Global Markets Ride Economic Data Wave Amid Volatility

U.S. shares dipped slightly but showed weekly gains, driven by encouraging economic data that eased recession fears. Global markets also recovered, with Europe and Asia showing positive trends. Softer inflation data in the U.S. boosted hopes for a Federal Reserve rate cut in September, though volatility remains a concern.

U.S. shares edged lower on Friday but remain set for weekly gains, buoyed by positive economic data that alleviated recession concerns in the world's largest economy. In morning trading, the Dow Jones Industrial Average held a weekly gain of 2.7%, while the S&P 500 and Nasdaq Composite dipped slightly but showed overall weekly increases.

MSCI's main world stock index rose 0.2%, contributing to a week-long recovery from last week's recession fears and foreign exchange volatility. Europe's STOXX share index also climbed, heading towards a weekly rise. The VIX, known as the market's fear gauge, remained at benign levels of about 15, a stark contrast to hitting a four-year high of 65 early last week.

The positive market sentiment followed U.S. data showing moderating inflation and robust retail spending. This shift moved the narrative away from recession worries to broader economic growth prospects. Investors now anticipate a Federal Reserve rate cut in September, further supported by stable inflation expectations and resilient consumer sentiment.

On Friday, a survey indicated a rise in U.S. consumer sentiment for August, shaped by the upcoming presidential race, while inflation expectations stayed consistent. However, Aviva Investors multi-asset portfolio manager Sotirios Nakos warned of potential market swings driven by new economic data points. Traders expect the Fed to lower borrowing costs next month, albeit at a reduced probability of a substantial 50-basis-point cut.

David Aujla of Invesco suggested the U.S. is unlikely to enter a recession but anticipated market volatility through the year's end, especially with the approaching presidential election. U.S. Treasury yields showed minimal change, indicating a resilient consumer and declining inflation, providing the Fed with leeway for a small rate cut.

In Asia, Japan's Nikkei share average surged 3.6%, marking its best week in over four years, while Hong Kong's Hang Seng Index rose 1.9%. The yen strengthened against the dollar, following a surprise Bank of Japan rate cut. Meanwhile, oil prices fell, with Brent crude hovering around $80 a barrel, and spot gold rose by 1.25%.