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 Investments 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 equity markets continued their recent slump as familiar themes of weak Chinese data and rising bond yields weighed on sentiment. In China, fresh concerns about the property sector surfaced after Country Garden Holdings, China’s largest property developer by sales, suspended trading of some of its bonds. This spooked investors, and weak Chinese retail sales and industrial output data added to the gloom. In Europe and the United States, market newsflow was quieter, with earnings season largely behind us and trading volumes low due to the summer holiday season.

Inflation concerns remained a theme, with UK wage growth stronger than expected and July Consumer Price Index (CPI) data falling, but still “sticky”.

The MSCI World Index had its worst weekly performance since March, down 2.5% last week, whilst the S&P 500 Index was down 2.1% and the STOXX Europe 600 Index was down 2.3% and the MSCI Asia Pacific Index was down 3.6%.1

Week in review


Last week was another disappointing one for European equities, as the STOXX Europe 600 Index saw its third consecutive weekly decline amidst rising interest rates, worsening Chinese economic data and low late-summer liquidity. European growth heavyweight Adyen also impacted investor sentiment after reporting its slowest revenue growth on record.

Overall, growth stocks underperformed, while value and defensives continued to outperform versus cyclicals for a second week in a row.

Real estate continued to struggle last week and could see another poor showing as UK’s Rightmove index, which tracks the cost of homes coming to market, fell 1.9% to £364,895 ($465,620) in August.2 It was the biggest decline for August since 2018 and the sharpest drop since the end of last year.

European equity funds saw another weekly outflow of US$1.3 billion, marking 23 weeks in a row of outflows.3

It’s worth noting that August-September mark an historically weak time of the year for equities in both Europe and the United States, a trend which looks so far to be playing out again this year.

UK macro data last week was interesting. There were mixed messages from the July employment data, with stronger-than-expected weekly earnings (+7.8%), but a slightly higher unemployment rate at 4.2%. UK July CPI came in slightly hotter than expected at 6.8%, though lower than the Bank of England’s (BoE’s) expectations. Core inflation remains sticky—unchanged at 6.9%. The market currently sees the BoE rate peaking at 6%, up from the current rate of 5.25%.4

The latest BofA Fund Managers’ Survey revealed that UK equity-focused funds saw US$20 billion in outflows year to date, but sentiment is now starting to show signs of improvement.5

United States

US equities finished broadly lower last week, with markets still in the summer doldrums. The S&P 500 Index finished down 2.1%, whilst the Dow Jones Industrial Average and Nasdaq Index were each down 2.2%. The S&P 500 Index has now fallen 5.25% from its July highs, the largest retracement since February/March. A series of factors continue to weigh on investors’ risk appetite, such as rising rates, uncertainty around the conclusion of Federal Reserve (Fed) tightening, and doubts on the sustainability of disinflation.

All US equity market sectors finished lower on the week, but technology outperformed, given recent oversold conditions. Consumer discretionary stocks were particularly weak last week, with the underperformance seemingly tied to a rotation out of some of the year-to-date winners. Real estate investment trusts remained weak as sentiment remains firmly negative around the rate-sensitive global real estate sector.

Rising interest rates continue to be a concern for equity investors, as the US 10-year Treasury yield hit 4.33% last week, its highest level since 2007. The rise was partly attributed to improving data, reinforcing fears that rates will remain “higher for longer”.

The third quarter Atlanta Fed GDPNOW reading was revised upwards last week to 5.8% vs. 5.0% in the previous week amidst stronger-than-expected retail sales numbers and upward revisions for June. July retail sales jumped to +0.7% vs. +0.3% previously.

The prices paid components of the August Fed data saw notable upticks last week too, with the Empire prices paid at 25.2 vs. 16.7 in June, whilst the Philadelphia Fed survey also showed a significant increase in prices paid, 20.8 vs. 9.5 previous.

The Federal Open Market Committee July meeting minutes highlighted the two-sided risks, stating that “most participants continued to see significant upside risks to inflation, which could require further tightening” but also noted that they “no longer judged that the economy would enter a mild recession”.6 The market continues to expect the Fed to raise interest rates another 25 basis points (bps) before the end of the year.

The CNN Fear and Greed Index has fallen sharply over the summer, reflecting the slump investor sentiment. It has fallen from “Greed” to “Neutral” in the past week, hovering just above “Fear” territory.7

Asia Pacific

Last week equities in Asia weakened, with the MSCI Asia Pacific Index trading down 3.65%. Hong Kong’s equity market was the worst performer with a decline of 5.89%.

The main focus was the weaker data out of China and concerns around the real estate space, with several of the largest property companies missing interest payments.


The Shanghai Composite Index declined 1.8% last week, and China’s currency came under pressure amidst weaker economic data and real estate sector worries. The Peoples Bank of China cut rates on one-year loans by 15 bps to 2.5% to bolster the economy, but many market observers saw the move as too little, too late.

On the data front, July data missed market expectations across the board, of note:

  • July retail sales +2.5%
  • Industrial output +3.7%
  • January-July Fixed investment +3.4%
  • July new home prices -2.5%

Some investment banks cut their forecasts for Chinese economic growth, suggesting the situation may be even worse than is being reported. In addition, the government announced it will pause publishing data on the youth unemployment rate until “surveying methods have been improved”. The June reading was 21.3%.

In addition, there are reports that some real estate companies have been defaulting on interest payments. Country Garden suspended trading in a number of its onshore bonds, and if Country Garden goes into default, it may hit the sector even harder than Evergrande’s collapse, considering Country Garden’s project size. Markets have been hoping for a significant rescue package from the government, but so far the markets have been disappointed.

Finally, ratings agency Fitch announced it may reconsider China’s A+ rating if bank and corporate debt become “real liabilities for the government”.

Hong Kong

Stocks in Hong Kong traded lower for the third consecutive week amidst China’s property-sector woes and fresh data that pointed to a weak economy. Even Beijing’s unexpected key policy rate cut failed to stem the bearish sentiment.

Auto stocks weakened after Tesla cut prices twice within a week; meanwhile, at least 10 brands in China cut prices since August, reigniting concerns of a price war.

As discussed, Chinese real estate developers plunged on default concerns.


The Nikkei dropped 3.15% last week, as US Treasury yields remained at elevated levels and the selloff in stocks on mainland China and Hong Kong continued.

The yen continued to weaken against other currencies last week. The US dollar reached a nine-month-high against the yen at mid-146 on Thursday but closed the week slightly off that peak.

Week ahead

This week, the Fed’s annual central banker conference at Jackson Hole, Wyoming (Thursday/Friday) should capture investor attention, along with earnings from tech giant Nvidia (Wednesday after the market close). With little Chinese macro data scheduled this week, the market should get some respite there.

Monday 21 August

  • United Kingdom: Rightmove House Prices (August), CBI Total Dist./Retailing Reported Sales (August)
  • Germany: Producer Prince Index (July)

Tuesday 22 August                    

  • United Kingdom: Public Finances (PSNCR)/ Central Government NCR (July), Public Sector Net Borrowing (July), PSNB ex Banking Groups (July)
  • Euro area: EMU: European Central Bank Current Account SA (June); ITA: Current Account Balance (June)
  • United States: Philadelphia Fed Non-Manufacturing Activity (August), Existing Home Sales (July), Richmond Fed Manufacturing Index/Business Conditions (August)

Wednesday 23 August

  • United Kingdom: S&P Global/CIPS UK Manufacturing/Services/Composite Purchasing Managers Index (PMI) (August)
  • Euro area: EMU: HCOB Eurozone Manufacturing/Composite/Services PMI (August), Consumer Confidence (August); FRA: HCOB France Composite/Manufacturing/Services PMI (August); GER: HCOB Germany Manufacturing/Service/Composite PMI (August)
  • United States: MBA Mortgage Applications (August), S&P Global US Manufacturing/Services/Composite PMI (August), New Home Sales (July)

Thursday 24 August

  • France: Business/Manufacturing Confidence (August), Own-Company/Production Outlook Indicator (August); Germany: Import Price Index (July)
  • United States: Chicago Fed Nat Activity Index (July), Durable Goods Orders/Ex Transportation (July), Cap Goods Orders/Ship Nondef Ex Air (July), Initial Jobless/Continuing Claims (August), Kansas City Fed Manufacturing Activity (August)

Friday 25 August

  • Germany: Private Consumption/Government Spending/Capital Investment (second quarter), Gross domestic product SA/NSA/WDA (second quarter), IFO Business Climate/Current Assessment/Expectations (August)
  • United States: University of Michigan Sentiment/Current Conditions/Expectation/1-Yr/5-10 Yr Inflation (August), Kansas City Fed Services Activity (August)

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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: Rightmove House Price Index. August 2023. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges.

3. Source: EPFR, “Cashing in and going on holiday.” 21 August 2023.

4. Source: Bloomberg World Interest Rate Probability. Pricing as of 21 August 2023. There is no assurance any estimate, forecast or projection will be realised.

5. Source: BofA European Fund Manager Survey, BofA Global Research.

6. Source: Reuters, “Fed officials divided in July over need for more rate hikes, minutes show.” 16 August 2023.

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.

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