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

British inflation data this morning could be the toast of trading desks if it follows updates from the U.S. and Canada and surprises on the downside.

A tentative rally in gilts is poised to extend and sterling could probably say goodbye to the strong side of $1.30.

Forecasts put Britain's annual CPI falling to 8.2% in June and core holding at 7.1%. Those are eye-watering levels so a return to surprises on the high side would be unpleasant.

Markets have already priced another 100 basis points of Bank of England rate rises this year, and following dovish remarks from the European Central Bank's Klass Knot it's possible the BoE would find itself hiking all alone and rather quickly.

New Zealand sounded a warning in the Asia session, with food prices keeping annual headline inflation higher than expected at 6%. Traders reckoned it meant NZ interest rates would need to stay higher for longer and briefly lifted the kiwi.

Under the hood in Canada, an average of the Bank of Canada's two core inflation measures has also hardly budged at 3.8%.

Elsewhere, China's slowing economy is casting a bit of shade over encouraging data and corporate earnings in the U.S.

The Hang Seng shed another 1% on Wednesday and is down about 5% for the year. Netflix, Tesla and Goldman Sachs report results later in the day.

On Tuesday markets welcomed better-than-expected profits at Morgan Stanley and other big banks as well as Microsoft flexing its AI muscles by announcing new fees for features within its office software, sending shares up 4%.

Key developments that could influence markets on Wednesday:

Data: British CPI, Euro zone final CPI, U.S. housing starts

Speakers: Bank of England's Dave Ramsden

Earnings: Netflix, Tesla, Goldman Sachs

(Reporting by Tom Westbrook; Editing by Muralikumar Anantharaman)