A look at the day ahead in the US and global markets from Naomi Rovnick

Risk appetite has risen in global markets on optimism that US Democrats and Republicans are nearing an agreement to raise the debt ceiling and avoid an economically catastrophic default.

European and Asian stocks rose on Thursday, the dollar held near a seven-week high against a basket of major currencies and Wall Street stock futures hint at a steady open after the S&P 500 (.SPX) index ) will gain about 1.2% on Wednesday.

But while a suspension of the debt ceiling could lift markets in the coming days, the backdrop of a lackluster global economy has not changed, with its twin engines, China and the United States, sputtering.

A dose of growth from China would help long-term risk appetite, but predictions that the world’s second-largest economy will slip out of the straitjacket of COVID-19 restrictions are proving misplaced.

The Chinese renminbi has crossed 7 to the dollar, down 1.4% this year, following disappointing reports of industrial production and retail sales and slowing house price gains, all despite the stimulus policies of property and release of pent-up lawsuit.

Citi’s China Economic Surprise Index is at its lowest level since January (.CESICNY), a further sign that growth prospects have weakened.

Meanwhile, US corporate earnings paint a bleak picture of consumer caution, as the lagged effect of interest rate hikes is met by above-target inflation.

Big-box retailer Target (TGT.N) signaled a dismal second quarter on Wednesday, as customers steered away from spending on electronics and non-essential household items due to high prices, a day after Home Depot (HD.N) will cut annual sales estimates.

Walmart (WMT.N), which may be on stronger footing due to its focus on low-priced staples, posts its own update later in the day.

The S&P 500 is trading at 18 times forecast earnings, buoyed by the tech megastocks that dominate the index. Apple’s market capitalization (AAPL.O) exceeds that of the small-cap Russell 2000 Index (.RUT), and the high-tech Nasdaq 100 (.NDX) is up 24% this year.

Technology has soared on predictions that the US Federal Reserve will start cutting rates from July, increasing appetite for rate-sensitive growth companies whose valuations are favored when money moves. it gets cheaper. Further outperformance depends on markets being right about the Fed’s willingness to lower interest rates starting in July.

Yet a slew of Fed speakers this week argued in favor of keeping monetary policy tight while inflation remains high.

Events that could affect markets on Thursday:

* Economic events: US initial jobless claims, US existing home sales, Philadelphia Fed business index.

*Central bank speakers: Fed Governor Philip Jefferson, Fed Vice President of Supervision Michael Barr.

* Earnings: Walmart, Alibaba, Applied Materials.

Reporting by Naomi Rovnick; Edited by Emelia Sithole-Matarise

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, according to the Trust Principles, is committed to integrity, independence and non-bias.