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 equity markets drifted lower in quieter trading given the Monday US Labour Day holiday. In the United States, weaker performance from some technology heavyweights weighed on the market. In addition, solid US macro data prompted some to suggest it would lead to a more hawkish Federal Reserve (Fed) stance. Weaker macro data weighed on markets in Europe and Asia. Last week, the MSCI World Index declined 1.4%, the STOXX Europe 600 Index declined 0.8%, the S&P 500 Index declined 1.3% and the MSCI Asia Pacific declined 1%.1 

Week in review

United States

US equity markets were lower in a holiday-shortened week, with the S&P 500 Index down 1.3%, but staying above support at 4450, closing at 4457. Elsewhere, the Dow Jones Industrial Average held up slightly better, declining only 0.7%, while the Nasdaq 100 declined 1.4% and Russell 2000 declined 3.6%.

In terms of drivers, investor focus is mainly on the upcoming Fed meeting (20 September), and some stronger macroeconomic data suggested the possibility of a more hawkish tilt. Of note, the Institute of Supply Management (ISM) Services Index hit a six-month high of 54.5. Last week, Dallas Fed Bank President Lorie Logan and Fed Governor Christopher Waller both suggested a pause in policy adjustments ahead. The market does not see much chance of a rate move in September, with only a 7% chance of a rate hike currently,2 so focus will be on the tone of the commentary.

Over the weekend, US Treasury Secretary Janet Yellen stated she felt confident that the US will avoid a recession.

Elsewhere, shares of Apple fell 6% last week amidst reports that China banned government employees from using iPhones and other Apple devices at work. Recall that much has been made of how a few tech heavyweights have driven US market index gains of late, so any weakness in the sector is likely to cause concern.

Finally, The US dollar gained ground in the last eight weeks, which represents its longest run of positive weeks since 2005.3Several factors have been at play, including weaker sentiment in other regions, particularly Asia and Europe.


European equities drifted lower last week on lighter trading volumes (US Labour Day having an impact). While no single-day move was huge, the eight consecutive down days in the STOXX Index marked the worst run since 2016. Thankfully, a small gain on Friday (+0.2%) ended that run. Sector-wise, media stocks were strong, while luxury goods were the weakest.

Macro data and central bank speakers were front and centre, as the theme in Europe remains one of slowing growth. German Factory Orders and Industrial Production reports last week both came in well below expectations, while Purchasing Managers Index (PMI) data out of Spain and Italy were weak. The Eurozone Composite PMI was revised lower to 46.7, down from the previous estimate of 47.0.

Italian and German government bond spreads widened. last weekend saw three pieces of news raising fiscal concerns in Italy: new, higher, spending estimates for the Superbonus tax breaks; stabilizing but a still-high year-to-date cash deficit; and faltering gross domestic product (GDP) growth.

Elsewhere, some borderline hawkish commentary from Bundesbank President Joachim Nagel started to move European Central Bank (ECB) rate-hike pricing higher when he said it would be premature to speculate right now about rate cuts.  The market is pricing a 37% probability of a rate hike on September 14.4

Corporate loan costs might be another area to keep an eye on, as some reports are showing potential signs of credit distress.

Looking at fund flows, Europe-focused equity funds recorded a 25th consecutive weekly outflow (US$0.32 billion last week), but it was the second-smallest in 2023.5 Europe-focused funds have seen US$49.2 billion of outflows year-to-date, mostly from active funds.

Switzerland has seen the largest inflows this year (US$1.3 billion), while the United Kingdom has recorded the largest outflows (US $23.5 billion).6


Last week Asian stocks weakened a bit.

The MSCI Asia Pacific closed the week down 1%, reflecting the concerns about the Chinese economy, US-China geopolitical tensions and continued concerns around the weaker Japanese yen and Japan’s yield-curve control (YCC) policy.

In Australia, the Reserve Bank of Australia kept interest rates unchanged, but indicated some further rate hikes may be needed, depending on what the data show. This week so far, better-than-expected China lending data and further verbal support around China’s currency are aiding market sentiment. Bank of Japan Governor Kazuo Ueda suggested that the central bank might normalize interest rate policy by year end.


The Nikkei closed last week down 0.32% as the usual concerns over a global slowdown and demand drop off impacted markets.

A downward revision to second-quarter growth (4.8%) weighed on markets.

The other focus last week was the weaker yen. The government issued a warning against speculators without giving many details. Ueda’s hawkish comments over the weekend drove a near-1% surge in the yen as we kick off the trading week.

Looking at sectors, refiners and mining stocks were the best performers last week after OPEC+ prolonged oil supply curbs.

Outperformance in real estate stocks was also notable, with the sector appearing to be benefit from foreigner-driven rotation out of China into Japan after the weaker China August macro data.

On the flip side, technology/semiconductor stocks declined after the news that China is seeking to broaden its iPhone ban to state firms and agencies.


The Shanghai Composite Index closed the week down 0.53%, mainly due to weaker macro data and heightening geopolitical tensions.

The Caixin August Manufacturing PMI survey came in at a below consensus 51.8, the slowest increase since December, but still in expansion territory (50 or above).

However, there was some slightly softer import/export data, with many commentators suggesting the government’s efforts to boost demand are starting to kick in.

As noted, one of the main headlines last week was the government’s ban on certain employees from using iPhones in the workplace, which led to a >6% drop in Apple’s share price.

On a more positive note, the government started to deliver on the property demand boost policies which were signalled previously. Local government subsidies/relaxations were the main focus, along with bank interest-rate cuts on existing mortgage loans.

Hong Kong

The Hang Seng Index closed the week down 0.98%, mainly on the read across from weaker Chinese markets. It didn’t help that the markets were closed on Friday due to a heavy rainstorm that flooded the city.

Shares of Chinese developers rallied after more “Tier 1” cities let first-home buyers enjoy preferential rates on mortgages.

Chipmakers were in focus last week after Huawei was reported to have built an advanced seven-nanometer processor to power its latest smartphone supplied by SMIC. Meanwhile, China will reportedly set up a US$40 billion state fund to boost the chip industry.

Shares of Chinese airlines followed overseas peers lower after Brent crude oil rose above US$90 a barrel for first time since November, as the largest OPEC+ producers extended their supply cuts to year-end. Supply chain names tied to Apple were under pressure.

The week ahead

Two events stand out this week: the US Consumer Price Index (CPI) report on Wednesday and the ECB policy meeting on Thursday. Worries of stagflation remain a concern in Europe, so odds of a rate hike are less than 50% at present. A number of data releases in China will also capture attention, including the August CPI and Producer Price Index (PPI) reports on Saturday, August foreign direct investment (FDI) on Monday, and August Industrial Production (IP) and retail sales reports on Friday.

Monday 11 September

  • EU 2023 Interim Economic Forecast
  • Germany August Wholesale Price Index
  • Italy July IP
  • Norway CPI & PPI including oil
  • Bank of England’s (BoE’s) Pill speaks
  • Chinese Money Supply

Tuesday 12 September                     

  • EU, Germany Sep ZEW Survey Expectations
  • UK Aug Payroll Change, Jobless Claims, July Average Earnings
  • Sweden PES Unemployment Rate
  • Spain CPI
  • Bank of England’s Mann speaks

Wednesday 13 September

  • Eurozone July IP
  • UK July GDP, IP, Index of Services, Trade Balance
  • Italy Unemployment Rate Quarterly
  • US August CPI, Average Earnings, Monthly Budget Statement
  • Japanese PPI

Thursday 14 September    

  • UK August House Price
  • ECB Policy Meeting
  • Sweden CPI
  • US Initial Jobless Claims, August Retail Sales, PPI, July Business Inventories

Friday 15 September

  • EU July Trade Balance, Second-Quarter Labour Cost
  • UK BoE releases inflation expectations
  • Norway Trade Balance
  • France CPI
  • Italy CPI & Trade Balance
  • US August Export & Import Price Index, IP; September Empire Manufacturing, University of Michigan Sentiment survey
  • People’s Bank of China One-Year Lending Facility Rate

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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, Based on the Fed funds futures market. There is no assurance that any estimate, forecast or projection will be realised.

3. Source: Bloomberg Dollar Spot Index. As of 11 September 2023. 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.  

4. Source: Bloomberg, Overnight Index Swaps. There is no assurance that any estimate, forecast and projection will be realised.

5. Source: BofQ European Equity Quant Strategy, EPFR Global.

6. Ibid.

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