(Reuters) - A look at the day ahead in markets from Dhara Ranasinghe.

It's back to the markets versus the U.S. Federal Reserve.

While the central bank on Wednesday pushed out the start of rate cuts to perhaps as late as December, markets (and many economists) beg to differ.

Traders price a roughly 65% chance of a quarter point move in September and more or less fully price in a move by the November meeting -- which falls two days after the U.S. presidential election.

The latest inflation numbers offer some explanation as to why the markets are ignoring the Fed's own take on when a first rate cut is likely to come.

U.S. consumers prices were unexpectedly unchanged in May - a sign that price pressures are easing even if overall annual inflation is still running high at just over 3%.

Most economists continued to expect two rate cuts, starting in September, arguing that inflation had turned the corner after surging in the first quarter.

So, world markets -- it appears -- have chosen to take their cue from the inflation data, released just hours before the Fed's monetary policy statement, rather than the Fed messaging.

To be fair, though, Fed policy makers have said - once or twice - that they will react to the incoming data.

Stock market futures point to a positive start for Wall Street, a day after the S&P 500 and Nasdaq posted record closing highs for a third straight day.

U.S. Treasury yields are higher, but only modestly so.

For some, signs of falling inflation could be a positive sign for the large swathes of the stock market that have languished in a rally led by Big Tech.

Yes, the S&P 500 is up about 14% this year, but around 60% of the return has been driven by six companies whose shares have an outsized weighting in the index: Nvidia, Microsoft, Apple, Meta Platforms, Alphabet, and Amazon.com, data from S&P Dow Jones Indices showed.


Global trade tensions meanwhile are likely to remain in focus.

Beijing hopes the European Union will reconsider tariffs on Chinese electric vehicles (EVs) and stop going further in the "wrong direction" to shield its auto industry from competition, state news agency Xinhua said.

The EU's steps, announced on Wednesday, come less than a month after Washington revealed plans to quadruple duties for Chinese EVs to 100%.

Beijing has rejected the EU and U.S. argument that China's EV industry is running at a degree of overcapacity that threatens overseas automakers through subsidized exports.

Not surprisingly, given the uncertainty, European auto stocks are down 2% on Thursday, but major Chinese electric car makers such as BYD rebounded.

Group of Seven (G7) leaders meanwhile will start their annual summit looking to buttress support for Ukraine in its war with Russia and offer a united face in confronting China's political and economic ambitions.

Also in Europe, the spotlight has fallen on campaigning in Britain for the July 4 national election, with main opposition Labour leader Keir Starmer set to unveil his party's agenda for government. Opinion polls suggest Labour will win the election.

Key developments that should provide more direction to markets on Thursday:

- Bank of Japan kicks off two-day meeting

- US May PPI

- Auctions: US 30-year bonds

(Reporting by Dhara Ranasinghe;additional reporting by Alun John; Editing by Gareth Jones)