Commodities might face a difficult week if those fears on US bond yields and the economy collide.
Currencies will probably be unhelpful, and the US dollar might be expected to fall after the Europeans did a deal to help Greece if it has trouble raising new debt and rolling over existing loans.
We could find out just what the market thinks about the deal this week with Greece reported over the weekend as looking like it will try and raise five billion euros in new loans.
A successful issue will help sentiment. With Greece forced to offer well over 6%, yield hungry investors will no doubt put their hands up, knowing that somewhere in the background, the European Union will be a backer.
The trouble for the euro is that the deal underwrites a rise in Greek debt over the next four years.
Greece might need up to 75 billion euros in new debt between now and 2013 as it cuts its budget deficit back to 3% from a reported 12.7% of GDP. Debt is already 113% of GDP, and will rise in that time for two reasons.
The Greek economy will contract this year and possibly in 2011 as government spending cuts hit and taxes rise. That and the higher debt means the proportion of debt to GDP will get a lot worse.
Other economies like Italy, Spain, Portugal and possibly Ireland face no growth/shrinking growth outlooks. The UK budget last week said the country would borrow 167 billion pounds this year, or $US250 billion. The UK faces slim growth prospects this year as well. And there’s an election due.
And German and French government borrowing will rise as budget deficits rise.
Despite the uncertain outlook for US bond yields and the economic recovery, the overwhelming weakness in Europe in the next year at least, will help underwrite a strong dollar, or at least the expectation of a strong greenback.
Commodity markets don’t like that, they’d much rather a weaker dollar which makes for easy gains for commodities, but especially gold, oil and copper, all of which are favoured by big investors.
The euro closed at $US1.34, up from the 10 month low of well under that level on Wednesday.
The Aussie dollar ended weaker at 90.40 USc after finishing at just over 91c in Australia on Friday.
Last week the strength of the greenback helped push gold down 0.2% and oil by 1.2%.
The dollar weakened on Friday after the European deal on Greece.
Gold closed at $US1,105.4 an ounce and oil at $US80 a barrel in New York.
In London, Brent crude finished at $US79.61 a barrel.
The still unclear accident with a South Korean navy ship near the border with North Korea helped gold rise in late trading.
Comex June gold added $US11.30, or 1%, to end at $1,105.40 an ounce in New York, which trimmed the week’s losses.
In after hours US trading gold added another $US3.60 to $US1,109 an ounce.
New York silver, copper and palladium finished higher Friday, but platinum closed lower.
Comex silver for May delivery closed at $US16.91 an ounce, up nearly 17 cents, or 1%.
Copper for May delivery added 2c, or 0.6%, to $US3.40 a pound.
Palladium rose 0.6%, to $US455.30 an ounce. Platinum, however, eased $US10.40, or 0.6%, to settle at $US1,596 an ounce in New York
In Chicago wheat again fell, this time touching a new five-month low.
Concerns that world output and stocks will exceed demand seemed to be the driver for the weakness, once again.
World output is expected to total 678 million tonnes in the year ending May 31, the second-biggest harvest on record behind the 2008-09 crop of 682.7 million tonnes.
At the same time the strength of the US dollar continues to weigh down on US export volumes. They are down 21% so far this year.
May wheat futures fell 1.75 cents, or 0.4%, to $US4.6475 a bushel on the Chicago Board of Trade on Friday after hitting an intra day and five month low of $US4.64.
Wheat is down 14% this year.
Sugar prices continued to suffer with further falls on Friday.
Over the week, ICE May raw sugar lost 10% to 17.00 USc a pound.
In London base metals mostly rose.
Over the week copper rose 1.1% to $US7,520 a tonne, but aluminium slipped 1.7% to $US2,220 a tonne.
Nickel prices hit their highest level since June 2008, reaching $US23,725 a tonne in London on Friday before easing back to $US23,615, up 5.2% over the week.
