European stocks outperform as Italy soothes bank tax nerves

By Naomi Rovnick and Stella Qiu

LONDON, SYDNEY (Reuters) -Global stocks rose on Wednesday and European equities outperformed as Italy soothed market nerves with the news that a windfall tax on bank profits would be less punishing than analysts had expected.

MSCI’s broad index of global shares was 0.3% higher in early European trade. Europe’s regional share index rose 1%, with bank stocks around 1.6% higher. Italy’s share index gained 2%.

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%.

Italy said overnight, however, that the new tax would not amount to more than 0.1% of banks’ assets, reassuring analysts and investors who had expected the tax proceeds to amount to as much as 0.5% of asset bases.

The fact the tax will be lower than expected “should improve market sentiment,” Deutsche Bank (ETR:) strategist Jim Reid said. But he also cautioned that “the burden-sharing of the costs and benefits from higher rates has a habit of becoming a political issue.”

In the U.S., 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 share index climbed 0.3% while Nasdaq futures rose by 0.4%, following a broad Wall Street sell-off on Tuesday after the downgrade of several lenders by Moody’s (NYSE:).

The , which measures the U.S. currency against a basket of other majors, dipped 0.2%.

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

Small businesses’ concerns about inflation fell to the lowest level in almost two years, a report by the U.S. National Federation of Independent Businesses on Tuesday showed.

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.

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

The rates-sensitive two-year yield was flat at 4.758%.

Ten-year yields were also unchanged on the day at around 4.02%, after falling 5 basis points overnight to as low as 3.98%, a one-week trough.

Strategists at BCA warned that even though U.S. 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 were marginally higher. futures rose 0.2% to $86.36 per barrel and U.S. West Texas Intermediate crude futures added 0.3% to $83.15.

The gold price was 0.3% higher at $1,930.24 per ounce.

In Asia, the MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.2% higher, following a 1.2% tumble a day earlier. slipped 0.4%.