A modest start to October for the world's stock markets and a rally in hard-hit commodities suggest risk appetite may be resurfacing after a quarter marked by fear and risk aversion.
After suffering their worst quarter in four years amid fears about a China slowdown, U.S. rate uncertainty and emerging market risks, equities have crept up at the start of the fourth quarter.
The , a broad gauge of U.S. shares, is up more than 2 percent from a low hit on Monday, while Asian shares closed Friday with a weekly gain of just over 1 percent and stock markets in London, Frankfurt and Paris all traded over 1 percent higher Friday.
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"Monday felt like the end of the world was coming with commodity prices (falling); then we had a couple of good days and yesterday was a bit all over the place," Stephen Cohen, chief investment strategist at Blackrock, told CNBC's "Squawk Box Europe" on Friday.
"Overall we are still cautious, but we are seeing one or two signs that would point towards a rally going into year-end," he said.
Investors were still expected to tread warily until there was clarity on the timing of "lift off" on U.S. interest rates from record lows and the outlook for China's economy. And Friday's key non-farm payrolls report could be another source of volatility.
Risk-on
Still, having fallen so far and fast in recent months, there was a case to be made for a slight recovery in risk assets, analysts said.
"Markets do feel a little more risk-on and confident than they did earlier this week," Bill Blain, a strategist at Mint Partners in London, said in a note on Thursday.
"Despite the rising concern levels, I've been seeing courageous accounts selectively dip their toes back into risk assets," he said.
In fact, the rally in most stock markets Thursday came amid further signs of weakness in the Chinese economy, with the purchasing managers' index data suggesting that China's manufacturing activity shrank again last month.
China, the world's second-biggest economy, has been a key driver of risk aversion this year as weak data and concerns that policy makers have not done enough to manage the slowdown hit a broad range of countries and commodities that have depended on China growth in recent decades to drive growth.
Too harsh?
"Markets have been too pessimistic on China," Julian Jessop, chief global economist at Capital Economics, told CNBC. "We think real economic growth bottomed out earlier this year and should stabilize thanks to stimulus from Beijing."
Copper, one of the hardest hit commodities this year, looked poised to snap a two-week decline and end the week higher.
Three-month copper traded on the London Metal Exchange was 0.4 percent higher at $5,117 a tonne on Friday – just over 2 percent above a six-year low hit in August.
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The CBOE Volatility Index, also known as the VIX index, meanwhile has pulled back from four-year highs struck in August at the height of China and U.S. rate-hike worries.
The index, widely viewed as a measure of fear in markets, is trading at about 22.55, down from just over 40 in August.
"We've been thinking that after those August lows (in stocks) we could have a bounce which we saw, but we could also have a retest as we've seen in the past week and many markets have hit new lows," Shane Oliver, head of investment strategy and chief economist at AMP Capital Markets told CNBC on Friday.
"But U.S. markets didn't (hit new lows) and if you're worried about valuations, Fed tightening, that is the market you'd be worried about," he said. "I think it's 50-50 right now that you see one more leg down in U.S. markets before we move higher."