Record UK wage growth adds to inflation fears; Europe markets cautiously higher: Live updates

The ZEW German economic sentiment indicator slid to -14.7 in July from -8.5 in June, below a consensus projection in a Reuters poll of -10.5.

Across the wider euro area, economic expectations dropped from -10 in June to -12.2 in July.

— Elliot Smith

Shares of British online grocer Ocado climbed 4% in early trade to lead the Stoxx 600. The company’s first robotic warehouse in Asia, built for Japanese partner Aeon, went live on Monday.

At the bottom of the European blue chip index, British powder metallurgy company Dowlais Group fell more than 7% after Citi initiated its coverage of the stock with a “sell” rating.

— Elliot Smith

Wages excluding bonuses in the U.K. grew at their joint-fastest rate on record in the three months to May, rising by 7.3% from the same period last year, the Office for National Statistics revealed Tuesday.

The country’s tight labor market showed signs of easing as the unemployment rate rose unexpectedly from 3.8% to 4% in the three months to April, while vacancies continued to fall. The employment rate rose to 7.6% on the back of an increase in part-time employment.

The economic inactivity rate declined from the previous quarter to 20.8%, continuing a recent downward trend.

Stuart Cole, chief macro economist at Equiti Capital, said the Bank of England would be satisfied with the fall in payrolled employees and rise in unemployment claimants, which suggest the labor market is finally beginning to shed jobs.

However, he said the strength of earnings figures would remain “disconcerting” for policymakers, suggesting monetary policy may need to tighten further in order to rein in core inflation.

“These figures show that workers are still managing to secure hefty wage rises despite the apparent cooling in the labour market as a whole, possibly reflecting attempts by companies to prevent skilled workers from leaving, but also suggestive that the softening market the headline numbers are suggesting may not be being seen on the ground,” Cole said.

The Bank of England has repeatedly warned that high wage growth remains a significant impediment to its efforts to bring inflation lower and today’s figures will do nothing to convince it that the labor market is no longer running hot, leaving it to possibly conclude that monetary policy needs to be tightened further.

Jack Kennedy, U.K. economist at hiring platform Indeed, suggested a decelerating in the single-month pay growth figure for May from 7.7% to 7.1% suggested that April “may have been the peak for wage growth after that month’s 9.7% increase in the National Living Wage.”

However, he agreed that the Bank of England’s Monetary Policy Committee will need to see evidence of moderating wage growth “sooner rather than later” to dissuade it from “further, and perhaps substantial” hikes to interest rates.

— Elliot Smith

European stocks opened in positive territory on Tuesday, tracking gains around the world after Wall Street snapped a three-day losing streak.

The pan-European Stoxx 600 added 0.5% in early trade, with construction and material stocks climbing 1.4% to lead gains as most sectors and major bourses entered positive territory.

— Elliot Smith

Britain’s FTSE 100 is set to inch around 3 points higher to 7,277, Germany’s DAX is seen around 35 points lower at 15,738 and France’s CAC 40 is expected to gain around 28 points to 7,172, according to IG data.

Stocks have rallied hard so far this year. But the impressive returns have also made some investors nervous about the market’s ability to hold on to the gains for the rest of 2023.

CNBC Pro surveyed 15 market strategists at investment banks and asset managers between July 3-7, asking them to lay out what they expect from stock markets in the second half of this year. The respondents also shared their views on how investors should be positioned and the most significant market risks.

While some said they expected stocks to keep rallying, others were more skeptical and suggested investors prepare for the S&P 500 to decline by 10% by the end of the year.

CNBC Pro subscribers can read more here.

— Ganesh Rao

Major economies in the region could start “decoupling” from a global tightening cycle led by the Fed due to different macroeconomic conditions in Asia, Nomura economists said.

“Our view of Asian central banks cutting policy rates ahead of the Fed in this cycle is based on the fundamental divergences between Asian and U.S. economies,” Nomura economists wrote in a Friday note.

According to a real-time survey conducted by Nomura’s research team, more than 32% of respondents said they expect South Korea’s central bank to be the first to cut rates after China, followed by Indonesia, the Philippines, then India.

— Jihye Lee

China will extend two financial policies supporting its real estate market to the end of 2024.

In a notice, the People’s Bank of China referred to a 16-step guideline last November that was released to beef up policy support for the housing sector. The country will now extend relevant policies to the end of the year.

Xinhua reported that the purpose of the move is to “guide financial institutions to continue deferring loan payments for real estate enterprises, while propping up financial support for the real estate enterprises to ensure the delivery of housing projects.”

— Lim Hui Jie