US equity futures edge up as dollar surge pauses: markets wrap

US equity futures ticked higher Friday and a dollar surge paused after investors dialed back expectations of how aggressively the Federal Reserve will hike interest rates to combat inflation.

S&P 500, Nasdaq 100 and European contracts rose after Wall Street came off Thursday lows to close with a small drop. A slide in China tech shares on renewed worries about regulatory obstacles sapped an Asian stock index.

Treasuries edged up and the the yield curve between two-year and 10-year maturities remained inverted, something viewed as recession signal. The Bloomberg Dollar Spot Index hovered around a record high. Oil is poised to end the week below $100 a barrel for the first time since April.

Traders are weighing up how hawkish the Fed must be to curb inflation and the likely toll on the economy. Bets on a one-percentage-point July rate hike have been scaled back after the latest commentary pointed toward 75 basis points.

The pace of monetary tightening along with ebbing liquidity still threatens to stir more market volatility after steep losses for stocks and bonds in 2022.

“We need liquidity to dry up in order to reduce inflation,” Erin Gibbs, chief investment officer at Main Street Asset Management, said on Bloomberg Radio. “It’s a challenge, it’s a difficult situation, transition. I don’t envy the Federal Reserve, but we’ve known there has been too much money out there and that’s why we’re here in this position.”

In the latest Fed comments, Governor Christopher Waller backed raising rates by 75 basis points this month, though he said he could go bigger if warranted by the data. St. Louis Fed President James Bullard echoed some of those comments, saying he favored hiking by the same amount.

Elsewhere, China’s second-quarter growth slowed on Covid lockdowns but consumption rallied in June as curbs eased. Officials refrained from injecting funds into the banking system and left borrowing costs unchanged.

Meanwhile, about $1.9 trillion of options are set to expire Friday, a event that could bring some volatility to markets. Investors are also awaiting the next batch of US bank profit reports as the earnings season intensifies.

What to watch this week:

• US business inventories, industrial production, University of Michigan consumer sentiment, Empire manufacturing, retail sales, Friday
• G-20 finance ministers, central bankers meet in Bali, from Friday
• Atlanta Fed President Raphael Bostic speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 7:06 a.m. in London. The S&P 500 fell 0.3%
• Nasdaq 100 futures rose 0.2%. The Nasdaq 100 rose 0.3%
• Japan’s Topix index was flat
• South Korea’s Kospi index added 0.2%
• Australia’s S&P/ASX 200 index fell 0.8%
• China’s Shanghai Composite index lost 1%
• Hong Kong’s Hang Seng index declined 2%
• Euro Stoxx 50 futures added 0.8%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was at $1.0015
• The Japanese yen was at 138.89 per dollar
• The offshore yuan was at 6.7728 per dollar, down 0.2%

Bonds

• The yield on 10-year Treasuries dropped two basis points to 2.94%

Commodities

• West Texas Intermediate crude was at $96.01 a barrel, up 0.3%
• Gold was at $1 707.46 an ounce, down 0.2%