central bank decisions in focus

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

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.”

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 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.

France’s CAC 40 gained 0.73% as Germany’s DAX rose 0.55% and the U.K.’s FTSE 100 traded 0.22% higher.

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

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.

CNBC Pro subscribers can read more here.

— Ganesh Rao

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.

CNBC Pro subscribers can read more here.

— Weizhen Tan

European markets are expected to open higher Tuesday as investors prepare for key central bank meetings in the U.S. and Europe.

The U.K.’s FTSE 100 index is expected to open 21 points higher at 7,584, Germany’s DAX 99 points higher at 16,179, France’s CAC 32 points higher at 7,281 and Italy’s FTSE MIB 127 points higher at 27,527, according to data from IG.

Data releases in focus in Europe today include Germany’s final inflation figure for May.

— Holly Ellyatt