DEBT CEILING DOUBTS: Treasury Secretary Steve Mnuchin is urging the Senate Budget Committee to address the debt ceiling before August recess claiming that Treasury has enough money to fund the government through the end of September, but fears with multiple major deadlines coming on September 30th- the debt ceiling will fall victim to the annual (or semiannual) bargaining brinkmanship. More than a majority of Republicans have always voted no to a debt increase, so they have historically relied on Democrats to push it through, and that may not happen this year. If Congress can't make progress within that timetable, a shutdown is not out the question this time around as mixed signals are still coming in from the Trump Administration: while Mnuchin advocated for Congress to avoid breaching the debt ceiling he also said, “at times there could be a good shutdown” in the same hearing.
GETTING SERIOUS ABOUT SANCTIONS: With overwhelming bipartisan passage in the Senate (97 to 2), a bill sanctioning Iran and Russia, materialized through one amendment. The amendment sanctions the Russian economy as well as officials who engage in terrorist activity. It is clear Congress wants to send a strong message overseas calling President Vladimir Putin the “aggressor of democracy.” The Trump Administration feared such sanctions would close doors for an improved relationship with Russia. Investors want to know what it means for Iranian oil production as well as the key Russian economic factors hindered; mining, metals, shipping and railways all of which will be limited by the new bill.
DOVISH FED RATE HIKE: The Fed raised rates for the fourth time since December 2015. It was a “dovish hike,” says Hedgeye CEO Keith McCullough, in which the Fed raises rates but takes down its forward-looking economic projections. On the growth front, the Fed marginally raised its 2017 estimate for US economic growth, to 2.2% from 2.1% at the March meeting. That’s too bearish, McCullough says. Our proprietary GDP algorithm has year-over-year growth accelerating from an estimated 2.35% in 2Q17 up to 3.05% by 1Q18. The Fed has it right on inflation. The central bank cut its projection for PCE inflation to 1.6% from 1.9% in March. It’s worth noting, three months ago, we made the call on #Reflation’sRollover (i.e. falling inflation). Our inflation estimates have the Consumer Price Index falling from the first quarter’s 2.5% to 1.08% by 1Q18.
STATE OF DISARRAY: Secretary of State Rex Tillerson defended the State Department’s budget before the House Appropriations Committee yesterday. For the second day in a row Tillerson pushed back against criticism that Trump's budget proposal is “dead on arrival.” Senate Republicans and Democrats say the proposition, which slashes 32% of State’s budget is a non-starter; Senator Lindsey Graham (R-SC) called it radical and reckless. Congress needs to secure a budget for FY18 in order to move forward on a number of critical issues - with tax reform at the top of that list. As the to-do list grows, so do distractions, meanwhile the clock is ticking and consumers are growing impatient with the lack of fiscal reforms promised to them.
PENTAGON CONTROL: Trump has given the Pentagon unilateral authority to send as many U.S. troops to Afghanistan as it deems appropriate. This move clears the way for the U.S. military to intensify its fight against both the Taliban and Islamic State extremists in the region. Trump gave Defense Secretary Jim Mattis similar powers in April for Iraq and Syria, but it is expected to have a much bigger impact in Afghanistan. Mattis testified saying he expected to have a complete military strategy by next month. The Pentagon has been weighing plans that would send between 3,000 and 5,000 troops to areas where Islamic State militants have a foothold.
CALL INVITE | GEN. DAN CHRISTMAN DISCUSSES TRUMP’S EMERGING FOREIGN POLICY DOCTRINE: June 19th at 11am eastern Hedgeye is hosting a call with our senior advisor General Dan Christman to discuss the dimensions and dynamics of President Donald Trump's emerging foreign policy doctrine five months into office. Get more details here.
BLACK BOOK ON FY18 U.S. DEFENSE BUDGET ENVIRONMENT: Our Senior Defense Analyst Emo Gardner says sky high expectations for increased defense spending are driving defense stocks to all time highs. Get the event details here.
