By Naomi Rovnick
LONDON (Reuters) -Global stocks headed for their best week since November 2023 after encouraging U.S. economic data soothed fears of a recession, in an abrupt shift from a rout last week that kept investors wary of a bumpy ride ahead.
MSCI’s main world stock index hurtled towards an almost 4% gain over five trading days, recovering strongly from market turmoil last week generated by U.S. recession fears and foreign exchange gyrations.
Europe’s STOXX share index rose 0.5% in morning trade on Friday and headed for a 2.6% weekly rise as U.S. stock futures heralded a blockbuster week for Wall Street.
The VIX U.S. stock volatility index, broadly considered the market’s fear gauge, sat at benign levels of about 15 after hitting a four-year high of 65 early last week.
The sharp turnaround in market sentiment came after a batch of U.S. data this week showed inflation was moderating but retail spending was robust.
That has helped the market narrative move away from recession concerns, sparked by a weak U.S. jobs report in early August, to confidence the economy can keep growing. Softer inflation data has also reinforced expectations of a Fed rate cut in September.
The so-called soft landing scenario may not hold, Aviva Investors multi-asset portfolio manager Sotirios Nakos cautioned, adding that markets could keep swinging with every new economic data point.
“The market went very quickly to price more negative data and now what we’re primarily seeing is the rapid unwinding of that,” he said.
“I do not think a lot of money has participated in this bounceback,” he added, noting that thin summer trading conditions in August would have exacerbated market moves.
S&P 500 futures rose 0.1% to put the blue chip share index on course for an almost 4% weekly gain. Contracts tracking the tech-heavy Nasdaq 100 added 0.3%.
Traders expect the U.S. Federal Reserve to lower borrowing costs from a 23-year high next month but have reduced their bets for an emergency 50-basis-point cut to 25%, down from 55% a week ago, the CME FedWatch tool showed.
Invesco multi-asset fund manager David Aujla said the U.S. was unlikely to go into recession. But markets likely would be more volatile through to the end of this year, he said, particularly around November’s U.S. presidential election.
“We prefer to focus on fundamentals in guiding our investment decisions,” he added.
In Asia on Friday, Japan’s Topix jumped nearly 3% and Hong Kong’s Hang Seng Index rose 1.8%.
The Topix was poised for a weekly gain of almost 8%, its best performance since March 2020, following heavy losses last week after a surprise Bank of Japan rate cut sent the yen soaring against the dollar, wrecking yen-funded stock trades.
The Japanese currency fell 0.3% to 148.63 per dollar, on Friday, languishing near a two-week low of 149.40 hit in the previous session and now some distance away from last week’s seven-month peak.
Elsewhere in currency markets, the Swiss franc, which also surged last week on the back of a flight to safe-haven assets, fell 0.5% on the day.
The euro struggled to break above the level of $1.10 against a firmer dollar, which was buoyed by Thursday’s retail sales report.
Government bond trading was lacklustre, meanwhile, as a return to confidence sapped demand for the debt securities viewed as buffers against equity market risk.
The two-year U.S. Treasury yield, which rises as the price of the debt falls and tracks interest rate expectations, hovered near its highest in the last ten days to last trade at about 4.068%. The benchmark 10-year yield, which influences debt pricing worldwide, was 3 basis points (bps) lower at 3.907%. [US/]
Germany’s equivalent bund yield fell by the same amount to 2.234%.
Oil markets were choppy as traders balanced renewed optimism about the U.S. with slowing Chinese demand.
Brent crude futures fell 1.3% to $79.99 per barrel on Friday, up just 0.4% over the week.
Spot gold rose 0.3% to $2,462 an ounce. [GOL/]
(Additional reporting by Rae Wee in Singapore; Editing by Shri Navaratnam, Clarence Fernandez, Ana Nicolaci da Costa and Kim Coghill)