Soaring German wages fuel worries about ECB rate cut

Good morning. Japan’s Prime Minister Fumio Kishida has just announced that he will step down next month. We have more on this morning’s breaking story below, as well as in-depth reads about the EU’s dispute with Elon Musk and Starbucks’s new chief executive.

But first we turn to Europe, where rising wages in Germany are raising questions about September’s expected Eurozone interest rate cuts.

Negotiated wages in the Eurozone’s largest economy are expected to shoot up by 5.6 per cent in 2024, based on deals agreed between January and June, the fastest pay increase since 2000. Although the rises are far in excess of rate-setters’ overall 2 per cent inflation goal, policymakers in Frankfurt have baked “elevated” pay growth into their forecasts.

The European Central Bank’s calm in the face of higher pay pressure comes from a belief that workers are still “catching up” after their purchasing power was eroded by inflation. Even with this year’s 5.6 per cent pay rise factored in, only half of German workers’ losses between 2021 and 2023 have been compensated. Here’s why some economists do not share the ECB’s confidence.

And here’s what else I’m keeping tabs on today:

• Economic data: The UK, US and France release consumer price indices for July, while the EU publishes figures for employment, industrial production and its second-quarter GDP.

• Sudan war: US-mediated ceasefire talks between the Sudanese army and the paramilitary Rapid Support Forces begin in Switzerland.

• Abbas in Turkey: The Palestinian Authority’s president will meet Recep Tayyip Erdoğan in Ankara before delivering a speech to parliament tomorrow.

• Results: Aviva, Balfour Beatty, Cisco, Tui and UBS report.

Robert Armstrong of Unhedged and other FT experts from London to Tokyo will break down the recent trading turmoil in a subscriber-only webinar at 12pm BST today. Register here.

Five more top stories

1. Joe Biden said he does not expect Iran to attack Israel if a ceasefire deal for Gaza is reached. Washington has been preparing for Tehran or its proxies to retaliate against Israel this week for the assassinations of Hamas and Hizbollah leaders, and has sent additional warships and fighter jets to help Israel fend off an attack. Here’s the latest ahead of ceasefire talks tomorrow.

2. Japan’s Prime Minister Fumio Kishida is set to step down after announcing he would not seek re-election in a contest next month to lead the ruling Liberal Democratic party. His decision this morning ends a three-year premiership and months of speculation over his ability to survive following a political funding scandal and rising living costs. Read the full story.

3. A planned £450mn investment by AstraZeneca in a UK vaccine plant is now in doubt after the Treasury sought to cut the amount of state aid available for the project. Insiders say the government is looking to reduce the amount of aid by more than £20mn, raising fears that the pharma group could pull the plug and possibly relocate the project to France.

4. Ukrainian forces sought to solidify their gains in newly seized Russian territory yesterday after capturing hundreds of Russian soldiers. Kyiv’s shock offensive has swiftly gained significant ground in the Kursk region, embarrassing Vladimir Putin and lifting Ukrainian morale. Here are the latest updates on the war.

5. A reshuffle at JPMorgan Chase has sparked a number of high-profile departures of executives close to its president, Daniel Pinto. Chief executive Jamie Dimon passed over three of Pinto’s protégés for top jobs, people familiar with the matter said, dismantling his power base and feeding speculation about Pinto’s own future at the Wall Street bank.

News in-depth

Just hours before Elon Musk’s interview with Donald Trump on X yesterday, the EU’s internal market commissioner issued a threat against “illegal content” on the platform owned by the incendiary billionaire. Quickly disowned by Brussels, Thierry Breton’s intervention has stoked tensions that have already been bubbling since the bloc’s first-of-its-kind investigation into the social media company — and sharpened concerns in Europe at a time where disinformation and deepfakes have helped to fuel political discord.

We’re also reading . . . 

• Starbucks: Can Brian Niccol bring the winning ingredients that pushed Chipotle’s stock price up by 800 per cent to his new job leading the world’s biggest coffee chain?

• Iran’s Olympians: When they embraced in Paris, two Iranian athletes — one who left the country, and one who stayed — highlighted the dilemma facing Iranian youth, writes Najmeh Bozorgmehr.

• SEC: Hedge funds and buyout firms are launching a wave of legal challenges against the US regulator’s authority as it seeks to force greater transparency on the sector.

• Water on Mars: Evidence of an underground reservoir has presented scientists with the unearthly challenge of looking for life on the Red Planet, writes Anjana Ahuja.

Chart of the day

Tech giants are poised to become some of the biggest energy users of the future as they race to develop power-hungry artificial intelligence, potentially threatening their commitments to net zero. Ahead of that, they are working behind the scenes to shape a once-in-a-decade rewrite of the rules governing how pollution from power use is disclosed.

Take a break from the news

Adèle Rosenfeld’s striking debut novel explores what it is like to live with an invisible disability, writes Lucy Popescu. Threading philosophical and medical reflections through the narrative, Rosenfeld’s Jellyfish Have No Ears is a profound, sometimes playful, meditation on deafness and the impact sensory loss has on human relationships.

Additional contributions from Harvey Nriapia and Benjamin Wilhelm