Europe close: Italian banks weigh, Basic Resources jump on stimulus hopes

European stocks fell on Monday amid low trading volumes due to the US Independence Day holiday, as investors continued to mull over the implications of Britain’s decision to leave the European Union and fretted about Italy´s banking sector.

The benchmark Stoxx Europe 600 index fell 0.74% or 2.46 points to 329.78 and Germany’s DAX fell 0.69% or 67.03 points to end the day at 9.709.09, while France’s CAC 40 was 0.91% weaker.

At the same time, oil prices drifted lower. Brent crude futures were off 0.4% at $50.16 a barrel.

Markets received a boost at the end of last week after Bank of England governor Mark Carney said interest rates were likely to be cut over the summer.

Mike van Dulken, head of research at Accendo Markets, said the theme this week was almost certainly going to remain about the continued fallout from Brexit as market participants continue to digest and re-price for the new financial, economic and political landscape.

"Any more hints from central banks about stimulus could also help keep the ball in the air, helping markets shrug off the Brexit impact and push on with their recoveries.”

Chancellor George Osborne told the Financial Times that he plans to cut corporation tax to ensure businesses keep investing in the UK after it opted to leave the European Union.

He said he would cut the tax rate to below 15% from the current 20%, which would make it the lowest of any major economy.
Osborne said the move was part of his new five-point plan to build a "super-competitive economy" with low tax rates and said it was important for "Britain to "get on with it" show investors it was still "open for business".

Investors were also digested news that Nigel Farage has stepped down as leader of the UK Independence Party.

In a speech in London, Farage said he felt he had done his bit and “couldn’t possibly achieve more”. He said Ukip could be on track to do well in the 2020 election, pointing in particular to the potential to win over Labour supporters.
The outspoken politician said a new leader would be in place in time for the autumn conference but did not back a particular candidate.

It also emerged on Monday that law firm Mishcon de Reya has been retained by an unnamed group of clients to ensure the UK government does not trigger the procedure for withdrawal from the European Union without the approval of Parliament.

The firm argued that while the referendum was an exercise to obtain the views of UK citizens, the majority of whom expressed a desire to leave the EU, the decision to trigger Article 50 of the Treaty of the European Union – the legal process for withdrawal – rests with the representatives of the people under the UK Constitution.

In equity markets, the Stoxx 600 basic resources index was up 1.65% as metals prices rose, with London-listed Fresnillo surging as silver prices broke through $21 an ounce.

On the downside, however, Italian banking stocks were under the cosh. Banca Monte dei Paschi di Siena took a beating following a report in daily La Repubblica that the European Central Bank has written to the lender asking for a new three-year business plan that would require it to reduce non-performing loans to an adequate level.

Italy's FTSE MIB underperformed its peers, trading down 1.74%.

Meanwhile, Prime Minister Matteo Renzi said on Monday that Italy has no plans to defy EU rules by pumping billions of euros of public money into its banks, denying a report in the Financial Times.

Elsewhere, beleaguered German car maker Volkswagen was in the red after chief executive Matthias Muller rejected compensation calls for European customers in the wake of the emissions scandal.

Deutsche Boerse and London Stock Exchange were in focus as the latter was set to hold a general meeting for shareholders to vote on their recommended all-share merger.

Data released earlier showed eurozone investor confidence has fallen to the lowest level since January after Britain voted to leave the European Union. Sentix’s forward-looking headline index for measuring investor confidence in the eurozone fell to +1.7 points in July from +9.9 in June, missing analysts’ estimates of +5.0.

Brexit also dampened investors’ economic projections in July with the index on expectations plummeting to -2 points in July from June’s +10. It marks the lowest level since November 2014.

The index on investors’ view of the current economic situation also fell to +5.5 in July from +9.8 in June, the lowest since February 2015.

There was also bad news on the UK data front, as the Markit/CIPS UK construction purchasing managers’ index fell to 46.0 from 51.2 in May, marking its lowest level in seven years and below the 50.0 threshold that separates contraction from expansion for the first time since April 2013. Economists had been expecting a reading of 50.5.

Reports from survey respondents attributed the downturn in business activity to uncertainty ahead of the EU referendum, as just over 80% of survey responses were received before 24 June.