PCE Inflation Rises, EU Investigates Big Tech, Home Depot Announces Distributor Acquisition, and Cargo Ship Collapses Key Bridge in Baltimore
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By: Alex Nahigian
In this week's rundown, we analyze major events from this past week, including taking a deeper look into the inflation data from the personal consumption expenditures index, multiple big tech investigations, Home Depot’s major acquisition, and port disruptions in Baltimore.
What You Should Know Going Into Your Week
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Key Fed Inflation Metric Rises 2.8% Annually in February
The Federal Reserve's favorite inflation gauge rose 2.8% year over year in February, aligning with Wall Street's expectations. The data indicates that the Fed is likely to keep rates on hold for at least another meeting, as June is still the favorite for the rate-cutting process to begin.
Per CNBC, the personal consumption expenditures (PCE) price index excluding food and energy increased 2.8% on a 12-month basis and was up 0.3% from a month ago, the Commerce Department reported Friday. Both numbers matched the Dow Jones estimates. Including volatile food and energy costs, the headline PCE reading showed a 0.3% increase for the month and 2.5% at the 12-month rate, compared to estimates for 0.4% and 2.5%.
The Fed favors the PCE reading for three main reasons: the expenditure weights in the PCE index can change as people substitute away from some goods and services toward others; the PCE includes more comprehensive coverage of goods and services; and historical PCE data can be revised (more than for seasonal factors only).
Despite the Fed’s 2% annual target, core PCE inflation hasn’t been below that level in three years. Markets expect the Fed to remain on hold again when it releases its decision on May 1, then begin cutting at the June 11-12 meeting. Market pricing is in line with FOMC projections for three cuts, according to the CME Group’s FedWatch measure of futures market action.
European Union Launches Investigation into Big Tech
Big tech suffered a major pullback last week as the European Union began an investigation on Monday into Alphabet, Apple, and Meta in its first probe under the new Digital Markets Act (DMA) as part of new tech legislation and regulation.?
The European Commission said in a statement that the commission has opened “non-compliance investigations into Alphabet’s rules on steering in Google Play and self-preferencing on Google Search, Apple’s rules on steering in the App Store and the choice screen for Safari, and Meta’s ‘pay or consent model.’ ”
The investigation closely follows five probes, as reported by CNBC.
The first two probes deal with Alphabet and Apple’s “anti-steering rules,” which under the DMA state that tech firms are not allowed to block businesses from telling their users about cheaper options for their products or about subscriptions outside of an app store. The commission deems Alphabet and Apple to be at fault for steering, as both tech giants still charge various recurring fees, and limit steering.?
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The third inquiry also investigates Apple’s compliance with DMA obligations to “ensure that users can easily uninstall apps on iOS and change default settings.” In addition, the commission is looking into whether Apple actively prompts users with choices that allow them to change default services on iOS, such as for the web browser or search engine. The commission said that it is “concerned that Apple’s measures, including the design of the web browser choice screen, may be preventing users from truly exercising their choice of services within the Apple ecosystem.”
The fourth probe accuses Alphabet of preferential Google search results, which the commission believes “may lead to self-preferencing in relation to Google’s other services, such as Google Shopping, over similar rival offerings.”
The final investigation is geared towards Meta’s pay-and-consent model, which offers customers two choices: buy ad-free subscriptions or consent to the ad-heavy model. The commission is looking into whether Meta is in violation of DMA and is “concerned that the binary choice model may not provide a real alternative if users do not consent, thereby not achieving the objective of preventing the accumulation of personal data by gatekeepers.”
The commission intends to have decisions made within twelve months and close all investigations by then. If any company is found to have infringed the DMA, the commission can impose fines of up to 10% of the tech firms’ total worldwide turnover. These penalties can increase to 20% in cases of repeated infringement.
Home Depot to Acquire Distributor SRS for $18.25B
Home Depot announced Thursday that it is acquiring SRS Distribution in a $18.25 billion deal as Home Depot looks to drive revenue by winning over more business from contractors, roofers, and other home professionals. The acquisition of SRS Distribution is Home Depot’s largest ever.
The home improvement retailer draws half its customers from pros, while the other half of its client base is general “do-it-yourself” customers. Home Depot’s intention is to now make a push to capture additional growth as homeowners are starting to pull back on their own custom projects.?
The multi-billion-dollar deal is justified, especially as Home Depot has begun opening multiple distribution centers nationwide. The company has already rolled out plans to open a dozen new stores during the fiscal year and plans on attracting more professional sales while trying to make customers' shopping experiences more seamless.
As of Wednesday’s close, shares of Home Depot are up about 11% this year. That’s slightly ahead of the 10% gains of the S&P 500. Home Depot’s stock closed at $385.89 on Wednesday, bringing its market value to about $382 billion, according to CNBC.
Cargo Ship Deemed to Have ‘Lost Power’ Prior to Collision With Francis Scott Key Bridge
At approximately 1:30 a.m., a Maersk vessel chartered for Sri Lanka, crashed into the Francis Scott Key Bridge minutes after just departing from the port of Baltimore. The collision caused the entirety of the bridge’s structure to collapse on the cargo ship as the debris and remnants from the bridge plummeted into the Patapsco River.
Dali, the name of the ship, has had previous troubles when it was involved in an incident in Belgium’s Port of Antwerp, which is the second-largest port in Europe. The accident left a few injured; however, the ship suffered “sufficient damages” in July 2016 when it struck the stone wall of the quay during unmooring maneuvers, according to the reports on Vesselfinder.
Authorities have said a "momentary loss of propulsion" caused the incident, in addition to numerous videos appearing to also indicate a loss of electrical power aboard the nearly 1,000-foot ship as it careened into the structure's support. The lights on the ship could be seen switching on and off several times before it struck the bridge. The crew on deck of the cargo ship issued a mayday warning after the electrical failure occurred, which port authorities received in time to prevent further motion across the bridge.
The aftermath of the collision has shut down the port of Baltimore, causing multiple shipping delays and supply chain disruptions for businesses. The port’s closure has also raised major concerns for coal exports, as the port of Baltimore is the second-largest export hub for coal. It remains unclear when the port will reopen following the collapse. The timeline is largely at the discretion of the U.S. Coast Guard, but Maryland Senator Van Hollen said in a press conference Wednesday that reopening shipping lanes in the river will be among the first steps.
Six people have now been presumed dead since the incident, all of whom were bridge workers who were stationed at their posts on the bridge during the collision.
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Weathering Wall Street references CNBC and Bloomberg for research.