- FTSE 100 set to open 10 points lower at 7458
- DAX set to open 38 points higher at 12,940
- CAC set to open 9 points higher at 5376
FTSE to buck trend with weak open
Stocks in Europe look set for a positive open on Wednesday, extending a run of good form at the beginning of the fourth quarter. Stocks in the UK are bucking the trend with the FTSE 100 expected to open lower. It’s a natural pullback for the FTSE from the 7-week highs reached yesterday. The recent slide in oil prices is hurting the performance of the heavy concentration of energy and resource sectors in UK markets. Asian investors have taken a downgrade to 2018 growth forecasts from the World Bank in their stride. A cut in China’s reserve requirements this week underscores why investors might not be so worried. Any growth slowdown is expected to be shield by the Chinese government.
Wall Street powers on
Futures point to a higher open on Wall Street despite problems at two of America’s tech giants, Amazon (NASDAQ:AMZN) and Yahoo (NASDAQ:AABA) (now owned by Verizon). It has been reported the European Commission will require Luxemburg to collect back-taxes from Amazon. Yahoo has announced all 3bn of its accounts were affected by the 2013 data breach. Right on the heels of the problems at Equifax (NYSE:EFX), Yahoo’s admission is another blow to consumer confidence in the security of their data held at big tech companies.
EU fight with Luxemburg damaging to Amazon
It’s very reminiscent of the situation with Apple (NASDAQ:AAPL) and Ireland. It will probably pan out the same way with denials and years of litigation. Ultimately there will probably not be any admission to illegal state support or tax evasion, but there will be consequences. Once the dust has settled, multinational companies will just choose to avoid the bad PR and legal tussles by paying a fairer rate of tax on European profits. The days of sweetheart tax deals inside Europe like Amazon’s James Bond-esque ‘Goldcrest project’ with Luxemburg will soon be over.
The ruling could be much more damaging for Amazon than it was Apple. The amounts involved are lot less than with Apple, but as a proportion of earnings, what the EU is asking of Amazon is much higher. Figures from the FT indicate €4bn in profit was funnelled into a non-taxable entity in Luxemburg, €1bn of which was sent to the US and taxed. If the remaining €3bn was taxed by Luxemburg at 30%, that would be around half of Amazon’s 2016 full-year earnings. Amazon has a near $500bn market cap because investors tolerate its low profits in exchange for revenue growth and market domination. It’s less certain how long investors would tolerate no profits or losses, which might be the result if Amazon were paying higher taxes in Europe. Should Amazon’s tax burden rise, either its profits will be lower or it will be forced to reduce its heavy investment spending, capping its future growth potential.