Market Wrap: Stocks Surge as Investors Anticipate Latest US Data Release

(Bloomberg) — European stocks gained and US equity futures edged higher at the end of a tumultuous week, as investors await further US economic data to back up signs of resilience in the world’s largest economy.

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The Stoxx Europe 600 index climbed 0.7%, capping a week that saw volatility spike to historical highs amid concerns about the US economy and the unwinding yen carry trade. S&P 500 and Nasdaq 100 futures turned higher after the S&P notched its best daily advance since Nov. 2022. Treasury yields dipped and a gauge of the dollar declined.

A better US jobless claims report Thursday helped alleviate fears of a recession triggered by last week’s worse-than-expected employment report. Much now depends on US data next week, especially consumer-inflation and retail-sales numbers, with investors hoping for evidence of a soft landing.

“Market volatility could remain elevated for some time,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. But “investors shouldn’t overreact to swings in market sentiment,” he said.

“With economic and earnings fundamentals still good and the Fed likely to cut interest rates, our base-case scenario is still for the S&P 500 to end the year around 5,900” from 5,319 at Thursday’s close, Haefele said.

Mixed signals from US central bank officials may prompt caution among investors. For one, Federal Reserve Bank of Kansas City President Jeffrey Schmid indicated he’s not ready to support a reduction in interest rates with inflation above the target, according to comments made on Thursday in the US.

Swap traders further trimmed bets on aggressive Fed easing in 2024. The global repricing has been so sharp that at one point interest-rate swaps implied a 60% chance of an emergency rate cut by the Fed in the coming week — well before its next scheduled meeting in September. Current pricing suggests about 40 basis points of cuts for September.

Among individual movers in Europe, Italian insurer Assicurazioni Generali SpA fell as its earnings missed expectations as claims from storms and flooding in Europe weighed. Hargreaves Lansdown Plc gained after a consortium including CVC and ADIA agreed to buy the investment manager in a £5.4 billion ($6.9 billion) deal.

Carry Concerns

In Asia, the stock rally lost some momentum as the yen temporarily resumed its rise.

Japan’s Topix index narrowed its gain to 0.9% from as much as 2% earlier. Chinese shares turned flat after an earlier advance as perceptions grew that a better-than-expected inflation print mainly resulted from seasonal factors like weather.

Unwinding of carry trades has further room to run and short-yen positions will continue to be slashed as the Japanese currency strengthens, according to Bob Savage, head of markets strategy at BNY Mellon Capital Markets. Investors are still too bearish on the yen, which could advance toward 100 per dollar over time, he said.

Oil was steady following a Thursday rally, against the backdrop of simmering tensions in the Middle East. Gold slipped.

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