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

Equity market moves remained subdued last week, with index moves muted and seemingly a lack of conviction amongst investors. In the United States, focus on regional banks, the debt ceiling deadline and some benign US inflation were the key talking points. In Europe, the Bank of England (BoE) raised interest rates by 25 basis points (bps) as anticipated, although some of its economic forecasts were taken as hawkish. In Asia, we saw some lacklustre macro data from China raising some questions over the post-reopening economic rebound. On the week, the MSCI World Index declined 0.4%, the Stoxx Europe 600 Index was unchanged, the S&P 500 Index declined 0.3%, and the MSCI Asia Index declined 0.7%.1

Week in review

United States

The US banking crisis remains a market focus, with the KBW Regional Bank index ending last week down 6.2%.2 The Federal Reserve’s (Fed’s) Senior Loan Officer (SLO) survey showed further tightening in credit lending standards and weaker demand from both industry and consumers.

In terms of macro data, the April Consumer Price Index (CPI) headline was benign as it was largely in line with market expectations, rising 4.9% year-over-year (y/y) versus 5.0% previously. The Producer Price Index (PPI) also came in lower at 2.3% versus 2.7% prior. Some argue these recent inflation readings support a pause in the Fed’s rate-hiking path for now, as inflation continues to moderate. However, on Friday, the University of Michigan inflation expectations came in higher-than-expected, at a one-year expectation of +4.5% versus previous +4.6% and 5-10 year expectations at +3.2% versus previous +3.0%, the highest level since 2011.

The US debt ceiling deadline looms, and bipartisan talks failed to yield much progress. The two sides remain far apart in terms of resolving the potential crisis. Treasury Secretary Janet Yellen has warned the federal government could default as soon as 1 June, and that this could undermine the US and global economies.  Equity markets have held up well so far in the face of this, but there are some warning signs from US credit default swap (CDS) markets where spreads have widened.


European markets were also muted last week, with the STOXX Europe 600 Index unchanged and other indices in the region seeing little directional movement. Corporate earnings season remained the largest source of headlines, although that starts winding down this week.

Last week, the BoE hiked rates as expected by 25 bps from 4.25% to 4.5%; the vote was 7-2 as most expected (with two votes for on hold). This was the 12th consecutive hike and takes the rate to the highest level in 15 years. Recall, UK inflation has remained stubbornly high, with the recent headline CPI number coming in at 10.1%.

The monetary policy committee’s (MPC’s) economic forecasts garnered interest as the inflation forecasts were higher than expected, suggesting rates will continue to rise. The forecasts:

  • The biggest upward revision to gross domestic product (GDP) in the MPC’s history as the UK economy is now seen growing by 0.25% in 2023, having previously contracted 0.5%. So, the United Kingdom is seen avoiding recession.
  • A smaller increase in unemployment than anticipated in February when the committee last updated its outlook.
  • On inflation, the MPC revised inflation forecasts higher, admitting it underestimated strength and persistence of food price rises. The committee now expects to hit its 2% target in 2025 versus next year.
  • Inflation is expected to fall to 5.1% in the fourth quarter vs. the previous forecast of 5.1%. These new inflation forecasts can be seen as hawkish.
  • The MPC signalled further tightening will be needed to bring inflation under control. The market sees another 25 bps rate hike in June (22).

Following the European Central Bank (ECB) meeting the prior week, some ECB-speak last week leaned hawkish. Klaas Knot, president of De Nederlandsche Bank, said the ECB needs to continue raising interest rates amid a “too high” underlying inflation rate. ECB President Christine Lagarde said the ECB’s fight with inflation isn’t over and more action is still required. While inflation is well down from its double-digit peak, she said the outlook could face “significant upside risks”.

In terms of macro data, Germany’s industrial production decreased 3.4% in March, highlighting the challenges facing its manufacturing sector.

The latest Turkish presidential election has been grabbing headlines this morning. Voting over the weekend resulted in a better-than-expected performance for President Recep Tayyip Erdogan. However, he failed to secure enough votes to surpass the 50% threshold required to win outright. Erdogan won 49.4% of the votes vs. 45.0% for his challenger Kemal Kilicdaroglu. Therefore, assuming no issues with counting or complaints, the race will go to a second round of voting on 28 May.

It is not clear yet who the third-place finisher Sinan Ogan will choose to support, and this uncertainty has driven moves in Turkish equity markets today. The Borsa Istanbul was down 6% as of this writing, but was down as much as 6.5% at the open 15 May.


In Asia, markets in mainland China as well as Hong Kong were lower last week, weighing on overall performance in the region. Japanese equities outperformed, with the Nikkei up 0.8% and the TOPIX nearing 30-year highs.

Chinese macro data softened overall last week, leading some to suggest the reopening bounce is fading.

  • April export growth slowed to 8.5% y/y.
  • While exports grew, imports fell sharply by 7.9% y/y in April.
  • Chinese CPI rose 0.1% in April. The PPI declined 3.6%.
  • April credit data was weaker, with new yuan loans totalling CNY 718.8 billion.

Japan’s corporate earnings helped Japanese equities push higher last week. Auto stocks outperformed on earnings.

Week ahead

Noise around the US debt ceiling will likely grow as we approach the June deadline. On a micro level, it will be quieter as corporate earnings season winds down, but it’s important to keep a close eye on the situation surrounding US regional banks.  The macro data focus is on some key industrial production data prints through the week, as well as retail sales in China, the United States and Japan.

In Europe, there are several mid-week holidays which will likely see quieter volume in the region.

Monday, May 15

  • United States: Empire Manufacturing
  • China: Retail Sales, Industrial Production, fixed investment
  • Eurozone: Industrial Production. Finland/Sweden: CPI. Switzerland: PPI

Tuesday, May 16

  • United States: NY Fed Services Business Activity and Retail Sales, Industrial Production, Capacity Utilization, and Manufacturing Production. Business Inventories and NAHB Housing Market Index
  • Japan: GDP
  • Eurozone: GDP. United Kingdom: Unemployment Rate. Italy: CPI. Germany: ZEW Econ Sentiment

Wednesday, May 17

  • United States: Mortgage Applications, Housing Starts, Building Permits.
  • Japan: Industrial Production, Trade Balance
  • Eurozone: CPI
  • Holidays: Norway, Sweden (half-day)

Thursday, May 18

  • US: Jobless Claims, Continuing Claims, and Philadelphia Fed. Existing Home Sales and Leading Index
  • Holidays: Norway, Sweden, Denmark, Switzerland, Latvia, Estonia, Lithuania, Finland

Friday, May 19

  • Holidays: Denmark, Turkey

Views you can use

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On My Mind: The Fed fights inflation, the markets fight the Fed
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PODCAST Anatomy of a Recession update: The dominoes are falling
Jeff Schulze, Head of Economic and Market Research at ClearBridge Investments, provides us with an update on the Recession Risk Dashboard, a current view of those lagged effects, and perspective on first quarter earnings. In addition: the debt ceiling and perspective on the latest Fed meeting. 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,  The KBW Regional Banking Index is designed to track the performance of US companies that do business as regional banks or thrifts. 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.

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