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 tough for global equities, with most major indices trading lower following a “hawkish pause” from the Federal Reserve (Fed), sending Treasury yields and the US dollar higher. Elsewhere, there were several other central bank meetings, including the Bank of Japan (BoJ), Bank of England (BoE), Swiss National Bank (SNB), and the Riksbank. For the week, the MSCI World Index declined 2.7%; the STOXX Europe 600 Index declined 1.9%; the S&P 500 Index declined 2.9%; and the MSCI Asia Pacific declined 2.3%.1

Week in review

United States

US equity indices were lower across the board last week, with a risk-off tone following the Fed meeting. The S&P 500 Index closed below its 50 and 100-day moving averages2 and well below 4400, where the index had found some support in recent months. The Dow Jones Industrial Average fell 1.9%, the Nasdaq 100 Index was down 3.3%, and Russell 2000 was down 3.8%. With that, most US indices have now seen three weeks of declines.

As noted, the Fed decided to pause, keeping its key interest rate steady at 5.25%-5.5%. It adopted a more hawkish stance by revising its “dot plot” of projections higher, signalling a longer period of elevated interest rates. Fed Chair Jerome Powell’s comment that the Fed was “fairly close…to where we need to get”3 was inferred to mean that they weren’t “there” yet.

The latest quarterly projections show that 12 of the 19 Federal Open Market Committee (FOMC) participants favoured another rate hike in 2023. In another hawkish slant, the committee members now project the fed funds rate at 5.1% by the end of 2024, up sharply from a 4.6% projection back in June, and above market estimates of around 4.9%. Furthermore, the 2025 projection also showed a more hawkish outlook, rising to 3.875% from the prior 3.375% forecast.4

Following the Fed meeting Treasury yields pushed higher, with the US two-year yield at 5.1%. In the equity markets, a risk-off theme was clear, with consumer discretionary stocks declining whilst defensive sectors held up the best, including health care and utilities. Tech stocks declined sharply as a higher rate environment means higher funding costs. Investor sentiment within the CNN Fear & Greed Index slumped well into “Fear” category.5

In terms of weekly fund flows, US equities saw US$16.9 billion from stocks (the largest since December 2022).6

Finally, the auto industry continues to suffer from the ongoing United Auto Workers union strikes, which have expanded to further sites.


European equities finished last week lower, with the Fed’s “hawkish hold” spooking investors.

Thursday was the big day for central bank action in Europe. The BoE decided to keep rates on hold at the 5.25% base rate. At the start of the week, a hike was viewed as very likely, but the release of the August Consumer Price Index (CPI) on Wednesday (which saw the heading reading at 6.7%) reduced the probability of that down to a coin toss. The vote to keep rates on hold was close at 5-4. The reasoning for the hold centred on a weakening labour market, moderating wage pressures, and easing headline and services inflation.

UK domestic stocks traded higher on the BoE headline but pared those gains into the end of the week. Sterling closed the week down 1.0% vs. the US dollar. We would note that the surprise central bank rate hold has raised questions of a policy error, given that US core inflation is at 4.3%, whilst UK core inflation is still at 6.2% (as of August). Oil prices have moved higher since August, and so inflation is very likely to persist, meaning further action will likely need to be taken.

Also on Thursday, the SNB kept interest rates on hold. The Swedish Riksbank and the Norges Bank both raised by 25 basis points, in line with market expectations.

Last week, European value stocks continued to outperform European growth. Bank stocks were amongst the outperformers in Europe, along with telecommunications, food and beverage stocks, as defensives were generally favoured over cyclicals. Travel & leisure stocks notably lagged last week.

Looking to fund flow data, European equity outflows picked up again, with US$3.1 billion in outflows, the region’s 28th consecutive week of outflows.7

UK assets in focus

Following last week’s UK CPI decline and BoE hold, UK equities are back in focus—and some analysts are suggesting they look undervalued.

We noted a couple of weeks ago that the United Kingdom recorded the largest year-to-date outflows in Europe (US$23.5 billion),8 so it would not be a surprise to see a bit of a rebound.  

On the data front, the UK consumer remains resilient, as the latest UK GfK Consumer Confidence Index rose four points to -21 in September, the strongest level since January 2022 before the Russian invasion of Ukraine triggered a surge in energy bills. However, some are questioning how sustainable this consumer resilience is, particularly given that UK credit card debt continues to move higher.

The August UK Purchasing Managers Index (PMI) came out at 46.8, further supporting the idea the BoE is reaching peak rates. The BoE took the unusual step of stating it looked at this data before it was published when making its decision to pause.


Asian equities declined last week, with the hawkish Fed weighing on the markets.

Friday’s BoJ announcement was in focus, but there was very little to be taken from it. The central bank kept rates on hold at -0.1% and noted no immediate change in existing policy, maintaining interest rate settings and forward guidance. In his press conference, Governor Kazuo Ueda’s comments were taken as dovish, as he noted the need to be patient as the goal of sustainable 2% inflation was not yet in sight. He commented that that the BoJ is still some distance away from being able to adjust from the negative rates. Ueda also said that the bank would remain data-dependent and that when 2% inflation was foreseen then yield curve control may be concluded.

The Japanese yen fell once again versus the US dollar. Foreign investors have turned negative on Japanese stocks recently, as evidenced in large outflows.

Chinese developers remain in focus. Last week, some executives from Evergrande’s wealth management unit were detained, and the company cancelled its key creditor meeting at the last minute and said it must revisit its restructuring plan. Headlines of overdue loan payments, defaults and liquidations continue to plague the sector. Last week, the Shanghai Composite actually managed to close last week up 0.5% as some investors speculated that the government would roll out new stimulus. Conversely, the Hang Seng Index closed the week down 0.7% as big tech names sold off.

Week ahead

This week looks like somewhat of a lull, with no central bank decisions of note and corporate earnings season still a few weeks off. There are a few Fed speakers though on the calendar, including Fed Chair Powell, which will be interesting to watch. In terms of macro data, highlights include eurozone inflation data, US and UK gross domestic product (GDP) data, China Industrial Profits and PMI reports, as well as Japanese Industrial Production. Next week is Golden Week, so a number of Asian markets will be closed.

Monday 25 September

  • Spain Producer Price Index (PPI)
  • Germany IFO Business Climate
  • UK CBI Retailing Reported sales
  • US Dallas Fed manufacturing survey

Tuesday 26 September

  • Sweden PPI
  • US FHFA home prices; New home sales

Wednesday 27 September

  • Euro-area M3 Money Supply
  • Norway unemployment rate trend
  • Germany Consumer Confidence
  • Sweden Trade Balance; Consumer & Manufacturing Confidence
  • France Consumer Confidence
  • US Durable Goods
  • China Industrial Production

Thursday 28 September

  • Netherlands Producer Confidence Index
  • Norway Retail Sales w/auto fuel
  • Spain CPI & Retail Sales
  • Italy Consumer & Manufacturing Confidence Index; PPI
  • Eurozone Consumer & Industrial Confidence
  • Germany CPI
  • US GDP & Core Personal Consumption Expenditures Index prices

Friday 29 September

  • Netherlands Retail Sales & CPI
  • Sweden Retail Sales
  • UK GDP & government spending & CA balance; UK mortgage approvals
  • France CPI & Consumer Spending
  • Germany unemployment change
  • Spain Current Account Balance
  • Norway unemployment rate
  • Eurozone CPI estimate
  • Italy CPI; Industrial sales
  • China Caixin Manufacturing PMI
  • Japan Industrial Production (month-over-month)

Views you can use

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What’s next for infrastructure?
Despite challenging global economic and market conditions, there are compelling opportunities within global listed infrastructure, according to Shane Hurst, Portfolio Manager with ClearBridge Investments. He explores how the trends of decarbonization, reshoring and 5G evolution are impacting the space, and how the nature of listed infrastructure can offer some insulation against high inflation. Read more.

Where to add risk in multi-asset portfolios right now
While some stocks may seem expensive, there are areas of opportunity that feature attractive valuations and growth catalysts, according to the Franklin Templeton Investment Solutions team. Read more. 

Opportunity in investment-grade credit
Investment-grade credit is currently offering impressive yields, with relatively less risk than other fixed income sectors, according to Josh Lohmeier of Franklin Templeton Fixed Income. He makes a case for investing in the space today. Read more. 

Growth opportunities in emerging markets
Emerging markets offer dynamic growth opportunities for investors, from consumer goods to logistics to technology. Find out more from Franklin Templeton Emerging Markets Equity’s Chetan Sehgal. 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 50-day and 100-day moving averages are technical indicators, representing the average closing price of a security or index over the last 50 days or 100 days, respectively.

3. Source: Federal Reserve; transcript of Chair Powell’s press conference, 20 September 2023.

4. There is no assurance any estimate, forecast or projection will be realised.

5.  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.

6. Sources: BofA Global Research, EPFR.

7. Ibid.

8. Sources: Bank of America European Equity Quant Strategy, EPFR Global.

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