| The G-7 shares a laundry list of concerns about China. The Singapore-Hong Kong travel bubble review leaves families in limbo. The Dogecoin joke is getting serious. Here's what you need to know to start your day. G-7 diplomats have singled out China in a final statement containing a laundry list of concerns that will get under Beijing's skin, from alleged human-rights abuses to its actions on Taiwan and incursions in cyber space. "We encourage China, as a major power and economy with advanced technological capability, to participate constructively in the rules-based international system," the statement said. The tone sets the stage for when leaders meet next month. U.S. President Joe Biden will make his G-7 debut and try to corral allies into taking a firmer stance against China. It will take some convincing given the country's economic clout and its place as a key player in multilateral issues like climate change. Asia stocks are set for a muted open after technology shares weighed on U.S. markets, offsetting optimism over solid corporate earnings and economic reports. Futures were little changed in Australia and Hong Kong. Trading resumes in Japan and China after holidays. Treasuries climbed. The Bloomberg Commodity Spot Index returned to its highest level since 2011, with oil trading above $65 a barrel. The dollar was little changed. Meanwhile, the selloff tearing through high-valuation tech shares has battered Cathie Wood's flagship ETF. The good news is that the vaccines work against the virus strain circulating in India that's spread to several other countries. The bad news is it won't be only the new version of the pathogen to emerge from an outbreak of this scale, underscoring the urgency of mapping other possible variants that may be currently racing through India's population of 1.4 billion. Elsewhere Moderna's Covid-19 booster shots gave positive results against strains that emerged in South Africa and Brazil, according to early results from a mid-stage trial. And the U.S. will support a proposal to waive intellectual-property protections for vaccines at the WTO. Cases in the country could see a sharp decline by July if vaccination efforts continue to be successful, the Centers for Disease Control and Prevention says. The future of troubled Chinese financial conglomerate Huarong may be determined by a man who believes that allowing more state-owned companies to default is just what the country needs: President Xi Jinping's economy czar, Vice Premier Liu He. While Huarong insists it's healthy enough to repay its debts, markets have been pricing in the risk of default for weeks. With options including a state-backed cash injection or a lengthy restructuring that involves losses for bondholders still possible, experts see Liu as playing a critical role. "In the end, Liu He will be the person to make the final decision," says Plenum economist Chen Long. "He doesn't want to bail out everybody, he doesn't like moral hazard. And on the other hand, he doesn't want to trigger a financial crisis." Almost half of Australian and New Zealand workers say they are likely to resign from their jobs if they don't get sufficient flexibility after Covid, according to new research. Some 47% of employees surveyed said they'd probably quit rather than return to a rigid schedule, Ernst & Young found. Given a choice, 52% preferred flexibility for when they work, compared with 40% who wanted it for where they work. But 70% of respondents also believed fully remote work would impact their career opportunities. An Accenture survey this week found almost 80% of North American financial-services executives want workers back in the office for four or five days a week when the pandemic has passed. Employees aren't so sure. Read on for more updates on the return to the office. What We've Been ReadingThis is what's caught our eye over the past 24 hours: And finally, here's what Tracy's interested in todayI wrote earlier this week about extreme supply shortages and their impact on the economy. On the one hand, longer lead times and orders booked further and further out into the future could mean there's a decent demand floor that might give firms enough confidence to invest in upgrading their capacity. As we've mentioned in our discussions on the podcast around lumber, there may be a point at which the gap between limited supply and overwhelming demand encourages businesses (sawmills) to ramp up production and capacity. For an economy still coming out of a global pandemic, that could actually be a "nice" problem to have. The other view is that rampant supply chain shortages could compound and feed on each other in a way that ends up damaging the economy, adding more volatility and uncertainty through something known as the "bullwhip effect." As Deutsche Bank strategist Luke Templeman puts it: "The bullwhip effect occurs when a drop in customer demand causes retailers to under stock. In turn, wholesalers respond to a lack of retail orders by understocking themselves. That then causes manufacturers to slow production. Eventually the reverse occurs. As customer demand comes back, retailers quickly order more goods, often too much, and wholesalers and factories are caught short. Shortages occur, prices increase. Eventually production ramps up at levels that are far beyond
equilibrium levels and this cascades down the chain. These violent swings in availability of goods then continue back and forth until an equilibrium is eventually established." The risk here is that all the uncertainty caused by the bullwhip effect ends up destroying demand in the short-term rather than increasing capacity. Prices simply become too high for consumers. Going back to lumber, Bespoke Invest points out that the soaring price of wood is now adding $40,000 to construction costs for a single family home. That number used to be closer to between $5,000 and $15,000. Meanwhile, the outlook simply becomes too uncertain for businesses to respond effectively. Eventually, a supply-demand balance is reached but things get worse and worse in the meantime. You can follow Tracy Alloway on Twitter at @tracyalloway. Want the latest on the fast-changing world economy and what it means for businesses, policy makers and investors? Sign up here to get The New Economy Daily in your inbox. | 
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