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Asian and European markets regained ground on Friday, taking their momentum from an overnight surge on Wall Street, meaning global markets have now clawed back the bulk of their losses from Monday’s heavy sell-off.

A drop in US unemployment claims on Thursday helped to soothe fears over an imminent economic slowdown and gave US equities their strongest gain since 2022.

That led to a moderate rebound in Asia. Japan’s Topix closed 1 per cent higher, while South Korea’s Kospi and Hong Kong’s Hang Seng rose 1.5 per cent, and Taiwan’s TWSE closed 2.9 per cent up on the back of an Asian semiconductor stock rally.

European stock markets also opened higher, albeit with smaller gains than in Asia and the US. The region-wide Stoxx 600 index rose 0.4 per cent, with strong gains for real estate and resources stocks. France’s Cac 40 increased 0.3 per cent, while Germany’s Dax gained 0.1 per cent. The UK’s FTSE 100 stayed flat. 

Concerns around the US economy remain the overwhelming driver of sentiment, traders said. A week earlier, a more negative-looking jobs report stoked recession fears and helped trigger the massive, record-breaking sell-off in Tokyo on Monday that wiped 12 per cent off the major Japanese stock indices.

On Tuesday, with brokers able to convince investors the sell-off had been wildly overdone, shares rebounded with their biggest one-day gain since 2008. On Friday, the Topix was 3 per cent lower on the market close a week earlier.

“Volatility is still high, so we may continue to see market fluctuations [in Japan], said Naoya Fuji, equity strategist at Nomura, who emphasised that strong corporate earnings, share buybacks and better corporate governance had helped the Japanese market recover from Monday’s shock sell-off.

On Thursday, the benchmark S&P 500 rose 2.3 per cent, closing out its best day in almost 21 months, while the technology-heavy Nasdaq Composite added 2.9 per cent — its biggest daily gain since February.

The advances follow data showing that new US applications for unemployment aid — seen as a proxy for job cuts — had fallen to their lowest level in a month.

“It was the jobs report last week that sent markets into a tailspin,” said Kristina Hooper, chief global market strategist at Invesco, so “it makes sense it was a labour market point that would calm markets” this week.

Figures from the US labour department on Thursday gave a reading of 233,000 for initial state unemployment claims in the week ending August 3 on a seasonally adjusted basis, down from the previous week’s upwardly revised level of 250,000 — and below economists’ forecasts of 240,000.

By contrast, last week’s payrolls report showed the world’s biggest economy added just 114,000 jobs in July, far fewer than consensus predictions of 175,000 — sending share prices sharply lower in volatile trading on Friday and Monday, and triggering a steep rally in government bonds as investors cranked up their bets that the Federal Reserve would need to cut interest rates imminently.

The Vix index of expected US stock market turbulence, known as Wall Street’s “fear gauge”, had briefly topped a reading of 60 on Monday, well above its long-term average of about 20, before retreating.

For Tim Murray, multi-asset strategist at T Rowe Price, the unemployment report was “a big positive surprise after we’ve seen this run of negative surprises”.

Invesco’s Hooper pointed to an “ongoing process of healing — but with the caveat that markets are going to be on edge because nothing has changed with the Fed. They are not going to do any kind of rate cut before the September meeting”.

“I think it’s going to take time for markets to normalise, but we have to ask ourselves what triggered that sell-off, and I think it was irrational,” she added. “I don’t think it’s telling us that we have a big recession coming.”

Equities had until recently a particularly strong run, driven by hopes of a “soft landing” whereby the Fed successfully brings down inflation without triggering a recession, and by enthusiasm for artificial intelligence companies.