LONDON, (Reuters) – The sudden fall in U.S. stock prices at the close of last week and subsequent widespread weakness on global markets Monday are due to abrupt changes to large central bank liquidity pools rather than hawkish rhetoric by global policymakers.

Matt King, Citibank’s global markets strategist, wrote Monday that the U.S. Federal Reserve reserves fell by $460billion last week. This is the largest weekly decline ever recorded.

U.S. stocks will have a difficult start to the week, with index futures falling 1%. Wall Street plunged by more than 2.5% Friday. This marks the third consecutive week with losses for the Nasdaq and the. [.N]

King estimates in a note entitled “Sudden Stealth QT = Weaker Markets” that a $100B drop in reserves will translate into a 1% decline in stocks. King refers to quantitative tightening (or the central banks’ policy of draining excess cash from the market by the popular acronym).

According to him, QT will likely make global liquidity outlooks for the rest of 2011 look more like this quarter than it did in recent weeks.

The world stocks suffered their worst quarter since March 2020 when the coronavirus pandemic caused havoc. Meanwhile, stocks in America are nearly 12% below its peak earlier this season.

Separately, Monday’s note contained the following: Morgan Stanley (NYSE:) Several strategists believe that the U.S. stock market will enter a bearish phase as defensive stocks have little upside, and earnings per share and margin are likely to be low.

Morgan Stanley wrote in a note, “With defenses being the latest major outperformer they are now costly, leaving very little places to hide.” “This suggests the S&P 500 will finally catch up to the average stock and enter a bear market.”