Asian and European markets bounced back on Friday, fueled by a strong rally on Wall Street the night before, helping global stocks recover most of the losses from Monday’s sharp downturn.
A dip in U.S. unemployment claims on Thursday eased concerns of an imminent economic slowdown, propelling U.S. equities to their strongest gains since 2022.
The positive sentiment rippled across Asia, with Japan’s Topix closing 1% higher, South Korea’s Kospi and Hong Kong’s Hang Seng climbing 1.5%, and Taiwan’s TWSE jumping 2.9% thanks to a surge in semiconductor stocks.
European markets followed suit, though with more modest gains.
The Stoxx 600 index edged up 0.4%, buoyed by real estate and resource stocks. France’s Cac 40 rose 0.3%, Germany’s Dax added 0.1%, while the UK’s FTSE 100 remained flat.
Despite this upward momentum, traders noted that concerns around the U.S. economy still dominate market sentiment.
Last week’s gloomy jobs report had stoked fears of a recession, triggering Monday’s record-breaking sell-off in Tokyo, which wiped 12% off Japan’s major stock indices.
However, by Tuesday, confidence was restored as brokers persuaded investors that the sell-off had been overblown. Japan’s Topix managed a 3% recovery by Friday, compared to its closing a week earlier.
“Volatility remains high, so market fluctuations are likely to continue,” cautioned Naoya Fuji, equity strategist at Nomura.
He attributed the Japanese market’s recovery to strong corporate earnings, share buybacks, and improved corporate governance.
On Thursday, the S&P 500 surged 2.3%, marking its best day in nearly 21 months, while the Nasdaq Composite soared 2.9%, its biggest daily gain since February.
This rally was bolstered by data showing a drop in new U.S. unemployment applications, which fell to their lowest level in a month.
“It was last week’s jobs report that spooked the markets,” noted Kristina Hooper, chief global market strategist at Invesco. “So it makes sense that a positive labor market indicator would calm them this week.”
The latest figures from the U.S. Labor Department showed initial unemployment claims fell to 233,000 in the week ending August 3, down from 250,000 the previous week, and below economists’ forecasts of 240,000.
By contrast, last week’s payroll report revealed the U.S. added just 114,000 jobs in July, far below the expected 175,000, sending stocks into a tailspin and driving a steep rally in government bonds as business investors bet the Federal Reserve would cut interest rates soon.
The VIX index, Wall Street’s “fear gauge,” spiked to over 60 on Monday, a far cry from its long-term average of around 20, before settling down.
Tim Murray, multi-asset strategist at T. Rowe Price, viewed the unemployment report as “a big positive surprise after a string of negative data.”
While markets are showing signs of recovery, Hooper cautioned that “nothing has changed with the Fed,” emphasizing that rate cuts are unlikely before the September meeting. “It’s going to take time for markets to normalize,” she added, dismissing fears of an impending recession as irrational.
Equities have enjoyed a strong run lately, driven by hopes of a “soft landing” as the Fed attempts to tame inflation without triggering a recession, along with enthusiasm for artificial intelligence companies.
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