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JT TAYLOR: CAPITAL BRIEF - JT   Potomac banner 2  1

THE START OF THE DEAL: September will bring ample opportunity for President Trump to showcase the negotiating businessman America elected. Yesterday was, well, an interesting start; Trump reached across the aisle to work with Congressional leadership on three major issues. The agreement raises the debt limit and extends government funding through December 15th by attaching them to funding for Harvey relief. But the president’s agreement with Senate Minority Leader Chuck Schumer (D-NY) and House Minority Leader Nancy Pelosi (D-CA) on a short-term deal - raising the debt ceiling for three months - took Republicans (and White House staff), who religiously try to limit debt ceiling votes, by surprise. The deal may end up giving leadership more wiggle room to work on the FY18 budget and reconciliation instructions - if they want to move tax reform later this year - leaving plenty of time for bruised Republican egos to heal.

HARVEY RELIEF COMING: The House voted to pass a bill matching the $7.85 billion requested from the president for Harvey recovery, teeing up the deal agreed on at the White House yesterday. The Senate plans to take that package, which passed 419-3, and attach it to the debt ceiling and government spending extension. If they do that, the House will have to vote for it again - posing a real dilemma for staunch conservatives who want to help hurricane victims, but don’t want to increase the federal debt. They are also facing added pressure from Hurricane Irma breathing down Florida’s neck, as one of the strongest gulf coast storms on record there is no question it will cause catastrophic damage to any state in its path. A vote for Harvey could set a precedent for Irma with the potential to more than double federal spending - forcing the hand of Republicans on raising the federal debt. But what looks worse to voters?

DACA GIVES DEM NEW CHIP: As the debt ceiling and government funding debates heat up, Democrats are planning to use DACA as a new bargaining chip. Senate Minority Leader Chuck Schumer (D-NY) even said he would attach Dreamers legislation to every bill introduced from this point forward - potentially leading to a government shutdown in December. DACA has a surprising amount of bipartisan support, but Republicans will want something in exchange for that vote and border security will be at the very top of that list.

NAFTA ROUND TWO: Negotiations in Mexico wrapped up with little progress on new or controversial ideas. The trade negotiators all viewed the meeting as a success, but seemed to only work on items they agree on, like e-commerce. As barriers to trade - such as tariffs and quotas - dwindle between the countries, new barriers take the stage. This round of negotiations talked a lot about how regulations like GMOs and labor laws vary from country to country and can artificially inflate the price of goods or prevent their sales all together and their desire for a more unified system. The negotiators appeared to dig their heels in the sand on their own positions, however, leaving little wiggle room on issues like regulations, Canadian dairy, and the border wall.

BEARISH TRUMP: Donald Trump Jr. gets his day in a private meeting with the Senate Judiciary Committee. This interview has been months in the making - ever since investigators discovered a 2016 meeting he arranged with a Russian lawyer promising damaging information about Hillary Clinton. Since then investigators have found President Trump was working on a hotel in Moscow during the election, a campaign aide wanted the president to meet with Russian leadership, and Facebook just released the ads Russia paid for during the campaign. But no bombs have dropped yet, and as long as Trump’s attorneys keep him from taking the Twitter bait, markets should sit back and wait.


DONALD AND DETERRENCE: WORDS MATTER Our Senior Advisor General Dan Christman wrote Kim Jong Un is bent on accelerating his nuclear weapons plans; in reality, there is very little the U.S., our regional allies, or even China, can do to make him back away from a course he views as existential for his regime. Read the full piece here.

EVENT: FORMER OPEC PRESIDENT & NEW FERC COMMISSIONER HEADLINE OCT 11 HEDGEYE ENERGY CONFERENCE:  Our Senior Energy Analyst Joe McMonigle is hosting a Hedgeye energy conference in New York City. Topics include regulating pipelines, grid reliability, energy infrastructure in the Trump Administration, and an OPEC meeting preview. Get the event details here.

CALL INVITE (9/8 @ 11 AM ET) | EXPOSING HEALTH CARE'S OUTLOOK: Our Senior Health Policy Analyst Emily Evans is hosting a video conference call and live Q&A tomorrow, September 8th at 11am. Get the event details here.