prepper

Fed Chair Jerome Powell is in the hot seat today as he heads before Congress for his semiannual testimony on monetary policy. Inflation, which was once the elephant in the room, is set to become the most heated topic at the grilling following yesterday's data on rising costs across the American economy. The Consumer Price Index grew at its fastest clip since August 2008, climbing 5.4% year-over-year versus a forecast of 4.9%.

Bigger picture: While we've seen price increases before, most of them were taking place in areas heavily hit by the pandemic. Those included building materials and travel-related costs, which were hit by supply chain problems and shutdowns, but the most recent report suggested that these increases are broadening out. Core inflation (excluding food and energy) came in at 4.5%, marking the largest increase since September 1991.

Until recently, the Fed has stuck to the script that inflation will be "transitory," though some rumblings over that outlook are being heard at the FOMC and broader investing community. Fed minutes last week showed some concern over rising prices, with a "substantial majority" of policymakers seeing inflation risks "tilted to the upside." While traders had a gut reaction to the latest CPI - stocks dipped on Tuesday - investors don't appear to be that worried about runaway inflation. Market expectations of serious price pressures have so far been contained (continuous record highs) and positioning does not appear to have been influenced by the data (yet).

Questions for Powell: Lawmakers will likely drill the Fed Chair about the central bank's support for the economy and how much importance to place on the recent inflation figures. It's also likely to get political. Democrats have pushed for expensive stimulus programs, stating there is no serious inflationary risk, while Republicans have generally posited that inflation is getting out of control and could be harmful to the U.S. economy. Earnings season

A big inflation jump saw stocks edge down from highs yesterday as the debate over how the long Fed can keep policy loose resurfaced. U.S. equity futures are shaking off some of the concerns this morning, with the Nasdaq and S&P 500 up 0.4% and 0.1%, respectively, while the DJIA trails behind, down slightly at 0.1%. Higher-than-expected inflation data wasn't the only thing to weigh on stocks, which greeted the Q2 earnings season with little fanfare.

Financial powerhouses JPMorgan (JPM) and Goldman Sachs (GS) both beat profit and revenue estimates on Tuesday, but their shares pulled back during the session. Some are attributing the decline to a peak in the expansion cycle, which has historically been preceded by a subpar performance in stocks, according to data compiled by S&P Dow Jones Indices. More bank earnings are due this morning, including results from Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC).

"The peak percentage rate of growth is likely in the second quarter. But I am looking for peak optimism, which is based on how much the estimates are going up after companies report," added Nick Raich, CEO at The Earnings Scout. "It's not just the direction, it's the magnitude. If estimates go up at a decreasing rate, that's when we know we hit peak optimism."

Elsewhere: Democrats on the U.S. Senate Budget Committee reached an agreement on a $3.5T human infrastructure investment, which could be included in a budget resolution to be debated later this summer. While the price tag falls short of a $6T package previously sought by progressives, it's in line with President Biden's $4T economic agenda. Lawmakers are also working on a $600B bipartisan package for physical infrastructure, which Biden has confirmed is not dependent on the other infrastructure initiative.

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'Buy now, pay later'

Apple (AAPL) is developing a new service that would allow consumers to make Apple Pay purchases in installments, sources told Bloomberg. That would put the company in direct competition with dominant player Affirm (AFRM), which closed Tuesday's session down 10% on the news. Apple's upcoming service would use Goldman Sachs (GS) as the lender for its installment offerings after previously partnering with the Wall Street bank on the Apple Card.

'Apple Pay Later': Customers would have the choice to pay in four installments, with one payment every two weeks, or across several months with interest. When making a purchase, the consumer would also have the option to pay using either of the installment plans or as they would regularly use Apple Pay. The company already offers monthly installment payments through the Apple Card, but the new service would allow users to choose any credit card to make their purchases over time.

The service would bolster Apple's revenue since the tech giant receives a percentage of the transactions made with Apple Pay. It could also convince more Apple users to use their iPhone to pay for items instead of standard credit cards.

Analyst commentary: Truist's Andrew Jeffrey sees the Affirm stock decline as an overreaction, "given the company's position as the leading enterprise BNPL provider, boasting exclusive integrations with platforms including Shopify (SHOP) and Peloton (PTON)." He also maintains that Affirm's merchant integrations and the ability to handle complex underwriting as "characteristics that materially differentiate it from more basic 'split pay' competitors" like PayPal (PYPL), Klarna (KLAR) and Afterpay (OTCPK:AFTPY). (40 comments)

Marijuana legalization

At a press conference today, Senate Majority Leader Chuck Schumer (D-N.Y.) will introduce a draft of legislation that would legalize marijuana on the federal level. The bill would be called the Cannabis Administration and Opportunity Act and is meant to spur discussion for a formal introduction of the bill and comprehensive reform. Reports suggest it would direct some tax revenue from marijuana sales to minority communities, give the FDA oversight of cannabis regulation and retain some federal drug testing provisions.

"Hopefully, the next time this unofficial holiday, 4/20, rolls around, our country will have made progress in addressing the massive overcriminalization of marijuana in a meaningful and comprehensive way," Schumer said back in April. The nation's war on drugs has "too often been a war on people, particularly people of color."

Marijuana is still classified as a Schedule I drug under federal law, meaning it's on par with heroin, LSD, shrooms and ecstasy. It's also against federal law to grow, sell, or use pot for any use, including medical purposes. Despite being prohibited by federal law (different administrations have taken various approaches to enforcement), 36 states and D.C. currently have laws legalizing marijuana for either medical or recreational use.

Supercycle? Marijuana sales are expected to top $24B in 2021, marking a 40% Y/Y increase, forecasts Roy Bingham, co-founder and chairman of BDSA, a cannabis market research firm. (272 comments)

What else is happening...

Broadcom (NASDAQ:AVGO) no longer in talks to acquire SAS Institute - WSJ.

Live events? Netflix (NASDAQ:NFLX) extends deals with Universal, Shonda Rhimes.

U.S. government's fiscal year-to-date deficit tops $2.2T.

American Air (NASDAQ:AAL) guides Q2 revenue ahead of prior expectations.

Lockheed (NYSE:LMT) F-35 flaws attract more fire from the Pentagon.

Vaccine passport... Norwegian (NCLH) sues Florida surgeon general.

Space exploration SPAC Stable Road (NASDAQ:SRAC) targeted by SEC in crackdown.

eBay (NASDAQ:EBAY) sells part of Adevinta stake to Permira for $2.3B.

Cathie Wood on oil prices: 'My guess is they are not going to much higher.'

Today's Markets

In Asia, Japan -0.4%. Hong Kong -0.5%. China -1.1%. India +0.3%. In Europe, at midday, London -0.6%. Paris -0.2%. Frankfurt -0.2%. Futures at 6:20, Dow -0.1%. S&P +0.1%. Nasdaq +0.4%. Crude -0.6% at $74.79. Gold +0.4% at $1816.80. Bitcoin -1.9% at $32486. Ten-year Treasury Yield -2 bps to 1.37%

Today's Economic Calendar

7:00 MBA Mortgage Applications 8:30 Producer Price Index 10:00 Atlanta Fed's Business Inflation Expectations 10:30 EIA Petroleum Inventories 12:00 PM Powell Testifies on Semi-Annual Monetary Policy Report 1:30 PM Fed's Kashkari Speech 2:00 PM Fed's Beige Book

Companies reporting earnings today »

Tuesday's Key Earnings

Goldman Sachs (NYSE:GS) -1.2% despite investment banking strength. JPMorgan (NYSE:JPM) -1.5% on weaker fixed income, trimmed NII guidance. PepsiCo (NASDAQ:PEP) +2.3% taking away market share from Coca-Cola.