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Global equities were poised to close out their best week of the year on Friday, as investors shook off a recent bout of concern that the US economy is headed for a recession.
The S&P 500 was little-changed in early trade following Thursday’s 1.6 per cent gain, which came after strong retail sales data bolstered confidence that a downturn in the world’s largest economy is not imminent.
The main US equity benchmark is on course for its strongest weekly showing in nine months, having climbed 3.7 per cent.
The S&P 500 has recovered all of its August losses, which came after a weak jobs report sparked fears of a recession, and is only 2.2 per cent from its July all-time high.
The Stoxx Europe 600 index was up 0.2 per cent, while Japanese stocks — which bore the brunt of a global sell-off at the start of August — climbed 3 per cent in Asia. The MSCI World Index of global developed market stocks is also on track for its best week since early November, having climbed 3.5 per cent this week.
“The moves over the last couple of weeks demonstrate how market narratives can swing based on single data points and we could see more volatility ahead,” said Wei Li, global chief investment strategist at BlackRock.
Li added that US equity markets were recovering from an overreaction to fears of a recession and that despite “periodic bouts of market jitters”, the asset manager remained positive on the tech sector, which has also suffered a sell-off in recent weeks.
The market recovery comes as a string of data published this week suggested that the US economy is on course to avoid a downturn. Inflation figures on Wednesday showed that price pressures fell more than expected to 2.9 per cent in July.
On Thursday, strong US retail sales data and lower-than-expected weekly jobless claims helped to alleviate investor fears over a flagging consumer and weakening labour market.
Falling inflation has cemented investors’ expectations for multiple Federal Reserve interest rate cuts this year, although even more aggressive rate cut expectations have been priced out as optimism about the state of the economy returns.
On Friday morning, markets were pricing in a reduction of US borrowing costs just short of one full percentage point by December. At the height of the sell-off last week, investors had bet that the central bank would deliver at least five quarter-point cuts.
US two-year bond yields, which closely track rate expectations, have risen to 4.05 per cent on Friday, up 0.38 percentage points from their recent low on August 5. Yields move inversely to prices.
The recalibration of rate expectations comes ahead of the Kansas City Fed’s annual monetary policy conference in Jackson Hole, Wyoming, next week, where Fed chair Jay Powell is expected to offer further clues about the path of monetary policy.
Bank of America analysts said they expected Powell to skew towards “hawkish communication”.