Europe close: Italy windfall levy sparks sell-off in banking shares

European shares closed lower on Tuesday as Italy's decision to impose a 40% windfall tax on bank profits sparked fears that other European states could do the same - leading to a sell-off in the sector.

The pan-regional Stoxx 600 index finished the session down 0.23% at 458.6 with all major bourses lower. The mood was also soured by weaker-than-expected trade data from China and poor UK retail sales survey data.

China’s imports and exports slumped further than expected last month, official data showed, reflecting a stagnating recovery in the world's second-largest economy and increasing pressure on Beijing to provide more stimulus.

Imports in July fell 12.4% year-on-year, much worse than the 5.6% forecast by economists. Exports also fell faster than expected, contracting by 14.5%, after June’s 12.4% fall.

The trade surplus rose to $80.6bn in July from $70.6bn against a consensus of $70.0bn.

"China’s exports are likely to continue falling in H2, as the U.S. is likely to enter a mild recession, while the Eurozone economy probably will remain weak," said Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics.

In Britain, the British Retail Consortium reported that annual retail sales growth slowed to just 1.5% in July, down from 4.9% in June. Like-for-like sales growth fell from 4.2% to 1.8%.

Meanwhile in Germany, consumer prices in Europe's largest economy increased 0.3% in July, unchanged from June. The annual figure fell to 6.2% from 6.4% in June.

Demand concerns were weighing on commodity prices on Tuesday, with Brent crude down 1.5% and copper 2.3% lower.

In equity news, shares in Italian banks were hammered after the government approved a 40% windfall tax on lenders’ profits for the rest of the year.

BPER Banca, Banco BPM, Intesa Sanpaolo, UniCredit and FinecoBank all slumped on the news.

Italian Deputy Prime Minister Matteo Salvini told a news conference on Monday that the 40% levy on banks’ extra profits will be used to cut taxes and offer financial support to mortgage holders.

The move had sparked weakness in other Continental banks over fears the move by Italy could be adopted Europe-wide, with Deutsche Bank, Santander, and Paribas all sharply lower.

"Where one country goes, others might follow, and with plenty of elections in coming months politicians across the continent might look to juice their poll ratings with hints of taxes on banks and indeed other sectors that could be accused of profiting while consumers struggle,” said IG chief market analyst Chris Beauchamp.

Abrdn shares plunged following the release of the asset manager's first-half results. The company cited “challenging market conditions” and a “risk-off environment” as it reported net outflows of £4.4bn.

UK rival Quilter went the other way, with the stock up more than 13% after the wealth manager announced a 2% increase in assets under management and administration (AuMA), standing at £101.7bn at the end of June.

Novo Nordisk shares surged more than 17% after the firm's weight-loss drug Wegovy performed well in a clinical trial testing cardiovascular events in adults with obesity.

Hotels operator IHG gained as it reported a sharp jump in half-year profit as the travel sector continued to rebound from the Covid pandemic.

Mining stocks were largely lower with Glencore leading the way after disappointing first-half results. The commodity giant reported that adjusted core earnings halved in the first six months of the year, as it blamed macro conditions on price reductions in copper, cobalt, nickel and zinc.

Shares in Anglo American, Antofagasta and Rio Rinto were also hit.

Reporting by Frank Prenesti for Sharecast.com