The impact of New York state Attorney General Eliot Spitzer’s probe into the insurance industry has foreign investors nervous, and that’s echoing throughout the markets, according to a new report from National Bank Financial.

“The New York attorney general’s insurance probe is certainly not going unnoticed in financial markets. Corporate spreads are widening, equities are under pressure and the U.S. dollar is at an eight-month low (trade-weighted basis),” NBF says.

“Investor confidence was already under strain from uncertainty about the impact of surging oil prices on the economy and earnings … Investors must now deal with the added concern of the Spitzer investigation,” it adds.

“The behaviour of the U.S. dollar, in particular, suggests that foreigners are getting the jitters.” NBF says that this development is not to be taken lightly as foreigners own 11% of traded U.S. equities and 24% of U.S. corporate bonds. “The greenback will face a difficult period if confidence is not restored,” it predicts.