12 July 2023
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UK wage growth raises interest rate expectations

By Daniel Richards

Labour market data out of the UK yesterday have raised bets on further tightening from the Bank of England in the coming months, helping drive mortgage rates to 15-year highs. Weekly earnings excluding bonuses rose at an equal record of 7.3% y/y in the three months to May, in line with the upwardly revised reading from April and higher than the predicted 7.1%. Private sector pay was up 7.7% y/y, the highest level outside of the pandemic period, while public sector wages lagged with a 5.8% gain. On the other hand, the headline unemployment rate ticked up to 4.0%, from 3.8% previously.

Egypt has announced it has signed deals worth USD 1.9bn for the sale of some of its state assets, as the privatisation programme gets off to a somewhat delayed start. The deals included USD 700mn in real estate developer Talaat Moustafa, and a total USD 800mn spread across minority stakes in National Drilling, Egyptian Ethylene and Derivatives Company, and Egyptian Linear Alkyl Benzene to ADQ. The USD 1.9bn is only just short of the USD 2bn the government had earlier said it would achieve in sales before the end of June, and USD 1.65bn will be paid in foreign currency according to Prime Minister Mostafa Madbouly which will go some way to alleviate the pressures on the external accounts. The PM also said that a further USD 1bn in deals would be announced soon.

Germany’s ZEW surveys came in mixed for July, with the expectations component missing projections while the current situation was moderately better than expected. Neither reading was especially good, however, with the German economy already in recession and still under significant pressure. The expectations reading was -14.7, missing the projected -10.6 and down from -8.5in May, while the current situation was -59.5. This was better than the projected -62.0 but still weaker than May’s -56.5. Respondents to the survey cited concerns around rising interest rates and weak demand from China, one of Germany’s key export markets.

The UAE has committed to a new emissions target of a 40% drop from business-as-usual levels by 2030. That represents an increase from the earlier target of a 30% reduction which itself was an increase from the intial target of a 23.5% reduction set out in the UAE's second nationally determined contribution (NDC). The announcement follows the release earlier this month of a new energy strategy for the UAE which aims to triple the contribution of renewable energy in the country's energy mix by 2030.

Today’s Economic Data and Events

  • 16:00 India industrial production, % m/m, May. Forecast: 5.0%
  • 16:30 US CPI inflation, % y/y, June. Forecast: 3.1%
  • 18:00 Bank of Canada rate decision. Forecast: 5.0%

Fixed Income

  • US Treasuries closed weaker overnight ahead of the release of today’s CPI print for June. Yields on the 2yr UST closed higher by almost 2bps at 4.8726% while the 10yr managed to pull slightly stronger with yields down 2bps at 3.97%. Benchmark European bonds closed weaker with 10yr bund yields up by 1bp to 2.643% and gilt yields adding 2bps to 4.655%.
  • High-yield and emerging market bonds rallied overnight with a broad USD-index of EM debt adding 0.4%. Egypt’s 10yr USD bonds rallied on the news that the government had signed investment deals of up to USD 1.9bn and was preparing another USD 1bn in sales of government assets.
  • Abu Dhabi Commercial Bank priced a USD 500m 5yr at T+120 according to press reports.


  • The dollar extended its losses against peers overnight with the broad DXY index down 0.2%. EURUSD managed to gain only less than 0.1% to 1.1009 while much of the losses for the dollar came from USDJPY which fell by 0.7% to 140.36, capping four days in a row of gains for the JPY, its longest rally since the end of May. GBPUSD also rallied up 0.6% to 1.2933.
  • Commodity currencies closed more mixed. USDCAD fell by 0.4% ahead of today’s Bank of Canada meeting where the BoC is expected to hike another 25bps to take policy rates up to 5%. AUDUSD also managed to rally, up by 0.2% to 0.6686 while NZDUSD dropped by 0.2% to 0.6199. The RBNZ kept rates unchanged at is policy meeting earlier today with the official cash rate at 5.5%. According to the bank’s statement they were confident that elevated rates would allow CPI to get close to target levels.


  • East Asian equity markets got the trading day started on the front foot as reports of potential stimulus measures to come in China boosted sentiment. The Hand Seng closed up 0.3% while on the mainland the Shanghai Composite added 0.6%. Japanese markets were more subdued as the Nikkei closed up by less than a basis point, while the Topix lost 0.3%.
  • In Europe, the strong wage growth data from the UK weighed on the FTSE 100 and the index ended the day up just 0.1% after being in the red through much of the day. Sentiment was somewhat more positive on the continent and Germany’s DAX closed 1.1% higher despite the disappointing ZEW survey results.
  • In the US, NASDAQ, the S&P 500, and the Dow Jones gained 0.6%, 0.7%, and 0.9% respectively.
  • Locally, the DFM closed up 0.2% and the ADX 0.1%.


  • Oil prices rallied strongly overnight with Brent futures up 2.2% at USD 79.40/b and WTI gaining by 2.5% to USD 74.38/b. Markets are now likely pricing in a tightening of oil market balances in Q3 as Saudi Arabia’s additional cuts take effects and there are market reports of a considerable drop in Russia’s exports.
  • The EIA lowered their global oil supply growth forecast for 2023 and nudge their demand expectations, resulting in a forecast of an inventory draw similar to forecasts from the IEA and OPEC.
  • The API reported a build in US crude stocks of 3m bbl last week along with gains in gasoline and distillate inventories.


Written By

Daniel Richards Senior Economist

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