Indices deep in the red as week ends with risk-off flourish

Heading into the close the FTSE 100 is down over 100 points, as indices on both sides of the Atlantic record heavy losses. 

• Sharp falls for stock markets on quadruple witching day
• Fed’s step-change on inflation continues to rile investors
• Dollar in the ascendant as risk-off atmosphere gathers pace

Quadruple witching today means that we should be careful about reading too much into the movement of stocks this Friday afternoon, but for now the general rally in equities appears to have met its Waterloo (at least temporarily). Heavy losses in Europe and in the US are being influenced by options expiry but the second half of this week has taken on a distinctly ‘risk off’ feel, as investors seek to reassess a host of assumptions now that the Fed has changed its own working and outlook for the year for monetary policy. Having seemed so dedicated to the idea of ‘transitory’ inflation and talking markets down that path for so much of 2021 thus far the world’s most powerful central bank appears to have shied away from the implications of such a policy and instead has gone back to the usual playbook of worrying about inflation. This could signal the start of a much more volatile period for markets, certainly over the summer until the Jackson Hole conference, so today could be just the opener to a much tougher few weeks for equities. 

Today is a day for safe haven assets, which at the present time just means the US dollar. Everyone is rushing to the greenback in the wake of the Fed meeting, and this dramatic change of the tides is making itself felt across a host of assets. Even the declines in EURUSD and GBPUSD do not appear to be doing much for European stock markets, and instead we have a classic ‘flight to safety’ that has been brewing for around 48 hours and is gathering pace as the weekend looms.