector, as well as city transportation networks, school buildings, airport services and water desalination and sewage treatment plants. Asset sales will include television broadcasting towers, government-owned hotels and district cooling and desalination plants.

The programme is part of Crown Prince Mohammed bin Salman’s drive to overhaul the state-dominated, oil-addicted economy and modernise the kingdom.

“It’s not a choice any more, but a requirement by the central government that these services or these utilities will no longer be run by the government,” Jadaan said. “It’s taking it [privatisation] to the next stage.”

He said the goal was to raise revenue in Riyadh, which is grappling with a budget deficit that hit $79bn last year, equivalent to 12 per cent of gross domestic product, and improve state services.

The minister hopes to secure $38bn through asset sales and $16.5bn through public-private partnerships.

Jadaan has set the ambitious target of reducing its fiscal deficit to 4.9 per cent of GDP in 2021 as the kingdom looks to recover from last year’s twin shocks of the coronavirus pandemic and the slump in oil prices.

The privatisation programme does not include entities owned by the Public Investment Fund, the sovereign wealth fund that has become the dominant force in the economy under Prince Mohammed’s leadership, or further asset sales by Saudi Aramco, the state oil company.

The crown prince said last month that the kingdom was in talks to sell a 1 per cent stake in Saudi Aramco, which listed 1.7 per cent of its shares in 2019, to a global energy company.

Jadaan said that funds raised through any future sales of Aramco’s shares would go to the PIF, which is spearheading Riyadh’s efforts to diversify the economy, not the treasury.

“There are two types of sales for Aramco. They can monetise their own assets like pipelines and recycle that money into new investments — that is their business,” he said. “When it comes to Aramco’s shares, we will monetise them, recycle them and create more activity in the economy by unlocking new sectors through the PIF.”

Saudi Arabia began its privatisation programme three years ago, announcing the sale of sports clubs, flour mills and a water desalination plant. But the process was slow and only five asset sales, four milling companies and the Saudi Medical Service Center, have been completed.

The kingdom’s privatisation law, which has been in the works for several years, is scheduled to be enacted in July.

A Gulf analyst said there would be some foreign interest in the privatisations, but added the programme would mostly attract local businesses as overseas investors were still “circumspect” about the kingdom, as well as Prince Mohammed’s “brand”. His leadership has been tarnished by human rights abuses, including the 2018 murder of journalist and dissident Jamal Khashoggi.

Developing the private sector in the state-dominated economy and creating jobs for young Saudis outside the public sector are among Prince Mohammed’s main goals.

But in the five years since he launched his “Vision 2030” programme, there have been complaints about companies being crowded out by the PIF, while costs have increased as Riyadh has slashed energy and fuel subsidies, increased value added tax and more forcibly enforced quotas on the employment of Saudis, which tend to be more expensive than foreign workers who dominate the private sector.

“The private sector has been crowded out and is still subdued, they are concerned about the rise in fees and taxes, but the government now realises they have to include them,” said John Sfakianakis, a Gulf expert at Cambridge university. “The government wants to create a more slimmed-down state, and reduce their liabilities on the one hand, while using the PIF to do all the megaprojects.”

Flood of cash leaves renewable sector especially vulnerable to sharp market sell-off

Ownership of renewable energy stocks is as crowded a trade as technology stocks were at the height of the 1999 dotcom boom, according to index provider MSCI.

The claim follows a flood of investment into the sector, with global inflows into clean energy exchange traded funds surging to $14.7bn in the six months to the end of March, according to data from Morningstar, up from just $1.3bn in the same period of 2019-20.

This helped push stock prices sharply higher with the S&P Global Clean Energy index jumping 150 per cent in the year to the end of March, pushing sector-wide price earnings ratios above 35.

MSCI has calculated that stocks that are crowded according to its metrics accounted for more than 8 per cent, by weight, of the renewable energy sector as of the end of March, far more than for cyber security, the next most crowded sector, at under 3 per cent.

This left clean energy stocks only a fraction less crowded than small and mid-cap technology companies were immediately prior to the 2000 dotcom crash, during which the tech-heavy Nasdaq Composite index plunged 78 per cent over the subsequent two-and-a-half years.

MSCI’s models forecast that in the event of a “severe economic headwind”, such as an outbreak of stagflation, the level of crowding meant the clean energy sector could fall 42 per cent, compared with a 31 per cent fall for growth stocks and 20 per cent for global markets in general.

The renewable energy sector “became progressively more crowded throughout 2020, as equity markets rebounded from their lows in March of that year,” said Anil Rao, executive director of equity solutions research at MSCI. “The theme continued its upward trajectory through the end of the year and into the first quarter of 2021.”

Almost a dozen clean energy ETFs have launched since the start of 2020, according to data provider TrackInsight, taking the total to 26, with combined assets of $22.4bn, up from just $2.4bn at the end of 2019.

S&P Dow Jones Indices was forced to scramble to broaden its Global Clean Energy index last month after a torrent of money into two BlackRock ETFs that track it left them owning significant chunks of a swath of stocks.

This flood of activity has been matched by a rising tide of voices warning that flows were getting out of hand.

Patrick Pouyanné, chief executive of Total, one of the world’s biggest oil and gas companies, told the Financial Times in February that “there is a bubble” in the renewables sector. Valuations are “just crazy today”, Pouyanné added, a trend he attributed to a limited supply of assets of significant scale.

“I think we’re 100 per cent in a green bubble,” Gordon Johnson, chief executive of GLJ Research, said the same month. “Pretty much every solar company I cover, their numbers got worse and the stock, like, tripled . . . This is not normal.”

MSCI’s Rao argued that the renewable energy sector’s underperformance since March — since when the S&P clean energy index has fallen 9.3 per cent — “can be explained, in part, by its crowding characteristics”.

MSCI’s measure of crowdedness is constructed from five underlying metrics: valuation, trading volume, volatility, momentum and short interest.

It said all five tended to rise as more capital is pumped into stocks, with short interest building up as some investors start to bet that bubbles are forming.

The five largest renewable-themed ETFs all had exposure to crowded stocks that were either in line with the sector’s average score or were higher still, MSCI said, with “many of the most crowded stocks held across multiple funds”.

Ownership can be highly concentrated with, for example, the Invesco WilderHill Clean Energy ETF (PBW) holding 18.4 per cent of the free float of Nasdaq-listed Infrastructure and Energy Alternatives at the turn of the year, according to Morningstar, although this has since fallen.

Some remain upbeat about the renewables sector, though.

Kenneth Lamont, senior fund analyst for passive strategies at Morningstar, said “the massive inflows witnessed in the last half” were driven by Joe Biden’s presidential victory in the US and his subsequent programme of green investment.

As a result, Lamont said “those seeking short terms gains may already be late to the party but as valuations have fallen in 2021 the long-term case for alternative energy stocks remains strong”.

Hector McNeil, co-chief executive of the HANetf platform, which last week unveiled the impending launch of Europe’s first pure-play solar energy ETF, said “by definition we’re trying to get themes that are going to be long-term plays and that are fast growing. The way markets have come off [since March], I think it’s a good entry point. I think there is a lot of capacity still to grow.

“There is going to be a big realisation that the [emissions reduction] targets governments have set themselves are going to be pretty tough to achieve unless they act quickly.”

McNeil was also relaxed about the possibility of popular ETFs ending up owning uncomfortably large proportions of some stocks.

“We do a lot of liquidity analysis and we feel pretty confident there are enough stocks in this market and this industry to be not worrying about the concentration risk, particularly with new companies coming to the sector,” he said.

Lamont accepted that the energy sector had to expand rapidly in order to “meet the existential questions” society is currently facing, but also drew an analogy with the dotcom crash and the tech sector’s subsequent rise to dominance.

“You can be right in the long term when it comes to renewable energy, but the volatility can hurt a lot of people in the meantime,” he said.

SEC action on S&P hints at ‘deeper, unspoken concern’ about objectivity of benchmarks

It is easy to dismiss as a nothingburger the $9m fine recently slapped on S&P Dow Jones Indices for a seemingly minor glitch with a small, esoteric financial gauge. The case is convoluted and three years old. Who cares? 

Many should. Although the Securities and Exchange Commission’s action lacked the punch of an insider trading ring exposé, it may prove the modest beginning of an overdue attempt to tackle one of the least-appreciated but thorniest issues dogging modern markets: the rising power and importance of indices, and the oligopoly that controls them.

Indexing used to be a sleepy business, often started by niche newspapers as a service to subscribers. It was not very profitable, important or complicated, and was mostly seen as a way to try to measure the economy’s vim. When Charles Dow in 1884 created the inaugural version of the famous indices that bear his name it consisted of nine railroad stocks, a steamship company and Western Union.

The modern indexing era started in 1957, when Standard & Poor’s launched the first continuously-compiled, computer-calculated stock market gauge. But it is over the past decade that the importance of indices has exploded, and the industry providing them (at least in stocks) has coalesced into a clear “Big Three”. S&P, MSCI, and FTSE Russell together have a combined market share of about 70 per cent, and are wildly profitable. 

They have arguably accrued discreet quasi-regulatory powers over swaths of global markets, thanks to their influence over where trillions of investment dollars flow. Indices have morphed from being snapshots of markets to a force that exerts influence over them — thanks to the $15tn that now resides in passive investment funds.

Index providers strive to be as fair, rigorous and rules-based as possible, and indices are often seen as objective and mathematical reflections of markets. Yet indices are also unavoidably subjective, as providers decide the conditions for inclusions, exclusion and weightings. Nowadays, these are decisions with huge consequences. Underscoring its growing importance, the industry last year even suffered its first insider trading scandal, when the SEC charged an S&P employee with pocketing $900,000 by trading ahead of tweaks to indices he oversaw.

The more recent case is complex. Simply put, the SEC fined S&P $9m for briefly publishing “stale” prices for an index that underpinned a popular volatility-linked fund known as XIV when it imploded on February 5 2018, a wild day of trading later dubbed ‘Volmageddon’. In a statement, S&P DJI neither admitted nor denied the charge, but accepted the fine and said that it “takes these matters seriously and is committed to transparency and the integrity of its benchmark determination process”. 

The central problem was a mechanism called “auto-hold” that was triggered when prices moved unusually violently, a feature that was not publicly disclosed and not overridden on the day by S&P. In other words, it was a fairly idiosyncratic situation. Yet there are hints that it may have wider implications. 

For example, the SEC found that on the day in question, one of the two index managers responsible for the XIV index was out of the office, leaving just one person monitoring “thousands of indices”. Even the industry’s own trade body estimates that there are now more than 3m financial benchmarks being continuously maintained by its members, which means resources can get spread thin. 

Most of the time, this is no problem. Bigger, more important indices like the S&P 500 are more assiduously monitored than niche ones, such as that volatility-linked XIV, are tracked. Minor glitches are exceptionally rare.

But as SEC commissioner Hester Peirce remarked in her dissent to the S&P fine, the SEC’s decision “hint at a deeper, unspoken concern” that index providers are not governed by a regulatory framework explicitly tailored to their activities. Notably, even Peirce, a Republican appointee who has often opposed regulatory over-reach, said she was open to exploring such a framework. 

The EU now regulates the industry, and the SEC’s action indicates that the US watchdog might be considering scrapping the “publisher’s exclusion” that shields index providers from more onerous regulation and legal duties of a formal investment adviser. 

Whether this is the right approach is hard to say. Simply making index providers fiduciaries will certainly not solve the trickiest issues, and could introduce new ones. Yet rule books undoubtedly need to be updated to reflect modern reality.

Watchdog under fire as Kazakh miner sues over alleged mishandling of probe and encouraging of a lawyer’s misconduct

The Serious Fraud Office faces a £70m claim for damages by Kazakh mining company ENRC on Monday, at the start of a court case that puts the agency back in the spotlight following a series of high-profile failures.

ENRC claims the watchdog mishandled a long-running investigation into alleged corruption at the company and encouraged a lawyer, hired by the company, to break his contract.

The former FTSE 100 miner, which was taken private in 2013 following the allegations of corruption, is suing the SFO for misfeasance in public office and inducing a breach of fiduciary duty, for encouraging the alleged misconduct of Neil Gerrard, a former lawyer at Dechert.

The court will also hear ENRC’s claims that Gerrard cooked up a plan with the SFO to expand the remit of the internal investigation he was leading into a whistleblower’s allegations of corruption, to generate more in legal fees. Gerrard and Dechert are also being sued for breach of their fiduciary duty to the mining company. 

The SFO, Gerrard and Dechert all deny the allegations and in their defence have responded with allegations of their own against ENRC, including fraud, bribery and corruption.

The trial is the culmination of a three-year barrage of legal salvos from ENRC as it awaits a charging decision from the SFO, which started its probe in 2013.

ENRC’s claim for £70m in damages from the SFO far exceeds the anti-fraud watchdog’s annual budget although lawyers said an award of that size would be unusual. In 2014, the SFO was ordered to pay property tycoon Robert Tchenguiz £1.5m in damages over a bungled dawn raid at his home, far less than the record £300m in damages he had sought.

The reputational damage for the SFO, were it to lose, could be severe. The agency was dealt a blow last month when its case collapsed against two former executives at Serco, the public services provider — one of a series of high-profile setbacks it has suffered in recent years.

In 2019, a judge threw out the SFO’s case against the last of three Tesco executives, after the other two were cleared in similar circumstances the previous year. Early last year, the SFO lost its case against four Barclays bankers, dating back to the financial crisis, with the final three acquitted early last year.

ENRC’s allegations against Gerrard date as far back as 2010 when he was hired by the company to conduct an internal investigation into the whistleblower’s claims about alleged corruption at one of its mines. 

According to the ENRC’s court filings, Gerrard expanded the probe beyond his remit, including by leaking damaging and confidential information to individuals he was close to at the SFO, in order to boost his billings. 

Dechert claimed in its court filings that ENRC’s “real complaint” was that Gerrard and the firm “were too successful uncovering wrongdoing by certain of ENRC’s senior officers and executives, and those of its subsidiaries, including corrupt payments to senior government officials in Africa.”

The law firm said Gerrard was duty bound to co-operate with the SFO and to fully investigate evidence of corruption extending into ENRC’s acquisitions of assets in Africa.

In its court filings, the SFO rejected ENRC’s accusations that it built up an investigation on leaked and confidential materials, or that its former director Richard Alderman conducted improper phone calls and meetings with Gerrard.

The SFO said: “We regard ENRC’s case as without merit and will robustly defend our actions.”

Dechert said in a statement: “We stand by the work we did and reject any suggestion that there was any unauthorised disclosure of information to the SFO.”

ENRC declined to comment.

Coast Capital threatens legal action over sale of transport operator’s US bus business

FirstGroup’s largest shareholder has threatened to take legal action if the UK-listed transport operator does not renegotiate, delay or call off the £3.3bn sale of its US bus business to Swedish private equity group EQT.

New York-based Coast Capital has escalated its attack on FirstGroup’s board for what it calls a “destructive disposal” after its lawyers sent a letter to the board demanding that it pushes back Thursday’s shareholder vote by 60 days to allow for an independent valuation.

The activist campaign waged by Coast, which holds almost 14 per cent in the company and has waged a multiyear campaign against the management team, threatens to jeopardise the sale of FirstGroup’s most profitable division to EQT.

The pressure on the board has been dialled up following an expansion in the shareholder revolt. FirstGroup denied Coast’s claim that an emergency board meeting would be held on Monday. Schroders, the second-largest shareholder, and a host of smaller investors have joined the fund in opposing the deal. Proxy adviser Glass Lewis has recommended against the sale because of “poor transaction timing and inadequate valuation”.

Columbia Threadneedle Investments, the third-largest shareholder with a stake of about 10 per cent, and three proxy advisory agencies have voiced support for the sale. More than 50 per cent of votes are needed to pass the deal.

The FTSE 250 group announced the sale of First Student and First Transit last month in a move that would help to shore up its balance sheet and refocus its operations on its UK bus and rail business that includes Great Western Railway.

But its share price dropped about 16 per cent in the week following the announcement of the sale, before recovering some of its losses after the largest shareholder went public about its opposition to the deal.

James Rasteh, founding partner at Coast, accused the FirstGroup board of acting in EQT’s interests and breaching its fiduciary responsibilities by failing to consider attractive alternatives, which it claims to have evidence of existing.

“It’s a terrible deal,” he said. “They were working to sell the most important public transport company in North America during a pandemic when there was no vaccine and no visibility on school reopenings.”

David Martin, chair of FirstGroup, said that the process was “entirely in line with market practice for a UK listed company and the board, which has been advised by three leading multinational investment banks, fully complies with its fiduciary responsibilities at all times”.

In the letter sent by law firm Quinn Emanuel to the board over the weekend, it said that if a motion to adjourn the extraordinary meeting this week is unsuccessful and “the transaction is approved, our client [Coast Capital] reserves its right to commence proceedings to recover any losses arising out of the sale of First Student and First Transit at an undervalue”.

Coast is set to issue a statement on Monday with a series of rebuttals to the valuation and provide peer comparisons in response to counterclaims made by First Group on Friday.

NEW YORK TIMES

WALL STREET JOURNAL

Weekend

• Bitcoin miners are reopening old fossil-fuel power plants as the high prices of cryptocurrencies prompts investors to spend on the electricity generation needed to mine them, a trend that faces a backlash because of the environmental ramifications.

• +/- AAPL: During four hours of testimony in a California court, chief Tim Cook faced tough questions from a federal judge who will decide whether the tech giant operates an improper monopoly with its App Store payment system.

• America’s home-buying boom is easing after heating up last year, as limited inventory and record high prices are excluding potential buyers—existing-home sales fell 2.7 percent in April from March to a seasonally adjusted annual rate of 5.85M.

• US services businesses in early May saw their sharpest increase in activity in more than a decade, according to purchasing manager surveys, which also indicate a stronger-than-expected rebound in Europe and a contraction in Japan.

• A pared down White House proposal for a bipartisan infrastructure plan fell flat with Senate Republicans, leaving questions no closer to resolution days before a Memorial Day target for progress in the talks to spend on highways and broadband.

• Germany and France welcomed the Biden administration’s new acceptance of a minimum corporate tax rate as low as 15 percent, possibly smoothing the way to a global agreement as soon as July that could transform how international businesses are taxed.

• Federal agencies are scrambling to address a surge in the use of consumer drones that are crowding the airspace above critical sites, including airports, posing a threat to public safety and national security.

• China is tightening its grip on the global supply of processed manganese, rattling a range of companies world-wide that depend on the versatile metal—including the planet’s biggest electric-vehicle makers.

• Americans are getting more signals that it is safe to visit bars and restaurants again, which will test whether tips that grew larger during the pandemic will remain at those levels down the line.

• H.O.T.S.: If China hopes to curb steel demand—and emissions—it has to find a better way to shift the economy away from housing; VF Corp. “has many ways to grow its brands even as Vans sales slow.”

FINANCIAL TIMES

Weekend

• Front page story reports AZN chief Pascal Soriot insists the company’s Covid-19 vaccine has a future and criticized the “armchair generals” who were attacking the company because of a the rare instances of side effects.

• Poor nations are losing out after the WHO’s Covax program, which depended on getting shots from the Serum Institute of India, the world’s largest vaccine maker, said it will not be able to provide any more doses until the end of the year.

• The world could end the pandemic by the middle of 2022 by vaccinating 60 percent of the population and working to end the inequality undermining the global response, at a cost of $50B, according to a recent proposal released by the IMF.

• ECB president Christine Lagarde dismissed concerns about inflation being driven by rebounding economic activity and supply constraints, saying that these pricing pressures were “of a temporary nature.”

• Beijing rebuffed the Pentagon’s requests for talks between China’s top officer and the new US defense secretary, complicating bilateral relations at a time of heightened tensions between the countries and their militaries.

• Big Read piece says “A fortnight of violence has exposed Benjamin Netanyahu’s illusion that Israel can be at peace without a resolution of the Palestinian conflict. It has also demonstrated the pent-up anger at decades of occupation.”

• Lex Column: Any currency capable of evading Beijing’s controls is anathema to the People’s Bank of China, which prefers currency it can track and trace; A broader improvement in Richemont is not yet priced into shares; Bold assumptions about internal valuations have helped Electra’s shares double since the start of the year.

• Comment: Cryptocurrency holders are taking on central banks at their own peril, says Katie Martin—“If and when central banks and regulators do assume control, it will probably bite a chunk out of the value of cryptocurrencies and leave some holders with substantial losses.”

NEW YORK POST

Saturday

• Referring to an affair former MSFT chief Bill Gates had with an employee, current chief Satya Nadella said the company is very different than it was 20 years ago, and that it will investigate any and all issues raised by employees.

• As the pandemic wanes, US retailers are frantically trying to get rid of an excess inventory in hand sanitizer, a product that was a must-have only months ago but which now is cluttering up shelves.

Sunday

• Dr. Anthony Fauci, a top adviser to President Biden on the coronavirus pandemic, said he’s “not convinced” the deadly virus developed naturally and has called for further investigations into where it emerged.

• The CDC says it is investigating a small number of reports of adolescent and young adult Covid-19 vaccine recipients experiencing “mild” heart inflammation, a condition that can be caused by a number of viruses and often bring no complications.

NEW YORK TIMES

WALL STREET JOURNAL

Weekend

• Bitcoin miners are reopening old fossil-fuel power plants as the high prices of cryptocurrencies prompts investors to spend on the electricity generation needed to mine them, a trend that faces a backlash because of the environmental ramifications.

• +/- AAPL: During four hours of testimony in a California court, chief Tim Cook faced tough questions from a federal judge who will decide whether the tech giant operates an improper monopoly with its App Store payment system.

• America’s home-buying boom is easing after heating up last year, as limited inventory and record high prices are excluding potential buyers—existing-home sales fell 2.7 percent in April from March to a seasonally adjusted annual rate of 5.85M.

• US services businesses in early May saw their sharpest increase in activity in more than a decade, according to purchasing manager surveys, which also indicate a stronger-than-expected rebound in Europe and a contraction in Japan.

• A pared down White House proposal for a bipartisan infrastructure plan fell flat with Senate Republicans, leaving questions no closer to resolution days before a Memorial Day target for progress in the talks to spend on highways and broadband.

• Germany and France welcomed the Biden administration’s new acceptance of a minimum corporate tax rate as low as 15 percent, possibly smoothing the way to a global agreement as soon as July that could transform how international businesses are taxed.

• Federal agencies are scrambling to address a surge in the use of consumer drones that are crowding the airspace above critical sites, including airports, posing a threat to public safety and national security.

• China is tightening its grip on the global supply of processed manganese, rattling a range of companies world-wide that depend on the versatile metal—including the planet’s biggest electric-vehicle makers.

• Americans are getting more signals that it is safe to visit bars and restaurants again, which will test whether tips that grew larger during the pandemic will remain at those levels down the line.

• H.O.T.S.: If China hopes to curb steel demand—and emissions—it has to find a better way to shift the economy away from housing; VF Corp. “has many ways to grow its brands even as Vans sales slow.”

FINANCIAL TIMES

Weekend

• Front page story reports AZN chief Pascal Soriot insists the company’s Covid-19 vaccine has a future and criticized the “armchair generals” who were attacking the company because of a the rare instances of side effects.

• Poor nations are losing out after the WHO’s Covax program, which depended on getting shots from the Serum Institute of India, the world’s largest vaccine maker, said it will not be able to provide any more doses until the end of the year.

• The world could end the pandemic by the middle of 2022 by vaccinating 60 percent of the population and working to end the inequality undermining the global response, at a cost of $50B, according to a recent proposal released by the IMF.

• ECB president Christine Lagarde dismissed concerns about inflation being driven by rebounding economic activity and supply constraints, saying that these pricing pressures were “of a temporary nature.”

• Beijing rebuffed the Pentagon’s requests for talks between China’s top officer and the new US defense secretary, complicating bilateral relations at a time of heightened tensions between the countries and their militaries.

• Big Read piece says “A fortnight of violence has exposed Benjamin Netanyahu’s illusion that Israel can be at peace without a resolution of the Palestinian conflict. It has also demonstrated the pent-up anger at decades of occupation.”

• Lex Column: Any currency capable of evading Beijing’s controls is anathema to the People’s Bank of China, which prefers currency it can track and trace; A broader improvement in Richemont is not yet priced into shares; Bold assumptions about internal valuations have helped Electra’s shares double since the start of the year.

• Comment: Cryptocurrency holders are taking on central banks at their own peril, says Katie Martin—“If and when central banks and regulators do assume control, it will probably bite a chunk out of the value of cryptocurrencies and leave some holders with substantial losses.”

NEW YORK POST

Saturday

• Referring to an affair former MSFT chief Bill Gates had with an employee, current chief Satya Nadella said the company is very different than it was 20 years ago, and that it will investigate any and all issues raised by employees.

• As the pandemic wanes, US retailers are frantically trying to get rid of an excess inventory in hand sanitizer, a product that was a must-have only months ago but which now is cluttering up shelves.

Sunday

• Dr. Anthony Fauci, a top adviser to President Biden on the coronavirus pandemic, said he’s “not convinced” the deadly virus developed naturally and has called for further investigations into where it emerged.

• The CDC says it is investigating a small number of reports of adolescent and young adult Covid-19 vaccine recipients experiencing “mild” heart inflammation, a condition that can be caused by a number of viruses and often bring no complications.

Electric cars get all the attention, but truckmakers are also under pressure to shift from fossil fuels to electricity.

Carmakers have been promising to scrap the internal combustion engine, and now it’s the truckmakers’ turn. But the makers of giant 18-wheelers are taking a different route.

Daimler, the world’s largest maker of heavy trucks, whose Freightliners are a familiar sight on American interstates, said last week that it would convert to zero-emission vehicles within 15 years at the latest, providing another example of how the shift to electric power is reshaping vehicle manufacturing with significant implications for the climate, economic growth and jobs.

The journey away from fossil fuels will play out differently and take longer in the trucking industry than it will for passenger cars. For one thing, zero emission long-haul trucks are not yet available in large numbers.

And different technology may be needed to power the electric motors. Batteries work well for delivery vehicles and other short-haul trucks, which are already on the roads in significant numbers. But Daimler argues that battery power is not ideal for long-haul 18-wheelers, at least with current technology. The weight of the batteries alone subtracts too much from payload, an important consideration for cost-conscious trucking companies.

Instead, Daimler and some rivals are betting on fuel cells that generate electricity from hydrogen. Fuel cells produce no tailpipe emissions, and hydrogen fuel tanks can be refilled as fast as diesel tanks — a distinct advantage compared with batteries, which typically take at least twice as long to recharge.

In April, Daimler began testing a prototype “GenH2” long-haul truck capable of going 600 miles between visits to the hydrogen pump. But lots of work is needed to bring down the cost of the equipment and there is not yet a network of hydrogen fueling stations or an adequate supply of hydrogen produced in a way that does not cancel out the environmental benefits.

Last week Daimler provided details of how it plans to solve these problems, with the goal of selling hydrogen-fueled long-haul trucks by 2027 that will be cheaper to buy and operate than diesel models.

During an online presentation Thursday, Daimler executives announced a partnership with Shell to build a “hydrogen corridor” of fueling stations spanning northern Europe. For shorter-haul trucks, Daimler announced a partnership with the Chinese company CATL to develop batteries, and partnerships with Siemens and other companies to install high-voltage charging stations in Europe and the United States.

In March, Daimler and Volvo Trucks, which are usually intense rivals, formed a joint venture to develop fuel cell systems that will convert hydrogen to electricity to power long-distance trucks. The message is that the energy transition is too big even for a company the size of Daimler, with revenue last year of 154 billion euros, or $188 billion, to manage on its own.

Daimler has been working on hydrogen fuel cell technology for decades, but the technology is not yet cheap enough or rugged enough for commercial use.

“The fuel cells out there today are not at all fulfilling the demands that we have coming from our customers,” Lars Stenqvist, chief technology officer of Volvo Trucks (which is a separate company from Volvo Cars), said in an interview from company headquarters in Gothenburg, Sweden. “That’s one reason to join forces with Daimler, in order to share that development burden.”

Daimler, based in Stuttgart, is planning this year to split its truck- and bus-making operations from the division that makes Mercedes-Benz cars, forming a separate company with its own stock market listing. The spinoff of Daimler Truck, announced in February, is a momentous event for the company, which traces its roots to the inventors of the automobile and was once a sprawling conglomerate that manufactured airplanes and trains as well as autos.

One motivation for the amicable divorce is to give the truck unit more freedom to react to technological change, while raising money from investors to help finance the enormous cost of developing emission-free long-haul vehicles.

“Independent management and governance will allow them to operate even faster,” Ola Källenius, the chief executive of Daimler, said Thursday.

Daimler managers concede that some portions of its truck business are ailing. In the United States, Freightliner, which Daimler acquired in 1981, is the top selling brand of heavy truck, with more than one-third of the market. But in Europe, Mercedes-Benz brand trucks have lost market share and score behind rivals in customer satisfaction surveys.

Karin Radstrom, hired this year from rival Scania to fix the Daimler Truck business in Europe and Latin America, said the company put too much energy into fancy engineering that customers weren’t willing to pay for.

“To some extent we lost touch with our customers,” Ms. Radstrom said during the presentation Thursday.

As with passenger cars, the truck-making dinosaurs like Scania, a unit of Volkswagen, or Paccar, maker of Kenworth and Peterbilt trucks, face new competitors trying to exploit the transition to electric technology.

Nikola, a truck start-up based in Arizona, was briefly worth more than $20 billion on the stock market. But its shares have lost three-quarters of their value since the founder, Trevor Milton, resigned last year facing accusations he had made numerous false assertions about the company’s hydrogen fuel-cell technology.

Nikola at least demonstrated how eager investors are to put their money into hydrogen trucks. Another example is Hyzon, a maker of fuel cells based in Rochester, N.Y., that has begun offering complete trucks and buses. In February, Hyzon was acquired by Decarbonization Plus Acquisition Corporation, a so-called SPAC that raises money before it has any assets.

Tesla unveiled a design for a battery-powered semi truck in 2017, which the company has said it will begin delivering this year. Tesla, Scania and some other truckmakers are skeptical of hydrogen technology, which they regard as too expensive and less energy-efficient.

The traditional truckmakers like Daimler and Volvo have some advantages over the start-ups. Truck buyers tend to be practical hauling firms or drivers who carefully calculate the costs of maintenance and fuel consumption before they make a decision. Managers of big fleets may also be reluctant to take a chance on a manufacturer without a long track record.

“There is a lot more spreadsheet analysis and crossing the Ts before any orders are signed,” said Daniel Ives, a managing director at Wedbush Securities who follows the tech industry. “Daimler is in a massive position of strength.”

For trucking companies, it is a confusing time. They face pressure from regulators to reduce their impact on the climate before there is a big selection of emission-free vehicles to buy, said Glen Kedzie, energy and environmental counsel for the American Trucking Associations, an industry group. President Biden has been promoting electric vehicles, but has not yet defined what that means for the trucking industry.

Trucking companies, which have depended on diesel for most of the last century, will have to revamp their maintenance departments, install their own charging or hydrogen fueling stations in some cases, retrain drivers and learn to plan their routes around hydrogen or electric charging points.

But Mr. Kedzie said that emission-free trucks also had some advantages. Fuel costs for battery-powered vehicles are much lower than for diesel trucks. Maintenance costs may be lower because electric vehicles have fewer moving parts. Drivers like the way electric trucks perform — an important factor at the moment when there is a driver shortage in America.

Many companies that ship a lot of goods, like Walmart or Target, are trying to reduce their carbon footprints and taking an interest in zero-emission trucks. “There are a lot of potential benefits” Mr. Kedzie said.

Daimler says its aim is to make battery-powered short-haul trucks that can compete on cost with diesel by 2025, and long-haul fuel-cell trucks that achieve diesel parity by 2027.

“In that very moment when the customer starts benefiting more from a zero-emission truck than a diesel truck, well, there’s no reason to buy a diesel truck anymore,” Andreas Gorbach, chief technology officer for Daimler’s trucks and buses division, said during the presentation Thursday. “This is the tipping point.”

The Federal Reserve and the Treasury Department are turning up the heat on cryptocurrency, signaling a crackdown could be coming after several days of volatility in the sector.

Fed chair Jerome Powell said in a rare video message posted Thursday that cryptocurrencies, which have grown to have a market cap of nearly $2 trillion, pose some risks to both individual investors and the broader financial system.

He also distinguished between volatile cryptocurrencies and so-called stablecoins, which are tied to the value of other currencies such as the US Dollar.

“As stablecoin’s use increases, so must our attention to the appropriate regulatory and oversight framework,” Powell said, noting that businesses that process crypto payments could be a point of more regulation.

Powell also noted that the Fed is exploring how and whether cryptocurrencies could improve the current US financial system. He said the Fed has been exploring whether it should establish cryptocurrency of its own, called a central bank digital currency, or CBDC.

He said the Fed will publish a discussion paper this summer on the benefits and risks of establishing a CBDC, and will seek public comment.

“We think it is important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks,” Powell added.

The Treasury Department, meanwhile, said it’s taking steps now to regulate the crypto world. It announced Thursday that it will require any transfer worth $10,000 or more to be reported to the Internal Revenue Service.

“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the department said as part of a broader announcement on the Biden administration’s efforts to crack down on tax evasion. “This is why the President’s proposal includes additional resources for the IRS to address the growth of cryptoassets.”

The regulatory attention comes after weeks of speculation that the Biden administration was preparing action on the crypto market, which has ballooned in popularity and value in recent months.

Thursday’s announcements come after a particularly volatile week in the crypto space. The market tanked earlier this week after regulatory action in China. Almost $400 billion was wiped off the market in 24 hours, and has since largely recovered over the past couple of days.