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Talk about awkward

Good morning! The G7 took place over the weekend, with ScoMo meeting Joe Biden in person for the first time since the latter became US President. The two had a chat, which was for some reason awkwardly chaperoned by Boris Johnson. Given the rhetoric in the lead-up it's safe to assume that the focus was on China, although ScoMo only revealed that that they "discussed a number of issues of mutual concern, including the Indo-Pacific region".

ScoMo will now fly to London to try and finalise an in-principle trade deal with the UK.

Markets

Daily % change

AUD/USD

77.5

0.3%

10Y Bond

1.45

0.3%

ASX200

7,312

0.1%

Brent (bbl)

72.6

-0.1%

Gold (oz)

1,880

0.2%

Iron ore (t)

209.9

0.8%

Bitcoin

38,976

6.8%

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

The US S&P500 finished last week at another record high, rising for the third consecutive week as reopening optimism offset the biggest surge in price inflation for nearly 13 years. US 10-year Treasury yields fell to 1.46%, a fourth consecutive weekly decline.

China slowing: Vehicle sales in China fell in May, declining from levels seen in April (-5.5%) and May of last year (-3.1%). Production also tanked, down 8.7% from April and 10.3% from May 2020. The China Association of Automobile Manufacturers said the semiconductor shortage, rising raw material prices and a sustained appreciation of the Chinese yuan all took a toll on production. China accounts for around a third of global auto sales.


Analysis

Talk about awkward

Awkward distancing: Outdoors, fully vaccinated and all embracing only moments earlier.
Awkward distancing: Outdoors, fully vaccinated and all embracing only moments earlier. BBC

Over the weekend the heads of the G7 – the United States, Canada, France, Germany, Italy, Japan and the United Kingdom, plus the Presidents of the European Commission and Council – met in balmy Cornwall in the south-west of England for high-level discussions on the usual hot topics such as taxation, the environment and the latest edition, pandemic prevention. Representatives from India, South Korea, South Africa and Australia (ScoMo) also attended this year's summit, at the invitation of UK Prime Minister Boris Johnson.

Why this matters: Various impactful agreements have been signed at previous G7 summits, including efforts to combat the HIV/AIDS pandemic and the 2015 Paris climate change agreement. Last year's summit – due to be held in the United States – was eventually cancelled due to the pandemic, so this is the first time the gang has been able to get together since August 2019.

This year the headline has been the provisional agreement of a global minimum corporate tax rate of 15%. Australia will be largely unaffected, given its rate is 30% – the highest advanced economy corporate tax rate in the world.

The G7 also agreed to provide 1 billion COVID-19 vaccine doses over the next year and unveiled a global infrastructure plan called "Build Back Better World (B3W), a values-driven, high-standard, and transparent infrastructure partnership led by major democracies". B3W is essentially the West's version of China's Belt and Road initiative, committing nations to "hundreds of billions of dollars of infrastructure investment for low- and middle-income countries in the coming years".

Questions remain: Regarding the corporate tax rate, it appears to be rather blunt and does not take into account the nuance of global taxation. Even if properly enforced it is unlikely to materially affect how the world's corporations organise themselves.

Switzerland's corporations, for example, "will receive subsidies and other incentives... to maintain its competitive tax rates, even as the country prepares to sign-up to the G7's new plan for a global minimum tax on big businesses". Switzerland's corporate tax rate is only 8.5% but additional taxes on companies are levied at the cantonal/​communal level, bringing the average rate to around 15%. The G7 agreement does not take this into account, meaning without an offset Switzerland's corporations would be facing an effective tax hike of around 43%.


The Wrap Up

  • China responded to the G7 summit, with a spokesperson saying: "The days when global decisions were dictated by a small group of countries are long gone."
  • A US lobster diver was accidentally eaten (and spat out) by a humpback whale. What's the next thing he did? An AMA (ask me anything) on Reddit.
  • Only 25% of those aged 50-59 in WA have received a COVID-19 vaccine, compared to 37% aged 60-69 and 60% aged over 70. WA's Chief Health Officer said the state will only consider easing its response to COVID-19 outbreaks once "70-80%" of adults in the State were fully vaccinated.
  • Visualising the world's largest corporations.
  • Taproot –  which is the first upgrade to Bitcoin in 4 years and will unlock the potential for smart contracts – was approved by miners and is due to take effect in November.
  • More American males aged 25-34 (20.8% in 2020 versus 12.4% in 2000) are living in a parent's home and fewer are participating in the labour force.
  • Businesses in India have started offering incentives for vaccinated patrons, including free tomatoes, cheap lunches (15-30% off) and even beer.
  • Japan's government launched an antitrust investigation into Apple and Google.
  • NSW will ban single-use plastic bags, cotton buds and straws over the next five years. WA will ban basically every single-use plastic item you can think of over the next two years, including coffee cups and lids.

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