STEEL TRAP: Secretary Rex Tillerson’s State Department ranked China among the worst countries in the world for human trafficking and forced labor; finding that China uses slave labor from North Korea and is paying their wages to the North Korean government and partially subsidizing their weapons program. This comes not long after President Trump accused China of being unsuccessful in weakening their economic support to North Korea. The glow from Trump and President Xi’s chocolate cake summit is fading and there’s a growing sense that troubled waters lie ahead. Part of Trump’s America First campaign promise was aimed at stopping China’s unfair labor market and thus their U.S. trade agreements, now he is considering higher tariffs on Chinese steel imports as a way of following through, despite that they only have 3% of U.S. market share. Steel stocks have been volatile awaiting the Trump Administration’s announcement on trade policy and pulling the trigger on tariffs or quotas on imports can spark an all out trade war, hurt diplomatic ties, and artificially inflate commodities prices.
BETTER LATE THAN NEVER: House Budget Committee Chairwoman Diane Black (R-TN) is postponing her planned unveiling of a budget bill blueprint following enough backlash from House Republicans on spending cuts. There are 50 billion dollars in spending cuts required to counter an expansion in military spending, and Republicans are hoping to see them hit entitlement programs. Reconciliation instructions for FY17 expire on September 30th (and with it the vehicle to pass the AHCA), so Black and rank and file members need to come to an agreement and move on top line budget numbers as soon as they get back from recess if they want a chance at moving onto other issues (hint, tax reform).
DOWN BUT NOT OUT: Senate Majority Leader Mitch McConnell is arguably trying to pass the biggest legislation of his career. Forced to adjust his timeline, he will be horse trading with Senators from the far right and center each armed with their own wish lists for the bill. We still don’t doubt McConnell will pull off an agreement and send the new language to the CBO by the time they leave for recess on Friday allowing them to vote in the weeks after their return. McConnell and President Trump are pulling the - it’s okay if you don’t get there; you just have to live with Obamacare - tactic to rally votes. Complicating McConnell’s already precarious situation is Senate Minority Leader Chuck Schumer - who is now appealing to Trump to meet with all Senators willing to work to fix the current legislation. Our bet is on McConnell pulling a rabbit out of his hat before that happens.
PUT A CORK(ER) IN IT: Saudi Arabia, Egypt, the UAE and Bahrain have already imposed diplomatic and economic embargos on Qatar claiming they harbor and fund terrorists, but are now considering further economic pressure and sanctions if Qatar doesn’t meet their demands. More sanctions on the country could have a major impact on their LNG exports, which they are one of the largest producers and exporters of in the world. While Tillerson and President Trump seem to be on different pages, Senate Foreign Relations Chair Bob Corker has stepped in to handle the escalating tensions. Corker aims to use his authority to stop all future military sales with GCCs until they sort out their relationship with Qatar - potentially halting sales like the pledged $110 billion from Saudi Arabia in arms, an incentive for GCCs to work with Qatar to prevent investment shortcomings and oil and gas market fluctuations.
MINIMUM WAGE WOES: Not that the Republican-led Washington was planning to raise the minimum wage anytime soon, but the truth about economic regulations in the free market is hitting Seattle, WA hard. The vote to raise the minimum wage from $9.75 to $15 by 2021 was celebrated by hourly workers, now to find out that their hours are being cut, they fear layoffs, and hiring is frozen. The cost to employers became too high to sustain causing a cost to benefit ratio of 3:1 for employees according to a study by the University of Washington. While the mayor continues to defend the right to a living wage, we are examining what impacts it would have if applied nationally: restaurant chains closing, stores closing, and with them jobs leaving. Minimum wage in a vacuum.
CALL INVITE | LOADED FOR BEAR - RUSSIAN SANCTIONS AHEAD?: July 6th at 10am eastern Hedgeye is hosting a call on Russian sanctions with the Deputy Director of the Kennan Institute for Advanced Russian Studies of the Woodrow Wilson Center, William Pomeranz. We will discuss the implications on businesses in the U.S. and globally as well as what this means for National Security. Get the event details here.
A NATION HOOKED: Our Senior Demographer Neil Howe writes U.S. drug overdose rates are hitting new highs as opioid addiction ravages communities around the country. The annual death toll of drug overdoses now exceeds that of car crashes, guns, and previous health scares. Public health officials are desperately seeking ways to stem the tide before it gets even worse. You can read the full piece here.
