With the exception of a few stand-out stocks, markets got into a risk-off mood on Thursday, ahead of an interest rate decision by the European Central Bank and amid continued concern about Russian gas supplies to Europe.
The collapse of the Italian ruling coalition led by respected technocrat Mario Draghi means a second European government will have new leadership come autumn. In the UK, the next leader of the Tory party, and therefore prime minister, will be announced on September 5.
In London, the FTSE 100 was down 35.40 points, or 0.5%, at 7,228.91 midday Thursday.
The FTSE 250 index rose 219.54 points, or 1.1%, at 19,619.38. The AIM All-Share index added 1.76 points, or 0.2%, at 898.54.
The mid-cap index outperformed London’s large-cap measure thanks in part to a more than 20% share price hike for Sports Direct-owner Frasers Group.
The Cboe UK 100 index was down 0.5% at 720.95. The Cboe 250 was up 1.0% at 17,081.60, and the Cboe Small Companies was up 0.4% at 13,499.70.
In mainland Europe, the DAX 40 index in Frankfurt was down 0.3%, though the CAC 40 in Paris was up 0.4%.
The French benchmark got a boost from advertising firm Publicis, which was trading 4.5% higher after posting a 19% climb in first-half revenue to a record €6.55 billion.
Elsewhere, the market was on ‘tenterhooks’ ahead of the European Central Bank’s interest rate decision at 1315 BST, Ebury analyst Matthew Ryan commented.
‘Headline inflation in the Eurozone has continued to far exceed expectations, and has shown no signs yet of easing, rising to 8.6% in June,’ Ryan said. ‘This could encourage policymakers to front-load the pace of tightening, particularly given the inflationary implications stemming from a weaker euro.’
The euro stood at $1.0184 ahead of the policy decision, up from $1.0202 at the European equities close on Wednesday. A week earlier, the single currency bought just $1.0036.
The central bank previously had said it will hike interest rates for the first time since 2011 this meeting, tipping a 25-point rise off historic lows.
Also of market interest, the ECB is expected to update on its anti-fragmentation tool, designed to limit the government bond yield spreads among member states.
The ECB reports amid a worrying backdrop of European energy supply restrictions and political jockeying in Italy.
Energy worries calmed somewhat on Thursday after flows of Russian gas via the Nord Stream pipeline restarted as planned on Thursday.
In Italy, former ECB president Draghi resigned as prime minister after efforts to bring the country’s fractious parties to heel failed, kicking off a snap election campaign that could bring the hard right to power.
The internationally respected 74-year-old formally handed his resignation to President Sergio Mattarella, whose role it is to now guide the country out of the crisis.
Mattarella is likely to dissolve parliament and call early elections for September or October, according to political analysts. Draghi may stay on as head of the government until then.
Based on current polls, a rightist alliance led by Giorgia Meloni’s post-fascist Brothers of Italy party would comfortably win a snap election.
Milan’s MIB 40 index was 1.4% lower around midday London time.
Against the yen, the dollar was trading at JP¥138.68 midday Thursday UK time, up from JP¥138.05 late Wednesday. The pound was quoted at $1.1963, down from $1.1988 Wednesday.
Brent prices fell. A barrel of the North Sea benchmark fetched $101.60 midday Thursday, down from $107.06 late Wednesday. Gold stood at $1,682.57 an ounce, down from $1,707.88. Gold was trading around its weakest level since March 2021.
In London, Sports Direct-owner Frasers rose 21% as it said annual profit surged, despite the ‘well-chronicled challenges’ hitting the retail sector.
In the year that ended April 24, revenue rose 31% to £4.75 billion from £3.63 billion. Frasers said this was largely due to the reopening of its stores after Covid-19 restrictions were lifted in March last year. Pretax profit jumped to £366.1 million from £8.5 million.
FTSE 100-listed JD Sports added 3.4% in a positive read-across.
Price comparison site operator Moneysupermarket was the next best FTSE 250 performer after Frasers, rising 12%.
It said revenue in the first half of 2022 climbed 19% to £193.2 million. Pretax profit was 14% higher at £42.1 million.
Among the next best mid-cap performers were Dunelm and IG Group.
Home furnishings retailer Dunelm added 4.9% as it said annual sales increased and profit has beaten market forecasts.
Contracts-for-difference trading platform IG hailed a record annual performance and announced the start of its £150 million share buyback programme. Shares rose 6.5%.
Elsewhere in London, shares in advertising agency S4 Capital plunged 42%, its fortunes contrasting with those of larger Paris-listed peer Publicis.
S4 now targets annual earnings before interest, tax, depreciation and amortisation of £120 million, below the current analyst forecast range of £154 million to £165 million.
For the six months to June, the Martin Sorrell-led ad agency said like-for-like revenue and gross profit/net revenue growth was in line with a full-year run rate expectation of 25%.
However, ‘it is clear’ its Ebitda and its Ebitda margin will be below expectations in the first half.
‘Continued significant investment in hiring and consequent expansion of the company’s cost base, particularly in the Content practice, have had a negative impact on first half Ebitda and Ebitda margin,’ S4 explained.
eve Sleep fell 8.2%. The mattress retailer said sales orders dropped 19% annually in the first half, with revenue down 17%. eve Sleep, however, noted data suggested the wider market suffered an even-worse 30% drop.
eve Sleep noted industry promotional activity has hit margins, though it said it will reap the rewards of recent cost-savings measures in the fourth quarter. Overheads then will be 30% lower than they were at the start of the year.
Stocks in New York were set for a mixed open. The Dow Jones Industrial Average was pointed 0.1% lower, the S&P 500 flat and the Nasdaq Composite up 0.2%.
Aside from the ECB decision, the global economic calendar has the latest US jobless claims numbers at 1330 BST.
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