US equity futures regained some ground during the early Friday trading session as the dollar took a breather amid investors’ expectations of an aggressive rate hike in July, following Wednesday’s poor “June Inflation Report.”
S&P 500, European contracts, and Nasdaq 100 retreated from Thursday’s lows and now look set to close the week with a slight drop. Unfortunately, a fall in China’s tech shares over renewed worries about regulatory obstacles has forced an Asian stock index to dive low. Moreover, The Bloomberg Dollar Spot Index has continued to trade around a record high while oil is set to end the week below $100 a barrel. This is the first time it has happened since April 2022.
Despite treasuries pushing slightly higher, the yield curve between the ‘2-year yield and 10-year yield’ maturities has remained inverted – something experts have long considered a recession signal.
Fed’s stance in the coming months
Traders are looking at how hawkish the Fed would be as it continues to plot out a way to manage rising inflation. There are even predictions of the Fed implementing a one percentage point rate hike in July, despite the Fed president hinting at a 75 basis point interest rate hike.
After steep losses for bonds and stocks in 2022, the pace of monetary tightening and rising liquidity threatens to spur more liquidity.
According to Erin Gibbs, chief investment officer at Main Street Asset Management, liquidity needs to dry up to push down inflation. He further added that it is going to be a challenging and difficult decision to make that transition. While he said that he doesn’t envy the Fed, given the tough situation they find themselves in, he reiterated that there has always been too much money out there, forcing the US economy to where it currently is.
In the latest comment from the Fed, Governor Christopher Waller has supported increasing the interest rate by 75 basis points, adding that it could get even higher if data warrants it. Also, St. Louis Fed President James Bullard shared the same sentiments.
Friday’s trading session had so far seen little action. However, investors look forward to Monday’s session to see how things play out ahead.
