European stocks outperform as Italy soothes bank tax nerves

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 per cent higher in early European trade. Europe's regional Stoxx 600 share index rose 1 per cent with bank stocks around 1.6 per cent higher. Italy's FTSE MIB share index gained 2 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 amount to more than 0.1 per cent of banks' assets, reassuring analysts and investors who had expected the tax proceeds to amount to as much as 0.5 per cent of asset bases.

The fact the tax will be lower than expected "should improve market sentiment," Deutsche Bank 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 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 climbed 0.3 per cent while Nasdaq futures rose by 0.4 per cent, 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, dipped 0.2 per cent.

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.

Small businesses' concerns about inflation fell to the lowest level in almost two years, a report by the US. 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.

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 was flat at 4.758 per cent.

Ten-year yields were also unchanged on the day at around 4.02 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 were marginally higher. Brent crude futures rose 0.2 per cent to $86.36 per barrel and US. West Texas Intermediate crude futures added 0.3 per cent to $83.15.

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

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