Finimize - 💔 Google's torn up

What’s going on here?

The US is flirting with a rare antitrust breakup, and it’s Google looking unlucky in love.

What does this mean?

A landmark court ruling earlier this month declared Google’s search monopoly illegal – and now, the US Justice Department is considering breaking up the company. That’s a big deal: it’d mark the first serious attempt to dismantle a company for illegal monopolization since its failed effort to split up Microsoft two decades ago. If this breakup actually happens, Android – which powers 2.5 billion devices worldwide – and Chrome will likely be the first things thrown on the front lawn. And whether Google stays intact or not, the government will probably outlaw the company’s exclusive contracts – the foundation of its earlier case.

Why should I care?

For markets: The butterfly effect.

Google has been paying up to $26 billion to keep its search engine the default on devices. And Apple has been gobbling up $20 billion of that, so it’s in line to feel the pinch. Although in the long term, Google’s setback could let Apple steal a march in the mobile market by reinforcing its privacy-focused brand and getting its hands on more valuable data. But it’s not like Google doesn’t have options. The firm currently scoops up 16 times more data than its closest competitors, so it could break the stranglehold – hopefully keeping regulators happy – by selling or licensing that intel to its rivals.

The bigger picture: The times, they are a-changin’.

The US stock market has been largely driven by a few huge companies – hello, Magnificent Seven – recently. But with regulators getting wise to Big Tech’s disproportionate power, the likes of Google, Meta, and Apple are all fighting crackdowns. That could have a drastic impact on their business models, so investors need to question whether these behemoths can ride out this rocky patch and maintain their hot streak.

What’s going on here?

US inflation unexpectedly cooled down last month, so forgive investors for noticing a newfound feeling of calm rush over them.

What does this mean?

Data earlier this week showed US producer prices, which reflect what factories charge wholesalers for products, rose by less than expected last month. And since those costs are usually passed onto customers, that left investors feeling quietly optimistic ahead of the consumer prices report. They weren’t disappointed: stateside inflation ticked down slightly in July, defying economists’ predictions for a flat reading and landing at 2.9%. That marks the first time the rate has fallen below 3% since March 2021, when inflation started ramping up. So traders have stuck to their guns, banking on the Federal Reserve (Fed) to make its first post-pandemic rate cut next month.

Why should I care?

For markets: Striking a balance.

The US is crying out for a rate adjustment. Interest rates have been at a 23-year high for the past 12 months, which has brought inflation closer to the Fed’s target. Problem is, recent data suggests those rates might’ve weighed on the world’s biggest economy more than hoped. And investors seem to be bracing for a less-than-desirable outcome: Goldman Sachs research shows that the market-implied odds of an economic downturn have risen over the past few months. More specifically, stocks and bonds are now assigning a 41% probability of a US recession, up from 29% in April.

Zooming out: Across the pond.

Over in Blighty, investors had a win of their own. Data showed that UK inflation rose by less than economists and the Bank of England (BoE) had expected last month. Even better, core inflation – which scrubs out especially volatile food and energy prices – fell to its lowest level since September 2021. That pushed traders to double down on their bets that the BoE will continue to lower interest rates this year, following its cut earlier this month.