The European Central Bank was expected to hike interest rates aggressively for the second time in a row on Thursday, as it balances the need to control rampant inflation against the threat to the European economy from restricted energy supplies.

Markets were effectively on hold ahead of the announcement.

‘For years, central bank interest rate decisions used to be background noise, with investors confident that rates would stay low. This year they’ve become must-watch events, with every word studied by the market,’ said Russ Mould, investment director at AJ Bell.

The central bank announces its latest monetary policy decision at 1315 BST on Thursday. This will be followed by a press conference with ECB President Christine Lagarde at 1345 BST.

In July, the ECB raised interest rates for the first time in 11 years, by half a percentage point, but high inflation has prompted calls for more drastic action.

Swissquote Bank analyst Ipek Ozkardeskaya explained there were two camps when it comes to the expected ECB decision.

‘The 75 [basis point]-hike camp believes that the ECB should hike the rates relatively faster to tame the surging inflation in the [eurozone]. The 50bp-hike camp argues that a 75bp hike is too much for an economy that faces a terrible recession - amid the worsening energy crisis,’ she said.

The FTSE 100 index was up 15.00 points, or 0.2%, at 7,252.75 midday Thursday. The mid-cap FTSE 250 index was down just 4.56 points, at 18,807.38. The AIM All-Share index was up 1.21 points, or 0.1%, at 867.18.

The Cboe UK 100 index was flat at 724.54. The Cboe 250 was down 0.3% at 16,170.17, and the Cboe Small Companies was flat at 12,718.05.

Sterling was quoted at $1.1514 midday Thursday, up from $1.1469 at the London equities close on Wednesday.

In mainland Europe, the CAC 40 in Paris was up 0.4% and the DAX 40 in Frankfurt was 0.3% lower.

The euro traded at $1.0012 midday Thursday, higher than $0.9945 late Wednesday. Against the yen, the dollar was quoted at JP¥143.72, down from JP¥144.45.

In London, Associated British Foods was the worst blue-chip performer in midday trade, down 8.8% after warning of a potential profit drop in the coming financial year, owing to a hike in costs for Primark.

‘Primark has already been managing the challenges of supply chain disruption, inflation in raw material and energy costs, and in labour rates, alongside the higher purchasing costs which have resulted from the strengthening of the US dollar over this financial year against sterling and the euro,’ AB Foods explained.

‘To mitigate these pressures, in addition to the price increases mentioned above, there are also plans to improve store labour efficiency and deliver lower operating costs,’ the company added.

For the 52 weeks ending September 17, its current financial year, the AB Foods said its outlook remains unchanged, with revenue expected to be ‘well ahead’ of the £13.88 billion reported for the year before.

Clothing and homewares retailer Next was down 3.6% in a negative read-across.

Asos was 4.4% around midday as the online clothing retailer saw its rating cut to ‘hold’ from ‘buy’ by Jefferies.

In the FTSE 250, Darktrace remained the worst performer, down 31%, after the cyber security company confirmed that private equity firm Thoma Bravo would not being going forward with a takeover offer.

The termination of acquisition discussions overshadowed a robust set of full-year results for Darktrace.

In the financial year that ended on June 30, the Cambridge-based company swung to a pretax profit of $5.3 million from a loss of $143.9 million the previous year.

Revenue jumped by 46% to $415.5 million from $285.1 million.

As a result of the strong performance, Darktrace said it expects revenue growth between 30% and 33%, up from previous expectations of between 29% and 32%, for the new financial year.

Retail investment platform provider AJ Bell fell 10% after Jefferies cut its rating to ‘underperform’ from ‘hold’.

ITV was also hurt by a rating downgrade, falling 2.9%. The television broadcaster and programme producer was cut to ‘underweight’ from ‘equal-weight’ by Morgan Stanley.

Genus soared 14% in midday trade as hopes of improving pig prices in China offset a fall in full-year profit for investors.

Revenue in the financial year ended June 30 rose 3.3% to £593.4 million from £574.3 million the year before. However, pretax profit for the year fell 13% to £48.4 million from £55.8 million.

The Basingstoke, Hampshire-based producer of biotechnology products for cattle and pig farmers said its results were hit by PIC China, its porcine sales business in the region.

PIC China saw challenging market conditions in the year, with China pig prices averaging RMB14.6 per kilo, down 50% on the year before. Positively, however, these prices have now recovered to over RMB21 per kilo, exceeding the cost of production for most producers.

This is ‘improving confidence that the country’s porcine industry is on the path to recovery and profitability,’ said Chief Executive Stephen Wilson.

In the small-caps, SIG was up 3.9%.

The Sheffield-based insulation, roofing, and construction products supplier named Grafton Group’s Gavin Slark as its new chief executive

Current CEO Steve Francis plans to step down after three years but will remain in the role until Slark takes over on February 1.

Slark has been CEO of Dublin-based building materials firm Grafton for 11 years. He will step down from his role there on December 31.

Looking ahead to the open on Wall Street, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all were seen opening flat.

Brent oil was trading at $87.89 a barrel midday Thursday, down from $89.34 late Wednesday. Gold was quoted at $1,721.82 an ounce, up against $1,711.32.

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Issue Date: 08 Sep 2022