Marketmind: Eyes wide open

© Reuters. FILE PHOTO: Office lights are on in banks as dawn breaks behind the financial district of Canary Wharf, in London, Britain June 24, 2016. REUTERS/Neil Hall/File Photo

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

Was the recent rise in markets a dead cat bounce?

The sea of red splashed across global markets - after Tuesday's hotter-than-expected U.S. inflation data - shows how markets had priced in false optimism.

It's clear now that inflation has still not peaked, despite easing commodity prices.

U.S. interest rate futures now show a 35% probability that the Fed will raise its benchmark rate by a full percentage point next week instead of 75 basis points.

Asian shares were hammered after a tumble on Wall Street, while the dollar steadied and two-year Treasury yields raced to a new 15-year high. [MKTS/GLOB]

Investors will be hoping that British inflation data for August, due at 0600 GMT, will produce no nasty surprise.

The highest and lowest forecasts for annual consumer price inflation polled by Reuters are 10.8% and 9.6%, with the consensus estimate coming in at 10.2%.

Markets expect the Bank of England to raise interest rates by another 50 basis points next week, but some economists are already revising up rate expectations due to fiscal stimulus provided by Prime Minister Liz Truss.

In July, consumer price inflation jumped to 10.1%, making Britain the first major rich economy to see price growth hit double digits.

As the energy crisis unfolds in Europe, policymakers are racing to come up with measures to fix it.

The European Union is set to unveil plans on Wednesday to skim off windfall profits from energy companies and apply cuts in electricity usage across the bloc, as it seeks to shield citizens and businesses from surging energy prices.

Germany has already said it will step up lending to energy firms, battling with surging gas prices.

As energy prices whack markets, volatility has helped global energy trader Vitol Group beat its previous records by making more profit in the first half of this year than in the whole of last year.

Meanwhile, as Queen Elizabeth's coffin arrived at Buckingham Palace after huge crowds lined the London route, a poll showed that Britons are backing King Charles but want him to keep his views to himself.

Reuters Poll-UK economy and monetary policy outlook https://fingfx.thomsonreuters.com/gfx/polling/klpykabnxpg/Reuters%20Poll-UK%20economy%20and%20monetary%20policy%20outlook.PNG

Key developments that could influence markets on Wednesday:

UK, Swedish and Finland inflation

Eurozone industrial production