US futures edge lower after strong gains while oil drops to its lowest since mid-July as recession fears suppress demand

• US futures dropped on Thursday after an earlier rally as investors await labor market data.
• The dollar held steady after recovering from one-month lows it hit earlier this week.

US futures took a breather Thursday after posting strong gains in the previous session while oil dropped to its lowest in three weeks as recession fears weigh on demand.

Futures across all of Wall Street's major benchmarks lost slightly, with the S&P 500, Dow Jones and Nasdaq 100 falling 0.08%, 0.02% and 0.15% respectively.

The decline in stocks reversed an earlier rally after a stronger than expected reading of service-sector activity in July.

"We see this as adding more weight to our thinking that markets are under-pricing Fed's tightening path," analysts at Saxo Bank wrote. They added: "The narratives at the moment are struggling to be consistent though as equities have recently rallied on weaker growth that has been seen as helping to limit how far the Fed can hike."

Investors will be eyeing data on the US labor market ahead of the release of the monthly jobs report on Friday. Weekly jobless claims are due later in the day and will show the number of people that applied for unemployment benefit for the first time in the latest week.

The dollar index held steady at 106.35 after clawing back from a one-month low earlier this week. The dollar began to ease in mid-July over speculation that the Federal Reserve was going to aggressively lift interest rates to fight its war against inflation, sparking fears that the US economy would tip into a recession.

It regained some strength this week after Fed officials suggested more work needed to be done to cool down inflation.

Elsewhere oil markets, the benchmark Brent crude fell to its lowest since mid-July as recession fears begin to weigh on the demand outlook. At the same time, the OPEC+ meeting posted a small supply increase while US inventories unexpectedly came in stronger than expected.

"A break below $90 is now a very real possibility, which is quite remarkable given how tight the market remains and how little scope there is to relieve that," Craig Erlam, senior market analyst at OANDA said.

Meanwhile, in Europe, the focus will be on the Bank of England, which is expected to deliver its largest interest-rate rise in almost 30 years.

"The central bank hasn't always done what was expected over the last 12 months, nor been in any rush to do as other central banks are doing. It would be very on-brand to disregard market pricing and hike by 25 again although it is becoming increasingly difficult to justify," Erlam said.

In Asia, stocks looked positive with China's CSI 300 gaining 0.85% and Hong Kong's Hang Seng rising 2.06%, helped by gains in Chinese technology companies.