Treasurys Edge Lower, Stocks Waver Following Release of Budget Proposal, Soft Housing Data

US financial markets fluctuated between gains and losses throughout the day as investors assessed and evaluated the government spending plan unveiled by the Trump administration this morning.  With the goal to balance the budget by the end of the decade, the proposal highlights the need to reduce Medicaid payments, cut agricultural subsidies and slash foreign aid while increasing military funding and infrastructure investment, in addition to leaving Social Security and Medicare benefits unchanged.  As explained by the White House budget director Mick Mulvaney, “it’s a taxpayer-first budget,” in which “we are no longer going to measure compassion by the number of programs and the amount spent on those programs.”  The proposal is expected to receive a heavy reworking in Congress, especially given its reliance on a tax overhaul plan whose details have yet to be confirmed and will not be finalized any time before August, as per an update provided by US Treasury Secretary Steven Mnuchin.  Furthermore, the budget projects economic growth of 3% per year by the end of Trump’s first term, a figure well in excess of the Congressional Budget Office’s previous forecast of 1.9% growth.  All three major US stock indices are poised to finish the trading session up 0.1%-0.3%, with the share prices of banks leading all gainers.  Oil prices continue to boost energy shares as well, with WTI crude gaining an additional 0.75% on the day to a 5-week high as optimism builds ahead of this week’s OPEC meeting.  Treasurys reversed the rally from early this morning, and yields/swap are currently up 1-5 bps in a bear steepening pattern.  The yield on the 10-year note is now near 2.29%, 8 basis points higher than last week’s monthly lows.       

Today’s economic data releases were headlined by new homes sales, which displayed weaker than expected statistics for the month of April.  As reported by the Commerce Department, there was a 11.4% decline in the number of new homes sold last month, yielding a seasonally adjusted rate of 569,000 units.  The figure represents a steep drop-off from the previous month’s revised 642,000 pace and fell below expectations of 610,000.  The decrease in sales comes after three consecutive months of increases, which included a 9.5-year high in March, and is unlikely to significantly alter the recovery of the housing market given the continually low mortgage rates and tightening labor market.  Broken down by region, new home sales fell the most in the West (-26.3%), followed by an 13.1% decline in the Midwest, 7.5% drop in the Northeast, and 4% slide in the South.