European stocks outperform as Italy soothes bank tax nerves

London: Global stocks rose on Wednesday, with European equities outperforming as Italy soothed market nerves about a windfall tax on bank profits and Wall Street stock futures pointing to a minor gains ahead of Thursday’s US inflation data.

MSCI’s broad index of global shares was 0.2 per cent higher in European afternoon trade. Europe’s regional Stoxx 600 share index rose 0.9 per cent, with bank stocks around 1.6 per cent higher. Italy’s FTSE MIB share index gained 1.8 per cent.

The Italian government shocked markets earlier this week with an announcement of a levy on banks’ record profits from sharply higher interest rates, sending European banking shares down 3.5 per cent.

Italy said overnight, however, that the new tax would not exceed 0.1 per cent of banks’ assets, reassuring investors who had expected a charge of as much as 0.5 per cent, although questions about a global trend of bank windfall taxes remained.

“The burden-sharing of the costs and benefits from higher rates has a habit of becoming a political issue,” Deutsche Bank strategist Jim Reid said.

US markets

In the US, stock markets were on track to rise as optimism that a peak in inflation could steer the Federal Reserve towards cutting interest rates outweighed jitters about the health of the domestic banking sector.

Futures tracking the S&P 500 share index inched up 0.2 per cent while Nasdaq futures rose by the same amount, following a broad Wall Street sell-off on Tuesday after the downgrade of several lenders by Moody’s.

The dollar index, which measures the US currency against a basket of other majors, was steady.

Economists expect data on Thursday to show that the annual rate of US core inflation in July was unchanged from the previous month at 4.8 per cent, while headline inflation picked up slightly to 3.3 per cent.

Data out of China on Wednesday showed producer prices in the world’s major manufacturing hub fell for a 10th consecutive month in July. China’s consumer price index also tipped into deflation for the first time since February 2021.

The data followed disappointing trade figures out of China a day earlier.

US Treasury markets were steady on Wednesday as traders held back from making bets ahead of the US inflation release.

The rates-sensitive two-year yield added 1 basis point to 4.758 per cent.

Ten-year yields were also up 1 bp at 4.024 per cent, after falling 5 basis points overnight to as low as 3.98 per cent, a one-week trough.

Strategists at BCA warned that even though US businesses saw inflation easing, a tight labour market showed that “inflationary risks have not yet been extinguished,” meaning the Federal Reserve would remain “reluctant to meaningfully cut interest rates.” Elsewhere, oil prices scaled new peaks, with Brent crude futures touching their highest since April at $86.94 per barrel, boosted by tighter supply from Saudi Arabia and hopes China’s government will stimulate the flagging economy.

US West Texas Intermediate crude futures added 0.6 per cent to $83.48.

The gold price was unchanged at $1,924.29 per ounce.