Europe close: Shares close higher on hopes of ECB rate cut

European closed higher on Wednesday as investors started to bet on interest rate cuts and shrugged off an unexpected slump in German factory orders, while Merck shares tanked after a multiple-sclerosis drug failed in late-stage trials.

The pan-European Stoxx 600 index finished 0.52% higher at 470.06 with all major regional bourses higher. Germany's DAX was up 0.75% at a record 16656.44.

"It’s been another positive day for European markets, with the German DAX posting yet another record high, after disappointing German factory orders data prompted increased speculation that the ECB may well be forced into cutting rates sharply in the early part of 2024," said CMC Markets analyst Michael Hewson.

"This expectation has been reflected in sharp falls in yields across the board, German 10-year yields falling to their lowest levels since May at 2.2%, while UK 10-year gilt yields fell below 4% and a 6-month low."

In economic news, German factory orders unexpectedly slumped in October, according to figures released on Wednesday by Destatis.

Orders fell by 3.7% on the month following an upwardly-revised 0.7% increase in September, coming in weaker than expectations for a 0.2% jump.

Destatis said much of the decline was due to the performance of the manufacture of machinery and equipment sector, where new orders tumbled 13.5%.

By contrast, there was a 20.2% rise in new orders in the manufacture of other transport equipment such as aircraft, ships, trains, etc. This was thanks to large-scale orders received in this sector.

Elsewhere, the eurozone’s construction sector continued to struggle in November, a closely-watched survey showed on Wednesday, as demand faltered.

The latest HCOB eurozone construction PMI total activity index was 43.4, nudging up from October’s 10-month low of 42.7.

The index remains firmly in negative territory, however, and there was a sharp decrease in total output. Inflationary pressures also built, with input costs increasing at a faster pace.

Germany and France drove the drop in activity, with only Italian firms noting a rise. France’s total activity index rose to 44.6 from 41.0 a month previously, while in Germany it fell from 38.3 to 36.2 - the lowest for more than three and half years.

On the equities front, Merck shares were down 18% at one stage after phase III trials of its promising evobrutinib drug failed to show the required efficacy for treatment of multiple-sclerosis. The stock closed 13% lower on the day.

Tobacco and nicotine giant British American Tobacco was in the red after scaling back its expectations for organic growth this year and unveiling a massive £25bn impairment charge.

Holiday giant Tui surged 15% after bumper profits and a forecast 25% rise in operating earnings this year, while Hello Fresh and Delivery Hero also gained after being named the top picks of internet stocks by JP Morgan.

Reporting by Frank Prenesti for Sharecast.com