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 

Last week was another quiet one for equity markets, with few catalysts to excite investors. Focus was primarily on the mid-week release of Nvidia’s second-quarter earnings and the annual central banker gathering at Jackson Hole, Wyoming. Neither event generated meaningful moves for equity markets, and overall moves were somewhat muted over the course of the week. The MSCI World Index closed up 0.5%, the STOXX Europe 600 Index was up 0.7%, the S&P 500 Index gained 0.8% and the MSCI Asia Pacific was up 0.2%.1 

Jackson Hole

Most major central bank leaders made comments at the Federal Reserve’s (Fed’s) annual gathering in Jackson Hole but didn’t give us any huge shocks in terms of policy direction.

Fed Chair Jerome Powell warned in his speech that “additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy”.2 However, Fed officials noted it would “proceed carefully” on any further rate hikes. There was no real forward guidance regarding the September meeting, instead emphasising data dependence.

There was some market volatility as Powell spoke and, in the end, the S&P 500 Index closed just slightly higher on Friday after Powell’s speech. The next meeting is on 20 September and we still have the August employment report (out on September 1) and Consumer Price Index (CPI) data (September 13) before then.

The European Central Bank’s (ECB’s) Christine Lagarde also spoke at Jackson Hole, generally discussing the unique macro challenges, rather than getting into specifics on rate guidance. She covered topics ranging from tighter labour markets, green transition for economies and fragmenting geopolitics. Of note, she commented, “There is no pre-existing playbook for the situation we are facing today—and our task is to draw up a new one.”3 She did state the need to set rates at “sufficiently restrictive levels for as long as necessary” to bring inflation back to target in a timely manner.

Bank of England (BoE) Deputy Governor Ben Broadbent made some hawkish comments. He stated the BoE will have to keep interest rates high for longer because inflation is unlikely to fade as quickly as it emerged, despite sharp falls in gas and producer prices. “It’s unlikely that these second-round effects will unwind as rapidly as they emerged. As such, monetary policy may well have to remain in restrictive territory for some time yet.”4 Markets are currently expecting at least two more rate increases.

Bank of Japan (BoJ) Governor Kazuo Ueda said price growth remains slower than the central bank’s goal, explaining why officials are continuing with their current monetary-policy strategy. “We think underlying inflation is still a bit below our target of 2%. “This is why we are sticking with our current monetary easing framework”,5 he said.

Week in review


European equities eked out small gains over the past five days on light trading volumes and news flow.  This was the first positive performance in four weeks. There were few catalysts from Europe itself, given the ongoing holiday season, with focus on events overseas such as Jackson Hole and Nvidia earnings.

European bond yields pulled back last week. As such, utilities were the best performing sector. Meanwhile, retailers declined on negative US retailer news flow. Looking at factor performance, there was evidence of a flight to safety.

In terms of fund flows, European equities saw a 24th week of outflows.6

Regarding Europe’s energy outlook, it was worth noting European gas reserves hit their winter target of 90% full, months ahead of their November target.7

In terms of European-specific news, the most notable event was some messy Purchasing Managers Index (PMI) data from both the eurozone and the United Kingdom. Eurozone Composite PMIs missed expectations, as the Services PMI made a surprise slip into contraction territory, coming at 48.3. In the United Kingdom, the PMI data missed expectations across the board, with Services PMI an even bigger miss than in Europe, slipping into contraction with a reading of 47.9. UK Manufacturing activity slumped to a 39-month low.

The next BoE and ECB meetings are in September, so there is plenty more data before then, but more data like this will question the “higher for longer” policy.

Sticking with the United Kingdom, a couple of other negative data points stood out. The BoE relayed that rising interest payments relative to corporate earnings is making it difficult for some medium and large companies to repay debts. Meanwhile, UK construction companies have gone out of business at the highest rate in a decade.8

United States

US equities made small gains last week, with the S&P 500 Index up 0.8% thanks to gains in technology stocks. The Nasdaq 100 Index was up 1.7% and the FANG+ Index was up 2.7%. As an indication of the lack of conviction lately, the S&P 500 Index has not posted two straight positive days in August, with markets see-sawing through the month.

Market focus was on the Nvidia earnings, which were positive. However, Nvidia shares drifted a little after the dust settled on the earnings news, as a lot of good news was priced in already.

Elsewhere, US macro data softened. Of note, the August PMI was weak at 50.4 vs. previous 52.0, with manufacturing slowing at a faster rate, and services catching up at 51.0 vs. 52.3. The University of Michigan Sentiment survey also was weaker than expected at a reading of 69.5, vs. previous 71.2, with a tick up in inflation expectations.

Finally, there were some tough moves for US retailers last week after giving some disappointing outlooks.

Investor sentiment gauges point to a lack of conviction too, with the CNN Fear and Greed Index firmly in ‘Neutral’ territory.9


Last week was a much better, if somewhat volatile, week for Asia, with the MSCI Asia Pacific Index trading up slightly. South Korea’s benchmark equity index was the best performer (+0.58%) and mainland China was the worst (-2.17%) last week.

Focus last week was on Jackson Hole central bank meeting, Nvidia and earnings in Hong Kong/China.

Nvidia’s numbers split the week in two, with investors buying artificial intelligence/technology/semiconductor stocks ahead of the earnings release on Wednesday, then turning to selling after, mirroring the reaction seen in the United States. Tech stayed well bid for most of the week, which helped markets in South Korea, Japan and Taiwan end the week in the green. However, almost all markets saw some turnover, hitting recent lows on what seemed like a combination of summer holidays, lack of willingness to move ahead of Jackson Hole, digesting earnings and low conviction.


Last week saw mild gains overall in Japanese equities. The market was stronger four days in a row, with tech stocks driving gains ahead of Nvidia’s earnings announcement, along with banks, which rose after Japanese government bond yields reached new nine-year highs. However, the Nikkei Index reversed engines on Friday on the back of tech profit-taking following Nivida’s move overnight and on renewed concerns about China’s slowdown.

On the macro front, there was some positive news last week, with the Flash PMI number rising to 52.6 in August, up from 52.2 in July, and there was a slowdown in the rate of decrease in factory activity.

The Japanese yen closed lower vs. the US dollar last week. US interest rates crept higher ahead of Powell’s speech at Jackson Hole and yields on Japanese government bonds rose sharply, touching 0.68%, the highest level in almost a decade.10

Overall, in terms of activity it was an extremely quiet week: Tokyo Stock Exchange turnover was even lower than last week when domestic investors were out for the Obon summer holiday.


Last week was another poor week for equities in China, with the Shanghai Composite Index dropping 2.17% last week (its lowest level since December).

Debt worries continue to dominate. Also, disappointing economic data, concerns about deflation, record youth unemployment and property/trust sector concerns continue to dampen sentiment.

A sense that the government has few tools left in its toolbox to reinvigorate the economy and reverse some of these trends is also not helping. Having said that, the government is trying a few things.

On Friday, Chinese officials outlined new rules which would allow local governments to scrap an existing rule that disqualifies people who have previously had a mortgage from being considered a first-time buyer in major cities. This may inject some momentum back into the retail property market. Also, it was announced that the Shanghai and Shenzhen stock exchanges will cut the exchange levy by 0.146 basis points (bps) to 0.341 bp effective from 28 August, and that the China Securities Regulatory Commission (CSRC) will adjust the pace of initial public offerings (IPOs) and refinancing and ban major shareholders of listed companies that trade below their IPO price from reducing their stakes.

Finally, China’s largest mutual fund houses and major state-owned enterprise brokers promised to buy their own equity-focused products, heeding calls from authorities to support the market.

However, all these measures failed to boost Chinese A shares last week, as investors expected more meaningful/impactful policies from the government.

Hong Kong

Hong Kong’s benchmark stock index ended last week essentially unchanged after three weaker weeks, closing up 0.03%.

Stocks started the week poorly, with the market plunging to a nine-month low on Monday, but the market rallied back over the course of the week. China brokers traded mixed, as the CSRC’s latest policy to boost capital markets failed to shore up investor confidence. Chinese developers plunged after more disappointing earnings and expectations of a cut in the loan prime rate that didn’t materialize.

Film stocks rallied after China’s summer holiday box office sales surged to record highs, exceeding a previous high in 2019, thanks to a raft of blockbuster films.

The week ahead

It looks to be a slow start to the week in Europe, thanks to a Monday UK bank holiday, but there are several global macro data points later in the week that could garner investor interest. Furthermore, month-end on Thursday will likely generate better market volumes.

In the United States, the key event will be monthly employment data on Friday. In addition, the important Personal Consumption Expenditures data (Thursday) and a number of Fed speakers.

In Europe, focus will be on euro-area inflation figures and ECB meeting minutes (Thursday), and UK mortgage approvals (Wednesday) and House Prices (Friday).

Asian focus will be on Chinese official PMIs on Thursday and the Caixin manufacturing PMI on Friday. In Japan, unemployment numbers are due out on Tuesday and industrial production numbers on Thursday.

Next Monday is a US bank holiday, Labour Day.

Monday 28 August

  • Eurozone M3 Money Supply
  • Japan Unemployment Rate

Tuesday 29 August                    

  • Sweden gross domestic product
  • Germany Consumer Confidence
  • Spain Retail Sales

Wednesday 30 August

  • Spain HICP Inflation
  • Germany HICP
  • UK House Price Index, Mortgage Approvals, M4 Money Supply
  • Eurozone Economic Sentiment Indicator
  • Italy Business and Consumer Confidence
  • Japan Retail Sales
  • China PMI-Manufacturing, PMI-Services
  • US ADP; Core PCE

Thursday 31 August    

  • France HICP Inflation
  • Italy HICP Inflation
  • Euro-area CPI Inflation estimate
  • Germany Retail Sales
  • Switzerland Retail Sales
  • ECB Monetary Policy Account
  • Japan Housing Starts
  • China Caixin PMI-Manufacturing
  • US Personal Income; Personal Spending; PCE Deflator; and PCE Core Deflator

Friday 1 September

  • UK Nationwide House Price Survey; PMI-Manufacturing
  • Eurozone PMI-Manufacturing
  • US August nonfarm payrolls, unemployment rate and average hourly earnings; Labor Force Participation; ISM-Manufacturing


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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: Reuters. “Factbox: Highlights of Fed Chair Powell’s Jackson Hole Speech”. 25 August 2023.

3. Source: Bloomberg. “Lagarde Policy Silence Keeps ECB Interest-Rate Debate Raging”, 28 August 2023.

4. Source: Bloomberg. “BOE’s Broadbent Warns UK Rates Need to Remain High for Some Time”, 26 August 2023.

5. Source: MarketWatch. “BOJ chief says current strategy is warranted by below-target inflation in Japan”. 27 August 2023.

6. Sources: Bloomberg, EPFR Global.

7. Source: European Commission, 18 August 2023.

8. Source: Financial Times. “UK construction companies go under at fastest rate in a decade”. 23 August 2023.

9. 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.

10. Source: Bloomberg.

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