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U.S. and European stocks fell on Tuesday as oil prices hit their highest level this year, stoking investor concerns about rising price pressures a day ahead of a much-anticipated U.S. inflation report.

At the open in New York, Wall Street’s benchmark S&P 500 fell 0.3% and the Nasdaq Composite fell 0.4%. In Europe, the Stoxx Europe 600 index across the region gave up early gains, falling 0.1%.

Focus turns to U.S. inflation data due on Wednesday, which will be the last key economic data before the Federal Reserve announces an interest rate decision next week.

Annual price growth in the world’s largest economy is expected to rise to 3.6% in August from 3.2% the previous month. The expected rise in oil prices is partly due to a steady climb in crude oil prices since mid-summer.

International benchmark Brent crude rose 1.2% to $91.76 a barrel on Tuesday, reaching its highest level since November 2022. U.S. West Texas Intermediate crude rose 1.4% to $88.54 a barrel.

“While this won’t have a major impact on next week’s Fed decision, which is widely expected to pause, it will signal hawkish risks to the Fed’s overall outlook,” said Benjamin Schroeder, senior rates strategist at ING. “

Meanwhile, British government bond yields and the pound fell on Tuesday as investors viewed a series of mixed jobs data as a sign that the labor market may be cooling.

GBP/USD fell 0.3% to $1.2467 after data showed record wage growth despite signs that the job market is softening.

The yield on the rate-sensitive two-year Treasury note fell 0.05 percentage point to 5.03%, and the yield on the 10-year Treasury note fell by a similar amount to 4.43%. Bond yields are inversely related to prices.

In the three months to July, the UK unemployment rate rose to 4.3%, higher than the Bank of England’s third quarter forecast. However, annual pay growth was 7.8% in the three months to July, the highest rate recorded since 2001.

Alice Haine, personal finance analyst at investment platform Bestinvest, said: “With unemployment rising and job vacancies continuing to fall, the UK job market is likely to ease further as companies reconsider expansion and hiring plans.”

However, the pace of wage growth has helped most market participants believe the Bank of England will raise interest rates, already at 15-year highs, by another quarter of a percentage point to 5.5% next week.

“The signal from the labor market is simply too strong to justify a pause in interest rate increases,” said Hugh Kimber, global market strategist at J.P. Morgan Asset Management. “This morning’s data makes it highly likely that the UK will raise interest rates again next week, despite some recent weaker growth data.”

The jobs data comes a day after Catherine Mann, one of the Bank’s more hawkish policymakers, said she would “rather overtightening” as price pressures remain well above the BoE’s target.

Asian stock markets were mixed, with Hong Kong’s Hang Seng Index down 0.4%, China’s CSI 300 Index down 0.2%, and Japan’s Topix Index up 0.8%.

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