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.

Global equity markets closed out another bruising quarter last week, as global recessionary fears gripped investor sentiment. The Stoxx Europe 600 Index closed the week down 1.4%, the S&P 500 Index was down 2.2%, whilst the MSCI Asia Pacific was down 1.7%.1

Macro data point to slowdowns in global growth and investors now have their sights on the upcoming second-quarter (Q2) earnings season for some indications around the robustness of companies as we head into the second half of the year.

First Half (H1) 2022 Summary

In Europe, H1 has represented the worst H1 period for the European Stoxx 600 (-16.5%) since the 2008 global financial crisis. Q2 has been particularly damaging, with the index finishing the quarter down over 10%. Sector performance divergence during Q2 has been significant between the best performers (oil and gas, telecommunications) and worst (real estate), and growth stocks have underperformed value stocks. In terms of technicals, the Stoxx 600 made a new year-to-date low in June and is down less than 20% year to date in local currency but is in bear market territory in US dollars. Also, indicators showed equities as oversold in May and June, after which stock markets bounced.

Macro data has been a clear focus in Q2, with a series of datapoints missing expectations. With inflation at record levels, growth estimates are being reduced and recession fears are rising. The Bank of England raised interest rates as expected, whilst the Swiss National Bank made a surprise rate hike. The European Central Bank (ECB) is expected to raise interest rates in July for the first time in 11 years. Finally, and notably, European equity funds recorded 20 consecutive weeks of outflows through to the end of the quarter.

In the United States, H1 represented the worst H1 for the S&P 500 since 1970 (however, in 1970 the second half was better, bouncing +27%).2

Nonetheless, based on current performance, the S&P 500 is on track for its worst year based on real total return since 1872.3 The Nasdaq was down 29.5% in H1, its worst performance since the dot com bubble in 2002. In terms of small and mid-capitalisation stocks, the Russell 2000 Index was down 24%.

In the bond market, the US 10-year yield moved from 1.5% to 3%. Through H1, the Fed discount rate rose from 0.25% to 1.75%. It started with a 25 basis point (bp) hike in March, followed by a 50 bps hike in May, which was the largest hike since May 2000. The Federal Open Market Committee (FOMC) then followed this by hiking 75 bps in June, the largest hike since 1994. At the June meeting, Fed Chair Jerome Powell said the committee would be deciding between a 50 bp or 75 bp hike in July. Despite index-level performance, according to Bank of America’s “Flow Show”, US equity funds saw inflows through most of H1, totalling $119 billion, with the majority going to exchange-traded funds. 4

In Asia, the MSCI Asia Pacific closed H1 down 18%, and down 12.5% in Q2 alone. Surges in COVID-19 cases in China continue to plague growth in Asia. Nonetheless, Chinese equities have performed relatively well in Q2, closing the quarter up 4.5%. Chinese equity funds saw inflows totalling $40 billion through H1.5

In credit markets, global government bonds are on track for their worst year since 1865.

Market sentiment remains very bearish…

Investors remain very bearish on markets as we head into H2. The Bank of America Bull & Bear Indicator remains at 0.0, indicating maximum bearish level for the third consecutive week.6 Meanwhile, CNN’s Fear and Greed Index is back in “Extreme Fear” territory. 7

There continues to be a lot of push and pull in the debate on whether certain economies are heading for a recession. The real focus is on slowing growth, with record levels of inflation really biting consumer confidence. We saw these datapoints slip further last week. US consumer confidence dropped to a 16-month low of 98.7 versus 103.2 previously. German consumer confidence fell to -27.4 vs.  and -26.2 previously. The French equivalent also edged lower, and likewise missed expectations. With consumer confidence taking a beating in 2022, focus shifts to corporate earnings, with many companies within the retail space already warning ahead of a difficult Q2 earnings season.

Other data from last week point to an economic slowdown. The US June ISM Manufacturing Index missed expectations, coming in at 53.0. Maybe more notably, new orders moved into contraction territory at 49.2, which doesn’t bode well in terms of outlook.

The official Chinese Purchasing Managers Index (PMI) missed expectations, coming in at 50.2, back out of contraction territory following some COVID-19 related reopenings. Meanwhile, the Lloyds UK business confidence indicatory fell to its lowest level since the 2021 COVID-19 lockdown, with the cost-of-living crisis filtering through to corporates. A report last week from the IFO said that supply chain issues will continue to plague the German economy, with a materials shortage expected to continue for another 10 months in the German manufacturing sector.

With that, we saw some cuts in global gross domestic product (GDP) forecasts. One example is the Atlanta Federal Reserve’s “GDPNow” estimate, which tracks economic data in real time—it is showing increased odds of recession amid negative readings in the first and second quarters. The French government slashed its own growth forecasts, now expecting GDP to expand 2.5% this year, down from its projection of 4% growth at the start of 2022. It should only be a matter of time before these examples of an economic slowdown feed through into analysts’ consensus numbers.

Gas shortages in Europe

Last week, we noted that Germany had triggered the second level of its gas emergency plan and officials were calling for a reduction in consumption. The International Energy Agency said that Europe must be ready to cut gas use by 30% this winter.

Over the weekend, there were reports of impending strike action by gas workers in Norway, with gas prices up another 9% in early trading on 4 July. Around 13% of Norway’s daily gas exports are at risk during the strike action. Reliance on Norwegian supply has been building in recent months as shipments from Russia slump.

As a result of the market focus on European gas prices, Goldman Sachs created a basket of stocks most at risk of gas rationing, in terms of having a material impact on their ability to produce or secure supply of material. Rationing has not yet been implemented in Europe, but the recent escalation has begun to have an impact on how these stocks trade vs. the broad European index.

For example, on Thursday, Uniper withdrew its 2022 guidance and flagged a liquidity challenge, given its inability to pass on higher commodity costs to its customers. The company announced that year-over-year earnings and net income would be “significantly below” 2021 levels for the first half.

Week in review


Last week, European equity markets were choppy, starting well before selling off into the end of the week. As noted, the Stoxx Europe 600 Index closed the week down 1.4%, while regionally, Italy’s FTSE MIB lagged again, down 3.5% on the week, as Italian bond yields saw another move higher. The UK’s FTSE 100 outperformed last week, down 0.6%, given its weighting in defensives. Defence stocks outperformed last week as Sweden and Finland reached an agreement to join NATO and as Russian violence continues in Ukraine. Unsurprisingly, highly leveraged stocks underperformed last week. In terms of the drivers, recession fears appeared to provide the most weight.

Hopes that we may be beyond peak inflation were dashed last week as eurozone inflation rose from 8.1% to 8.6% in June. Energy and food inflation were the key drivers. Broader price pressures are still building, and we have seen this trend continue across the eurozone. Aside from the precarious macro situation, the situation around Russian gas imports has been a focus once again for markets.

Credit markets were also in view. With the European gas situation heightening recessionary fears, European credit markets continue to show signs of strain.

United States

Last week, US equities gave up some of the significant gains from the prior week as Federal Reserve speakers stuck to the hawkish narrative, and recessionary fears remained front and centre. On the week, the S&P 500 Index declined 2.2% and tech stocks lagged, with the Nasdaq 100 Index down 4.3%. Positioning was in focus, with quarter-end creating a lot of noise for the market too.

We had some comments from Fed Chair Jerome Powell at an ECB conference that garnered attention mid-week. He stated the US economy is in “strong shape” and the central bank can reduce inflation to 2% while maintaining a solid labour market, although the task has become more challenging of late. Memorably, he said “we understand better how little we understand inflation”.

There were some further hopes around inflation peaking as commodity prices eased. The Bloomberg Commodity Index traded down 3.4% last week and June was its worst month since March 2020, down 11%.8

Elsewhere, recessionary fears increased as US consumer confidence data came in at a 16-month low and ISM Manufacturing prices paid came in at 78.5, down from the prior month. These concerns saw a flight to safety into bonds, causing a sharp fall in global yields last week. We’re seeing some economists up their odds of a US recession ahead.

Asia Pacific

Last week saw mixed performance across Asia, with stocks in Shanghai and Hong Kong in positive territory whilst the rest of the region’s major indices were in negative territory. With that, the MSCI Asia Pacific was down 1.7%.

Looking to Hong Kong and Chinese equities, an easing in COVID-19 lockdown measures helped drive more positive sentiment. China cut quarantine periods in half for international visitors and more restaurants and entertainment venues are being allowed to reopen. That said, there was some negative news over the weekend as COVID-19 cases climbed in Anhui province. Nonetheless, with a gain of 6.6%, June was the best month for mainland Chinese equities in nearly two years.

In Hong Kong, in addition to improving sentiment around COVID-19, technology names have been driving better performance in recent weeks on hopes of a softer regulatory touch from Chinese authorities.

Moves were more subdued elsewhere; equity markets in South Korea, Australia and Japan were all lower last week.

There were a couple of interesting macro data releases last week. China’s PMI data moved back into expansionary territory, at 50.2 in June, up from 49.6 in May. In Japan, May Industrial Production data was a significant miss at -7.2%, with China’s lockdown and impact on the global supply chain given as the main reasons for the slump. With that in mind, it was perhaps not a surprise to see Japan’s Tankan Sentiment Survey show confidence amongst Japan’s manufacturers falling more than expected in Q2. The survey had a reading of 9, which is the worst quarterly decline since the peak of the pandemic.

The week ahead


Monday 4 July: United States

Macro Week Ahead Highlights

There is lots of macro data due in the week ahead, mainly in the United States, where the focus will be on the June employment report and the minutes from the June FOMC meeting, as well as on scheduled remarks from several Fed voting members. On Wednesday, the FOMC minutes are expected to show that another 75 bp increase is the likely base case for July, and that headline inflation weighs more in policy deliberations than before.

Regarding expectations for Friday’s employment report, we anticipate it will show tighter financial conditions and worsening sentiment are beginning to affect growth, but the labour market is likely to remain resilient. Finally, the US Independence Day holiday on Monday 4th is the only major holiday schedule for the week.

Key events

Monday 4 July: Eurozone Producer Price Index (PPI)

Tuesday 5 July: Eurozone S&P Global Services PMI

Wednesday 6 July: UK S&P Global/CIPS Construction PMI, Eurozone Retail sales, US FOMC minutes

Thursday 7 July: Germany Industrial Production, US Jobless claims & Trade Balance

Friday 8 July: US June Employment Report

Monday 4 July

  • Germany Trade Balance
  • Switzerland Consumer Price Index (CPI)
  • Spain Unemployment Change
  • Eurozone PPI
  • US Independence Day / All US markets closed

Tuesday 5 July

  • France Industrial & Manufacturing Production
  • France S&P Global Services PMI
  • Germany S&P Global Composite PMI
  • UK New Car Registrations
  • Eurozone S&P Global Services PMI
  • Italy Deficit to GDP YTD
  • US Factory orders

Wednesday 6 July

  • Sweden Industrial Orders & Household Consumption
  • Germany Factory Orders
  • Spain Industrial Output
  • Germany S&P Global Construction PM
  • UK S&P Global/CIPS Construction PMI
  • Eurozone Retail sales
  • US JOLTS job openings
  • US Services ISM
  • US FOMC minutes

Thursday 7 July

  • Netherlands CPI
  • Switzerland Unemployment Rate
  • Germany Industrial Production
  • Norway Industrial Production & GDP
  • US Challenger layoffs
  • US ADP employment
  • US Jobless claims & Trade Balance

Friday 8 July

  • Netherlands Manufacturing Production & Industrial sales
  • France Trade & CA Balance
  • Italy Industrial Production
  • June US Employment Report (nonfarm payrolls & unemployment rate)
  • US Consumer Credit

  • Views You Can Use

    Emerging markets are down, but not out

    Global markets are facing a number of headwinds this year, but there are also reasons for optimism, according to Franklin Templeton Emerging Markets Equity CIO Manraj Sekhon. He shares his mid-year outlook for emerging markets. Read more. 

    Happenstance, a ripe tomato and opportunity

    In our new piece from the Franklin Templeton Institute, we examine the challenge of feeding a growing global population in the midst of climate change, geopolitical shocks and uncertainty. Mohieddine Kronfol from Franklin Templeton Fixed Income sees opportunity in controlled environment agriculture (CEA), a uniquely suitable industry for profitable, large-scale impact—truly doing good and doing well. Read more. 

    On my mind: The Fed capitulates

    The Fed raised interest rates by 75 basis points in its June policy meeting, acknowledging continued upside surprises on inflation, inflation expectations and wage growth. It also de facto abandoned forward guidance. It was a reminder that economic data eventually rule the day, says Franklin Templeton Fixed Income CIO Sonal Desai. She argues this is a welcome but only partial move to a more realistic stance, and discusses why further hawkish surprises likely lie ahead. Read more.

    Turbulence ahead

    The US Fed just made the biggest interest-rate increase since 1994. Should we be worried? Stephen Dover, Head of Franklin Templeton Institute, discusses the rising risk of a recession. Read more.


    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.


    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.

    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, Bloomberg, Global Financial Data; 2022 year to date annualised.

    3. Ibid.

    4. Sources: BofA Global Research, EPFR Global. Week ended 29 June 2022.

    5. Ibid.

    6. Source: BofA Research, as of 30 June 2022. The Bull & Bear Indicator is a measure of trader sentiment.

    7. 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. Past performance is not an indicator or a guarantee of future results.

    8. Source: Bloomberg. The Bloomberg Commodity Index is calculated on an excess return basis and reflects 23 commodity futures price movements. Indexes 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.