European stock markets fall as Italian banks hit by windfall tax

European stock markets on Tuesday showed a bearish trend as Italian banks came under pressure after the cabinet gave its nod to a 40% windfall tax on lenders.

According to analysts, banks elsewhere also took a knock on concerns over the health of the US sector. The dollar continued to benefit from talk of yet another US interest rate hike, while oil prices retreated following more weak Chinese data.

In Milan, share prices of Italian banks Intesa Sanpaolo to Unicredit and Monte dei Paschi di Siena lost between 6 and 8% on news of the windfall tax, adopted by Prime Minister Giorgia Meloni’s ministers late Monday, AFP reported.

Fallout spread to French and German banks, with Credit Agricole down 2.8% around midday in Paris and Commerzbank losing 3% in Frankfurt.

The Italian government was “using part of the banks’ billion-dollar profits to help families and businesses affected by rising interest rates”, Deputy Prime Minister Matteo Salvini said on X, formerly known as Twitter.

Banks were also “under pressure across Europe after Moody’s cut its credit ratings on 10 small to mid-sized US banks”, noted Victoria Scholar, head of investment at Interactive Investor.

And it “warned it may do the same for some of the larger lenders such as BNY Mellon and State Street which have been placed on review for a possible downgrade”, she added.

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Asia’s major stock markets were mixed amid concerns that the Federal Reserve would hike rates again, while another weak batch of trade data compounded worries about the struggling Chinese economy.

The positive sentiment that fuelled a rally for stock markets through much of July has given way to nervousness that while US inflation is coming down, officials will keep tightening monetary policy to make sure they have prices under control.

Analysts also warned that while the US economy remained in rude health after more than a year of rate hikes, fears of recession remained.

Wall Street’s three main indices enjoyed a strong start to the week Monday, with focus turning to the release of US consumer price inflation later in the week.