European stock markets tumbled into the red on Tuesday as new data revealed that UK workers have suffered their biggest pay squeeze in eight years.
The Russia-Ukraine war, tightening global monetary policy and a brutal sell-off in China were all weighing on sentiment.
According to the Office for National Statistics (ONS), real regular pay dropped by 1% in the three months to January, the biggest fall since 2014.
However, unemployment fell to a post-pandemic low, from 4.1% to 3.9% during the period. Some 275,000 jobs were added to the UK economy in February, a far bigger figure than expected by economists.
Vacancies also rose to a new record of 1.3 million in the three months to February — a 105,000 jump on the previous quarter.
The jobs data paves the way for the Bank of England (BoE) to increase interest rates on Thursday for a third time since the start of the pandemic.
Watch: How does inflation affect interest rates?
“The Monetary Policy Committee's worry will be that a tight jobs market risks inflationary second-round effects, as workers seek to offset cost of living pressures by asking for higher wages,” Martin Beck, chief economic advisor to the EY ITEM Club, said.
"This means it's now even likelier that the committee will raise interest rates on Thursday. But the extent to which strong demand for workers is feeding into pay growth is still not clear."
Falling oil prices helped lift the mood on Wall Street, with the S&P 500 (^GSPC) rising 1.6% and the tech-heavy Nasdaq (^IXIC) up 2.2%. The Dow Jones (^DJI) was nearly 1.4% higher at the time of the European close.
Almost every sector pushed higher on Tuesday, with travel stocks, banks and financial services companies, consumer goods and services firms, and technology firms rallying.
Airline shares also flew after US carriers raised their sales forecasts despite the recent surge in oil, and the Ukraine war.
As well as the current conflict, there is a focus on the first US interest rate rise in three years, which could come as soon as this week.
Richard Hunter, head of markets at Interactive Investor, said: "The imminent Federal Reserve rate decision is expected to result in a hike, and interest rate sensitive stocks such as those within the tech sector have felt the force of selling pressure in the run up to the decision.
"Not only does this directly impact the tech-heavy Nasdaq index, but there is also a negative effect on the wider S&P 500, which has a large exposure to tech. In the year to date, the Nasdaq has now fallen by 20% and the S&P 500 by 12.5%."
Asian stocks were largely in the red on Tuesday as surging COVID cases in China hit investor confidence. Chinese authorities locked down the entire region of Shenzhen indefinitely amid rising Omicron infections.
In Japan, the Nikkei (^N225) climbed 0.2% while other key markets lagged. The Hang Seng (^HSI) fell 5.7% in Hong Kong, after hitting a six-year low on Monday, while the Shanghai Composite (000001.SS) dipped 5%.
February retail sales in China, which cover the period from the start of January and over Chinese New Year, showed a better-than-expected rise of 6.7% and were a significant improvement from December.
Industrial production also beat expectations of an increase of 4%, rising by 7.5%, while fixed asset investment rose by 12.2%.
“These numbers meant that the PBoC decided to keep rates on hold this morning, however given the recent lockdowns the next few months could be challenging, as could the Chinese government’s target of 5.5% GDP growth,” Michael Hewson of CMC Markets said.
Meanwhile, traders also have their eyes fixed on Russia, which faces a $117m (£89.8m) debt repayment on Wednesday. Last night, Moscow said it has started the payment process, however, it has not been confirmed if the payment is in US dollars or Russian roubles.
As Russia’s foreign exchange reserves remain frozen, it may not be able to make the dollar payments, which was the currency they were issued in, meaning it could default.