LONDON: European stock markets displayed a bearish trend on Tuesday, primarily driven by Italian banks facing pressure due to the approval of a 40% windfall tax on lenders by the Italian cabinet. Concerns over the health of the US banking sector also contributed to the negative sentiment, while the US dollar continued to benefit from speculation of another interest rate hike. Additionally, oil prices retreated following weak Chinese data.
Share prices of Italian banks, including Intesa Sanpaolo, Unicredit, and Monte dei Paschi di Siena, experienced losses between 6% and 8% after news of the windfall tax approval by Prime Minister Giorgia Meloni’s ministers late on Monday. The impact extended to French and German banks, with Credit Agricole down 2.8% in Paris and Commerzbank losing 3% in Frankfurt around midday.
Italian Govt Making Efforts
Deputy Prime Minister Matteo Salvini explained that the Italian government intended to use a portion of the banks’ profits to support families and businesses affected by rising interest rates.
Moody’s credit rating agency also played a role in affecting the banking sector, as it lowered credit ratings for 10 small to mid-sized US banks and signaled the possibility of downgrading larger lenders such as BNY Mellon and State Street.
While Asia’s major stock markets displayed mixed performance amid concerns of potential Federal Reserve rate hikes and weak trade data from China, Wall Street’s major indices had started the week on a positive note. However, the market sentiment has shifted towards nervousness over potential continued tightening of monetary policy to manage inflation.
Analysts emphasized that the US economy remained strong, but concerns of a potential recession persisted. Investors are now awaiting the release of US consumer price inflation data later in the week, which is expected to provide further insights into the economic outlook.
