"A Historic Reversal": Dollar, Treasurys Slide As Trump Drops Target For "Balanced Budget"

Following last week's torrid surge in the dollar on the back of a panicked flight to safety, the greenback has weakened for a second day amid concerns President Donald Trump’s budget proposal - to be released later today - will drop a longstanding Republican Party goal to balance the budget in 10 years in a "historic reversal", as we first reported  last night. As a result, the Bloomberg Dollar Spot Index fell 0.3% amid muted trading in Asia after dropping 0.1% Friday.

Among other spending measures, Trump will seek billions of dollars in new spending to build a border wall, improve veterans’ health care and combat opioid abuse, according to a White House statement.

The U.S. budget plan "has raised some concern that we could see a rising fiscal deficit at the time when the current-account deficit in the U.S. is also weakening," Khoon Goh, head of Asia research at Australia & New Zealand Banking Group told Bloomberg. "That could point to further U.S. dollar weakness."

Commenting on the Trump budget, Cowen’s Jaret Seiberg writes that the President's budget, due to be released this morning, will likely be "a disappointing document" for those seeking policy blueprints, with fewer-than-usual headlines on GSE reform, student lending and deregulation. Cowen keeps expectations low about housing finance; budget may include broad call to end Fannie, Freddie conservatorships rather than detailed path forward for GSEs

As a result, Seiberg urges caution regarding any potential news about student lending (like consolidating federal loan programs, capping amounts students may borrow) as Democrats aren’t on board with curbing federal loan programs; HEA reauthorization would need 60 votes in Senate; sees no path forward in this Congress for changes that would benefit private student lenders. "Wouldn’t read too much into anything regarding financial deregulation, which is in regulators’ hands."

More importantly, Cowen writes that it will be closely watching how markets react to news Trump will abandon the traditional GOP call to balance the budget; that may reinforce market concerns about deficits, need to issue debt, which may lead to higher interest rates.

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Meanwhile, the JPMorgan Global FX Volatility Index rose to the highest since April as investors awaited US CPI data on Wednesday to assess the outlook for Federal Reserve policy tightening. As discussed yesterday U.S. inflation probably quickened to 0.3% m/m in Jan. from 0.2% in Dec., according to economist estimates before this week’s data

“Should U.S. CPI print very strong, it will lead to expectations of a faster Fed tightening, which will in turn hit stocks and spur buying of the yen,” says Satoshi Okagawa, senior analyst at Sumitomo Mitsui Banking Corp. in Singapore

And while growing budget deficit - and how it is funded  - concerns have pressured the 10Y, whose yield rose to 2.88% as 10-year note futures fall 15/32, the real action has been in the 30Y, where the yield is back to March highs, rising to 3.18%.

So far, equity algos are ignoring the renewed bond rout, perhaps focusing more on the curve steepending, which however will soon flatten as the Fed continues with its 3-4 rate hikes over the course of the year.

 

Comments

silverer Oldwood Mon, 02/12/2018 - 08:29 Permalink

I kind of sense your frustration, but you have to report the score the way it is. Otherwise, it's all meaningless. Even bad news gives you a viewpoint to take action that can go in a positive direction. The real problem the way I see it, is a populace that is willing to swallow propaganda like candy. "Waking up" is only a first step to getting out of bed.

In reply to by Oldwood

Oldwood silverer Mon, 02/12/2018 - 08:48 Permalink

Balance the budget, eliminate waste and corruption, and watch this world come crashing down.

If people wanted the truth, could handle the truth, do you think we would have allowed this circus to go this far?

Our world is defined by our choices, and with each opportunity to choose wisely, we have refused as a society, as a world.

My father born in 1919, a working man, lived a responsible conservative life avoiding debt and risk. I asked him why in his final years and he told me...the insanity he saw in from our leaders, during the great depression, the same in the war and ever after, had him absolutely convinced it could not last another year.

Clarity of vision is not necessarily a blessing.

In reply to by silverer

silverer Kefeer Mon, 02/12/2018 - 08:32 Permalink

Gold and silver will be the only trusted place to park liquid assets when it all falls apart. If the masses moved into Bitcoin, that would increase in dollars and also give some inflation relief, but I don't think enough understand it to participate, so it's not as universally accepted with a long history as a hedge as gold and silver is.

In reply to by Kefeer

Kefeer Mon, 02/12/2018 - 07:45 Permalink

Trump is being realistic - the budget will eventually rebalance itself.  The USD is the best of the ugly fiat.  Any nation with a better solution? China or Russia?

silverer Kefeer Mon, 02/12/2018 - 08:24 Permalink

"Any nation with a better solution? China or Russia?"

Russian bonds or Russian stocks in the agricultural sectors are more solid than any US investment now. Russian debt to GDP is only 16%. That's the real Russian threat: Russia has a future, and the US doesn't with its 108% debt to GDP. When Obama told US holders of Russian equities to "get out" of Russian stocks due to US sanctions, warning of financial loss, Russia's MICEX went up 40% that year. The Russian stock market was the top performer in the world. Thanks for the advice, Barry. In the meantime, US hyperinflation, anyone?

In reply to by Kefeer

Catullus Mon, 02/12/2018 - 07:54 Permalink

You know why democrats hate Trump?

Because he stole their platform.

Fiscal conservatism is dead. Half the Republican congress sneered or laughed at Rand Paul for even bringing it up.

Oldwood Catullus Mon, 02/12/2018 - 08:03 Permalink

Physical conservatism has always been dead as a politically operated economy. We understand how in micro it works in our personal lives, but in macro it has no more chance than a collectivist Utopia.

We're dealing with humans, with greed for and fear of power, and people in charge who use the economy as a tool or weapon to advance their power.

Those claiming to seek power to end it are on par with a fictional Froto Baggins. It ain't happening.

In reply to by Catullus

Bubble Man Mon, 02/12/2018 - 08:11 Permalink

The government will NEVER balance the budget.  They will spend, spend, spend until the dollar is worthless and they can spend no more.  Knowing that this will be the outcome, they better damn well repair/rebuild the American infrastructure.  We need new roads, bridges, fresh water treatment plants, irrigation, new energy plants, etc. 

Everyone can laugh at China for all these ghost cities, but at least they are smart enough to overspend on infrastructure and not ONLY over spend on financial manipulation and pointless wars.  At least they will have the housing, roads, bridges, etc to support an economic rebuild when this fiat debt bubble collapses.  At this point this is what we in America better damn well do as well.  Make sure the infrastructure is there to rebuild when the shit hits the fan so people are able and have the means to rebuild their communities.  

silverer Bubble Man Mon, 02/12/2018 - 08:26 Permalink

Nothing good will happen in the US for many, many years. Infrastructure doesn't help a Marxist-trained and government dependent workforce to do much. Having a government ready and willing to empty the pockets of the productive while constantly sowing social experiments kind of fucks up the team, if you know what I mean.

In reply to by Bubble Man

Quivering Lip Mon, 02/12/2018 - 08:24 Permalink

Shit, balanced budget, why not a surplus? I remember back in 2000 reading the US would be running surpluses from 2002 on.

Peak boomers, endless wars and the lowest corporate taxes on record. Yep a balanced budget is just around the corner.

Bwahahahhahahhahhahahhahah

Oldwood Quivering Lip Mon, 02/12/2018 - 08:36 Permalink

What I love is the notion that we can push the cost of taxation onto those who own everything of real value, those whom we owe our jobs, those who we buy our ever want and need.

Really?

You want to tax businesses....OUR businesses.

The greatest scam ever perpetrated was the government selling the idea that they would provide while always making someone else pay for it....someone inevitably morally inferior to us....because they were successful.

The joke was on us because by forcing business to pay taxes they could invisibly make US pay the taxes while blaming evil business for high costs and low wages.

Notice how many corporations have jumped onto the climate change boat KNOWING their costs will increase. Why do they care anymore than insurance companies give a shit what THEIR costs are....when they can just pass them on.

Government jumped the shark when they continued vilifying business established for exporting jobs, given it was THEIR tax system that was driving companies away, and our own liberal sensitivities that induced us as consumers to not give a shit what we bought.

So yes, we should definitely tax our employers and suppliers MOAR, especially if we don't want no stinking job anyway.

In reply to by Quivering Lip

Bubble Man Oldwood Mon, 02/12/2018 - 09:29 Permalink

The disconnect started with the corruption of the dollar.  There was an unwritten social contract between the people and the oligarchy.  If you are willing to work hard than you would have the opportunity to be compensated enough to live a life without need to fear lack of food, some type of roof over your head, and energy.  This all ended with FREE TRADE.  The oligarchy hollowed out their people by moving their jobs, technology, and resources out of America via NAFTA and other so called free trade agreements.

We can argue about over taxation of the rich.  But the American oligarchy choose favorites.  These favorites are know as corporations that are in a race to the bottom.  No one talks about the small businesses being raped to death by over taxation.  It's all DON'T over tax the oligarchy corporations.  WHY?  They don't create that many jobs in America.    They outsource, downsize, reduce jobs to lower expenses to buy back their own stock.  They really don't even innovate anymore.  True innovation comes from the small businesses or entrepreneurs that can barely afford to exist anymore in America.

To cover this up the oligarchy created social benefits so the people wouldn't realize the social contract between the people and oligarchy had been broken.  They moved from sound money to fiat to afford to throw crumbs to the masses to mask their coup and call this social welfare.  And now here we are.

During these new tax cuts, NO ONE talked about reducing taxes and regulations for the people, small business owners, or new entrepreneurs.  It was ALL tax savings for the corporations who don't invest in America. And capitalists took the bait hook line and sinker.  Free market my ass.

In reply to by Oldwood