Stocks recoup most of week's sell-off as nerves steady

Nerves calmed following a volatile week that saw a mass unwinding of currency carry trades in response to the Bank of Japan's surprise rate hike late last month. Picture: Kiyoshi Ota/Bloomberg

Global shares extended gains on Friday to erase nearly all of their losses from a big sell-off earlier in the week, with investors betting on the US economy avoiding a hard landing as Fed policymakers signalled rate cuts as soon as September.

Wall Street stock index futures NQcv1, EScv1 were about 0.3% firmer, with no major US data expected on Friday as nerves calmed following a volatile week that saw a mass unwinding of currency carry trades in response to the Bank of Japan's surprise rate hike late last month.

Reassurance from Federal Reserve policymakers that they were more confident that inflation is cooling enough to cut rates, along with a bigger-than-expected fall in US jobless claims data on Thursday, underpinned the recovery in stocks.

In Europe, the STOXX index of 600 companies was up 0.6%, 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 US, thinner liquidity in August accentuating volatility, and Middle East tensions all combined to put the brakes on a months-long winning streak in stocks to record-highs, analysts said.

Markets, eagerly await interest rate decisions from both the Federal Reserve and the European Central Bank, which are both expected to cut rates. 

Before then, investors will scrutinise next week's US consumer prices and retail sales figures for fresh evidence on chances of the economy escaping a hard landing.

"In general, we're still in this environment where the economy is slowing if not grinding to a halt, inflation is coming down, which is not suggestive at all of recession. We're still growing, just not as much," said Christopher Jackson, senior vice president at UBS Wealth Management.

Among individual stocks, Elf Beauty fell 14.5% after it forecast annual sales and profit below estimates, while Paramount Global jumped 4.7% as investors cheered strong growth at the media group's streaming business.