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. As part of Templeton Global Equity Group, the European equity desk is manned by a team of professionals based in Edinburgh, Scotland, 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

Global equities trended higher last week in the absence of any real market catalysts. The MSCI World Index closed the week up 3.7%, the S&P 500 Index was up 3.5%, the STOXX Europe 600 Index was up 4.0%, whilst the MSCI Asia Pacific was up 1.5%.1

US and European bank stocks were up overall. Short covering was definitely a factor last week, along with quarter-end positioning. There was very little else for investors to get their teeth into last week, and stocks moved higher. Market volatility metrics fell sharply last week, with the VIX and the V2X now trading back below 20, indicating less anxiety in the market.2 Volatility in credit markets has also fallen back to levels before the Silicon Valley Bank (SVB) turmoil.

In terms of seasonality, April has historically been a strong month. The one theme we keep coming back to is the recent inflows into global money market funds. According to Bank of America’s weekly “Flow Show” report, investors poured another US$60.1 billion into cash funds, making it US$508 billion for the quarter. That is the largest quarterly inflow for money market funds since the COVID-19 pandemic. US equity funds saw US$6.2 billion of outflows, whilst EU equity funds saw US$600 million of outflows.3

Europe first-quarter summary: The European STOXX 600 Index closed the first quarter up more than 7.7%. Most of that performance came in January. Country-specific index performance tells a story on the rotation we have seen so far this year. The Italian FTSE MIB, which finished last year down 13.3%, closed out the first quarter of this year up 14.4%. Meanwhile, the defensive-focused FTSE 100, last year’s outperformer (+0.9%), has lagged this year, finishing the first quarter up just 2.4%.4

Sector performance divergence has been notable, with retail and tech stocks leading the way in the first quarter after underperforming in 2022. At the other end, we have seen notable profit-taking in oil and gas and basic resources, the only two sectors to finish higher last year. The only sector to notably buck the trend is real estate, which finished the first quarter lower following a drop in 2022 on rate fears.

Lots of big and largely unprecedented moves have occurred in the last quarter. The German two-year bund yield had its largest one-day drop ever. At the same time, perceived safe havens such as the US two-year Treasury, gold and the Japanese yen posted some of their largest moves in history. We have seen the sharpest central bank tightening cycle in 40 years continue in the first quarter, and therefore it is no real surprise to see something “break” in the demise of SVB and Credit Suisse. Given what has occurred over the last few weeks, it is quite remarkable to see how resilient equities have been.

Week in review


European equities closed last week broadly higher to record their second-best week of the year so far. Volumes were poor. Over the next two weeks, we would anticipate volume should remain muted in Europe, given the upcoming Easter holiday.

Cyclical stocks outperformed defensives last week, a reversal on the recent theme. Nonetheless, all sectors in Europe finished higher, with retail stocks leading the way, along with travel and leisure, following a series of upgrades. Banks enjoyed a bit of a bounce on some positive comments from European Central Bank (ECB) officials on the strength of the sector in Europe. On a week of “risk-on”, it wasn’t a surprise to see the defensives underperform a bit.

In terms of macroeconomic data, Germany’s IFO Business Climate Index unexpectedly improved to 93.3. Inflation data was mixed, but overall, the eurozone March flash inflation came in at +0.9% month-over-month (m/m), with further easing in energy pricing. The core figure (excluding food and energy) remains stubbornly high at +1.2% m/m. This core inflation print led the ECB Governing Council Member Madis Muller to claim there is still room to raise rates further. Bank of France Governor Francois Villeroy agreed, stating that the ECB still had “a little way to go” on rates. Governor of the National Bank of Slovakia, Peter Kazimir, said that whilst the ECB should push on with rate hikes, the pace may need to slow. Nothing too surprising to us.

United States

US equities finished last week broadly higher, with the S&P 500 Index up 3.5%, whilst the Dow Jones and the Nasdaq were up 3.2%. The markets have rebounded off the initial SVB turmoil in March, as officials have taken a number of steps to reassure depositors and maintain confidence in the US financial system. The Federal Reserve’s (Fed’s) balance sheet grew significantly in March as the central bank attempted to stabilise financial markets and that has provided a tailwind for the financials sector. The Fed’s challenge is in trying to balance financial stability tools with monetary policy. The Fed’s James Bullard noted that volatility in the financials sector had increased in recent weeks but praised the central bank response noting it has been “swift and appropriate”.

All sectors closed last week higher, with energy stocks outperforming as crude oil prices rose on the back of strong China manufacturing data as well as a halt in outflows from Iraq. Oil prices rose further after OPEC announced a further surprise oil production cut of 1.15m barrels per day (bpd), with 0.5m of that cut coming from Saudi Arabi. Russia also confirmed earlier reports that it would be rolling its 0.5m bpd cut until the end of 2023.

Similar to the trend in Europe, cyclicals outperformed defensives overall, with consumer discretionary stocks and materials stocks leading the way higher. The defensives underperformed.

In terms of inflation, the February Personal Consumption Expenditures (PCE) Deflator came in lower than expected at +5.0%, vs +5.3% in the prior month. The Core PCE was also weaker than expected, coming in at +4.6% vs +4.7% previously.

Note, commercial real estate (CRE) continues to come up in conversations. In the United States, office space is still not back to pre-COVID-19 levels, with only about half being used. Given that a large amount of CRE lending comes from small regional banks, this represents a headwind as interest rates continue to rise.

Asia Pacific

As in the other regions, Asian equity markets saw positive performance, with the MSCI Asia Pacific Index up 1.5%.

Hong Kong’s market was up 2.4%, with the announcement of Alibaba’s restructuring the main talking point as the tech heavyweight announced plans to split into six business units. In China, there was some better-than-expected macro data, with the February Manufacturing Purchasing Management Index (PMI) reading coming in at 51.9. The Non-Manufacturing PMI came in at 58.2, its highest level since May 2011.

US-China tensions remained a focus, with China’s internet watchdog launching an investigation into a US tech firm. Elsewhere, political tensions simmered amidst a meeting in New York between Taiwan’s President Tsai Ing-wen and Rep. Hakeem Jeffries, the Democrats’ House leader.

Week ahead


Wednesday 5 April: Hong Kong, China

Thursday 6 April: Denmark, Norway

Friday 7 April: All developed European & Americas markets closed for Good Friday; Hong Kong, United States

Macro Week Ahead Highlights

Despite multiple market holidays on Friday, the US March employment report still will be released that day. This will of course be watched for any signs of cooling.

In Germany, expect industrial production figures to have shown little momentum in February, after the strong pickup in January. Overall, the industrial sector has shown some resilience in the face of higher energy costs, supply chain issues, and tighter monetary policy.

The Bank of England (BoE) will also monitor the Decision-Maker Panel Survey of businesses to gauge whether inflationary pressures risk becoming more entrenched.

Monday 3 April

  • Netherlands S&P Global/Nevi Manufacturing PMI
  • Switzerland Consumer Price Index (CPI)
  • Sweden Swedbank/Silf PMI Manufacturing
  • France S&P Global Manufacturing PMI; France Budget Balance year to date
  • Spain S&P Global Manufacturing PMI
  • Italy S&P Global Manufacturing PMI; Italy New Car Registrations
  • Germany S&P Global/BME Manufacturing PMI
  • Eurozone S&P Global Manufacturing PMI
  • Norway DNB/NIMA PMI Manufacturing
  • UK S&P Global/CIPS Manufacturing PMI
  • US S&P/Markit Manufacturing PMI; US Manufacturing ISM & Construction spending

Tuesday 4 April

  • Germany Trade Balance
  • Spain employment
  • Eurozone Producer Price Index (PPI)
  • US Factory orders & JOLTS job openings

Wednesday 5 April

  • Norway Industrial Production
  • Germany Factory Orders; Germany S&P Global Germany Services PMI
  • France Industrial & Manufacturing Production; France S&P Global France Services PMI
  • Spain Industrial Output; Spain S&P Global Services PMI
  • Italy S&P Global Services PMI; Italy Retail sales
  • Eurozone S&P Global Eurozone Services PMI
  • UK New Car Registrations; UK S&P Global/CIPS Services PMI
  • US ADP employment; US Trade balance; US S&P/Markit Services PMI

Thursday 6 April

  • Switzerland employment
  • Germany Industrial Production
  • Sweden Industrial Orders; Sweden GDP Indicator
  • UK S&P Global/CIPS Construction PMI
  • US Jobless claims

Friday 7 April

  • Netherlands Consumer Spending & Manufacturing Production
  • France Trade Balance
  • US March employment report


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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. Often called the “fear gauge”, lower readings suggest a perceived low-risk environment, while higher readings suggest a period of higher volatility. The Euro STOXX 50 Volatility Index (V2TX) measures implied volatility of near term EuroStoxx 50 options, which are traded on the Eurex exchange. 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.

3. Source: Bloomberg. “BofA Says Investors Poured $508 Billion Into Cash This Quarter.” 31 March 2023.

4. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges.


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