Global Markets Rebound Amid Fed Rate Cut Signals

Global shares rose on Friday, buoyed by promising economic data and Federal Reserve officials hinting at potential rate cuts in September. Gains in the technology, healthcare, and financial sectors led the recovery. Analysts advised caution given ongoing volatility, while investors look ahead to key economic indicators and central bank meetings for further guidance.

Global shares extended gains on Friday, recovering further from their recent big sell-off and boosted by positive economic data and signals from Fed policymakers that they could cut rates as early as September.

A trio of Federal Reserve policymakers indicated on Thursday that they were more confident that inflation is cooling enough to cut rates, and this - along with a bigger-than-expected fall in U.S. jobless claims data - helped to underpin the recovery. The MSCI All Country stock index, was up 0.40% to 784.92 points, recovering much of the ground lost during the week.

On Wall Street, all three indexes pared early session losses and were trading higher led by gains in technology, consumer discretionary, healthcare and financial stocks. The Dow Jones Industrial Average rose 0.11% to 39,490.53, the S&P 500 gained 0.33% to 5,336.68 and the Nasdaq Composite gained 0.29% to 16,709.13.

In Europe, the STOXX index of 600 companies was up 0.55%, with the loss for the week all but erased. In a sign of calmer nerves, the VIX index, also known as Wall Street's 'fear gauge', tumbled nearly 2%, a far cry from its record one-day spike on Monday. Divergent central bank interest rate moves, a repricing of recession probability in the United States, thinner liquidity in August accentuating volatility, and Middle East tensions had all combined a week ago to trigger the sharp sell-off in stocks after their months-long winning streak.

Some analysts urged caution despite this week's strong recovery. "We are still in the month of August, so we can still have 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 particularly on the annual meeting of global central bankers hosted by the Kansas City Fed in Jackson Hole later this month, she said. "This year I think it is a really important meeting because we will have more insight into what (Federal Reserve Chair) Jerome Powell sees for the future, and maybe more insight on the path to lower rates," de Leyssac said.

Before then, investors will scrutinise next week's U.S. consumer prices and retail sales figures for fresh evidence on chances of the economy escaping a hard landing. Japan's Nikkei stocks benchmark closed 0.6% higher, erasing most of the losses since a 12.4% crash on Monday. The Nikkei has managed to claw back most of those losses, which were prompted by fears of recession and the unwinding of investments funded by a soft yen, finishing the week with a comparatively tame 2.5% decline.

The yen also veered from negative to positive through Friday's session, last trading at 147.060 per dollar. MSCI's broadest index of Asia-Pacific shares outside Japan climbed 1.66%, more than reversing the drop from Thursday. For the week, it has reversed earlier losses to be largely flat. "The prospect of better-than-feared U.S. growth and a weaker yen constrain the fundamental and technical risks that inspired the extreme volatility experienced at the start of the week," said Kyle Rodda, a senior financial market analyst at Capital.com. Oil prices were headed for weekly gains of around 3% as fears of a widening Middle East conflict persisted, with Brent crude futures up 0.35%, at $79.44 a barrel while U.S. West Texas Intermediate crude futures added 0.45% to $76.53.

The U.S. dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell as markets gave up bets on an emergency rate cut from the Fed. It fell 0.2% at 103.07, with the euro up 0.05% at $1.0923. Bond yields have climbed this week with safe-havens in less demand, but began easing as confidence returned to markets. The yield on benchmark U.S. 10-year notes fell 5.7 basis points to 3.94%.

Gold prices were a touch firmer, with spot gold adding 0.09% to $2,428.96 an ounce. U.S. gold futures fell 0.09% to $2,420.10 an ounce.

(With inputs from agencies.)