INVESTORS SHUN U.S.
Investors have pulled billions from US stock funds for the third straight week amid sharp market gyrations, which have frayed investor nerves as global equity bourses slid deeper into correction territory.
Funds invested in US stocks counted $4.2bn of withdrawals in the week to January 20, equating to the largest three-week period of outflows since April, according to data from EPFR.
The redemptions take outflows since the year began to nearly $29bn and those over the past seven weeks to more than $42bn. Global exchange traded funds that track equities have seen more than $7.77bn in outflows so far this year while bond ETFs have seen inflows of $8.46bn, according to data tracked by Markit.
Since the new year began a sense of pessimism has infected global equities and while markets rebounded late this week, as oil rose back above $30 a barrel and the European Central Bank signalled further easing in the coming months, investors remain wary. Fears of an economic slowdown in China and volatile commodity prices have driven the "risk-off" mood in markets.
Equity markets have been particularly whipsawed by crude price movements, with a strong rally seen on Thursday and Friday as both Brent and WTI benchmarks crept back towards $31 a barrel.
"It is clear that the ever-declining oil price is public enemy number one," said David Rosenberg, chief economist and strategist with wealth management group Gluskin Sheff. "We need stabilisation here before the equity markets turn up. China is a risk, obviously, but more in a sense of a general loss of confidence in government policy than anything really to do with a hard landing."
Investors have so far paid little attention to the start of fourth-quarter earnings season, instead focusing on the ability of the US economy to weather a slowdown in China and a series of defaults in the energy sector.
Equity strategists and economists say they have been overwhelmed with client questions on the likelihood of a recession. Many have already marked down the projected fourth-quarter expansion, as inventories act as a drag on US GDP.
"Bear markets historically have occurred in and around recessions when inflation is heating up, the Federal Reserve is fully entrenched in a tightening mode, valuations are at extremes and investor sentiment is approaching euphoria, which is not our current environment," said Terry Sandven, chief equity strategist with US Bank Wealth Management.
Junk bond funds in the US were struck by another wave of withdrawals, with redemptions reaching $3.4bn. Even the haven of US money market funds, to which many investors turn as a proxy for cash, were hit with roughly $11bn of outflows.
Instead, investors piled into mutual funds and exchange traded funds that buy US government paper. Treasury funds counted $2.5bn of inflows in the past week — their greatest weekly influx in nearly 10 months — as municipal funds reported $530m of new money, data from Lipper showed.
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According to the U.S. Energy Information Administration, Canada's largest energy customer has boosted domestic oil production from less than four million barrels per day in 2008 to 9.2 million bpd now, while gas output has risen from 67 million cubic feet per day to 89 million cf/d.
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International Brent crude futures LCOc1 were at $57.75 per barrel at 0733 GMT, up 58 cents from the previous close, after trading as high as $58.13. U.S. WTI crude was at $51.95 per barrel, up 50 cents. Earlier in the day, it traded as high as $52.22.