Global shares rose on Friday and investor sentiment stabilized after a volatile week of trading, helping to push up stock indexes in the United States and Europe.
Global markets, particularly U.S. stocks, have gyrated wildly this week as investors grew anxious about the possibility of a recession. The S&P is nearly 20% down from its all-time high in January and was close to a bear market on Thursday.
Investors are anxious about whether U.S. Federal Reserve Chair Jerome Powell can accomplish a "soft landing," where the Fed raises interest rates just enough to reduce elevated inflation without causing the economy to contract.
In an interview late on Thursday, Powell said the battle to control inflation would "include some pain," and he repeated his expectation of half-percentage-point interest rate rises at each of the Fed's next two policy meetings.
The war in Ukraine has aggravated supply chain disruptions and inflationary pressures already in place after more than two years of the COVID-19 pandemic, but stocks enjoyed a bounce on Friday.
"There's an awful lot of negative sentiment out there, we're looking at a 40% chance of recession," said Patrick Spencer, vice chairman of equities at Baird Investment Bank.
"A lot of fund managers have cut their equity allocations and raised cash, though we think this is a correction rather than a bear market."
MSCI's gauge of stocks across the globe gained 2.17% at 10:25 ET (1425 GMT), after hitting its lowest since November 2020 on Thursday. The pan-European STOXX 600 index rose 2.03%.
The Dow Jones Industrial Average rose 490.54 points, or 1.55%, to 32,220.84, the S&P 500 gained 90.03 points, or 2.29%, to 4,020.11 and the Nasdaq Composite added 389.27 points, or 3.42%, to 11,760.23.
Emerging market stocks rose 1.74%. MSCI's broadest index of Asia-Pacific shares outside Japan rallied 1.95% from Thursday's 22-month closing low. Japan's Nikkei rose 2.64%.
China's blue-chip CSI300 index was up 0.75% and Hong Kong's Hang Seng rose 0.85%, encouraged by comments from Shanghai's deputy mayor that the city may be able to start easing some tough COVID restrictions this month.
Markets are likely to experience a short-term rebound before resuming the sell-off which has sent Wall Street's Nasdaq tech index down over 25% since the beginning for of the year, BofA analysts wrote in a weekly strategy note.
Twitter Inc shares were down 10% to $40.50 in morning trading on Friday after Elon Musk tweeted that his $44-billion cash deal for the social media platform was "temporarily on hold" pending data on the proportion of fake accounts on the platform.
Investors liquidated global equity funds worth $10.53 billion in the week ended May 11, compared with $1.65 billion of net selling in the previous week, according to Refinitiv Lipper.
The U.S. dollar was lower at 104.68 against a basket of currencies, but remained close to the previous day's 20-year highs due to safe-haven demand.
Russia has bristled over Finland's plan to apply for NATO membership, calling Finland's announcement hostile and threatening retaliation.
The dollar index fell 0.057%, with the euro up 0.06% to $1.0385.
The Japanese yen weakened 0.85% versus the greenback at 129.41 per dollar, while Sterling was last trading at $1.2205, up 0.05% on the day.
Headline inflation in the euro zone will fall in the second half of the year but so-called core prices, which strip out food and energy, will keep rising, the European Central Bank's vice-president Luis de Guindos said on Friday.
Cryptocurrency bitcoin also turned higher, cracking through $30,000 after the collapse of TerraUSD, a so-called stablecoin, drove it to a 16-month low of around $25,400 on Thursday.
"Some traders may see the sharp fall this month as an opportunity to buy the dip, but given the hugely volatile nature of the coins, the crypto house of cards could tumble further," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
The moves higher in equities were mirrored in U.S. Treasuries, with the benchmark U.S. 10-year yield edging up to 2.9349% from a close of 2.817% on Thursday.
The policy-sensitive 2-year yield was 2.6254%, from a close of 2.522%.
German 10-year government bond yields edged up to 0.8870%.
Oil prices rose on Friday but were headed for their first weekly loss in three weeks.
Brent crude futures were up 2.78% at $110.44 a barrel at 1345 GMT, while U.S. West Texas Intermediate (WTI) crude futures rose 2.92% to $109.23 a barrel. Both benchmark contracts were, however, on track to post slight declines for the week.Spot gold dropped 0.4% to $1,814.90 an ounce. U.S. gold futures fell 0.55% to $1,813.70 an ounce.