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.

The Digest

Equity markets pushed on higher last week despite a lack of any real catalyst to the upside. Brexit, COVID-19 vaccines and new US fiscal stimulus continue to be the key focus for investors. The MSCI Global Index finished the week up 1.5%. In terms of regions, the United States outperformed, with the S&P 500 Index up 1.7% on the week. Equities in Asia were also higher, with the MSCI Asia Pacific Index up 0.5%. Meanwhile, European equities lagged, but still finished up 0.2%.1

In terms of fund flows, there was an underlying risk-on theme again with money market funds seeing their eighth-largest weekly redemption of US$7.4 billion, whilst we continue to see money coming out of gold—outflows now standing at US$9 billion in the last three weeks, a record.2

Conversely, money continues to flow into equities, now standing at US$115 billion for the past four weeks, also a record. There was also a new record in the emerging markets space, seeing US$25 billion of inflows for the last four weeks.3

COVID-19 Update: Signs of Improvement for Europe

The picture with regards to COVID-19 infection rates continues to improve across Europe. Coupled with the Pfizer vaccine receiving its first approval from the United Kingdom, sentiment continues to shift to the belief that we are through the worst of the second wave in Europe. However, the per-capita rate of new infections in the United States is twice that of Europe. The US broke through the 200,000-mark for new daily infections towards the end of last week.

Alongside falling infection rates, hospitalisations in Europe are beginning to level off too. Death rates could soon be at an inflection point across most of Europe. In contrast to Europe, infection rates in the United States continue to break higher.

The UK’s approval of the Pfizer vaccine came on 2 December. The quick approval did draw criticism with US physician and immunologist Anthony Fauci, who said it was ‘really rushed’ and that the UK regulator, the Medicine and Healthcare Products Regulatory Agency (MHRA), had ‘kind of ran around the corner of the marathon and joined it in the last mile’.

The MHRA defended the approval and said its analysis was sufficient. The approval puts the United Kingdom ahead of the United States and the European Union in rolling out its vaccination programme. It was reported last week that the vaccine will be available in the United Kingdom to front-line health care workers and the most vulnerable as early as this week.

The US Food and Drug Administration (FDA) is expected to make a decision at its next meeting on 10 December, whilst the European Medicines Agency (EMA) has stated that it may give emergency approval on 29 December, since it needs more time to review evidence.

With a vaccine forthcoming, and many countries getting the situation under control in the meantime, many observers are optimistic about an economic rebound in Europe in 2021. A calmer US trade policy under President Joe Biden and the end of Brexit uncertainty should also help.

Brexit Deal: Imminent or Not?

We have mentioned in recent weeks how there is an expectation that Brexit talks will go to the eleventh hour, and it feels like we really are there. The sounds coming from talks between the United Kingdom and European Union (EU) were reasonably constructive through last week; however, on Thursday of last week France seemed to push back on the issue of fishing rights, which sets us up dramatic finale to the negotiations.

Interestingly, the fishing industry has little economic impact to United Kingdom or French gross domestic product (GDP). In 2019, fishing and aquaculture contributed £446 million to the UK economy—just 0.02% of gross value added.4 However, it is an extremely emotive political subject in the United Kingdom and France (Holland and Denmark are also keen to keep access to UK waters). Neither UK Prime Minister Boris Johnson nor French President Emmanuel Macron will want to be seen to be giving up too much ground on this subject.

On Friday of last week, an EU official said a UK trade deal was ‘imminent’. Yet, on Friday night, the European Commission’s Head of Task Force for Relations with the United Kingdom, Michel Barnier, tweeted that the ‘conditions for an agreement are not met’ and that both sides were still failing to agree on the three sticking points—namely, fisheries, level playing field and governance. Talks resumed on 6 December. There have been numerous headlines, the latest reporting that a UK official has claimed Brexit talks will end imminently if there is no further progress.

Despite the last-minute talks, last week UK assets all pointed to a consensus view that a deal will be reached. UK equities outperformed in the region, with the JPM Brexit basket trading +4.5% over-the-week, the FTSE 250 Index +3.7% and FTSE 100 Index +2.9% (vs. Stoxx Europe 600 Index +0.2).5 The British Pound (GBP) is trading near 2020 highs vs. the US dollar (USD), albeit paring some of those gains as we kick off a new trading week. It does feel as if Brexit fatigue has seen investors grow numb to headline risk. Nonetheless, if we see a ‘no-deal’ scenario emerge, with talks failing at last minute, then we will likely see sharp moves lower.

Week in Review 


European equity market moves were muted last week with very few catalysts either way. The Stoxx Europe 600 closed the week slightly higher. Brexit continues to be the main talking point in Europe as we rapidly approach the 31 December deadline with still no deal agreed. Outside of that, there continues to be focus on the fight against COVID-19 as well as this week’s European Central Bank (ECB) meeting and the decision on bank dividends in Europe.

The final key talking point for European markets last week was the OPEC+6 meeting on 3 December, where members agreed to roll back cuts to oil output more gradually than previously planned, allowing the market to absorb the extra supply. With that, oil prices were back at their highest levels since March 2020. Value stocks outperformed again in Europe, +1.8% on the week, versus momentum stocks, -3.3%.

In terms of index moves, the UK FTSE 100 Index closed stronger on the week, +2.9%, as hopes rose that a Brexit deal will eventually be agreed, despite the move higher in sterling versus the US dollar. In terms of sectors, last week basic resources led the way as commodity prices advanced. Travel and leisure stocks were also higher on  renewed hopes of a return to international travel as the United Kingdom became the first country to approve the Pfizer COVID-19 vaccine. In terms of laggards, chemicals underperformed on the week, due to rotation more than anything else. Outside of that, the defensives lagged, with utilities and personal and household goods declining.

United States

US markets were higher across the board for another week, pushing on to new highs last week despite some uninspiring macro data. Focus continues to be on positive vaccine headlines and hopes that stimulus could finally be on its way, seeing defensive names lower on the week. Energy outperformed, and reopening plays such as the travel and leisure space had a good week.

US President-elect Joe Biden signalled that getting a fiscal relief package done was his top priority, even before he takes office in January 2021. There are reports that a bipartisan stimulus proposal of US$908 billion is gaining increased support from both Republicans and Democrats, with the amount also at the upper end of market expectations. Both sides softened their rhetoric last week, and weaker-than-expected November employment data likely will act to apply further pressure for increased government spending. The November non-farm payroll reading was the worst since April, coming in at 245,000, as the recovery seems to be losing steam.

With this backdrop, the reflation trade saw further support, with US 10-year Treasury yields nearing 1% (the highest level since March 2020). Demand for commodities is also helping this dynamic, with copper and iron ore hitting new highs as part of a continued upswing for cyclicals. Global manufacturing data remain firmly in expansion.

Last week, West Texas Intermediate (WTI) crude oil hit its highest level since March on the OPEC+ announcement. In another positive move, oil ministers will now meet on the first week of each month to decide on subsequent action, allowing them to respond more swiftly to changes in the oil market. The energy sector was the outperformer in the United States last week, up 4.5%.

Asia Pacific (APAC)

Markets in the APAC region were higher for the most part, with just Hong Kong moderately lower on the week. Data was positive overall last week, with China’s November Purchasing Managers’ Index (PMI) coming in ahead of estimates.

Last week, Australia exited its first recession in almost 30 years, with GDP growth coming in at 3.3%, ahead of expectations. Household spending drove the recovery as the country’s containment of the virus allowed the easing of restrictions. All Australian states bar two have reported no local cases of the virus for 28 days.

China/US tensions remain in focus, with US Congress passing legislation that would force the de-listing of Chinese companies from the US stock market unless they comply with US accounting rules. This comes after US President Donald Trump recently banned US investors from holding stakes in businesses with ties to the Chinese Military from 11 January 2021. Following this move, FTSE Russell Index has now said that 10 Chinese companies will be removed from the FTSE All World Index on 18 December. MSCI Index is set to make a decision on removals as soon as this week and NASDAQ is also evaluating the situation.

Trade tensions thawed slightly between China and South Korea last week after China approved its first sale of a Korean video game in four years. The multibillion-dollar Korean gaming industry had been locked out of the Chinese market (alongside other cultural products) in the fallout from the 2017 missile row, where Seoul agreed to host a US missile defense system. South Korea’s KOSPI outperformed other indices in the region last week, closing +3.7%.

Finally, the People’s Bank of China and China’s banking regulator will adopt a scoring system to evaluate the country’s 30 largest banks next year, but with a grace period to ensure banks have time to adapt.

Week Ahead


  • UK-EU negotiations continue
  • European Council (10-11 December): will there be a breakthrough on emergency funds with Poland and Hungary by this point?
  • ECB meeting (10 December)
  • Bank of England (BOE) publishes Financial Stability Report (11 December)
  • The US FDA meets to discuss the vaccine made by Pfizer/BioNTech. If the FDA authorises emergency use, Health & Human Services Secretary Alex Azar said vaccine distribution could begin within 24 hours (10 December)

Data Calendar

Monday 7 December

Germany Industrial Production; US Consumer Credit; China Exports, Imports, Trade Balance; Japan Household Spending, GDP

Tuesday 8 December

France Trade Balance; Eurozone GDP & Employment; US Unit Labour Costs; Japan Machine Orders

Wednesday 9 December

Germany Trade Balance; Spain Industrial Output; US Job Openings and Labor Turnover (JOLTS) s Rate; Japan Producer Price Index (PPI)

Thursday 10 December

UK Monthly GDP, Trade Balance, Manufacturing & Industrial Production; France Industrial Production; US Jobless claims & Consumer Price Index (CPI), Federal budget; China Money Supply

Friday 11 December

Spain CPI; Germany CPI; Italy Industrial Production, Unemployment Rate; US PPI

Views You Can Use

Insight from Our Investment Professionals

Technology: One World, Two Systems

In this excerpt of our latest “Trends Reinforced,” Chetan Sehgal explains why the global pandemic and US-China rivalry has driven demand for greater resilience and security of supply chains. Read More.

A New APAC Trading Partnership

As the COVID-19 pandemic continues to restrict global economic growth, a new regional trade partnership of 15 countries in the Asia-Pacific region looks to provide a jump-start to growth. Franklin Templeton Emerging Markets Equity Portfolio Manager Andrew Ness says the Regional Comprehensive Economic Partnership (RCEP) stands in contrast to the recent deglobalization trend and shares his perspective on what it means for the global economy and investors. Read More.

China 2021 Outlook: Pandemic Fuels Momentum for De-Globalization, What’s Next?

The coronavirus has sharpened the divide between China and the rest of the world and accelerated the trend toward de-globalization already in place, according to Franklin Templeton Emerging Markets Equity’s Chetan Sehgal and Michael Lai. They share their outlook for China, how the health care story could continue to unfold there, and the potential opportunities for investors they see in the year ahead. Read More.

Monitoring Biotech’s Race for a Vaccine

After early analysis of a COVID-19 vaccine from two US and German drug makers showed promising results, Franklin Equity Group’s Evan McCulloch and Wendy Lam are optimistic a vaccine could be available for use in the United States under certain circumstances as early as the end of this year. However, they explain why they see manufacturing and distribution challenges that threaten both broader vaccine adoption and the global economy. Read More.

Why Fixed Income Now

With yields near zero, many investors may question the value of fixed income within a portfolio. Western Asset’s Head of Product Management, Doug Hulsey, joins our Head of Equities, Stephen Dover, to discuss fixed income investing with an active-management lens. He makes a case for the asset class for investors in light of market uncertainties and outlines where he sees opportunities today. 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. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.

2. Sources: BofA Global Investment Strategy, EPFR Global.

3. Ibid.

4. Sources: ONS, Berenberg calculations.

5. Indices are unmanaged and one cannot invest in an index. Past performance is not an indicator or a guarantee of future results.

6. The Organization of the Petroleum Exporting Countries is an intergovernmental organisation of 13 nations. As of September 2018, the member countries accounted for an estimated 44% of global oil production and 81.5% of the world’s ‘proven’ oil reserves. A larger group called OPEC+ was formed in late 2016.


Get Content Alerts in My Inbox

Receive email alerts when a new blog is posted.