European shares edged higher on Thursday as investors exercised caution in anticipation of the European Central Bank’s forthcoming rate decision, where a tenth consecutive interest rate hike is expected.
Markets are currently pricing in a 65% likelihood of a 25-basis-point increase, potentially pushing Europe’s key interest rate to a historic peak. This probability has risen from around 40% earlier in the week.
Analysts and investors had been leaning toward a pause in the ECB’s rate hike cycle until Tuesday when Reuters reported that the central bank was likely to revise its inflation forecast for the upcoming year to exceed 3%.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, commented on the prevailing sentiment, saying, “The morose economic outlook brings investors to think that even if the ECB hikes today, it will certainly be the last one, and that in less than a year from now, we will be talking about the first rate cut in Europe due to economic weakness.”
European Equities Exhibit Modest Gains
As of 08:05 GMT, the pan-European STOXX 600 recorded a marginal 0.1% increase, benefiting from strength in healthcare and commodity-linked stocks.
The energy index gained 1%, mirroring the recovery in crude oil prices, while miners advanced by 1.7% on the back of firmer metal markets.
Finnish oil refiner and biofuels producer Neste saw a 3.1% rise following a stock rating upgrade to “buy” by Goldman Sachs.
Concerns Over EU-China Economic and Trade Relations
The European Commission’s ongoing investigation into Chinese electric vehicles suspected of benefiting from state subsidies has prompted a warning from China’s commerce ministry. They stated that such an investigation would have a “negative” impact on economic and trade ties between the EU and China.
In terms of sectoral performance, the STOXX Europe 600 auto index recorded a decline of 1.1%, with prominent German automakers such as Mercedes, BMW, and Volkswagen, along with France’s Renault, falling between 1.1% and 1.9%.
Deliveroo Gains Amidst Takeover Speculation
Shares of Deliveroo saw a notable 5.5% increase after activist-investor Sachem Capital stated in a report that it believes the food delivery company could become a takeover target.
THG Faces Slump in Revenue Outlook
British e-commerce firm THG faced a significant setback as its shares slumped by nearly 16%. The company projected that its annual revenue from continuing operations could either remain flat or decrease by up to 5%.
