Must read: ECB interest rate decision, AB Foods

ECB DECISION

The European Central Bank (ECB) is expected to keep interest rate unchanged at its meeting on Thursday 11 September, possibly refraining from any further cuts this year too. The central bank has already reduced rates eight times over the current cycle. Inflation data published this week ticked up above forecasts to 2.1% in August, the first reading above the 2% target since April, supporting the view that the ECB is at or close to the end of the current loosening cycle.

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The Eurozone economy is proving to be quite resilient thanks to monetary accommodation, government spending and record low unemployment. There have been particular pockets of outperformance like Spain which has benefitted from tourism, immigration, green energy investments and Next Generation EU pandemic assistance funds to support growth.

However, the Eurozone’s largest economy Germany is in recessionary territory, although the government’s 1 trillion euro investment plan on infrastructure and defence is likely to provide support down the line. Elsewhere, there are significant headwinds from Trump’s tariff uncertainty, a strong euro, and political turmoil in France going into Prime Minister Bayrou’s confidence vote on Monday.

ASSOCIATED BRITISH FOODS

Richard Hunter, Head of Markets, interactive investor says, “A trading statement on Wednesday 10 September may need Associated British Foods (LSE:ABF) to defend itself on two fronts, with a difficult start to the year already coming to light at its Primark and Sugar businesses. The shares have managed a gain of 7% so far this year, but over the last 12 months a decline of 12% has been more reflective of its issues.

The Sugar division accounts for around 11% of group sales, where lower European sugar prices and a loss at its UK bioethanol business, Vivergo, previously helped drop group-wide adjusted operating profit by 12% compared with a year ago to £835 million. Ongoing low sugar prices in Europe and the impact of US trade tariffs are now expected to cause an annual loss of £40 million for the Sugar business versus previous estimates of profit up to £75 million.

Meanwhile, Primark is still the jewel in the group’s crown and accounts for around half of overall revenues. However, growth has been slowing and will be coming up against some tough comparatives as the year progresses. In addition, cautious consumer sentiment is already beginning to weigh on prospects, as had largely been predicted following the measures announced in the Budget which were seen as being particularly harmful to the retail sector.

The sector itself is famously competitive, and Primark now lines up against the likes of Chinese players such as Shein and Temu, while its online offering is still far behind that of Next. That being said, AB Foods is estimating that the continued rollout of stores will further boost sales growth, mitigating the damage already caused by weaker autumn trading last year.

Although the US business is still in its fledgling stage, accounting for 5% of group revenues, the potential for growth is evident as the group focuses on investment and marketing to lift brand awareness in what could be a major opportunity.