European shares edge higher ahead of ECB rate decision

European shares inched higher on Thursday, with investors cautious ahead of the European Central Bank’s rate decision where it is likely to raise interest rates for a tenth consecutive time.

Markets are now pricing in a 65% chance of a 25-basis-point hike that could take Europe’s key interest rate to a record peak, up from around a 40% chance on Monday.

Analysts and investors had been leaning towards a pause in the ECB’s rate hike until Reuters reported on Tuesday that the central bank was set to raise its forecast for inflation next year to more than 3%.

“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,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The pan-European STOXX 600 inched 0.1% higher by 0805 GMT, supported by healthcare and commodity-linked stocks.

The energy index gained 1%, tracking a recovery in crude prices, while miners added 1.7% on firmer metal markets.

Neste climbed 3.1% as Goldman Sachs (NYSE:GS) raised the Finnish oil refiner and biofuels producer’s stock rating to “buy”.

A European Commission investigation into Chinese electric vehicles believed to have benefited from state subsidies will have a “negative” impact on economic and trade ties, China’s commerce ministry warned.

Leading sectoral losses, the STOXX Europe 600 auto index declined 1.1%, with Germany’s Mercedes, BMW and Volkswagen (ETR:VOWG_p) and France’s Renault (EPA:RENA) falling between 1.1% and 1.9%.

Shares of Deliveroo rose 5.5% after activist-investor Sachem Capital said in a report that it believes the food delivery company could become a takeover target.

THG (LON:THG) slumped nearly 16% after the British e-commerce firm forecast its annual revenue from continuing operations to come in flat or drop up to 5%.