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

The new month started with an impressive rebound for equity markets. Softer macro data and no change in interest rates from both the Federal Reserve (Fed) and Bank of England (BoE) raised hopes rates may be at a peak. In that context, bond yields sharply contracted and equity markets rose.

In addition, market commentators continue to highlight that seasonality is an important consideration, as the fourth quarter has been a strong period for equities in recent years. Context is key, too. Given a weak October and third quarter, a rebound seemed due at some point, but whether the equity market recovery can be sustained into year-end is a question mark.

Last week markets saw their largest five-day rally since January, with the MSCI World Index up 5.6%, the STOXX Europe 600 Index up 3.4%, the S&P 500 Index up 6%, and the MSCI Asia Pacific Index up 3%.1

Week in review

United States

A Fed “pause” and some softer macro data all played into the narrative that the interest rates may have peaked, which sent bond yields tumbling lower and equities squeezing higher. The S&P 500 Index had its best weekly performance since November 2022, ending last week up 5.9% at 4358. This takes the index comfortably above 4200 and also back above both its 200-day and 50-day moving averages.2 Other US indices also did well, with the Dow Jones Industrial Average up 5.1%, the Nasdaq up 6.5% and Russell 2000 Index up 7.6%.

Some respite in crude oil prices, which were down 5.9% last week, also created a tailwind for the equity markets. Oil traded lower as the risk that the Israel-Palestine war would escalate into a conflict throughout the region appears to have fallen. Record-high US oil production also weighed on prices.

Earnings remains a theme, although the third-quarter season is nearing an end. Attention this week will be on media heavyweight, Disney.

Fed watching

A key focus was the mid-week Fed meeting, where the central bank kept rates on hold as expected and Chair Jerome Powell struck a more dovish tone. Notably, he appeared to distance himself from the “dot plot” of Fed projections, which suggests one more rate hike seems likely this year. He stated that “the efficacy of the dot plot decays over three months”3 and suggested the importance of considering various factors that could alter the forecast and policy trajectory.

The probability of a December hike has fallen to 4.8% from 16.8% at the end of the previous week, and market pricing for June 2024 has decreased to 4.9% from 5.1% at the week’s end.4

With that, Treasury yields contracted sharply. The five-day decline in the US 10-year yield was large enough that it would have been the second-largest decline of the decade proceeding COVID-19.5

Macro data: US macro data was softer, which added weight to the view the Fed will be more comfortable pausing rate hikes. The October employment report saw 150,000 job additions, slightly below expectations. In addition, the Institute for Supply Management (ISM) Manufacturing index hit a three-month low of 46.7, also below expectations.

A slightly weaker-than-expected US Treasury quarterly refunding announcement also weighed on bond yields. The Treasury plans to reduce the pace of auction size increases in November, especially for longer maturities. This reduces supply of US Treasuries.

Unsurprisingly, investor sentiment improved, as we saw the Fear and Greed Index close to “Neutral” territory.6


European equities finished broadly higher last week. The STOXX Europe 600 Index closed the week up 3.4%, its best week since the first quarter. Several factors pushed risk assets higher, including the Fed and the BoE expected pauses, and the US Treasury refunding announcement. Government bond yields have retraced quite firmly from recent highs. Corporate credit default spreads were tighter—the XOVER Index fell back to mid-September levels.7

All sectors traded higher last week, apart from oil. Unsurprisingly, with short-covering likely at play and in the context of lower interest rates, the debt-laden real estate sector outperformed last week. Retail stocks were also stronger amidst hopes of peak rates as well as and supportive labour market data. At the other end, oil and gas stocks were lower on Friday on hopes the war in Middle East seemed less likely to spread.

European equities suffered their 34th consecutive week of outflows, totalling US$1 billion in the week ending 1 November.8

End of BoE tightening cycle?

As expected, the BoE kept the bank rate unchanged at 5.25%. With no change for two meetings in a row, many observers hope its tightening cycle has come to an end. The vote split was 6-3.

Regarding the updated guidance and projections, the central bank has kept the door open for more hikes, but in practice a potential sharp drop in inflation later this month and an economy facing the prospect of recession will reduce chances of more tightening. Governor Andrew Bailey stated that there are still “risks” to upside inflation, and many traders expect the first cut to come in September 2024. Markets will be watching the October Consumer Price Index (CPI) inflation data, which is released on 15 November.


Last week was a good week for Asian equities overall, with the MSCI Asia Pacific index closing the week up 3.02%, despite mainland China’s market gains of just 0.43% on the week.


Japanese equities had a strong week, despite being closed on Friday for Culture Day. The benchmark Nikkei was up 3.09%.

The biggest focus this week was on the Bank of Japan (BoJ) decision on Tuesday and, despite the BoJ tweaking its yield curve control (YCC) framework, monetary policy remained highly accommodative, supporting sentiment. The central bank decided to introduce flexibility to the 10-year YCC operations, stating the upper limit of 1% “as a reference”, and also removed the 10Y YCC band of +/-50 basis points (bps).

The government also announced approximately US$110 billion worth of stimulus this week in an attempt to boost growth and help households cope with the rising cost of living as inflation moves higher.

Going onto 2024, it sets up an interesting picture as the government will be stimulating the economy, but the BoJ may be slowly aiming to tighten financial conditions.

The Japanese yen weakened versus the US dollar after the BoJ announcement but strengthened over the rest of the week, closing the week at 149.39.


Last week was a rather subdued week for markets in China, with the Shanghai Composite Index closing the week up 0.43%, as broader concerns about the country’s slowing growth offset speculation that US interest rates may have peaked.

At the start of the week, there was hope for some new policy announcements out of the Central Financial Work Conference, chaired by President Xi Jinping. However, not much news came out of the event.

Real estate concerns continued last week, as new home sales by the country’s top 100 developers fell 27.5% in October year-over-year (y/y)9 and real estate loans declined y/y in September.

The latest data also indicates contraction in factory activities, as China’s Manufacturing Purchasing Managers Index (PMI) fell to 49.5 in October, while the non-manufacturing PMI dropped to 50.6 from 51.7 prior. China’s October Caixin Manufacturing PMI also missed expectations, coming in at 49.5.

Finally, according to an American official, US and Chinese officials have agreed (in principle) on a meeting between US President Joe Biden and China’s Xi Jinping during the Asia-Pacific Economic Cooperation summit in November. This could be the first meeting between the two presidents since the G-20 in Bali last year.

Elsewhere, South Korean equities traded higher today, ending the session up 5.5% after regulators announced a short selling ban.

The week ahead

The calendar this week is quieter compared to recent weeks. In terms of central-bank decisions, the Reserve Bank of Australia holds its policy meeting on Tuesday and markets anticipate its key interest rate will be lifted by 25 bps after a four-month pause. It could prove an interesting contrast versus the picture developing elsewhere, as the European Central Bank, Fed and BoE all remained on hold at recent meetings.

Corporate earnings remain a theme to watch in the United States and Europe.

In terms of geopolitics, headline risk from the Middle East remains an ever-present risk for markets. In the United States, the Republican party holds its third presidential candidate debate.

In terms of macro data, highlights include UK gross domestic product (GDP) and German Industrial Production. In the United States, the University of Michigan’s sentiment survey and trade balance data will be worth watching. In Asia, the Chinese CPI report stands out.

Monday 6 November

  • Germany Manufacturing Orders
  • Euro PMI Composites
  • Japan all household spending

Tuesday 7 November

  • Germany Industrial Production
  • China Trade Balance
  • US Trade Balance
  • RBA rate decision

Wednesday 8 November

  • Eurogroup Meeting
  • Germany CPI (revision)
  • France Foreign Trade

Thursday 9 November

  • ECOFIN meeting of EU finance minsters
  • China CPI
  • US Initial Jobless Claims/Continuing Claims

Friday 10 November

  • UK GDP; Industrial Production
  • Italy Industrial Production
  • US University of Michigan consumer sentiment survey

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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 200-day moving averages are technical indicators representing the average closing price of a security or index over the last 50 or 200 days, respectively.

3. Source: “The ‘dot plot’ isn’t a set in stone plan, Powell says.” Yahoo! Finance. 1 November 2023.

4. Source: Bloomberg, based on Fed funds futures pricing. There is no assurance that any estimate, forecast or projection will be realised.

5. Source: Bloomberg.

6. 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.

7. The Xover Index comprises 75 equally weighted credit default swaps on the most liquid sub-investment grade European corporates. Indexes 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. Source: Bloomberg. As of 3 November 2023.

8. Source: “Investors on track to pour $1.3 trillion into cash funds in 2023 – BofA.” Reuters. 3 November 2023.

9. Source: Bloomberg. “China Home Sales Decline Slows in October Amid Policy Support.” 31 October.

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