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 equities finished last week broadly lower as risk-off sentiment gripped markets. The MSCI World Index closed the week down 2.5%, whilst the S&P closed down 2.4%, the Stoxx Europe 600 Index was down 3.4%, and the MSCI Asia Pacific closed down 2.7%.1 Heightened geopolitical tensions, higher oil prices and little relief for credit markets kept risk assets under pressure. Markets are closely watching events unfolding in Israel and Palestine, fearful that the war will engulf the broader Middle East. As a result, oil prices moved higher last week. Bond yields remain high, with the US 10-year Treasury nearly breaking through the 5% mark (which it has broken through this morning), whilst the German 10-year bund inched back towards the 3% level.

Market volatility was back last week, as the VIX was up 15%, trading up towards the 22 level for the first time since March.2

Third-quarter earnings season is in full swing, with 55 companies in the S&P 500 Index reporting last week and 36 companies in the Stoxx 600 reporting. Fund flows were interesting last week. Money market funds saw their largest weekly outflow ever last week, shedding US$108.9 billion, with the cash now seemingly sitting on the sidelines.3

In terms of sentiment indicators, the Bank of America Bull & Bear Indicator sunk into “Extreme Bearish” territory last week.4 Historically this would trigger a contrarian buy signal for risk assets.

Week in review


On a quiet week for newsflow and with risk appetite largely missing last week, European equities retreated. Every sector finished in the red.  Focus remains on the Middle East. US President Joe Biden and UK Prime Minister Rishi Sunak both visited Israel last week, which appeared to have little effect in terms of broader de-escalation.

The rise in bond yields continues to provide a strong headwind for equity markets. Across Europe, government bond yields rose again as concerns of sticky inflation and the impact on the economic outlook continue to grip investors. Nonetheless, the closely watched German ZEW Survey rose to -1.1 in October from -11.4 in September.

All equity market sectors were weak. Defensives outperformed overall but still finished lower.

Third-quarter earnings continue to pick up pace in Europe and concerns are beginning to mount. Data shows that earnings for the Stoxx Europe 600 Index companies is forecast to drop by 11.4% year-on-year, which would be on top of a 5.9% drop in the second quarter.5 Earnings growth is not expected to return until the second quarter of 2024, as high interest rates weigh on earnings in the region. So far, there have been more companies missing expectations than beating them, and the average one-day move for the reporting day of companies in the Stoxx 600 is -1.6%.6

United States

A difficult geopolitical backdrop with events in the Middle East front and centre saw a risk-off tone to financial markets last week Bond yields moved higher and equity markets sold off. The S&P 500 Index closed down -2.4% testing support at its 200-day moving average.7

Given the war in the Middle East, it was unsurprising to see West Texas Intermediate crude oil rise last week, and energy was the best-performing equity sector. Consumer staples stocks also held up well, thanks to their defensive qualities. On the downside, real estate investment trusts slumped, with higher yields weighing on stocks in the sector. Technology names also lagged last week, as tensions between the United States and China escalated further amidst a new ban on US chip exports to China.

It was a bit quieter in terms of Federal Reserve (Fed) speakers last week. The Fed’s “Beige Book” noted the US economic outlook is stable or may exhibit a milder expansion, as most districts reported little to no change since September. Separately, Fed Chair Jerome Powell stressed that the Federal Open Market Committee is proceeding cautiously, but evidence does not suggest that current policy is too restrictive.

With the higher-for-longer interest rate narrative, it is worth watching credit markets closely, and last week gave us a concerning indicator. Data from Fitch revealed that the percentage of subprime car borrowers at least 60 days late on their loans reached 6.11% in September, the highest level recorded since 1994.8 In addition, the Federal Reserve Bank of New York’s data showed delinquencies on auto loans rising.

As you would expect in the current climate, the CNN Fear & Greed Index does not paint a great picture, with investor sentiment hovering just above “Extreme Fear” territory.9

Finally, over the weekend, Argentina held its second round of elections. There was no one outright winner, so Economy Minister Sergio Massa and libertarian outsider Javier Milei will face a presidential runoff. With the votes nearly all counted, Massa secured 37% whilst Milei received 30%. Patricia Bullrich, the establishment pro-business candidate, came third with 24% of votes.


Asian equity markets were weaker last week, as concerns around China’s economic strength continued. The MSCI Asia Pacific closed the week down 2.7%.

Focus last week appeared to be on weaker-than-expected Chinese economic data, rather than the more optimistic reports. Home prices fell 0.3% in September, whilst steel production fell, leading to broader weakness in commodity markets (iron ore prices fell 1.5%). Meanwhile, there was a slight improvement in third-quarter gross domestic product (GDP), coming in at +4.9% year-over-year. Industrial production for the month of August also came in marginally ahead of expectations at +4.5%. Also, reports that US/China trade tensions threaten to escalate further weighed on risk sentiment in Asia.

In Japan, the September Consumer Price Index (CPI) excluding food and energy  stood at 4.2%, remaining well above the Bank of Japan’s (BoJ’s) 2% target.

Week ahead

Macro week ahead highlights

Monetary policy will be in focus in the week ahead. The European Central Bank (ECB) looks set to keep interest rates on hold. The US, Euro-area and UK flash Purchasing Managers Index (PMI) surveys for October will provide further insights on growth amidst tighter monetary conditions.

Monday 23 October

  • Netherlands Consumer Confidence Index
  • Eurozone Govt Debt/GDP Ratio; Eurozone Consumer Confidence

Tuesday 24 October                     

  • UK Claimant Count & ILO Unemployment Rate
  • Germany GfK Consumer Confidence
  • France HCOB Manufacturing & Services PMI
  • Germany HCOB Manufacturing & Services PMI
  • Eurozone HCOB Manufacturing & Services PMI
  • UK Output Per Hour
  • UK S&P/Markit Manufacturing & Services PMI
  • UK CBI Trends Total Orders
  • US S&P/Markit Manufacturing & Services PMI

Wednesday 25 October

  • Euro area M3 Money Supply
  • Sweden Producer Price Index (PPI)
  • Spain PPI
  • Germany IFO Business Climate
  • France Total Jobseekers
  • US New home sales

Thursday 26 October    

  • Sweden Trade Balance; Sweden Manufacturing & Consumer Confidence
  • Spain Unemployment Rate
  • UK CBI Retailing Reported sales
  • Eurozone ECB Main Refinancing Rate
  • US Durable goods & GDP & Core PCE prices; US Pending Home Sales Index; US KC Fed manufacturing survey

Friday 27 October

  • Sweden Retail sales
  • France Consumer Confidence
  • Eurozone ECB Survey of Professional Forecasters
  • Spain GDP and Retail sales
  • Italy Manufacturing and Consumer Confidence Index; Italy Industrial sales
  • US Personal spending and Personal Consumption Expenditures prices


Views you can use

Quick Thoughts: Should we fear the rapid rise of interest rates?
Term premiums have been on the rise, but should investors be concerned? Stephen Dover, Head of Franklin Templeton Institute, explains what term premiums are, and why they are worth paying attention to. Read more.

Quick Thoughts: Middle East conflict—few implications (for now) for markets
For now, the economic and market impacts of the Middle East conflict seem relatively contained, according to Stephen Dover, Head of Franklin Templeton Institute. Read more.

PODCAST Anatomy of a Recession Update: Threats to a soft landing
With lots of chatter in the United States around the potential for a soft landing, Jeff Schulze, Head of Economic and Market Strategy at ClearBridge Investments, shares his thoughts on the matter and the overall state of the US economy in our latest “Talking Markets” podcast. 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. Source: “BofA Sees Near-Term Stock Rally as Signal Flashes Contrarian Buy.” Bloomberg; EPFR data. 20 October 2023.

3. The CBOE Market Volatility Index (VIX) measures market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Often called the “fear gauge”, lower readings suggest a perceived low-risk environment, whilst higher readings suggest a period of higher volatility.

4. Source: BofA Global Investment Strategy. The Bull & Bear Indicator is a measure of market sentiment. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges.

5. Source: “ANALYSIS-Priced for earnings recession, European equities could weather storm.” Reuters. 16 October 2023. There is no assurance that any estimate, forecast or projection will be realised.

6. Source: Bloomberg.

7. The 200-day moving average is a technical indicator representing the average closing price of a security or index over the last 200 days.

8. Source: “Car Owners Fall Behind on Car Payments at Highest Rate on Record.” Bloomberg. 21 October 2023.

9. CNN’s Fear & Greed Index tracks seven indicators of investor sentiment. BofA’s Bull & Bear Indicator is a measure of market sentiment. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges.

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