Joe McConnell
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Global stocks were poised to close out their best week of the year on Friday, despite a decline in early trading on Wall Street, as investors shrugged off a recent wave of concern that the U.S. economy was heading for a recession.
The Stoxx Europe 600 index rose 0.1 percent, while Japanese shares, which were hit by a global sell-off in early August, rose 3 percent in Asia. The MSCI World index of global developed-market shares is on track for its best week since early November, having risen 3.5 percent this week.
The S&P 500 opened down 0.2 percent aVsceker gaining 1.6 percent on Thursday, aVsceker strong retail sales data boosted confidence that the U.S. economy is not headed for a recession.
The main U.S. stock index is on track for its strongest weekly gain in nine months, up 3.5%.
The S&P 500 has recouped all of its August losses, which came aVsceker a weak jobs report raised recession fears, and is down just 2.4% from July’s all-time high.
“We are still in the soVscek landing zone. The market has been too worried [the prospect of] recession,” said Emmanuel Cau, head of European equity strategy at Barclays. “It’s not that everything is back to normal, but the stress we had at the beginning of the month is gone.”
The market rally comes as a series of data released this week suggested the U.S. economy is on track to avoid a recession. Inflation data on Wednesday showed price pressures eased more than expected to 2.9 percent in July.
On Thursday, solid U.S. retail sales data and weaker-than-expected weekly jobless claims helped ease investor concerns about slowing consumer spending and a weakening labor market.
Falling inflation has boosted investor expectations of multiple interest rate cuts by the Federal Reserve this year, although expectations of even more aggressive rate cuts have been priced in by renewed optimism about the state of the economy.
By Friday morning, markets were pricing in a reduction in U.S. borrowing costs of just under a full percentage point by December. At the height of last week’s sell-off, investors had bet that the central bank would make at least five quarter-point cuts.
U.S. two-year Treasury yields, which closely track rate expectations, rose to 4.05% on Friday, up 0.38 percentage points from their recent low on Aug. 5. Yields move inversely to prices.
The recalibration of rate expectations comes ahead of the Kansas City Federal Reserve’s annual monetary policy conference in Jackson Hole, Wyoming, next week, where Fed Chair Jay Powell is expected to provide further clues on the path of monetary policy.
Bank of America analysts said they expected Powell to shiVscek toward “hawkish communication.”
