European stocks rebound after Italy limits windfall tax on banks

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European stocks rose on Wednesday, with banks among the biggest winners as Italy watered down a planned windfall tax that sent shares in the country’s biggest lenders tumbling in the previous session.

Europe’s region-wide Stoxx 600 rose 0.8 per cent, France’s Cac 40 added 1.3 per cent and Germany’s Dax rose 1 per cent. London’s FTSE 100 rose 0.8 per cent.

Shares in Intesa Sanpaolo and UniCredit, Italy’s two largest banks by assets, gained 3.2 per cent and 4.1 per cent, respectively, after the country’s finance ministry said a tax on net interest income would be capped at 0.1 per cent of assets. An initial draft text published on Tuesday said the levy would be capped at 25 per cent of banks’ net assets.

State-owned Monte dei Paschi di Siena rebounded 4.6 per cent after dropping by more than a tenth on Tuesday, while Banco BPM added 3.5 per cent.

Despite the legislative climbdown, Italy’s decision to go after the banks could fuel debate over profit windfall taxes in other European countries and could raise the chance that lenders pre-empt new taxation by raising deposit rates. Spain has already introduced a windfall tax on banks.

Bank stocks were also in focus in the US after rating agency Moody’s downgraded 10 midsized US lenders on Monday night and warned that it had placed six large banks on review.

After a small sell-off on Wall Street on Tuesday, contracts tracking Wall Street’s benchmark S&P 500 and those tracking the tech-heavy Nasdaq 100 rose 0.2 per cent and 0.3 per cent ahead of the New York open.

Asian equities were mixed as new data showed China’s economy slipped into deflation in July, heightening concerns over low consumption and growth after the release of disappointing trade numbers earlier in the week.

Hong Kong’s Hang Seng index rose 0.3 per cent and China’s CSI 300 shed 0.3 per cent after consumer prices in the world’s second-biggest economy fell 0.3 per cent year on year in July. Consumer prices last slipped into negative territory in February 2021.

Data released on Tuesday showed China’s exports and imports declined by 14.5 per cent and 12.4 per cent year on year in dollar terms, respectively. 

Some investors hope a government stimulus package might revive economic growth and promote a return to inflation.