NOT TARGETING CHINA: Treasury Secretary Steve Mnuchin took to the podium at the White House press briefing to announce the imposition of U.S. sanctions on a Chinese shipping company as well as two Chinese individuals for aiding North Korea’s nuclear and missile programs. He also accused a Chinese bank of laundering money for Pyongyang. While Mnuchin says “we are in no way targeting China,” these sanctions are more than just an effort to maximize pressure on North Korea, this is a prod to China to get serious. The sanctions include severing the Bank of Dandong from the U.S. financial system pending a 60-day review and blocking all assets of Dalian Global Unity Shipping and the aforementioned individuals through the Office of Foreign Asset Control. While the sanctions will heavily impact both the bank and the shipping company’s businesses, the goal is to cut off trade and money to North Korea and their nuclear developments.
BRINGING SANCTIONS TO BEAR: The Senate has completed the technical fix required to eliminate the “blue-slip” concern in the House for the Iran/Russia sanctions bill. Now that they have overcome this roadblock, which has been stalled in the House, we expect the sanctions bill to come to a vote when Congress returns from the 4th of July recess. Meanwhile, Russian President Putin and President Trump will meet face to face for the first time at next week's G-20 Summit in Hamburg. We’re hosting a call on what these sanctions mean for U.S./Russian relations and the economy - get the event details here.
BLACK GOLD: President Trump says “a golden age of American energy dominance” is here; but as long as there is an oil glut, production will be limited to suppressed prices. Emphasizing U.S. exports gives us the ability to take over market share from foreign producers (a delicate balance for geopolitical stability). Exporting coal, gas, and crude oil will spur investment in the U.S. gulf coast - refineries, chemicals, shipping, pipeline, boating, and field service companies. Pay attention to the policy moves around the O&G industry, but remember companies are subject to profit margins and low prices may mean oil production isn’t viable. The real highlight of Energy week was Secretary Perry and Trump saying, “make nuclear energy cool again,” great for utilities owning nuclear plants who despite suffering under the last Administration doubled down on their programs.
TRUMP’S SWEET TOOTH: The truth is today the U.S. sugar industry is run by a small number of massive companies, subsidized by the government, and with a powerful lobby. Trump negotiated a new trade deal with Mexico that raises the cost of importing sugar to the benefit of these companies, but likely at the expense of the shoppers. While he is living out his campaign promises of American First through fair trade, he is neglecting one of the most basic Republican principles - a laissez-faire market. In order for prices to reflect consumer interest they need increased competition to determine industry prices.
CHECK OUT OUR TOP THREE MACRO IDEAS TODAY AT 11am ET: We’re hosting our highly anticipated Q3 2017 Macro Themes conference call today at 11am ET. Below is an overview of each theme:
1) Real Growth #Accelerating: Our GDP estimates remain well above consensus through early 2018. We are keen to detail the positive impact of disinflation, rising asset prices and elevated confidence readings are likely to have on the real economy in the face of receding base effects for U.S. GDP. Investment Conclusions: Long Real Growth (QQQ, IBB) vs. Short Reflation (XLE, XME).
2) #EuropeSlowing?: Contrary to our positive outlook in the U.S., our model is signaling a deceleration in both economic growth and inflation across the Eurozone economy. We see extreme complacency on the long side of the euro and European equities. Investment Conclusions: Long Germany/Minimum Volatility-Low Beta (EWG) vs. Short Italy (EWI), Spain (EWP) and European Financials (EUFN)
3) #ChinaSlowing: We continue to think the nascent inflection in the “Old China” economy is developing into a negative trend throughout 2H17 amid tighter policy, insurmountable base effects and myriad structural headwinds that have yet to be meaningfully addressed. This outcome has dire implications for commodity-oriented reflation broadly. Short “Old China” (FXI) and EM Commodity Producers (EWG, EWW, RSX, EIDO)
CALL INVITE | LOADED FOR BEAR - RUSSIAN SANCTIONS AHEAD?: July 6th at 10am ET 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.
PRESSURE TO DELAY NET NEUTRALITY ORDER: Our Senior Telecom/Cable Analyst Paul Glenchur writes a push to delay repeal of net neutrality rules should fail as the president staffs the FCC and the Chairman remains focused on deadlines. You can read the full piece here.
PROGRAMMING NOTE: We won’t be publishing over the long holiday weekend and will return mid-week next week. Have a great Fourth of July.
