MORNING OFFER AMERICAS-US stocks are trying to outgrow the gloom

Harry Robertson’s A Look at the Future in US and Global Markets

It’s been a tough patch for U.S. stocks, with the benchmark S&P 500 falling in five of the past six sessions. The index fell 2.3% last week, its biggest weekly drop since the banking crisis in March.

Things are looking a little brighter this morning as US stock futures rose slightly in the morning session and European shares edged higher.

There seems to be only bad Chinese news for traders to focus on. Data released today showed the economy entered deflation in July, with prices falling 0.3%.

On Tuesday, Chinese imports fell 12.4% in July, while exports shrank 14.5%.

“It may be three or four months before we start to realize that China’s reopening is not a panacea for global growth,” said Timothy Graf, head of EMEA macro strategy at State Street.

Italy’s decision to ease bank taxes that jolted markets on Tuesday helped restore some confidence, particularly in Europe.

The dollar index gave back some of its recent gains as investors pulled out of safe-haven assets. Bond yields were little changed.

However, as of Wednesday, the greenback was on track for its fourth straight weekly gain — not a positive sign for global markets.

Moody’s report, which downgraded the credit ratings of several small and medium-sized U.S. banks, added to the gloom on Tuesday.

The next big test will be US inflation data for July, which is expected on Thursday. Inflation is expected to rise to 3.3 percent from 3 percent in June. Core inflation is expected to remain stable. Core inflation is expected to hold steady at 4.8%.

This will be an important input for the Federal Reserve’s interest rate decision in September. Markets currently think interest rates will be in the range of 5.25% to 5.5%, but they think the chances of another hike are slim.

Another key question for U.S. markets is whether investors can maintain confidence in tech companies, which have fueled a 17% rally in the S&P 500 this year, State Street Graph says.

“What ultimately affects this? And is it something silly like seasonal (factors)? Well, abnormally, that’s what’s happening,” he says.

“From July 31 to now, you start to see some weakness in global stocks and technology will be a big part of that.”

Key developments that will provide additional direction for US markets later on Wednesday include:

* The Walt Disney Company is profitable

* MBA mortgage applications survey data