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

The global equity market felt a little rudderless last week as investors digested a glut of US corporate earnings and Fedspeak. In Europe, the hotter-than-expected March UK inflation print was a talking point, as was some mixed Purchasing Managers Index (PMI) data. Overall, indices saw muted moves, but there was a rotation into more defensive sectors, suggesting a more cautious mood amongst some investors. On the week, the MSCI World traded down 0.1%, The Stoxx Europe 600 Index was up 0.4%, while the S&P 500 Index was down 0.1% and the MSCI Asia Pacific Index was down 1.3%.1

Week in review


Trading volumes and newsflow picked up in European markets after a very quiet couple of weeks, as US earnings news impacted the market and European earnings started coming through as well. The STOXX Europe 600 Index has had a sharp recovery since the SVB/Credit Suisse situation in mid-March, trading up 6% over the past month. Feedback indicates that this move was something of a “pain trade” higher considering how negative investor sentiment was back in March. It is worth noting the Index is back at levels last seen in January 2022. In addition, Friday’s close was the highest recorded since 12 December 2007 for the EURO STOXX 50, a benchmark of Europe’s largest 50 companies.2

The French CAC Index has also been reaching record highs and was up 0.8% last week. Luxury heavyweights have performed well on the China reopening story.

In terms of sector performance, travel and leisure names outperformed last week, with some positive earnings in the space. A decline in crude oil boosted airliner stocks. There was a defensive bias too, with staples and utilities stocks both higher. This is actually a theme we have seen play out throughout the year.

European auto stocks had a torrid week, declining amid some weaker-than-expected earnings and talk of slowing demand in the second half of the year.

Looking at central bank chatter, European Central Bank (ECB) Chief Economist Philip Lane seemed to indicate policymakers are keeping options open. “As of now, two weeks away, I think the baseline is that we should increase interest rates in May but what we do in terms of scale, I’m not going to set a default number.”3 The market expects a 50 basis-point (bps) rate hike from the ECB at its next meeting.

Looking at macro data, the March UK Consumer Price Index (CPI) data was the main talking point. The year-over-year CPI came in at 10.1% vs. 10.4% prior. This higher-than-expected inflation print now sees the market pricing in a 25-bps rate increase in May and a terminal rate of 4.9% (the current rate is 4.25%).

Bloomberg gave us another example of the everyday impact of inflationary pressures for those who like a full cooked English breakfast. The Bloomberg “Breakfast Index,” which tracks the staples that make up a cooked breakfast, jumped to record highs, up 23% in the last year.4

That all said, it is worth noting the market expects inflation to fall sharply in the second half of the year as low energy prices feed into the data.

United States

US equities remained rangebound last week, with the S&P 500 Index essentially unchanged, down 0.1%. During April, the S&P 500 Index has traded in a tight range between 4100 and 4150, the smallest monthly trading range for some time.5

In terms of market themes, US corporate earnings dominated last week. Overall, earnings season has seen companies perform well. As we stand now, 88 companies in the S&P 500 have reported first-quarter 2023 earnings. About 75% of companies have beat expectations for earnings per share, and about 63% have beaten sales expectations.6 However, some market observers highlight that expectations were very low ahead of earnings season, with consensus expectations lower than historical averages.7

In the commodity space, the price of West Texas Intermediate crude oil declined about 6% last week, the first weekly drop following four consecutive weeks of gains on excitement over the surprise OPEC production cut faded and recession fears resurfaced. Energy stocks thus declined in tandem.

In terms of sector performance, defensives also outperformed in the United States, with staples stocks and utilities rising. Communication services was the worst performing sector.

There were a large number of Federal Reserve (Fed) speakers last week, with the overall tone sticking with the hawkish narrative. The market currently expects a 25-bps hike at the next Fed policy meeting.

Something to keep on the radar: There is increasing chatter around the United States hitting its debt ceiling in the coming months. The US government is closing in on its US$31.4 trillion debt limit, and an extension requires Congress approval. We have seen these standoffs before, but with an election ahead in 2024 and the Republicans controlling the Senate, the political stakes are high.

Asia Pacific

Last week was difficult in Asia, with most major markets in the red and only Japan in the green.

Hong Kong’s equity market started last week strong, but faded over the rest of the week to end down 1.78%, despite some better-than-expected data out from China.

Mainland Chinese equities traded off over the second half of the week even though China’s first quarter gross domestic product (GDP) came in at a higher-than-expected 4.5%.

US-China tensions remain a focus, as reports suggest US President Joe Biden is looking to sign an order within weeks to ban US investment in Chinese chip/AI/computing companies. As a result, artificial intelligence, semiconductor and telecommunications stocks were weaker on Friday, weighed down by concerns of further sanctions on key parts of the supply chain.

COVID-19 concerns were in focus on Friday after media reported new positive cases for the XBB variant. Anti-COVID drug stocks rallied.

Japan’s market was the outperformer on the week, closing the week up 0.25% as earnings season also started in Asia.

Ahead of this week’s Bank of Japan (BoJ) meeting, focus was on last week’s inflation data. Core CPI remained above the BoJ’s 2% target in March, coming in at 3.2%, adding pressure on the bank under its new Governor Kazuo Ueda to take steps to normalize monetary policy. However, ahead of his first monetary policy meeting on 27/28 of April, BoJ Governor Ueda reiterated the BoJ’s commitment to its easing stance until price stability is achieved. The BoJ is widely expected to make no changes to its yield curve control policy in April, with investors largely focused on the quarterly outlook report due after the monetary policy meeting, which includes inflation forecasts that could be revised upwards.

Japanese PMI data also came out last week and was largely in line with the prior readings. The services sector benefitted from the post-COVID-19 reopening.

The week ahead

Corporate earnings will continue to dominate this week, with tech heavyweights a focus in the United States. Microsoft, Alphabet, Meta and Amazon, all report this week. A large number of European and Asian companies also report earnings this week. In terms of macro data, a number of GDP and CPI data points will be in focus. Thursday’s BoJ meeting will be new governor Ueda’s first at the helm.

There are several upcoming market holidays, with all of Europe excluding Denmark closed on Monday 1 May.

Monday 24 April

  • Germany IFO Expectations
  • US Dallas Fed manufacturing survey

Tuesday 25 April

  • Spain PPI
  • US FHFA home prices
  • US New home sales
  • US earnings: Alphabet and Microsoft

Wednesday 26 April

  • Germany GfK Consumer Confidence
  • France Consumer Confidence
  • US Durable goods
  • Australia CPI
  • US earnings: Meta

Thursday 27 April

  • Eurozone Consumer Confidence
  • US GDP & Jobless claims
  • China Industrial Production
  • Us earnings: Caterpillar, Amazon

Friday 28 April

  • France GDP
  • France CPI & Consumer Spending
  • Spain CPI & GDP
  • Germany GDP
  • Italy GDP
  • Eurozone GDP
  • Germany CPI
  • US Personal income & Core Personal Consumption Expenditures prices
  • Japan Industrial Production and Tokyo CPI
  • BoJ Meeting

Views you can use

Quick Thoughts: The Fed—quantitative tightening or quantitative easing?
Can the Fed balance its objective of fighting inflation—and help save banks in turmoil? Stephen Dover, Head of Franklin Templeton Institute, opines. Read more. 

K2 Hedge Fund Strategy Outlook: Second quarter 2023
Given current market uncertainties, K2 Advisors remains defensive in terms of market outlook and beta positioning. Read the team’s latest hedge fund strategy outlook. Read more.

Value stocks—now and always
The value style is in the early stages of what Mutual Series believes could be a multi-year outperformance relative to growth. Read more.

Under the Macroscope: China’s consumption triangle—a possible trinity
China’s domestic consumption will be the biggest upside opportunity for overall growth performance in the next six to 12 months, according to Franklin Templeton Institute Investment Strategist Christy Tan. Read more. 


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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: Bloomberg, 24 April 2023.

3. Source: Reuters. “ECB’s Lane backs May rate hike with size depending on data,” 18 April 2023.

4. Sources: Bloomberg, ONS. Data as of 2013-2023. Indexes 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.

5. Source: Bloomberg. 24 April 2023.

6. Sources: BofA US Equity & Quant Strategy, FactSet. Historical average based on 2001-2022.

7. Ibid.

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