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

Equities in the United States and Europe continued their grind higher in a holiday-shortened week, which led to lighter volumes and newflow last week. The STOXX Europe 600 Index closed up 1.2%, whilst the S&P 500 Index outperformed, up 2.7% on the week. There was a mixed picture in the Asia-Pacific (APAC) region, with equities in both mainland China and Hong Kong lower, whilst Australia outperformed, leaving the MSCI APAC Index unchanged on the week.1

With a quiet week on the news front, focus fell on the improving macro picture and reopening theme in Europe, although the COVID-19 backdrop remains a significant concern. Eurozone Purchasing Managers’ Index (PMI) data was revised higher, with Services at 49.6 and the Composite rising to 53.2. Investor confidence was also strong, with the Sentix reading at its highest level since August 2018 in April.

UK equities outperformed (the FTSE 100 Index was up 2.7% last week), with housebuilders rising after data showed a surge in house prices (+1.1% in March, the biggest increase in six months). The UK labour market also showed its strongest rebound in hiring since 2015 on anticipation of businesses reopening as lockdown measures ease. A weaker pound also boosted the exporter-heavy index.

We also saw improving jobs data from the United States in the prior week. Finally, the International Monetary Fund (IMF) boosted its growth projection for the world economy to +6% in 2021, up from its +5.5% forecast in January. The ramp-up in vaccine rollouts drove the increase.

Last week, a European Union (EU) memo suggested that the majority of EU member states will have sufficient supplies to vaccinate a significant proportion of citizens by the end of June, hitting targets ahead of schedule. The memo implied that 55% of the total population would have received at least one dose by then, which would show a huge improvement in the second quarter (Q2) from what we saw in the first quarter (Q1).

Despite this positive development, continental Europe is still playing catch up to the United States and United Kingdom in its vaccine campaigns, having severely lagged. The situation now remains precarious as countries battle with the third wave of the pandemic. France remains under a lockdown that includes restrictions on travel and a 7 pm–6 am curfew. Germany also looks set to tighten its restrictions.

Meanwhile, deaths in Italy have continued to rise through the vaccination rollout. Media headlines on Friday suggested that the prior Italian government had made errors leading to a significant portion of the elderly population missing out on their vaccinations earlier in the year.

As the cost of keeping the economy afloat continues to drain state resources and street protests apply pressure on the government, Italian Prime Minister Mario Draghi is reported to have brought forward stimulus plans for as much as €40 billion in new borrowing. This comes after headlines last week that a new stimulus package worth €32 billion+ will fund additional grants to businesses forced to close due to restrictions and extend existing debt moratoriums for small- and mid-sized companies. The measures will likely push the year’s fiscal gap over 10% of gross domestic product (GDP), up from 9.5% in 2020. Draghi has stressed the importance of accompanying families and businesses out of the pandemic and the recession.

Week in Review

United States

It was a quiet week for US equity markets following the Easter holiday weekend, with market volumes drastically lower last week. Despite the low volumes, stocks advanced, with the S&P 500 Index closing the week up 2.7%. The Dow Jones Industrial Average was up 2.0%, whilst the NASDAQ Index was strong, up 3.9% on the week. Technology was the strongest sector on the week, up 4.7%, whilst energy was the only sector to finish in the red, down 4% as oil prices weakened. West Texas Intermediate crude oil closed the week down 3.5% amid a potential return of Iranian supply and a resurgence in COVID-19 infections in Europe.

Treasury yields moved lower last week, helping to drive a rotation to growth and momentum after those groups meaningfully lagged value in Q1. The CBOE VIX Index was lower again, dipping below 17 for the first time since the start of the pandemic.2

In terms of market themes, sentiment was better regarding the economic recovery from COVID-19 in the United States following a much stronger-than-expected employment report for March. At the same time, US Federal Reserve (Fed) meeting takeaways have stressed the US economy is still far from the Fed’s employment and inflation goals.

The US government also released its spending plan for the next fiscal year last week. The plan shows an 8% year-on-year increase to US$1.52 trillion. How this gets paid for might not become clear until the full budget hits Congress in May.

The latest Federal Open Market Committee (FOMC) minutes acknowledged it will be some time before the Committee’s goals are met and the bar for tapering and lift-off remains high. The FOMC said that it will ‘likely be some time’ before the economy recovers enough for tapering to begin and that ‘asset purchases would continue at least at the current pace until then’. Fed Chair Jerome Powell acknowledged the Fed could adjust administered rates if there was undue pressure on overnight funding rates. He added that the Fed must see ‘actual progress’ and emphasised that 9-10 million people remain out of work domestically.

In terms of COVID-19 cases in the United States, new cases increased modestly over the week as the UK variant continuing to spread. The UK variant is now the dominant strain in the United States and total infections now stand at 60,000 on a seven-day average, and up from 58,000 the previous week. Hospitalisations remain stalled at around 40,000, while mortalities have dropped below 700 on a seven-day-average basis for the first time since October. The rate of vaccinations continued to ramp up over the past week, with daily doses administered crossing the four million single-day mark. If vaccinations continue at this pace, then 80% of the US population will have been vaccinated by the end of July.

The US trade deficit widened to a record high of US$71.1 billion. For context, the widest level before the pandemic was -US$68.3 billion, recorded in 2006. This time, the deficit is driven by extraordinary demand for consumer goods, which is fueling imports. Meanwhile, exports are lagging as the rest of the world has been generally slower to recover from the pandemic. In February, both imports and exports contracted, but imports (-0.7% month over month) were strong relative to exports (-2.6% month over month). This data predates the latest round of stimulus cheques and the likely surge in consumption following in March-May. On top of that, inventory restocking is fueling imports, so it’s safe to assume that the deficit will continue to widen, at least through the middle of the year.


It was a holiday-shortened week for European equities, as discussed, with the STOXX Europe 600 Index closing the week +1.2%. The holiday mode was reflected in lighter volumes and in the news. Italy was the week’s underperformer, closing the week lower (the FTSE MIB Index was down 1.2%) as the COVID-19 situation remains precarious despite some improving retail data reported on Friday. The United Kingdom outperformed (the FTSE 100 Index was up 2.7% over-the-week), helped by better data, reopening hopes, and currency impact. From a sector perspective, defensives outperformed (food & beverages were up 3.4%, utilities were up 1.9%), whilst the autos, telecommunications and oil & gas stocks underperformed. Value underperformed vs. momentum on the week, but has still outperformed year-to-date.

With a shorter week, Credit Suisse’s latest losses related to Archegos dominated headlines. On 6 April, Credit Suisse announced an expected loss from Archegos of c. CHF4.4 billion (US$4.7 billion), a little above prior press estimates, but below the possible ‘worst case’. It cut its dividend and suspended its buyback, as widely expected.

At a higher level, debate is now continuing about a potential sale of Credit Suisse’s asset management arm and, if Credit Suisse starts to reduce in scale and loses valuation, speculation of a deal with UBS is likely to increase once again. For the broader industry, the fallout has remained minimal, with consensus view remaining that this incident is isolated and the losses have been concentrated and contained.

On the bright side, the backdrop for investment banks into Q1 reporting looks very healthy—so, not all doom and gloom!


Australian equities were the standout performer in the region, with the ASX Index making 13-month highs, thanks to commodity strength. In addition, the Reserve Bank of Australia highlighted financial system resilience and sounded upbeat on lending standards.

Chinese mainland equities were a touch lower on the week, -1%, continuing the year-to-date trend of underperformance vs. global equities.

Equities in Hong Kong traded slightly lower last week, with the main talking point being a significant placing in index heavyweight Tencent. Prosus raised HK$114.2 billion (US$14.7 billion) from selling a 2% stake in the world’s second-biggest block trade.

Concerns over rising COVID-19 cases were a concern in a number of countries. In Japan, talk of fresh lockdown measures in Tokyo weighed on sentiment, and India has seen soaring cases with a ‘second wave’ now underway. Earlier this month, the IMF raised its 2021 growth forecast for India to 12.5%, but the IMF commented the fresh COVID-19 wave was ‘quite concerning’.

Week Ahead

Lockdown restrictions in England are set to ease from 12 April, opening up shops, pubs and restaurants. Data on 13 April should show the UK economy grew slightly in February, as consumers became less cautious even with the strict containment measures in place. US Industrial Production will be in focus on Thursday.

Monday 12 April  

  • UK Industrial & Manufacturing Production
  • UK Trade Balance & Monthly GDP
  • Norway GDP
  • US Federal budget

Tuesday 13 April   

  • UK Monthly GDP
  • Germany ZEW Survey
  • Sweden PES Unemployment Rate
  • Italy Industrial Production
  • US consumer price index (CPI)

Wednesday 14 April  

  • Netherlands Trade Balance
  • Spain CPI
  • Sweden CPI
  • Eurozone Industrial Production

Thursday 15 April

  • Norway Trade Balance
  • Germany CPI
  • France CPI
  • Italy CPI
  • Spain Trade Balance
  • Italy General Government Debt
  • US Jobless claims
  • US Industrial production

Friday 16 April  

  • Euro-area Final CPI Inflation
  • Eurozone EU27 New Car Registrations
  • Italy Trade Balance
  • Eurozone Trade Balance & CPI
  • US state employment


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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. The CBOE Market Volatility Index measures market expectations of near-term volatility conveyed by S&P 500 stock index option prices. 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 performance.

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