Tariff talks drag as US eyes 40% tax for the rich

Good morning. Here's what happened overnight and what you need to know today.

1.

Taxing times: The EU and US made little progress in trade talks this week, with US officials reportedly indicating most tariffs on the EU will not be removed, according to Bloomberg. The 20% “reciprocal” tariffs—reduced to 10% for 90 days—and others on cars and metals will likely remain, officials told the publication. EU trade chief Maroš Šefčovič left a two-hour meeting in Washington with little clarity on the US position, the Financial Times reported. The EU had offered to remove all industrial tariffs, including on cars, but the US rejected the proposal. The EU has paused retaliatory tariffs on €21 billion ($37.3 billion) of US goods until 14 July but is preparing further measures. Vice President JD Vance said there’s a “good chance” of a trade deal with Britain. Meanwhile, Trump urged China to start trade talks, and separately threatened to revoke Harvard’s tax-exempt status after freezing $2.2 billion in grants. Elsewhere, Republicans are considering a new 40% tax bracket for those earning USD1 million or more, with Trump reportedly open to the idea but at a higher threshold, Bloomberg reported. (NYT)(Bloomberg)(FT)(Capital Brief)

2.

Profit pulse: Bank shares rose after Citigroup and Bank of America beat profit estimates and said US consumers continued spending despite growing concerns about tariffs and the economy. Both lenders reported higher than expected first-quarter earnings, fuelled by market volatility and strong client activity amid uncertainty over President Trump’s trade policies. Citigroup’s net income rose 21% to USD4.1 billion ($6.4 billion), or USD1.96 per share. Trading revenue hit USD6 billion, with fixed income up 8% and equities up 23%. Its wealth business posted record revenue of USD2.1 billion, while investment banking revenue rose 12% to USD2 billion. Provisions for credit losses rose 15% to USD2.7 billion, as it increased its unemployment estimates. BofA reported a 10% jump in earnings to USD7.4 billion, or 90 cents per share, as revenue rose 5.9% to USD27.51 billion. Net interest income climbed 3% to USD14.6 billion. Equities trading rose 17% to hit a record USD2.2 billion. BofA shares rose 3.7%, Citi’s climbed 1.7%. (Capital Brief)(Citi)(BofA)

3.

Rival moves: Meta CEO Mark Zuckerberg reportedly made a key concession at a US antitrust trial, saying he bought Instagram because it had a “better” camera than what Facebook was building. The Federal Trade Commission is seeking to unwind Meta’s acquisitions of Instagram and WhatsApp, alleging a “buy or bury” strategy to keep competitors at bay and maintain an illegal monopoly. Internal messages showed Zuckerberg identifying Instagram’s superior photo capabilities and agreeing with then-CFO David Ebersman that the acquisition would “neutralize a potential competitor.” Zuckerberg said, “acquiring a company inherently means taking it off the market” and said most of Meta’s attempts to build new apps “don’t go anywhere.” Meanwhile, The Verge reported OpenAI is working on an early-stage X-like social media network focused on its image generation feature. CEO Sam Altman has been privately asking for feedback. It is unclear whether the social network will be a separate app or integrated into ChatGPT. (The Verge)(Reuters)(BI)

4.

Grounded flights: China has ordered airlines to halt taking deliveries of Boeing jets, and to pause any purchase of aircraft-related equipment or parts from US companies, Bloomberg reported. Around 10 Boeing jets are currently due to enter Chinese airlines, and sources say some planes which have already completed delivery paperwork may be allowed to enter China on a case-by-case basis. Beijing is assessing how to assist airlines that already lease Boeing jets and are grappling with steep maintenance and repair costs. Beijing ratcheted up tariffs on US goods imported into China to 125% on the weekend, which would more than double the cost of US-made aircraft and equipment. In Europe, Ryanair boss Michael O’Leary warned that the airline may also delay deliveries of Boeing aircraft if they become too expensive, setting up a battle between manufacturers and airlines over who will shoulder the rising costs of Trump’s trade war. (Bloomberg)(Capital Brief)(FT)

5.

Up in the air: Jakarta has assured Canberra that it will not host Russian military planes at an Indonesian air force base. On Tuesday, multiple Indonesian government sources confirmed to British defence publication Janes that Moscow is seeking to base several long-range aircraft at the Manuhua facility, which shares a runway with the Frans Kaisiepo airport in the province of Papua. Speaking to the ABC, Australian Defence Minister Richard Marles said that having spoken to his Indonesian counterpart, "Sjafrie Sjamsoeddin, the minister for defence, and he has said to me in the clearest possible terms, reports of the prospect of Russian aircraft operating from Indonesia are simply not true." The Minister told Marles that he had not received any Russian request to access the base, although that doesn't rule out the possibility it was raised at a more junior level. (Capital Brief)(ABC)

6.

Banking blind spot?: APRA has removed dedicated prudential supervisors for smaller banks, despite acknowledging rising strategic, credit and fraud risks in the sector. In August, it advised smaller authorised deposit-taking institutions (ADIs) they would no longer have a dedicated supervisor. Instead, a new “Small ADI Supervision Team” would respond to queries “via email, phone or in person depending on the nature of the issue”. APRA said this “pooled approach” allows “more effective supervision” and “more opportunities” to identify insights across similar entities, with “no change to the number of staff”. Several sources told Capital Brief the move appeared more motivated by cost-cutting and reduced the intensity of regulatory interactions. One bank source said the decision had not been “well socialised” beyond APRA and was a surprise to government. The change coincides with a broader restructure reducing APRA’s supervision divisions from three to two. Mutual banks’ mortgage market share has increased to 5% over the past decade. (Capital Brief)

7.

Request denied: A second Commonwealth department has said it has no record of a verbal commitment struck between former PM Scott Morrison and US President Donald Trump to curb Australian aluminium exports. The 2019 pact returned to headlines in February when Trump trade adviser Peter Navarro accused Australia of breaking the agreement and warned no exemptions from aluminium and steel tariffs would be granted. Last month, Capital Brief revealed a “thorough search” at the Department of Foreign Affairs and Trade (DFAT), conducted following a freedom of information (FOI) request, had thrown up zero matches. This week, the Department of the Prime Minister and Cabinet also refused an FOI request for relevant documents, saying “all reasonable steps” had been taken to find them. FOI transparency campaigner Rex Patrick described the lack of documentation in both departments as “extraordinary,” and “It's a damning indictment on those people managing our foreign affairs.” (Capital Brief)

8.

War in Ukraine: The US administration has refused to endorse a statement condemning Russia’s attack on Sumy on Sunday, the deadliest attack in the conflict this year which killed at least 35 people and injured 119. Russia fired two ballistic missiles (containing cluster munitions) at the city in north-eastern Ukraine as civilians attended church services. Trump’s administration reportedly told allies it couldn’t sign the statement denouncing the attack as it is “working to preserve the space to negotiate peace.” According to drafts seen by Bloomberg, the G7’s statement planned to say that the attack on Sumy was proof that Russia was determined to continue the war. In the attack’s immediate aftermath, Trump described the strike as terrible but qualified that Russia had “made a mistake.” Trump went on to again blame Ukraine for starting the war with Russia: “Listen, when you start a war, you gotta know you can win a war.” (Bloomberg)(FT)