European stock markets ended the day higher Tuesday as investors digested strong U.K. labor figures and U.S. inflation data ahead of the next meeting of the U.S. Federal Reserve.
The regional Stoxx 600 index finished around 0.63% higher, with most sectors in the green. Mining stocks shook off recent negativity to climb 2.7%, while tech stocks rose 1.5%.
It came after the release of U.S. inflation data showed a decline in price rises to the lowest level in two years. The gauge is being closely watched ahead of Wednesday's rate hike decision from the Fed. According to the CME FedWatch Tool, there's an 81% chance that the Fed will pause rate hikes in this June meeting.
Investors are also preparing for the European Central Bank's monetary policy meeting Thursday, at which a 25 basis point hike is widely expected.
Markets also responded to U.K. pay data earlier Tuesday. Annual average wage growth accelerated from 6.7% to 7.2% in the February to April quarter, ahead of economist expectations. Employment rose by 0.2 percentage points, though the number of vacancies fell by 79,000 to 1,051,000.
The data "will only add to the heat already on the Bank of England to raise interest rates further at the policy meeting next Thursday," said Ashley Webb, U.K. economist at Capital Economics.
The yield on 2-year government bonds rose to its highest level since July 2008 on the news.
UK stocks end in the green; gilt yields remain higher
U.S. CPI comes in at lowest level in 2 years
The U.S. consumer price index rose 4% year over year last month, matching a Dow Jones forecast and marking its lowest level in two years. The CPI's month-over-month change and so-called core measure — which strips out volatile food and energy prices — were also in line with expectations.
— Jeff Cox
OPEC production drops sharply in May amid voluntary cuts
Combined crude output from members of the influential Organization of the Petroleum Exporting Countries (OPEC) alliance dropped sharply in May, as several producers implemented voluntary cuts.
OPEC output lost 464,000 barrels per day last month, according to independent analyst estimates published in the OPEC Monthly Oil Market Report out Tuesday.
Firm production declines were observed in coalition leader Saudi Arabia, its close Mideast Gulf allies Kuwait and the U.A.E, and in North Africa's Algeria — four of nine countries that are carrying out a collective 1.66 million barrels per day of voluntary reductions until the end of 2024.
Saudi Arabia has pledged to cut 500,000 million barrels per day in June, but will top this decline with another 1 million-barrels-per-day July cut, which could be extended.
— Ruxandra Iordache
UK mortgage lending at weakest since 2020
Mortgage lending plunged to mid-pandemic levels in the first quarter of this year, as stubbornly high interest rates depressed buying interest in Britain's real estate sector.
U.K. mortgage lending and commitments hit £58.8 billion ($73.91 billion) in the first quarter, Bank of England data showed Tuesday. This was down £22.9 billion on the quarter and 23.6% year-on-year, marking the lowest level observed since the second quarter of 2020, during the Covid-19 pandemic.
New mortgage commitments — lending agreed that will be advanced in the following months — were £48.9 billion in the first quarter, lower by 16.1% quarter-on-quarter and 40.7% below the same period of 2022, also representing the lowest levels logged since the second quarter of 2020.
High U.K. inflation — which sat at 8.7% in April — has kept the Bank of England on a path of successive interest rate increases, rippling into higher mortgage rates.
— Ruxandra Iordache
New Bank of England rate-setter signals hardest part still to come in inflation battle
U.S. economist Megan Greene, who joined the Bank of England's Monetary Policy Committee as an external member Tuesday, told a parliamentary committee that there was "underlying persistence" in U.K. inflation.
"Getting from 10% to 5% ... is probably easier than getting from 5% to 2%," Greene said in remarks quoted by Reuters.
"If you engage in stop-start monetary policy, you may end up having to tighten even more and generating an even worse recession on the other side. And also that inflation expectations can't be allowed to become de-anchored or you end up in that situation."
— Jenni Reid
UK gilt yields rise following wage data
U.K. gilt yields this morning hit their highest level since the end of September, when former Prime Minister Liz Truss' package of unfunded tax cuts unleashed chaos in financial markets.
Yields on the 2-year government bond hit 4.749% earlier Tuesday, according to Refinitiv data, before paring gains to trade around 4.656% by 9:45 a.m.
The rise took them to within a hair's breadth of their Sept. 28, 2022 peak, when 2-year yields hit 4.750%.
The move followed wage data for the U.K. that came in hotter than expected. U.K. wages excluding bonuses were on average 7.2% higher year-on-year in February-April, whereas a Reuters poll of economists forecast a 6.8% increase.
The data has raised expectations that the Bank of England will continue to hike interest rates, and potentially keep them higher for longer.
— Katrina Bishop and Jenni Reid
Europe stocks open higher
Europe stocks opened higher Tuesday, with the benchmark Stoxx 600 index up 0.45% at 8:30 a.m. BST.
Tech stocks moved 1.7% higher as global investors anticipate a pause in rate hikes from the U.S. Federal Reserve.
— Jenni Reid
UK wage growth hotter than forecast
U.K. wages excluding bonuses were on average 7.2% higher year on year in February to April, figures published Tuesday showed, the first period including the new minimum wage of £10.42 an hour.
A Reuters poll of economists forecast a 6.8% increase.
Adjusted for inflation, pay growth fell annually by 2% including bonuses and 1.3% excluding them.
Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, said wage growth had "far too much momentum" for the Bank of England to stop rate hikes yet.
He added that the rise from 6.6% wage growth in the previous quarter would also fuel the recent rise in gilt yields and raise peak rate expectations "by fanning the impression that the U.K. has a unique problem with ingrained high inflation."
The employment rate rose 0.2 percentage points over the same period, as the number of people in work hit a record high.
Unemployment also nudged 0.1 percentage points higher, to 3.8%, owing to a decline in the number of people classed as "economically inactive" — not in work or looking for work.
In one sign that the labor market is loosening, the number of vacancies fell by 79,000 to 1,051,000 in the three months to May, with businesses citing economic pressures as reasons for holding back on hiring.
— Jenni Reid
CNBC Pro: Morgan Stanley loves these 5 global A.I. chip stocks that could take Nvidia's market share
Nvidia, a dominant player in the artificial intelligence computing market, may face increasing competition from custom chip designers in the near future, according to Morgan Stanley.
"Budget costs and energy requirements are the two major limitations for future AI computing, in our view," said Morgan Stanley analysts led by Charlie Chan in a note to clients on June 11.
"We therefore expect to see increasingly energy-efficient and low-cost AI custom chip designs ahead, matching or even outpacing the growth of NVIDIA's and AMD's general purpose GPUs."
The investment bank is "overweight" on five global stocks that could benefit from this trend.
— Ganesh Rao
CNBC Pro: Nervous about high rates? Analysts like these cash-rich stocks, giving one nearly 80% upside
Analysts have singled out a group of companies that will benefit from interest rates staying higher for longer: those that are rich in cash and have strong balance sheets.
Though the U.S. Federal Reserve is expected to pause hikes this week, there are fears it's set to resume them after. That's because of factors such as inflation being stickier than it looks, and a labor market that continues to be tight.
CNBC Pro screened the S&P 500 and MSCI World indexes to look for such cash-rich stocks. One showed up in the screen with nearly 80% potential upside, and another two semiconductor stocks — popular with investors right now — also appeared.
— Weizhen Tan
European markets: Here are the opening calls
European markets are set to open lower Thursday.
The U.K.'s FTSE 100 index is expected to open 39 points lower at 7,489, Germany's DAX down 67 points at 16,615, France's CAC down 26 points at 7,414 and Italy's FTSE MIB down 159 points at 30,163, according to data from IG.
Revised third quarter gross domestic product data for the euro zone is due Thursday, as well as third-quarter employment figures for the single currency area. German industrial output for October is also due.
— Holly Ellyatt