REPUBLICAN RETALIATION?: Opposition to President Trump’s imposition of tariffs on steel and aluminum will continue from leaders on Capitol Hill and their allies in the business and agricultural industries. The proclamation Trump signed will go into effect on March 23 paring back the original scope of the tariffs and will exempt Mexico, Canada and possibly Australia –while leaving the window open for additional exemptions for U.S. allies looking for relief from the tariffs (but offered no additional details on the appeal process). But that may not be good enough to mollify pro-free trade stalwarts in Congress. Senator Jeff Flake (R-AZ) will introduce legislation to “nullify the tariffs” and will be joined by a growing chorus of Republicans concerned with Trump’s protectionist tendencies now that he’s fulfilling a major campaign promise. It’s unlikely they'll succeed as we outlined earlier in the week given the veto-proof supermajorities required in the House and Senate – compounded by the lack of Democratic support as they sit on the sidelines golf-clapping alongside their stalwart labor allies. When the pro-free trade crowd realizes this latest battle is lost, look for Republicans on the Hill to claw back some of the authority ceded to the Executive Branch over the years - namely irascible Senator Chuck Grassley (R-IA) who said just before Trump’s action "maybe we've delegated too much authority to the presidency. I'm not just saying to Trump."
SIGNED, SEALED, DELIVERED: With the U.S. nowhere in sight, 11 nations signed the Trans-Pacific Partnership (TPP) after finalizing the pact back in January. The TPP will take effect when “at least six member nations have completed domestic procedures to ratify the agreement.” TPP is expected to cover a market of 500 million people and will top off as one of the world’s top three largest trade deals.
IN LIKE A LION, OUT LIKE A LAMB?: The Texas primaries came and went without a whimper, but next week’s special election in PA-18 will likely set off alarm bells no matter the outcome. Both candidates and their allies will spend a combined 10 million on a Republican seat that won’t even exist in eight months as a result of redistricting. But, should Democrat Conor Lamb overtake Republican Rick Saccone, Republican party chieftains will be looking for the panic button - especially in light of veteran political handicapper Larry Sabato moving over 25 House seats into the lean Democrat column yesterday. Trump is scheduled to campaign in the district tomorrow and will deliver his latest gift to Saccone and many of his core supporters in the Pittsburgh area – a tariff bill squarely focused on what used to be the area’s economic lifeline.
For you political junkies out there, click here for a list of all the 2018 upcoming primaries (through November 6 – when Louisiana holds its primary the same day as this year’s general election).
HENSARLING’S BANK BILL ULTIMATUM: Proposed amendments to Senate Banking Committee Chairman Mike Crapo’s bank deregulation bill, S. 2155 (115), have not yet won over House Financial Services Chairman Jeb Hensarling. Hensarling’s lieutenants say he is focused on over 30 proposals he wants to be considered in the final legislation, “bills we expect to be included in any bill that goes to the president's desk." The move raised questions about the future of the Senate bill because some of the proposals could be non-starters with Senate Democrats, whose support is critical to advancing the legislation (there were 16 at last count). There is no agreement in the Senate on the amendments they will consider before the measure is brought to the floor next week.
The Most Consensus Long Position on Wall Street According to the most recent CFTC data, the world's largest investors are now net long Volatility (VIX) by 34,383 contracts, or 2.49X on a 1-year Z-score basis. As you can see in the chart below, this makes it the most overextended long position in macro. Many investors were lulled to sleep last year by an environment of almost non-existent volatility. Now, with our global growth slowing call (i.e. #GlobalDivergences) beginning to impact markets, Wall Street is jumping on the higher volatility bandwagon. Over on the short side, Wall Street's most consensus overextended short position is the Dow Jones Industrial Average. Wall Street is net long by just 21,802 contracts, or -2.7X on a 1-year Z-score. As you can see in the chart below, this makes it the most overextended short position in macro.
TRUMP'S TRADE TANTRUM: Read our note on Section 232 and Trump's trade actions here.
CALL REPLAY | IT IS A BRAVE NEW WORLD: POPULISM &TRUMP DRUG PRICING AND APPROVAL POLICY: Listen to our healthcare team discuss 2018 drug policy shifts including changes to Part B and D; opioid lawsuit and more. Find the replay here.
READ GENERAL DAN CHRISTMAN'S WEEKEND PIECE: ITALY | A BUNGA BUNGA RETURN? here.
ENJOY IT WHILE IT LASTS; FY18/19 DEFENSE BUDGET WILL BE HIGH WATER MARK: General Emo Gardner writes that FY18 Pentagon spending will be up 10.7% y/y at ~$671B and FY19 will +2.9% from there but growth in FY20 and beyond looks grim. His latest piece here.
ENERGY POLICY | VENEZUELA POLITICAL UPDATE: Replay of Joe McMonigle's call with Dr. Francisco Monaldi, a Fellow in the Latin American Initiative and Energy Economics at the Baker Institute at Rice University on the latest situation on the ground in Venezuela as well as the developing White House announcement of possible new sanctions. You can access it here.
