The concerns about recession have dissipated, and global stock markets have achieved the strongest weekly gain in 9 months!

A series of strong economic data has dispelled the gloom of a US recession, with global stock markets posting their largest weekly gain since November last year.

In the US, the S&P 500 index broke a four-week losing streak, rising by 3.9% this week, marking its strongest performance since November last year. Friday's performance was relatively stable, but US stocks maintained the upward trend of the previous days, with the S&P 500 currently only 2% below the historical high set in July.

After a bloody start to August, Japanese stocks surged by 3% on Friday, with a weekly gain of 7.9%, while the STOXX 600 index in Europe rose by 2.4%. The MSCI Global Developed Markets Stock Index also recorded its best weekly performance since early November last year.

"Many fears and uncertainties have been eliminated," said Joe Mazzola, Chief Trading and Derivatives Strategist at J.P. Morgan Wealth Management. "Data shows that the US economy is slowing down, but the recession is only expected two years after the rate hike, and the economy has not actually entered a recession. People are just nervous when the economy slows significantly."

Stronger-than-expected Economic Data Eases Recession Fears

The market's recovery this week was mainly driven by economic data:

On Wednesday, the year-on-year growth rate of July CPI fell below 3% for the first time since 2021, dropping within the official target range set by the Federal Reserve.

On Thursday, the month-on-month growth rate of US retail sales in July unexpectedly hit a record high in a year and a half, and the number of initial jobless claims for the week ending August 10 was lower than expected, boosting investor confidence.

On Friday, the Consumer Confidence Index also exceeded expectations, slightly higher than the eight-month low set in July. The volatility index VIX, known as the "fear index" on Wall Street, fell below 15, after hitting a four-year high of 65 in early August during the global sell-off wave.

"At present, the market is indeed in a subconscious reactive mode to the upcoming data releases," said Liz Ann Sonders, Chief Investment Strategist at J.P. Morgan Wealth Management.

Wei Li, Global Chief Investment Strategist at BlackRock, pointed out, "The trend in the past few weeks suggests that market movements may be based on individual data points, and we may see more volatility in the future."

Federal funds futures on Friday indicated that investors have fully priced in expectations of three rate cuts by the end of the year, and believe that there is a high probability of four rate cuts within the year.

Less than two weeks ago, the US non-farm unemployment rate triggered recession fears, causing a storm in global stock markets and leading investors to bet on a significant 50 basis point rate cut by the Federal Reserve in September.

The 2-year US Treasury yield, closely related to rate expectations, closed at 4.05% on Friday, up 0.39 percentage points from its low on August 5 "This week has been mostly a 'one-way' week, with a severe blow to pessimistic prospects," said Florian Ielpo of Lombard Odier Investment Managers. "Nevertheless, economic data remains contradictory. Major uncertainties still exist, requiring cautious avoidance of excessive optimism."

Can the upward trend continue next week? Focus on the global central bank annual meeting

Next week, investors will closely watch the annual global central bank meeting, with Wall Street generally believing that Powell's speech will pave the way for a rate cut in September.

Ian Lyngen, head of U.S. rate strategy at BMO Capital Markets, said, "We expect Fed Chair Jay Powell to more clearly hint at a rate cut in September and provide a broader background on the Fed's expectations for future rate cuts."

Strategists at TD Securities stated, "We expect Powell to suggest that, given recent developments, the Fed may cut rates in September, but will not be entirely certain about the extent of the rate cut. We expect a rate cut of 25 basis points."