FTSE dips as ECB decision looms and Middle East tensions rise

London stocks took a sombre turn at the opening of Thursday’s trading session, as market participants await the European Central Bank’s (ECB) interest rate verdict and scrutinise escalating tensions in the Middle East.

The FTSE 100 index dipped by 0.7%, shedding 50.64 points to open at 7,363.70. Its counterpart, the FTSE 250, followed suit, down by 0.4% or 72.15 points, landing at 16,798.56. The AIM All-Share index saw a 0.3% decrease, dropping by 1.76 points to 672.06.

The ECB’s interest rate decision, scheduled for 13:15 GMT, has investors waiting on the sidelines. ECB President Christine Lagarde is set to address the press just 30 minutes later. Market sentiment indicates an expectation that the central bank will maintain current interest rates.

Lloyds Banking Group commented on the upcoming interest rate decision, “Today’s monetary announcement from the European Central Bank looks set to be uneventful. The ECB hinted at the time of its last policy update that its interest rates may have peaked.”

The ECB’s current interest rates stand at 4.50% for the main refinancing operations, 4.75% for the marginal lending facility, and 4.00% for the deposit facility. In recent times, the ECB has implemented an aggressive 450 basis point increase, beginning in July of the preceding year. Before that, interest rates had remained unchanged since 2019.

The London market has also been influenced by geopolitical developments in the Middle East. Israel reported an overnight incursion into Hamas-controlled Gaza, involving tanks and infantry, which targeted multiple locations before retreating to Israeli territory. This operation followed an announcement by Prime Minister Benjamin Netanyahu regarding preparations for a potential ground war.

In the FTSE 100, Standard Chartered bore the brunt, plummeting 10% in London and 9.8% in Hong Kong. The bank reported a 4.5% increase in operating income, reaching $4.52 billion, but saw a 54% decline in pre-tax profit to $633 million, significantly lower than the $1.41 billion consensus forecast. This drop was attributed to increased credit impairments, particularly in the Chinese commercial real estate sector, and an impairment of around $700 million related to the reduction in the carrying value of its holdings in China Bohai Bank.

Meanwhile, WPP saw a 3.3% decrease following a downward revision of its guidance. The advertising and marketing company reported a 1.8% decline in third-quarter revenue to £3.51 billion year-on-year, with a 2.3% rise like-for-like. Revenue less pass-through costs fell 5.0% to £2.84 billion and was down 0.6% like-for-like. CEO Mark Read attributed the underperformance to cautious spending trends, especially among technology clients.

Looking ahead, WPP now expects 2023 like-for-like revenue, less pass-through costs, to grow between 0.5% and 1.0%, a downgrade from the previous forecast of 1.5% to 3.0%. This adjustment stemmed from a previous reduction in growth guidance in August, moving from a range of 3% to 5%.

In the FTSE 250, Renishaw declined by 4.3%. The company reported a 27% drop in pre-tax profit to £28.0 million, coupled with a 9% decrease in revenue, which amounted to £164.5 million. Renishaw cited challenging trading conditions, particularly in the semiconductor sector, but noted positive investment trends in robotics, defence, low-emission transportation, and additive manufacturing.

Among London’s small-cap companies, Bloomsbury saw a 4.8% increase. The publisher reported an 11% rise in revenue to £136.7 million for the six months ending August 31 and a pretax profit increase to £14.0 million from £12.9 million. In response to these results, Bloomsbury raised its interim dividend to 3.70p per share, up from 1.41p.

On the AIM market, Safestyle UK took a sharp nosedive of 61%. The retailer and manufacturer of PVCu replacement windows and doors announced that it does not expect to secure additional capital injection or financing. The company had previously considered various options, including selling subsidiary businesses, and is currently in active discussions regarding the sale of some or all of its assets, though the outcome remains uncertain, as does the return to shareholders.