European stocks saw a slight increase on Tuesday, with the pan-European Stoxx 600 index trading 0.2% higher. Despite earlier losses, the index managed to erase them as utilities rose 0.8% to lead the gains, while mining stocks slipped 0.7%. The mixed performance comes after European stocks closed in a similar fashion on Monday, with the focus shifting towards upcoming U.S. and U.K. inflation data.
Data released by the Office for National Statistics showed that pay excluding bonuses in the U.K. grew by 5.4% year-on-year, marking the lowest rate in two years. The unemployment rate also fell to 4.2% from 4.4%, a surprise given economists’ expectation of an increase to 4.5%. Jack Kennedy, a senior economist at jobs site Indeed, pointed out that while the labor market remains “fairly tight,” wage pressures are softening gradually, potentially limiting the scope for monetary easing by the Bank of England this year.
Market participants are eagerly awaiting U.K. inflation data, expected to be released on Wednesday. This print will be the first since the Bank of England cut interest rates by 25 basis points, following two months at 2%. Economists are forecasting an increase in the headline rate to 2.3%, while money markets are pricing in further rate cuts totaling 50 basis points this year. The current key rate set by the Bank of England stands at 5%.
Following the release of the U.K. labor market data, the British pound traded higher against the U.S. dollar, marking a 0.4% increase at $1.2817. Investors globally are closely monitoring the latest U.S. inflation data as well, in order to gauge the health of the world’s largest economy. The recent U.S. producer price index data, which showed a lower-than-expected 0.1% rise in July, is likely to pave the way for the Federal Reserve to consider further interest rate cuts. U.S. stocks responded positively to the news, with attention now turning to the consumer price index data scheduled for release on Wednesday.
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