A wary end to the week on Friday night in financial markets, with shares and commodities on pause or stuttering as traders try and work out whether the past fortnight is a blip or the start of a correction, or worse.

The US dollar rose against the euro; hitting commodity markets after solid growth figures for much of Europe were announced.

The US dollar is now at a month high against its major trading partner currencies and is starting to be a surprise influence.

Reuters reported on the weekend that the "big money is calling a halt to the surge in stock prices".

"Declines in oil and metals prices are being seen by an increasing number of fund managers and strategists as a signal to get out of riskier areas of the equity market.

"And that means avoiding things like Chinese IPOs and sticking to the boring stuff, like utilities, "it reported.

For many investors and analysts the fear is that the commodity price surge we have seen has run too far in front of the reality in the sluggish real economy in the US, slowing China, damaged China and overheating emerging markets.

The only exception seems to be northern Europe where very strong growth figures for Germany (1.5% quarter-on-quarter) and France (1%), and even Greece (up 0.8% in a shock) surprised on Friday.

In fact that north east corner of continental Europe is the hot spot among developed economies.

All others are stumbling higher or going backwards, or stuck in a bout of emerging stagflation.

Markets seem to be now switching their attention to questions about what happens when the US Federal Reserve ends the current bout of quantitative easing next month.

Reuters talked to David Joy, chief market strategist of Columbia Management Investment Advisers, one of the largest US fund managers with over $350 billion under management, and found he has been cutting equity exposure over the past three months.

"Joy said he started the year with a modest overweight in equities, but has cut that to neutral," he told Reuters.

"That was partly a response to the impending end of the Fed's stimulus program, and partly due to the potential for disruption in the energy markets, he said.

"How the markets will react to the end of the Federal Reserve's massive $600 billion stimulus at the close at the end of June is a wild card.

"As we get a little closer to the end I think you could start to see the equity market's volatility start to increase," Joy said.

US bond yields fell by nearly half a per cent until last week when they rose back past 3.20% for the 10 year security.

They then dipped to 3.19% on Friday when markets sold off after the dollar jumped.


There is growing concern that US stocks, for example, have priced in a too optimistic outlook for the country and that recent breakdown in commodities and shift in equities to safer industries like health care suggest a reckoning in coming months.

But China continues to slow as we saw in last week's figures, Japan is in the grip of recession caused by the March 11 quake and tsunami and emerging markets have been tightening interest rates (India, Brazil, and Chile last week) because inflation is still being driven higher by rising oil and food prices.

South Korea's central bank didn't lift rates on Friday when the market thought it would: the explanation, the central bank is worried about the sluggish domestic economy.

And it's also worried about high levels of domestic debt, which sound a bit like us in Australia.

And then there's the attitude of many investors in the US who see our reason to be concerned and confidently expect the rebound to continue.

Commodities have been at the forefront of the selling so far.

Those big surges in gold, silver and oil ended in an ugly slump the week before last week. Silver has literally crashed.

Some analysts blame the approaching end of the Fed's $US600 billion program to buy Treasury debt which provided cost-free funding to splurge in commodities and equities.

The other is that it is a sign of impending weakness in the economy and point to how copper, known for its ability to act as a predictor for the economy given its wide-scale industrial applications, has hit a five-month low.

But that's more down to the continuing weakness in construction in the US which is no longer the big influence on copper.

China is, and April's import figures showed a big fall and copper shipments to the country have been volatile now for the past five months or so. As well a risky financing system using imported copper and some other metals seems to have been brought under control, flooding the market with copper supplies thought to have been consumed by industry in China.

The AMP's Dr Shane Oliver says that the worries a slowdown in global growth continues to weigh on investors "and this resulted in a volatile and mixed trading on global share markets."

"Australian shares remained under pressure on the back of weak commodity prices and worries about domestic demand with the Budget failing to make any difference either way.

"Commodity prices were mixed with slight gains in gold, oil and metal prices but further weakness in silver and soft commodity prices.

"Silver prices have fallen nearly 30% from their late April bubble high.

"The Australian dollar remained under pressure on the back of weaker commodity prices and after softer than expected employment led to reduced expectations for a June rate hike.

"Worries about a renewed downturn in global growth leave shares vulnerable to further short term softness.

"Nevertheless, our broad assessment remains that shares will continue to climb the 'wall of worry' this year helped by still cheap valuations, the continuing global economic and profit recovery and easy global monetary conditions. The fall back in world prices for food and oil is certainly a help in this regard.

"However, Australian shares are likely to lag their global counterparts as a result of the dampening impact of higher local interest rates and the strong Australian dollar," Dr Oliver wrote on Friday.