Outflows: In the past four months, investors have withdrawn about $75 billion from U.S. equity mutual funds. This exceeds the $72.8 billion withdrawn after the Lehman bankruptcy from October 2008 to February of 2009. Clearly, investors have been quite fearful.
Oil: Oil was weak today on the same worries that affected stocks. If there is a problem in Europe that causes economic weakness, investors expect that to be a headwind for oil, just like stocks. As one might expect, the market and oil have been highly correlated recently:
Correlation of Crude Oil to the Dollar (50-day, one year)
Euro Debt: Options are pricing a huge amount of volatility into European debt instruments. The chart below shows that volatility versus that of the US. As you can see, the differential is similar to what it was during the U.S. financial crisis, except in the opposite direction:
Euro Debt Implied Volatility Vs. US
[The chart above was made by Bloomberg and formatting of the text didn’t translate properly.]
Market Today: Renewed fears about the potential Greek default helped drive the market lower today. Lack of progress coming out of the weekend euro-zone meetings cast a shadow on the market from the open. Late in the day, however, Greek officials said they were close to a temporary deal. This news immediately lifted the market, once again proving that the Greek news really is a major driver in the short-term gyrations the market has been experiencing.
Have a good day! Brent
