Stories that Lloyds Banking Group Plc lacked sufficient capital circulated throughout the markets today. Traders reacted by reducing positions in higher risk assets.
U.S. equity markets closed up for the day and posted small gains for the week. Today was a triple-witch expiration day so trading was light and directionless throughout the trading session. A drop in demand for higher risk assets could trigger a lower opening on Monday. Forex traders are expressing concerns about the global financial system. These worries could spread to the equity markets over the weekend.
Despite concerns over the global financial system, U.S. Treasuries finished lower for the day. This could change over the week-end if the Lloyds’ news becomes a major issue. Trading was light and range bound in the December Bonds and December Notes ahead of next week’s FOMC meeting and the $112 billion Treasury auction.
The U.S. Dollar was a big winner today. Rumors of capital problems at Lloyds Banking Group Plc encouraged traders to lighten up demand for higher yielding currencies and pare their positions against the Dollar. The December British Pound was the big loser today and for the week. The December Japanese Yen reversed the week to down which could lead to follow-through selling next week.
December Gold finished lower as the Dollar strengthened. Expect volatility in the precious metals markets next week. While a stronger Dollar should trigger a sell-off in the gold market, global banking concerns could provide support. This sets up the market for volatile two-sided trading.
Less demand for higher yielding assets and a weaker Euro helped to put pressure on December Crude Oil today. Investors are still shying away from the long side until they see stronger evidence that a global economic recovery will lead to more demand for energy products.
December Corn and November Soybeans finished lower on Friday. The week started off bullish as Corn and Soybeans spiked up on rumors of a possible damaging frost. Real buying never materialized, and the rally now looks like short-covering in hindsight. Look for a sideways to lower trade over the near term unless the frost rumor hits again. The corn and soybean crops are just too large to support a strong rally without help from the weather.
