Beyond Bulls & Bears


Notes From the Trading Desk – Europe

Franklin Templeton’s Notes from the Trading Desk offers a weekly overview of what our professional traders and analysts are watching in the markets. The European desk is manned by eight professionals based in Edinburgh, Scotland, with an average of 15 years of experience whose job it is to monitor the markets around the world. Their views are theirs alone and are not intended to be construed as investment advice.

Last week saw equity markets tread water ahead of a number of upcoming notable events and catalysts expected this week. Still, the narrative around US trade relations with the rest of the world was a prime focus, as US President Donald Trump shared his thoughts on the US relationship with a number of different countries.

The Digest

A Week of Catalysts Ahead

This week there are a number of interesting events that could shape equity market performances into year-end and possibly beyond.

Events in focus for investors include the US Federal Reserve (US Fed) and European Central Bank (ECB) meetings, the UK general election and the deadline for further US tariffs to be added to Chinese imports on December 15.

In the context of strong year-to-date gains for many equity markets and with trading volumes likely to start declining next week ahead of the holiday season, we think some investors might be tempted to take profits on any bad news stemming from these events.

UK Election Crunch Time

The United Kingdom goes to the polls on Thursday, and by the time the markets open on Friday morning we will know the result.

The most market-friendly result in the short-term should be a Conservative majority, as it offers a path to an orderly Brexit. One might argue a Labour government could lead to a softer Brexit or even no Brexit, which would likely be seen as supportive for UK assets. However, offsetting those potential positives are the Labour policies of nationalisation of key industries, increased corporate taxes and ad-hoc taxes on the energy sector.

Also, the old cliché that markets do not like uncertainty would ring true if we faced fresh negotiations with the European Union (EU) and further extensions to Brexit deadlines.

The polls have consistently shown the Conservatives to have a 10% lead over Labour for some time now. In order for there to be a hung parliament, that gap would need to tighten to around 7%.

Based on these polls, it would appear the United Kingdom is on track for a Conservative majority. That said, the polls have been wrong in the last two UK elections (2015 and 2017) and there are a few curveballs to watch for. It could be that tactical voting changes the dynamics. There are also a high number of undecided voters (13% of votes) that could be a factor.

Trade Talks in Focus

Trade rhetoric was once again a key driver of equity market performance last week. Comments around a US-China trade deal were plentiful as we approach December 15, the deadline for new tariffs to come into effect.

Equities were led lower on Monday last week after President Trump re-imposed steel and aluminium tariffs on Brazil and Argentina, then again on Tuesday after Trump insisted he does not have a deadline for a deal with China. He suggested it might be better to wait until after the November 2020 election for a deal.

Global equities then staged a fairly impressive recovery after the publication of an article which suggested the United States and China are moving closer to a deal. The progress in talks apparently related to the specific tariffs which would likely be rolled back as part of a “phase one” deal. By Friday morning, US equities had bounced back as strong non-farm payroll numbers (which beat expectations) provided support.

But differences still persist between the United States and China, and whether these can be ironed out in the next week remains to be seen. Like last week, we expect choppy days ahead for global equity markets as investors react to headlines.

It isn’t just China in the firing line. Trump introduced tariffs of US$2.4 billion on French products, including sparkling wine, cheeses, handbags and makeup. This is in response to an existing French tax on online revenue that hit US-based tech giants.

US Fed and ECB Meetings

The two big central bank meetings this week do not have the drama of the UK election result or the US/China trade talks, but nevertheless, they are still important events to watch. The ECB meeting will be notable as it is Christine Lagarde’s first as ECB President.

The markets see little chance of an interest-rate change from the Fed, and most commentators expect Fed Chair Jerome Powell to stick to a similar narrative as he has at recent meetings.

When Powell spoke in Congress recently, he stated: “The current stance of monetary policy [is] likely to remain appropriate as long as incoming information about the economy remains broadly consistent with [the Federal Open Market Committee’s (FOMC)] outlook.” And, he insisted the FOMC would respond accordingly to a “material reassessment of [its] outlook”.

Likewise, the market does not expect any changes to ECB policy at its meeting this week. In her first few speeches as ECB president, Lagarde has stressed her belief in the need for fiscal policy action from member states to support ECB actions.

Last Week


European equities ended the week little changed overall, with mixed moves from individual indices. Trade rhetoric largely drove intraday moves. Regional politics were also at play.

Spain was the week’s outperformer last week, with political concerns an overhang for some other euro-area countries and weaker macro weighing on Germany’s market.

The United Kingdom’s exporter-heavy large-cap index was the clear underperformer, although this was primarily a result of a standout week for the pound, buoyed by more opinion polls suggesting the Conservatives are on course to gain a majority in Thursday’s election.

Despite the improved sentiment heading into the election, the effect of the drawn-out political uncertainty was seen again last week as the UK’s services industry suffered its sharpest fall in eight months, raising concerns that we may see the country’s economy contract in the fourth quarter of 2019.

In Italy, the three-month old coalition government is already starting to look shaky as tensions peaked over the potential reform of the European Stability Mechanism (the EU’s bailout fund). Italian government bonds declined after Democratic Party leader Nicola Zingaretti revealed the rift between his own party and coalition members Five Star in a letter to local press.

In France, there have been fresh protests over the weekend regarding planned pension reforms from the government. Last Thursday saw more than 800,000 people take to the streets, with strikes halting transport services in one of the biggest demonstrations of trade union power in 10 years.

We will continue to keep an eye on this situation in the coming days, with the pension reforms set to go ahead on Wednesday and another major street protest planned on Tuesday. A recent poll suggested that 60% of the general public is in favour of the protests, suggesting that they may continue for some time.

In Germany we saw the CDU’s coalition partners SPD elect new left-leaning leaders. The new leaders will likely look to boost fiscal stimulus, which pushed bund yields higher last week. However, fears that the new leadership would look to disrupt the coalition are yet to materialise, giving some hope early this week.

There were further concerns on the macro front for Germany, however, with the biggest downturn since 2009 hitting the industrial sector. Industrial output in October was down year-on-year and is likely to weigh on fourth-quarter eurozone growth. However, on balance euro-area data last week was supportive, with positive purchasing manager index (PMI) data revisions offsetting the disappointing data from Germany.

European government bond (EGB) yields backed up on the positive shift as well as on commentary from ECB members voicing their concerns around negative interest rates. It will be interesting to see how this latest data plays into the message from the ECB this Thursday, as investors will likely be on the lookout for any hawkish slant to commentary.


US equities performed a fairly impressive turnaround last week to finish close to flat, and back near all-time highs. Trade rhetoric was the main driver.

The release of a robust November employment report also buoyed equities on Friday, as non-farm payrolls came in showing a much higher-than-expected rise. Wages were also better with upward revisions year-on-year. The strength in job growth was fairly broad across most industries. However, it’s worth noting the return of striking automobile workers boosted the numbers.

In terms of sector performances, there was a slight defensive theme to moves with telecommunications, consumer durables and energy outperforming. Transport lagged, while retail was also weak post-Black Friday, just as Christmas shopping is expected to hot-up.


It was a strong week for equities in the Asia Pacific (APAC) region, with the exception of Australia.

Australian equities failed to recover from losses sustained at the beginning of the week as the Reserve Bank of Australia (RBA) opted to leave interest rates on hold.

Positive developments on trade and a spike in oil ahead of key OPEC meetings provided a tailwind for sentiment in the region on Thursday and Friday.

Autos were among the outperformers amid fresh stimulus hopes after China raised its 2025 Electronic Vehicle sales target to 25%.

Macro data also helped, with both the Caixin and NBS Manufacturing PMI data from China coming in ahead of estimates.

In Japan, prime minister Shinzo Abe revealed a Yen26 trillion stimulus package, including ¥9.4 trillion of fresh spending.

The package was described as a “three pillared” approach to aid disaster relief, protect against downside risks to the economy, and prepare the country for growth after next year’s Olympics. Final manufacturing data from Japan was also revised higher, helping to support Japanese equities.

Week Ahead


  • Tuesday: Argentina’s new President Alberto Fernandez takes office.
  • Thursday: UK Election;  EU leaders meet to discuss climate neutrality and the EU budget (through December 13).
  • Sunday: Deadline for fresh US tariffs on China if no deal is agreed upon.


  • Tuesday: China inflation data; Japanese Machine Tool Orders; UK, French and Italian Industrial Production (IP); UK gross domestic product (GDP).
  • Wednesday: China Foreign Direct Investment; US consumer price index data (CPI).
  • Thursday: German CPI.
  • Friday: Japanese IP; US retail Sales.

Monetary Policy

  • Wednesday: US FOMC interest-rate decision; Brazil interest-rate decision.
  • Thursday: ECB interest-rate decision and Christine Lagarde briefing; Swiss interest-rate decision; Turkey interest-rate decision.
  • Friday: Bank of Russia interest-rate decision.

Views You Can Use

Insight from Our Investment Professionals

A Look at the UK’s Post-Election Scenarios

The UK general election campaign is entering its final stages. Opinion polls and market sentiment suggest the Conservatives could be on course for victory, but the result is far from being a foregone conclusion. Our Head of European Fixed Income, David Zahn, examines some of the possible scenarios and considers how financial markets might react. Read More.

Hired, Housed and Healthy: An Introduction to Our Social Infrastructure Strategy

Social infrastructure—the physical assets where social services are provided to communities—has a crucial role to play in society. Franklin Real Asset Advisors’ Raymond Jacobs, Riccardo Abello and John Levy share their thoughts on the topic here. Read More.

What’s Ahead for the MENA Region?

As investors ponder the prospects for the Middle East and North Africa (MENA) region, Franklin Templeton Emerging Markets Equity’s Bassel Khatoun and Salah Shamma take stock of the investment landscape. They highlight some of the market developments in Saudi Arabia, Kuwait, Egypt and the United Arab Emirates (UAE) that have caught their attention. Read More.

Corporate Governance in Emerging Markets: Harnessing Winds of Change

Emerging markets provide many potential investment opportunities, but corporate governance shortfalls can present challenges. Over the years, some countries have moved faster than others to plug their governance gaps. In the first of this two-part series, Franklin Templeton Emerging Markets Equity’s Chetan Sehgal and Andrew Ness outline what corporate governance is and how emerging markets are making improvements in this area. Read More.


For timely investing tidbits, follow us on Twitter @FTI_Global and on LinkedIn.

Important Legal Information

This article reflects the analysis and opinions of Franklin Templeton’s European Trading Desk as of  9 December 2019, and may vary from the analysis and opinions of other investment teams, platforms, portfolio managers or strategies at Franklin Templeton. Because market and economic conditions are often subject to rapid change, the analysis and opinions provided may change without notice. An assessment of a particular country, market, region, security, investment or strategy is not intended as an investment recommendation, nor does it constitute investment advice. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy. This article does not provide a complete analysis of every material fact regarding any country, region, market, industry or security.

Nothing in this document may be relied upon as investment advice or an investment recommendation.The companies named herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton.

Data from third-party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user. Products, services and information may not be available in all jurisdictions and are offered by FT affiliates and/or their distributors as local laws and regulations permit. Please consult your own professional adviser for further information on availability of products and services in your jurisdiction.

What Are the Risks?

All investments involve risk, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity.

Past performance is not an indicator or guarantee of future performance.

Links to External Sites

Franklin Templeton Investments is not responsible for the content of external websites.

The inclusion of a link to an external website should not be understood to be an endorsement of that website or the site’s owners (or their products/services).

Links can take you to third-party sites/media with information and services not reviewed or endorsed by us. We urge you to review the privacy, security, terms of use, and other policies of each site you visit as we have no control over, and assume no responsibility or liability for them.


Get Content Alerts in My Inbox

Receive email alerts when a new blog is posted.