London, United Kingdom — Markets fell Tuesday as weak US trade data coupled with concerns for the health of the US banking sector played out on Wall Street and an Italian windfall tax on lenders saw European bank shares plummet.
The dollar remained steady with talk of yet another US interest rate hike, while oil prices retreated following disappointing Chinese trade data.
Analysts warned that while the US economy remained in rude health after more than a year of rate hikes, fears of recession remained.
The US trade deficit narrowed in June to $65.5 billion, compared with $68.3 billion in May, on a bigger pullback in imports than exports, according to government data released on Tuesday.
“The key takeaway from the report is the lack of growth in exports and imports, which is indicative of weaker demand overall at home and abroad,” said analyst Patrick O’Hare of Page One.
Another weak batch of trade data compounded worries about the struggling Chinese economy. Sales of Chinese products to foreign markets sank 14.5 percent on-year last month, a third consecutive drop and one that was bigger than expected.
“One can see the growth worries in the commodities market,” O’Hare noted.
West Texas Intermediate was down at $81.45 per barrel at the close of European markets, as was Brent North Sea crude to $84.82 per barrel.
“The economy is quite clearly in need of a boost,” said Craig Erlam, senior market analyst at trading platform OANDA. “I’m just not convinced it’s going to come, not in the forceful and widespread manner it has in the past.”
Meanwhile European markets were hit following news of a windfall tax adopted by Prime Minister Giorgia Meloni’s ministers late Monday.
Milan’s stock market closed at 2.21 percent lower, while share prices of Italian banks Intesa Sanpaolo to Unicredit and Monte dei Paschi di Siena lost between five and 10.2 percent.
Fallout spread to French and German banks, with Credit Agricole down 2.8 percent at closing in Paris and Commerzbank losing 3.81s percent 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.
The positive sentiment that fueled 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.
The market’s focus will turn to the release of US consumer price inflation later in the week.