Suggestions that the US Federal Reserve’s balance sheet normalisation programme has forced the recent equity market selloff have been rejected by a number of banks and industry participants.

"From the market perspective there is a lot of interest being paid to the balance sheet as a source of tightening financial conditions, and as a potential trigger for the equity selloff that we have seen in recent months and the increase in volatility," said Matthew Luzzetti, senior economist at Deutsche Bank.

The claim is that by shrinking its balance sheet of US treasuries and government-supported mortgage-backed securities (MBS), the Fed has been drawing liquidity to the system. If quantitative easing was all about compressing risk premia, pushing investors off the risk spectrum and pushing flows into riskier assets, then unwinding the balance sheet should by definition be the opposite of that. Many would expect that the term premium would rise...