Skip to main content

Financial stocks in Canada and the United States were back in the mud on Friday, a day after Moody's Investors Service downgraded the credit ratings of bond insurers MBIA Inc. and Ambac Financial Corp. by several notches.

The downgrade is not exactly new - Fitch Ratings and Standard & Poor's have already pulled the trigger - but the severity of it has renewed concerns among investors that other financial firms could be caught up in the ensuing volatility.

But there could be something else going on here: Clement Gignac, chief economist at National Bank, noted that oil and U.S. financial stocks have the highest level of negative correlation (at -0.85; -1 indicates perfect negative correlation) in 18 years, meaning that they are moving in almost opposite directions. Indeed, the rise in the price of oil on Friday comes after China announced dramatic increases in fuel prices and the U.S. said gasoline consumption is down 1 per cent in 2008, suggesting that something else is driving the price higher.

Story continues below advertisement

"Why are crude prices so resilient given this potential oil demand destruction from China and the ongoing change in American drivers' energy consumption habits? It seems that the answer comes from the financial players' desire to hedge against the U.S. dollar, not to mention having an insurance policy against the U.S. banking system woes," Mr. Gignac said in a note to clients.

Binky Chadha, a strategist at Deutsche Bank, noted that the entire S&P 500 has recently turned decidedly negatively correlated with oil.

"This contrast in behaviour of correlations suggests oil prices have been exerting an increasing negative influence on equity markets recently," Mr. Chadha said. The way he sees it, U.S. stocks are a "hostage to oil."

Report an error

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at