STATE OF THE UNION: We don't typically lend much effort and time to the theater that is the State of the Union. This year isn't any different and, given President Trump's proclivity to take to the twittersphere as well as select staff leaks, there isn't much guesswork left with regard to what he'll cover in his speech. But, but, but...we'll be looking for signs of bipartisanship as we calculate the odds for passage of key legislative priorities early this year before the midterms become an all-consuming force on Capitol Hill. Infrastructure, trade policy, health care and direction on immigration reform will be among the top items we'll be watching - for a president can tick off a litany of all the items he wants, but will eventually run into the reality that is the United States Congress.
NAFTA EXTENSION?: With the March 31 deadline looming, trade negotiators from the U.S., Mexico and Canada continue to be divided over a number of critical issues but are claiming some progress has been made to replace the 24-year old pact. Provisions on anti-corruption, telecommunications and customs advanced - with compromises regarding thorny auto industry rules of origin as well as government procurement still unresolved. Given the extended timelines (and certainly accounting for the Mexican elections in July and the U.S. midterms), the Trump Administration will ask Congress for an extension of "fast track" trade authority giving the Administration more time and more leeway when submitting a treaty to Congress. The trio is slated to meet again in Mexico City in late February.
GIMME 5G: A White House leak has raised the prospect of a government-built and controlled 5G network. We believe this is driven by some national security elements within the Administration. Our sense is the interests advocating such an approach are isolated and opposition to the concept within the Administration, on Capitol Hill and among industry players is widespread - and overwhelming. The idea, after universal condemnation, should drift into the background and soon be forgotten. Nothing of this magnitude could move forward without Congressional authorization and funding and the very idea would be a non-starter for lawmakers. This does not diminish the consensus policy of the Administration and lawmakers about refraining from the use of Huawei equipment in domestic network builds. Email us or Hedgeye's Senior Analyst for Telecommunications/Cable Paul Glenchur for more on this topic.
A WOMAN'S PLACE IS IN THE HOUSE: And the Senate. A political landmark was just reached with a total of 325 women filing to run as first-timers for a seat in the U.S. House of Representatives. Tally that to 72 sitting female members of Congress seeking re-election to Congress with 38 of them looking to move across the dome to the Senate. There are 12 women incumbents in the Senate who are currently seeking re-election. And, don’t forget the statehouses - there are 36 Governorships at stake this fall with four sitting women Governors running for re-election and 75 filing to run to displace them. While there are more Democrats running than Republicans, there is no doubt in our mind that we’ll be seeing more women in the halls of Congress and state Capitols in 2019 hopefully cooling down rising tempers in the process.
By the way, there’s a freshly-announced open seat in the increasingly competitive 11th district of New Jersey with Appropriations Chairman Rodney Frelinghuysen becoming the eighth Republican Chairman to announce his retirement this year.
DEFENSE QUARTERLY EARNINGS: Pentagon Outlays Up 11.4% Y/Y, 6.4% Q/Q Auspicious for LMT, BA, RTN, et al. Our Senior Defense Analyst General Emo Gardner writes DoD investment outlays Oct-Dec were up 11.4% Y/Y and 6.4% Q/Q, auguring excellent Q4 defense company earnings reports. Read his piece here.
PAKISTAN AND THE U.S.: AT THE FORK? Read General Dan Christman's latest missive on the U.S. state of play in Pakistan here.
SAUDI MINISTER TALKS ABOUT KEEPING PRODUCTION CUT BAND TOGETHER IN 2019 AMID RISING U.S. PRODUCTION: Our Senior Energy Analyst Joe McMonigle believes this U.S. production narrative will dominate the discussion at least through 1H 2018 and weigh on prices. Read his note here.
