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STOXX Europe 600 up 0.5%
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U.S. inflation eyed ahead of Fed
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China cuts borrowing costs
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Nasdaq futures advance
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LESS IS MORE? UK WAGE GROWTH TOPS FORECASTS (0950 GMT)
The UK labour market showed unexpected strength in April, data showed on Tuesday, fanning expectations that the Bank of England may have to keep raising interest rates.
“With the data showing the number of job vacancies still some 25% above pre-COVID levels, today’s report will certainly have been a concerning read for the BoE,” Stuart Cole, chief macro economist at Equiti Capital, told the Reuters Global Markets Forum (GMF).
Higher-than-expected wage growth will help households struggling with the cost-of-living crisis, but the trend also adds fuel to inflationary fires and raises the chance of more rate hikes, said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Notably, there is something idiosyncratic in the UK pay data - always - and this time around, it's the minimum wage hike, wrote Bruna Skarica, UK economist at Morgan Stanley.
"The 10.1% rise in the National Living Wage in April was particularly notable in the retail sector, pushing up the monthly pace of private sector regular pay increases."
While the print was a beat, every forward-looking indicator on employment shows an increase in slack in the jobs market and flat-lining starting pay, Skarica said.
Focus is now on next week's inflation print, which is expected to be softer, as well as the upcoming Monetary Policy Committee meeting on June 22.
CENBANK AND DATA WON'T SETTLE SOFT-LANDING DEBATE - UBS (0858)
A week of central bank meetings and key economic data will not suffice to prove the market's "soft landing" thesis, according to UBS Global Wealth Management CIO Mark Haefele.
Instead, uncertainty around the macro backdrop will continue throughout the rest of the year.
The "potential for cross-asset volatility" is expected to rise on "increased data-dependency and shifts in market leadership,", Haefele writes.
And even in a Goldilocks scenario of moderating U.S. inflation, the end of the Fed hiking cycle and the U.S. dodging a major slowdown, global equities are still unlikely to rally.
"Global earnings revision ratios and earnings momentum have decoupled from historical leading indicators like the ISM new-orders component," Haefele writes.
Stocks look expensive based on both equity-risk premia and the yield gap, when compared to high-grade bonds, he says.
" Last, technicals do not indicate a likely surge in sentiment to boost stocks...nor are investors positioned for the wide range of potential economic and market outcomes (the VIX Index of implied US equity volatility recently fell to its lowest level in more than two years)."
UBS maintains a least-preferred stance on global and U.S. equities, and are advising investors to seek high-grade government and investment-grade debt.
(Lucy Raitano)
MINERS AND TECH LIFT THE STOXX (0814 GMT)
Optimism over peaking U.S. rates drove European shares higher on Tuesday with a strong update from Oracle giving fresh impulse to tech, while a cut to borrowing costs in top metal consumer China lifted mining stocks in London.
The region-wide STOXX Europe 600 equity benchmark rose 0.5%. Basic resources led gainers, up more than 2%, while tech jumped 1.7% to their highest level since January 2022.
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EUROPEAN SHARES SET FOR POSITIVE START (0654 GMT)
European shares were set to open higher on Tuesday ahead of U.S. inflation data later on which is expected to show price pressures eased in May, likely corroborating bets for a pause in the Federal Reserve's rate-hike cycle.
EuroSTOXX50 and FTSE futures rose 0.8% and 0.5% respectively, while tech heavy Nasdaq contracts led gains across Wall Street equity futures, up 0.6%, favoured by the narrative over peaking U.S. interest rates.
In tech, a quarterly revenue beat at Oracle sent its Frankfurt-listed shares rising 5%, as investors warmed to growing demand for cloud from companies deploying AI. That could provide a positive read-across for European peer SAP.
Minor deal-making was also on the radar.
Builder Saint-Gobain agreed to buy Building Products of Canada Corp for about 925 million euros. Thales reached a deal to buy Australia's Tesserent for $119 mln, while Pernod Ricard bought Ace Beverage.
Finally, Ashtead reported higher profits, helped by strong demand from businesses looking to rent its construction and industrial equipment, especially in the U.S..
(Danilo Masoni)
CHINA STEALS THE SHOW BEFORE US INFLATION (0550 GMT)
The People's Bank of China (PBOC) managed to liven up the wait for Tuesday's highly anticipated U.S. consumer price inflation (CPI) data by lowering a short-term lending rate for the first time in 10 months.
Several analysts had been expecting a cut to the one-year medium-term lending facility rate on Thursday, when the PBOC is widely expected to roll over maturing loans. Tuesday's 10 basis-point reduction to the seven-day reverse repo rate, however, promptly removed any lingering doubt about China's policy bent toward stimulus in the face of persistently weak economic data.
The move had little broader impact on markets in the run-up to tonight's U.S. CPI release and this week's major central bank decisions. It did spur a rally in China's benchmark 10-year government bonds, though, and sent the beleaguered yuan to six-and-a-half-month lows - without doing much to boost local stocks, in a worrying reflection of what's increasingly being dubbed a loss of confidence in Chinese growth prospects.
Elsewhere in Asia, stocks tracked Wall Street's higher close and the U.S. dollar was on the back foot on expectations of a pause in the U.S. Federal Reserve's interest rate hike cycle on Wednesday.
In corporate news, Intel is in talks with SoftBank Group's Arm to be an anchor investor in the chip designer's initial public offering, a person familiar with the matter told Reuters on Monday.
Europe's calendar highlights include UK employment data, Germany's ZEW survey for June and final May inflation data, and Bank of (BoE) Governor Andrew Bailey's parliamentary testimony.
BoE policymaker Catherine Mann struck a typically hawkish note in comments on Monday, and Bailey is likely to face challenging questions on persistently sticky inflation as the market continues to price around 100 bps of rate hikes to 5.50%, including a 25 bps move next week.
In the U.S., CPI data is likely to dominate market interest and factor into the Federal Open Market Committee's (FOMC) deliberations as it begins a two-day meeting.
Key developments that could influence markets on Tuesday:
UK employment data, German ZEW survey and CPI
BoE Governor Bailey testifies to House of Lords Economic Affairs Committee
ECB's Pablo Hernandez de Cos and Andrea Enria speak at separate events
U.S. CPI, FOMC begins two-day meeting
(Sonali Desai)
