US: Trump Calls For Major Non-Defence Spending Cuts In Skinny FY2026 Budget
President Donald Trump has sent Congress a ‘skinny’ FY2026 budget outlining his priorities for Congressional appropriations. Trump is expected to send a more robust budget in the coming weeks. Link to budget document, per Punchbowl.
- The budget calls for a 13% boost to the Department of Defense - and other national security agencies - taking the Pentagon budget over USD$1tn for the first time. At the same time, it calls for deep cuts to discretionary non-defence spending, cutting non-defence spending by USD$163 billion, or 22%, from FY2025.
- Delays to Trump’s budget give Republican appropriators little time to draft the 12 annual spending bills before the start of the fiscal year on October 1, running the risk that Congress could be forced into another short-term funding measure.
- While a presidential budget is rarely adopted in full by Congress, it lays down a blueprint for White House priorities. In particular focus, the level of spending reductions that could be used to sweeten negotiations with hardline conservatives on the ‘One Big Beautiful’ reconciliation bill that is currently under markup. The budget suggests that Trump is willing to apply pressure on Congress to significantly reduce government spending ahead of Trump’s flagship reconciliation legislation.
- Bloomberg notes that the skinny budget does little to clear up confusion over Trump’s approach to entitlement programs and, “It’s also unclear what broader economic assumptions Trump’s budget will make, and what amount of tariff revenue the administration projects collecting…”
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US DATA: Strength In Factory Orders Reinforces Solid Pre-Tariff Narrative
New orders for manufactured goods ("factory orders") were a little stronger than expected in February, with the headline reading of 0.6% M/M (0.5% expected, 1.8% prior upwardly revised from 1.7%). The 3M/3M annualized rate of orders growth picked up to 1.6%, implying improved momentum after 2 consecutive negative monthly readings.
- Durable goods were minimally revised in the final reading: headline orders were upped 0.1pp to 1.0% M/M, but orders ex-transport (0.7%), and core capital goods orders (-0.2%) and shipments (0.8%) were all unrevised.
- As we noted following the durable goods report - in which orders greatly exceeded expectations - manufacturing data for February was suggestive of strong "hard" data for manufacturing in Q1. The factory orders data further supports this narrative.
- Incoming data since then - including a very weak ISM Manufacturing report for March - further supports the other part of the narrative however, which is that recent manufacturing strength reflects front-running the impact of tariffs, implying a dropoff in demand later in the year that may already be reflected by slowing core capital goods orders in February.
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STIR: STIR Option Update
SOFR option trade remains mixed, underlying futures retreating (Whites -0.020-0.030) while projected rate cuts through mid-2025 continue to cool vs. late Tuesday levels (*) as follows: May'25 at -4.7bp (-5.3bp), Jun'25 at -20.1bp (-22.1bp), Jul'25 at -36.4bp (-39.1bp), Sep'25 -53.4bp (-56.6bp).
- +10,000 2QK5 96.00/96.25/96.50 1x3x2 put flys, 2.0 ref 96.62
- +6,000 SFRZ5/0QZ5 97.00/98.00 call spd spd, 8.0 net conditional flattener
