In this file photo dated Tuesday, June 4, 2019, Federal Reserve Chairman Jerome Powell speaks at a conference involving its review of its interest-rate policy strategy and communications, in Chicago. Image Credit: AP

European shares were subdued on Wednesday ahead of US Federal Reserve Chair Jerome Powell’s testimony that could determine the path of future interest rate cuts, with strong industrial output data from France and Italy limiting losses.

Powell’s two-day monetary policy testimony to Congress is set to begin at 1400 GMT, and investors see a worrying lack of inflation globally as a reason for him to sound suitably dovish.

The pan-European shares index fell 0.1 per cent by 0807 GMT. Bank shares outperformed major European sectors, with a 0.8 per cent gain.

The benchmark index is set to extend losses to a fourth straight session after a strong US jobs report last week led investors to trim bets of a sharp interest rate cut in July.

“The move in markets is a continuation of what we’ve seen in the past few days, where traders are a bit nervous that the Fed won’t be as dovish as initially suspected,” said David Madden, analyst at CMC markets. “We aren’t going to see any major moves between now and until Powell gives his update, and if he does give an update on monetary policy that will give the markets new direction for the next few weeks.”

Bank-heavy Italian shares rose 0.7 per cent, outperforming the broader European markets that traded sideways.

The region’s main index has recouped its May losses, gaining around 6 per cent since then, on hopes that major central banks will adopt a looser monetary policy.

Investors will also be watching for minutes of the Fed’s last policy meeting when officials edged towards a rate cut.

Germany’s 10-year government bond yield rose to its highest since July 1, boosted by data that showed French industrial output in May leapt to its biggest monthly jump since November 2016. Italy’s monthly industrial output also came in much stronger than expected.

In Madrid, stocks with exposure to Mexico led losses with lender BBVA, utility Iberdrola and Telefonica down between 0.3 per cent and 0.7 per cent, after a shock resignation of Mexican Finance Minister Carlos Urzua.

On the other hand, plane maker Airbus rose 1.2 per cent after confirming deliveries rose by 28 per cent in the first-half of the year, putting it ahead of Boeing for the first time in eight years.

British recruiter Hays Plc slid to the bottom of STOXX 600, down 6.6 per cent as peer Pagegroup tumbled 13.7 per cent after issuing a profit warning.