Volkswacht Bodensee - Stocks and oil rally

With a spate of data pointing to an economic slowdown, market watchers are saying investors now believe central banks may need to deal out less punishing interest rate hikes, and thus the pushing of equity markets into bear market territory may have been an overreach.

London stocks rallied 2.7 percent with investors brushing aside news of bruising defeats for Britain's ruling Conservatives in by-elections on Thursday.

The pound firmed against the dollar, despite data showing a drop in UK retail sales volumes as inflation soars.

Paris stocks jumped 3.2 percent in eurozone trade, while Frankfurt rose 1.6 percent with gains tempered by news of the worsening German business climate.

"Stock markets are taking a breather after being beat up... as recession fears took their toll," OANDA trading platform analyst Craig Erlam told AFP.

But he warned that stock markets remain "vulnerable to another onslaught if the news does not improve".

Asian stock markets closed higher after Thursday's gains on Wall Street.

Wall Street kept on rising on Friday, with all three major indices up over two percent in late morning trading.

The recoveries come after global markets have been thrown into turmoil for months owing to soaring inflation, interest-rate hikes, the Ukraine war and China lockdowns.

US equity markets tumbled into bear market territory -- a drop of more than 20 percent from recent highs -- as the US Federal Reserve began to aggressively raise interest rates.

Federal Reserve boss Jerome Powell this week told lawmakers a recession was "certainly a possibility".

He suggested officials were ready to press on with big rate hikes, following last week's three-quarter point increase for US borrowing costs that sent markets tanking.

Sentiment in Asia has meanwhile been boosted by comments from Chinese President Xi Jinping suggesting an end to China's tech crackdown as well as possible new measures aimed at lifting the economy.

Hong Kong shares were among the biggest winners Friday thanks to a rally in tech giants including Alibaba, Tencent and NetEase.

Analysts have been pointing to falling commodity prices, a primary driver of inflation, in the face of a possible recession reducing the need for sharp interest rate hikes as one possible explanation for the renewed bullish sentiment on equity markets.

"Falling interest rates and falling commodity prices, which typically go hand-in-hand with a growth slowdown, have been held out as developments working in favor of the rebound effort," said Patrick O'Hare, analyst at Briefing.com.

"There is some truth to that, knowing that rising interest rates and rising commodity prices have been upsetting factors for most of the year, but one has to be careful stretching the credibility of those rally catalysts knowing that slower growth is going to translate into lower earnings growth prospects" for companies, he added.

Revised US consumer sentiment data -- the initial reading of which may have helped push the US Fed into its massive 0.75 percentage point hike -- also showed weaker inflation expectations and a new record low in consumer confidence.

"Today’s numbers would appear to suggest that the Federal Reserve may have overreacted," said Michael Hewson at CMC Markets.

"This decline in inflation expectations has served to act as an additional tonic for markets as we headed towards the weekend," he added.

- Key figures at around 1530 GMT -

New York - Dow: UP 2.2 percent at 31,338.15 points

EURO STOXX 50: UP 3.0 percent at 3,538.15

London - FTSE 100: UP 2.7 percent at 7,208.81 (close)

Frankfurt - DAX: UP 1.6 percent at 13,118.13 (close)

Paris - CAC 40: UP 3.2 percent at 6,073.35 (close)

Tokyo - Nikkei 225: UP 1.2 percent at 26,491.97 (close)

Hong Kong - Hang Seng Index: UP 2.1 percent at 21,719.06 (close)

Shanghai - Composite: UP 0.9 percent at 3,349.75 (close)

Euro/dollar: UNCHANGED from late Thursday at $1.0523

Pound/dollar: UP at $1.2290 from $1.2260

Euro/pound: UP at 85.85 pence from 85.83 pence

Dollar/yen: UP at 135.10 yen from 134.95 yen

Brent North Sea crude: UP 3.5 percent at $113.85 per barrel

West Texas Intermediate: UP 3.9 percent at $108.34 per barrel

burs-rl/pvh

J.Fankhauser--BTB