Europe open: Stocks up as China cuts short-term rates; eyes on US CPI

European stcoks opened higher on Tuesday, continuing their rally as China cut a short-term lending rate, suggesting more easing could be on the way, and investors eyed US CPI data later in the day.

The pan-regional Stoxx 600 index was up 0.48% in early deals with major bourses all higher. Germany's DAX was up 0.65% as official data confirmed a cooling of the inflation rate to 6.1% in May from 7.2% in April.

In the UK, the unemployment rate was a touch lower than expected in three months to April, while wage growth strengthened, according to figures released on Tuesday by the Office for National Statistics, putting pressure on the Bank of England to keep raising interest rates.

Regular pay excluding bonuses grew 7.2% in February to April, up from 6.8% in the previous three months and ahead of expectations for 6.9% growth. This marked the largest growth rate seen outside of the Covid pandemic.

Meanwhile, the unemployment rate came in at 3.8%, up from 3.7% in the previous quarter but down on the 3.9% reported a month earlier and below expectations of 4.0%.

In China, the central bank cut a key short-term policy rate as it an economy stalling after the reopening from the Covid-19 pandemic failed to maintain momentum.

The bank cut its seven-day reverse repurchase rate by 10 basis points to 1.9% from 2% and injected 2 billion Chinese yuan ($280m) through its seven-day repos.

It is the central bank’s first such move since August and follows the nation’s largest banks cutting deposit rates last week.

‘’Higher than expected wage growth will help households struggling with the cost-of-living crisis but the latest labour market trends risk adding fuel to inflationary fires and are set to make the Bank of England more determined to raise interest rates to put out the flames, said Susannah Streeter at Hargreaves Lansdown.

" China’s latest stimulus measures are aimed at reducing borrowing costs and adding liquidity into an economy which has stumbled in its recovery. The People’s Bank of China’s move to cut its 7-day reverse repurchase comes amid data indicating that consumer price growth is losing steam faster than expected and producer prices are going further into reverse as demand drops off."

In equity news, UK insurer Admiral tanked after Citi downgraded its stance on the shares to ‘sell’, saying that a ‘deep dive’ into industry loss ratio trends had suggested that consensus estimates for the group are currently an outlier.