Europe open: Shares up on rate cut bets; Merck tanks on MS trial failure

European shares made a strong start 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 was up 0.36% in early deals at 469.27 with all major regional bourses higher.

“Yesterday was all about markets fretting that the Fed would not cut rates anytime soon. Today they are back to believing that they will. Having pushed US bond yields all the way from 3.3% up to 5% in recent months, 10-year US bonds have been fighting back in recent weeks, with yields now back down to 4.2%,” said Steve Clayton, head of equity funds at Hargreaves Lansdown.

“We’re in the phoney war stage of the economic cycle. The action last night was really all in the bond market, with stocks little changed on Wall Street. But Asian markets rebounded from yesterday’s weakness leaving things pretty much where they were.”

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.

On the equities front, Merck shares were down 18% after phase III trials of its promising evobrutinib drug failed to show the required efficacy for treatment of multiple-sclerosis.

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.

Nokia slipped again, falling 6%, following news that U.S. telecom giant AT&T will partner with Ericsson on the rollout of a next-generation wireless network.

Holiday giant Tui was on the rise 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