US inflation data set to dominate, with energy declines raising hope of greater-than-expected fall

• FTSE 100 strengthens off the back of the weak average earnings figure.

• CAC hits record high, while Bitcoin starts to show signs of stabilizing after recent decline.

• US inflation data set to dominate, with energy declines raising hope of greater-than-expected fall.

European markets are enjoying a largely positive start to the day today, with the FTSE 100 gaining ground off the back of an eventful jobs report. Of particular note was the greater-than-expected slump in UK average earnings, with the total pay figure dropping from 8% to 7.2%. While this 0.8% decline helped raise hope that this period of wage normalization might be hastened, the fact remains that UK earnings growth remains far too high as highlighted by the fact that only Argentina has a higher wage growth figure of all G20 nations. The substantial gap between earnings (7.2%) and inflation (4.6%) does help repair some of the damage done to UK households over the past year, with sky-high inflation having driven real wages lower to the detriment of spending and savings. While the claimant count pushed up into a five-month high, we remain within ‘soft-landing’ territory that should allow the Bank of England to continue squeezing most of the above-target inflation out of the economy before pivoting towards a more dovish policy stance.

The pound has been hit hard in the wake of the UK jobs report, with the falling wage growth figure helping to lift hopes of an earlier return to monetary easing from the Bank of England next year. The CAC has followed the lead of their German counterpart, rising into a record high this morning. With markets gearing up for an increasingly dovish ECB on Thursday, traders are clearly more concerned with the timing of a rate cut over the current economic reality within the region. Bitcoin losses have eased somewhat today, following a sharp sell-off in the wake of Senator Elizabeth Warren’s bill to “crack down” on crypto markets. Coming at a time when traders are patiently waiting for the likely approval of the bitcoin ETF’s, Warren’s remarks have undermined recent confidence seen throughout crypto markets. Ultimately, the introduction of Wall Street into the crypto space brings a greater degree of legitimacy which will likely resolve with greater regulation and normalization of the asset class.

Today sees market turn their attention towards the US inflation situation, with bulls hoping that a continuation of the wider disinflationary trend will continue to push equity markets higher. With the Dow, S&P 500 and Nasdaq all hitting a fresh 11-month high this week, the perception within markets clearly remains geared towards the optimism of the expected return to easing over the risk of a hawkish repricing if the Fed Dot plot highlights a less optimistic outlook in relation to 2024 rate cuts. The expectations of a 0.1% drop in headline inflation could cause concern for some over the pace of disinflation going forward, but there is hope that the sharp declines in energy markets could provide a drag on headline CPI given the -0.5% slump in eurozone inflation for November.