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

More than anything else, hope led global equity markets higher last week. Headlines were very mixed as to when we would likely see an end to the war in Ukraine, with no progress of any great substance being made. The STOXX Europe 600 Index closed the week up 5.4%, the S&P 500 Index was up 6.1%, whilst the MSCI Asia Pacific Index was up 4.1%.1 The MSCI All Country Index rebounded to close up 5.7%, which is its biggest weekly gain since November 2020, when the success of the COVID-19 vaccines was first announced. Despite the overall strength last week, stock markets were really at the mercy of the headlines tied to Ukraine, which flip-flopped from one day to the next on the progress of peace talks. Outside of that, some clarity from the Federal Reserve (Fed), a dovish Bank of England (BoE), as well as some more supportive newsflow out of Asia aided markets as the week went on.

Central Bank Announcements

Last week, investor focus shifted briefly onto central bank announcements. On Wednesday, the Fed raised interest rates by 25 basis points (bps)2 and signalled a faster pace of tightening. The “dot plot” chart of the Fed’s projections indicated a faster pace of rate hikes through 2023, shifting significantly higher in the near term—it is now indicating seven 25 bps hikes this year and another four in 2023. With regards to the possibility of a larger 50 bps rate hike, Fed Chair Jerome Powell indicated that if inflation fails to moderate as expected, then the Fed would be prepared to tighten more aggressively. The meeting statement, as well as Powell’s press conference, indicated that balance sheet reduction is likely to begin soon, with a possible announcement coming at the next meeting in May. Powell went on to say that plans are close to being finalised on that, increasing expectations for news at May’s policy meeting.

On Thursday, the BoE raised rates by 25 bps to 75 bps, as expected. The committee voted 8-1 in favour of the 25 bps rise, with the one dissenter voting to keep interest rates on hold. The dissenter, Jon Cunliffe, argued that Russia’s invasion of Ukraine could “increase uncertainty and decrease consumer and business confidence”. The release was viewed as slightly dovish as it also seemed to exclude a 50 bps hike in the near term. The market was braced for a possible 50 bps hike, or at least details or language suggesting one may be coming soon. With regards to events in Ukraine, the minutes stated that “there was little evidence available yet on the impact of the invasion (of Ukraine) on UK economic activity”. This will clearly be an area of focus for future central bank rhetoric in the months to come.

With regards to inflation per se, the minutes state that “further out, inflation was expected to fall back materially, and possibly to a greater extent than had been expected in the February report, as energy prices stopped rising and as the squeeze on real incomes and demand put significant downward pressure on domestically generated inflation”. With that, there is clearly still plenty of room for debate on the push and pull of inflation pressures through 2022.

Investors Hope for Russia/Ukraine Ceasefire

The market was hopeful all week that we may soon see an end to the war in Ukraine. The headlines didn’t quite reflect this sentiment, however, with seemingly very little progress being made by the end of the week. Earlier in the week, hopes were raised as Ukrainian President Volodymyr Zelenskyy stated that peace talks were starting to sound “more realistic, but time is still needed”. Zelenskyy also appeared to concede that Ukraine would not join NATO, one of Russia’s key demands. The Financial Times then reported on Wednesday that a 15-point plan had been drawn up to end the war. The report suggested that “significant progress” had been made with the plan, which included a ceasefire and Russia’s withdrawal if Ukraine declared neutrality and accepted limits on its armed forces.3 Markets ticked higher on this report. At the same time, oil prices dipped.

However, from then there were a flurry of articles suggesting that progress wasn’t as forthcoming as the article suggested. US Secretary of State Antony Blinken said there were no signs Putin was “prepared to stop” Russia’s invasion. Blinken said Russia’s military actions in Ukraine “are in total contrast to any serious diplomatic effort to end the war”. Also, Ukraine’s Deputy Chief of Staff Ihor Zhovkva said that negotiations had been progressing, but only slowly.

As it stands, around US$470 billion of the Central Bank of Russia’s (CBR’s) US$645 billion in reserves has been frozen. Recall, the bank did an emergency interest-rate hike at the end of February, from 9.5% to 20%, in response to Western sanctions in an attempt to reduce depreciation and inflation risks and support the ruble. On Friday, the CBR kept interest rates at 20%, as expected. Also, it was noted that Putin had asked CBR Governor Elvira Nabiullina to serve another five-year term. She is very well respected outside of Russia. Despite the CBR advising that the latest coupon payments of around US$117 million had been paid, ratings agencies are seeing the risk of default as increasingly likely. With foreign exchange reserves scarce, any default would see Russia’s cost of borrowing increase dramatically in coming years.

Nervousness in Europe

In terms of macro datapoints, it is worth noting that Russia’s invasion of Ukraine is depressing economic recovery hopes in Europe. The German ZEW survey plunged by 93.6 points to -39.3 from 54.3 in February. By comparison, at the beginning of the COVID-19 pandemic in March 2020, the indicator fell by 58.2 points. Other indicators within the survey had notable moves too. The assessment of the current macroeconomic situation worsened to -21.4 in March from -8.1 in February. At the same time, inflation expectations surged to 70.2 in March from -37.5 in February. The survey tends to be volatile, but it’s one to watch out for over the next couple of months.

Week in Review


European equities were broadly higher last week, with the STOXX Europe 600 Index closing the week up 5.4%. Sector divergence was wide once again in Europe, with some of the recent winners being sold and recent losers finding some relief. With that, financial services, technology and automobile stocks were up on the week. At the other end, we saw profit taking in basic resources and oil and gas stocks, which were both lower last week overall. European credit markets continued to tighten throughout the week and are now close to the levels at the beginning of February/start of March. Friday’s options expiries added liquidity and some volatility into stock markets to end the week. Despite overall market performance, it was another week of outflows for European equity funds.

Some interesting points from the monthly Bank of America Fund Managers Survey, which was released last week. The survey showed some significant shifts in the economic outlook for the region; perhaps not too surprising given recent events. However, it was the largest change in respondents’ outlook on record—a net 69% of respondents expect the European economy to weaken over the coming year, the highest share since 2011. Last month, a net 12% still expected better growth in Europe, with the 81-point swing marking the biggest month-on-month drop on record (going back to 1994).

United States

A strong recovery for US equities last week, with the S&P 500 Index recording its strongest weekly performance since November 2020 (+6.2%). Also, the Dow Jones Industrial Average gained +5.5%, the Nasdaq rose 8.2% and the small-cap Russell 2000 Index was up 5.4%. Volatility declined, with the CBOE VIX index down 22% last week.5 As discussed, the Fed meeting was a key focus, but sentiment also improved on possible signs of progress in Russia/Ukraine peace talks and as China made constructive comments in regards to stabilising markets. With the move higher, the S&P 500 Index traded back to close around its 200-day moving average, a key technical level.

Looking to sector performance, the best-performing were consumer discretionary and technology, whilst the laggards were utilities and energy. The gains in tech were a key market driver. The NYSE FANG+ Index was up 13.6%, and Chinese ADRs bounced back sharply thanks to the constructive commentary from China (AliBaba +25%, Baidu +25%).

Looking to other asset classes, the selloff in US Treasuries continued, with the 10-year yield up 15.7 bps to 2.15%, and it was notable the US 5- year/10-year curve inverted (first time since March 2020), and the 2-year/10-year spread traded down to the lowest level since February 2020.

US credit markets showed signs of stabilisation on the improved market sentiment, with investment grade credit spreads tightening.

Finally, last week we flagged the CNN Fear & Greed Index was at stretched levels in “Extreme Fear” territory and, with that, there was a risk of a sharp reversal in sentiment and market performance. This proved timely, as it has now swung sharply out of “Extreme Fear” to “Fear” territory as markets recovered ground last week. 6


Last week the market saw a near complete reversal, with the MSCI Asia Pacific Index closing the week up 4.13%, having closed the previous week down 4.06%.

It was a bit of perfect storm at the start of the week, with a sharp rise in COVID-19 cases and implications on demand & supply chains, as well as further worries about a new Sino-Russian relationship and possible sanctions if China was to visibly provide support.

In China, we saw Shenzhen going into lockdown and companies announcing a production halt due to the pandemic in Shenzhen, Shanghai and Jilin. China’s stance on Russia was in focus, amid reports Russia asked Beijing for military equipment and other help. US officials warned Beijing that impeding efforts to punish Russia could have major consequences. Regulatory pressures also weighed on markets, amid fears Chinese firms will be delisted in the United States.

On Tuesday, we did see some slightly better economic news in China, with February industrial production growing 7.5% year-over-year (Y/Y) and retail sales growing 6.7% Y/Y; however, investors seemed to ignore this, focusing more on the geopolitical situation. Elsewhere, the market was surprised that we saw no MLF rate cut by the People’s Bank of China, despite better February data.

In Hong Kong it was a similar story, with weaker markets Monday and Tuesday. Technology and property names were particularly hard hit once again.

After a couple bearish days, on Wednesday, we started to see a reversal, with “dip buying” seen across the region. Regulatory concerns attributed for recent volatility amid a threat the United States would delisting China stocks from the NYSE abated somewhat, with China keeping dialogue open with US regulators and announcing that it would keep supporting overseas share listings, as well as vowing to keep stock markets stable. Reuters’ Tankan Survey showed Japan manufacturer sentiment firmed, but services sector sentiment weakened amid reintroduction of COVID-19 restrictions and inflation pressures.

On Thursday we continued to see a proper bounce in markets. Deeply oversold conditions, liquidity, one-sided positioning, and cheap valuations all suspected of magnifying the rebound. In China, the sharp upswing was attributed to government commentary about supporting the economy and markets; also, a drop in new COVID-19 cases offered some reprieve after Shenzhen allowed some companies to resume operations, easing concerns of a prolonged lockdown. Indications of a softer approach on tackling real estate risks was attributed for a surge in property developers. On the economic front, some highlighted Chair Powell’s reassurance about growth as a positive for risk sentiment, and we heard dovish remarks from Bank of Japan (BOJ) Governor Kuroda, who reiterated that it was too early to talk about exiting stimulus given below-target inflation.

We saw a mixed day on Friday, with China’s equity rally halted. President Biden spoke with China’s President Xi Jinping amid heightened tensions over Russia’s invasion, with Biden seeking to convince China to increase pressure on Moscow after Secretary of State Blinken said Biden will make clear the United States will not hesitate to impose costs on Beijing if it supports Russia’s invasion. China continued to deny the accusations and on Thursday described itself as a “friendly country” for Ukraine. BOJ left policy settings unchanged as expected, an easing bias maintained with the BOJ vowing to continue stimulus until inflation rises above 2% in a stable manner.

Week Ahead

Macro Week Ahead Highlights

NATO members meet in Brussels to discuss further actions to stop the Russian aggression. Attention will be on US President Biden, who’ll join in person on 24 March. After the Fed lifted interest rates and signalled interest-rate hikes at all remaining meetings this year, Powell will be speaking in Washington on Monday. Finally, on Wednesday, UK Chancellor of the Exchequer Rishi Sunak delivers his “Spring Statement” to parliament, outlining the government’s public spending plans and priorities.

Monday 21 March

  • Germany Producer Price Index (PPI)

Tuesday 22 March

  • UK public finances (Public Sector Net Cash Requirement)
  • Eurozone ECB current account (CA)
  • Italy CA balance
  • Eurozone construction output
  • ECB President Christine Lagarde is scheduled to speak at the BIS Innovation Summit
  • US Richmond Fed manufacturing survey

Wednesday 23 March

  • UK Consumer Price Index and Retail Price Index
  • UK spring statement
  • Eurozone consumer confidence
  • BOE Governor Andrew Bailey and Fed Chair Jerome Powell are due to speak on a panel about “challenges for central bank governors in a digital world”

Thursday 24 March

  • France manufacturing confidence
  • Eurozone Markit and Eurozone Manufacturing Purchasing Managers’ Index (PMI)
  • Australia PMIs
  • Japan PMIs and PPI
  • US President Joe Biden is scheduled to meet NATO and European leaders in Brussels.
  • US Jobless claims, CA, and durable goods

Friday 25 March

  • UK retail sales including automobile fuel
  • Spain gross domestic product (GDP)
  • US state employment

What Are the Risks?

All investments involve risks, including the 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.

Any 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.

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.

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. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. 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.  Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. 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 outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Distributors, LLC, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, – Franklin Distributors, LLC, member FINRA/SIPC, is the principal distributor of Franklin Templeton 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.

Views You Can Use 

As Rates Rise, Financials Can Shine

Mutual Series’ analysts see value opportunities in the financials sector as the interest-rate environment turns more favourable in the United States and European banks see greater clarity about the impact of the Russia-Ukraine war. Read more. 

Quick Thoughts: Energy PricesOver the Barrel

Head of Franklin Templeton Investment Institute, Stephen Dover, hosted a special webinar to discuss rising oil prices and the fundamentals that would impact them in the future. Here are the key takeaways from his conversation with Frederick Fromm, Portfolio Manager and Energy Sector Research Analyst for Franklin Equity Group. Read more. 

On My Mind: The US Dollar and the Retreat from Globalisation 

With the war taking a tragic toll in Ukraine and triggering a major shift in the geopolitical and economic order, Franklin Templeton Fixed Income CIO Sonal Desai discusses the implications for the US dollar’s status as dominant reserve currency, and for the pace of the energy transition. Read more. 

Russia-Ukraine War Heightens Supply Chain and Inflation Woes

The Russian invasion of Ukraine has affected many parts of the global economy, in particular the global supply chain of key commodities. Franklin Templeton Investment Solutions explores the investment implications. Read more. 

Emerging Markets Can Weather the US Rate Tightening Cycle

The current period of rising interest rates and declining markets is unnerving, but it is also creating opportunities, according to Franklin Templeton Emerging Markets Equity team. Read more.

Russia, Ukraine and China

The economic implications of Russia’s war are potentially large and global. Our Head of the Franklin Templeton Investment Institute, Stephen Dover, opines on the ties between China, Russia and UkraineRead more. 

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. One basis point is equal to 0.01%.

3. Financial Times, “Ukraine and Russia explore neutrality plan in peace talks”, 16 March 2022.

4. Source: BofA European & Global Fund Manager Survey, BofA Global Research.

5. 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 results.

6. CNN’s Fear & Greed Index tracks seven indicators of investor sentiment. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges.

Get Content Alerts in My Inbox

Receive email alerts when a new blog is posted.