World stocks surged on Thursday as strong U.S. retail sales data eased concerns about an economic slowdown. This led investors to pull back from expectations of immediate aggressive interest rate cuts. Retail sales saw a significant increase of 1.0% last month, surpassing the predicted 0.3% gain. This suggests that consumers have been active in spending through bargain hunting.
Despite the positive data, investors still believe that the Federal Reserve may begin lowering rates in September, but the chance of a substantial 50 basis-point rate cut has diminished. This news is seen as positive for stocks, but less so for the bond market. The market is now anticipating a 25 basis-point rate cut in September, compared to the previous expectation of a larger cut.
Equity markets reacted positively to the economic resilience displayed in the U.S. retail sales data. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all saw gains, while MSCI’s world share index rose by 0.9%. The benchmark 10-year Treasury yield also surged, offering relief to the dollar which had been weakening against major currencies.
The increase in Treasury yields led to a stronger dollar against other currencies, halting its recent decline. The euro and yen both weakened against the dollar. In Europe, the STOXX 600 index rose 1.1%, but analysts warned against becoming complacent due to the potential for increased volatility in the near future.
The market volatility has been driven by speculation surrounding the Federal Reserve’s interest rate decisions. The fear barometer, VIX volatility gauge, reached a four-year high recently before easing. The Fed’s decision to maintain interest rates has been a key factor in market imbalances and the recent turmoil in various asset classes.
Despite the recent market turbulence, investors remain optimistic about the long-term outlook. Many believe that the disruptions caused by currency-related trades are temporary and will not lead to a prolonged market correction. In other markets, sterling saw gains, while spot gold prices also rose on speculation of lower U.S. rates.
Oil markets were strong on Thursday, with Brent crude prices rising as the U.S. retail report improved the global demand outlook. Overall, the strong retail sales data in the U.S. has provided some relief to investors and helped boost confidence in the market’s resilience in the face of economic uncertainties.
