Stocks record losses in final session of a tough week

The procession of selling goes on, with the FTSE 100 down 40 points in afternoon trading and US markets firmly in negative territory.

Friday afternoons are an unlikely time for a rally to start, and so it has proved once again today. Markets remain under pressure, and the see-saw narrative of the week seems set to continue right into the final close in the US. Although still fairly measured at present, this current selloff has the potential to be one of the most dramatic pullbacks we have seen all year, as inflation, stagflation, slowdown and virus risks all combine to knock back European and US markets. By and large the buyers have had it all their own way this year, and in a calm fashion, so a bit of volatility would not go amiss from a price discovery perspective; the bounce in the Vix today suggests next week could see additional volatility, and one with more of a unidirectional feel to it too. Profit-taking in crude oil is adding to the gloomy atmosphere, an indication that the extensive wave of selling in risk assets probably has further to go.

If the caution we have seen this week does carry over into Monday and beyond, then the next Fed meeting provides another reason to tread carefully. After Jackson Hole the tapering debate has diminished in intensity, but expect it to roar back again next week. At the Bank of England too, a similar theme will play out, given additional urgency by the higher UK inflation figures this week. Policy is unlikely to change soon, but a nod towards a reduction in purchases might pull the rug out from underneath global stock markets.

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