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 traded lower last week as hawkish comments from central bankers both in the United States and Europe weighed on sentiment. In addition, further COVID-19 lockdown restrictions in China and the bleak picture in Ukraine gave investors further reason to step back from markets. In that context, the MSCI World Index was down 2.6% last week, the STOXX Europe 600 Index was down 1.4%, the S&P 500 Index was down 2.8% and the MSCI Asia Pacific Index was also down 2.6%.1

Victory for Macron in French Elections

On Sunday, the French election went as polls predicted, with current President Emmanuel Macron winning 58% of the vote, beating opponent Marine Le Pen’s 42%. Polls had widened in favour of Macron in the past week, and as a result, the CAC40 Index rose last week. Macron is the first French president to be re-elected since Jacques Chirac in 2002. That said, France remains a divided country, with 72% turnout the lowest since 1969 and three million voters casting spoilt or blank ballots. Macron said his government would have to “answer their choice to refuse to choose”.

Victory for President Macron is certainly the more market-friendly outcome, given his economic reform agenda and support for the European Union (EU) cohesion.

Given investors had anticipated the election outcome and it was largely priced into the market, the CAC40 Index traded lower after the results came in.

Attention will now turn to parliamentary elections in June where Macron will aim to hold on to his majority.

Hawkish Central Bank Rhetoric

Last week saw several central bankers across the globe coming out with hawkish commentary, outlining the path ahead.

In the United States, Federal Reserve (Fed) Chair Jerome Powell said that a 50 basis-point (bp) hike is on the table for the May meeting, arguing that it’s appropriate to be moving a little more quickly with front-end loaded policy. The Fed’s Mary Daly said the Federal Open Market Committee (FOMC) still needs to deliberate whether rate hikes should be 25 bps, 50 bps, or 75 bps.

St. Louis’ Fed President James Bullard said inflation expectations threatening to become unmoored, although he also said Fed isn’t as far behind the curve as some think. In addition, Bullard talked up potential for a 75 bp hike and reiterating that he favours a 3.5% base rate (much higher than the suggested neutral rate). Fed funds futures are now pricing in 9.75x 25 bp hike by the end of the year (up from 8.59x at the end of last week), and there seems to be a growing consensus that quantitative tightening (QT) will be announced in May and begin in June.

Interestingly, we had some European Central Bank (ECB) members breaking rank to strike a more hawkish tone. Vice President Luis De Guindos suggested that quantitative easing (QE) can end in July, and that rate hikes could commence later in the month. Latvia’s governor Martins Kazaks said that a rate increase was  possible as soon as July, although he is a recognised hawk. Bundesbank President Joachim Nagel said that the ECB may raise rates early in the third quarter if it decides to end bond purchases at the end of June. Money markets have now priced in 24 bps worth of ECB hikes at the July meeting, up from 11 bps last week.

On the back of these comments, we saw bond yields continue to push higher this week, with the US 10-year yield up 7.2 bps, the German 10-year yield up 13 bps, the French 10-year yield up 8.9 bps, and the UK 10-year yield up 7.3 bps.

The Week in Review


European equities sold off last Friday to close the week down 1.4% overall. Stock markets faced a number of headwinds, including increased central bank hawkishness, an uncertain corporate earnings season, and the ongoing destruction of Ukrainian towns and cities by Russian forces. Hawkish statements from FOMC members largely drove the late selloff last week.

The CAC40 Index (down 0.1%), was the best-performing European market last week as polls moved in Macron’s favour ahead of the weekend vote.

It is early days in the latest European earnings season, with 10% of the STOXX Europe 600 Index having reported (46 out of 442 which are due to report). Reports have surprised to the upside so far, with more companies beating than missing expectations across all four measures: sales surprise, sales growth, earnings surprise and earnings growth. In terms of sectors, staples and banks have beaten, whilst miners have missed expectations so far.

Turning to the war in Ukraine, the Financial Times reported over the weekend that Russia’s President Putin is no longer interested in diplomatic efforts and is focused on territorial gains.2 The World Bank estimates that physical damage to Ukraine and its infrastructure has reached roughly US$60 billion.

Sector performance divergence was significant again last week. Construction and materials and industrials stocks rose amid better-than-expected earnings reports last week. Banks were also higher amid a rising interest rate environment. In terms of laggards, basic resources stocks significantly underperformed  last the week. Once again, earnings were the key driver, with a number of companies missing estimates through the week, citing cost and production issues.

The latest comments out of China with regards to COVID-19 restrictions were also particularly downbeat, talking of lockdowns rather than stimulus. Health care stocks also underperformed last week amid profit-taking and as defensives came under pressure. Also, as COVID-19 restrictions eased once again in Europe, Goldman Sachs’ Stay at Home index was down 6% last week and is down 30% year-to-date.3

Weak UK macro data saw the sterling slump to lowest level since 2020. UK GfK consumer confidence balance fell to a reading of -38 in April, which was the second lowest on record—just one point above the -39 reading in July 2008 ahead of the global financial crisis (GFC). In addition, UK Retail March Sales fell 1.4%. Markets will be watching the Bank of England meeting 5 May, when a 25 bps rate hike is expected.

United States

Last week was tough for US equities, with headwinds in the form of hawkish Fed commentary (as discussed) and some notable earnings disappointments. The  S&P 500 Index was down 2.8% on-the-week and the Nasdaq 100 Index declined 3.9%, down 10% for the month, its worst monthly performance since the GFC. Rising bond yields hurt technology names, and streaming service Netflix plunged -37% last week amid an earnings miss.

Looking at sector performance, only real estate investment trusts (REITs) and consumer staples were in positive territory. Meanwhile, communication services lagged amid the Netflix earnings miss, and energy stocks fell amid a drop in  crude oil prices.

The CNN Fear & Greed index has slipped back into Fear territory, though still comfortably above Extreme Fear levels.4 Something to keep an eye as we progress through earnings season.


Last week was poor across Asian markets in general, with the MSCI Asia Pacific Index closing the week down 2.5% amid a late selloff on concerns around last Thursday’s hawkish Fed and ECB comments.

Mainland Chinese stocks closed the week down 3.87% amid continued economic fallout caused by ongoing COVID-19 lockdowns, pressure on the property sector and policy easing disappointment. Rising  COVID cases in Beijing sparked jitters about an unprecedented lockdown of the capital, with policymakers racing to avert a Shanghai-style crisis that has already wrought havoc on the financial hub.

Consequently, analysts continue to downgrade their estimates for gross domestic product (GDP). On Monday, the People’s Bank of China (disappointingly) lowered its reserve requirement ratio (RRR) for financial institutions and certain regional banks, effective 25 April. It also announced a number of measures to support individuals and small businesses.

The Chinese currency continued to weaken last week (not helped by the Fed’s hawkish comments) and is likely to weaken further this year due to slowing exports, faster US interest-rate hikes and the potential capital outflows from emerging markets.

Hong Kong’s market reopened on Tuesday after the Easter break and closed last week lower as pressure continued on the technology sector over government regulation. A potential delisting of US-traded shares also dampened sentiment.

Japan’s market fared better, closing the week up 0.04%. However, yen weakness continues to attract scrutiny, with Japanese government officials sounding more warnings about the negative economic consequences. The Bank of Japan (BoJ) has vowed to continue prioritising monetary easing until the price stability target is achieved in a stable manner. Consumer Price Index (CPI) inflation continued to lag other major developed economies—the core CPI in March came in at  +0.8% year-over-year—remaining a key factor behind the BoJ’s continued pursuit of its loose monetary policy. The BoJ bought Japanese government bonds to defend the upper limit of its interest rate target range and announced fresh bond-buying plans.

Elsewhere, Samsung drove the South Korean market higher, and semiconductors underpinned Taiwan’s market, which closed up 0.12% last week.

The Week Ahead

Corporate earnings should continue to dominate attention in the United States and Europe this week, with a significant number of companies reporting. Of note, in the United States we have technology heavyweights Apple, Amazon, Microsoft and  Alphabet all reporting earnings.

Last week Fedspeak was a market driver, but as we enter the blackout period ahead of the 4 May FOMC meeting, it will be quieter on this front.

Looking at macro data, we have a number of European data points that will be important given recent ECB commentary. Away from Europe, Chinese Industrial Profits on Wednesday and US GDP on Thursday will be important data points.

Monday 25 April  

  • Germany Ifo survey (expectations)
  • Spain Producer Price Index (PPI)
  • Eurozone construction output

Tuesday 26 April

  • UK public finances (Public Sector Net Cash Requirement)
  • US durable goods and manufacturers’ shipments

Wednesday 27 April

  • Sweden trade balance and unemployment rate
  • US housing inventories
  • China industrial profits

Thursday 28 April

  • Spain Consumer Price Index (CPI)
  • Germany CPI EU Harmonized
  • US jobless claims and GDP
  • Japan retail sales and industrial production (IP)

Friday 29 April

  • France consumer spending, GDP and CPI
  • Italy GDP and CPI
  • Spain GDP and retail sales
  • Germany GDP
  • Eurozone GDP and CPI estimate
  • US personal income

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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. Source: Financial Times, “Vladimir Putin Abandons Hopes of Ukraine Deal and Shifts to Land-grab Strategy”, 24 April 2022.

3. Indices are unmanaged and one cannot directly in invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.

4. 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.

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