Naomi Robnick
LONDON (Reuters) – Global stocks rebounded from a sell-off last week to reach their highest level since November 2023 as stronger U.S. economic data eased recession fears and investors braced for more volatile developments ahead.
MSCI’s main global stock index rose almost 4 percent in five trading days, recovering strongly from market turmoil caused last week by fears of a U.S. recession and foreign exchange fluctuations.
Europe’s STOXX stock index rose 0.5% in morning trading on Friday and is on track for a 2.6% gain for the week as U.S. stock futures signal a blockbuster week for Wall Street.
The VIX U.S. equity volatility index, widely considered a market fear gauge, is hovering at a benign level of about 15 after hitting a four-year high of 65 early last week.
The sharp turnaround in market sentiment came after a series of U.S. data released this week showed inflation was slowing but retail spending remained strong.
This has helped the market move from recession fears, sparked by the weak U.S. employment report in early August, to confidence that the economy can continue to grow. Weaker inflation indicators have also strengthened expectations of a Fed rate cut in September.
Sotirios Nakos, multi-asset portfolio manager at Aviva Investors, warned that the so-called soft landing scenario may not play out, adding that markets are likely to remain volatile with each new economic data release.
“The market quickly priced in more negative data and what we’re primarily seeing now is that it’s being unwound very quickly,” he said.
“I don’t think a lot of money participated in the rally,” he added, noting that poor trading conditions over the summer of August likely exacerbated the market movement.
S&P 500 futures rose 0.1%, raising the blue-chip index’s prospects for a weekly gain of almost 4%, while contracts tracking the tech-heavy Nasdaq 100 rose 0.3%.
Traders expect the Federal Reserve to cut borrowing costs from a 23-year high next month, but expectations for an emergency 50 basis point rate cut have been lowered to 25 percent from 55 percent a week ago, according to CME FedWatch.
David Awjila, a multi-asset fund manager at Invesco, said the U.S. is unlikely to fall into a recession, but markets are likely to become more volatile through the end of the year, especially around the U.S. presidential election in November, he said.
“We prefer to focus on fundamentals in guiding our investment decisions,” he added.
In Asia on Friday, Japan’s Topix rose nearly 3 percent, while Hong Kong’s Hang Seng Index added 1.8 percent.
The Tokyo Stock Price Index is on track to post its best performance since March 2020, up about 8% for the week, despite a sharp sell-off last week when the Bank of Japan’s unexpected interest rate cut caused the yen to surge against the dollar, destroying yen-funded stock trading.
The Japanese yen fell 0.3 percent to 148.63 yen per dollar on Friday, hovering around a two-week low of 149.40 yen hit in the previous trading day and far from last week’s seven-month high.
Elsewhere in currency markets, the Swiss franc, which surged last week on a flight to safe haven assets, fell 0.5 percent on the day.
The euro struggled to rise above the $1.10 level as retail sales reports on Thursday boosted the dollar.
Meanwhile, government bond trading was sluggish as recovering confidence sapped demand for government bonds, which are seen as a buffer against stock market risks.
The two-year Treasury yield, which rises as Treasury prices fall and track interest rate expectations, was hovering near its highest level in 10 days, trading around 4.068% in recent trade. The benchmark 10-year yield, which influences government bond prices around the world, fell 3 basis points (bps) to 3.907%. [US/]
Comparable German government bond yields also fell to 2.234%.
Oil markets were volatile as traders tried to balance renewed optimism about the United States with slowing Chinese demand.
Brent crude futures fell 1.3% to $79.99 a barrel on Friday, up just 0.4% for the week.
Spot gold rose 0.3% to $2,462 an ounce. [GOL/]
(Additional reporting by Ray Wee in Singapore; Editing by Sri Navaratnam, Clarence Fernandez, Ana Nicolasi da Costa and Kim Coghill)
