Beyond Bulls & Bears


Notes from the Trading Desk – Europe

Franklin Templeton’s Notes from the Trading Desk offer 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.

The Digest

Last week was mixed for global equities, as the MSCI World Index finished up 1.5% last week after a late rally on 10 July.1 It was a relatively quiet week in terms of macro themes, with the market mainly focused on strength in China. Sentiment was boosted at the start of the week after a bullish Chinese state media report on 6 July which spoke of the need for a “healthy” bull market post-pandemic. However, lingering fears of a second spike of COVID-19 infections in the United States and Asia brought concerns of further lockdowns in key states and cities, which dampened market risk sentiment through the majority of the week. Growth stocks outperformed once again with the year-to-date winners coming out on top.

Markets continue to struggle with the two-way pull between the unprecedented monetary and fiscal policy stimulus through this year and any further economic fallout from a second wave of COVID-19 infections. Policy stimulus this year has been huge—US$10.5 trillion of fiscal stimulus and US$8 trillion of monetary stimulus globally in 2020—as governments and central banks fought to keep the global economy stable during the outbreak. And it is unlikely that there will be any tightening of monetary policy in the near-to-medium term.

China Strength

Global equities started strong last week amid a  bullish article in the state-run China Securities Journal, which helped drive retail flows into Chinese equities. The editorial noted that a “healthy” bull market post-pandemic was more important to the broader economy than ever before. It highlighted stock market reforms and an excess amount of global liquidity through policy support as reasons for big gains. This article followed a report the previous week in the same publication which proclaimed a “bull market is coming”. The Shanghai Composite Index finished 6 July up 5.7%, its biggest percentage daily gain since 2015.2 The move came on good volume too, 1.5 trillion yuan traded on the day, the highest since 2015.

Chinese state media has been known in the past to guide investor sentiment and these latest articles could be seen as an attempt by the Chinese government to boost stock markets and subsequently enhance views on China’s economic resilience. These moves set a bullish tone for markets in Europe and the United States last week and into the start of this one.

US COVID-19 Cases Mute Market Gains

The number of COVID-19 cases continues to rise in the United States. Average new cases last week were just under 56,000, up from the previous week, which averaged just over 46,000.3 While the number of new COVID-19 cases in earlier hotspots continues to decrease, rising infection rates in the states of  Florida, California, Texas, Arizona and much of the South have bent the infection curve for the country upwards. Moreover, rising mortality growth rates in over half of the states indicate that the spike in cases is not solely due to more testing. Updated estimates show that about 40%-70% of  gross domestic product (GDP) comes from counties that have seen worsening coronavirus trends, demonstrating that continued spread of the virus remains a significant downside risk to the economic outlook.

Florida is in particular focus, reporting 15,300 new cases this past weekend on Sunday, the largest one-day increase since the pandemic began and higher than New York, California or Texas.4 Despite the new record numbers, markets appear to be shrugging it off, as European equities were up on Monday 13 July  following a strong showing in Asia.

UK Economic Announcements

This week saw the UK Chancellor Rishi Sunak announce a further £30 billion (1.35% GDP) of support for the UK economy as the country tentatively comes out of lockdown.

The largest new announcements were:

  • A max £9 billion grant for the re-hiring of furloughed workers
  • A six-month cut to value-added tax on the hospitality and leisure sector
  • A new package of public investment
  • An eight-month cut to stamp duty
  • A new package of employment support for younger people

Headlines focused on his “eat out to help out” measure, which allows individuals to get up to £10 off per person if they eat out from Monday to Wednesday during August. Sunak said now was the time to be creative in encouraging the public to start consuming again. UK housebuilders had a good week last week, boosted by the stamp duty holiday announced as part of Sunak’s budget. The announcements drove strength in the pound, up 1.1% vs the US dollar  last week, whilst the exporter-heavy FTSE 100 index underperformed, down 1.0%

One example of the strain the COVID-19 crisis will put on national finances is the fact the UK bill for personal protective equipment (PPE) is thought to be around £15 billion, equivalent to the budget for the Home Office, Foreign Office and Treasury. Sunak has been largely praised for his reaction to the COVID-19 crisis, but as the Financial Times notes: “Since becoming chancellor in February, he has only played Santa Claus, but as Christmas approaches, his new role is likely to be Scrooge.”5

UK utilities were in focus on 9 July after the local regulator, Ofgem, released draft determinations on price controls in the sector. The proposal suggests that rate of return on grid investments is lowered, which brought dividend sustainability into question for some of the United Kingdom’s big players such as National Grid and SSE. This impacted sentiment across the whole space in Europe last week.

Week in Review


European equities were mixed last week, with markets in the region taking much of their direction from moves in both Asia and the United States. There were few European macro themes on a week which saw the Stoxx Europe 600 Index open up nearly 2% on Monday before paring most of those gains as the week went on. The strong start was attributed to the strength in the early Asian session on 6 July. In terms of sectors, basic resources were stronger, as investors moved out of more defensive stocks in a selective rotation on Thursday and Friday. Technology stocks rallied in the United States, and this fed through to Europe. Oil and gas stocks underperformed once again in Europe last week, with oil prices falling throughout the week on continued fears of global over-supply. Momentum stocks pushed on in Europe whilst value stocks lagged.

The issue of the EU Recovery Fund is still very much in focus for European equity markets. Dutch Prime Minister Mark Rutte has met with French President Emmanuel Macron, German Chancellor Angela Merkel and now European Council President Charles Michel in recent weeks as they try to convince the “frugal four” alliance on the plan. Michel has proposed that the size of the Fund will remain at €750 billion, with €500 billion in grants and €250 billion in loans. As a concession to get the doubters onside, he also proposed an earlier repayment plan for the loans.

Of course, this bloc of four net-paying member states, led by the Netherlands, want to substantially reduce or eliminate the amount to be distributed in the form of grants. Merkel has pushed for a rapid conclusion of the Recovery Fund by the end of July before the summer recess.

Michel will unveil a compromise proposal this week in an effort to bridge divisions. He will propose offering the wealthier nations rebates that would limit the amount they contribute to the EU budget in an effort to win over their approval for the deal. These new stimulus measures should be supportive for equity markets in Europe. In our view,  any signs of progress in these discussions through this week or in the weeks ahead are likely to be met with strength in risk assets.

United States

It was a quieter week for US markets following the 4th of July holiday, so volumes and news felt quieter, but the S&P 500 Index did grind higher. As discussed, key talking points were the resurgence in COVID-19 cases in Southern states, and attention is also turning to the upcoming second-quarter earnings season.

Once again, it was the technology names leading markets higher last week, with some stand out performers including Tesla, Amazon and Netflix. Why are we seeing this grind higher? As yields across asset classes become harder to find, many investors seem to be looking for growth, which has propelled these “momentum” names. Some of these companies clearly benefit from the “Stay at Home” lockdowns, but other attractions include strong balance sheets and revenue growth.

Asia Pacific (APAC)

It was a very mixed week for equities across Asia, with many markets struggling to find strength outside of China and Hong Kong. Nonetheless, because of the extent of the move in China, the MSCI Asia Pacific Index closed last week up 1.7%. In terms of sectors, consumer discretionary stocks outperformed, helped by the strength in Chinese equities. Similar to the United States and Europe, technology stocks were strong in the region. It was the defensive sectors which lagged in Asia overall, with real estate investment trusts (REITs), utilities and health care all down.

There were some negative headlines at the start of last week with regard to COVID-19 cases in the region. In Australia, Victoria, the country’s second biggest state, reported a new record daily high of 127 new cases, prompting it to close the border with New South Wales. Later in the week, Melbourne went into lockdown, with residents told to stay at home except for essential travel. It was reported that a lockdown in Melbourne would cost the Australian economy AUD$1 billion per week. Tokyo also reported inflated figures through the start of the week, which dampened sentiment there. On the flip side, Beijing reported no new cases on Monday, the first time the city has reported zero new daily cases in a month.

Week Ahead

A couple of important events this week.

On Thursday 16 July, we have the European Central Bank (ECB) monetary policy meeting. The market expects interest rates will be kept on hold at 0%. Also, in the June meeting, the ECB decided to expand the Pandemic Emergency Purchase Progamme (PEPP) again by another €750 billion. Many expect the ECB to ease further later on in the year, though the course of the virus will determine the exact form and timing of additional measures. For now, we could see another  €750 billion of PEPP purchases, potentially announced in the fourth quarter of 2020. The ECB will most likely continue to innovate with the TLTRO-IIIs, and we do not expect the ECB to cut rates any further at this stage.

ECB President Christine Lagarde has said the ECB is unlikely to announce fresh easing measures next week, as senior officials said economy performing a little better than expected.

At the end of the week, all eyes will be on the EU Special Council meeting on 17-18 July. EU leaders are tasked with agreeing on a proposal, and also clarifying the link between the recovery fund and the EU’s long-term budget.

Market holidays: None


Monday 13 July

  • Economic/Political: Bank of England (BoE) Governor Andrew Bailey speaks
  • Data: China: (June) trade balance

Tuesday 14  July

  • Economic/Political: Bank of Japan interest-rate decision, second-quarter earnings season kicks off with US banks
  • Data: United Kingdom: (May) industrial production (IP), (May) trade balance; Eurozone: (May) IP; Germany: (Jul) ZEW; Japan: (May) IP; US: (June) consumer price index (CPI)

Wed 15 July    

  • Economic/Political: OPEC+ meeting; US Federal Reserve releases its Beige Book; Bank of Canada interest-rate decision
  • Data: UK: (June) CPI; China: (June) IP, second-quarter GDP; (June) retail sales

Thursday 16 July

  • Economic/Political: ECB interest-rate announcement
  • Data: UK: (June) Claimant count, Jobless claims, (May) ILO UR; Eurozone: (June) EU27 new car registrations; US (June) retail sales

Friday 17 July 

  • Economic/Political: EU special council meeting; BoE’s Governor Bailey speaks
  • Data: Eurozone (June) CPI; Italy: (May) industrial orders

Views You Can Use

Insight from Our Investment Professionals

Presidential Election Complicates US Market Outlook

The global market outlook is already hazy in light of the COVID-19 pandemic, and the upcoming US presidential election adds another layer of uncertainty. In this excerpt from our Midyear Global Investment Outlook, Sonal Desai,  Stephen Dover, Michael Hasenstab and Ed Perks offer their views of today’s investment landscape, including the upcoming US elections and economic outlook. Read More.

A Turning Point for Emerging Market Debt

With inefficiency comes opportunity, according to Franklin Templeton Fixed Income’s Nicholas Hardingham and Robert Nelson. They consider the emerging market debt landscape, and what the remainder of the year could bring for the asset class. Read More.

South Korea: A Shining Example of Emerging Market Leadership

Our emerging markets equity team has often emphasized how emerging markets have evolved over the decades in ways many investors may not realize. Today, emerging economies boast many cutting-edge companies that are industry leaders. And, many countries have learned valuable lessons from prior crisis periods that have helped them navigate the current coronavirus pandemic. South Korea is one such example of both. Read More.

Important Legal Information

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the team and the comments, opinions and analyses are rendered as of publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.

Companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

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. The companies and/or case studies shown herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own professional adviser or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236,—Franklin Templeton Distributors, Inc. is the principal distributor of Franklin Templeton’s U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.

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. There is no assurance that any estimate, forecast or projection will be realised.

Links to External Sites

Franklin Templeton 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.


1. Source: Bloomberg. Indices are unmanaged and one cannot directly invest in an index. They do not include fees, expenses or sales charges. Past performance is not an indicator or guarantee of future results.

2. Ibid.

3. Source: New York Times, “Coronavirus in the U.S. Map and Case Count,” last updated 13 July 2020.

4. Source: Washington Post, “Florida shatters single-day infection record with 15,300 new cases,” 12 July 2020.

5. Source: The Financial Times, “Sunak will not be able to play Santa Claus forever”, 08 July 2020.