LONDON/NEW YORK, Aug 9 (Reuters) – Global stocks extended their gains on Friday, continuing to recover from the recent major sell-off. Positive economic data and signals from Fed policymakers that interest rates could be cut as early as September boosted prices.
Three Fed policymakers indicated on Thursday that they were more confident that inflation would cool sufficiently to lower interest rates, which – along with a larger-than-expected decline in US unemployment – would help support the recovery.
The MSCI All Country stock index (.MIWD00000PUS) rose by 0.40% to 784.92 points, making up much of the ground lost during the week.
On Wall Street, all three indices pared losses from earlier in the session and traded higher on gains in technology, consumer goods, healthcare and financials.
The Dow Jones Industrial Average (.DJI) rose 0.11% to 39,490.53, the S&P 500 (.SPX) gained 0.33% to 5,336.68 and the Nasdaq Composite (.IXIC) gained 0.29% to 16,709.13.
In Europe, the STOXX (.STOXX), an index of 600 companies, rose 0.55%, almost erasing a weekly loss. In a sign of calmer nerves, the VIX (.VIX), the index known as Wall Street’s “fear barometer,” plunged nearly 2%, a far cry from its record single-day rise on Monday.
Differing interest rate movements by central banks, a reassessment of the likelihood of a recession in the US, lower liquidity in August, which increased volatility, and tensions in the Middle East all combined to trigger the sharp sell-off in stock markets a week ago after their months-long winning streak.
Some analysts urged caution despite the strong recovery this week.
“We are still in the month of August, so there may still be some volatility,” said Marie de Leyssac, portfolio manager at Edmond de Rothschild Asset Management.
Investors will continue to study employment data, keep an eye on the Bank of Japan and, in particular, the annual meeting of central bankers from around the world, hosted by the Kansas City Fed in Jackson Hole later this month, she said.
“I think this year it’s a really important meeting because we’ll get more insight into Federal Reserve Chairman Jerome Powell’s future forecasts and maybe more insight into the path to lower interest rates,” de Leyssac said.
Before then, investors will be closely watching next week’s U.S. consumer price and retail sales data for new clues about whether the economy can avoid a hard landing.
The Japanese stock index Nikkei (.N225) closed 0.6 percent higher, reversing most of its losses since a 12.4 percent plunge on Monday.
The Nikkei managed to recover most of these losses, which were caused by recession fears and the unwinding of investments financed by a weak yen, and ended the week with a relatively modest decline of 2.5 percent.
The yen also fluctuated between negative and positive during Friday’s session and was last quoted at 147.060 against the dollar.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 1.66 percent, more than reversing Thursday’s decline, and was broadly unchanged for the week, erasing earlier losses.
“The prospect of better-than-feared U.S. growth and a weaker yen are mitigating the fundamental and technical risks that led to the extreme volatility earlier in the week,” said Kyle Rodda, a senior financial markets analyst at Capital.com.
Oil prices were heading for a weekly rise of around 3% as fears of an escalation of the conflict in the Middle East persisted. Brent crude futures rose 0.35% to $79.44 a barrel, while U.S. West Texas Intermediate crude futures gained 0.45% to $76.53.
The US dollar index, which measures the greenback’s strength against a basket of yen and euro, fell as markets abandoned bets on an emergency Fed rate cut, falling 0.2 percent to 103.07, while the euro rose 0.05 percent to 1.0923 dollars.
Bond yields rose this week as safe havens were less in demand, but they began to ease as confidence returned to markets. The yield on the benchmark US 10-year note fell 5.7 basis points to 3.94%.
Gold prices were slightly firmer, with spot gold rising 0.09% to $2,428.96 an ounce. US gold futures fell 0.09% to $2,420.10 an ounce.
Reporting by Huw Jones in London and Chibuike Oguh in New York; Editing by Stephen Coates, Ana Nicolaci da Costa and Gareth Jones
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