WAGE GROWTH TO FALL IN 2025? (0920 GMT) Several economists see so-called profit-led inflation as the main driver of the recent surge in consumer prices, as corporations increase margins by raising prices even if their costs don't grow, or grow more slowly. However, wages are still under the spotlight, as some European Central Bank officials believe their developments are likely to prolong the prevailing period of high inflation. The current German round of wage talks is particularly crucial because German wage deals are arguably the most forward-looking indicator for the euro area. Euro zone negotiated wage growth has now accelerated to 3.6% year-on-year, but German wages still lag at 2.7%, according to data compiled by UBS economists. "We now expect German negotiated wage growth to rise markedly, to 5% by the end of this year, suggesting some upside risk to our Eurozone assumption of 4%," UBS economists say. "Assuming that the one-off' inflation compensation payments' that feature in most German wage contracts currently are not prolonged when these contracts come up for renegotiation, negotiated wage growth should then decline in 2025," they add, arguing that the fiscal support for these payments is scheduled to run out at the end of 2024.
(Stefano Rebaudo)
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HOT UK INFLATION SENDS EUROPEAN SHARES LOWER (0808 GMT) European shares are in negative territory as data showed Britain consumer prices fell by less than expected in March, raising bets more interest hikes are on the way.
The pan-European STOXX 600 index is down 0.2%, with rate-sensitive real estate and technology shares down 2% and 1.3%, respectively.
London-listed blue chips are down 0.3% following the release of the UK inflation data. Money markets are fully pricing in a 25-basis point hike by the Bank of England in May.
Investors are now awaiting euro zone inflation data due at 0900 GMT for more clues on what the European Central Bank will do next after the central bank's chief economist on Tuesday backed a further interest rate increase but said its size would depend on incoming data. ASML Holdings shares fell around 2.5% as demand slowdown overshadows Q1 beat of the key supplier to computer chip makers.
(Joice Alves)
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EUROPEAN STOCKS SEEN LOWER AFTER STILL HOT UK INFLATION (0640 GMT) European futures are edging lower as investors scrutinise UK inflation data and corporate earnings. Money markets are now fully pricing in a 25-basis point hike by the Bank of England as data showed Britain now has western Europe's highest rate of consumer price inflation after it fell by less than expected in March to 10.1%, from February's 10.4%. On the corporate front, Heineken reported a steeper-than-expected decline in first-quarter beer sales, with a sharp drop in major markets Nigeria and Vietnam, but maintained its forecast for profit growth in 2023. ASML Holding , a key supplier to computer chip makers, beat expectations, as customers received its products at swift clip despite signs of weakness in end markets.
(Joice Alves)
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STERLING'S INFLATION TEST (0627 GMT)
Traders are scaling back bets on U.S. rate cuts, but
dialling up expectations for British hikes.
On Tuesday, it was bigger-than-expected pay rises that
strengthened expectations for the Bank of England to lift rates
next month and to continue doing so thereafter. Sterling rose.
Ten-year gilt yields climbed for a sixth straight
session.
On Wednesday, British inflation data is in focus.
Economists polled by Reuters see the pace of annual price
rises slowing, although it is cold comfort as they expect that
to bring CPI down only as far as an eye-watering 9.8%.
On balance, the sheer size of the Bank of England's task of
reining in inflation has been supportive for sterling, which hit
a 10-month high last week. Implied volatility in the options
market suggests traders don't expect sudden changes in the
currency's slow grind higher.
Sterling shorts are at their smallest amounts
since last March. BoE committee member Catherine Mann appears on
a climate change panel later on Wednesday.
On the continent, final CPI figures are also due and a
similar divergence in the rates outlook has the euro near
one-year highs versus the dollar.
Elsewhere, earnings are in focus with electric vehicle maker
Tesla reporting quarterly results and investors looking
for guidance on how hard car price cuts have hit margins.
Morgan Stanley also reports, although investors seem
to have already been satisfied that U.S. banking stress is not
derailing the broader sector, and are back to Fed watching.
Bond markets see rates peaking soon. Six-month Treasury
bills yield less than three-month bills ,
and the yield premium on both against the 10-year yield is its widest since the peak of the 1981 cycle.
The Fed's "beige book" of economic conditions is published
later on Wednesday and appearances are due from Chicago Fed
President Austan Goolsbee and New York Fed President John
Williams.
Key developments that could influence markets on Wednesday: Data: UK and Eurozone inflation, Fed's beige book Speakers: Fed's Goolsbee and Williams, BoE's Mann, ECB's Schnabel and De Cos Earnings: Tesla, Morgan Stanley, IBM, Alcoa
(Tom Westbrook)
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