A look at the day ahead in European and global markets from Rae

Wee

Central bankers across the globe are finally showing

increasing confidence that markets may be entering an era of

lower rates, after victory over inflation proved elusive for a

long time.

The Reserve Bank of New Zealand (RBNZ) said on Wednesday at

the conclusion of its policy meeting that headline inflation is

expected to return to within the 1% to 3% target range in the

second half of this year - a markedly less hawkish tone than

what was conveyed in May.

Traders wasted no time in ramping up bets for rate cuts in

New Zealand later this year, which in turn sent the kiwi

sliding some 0.7%.

The RBNZ decision comes a day after Federal Reserve Chair

Jerome Powell said in remarks to Congress that the U.S. is "no

longer an overheated economy" with a job market that has cooled

from its pandemic-era extremes, even though he provided little

clues on how soon an easing cycle could commence.

Still, the market pricing of an over 70% chance of a Fed cut

in September has come a long way from a near-even chance a month

ago, based on the CME FedWatch tool.

Powell returns to Capitol Hill later on Wednesday to testify

before the House Financial Services Committee, though focus will

likely be on Thursday's U.S. inflation report.

A surprise spike there could throw the case for rate cuts

into doubt.

Japan, meanwhile, remains an exception to the rate-cut

story, with an acceleration in the country's wholesale inflation

in June keeping alive market expectations for a near-term rate

hike by the central bank.

The Bank of Japan will likely trim this year's economic

growth forecast in July but project inflation will stay around

its 2% target in coming years, sources told Reuters.

Rates aside, data on Wednesday showed China's consumer

prices grew for a fifth month in June but missed expectations,

while producer price deflation persisted, as anaemic domestic

demand continues to plague the world's second-largest economy

despite Beijing's support measures.

China's retailers have discounted goods, from cars to

coffee, as they navigate through sluggish consumer spending amid

a shaky economic outlook.

The downbeat data did little to help the yuan,

which on Wednesday again fell to its weakest level since

November.

Key developments that could influence markets on Wednesday:

- UK RICS Housing Survey (June)

- Reopening of 14-year German government debt auction

- Powell continues his testimony, this time before the House

Financial Services Committee

(Editing by Muralikumar Anantharaman)