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World stocks, currencies steady on U.S. rate cut hopes

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U.S. retail data to bring next set of economic clues

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UK economy grew 0.6% in Q2

(Updates prices)

By Naomi Rovnick and Dhara Ranasinghe

LONDON, Aug 15 (Reuters) - World stocks and currencies

steadied on Thursday after weeks of wild swings, as data

suggesting U.S. rate cuts were imminent soothed some of the

damage inflicted on markets this summer by a shock Bank of Japan

rate hike and economic growth scares.

MSCI's world share index, which has moved in

excess of 1% on more than half of the trading days in August so

far, was steady.

The dollar was also flat against other major currencies

, halting a series of losses that took it to its lowest

per euro on Wednesday since late 2023 and down almost

15% against Japan's yen since early July.

On Wall Street, futures trading implied the benchmark S&P

500 share index would register modest gains on Thursday

and the VIX equity volatility gauge eased to its lowest

level this month, having soared to a four-year high on Aug. 5.

The semblance of calm returned to markets, roiled last week

by price falls, volatility and intense hedge fund selling,

thanks to U.S. inflation data on Wednesday reinforcing bets for

a September U.S. rate cut. The Federal Reserve has held its main

funds rate in a range of 5.25%-5.5% for more than a year.

That long period of tight U.S. monetary policy has helped to

quell inflation but also fuelled speculation in U.S. stocks by

traders who borrowed heavily in Japanese yen to fund their

purchases.

A vicious unwinding of this so-called carry trade that

intensified with the Bank of Japan's July 31 rate hike has

rocked markets for most of this month, although investors

believe the disruption is almost over.

Wall Street's tech-focused Nasdaq 100 index, believed

to have been a beneficiary of carry flows as it has moved

inversely to the yen's gains and losses against the dollar, has

gained 3.4% in the last five trading sessions.

James Henderson, equity fund manager at Janus Henderson,

said the U.S. tech stocks that dominate world equity indexes

remained over-valued.

"However, the median numbers show that valuations beyond

these leaders are not so demanding, particularly if rates are

coming down," he said.

STILL WARY

Nordea chief market analyst Jan von Gerich said that the

speed of the Wall Street bounce-back was a reason to be wary of

further volatility ahead.

"The tentative rebound in risk appetite has happened

surprisingly fast, so I would be cautious," he said.

Reflecting ongoing anxiety, the spot gold price rose 0.6% to

$2,462.7 per ounce, close to its July 17 all-time high.

Big investors are now the most pessimistic about global

growth than they have been all year, a Bank of America survey

showed on Tuesday, and unsure whether the Federal Reserve has

overlooked recession signals and waited too long to cut rates.

Following a surprisingly weak U.S. jobs report in early

August, U.S. July retail sales numbers, out later on Thursday,

could set alarm bells ringing again, IG market analyst Tony

Sycamore said.

Money markets fully price in a quarter point Fed rate cut in

September and just under a 40% chance of a bigger half-point

move.

Elsewhere in markets, sterling gained 0.3% to

$1.2849 after data showed Britain's economy grew 0.6% in the

second quarter of 2024, in line with economists' expectations.

The UK's domestically-focused FTSE 250 share index

slipped 0.3%, having risen for six of the last eight sessions,

but was still close to a two-year high.

"In the UK and Europe there are signs of a (macro-economic)

recovery coming through so that's where the focus is for me,"

Henderson said.

European and U.S. government bond yields edged up on

Thursday as prices of the debt securities slipped to reflect the

calm on equity and foreign exchange markets

.

The benchmark 10-year Treasury yield, at 3.85%, has dropped

more than 50 basis points since the start of July.

(Additional reporting by Kevin Buckland in TOKYO; Editing by

Toby Chopra and Mark Potter)