European markets close higher as U.S. inflation cools by more than expected

U.S. consumer price inflation fell to an annualized 3% in June, below consensus expectations, triggering a bounce for stock markets around the world.

Core inflation, which excludes volatile food and energy prices, fell to 4.8% annually, below a consensus projection of 5%.

Traders will be hoping the sign that inflation is cooling rapidly in the world' largest economy means the Federal Reserve will be less inclined to resume its aggressive interest rate hikes.

— Elliot Smith

Shares of German online retailer Zalando jumped 12% by early afternoon in Europe to lead the Stoxx 600, closely followed by Virgin Money U.K., which climbed 8% after performing resiliently in the Bank of England's stress test.

At the bottom of the European blue chip index, Air France-KLM shares fell 4.7% after Deutsche Bank downgraded the carrier's stock to "hold" from "buy."

— Elliot Smith

The U.S. dollar index hit a 2-month low on Wednesday while risk assets around the world rallied, with traders seemingly betting on a substantial slowdown in U.S. inflation when June's consumer price index (CPI) is published at 1:30 p.m. London time.

The DXY U.S. dollar index was hovering just below 101.5 by late morning in London, a level not seen since May 10.

— Elliot Smith

European shares were mostly higher at Wednesday's open.

The pan-European Stoxx 600 was up 0.3% in early trade, with tech stocks adding 1% to lead gains as most sectors and major bourses nudged into positive territory. Travel and leisure stocks slipped 0.6%.

The Bank of England on Wednesday said British banks are strong enough to support households and businesses through the squeeze of higher borrowing costs and the rising cost of living.

In its Financial Stability Report, the central bank noted that U.K. households and businesses are in a safer position than they were before the financial crisis, with a lower proportion of household income spent on mortgage payments and a lower proportion of business spend used to service debt.

"Higher interest payments on loans mean some households and businesses may not be able to make their payments. This increases the risks that banks may face some losses," the Bank said.

"However, U.K. banks are resilient and they are strong enough to continue supporting households and businesses through a period of higher interest rates. In line with our rules, they have large capital buffers to absorb losses."

Though banks have not yet seen a rise in borrowers being unable to meet loan payments, the Bank said that its interest rate hikes would feed through into the economy gradually. As such, the full impact is yet to be felt by households and businesses.

— Elliot Smith

Britain's FTSE 100 is seen around 16 points higher at 7,299, Germany's DAX is set to add around 53 points to 15,843 and France's CAC 40 is expected to climb by around 34 points to 7,254, according to IG data.

Stock markets might suffer if the United States economy sidesteps a recession that many believe is just around the corner, according to Investec equities strategist Roger Lee.

Lee also explained why markets will fall and where to hide when the downturn begins.

CNBC Pro subscribers can read more here.

— Ganesh Rao

Analysts at Goldman Sachs have picked a number of global stocks it says are trading at a discount — and said two of its picks could rise more than 100% over the next 12 months.

The stocks all appear on Goldman's list called "value buys with earnings upside potential."

"We screen for Buy rated stocks that are trading at attractive valuations relative to their own history ... and the broader market (SXXP), where our analysts see upside risks to consensus 2023/24E EPS [earnings per share]," the bank's analysts said.

CNBC Pro subscribers can see which stocks made the list here.

— Lucy Handley

New Zealand's central bank has held its benchmark interest rate at 5.5%, marking the first pause for the Reserve Bank of New Zealand since October 2021.

The RBNZ said the current level of interest rates are "constraining spending and inflation pressure as anticipated and required."

However, the central bank said interest rates still need to "remain at a restrictive level for the foreseeable future," to ensure that consumer inflation returns to its target range of 1-3%.

— Lim Hui Jie

Japan's corporate goods price index rose at a slower pace of 4.1% year-on-year in June, the sixth straight month that growth has slowed.

Also known as the wholesale inflation gauge, the 4.1% figure is lower than May's revised print of 5.2%, and also the slowest inflation rate recorded since April 2021.

The corporate goods price index measures the price companies charge each other for their goods and services.

— Lim Hui Jie