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US Dollar and Treasury Yields React to Italy’s New Government

@djmckennon

The US Dollar Index surged to six-month high price levels on Tuesday. However, the index pulled back in the next two trading days amid the weak market sentiment. The US Dollar Index opened slightly higher on Friday and was trading with mixed sentiment in the early hours.

Market sentiment

Decreased concerns about Italian politics took the shine out of safe-haven assets and weighed on the US Dollar Index on Thursday. In the early hours on Friday, the rise in US Treasury yields is supporting the US Dollar Index. Decreased uncertainty about Italy’s political conditions gave Treasury yields room to recover. The US Dollar Index didn’t respond to the Trump Administration’s plans to impose import tariffs on Europe, Canada, and Mexico. The market is looking forward to the release of May’s non-farm payrolls and unemployment data. The data are scheduled to be released at 8:30 AM EST today.

At 5:45 AM EST on June 1, the US Dollar Index was trading at 94.05—a gain of 0.05%.

US Treasury yields

After moving higher for two days, US Treasury yields rallied in the early hours on Friday. The improved political scenario in Italy amid the coalition by populist parties to form a new government and avoid the early elections pushed US Treasury yields higher on Friday.

Below are the movements in Treasury yields as of 5:55 AM EST on June 1.

• The ten-year Treasury yield was trading at 2.882—a gain of ~2.1%.

• The 30-year Treasury yield was trading at 3.045—a gain of ~2.0%.

• The five-year Treasury yield was trading at 2.716—a gain of ~1.9%.

• The two-year Treasury yield was trading at 2.435—a gain of ~1.00%.

The iShares 20+ Year Treasury Bond (TLT) declined 0.16%, while the ProShares UltraShort 20+ Year Treasury (TBT) and the ProShares UltraPro Short 20+ Year Treasury (TTT) gained 0.41% and 0.52%, respectively, on Thursday.

Next, we’ll discuss how commodities performed in the early hours on June 1.


Crude oil

After a brief rebound on Wednesday, crude oil pulled back on Thursday amid the dented market sentiment. Carrying forward the weakness, crude oil opened lower on Friday and was trading with weakness in the early hours.

Market sentiment

Crude oil moved lower on Thursday. US oil production continued to increase and raised concerns about oversupply conditions. According to the EIA’s (U.S. Energy Information Administration) monthly report, US crude oil production rose by 215,000 bpd (barrels per day) to 10.47 million bpd in March, which is the highest output ever recorded by the US and close to Russia’s output. According to the EIA, US crude oil inventories declined by 3.62 MMbbls (million barrels) last week—a bigger decline than the forecast of a fall by 0.4 MMbbls. The market is looking forward to the release of US oil rig count data by Baker Hughes. The data are scheduled to be released at 1:00 PM EST today. The data should help the market gauge US oil production and demand trends.

At 6:10 AM EST on June 1, the WTI crude oil futures for July delivery were trading at $66.84 per barrel—a drop of 0.3%. The Brent crude oil futures for August delivery gained 0.04% and were trading at $77.59 per barrel. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) closed at $42.25 after declining 0.78% on Thursday.

Copper

After gaining for two consecutive trading days, copper started Friday on a stronger note. Copper was trading with strength in the early hours amid the improved sentiment. The release of China’s stronger-than-expected factory data in May improved copper’s demand prospects and the sentiment. Considering that China is the biggest copper consumer, China’s economic release will likely impact copper’s demand and price trends. The SPDR S&P Metals and Mining ETF (XME) declined 0.03% and closed at $37.51 on Thursday.

Gold and silver were mixed in the early hours on June 1. The decreased fears about Italy’s political conditions are weighing on gold. The dented global sentiment due to fresh US import tariffs is supporting the prices. The SPDR Gold Shares (GLD) fell 0.22% and closed at $123.10 on Thursday. Platinum and palladium were trading with mixed sentiment in the early hours on June 1.

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