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Is Google a utility?

Good morning! New South Wales remains on alert, and not just because of the freezing, 25-year low temperatures (more on that in The Wrap below). It turns out the couple that shirked Victoria's lockdown "visited cafes, a pub, thermal baths and a cinema stretching from Central West NSW and through Dubbo and Moree before entering Queensland". 😬

Markets

Daily % change

AUD/USD

77.5

0.3%

10Y Bond

1.45

-5.6%

ASX200

7,303

0.5%

Brent (bbl)

72.3

0.3%

Gold (oz)

1,903

0.6%

Iron ore (t)

208.3

1.9%

Bitcoin

36,511

0.2%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract.

The US S&P500 (+0.47%) hit a record high last night and bond yields tanked following the release of US inflation data, which while above expectations was mostly strong in so-called 'reopening' sectors such as used vehicle sales (see below). Initial jobless claims also helped boost sentiment, with data from last week showing a fall to a new pandemic low 376,000.

Transitory? Perhaps: The US CPI increased 5% in May from a year prior, the biggest gain since the 5.3% increase in August 2008. Core CPI (which excludes food and energy) was up 3.8%, the largest increase since June 1992. However, it was the sub-components that were of most interest to markets – a full one-third of the increase was driven by rising prices for used cars and trucks (+7.3%) from April), with furniture, airline fares and apparel prices also rising sharply. That should feed into the Fed's "transitory" narrative quite well, meaning monetary policy is more likely to remain easy, supporting lofty stock valuations.

Lowflation no more: Consumer inflation expectations in Australia came in at 4.4%, above forecasts of 3.6% in June. That's in-line with rising US inflation expectations, with the Minneapolis Fed's inflation probability tool (derived from option prices) now showing a more than 40% chance of above-3% inflation over the next 5 years. It's predicting just a 3% chance of below-1% inflation over the same period.

China's tightening: China's credit data for May was steady, following a sharp slowdown in April. Total social financing was 1.9 trillion yuan – unchanged from the previous month but down around 40% from last year's heavy stimulus. 1.5 trillion yuan of new loans were issued in the month, also unchanged from April.


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Analysis

Is Google a utility?

These are your more standard utilities.
These are your more standard utilities. Monopoly/Etsy

The US state of Ohio certainly thinks so and is going to court in an attempt to have Google designated accordingly, with the aim of preventing the search giant from sending "Ohioans to Google's own products". According to Ohio Attorney General Dave Yost, "When you own the railroad or the electric company or the cellphone tower, you have to treat everyone the same and give everybody access."

Stepping back: Various levels of US government have over the past couple of years been using blunt and very outdated antitrust laws to hit Google for what they deem are anticompetitive behaviours. For example, the Justice Department sued Google last year for "unlawfully maintaining monopolies through anticompetitive and exclusionary practices in the search and search advertising markets".

Why this matters: Democrats in the US "are circulating discussion drafts of antitrust bills that could reshape popular business models for the Big Tech companies", and may even introduce five separate bills as early as this week. Those bills could have an impact on Big Tech valuations, depending on how restrictive they are and the implications for future profitability.

Questions remain: Google dominates the search market but it's not clear that it's a monopoly, or that it should be regulated like one. Google's consumer product is free and there are hundreds of alternatives, available to anyone with an internet connection (unlike with a utility where consumers are geographically bound). The only way Google is a monopoly is if you define the relevant market narrowly enough to exclude businesses with which it competes intensely (remember Google is an advertising company) – think Facebook, Amazon and even television/newspapers.

As with everything, there are trade-offs. All else equal, if Google is regulated like a utility, its compliance costs will increase and its revenue will decline. The entire search sector may also lose flexibility: depending on how encompassing are the regulations, they could force potential new models of search into old structures. In such a dynamic sector, is any of that really desirable? Does it really protect the consumer?


The Wrap Up

  • Over 65,000 Western Australians aged between 30 and 49 (nearly 10% of the population in that age bracket) booked an appointment to receive a Pfizer jab after it was made available earlier this week. WA currently receives 28,000 Pfizer doses per week from the Commonwealth.
  • ScoMo will have "high-level talks" with Singapore's Prime Minister, Lee Hsien Loong, about a potential travel bubble, "with a focus on ironing out practical details for the operation of the bubble".
  • Speaking of ScoMo, he confirmed that Australia will ask the World Trade Organisation (WTO) to "resolve" the "completely unconscionable" barley and wine sanctions placed on local producers by China.
  • Yesterday was Sydney's coldest day for 25 years, with the maximum temperature at Observatory Hill in the CBD reaching a balmy 11 degrees. That's about six degrees below the average for this time of year.
  • US President Joe Biden announced a plan to purchase and send 500 million Pfizer COVID-19 vaccine doses to around 100 countries, on top of the 80 million already pledged by the end of this month.
  • The Royal Australian and New Zealand College of Obstetricians and Gynaecologists now "recommend that pregnant women are routinely offered Pfizer mRNA vaccine at any stage of pregnancy".
  • Hong Kong is considering shortening its hotel quarantine to 7-days for fully-vaccinated inbound passengers who produce a negative test and come from countries not classified as "high-risk".
  • China's police have arrested over 1,100 people on suspicion of money laundering using cryptocurrencies. Apparently there is (was?) a thriving industry in China charging a commission of 1.5-5% to launder cash using crypto.

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