Italian shares lag European peers as banks drag, investors await Fed minutes

By Ankika Biswas and Bansari Mayur Kamdar

(Reuters) -Italian shares lagged European peers on Tuesday as banking stocks weighed, while investors awaited minutes from the Federal Reserve’s latest meeting to support bets that policymakers are done with interest rate hikes.

The pan-European slipped 0.1%, while Italy’s closed 1.3% lower recording its worst daily performance in a month.

Monte dei Paschi di Siena lost 7.9% after Italy sold a 25% stake in the bailed-out bank.

Banco BPM fell 4.0% after Deutsche Bank downgraded it to “hold” from “buy” and removed it from its EU banks top picks.

Minutes from the Fed’s latest policy meeting, where it held rates steady, are due at 1900 GMT (2 p.m. ET).

“The theme permeating the market is the Fed’s battle with inflation has been won and that despite what the likes of Powell and his colleagues might be saying about another hike still being on the table, market does not really believe that message anymore,” said Stuart Cole, head macro economist at Equiti Capital.

Meanwhile, European Central Bank (ECB) officials have actively tried to shoot down growing bets of rate cuts amid data signalling a sustained fall in inflation and a likely recession.

ECB policymaker Francois Villeroy de Galhau argued rates will likely remain unchanged for the next few quarters, a day after Pablo Hernandez de Cos noted it was “premature” to talk about rate cuts.

European equities are forecast to eke out a modest rise in 2024, a Reuters poll found, as optimism that global interest rates have peaked is offset by worries the economy could fall into a recession.

Rate-sensitive real estate stocks led sectoral losses, shedding 2.1%.

CPI Property Group closed 2.8% higher after falling as much as 6.2% after short-selling hedge fund Muddy Waters (NYSE:) said it had bet against the credit of the Luxembourg-based commercial landlord.

Teamviewer dropped 12.4% after Deutsche Bank on behalf of TigerLuxOne (Permira) launched a placement of 13 million shares in the German software company at a discount of about 8% to Monday’s closing price.

GEA Group slid 5.4% after a bookrunner said Groupe Bruxelles Lambert SA’s unit Oliver Capital was selling 11.25 million shares in the German food-processing equipment maker.

LVMH eased 1.9% after UBS downgraded the French luxury giant to “neutral” from “buy”. The sector was down 0.6%.

Swiss hearing aid maker Sonova topped the STOXX 600, gaining 5.4% after a smaller-than-feared warning on annual core profit.

Rheinmetall gained 3.7% as the German arms company expects sales of 13 billion-14 billion euros ($14.18 billion to $15.27 billion) in revenue in 2026 and operating margins of more than 15%.