Cash swings pull the rug on global stock markets, strategists say

A sudden drop in US stocks late last week that turned into widespread weakness in global markets on Monday can be attributed to abrupt shifts toward large central bank liquidity reserves rather than aggressive rhetoric from the central bank. global policymakers.

In a note published on Monday, Matt King, global markets strategist at Citibank, noted that US Federal Reserve reserves fell $460 billion last week, the biggest weekly drop on record.

US stocks are poised for a rocky start this week with index futures down 1%. Wall Street fell more than 2.5% on Friday, marking the third consecutive week of losses for both the S&P 500 and the Nasdaq.

In a note titled “Sudden Stealth QT = Weaker Markets,” King estimates that a $100bn drop in reserves translates to a 1% drop in equities, referring to quantitative tightening or central bank policy. of draining surplus cash from the markets by its popular acronym.

“QT is likely to make the global liquidity outlook for the rest of this year look a lot more like the first quarter than it has like the spring break markets in recent weeks,” he said.

Global stocks posted their worst quarter this year since the coronavirus pandemic wreaked havoc in March 2020, while US stocks have fallen nearly 12% since their peak earlier this year.

In a separate note published on Monday, Morgan Stanley strategists said US stocks will join a bear market as defensive stocks offer little upside and margin and earnings per share have likely peaked.

“With defenses being the last big beater, they are now expensive, leaving very few places to hide,” Morgan Stanley said in a note. “This suggests that the S&P 500 will eventually catch up with the stock average and enter a bear market.”

(Reporting by Saikat Chatterjee; Editing by Mark Heinrich)

(Only the headline and image in this report may have been modified by Business Standard staff; all other content is auto-generated from a syndicated source.)

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