GETTING SERIOUS WITH SANCTIONS: President Trump is giving financial institutions a choice in an attempt to cut off cash flow to North Korea; do business with them or do business with the U.S. - not both. The Executive Order will affect China the most, as North Korea's largest financial and trading partner. Trump will also use trade to pressure them - any vessel that has been in North Korea or done direct business with a North Korean vessel will be blocked from entering the U.S. for 180 days. The president took advantage of having so many world leaders in New York this week, telling them enough is enough - we have got to pressure this guy out of nuclear war. Kim Jong Un did not take that well, responding with taunts, aggression, and threatening to test a hydrogen bomb over the Pacific. Trump’s response this morning here.
RETURNING TO REGULAR ORDER?: There’s been a lot of noise around the Big Six’s tax reveal next week. We don’t expect to get many details out of it - the group itself is still debating different provisions in the reform. We do expect this to be the framework for lower individual and corporate rates. As Senate Finance Chair Orrin Hatch (R-UT) has made perfectly clear - the Senate is not a top down organization. Committees in both the House and the Senate will be the ones developing the bills that ultimately shape reforms. However, if Hatch and his committee decide to write bills out of line with the House’s - the Big Six’s December deadline becomes untenable - they won’t have time for a conference committee or to ping pong between the two chambers during their hectic December.
CHINA AND CFIUS: The president blocked the sale of a U.S. company to Chinese investors over intellectual property theft concerns and now other companies in the CFIUS pipeline are worried about their fate. China attempts to acquire more U.S. companies than any other country based on the amount CFIUS has to review. But this Administration’s focus on new national security concerns, especially within investments and joint ventures is going to lead to more scrutiny in acquisitions. A presidential block is rare - it's only happened three other times - though all were for Chinese companies.
FED FORECASTS: In a carefully telegraphed move, the Fed left interest rates unchanged this week and announced plans to unwind its $4.5 trillion balance sheet. More importantly were revisions to the Fed’s economic projections, which are slowly inching towards Hedgeye’s outlook (on a seven-month lag). The Fed revised down its 2017 inflation outlook (to 1.5%) and up its 2017 growth projections (2.4%), each by 20 basis points. Our call on the back half of 2017, for seven months now, has been an environment we call “QUAD 1” (Growth accelerating and Inflation slowing) in our four quadrant Growth, Inflation, Policy (GIP) model. We expect this growth accelerating environment to persist into 2018. If we’re right, Yellen & Co. are going to have to pull forward rate hike expectations.
WAIT A MINUTE MR. TAXMAN: Sunday is Germany’s federal election, where incumbent Chancellor Angela Merkel is expected to cruise to a fourth term with her Christian Democrats holding a healthy double-digit lead. However, French Finance Minister Bruno Le Maire said after the election he and Germany will meet to form an official plan to close tax loopholes for major tech companies. The new taxing system according to the European Commission will target U.S. companies Google, Apple, and other digital firms that don’t claim enough profits in their region. The taxes will begin in the spring of 2018 unless international corporate tax rules are reformed before then.
REPLAY | QUARTERLY POLICY THEMES: We hosted our Quarterly Policy Themes Call, led by our Macro Policy Analyst JT Taylor and Health Care Analyst Emily Evans, this presentation was a conversation with our policy team as they provided insight on major policy issues developing in Washington. It is crunch time for Congress who has a jam-packed legislative agenda ahead. Over the next three months, they must address an FY18 budget, appropriations, tax reform and maybe even health care reform. Watch the full replay here.
REPLAY | CALL DISH NETWORK (DISH): Our Senior Telecom Analyst Paul Glenchur discussed the regulatory outlook and agenda for Dish Network with its Senior VP and Deputy Counsel, Jeff Blum. Listen to the replay here.
PROLONGED NET NEUTRALITY FIGHT (CMCSA, CHTR, ATUS, T, VZ, S, TMUS): Our Senior Telecom Analyst Paul Glenchur writes that the FCC should repeal current net neutrality rules by year-end, but the subsequent court battle likely delays work on legislation. Read the full piece here.
IRAN NUCLEAR DEAL END IN SIGHT: Our Senior Energy Analyst Joe McMonigle writes President Trump's UN speech is the latest signal of U.S. / Iran deal exit. The mid-October decision is a catalyst for taking 1M b/d of Iran's crude off the market. Read the full piece here.
EVENT: DEPUTY ENERGY SECRETARY & FORMER OPEC PRESIDENT HEADLINE OCT 11 HEDGEYE ENERGY CONF (NYC): Our Senior Energy Analyst Joe McMonigle is hosting a Hedgeye energy conference in New York City. Topics include regulating pipelines, grid reliability and energy infrastructure in the Trump Administration - as well as an OPEC meeting preview. Get the event details here.
