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 global equities were choppy following the sharp bounce higher the prior week. There was some dispersion amongst regions, with the US market outperforming, largely thanks to decent performance in the tech sector. In contrast, equities in Asia and Europe saw small declines, with weak Chinese macro data a focus in Asia. In terms of themes, central banker commentary had an impact, with a slightly more hawkish narrative from some policymakers weighing on sentiment. The MSCI World Index rose 0.6%, the Stoxx Europe 600 Index declined 0.2%, the S&P 500 Index rose 1.3% and the MSCI Asia Pacific Index declined 0.5%.1 

Week in review

United States

The S&P 500 Index was up 1.3% last week, adding to the 5.8% gain in the week prior. It was encouraging to see the index move back above its 50-day moving average2 and above the important psychological level of 4400. However, it should be noted that gains were not broad-based, with much of the strength coming from the tech sector. The Nasdaq 100 Index was up 2.8%, with the FANG+ Index up 4.5%, as artificial intelligence names performed well. In contrast, the Russell 2000 small cap index was down 3.1% and the Dow Jones Industrial Average saw muted gains, up 0.7%.

Fedspeak was a focus, with more hawkish comments from Federal Reserve (Fed) Chair Jerome Powell towards the end of the week weighing on sentiment. Powell emphasised the ongoing and uncertain task of bringing down inflation, stating “…we are attentive to the risk that stronger growth could undermine further progress in restoring balance to the labour market and in bringing inflation down, which could warrant a response from monetary policy”.3

Other members of the Fed echoed the hawkish sentiment; for example, Atlanta Fed Bank President Raphael Bostic stated Fed policymakers will maintain a restrictive policy until inflation reaches 2%, or until they are confident it will happen.

Going back to the contrasting index moves, the prospect of rates being “higher for longer” weighed on the Russell 2000 Index, and given it rose 7.5% in the prior week, it was perhaps not too surprising to see a pullback.

The US 10-year Treasury yield increased by eight basis points (bps) last week. Powell’s more hawkish stance was likely a factor, as well as weak demand for the 30-year bond auction mid-week. Interestingly, some reporters suggested that a cyberattack on a New York unit of Industrial and Commercial Bank of China (ICBC) may have negatively impacted the bond auction; the cyberattack reportedly impacted ICBC’s ability to settle Treasury trades. ICBC’s US unit reportedly needed an injection of US$9 billion from its parent company to help settle trades. US Treasury Secretary Janet Yellen said she had spoken to the Chinese vice president and the Treasury had given “as much assistance as we possibly can” to ICBC.4 A reminder of potential vulnerabilities to the financial ecosystem.

Another focus for US investors is the 17 November “fiscal cliff” and threat of US government shutdown. As the deadline approaches, political groups in Congress remain at loggerheads on a resolution.

After Friday’s close, Moody’s downgraded its outlook for the US credit rating to negative from stable. They highlighted rising debt servicing costs and “entrenched political polarisation.” Moody’s did keep the US’s AAA rating, the only one of the top three rating agencies to do so.


European equities were close to flat, with the STOXX Europe 600 Index down 0.2% last week. After the bounce off its lows last week, we did not see much evidence of conviction in the move higher this week.

Sector-wise, defence names performed well again, and China-exposed names lagged. The luxury space also struggled amidst a profit warning in the space.

Given the backdrop of central bank chatter and discussion around peak interest rates, equity markets seem to be at the mercy of moves in bond yields, so it’s certainly worth keeping a close eye on yields for signs of the next move. The Treasury auctions last week were going very well, until the 30-year saw weaker demand.

Sadly, looking at fund flows, European equities saw another weekly outflow, making it 35 weeks in a row.5

Iberian politics garnered some attention. Portugal’s prime minister resigned after corruption charges were levied at his chief of staff. We did see GALP move lower on this (liquid proxy for Portugal). In Spain, Prime Minister Pedro Sanchez is trying to form a government backed by Catalan separatists, prompting some overnight protests. Sanchez’s Socialist Party on Thursday agreed to amnesties for hundreds of Catalan separatists who tried to break up Spain six years ago. In exchange, the 51-year-old socialist will get the parliamentary support he needs to take office for a third term.

In the United Kingdom, Bank of England (BoE) Chief Economist Huw Pill talked down the need for further interest rate hikes. However, he didn’t suggest rate cuts were on the horizon, either. In addition, BoE Governor Andrew Bailey said that policymakers are becoming more confident they can bring inflation to target but will keep interest rates at their current level for an extended period.

In a similar fashion, European Central Bank President Christine Lagarde suggested a “higher for longer” scenario. This sentiment collectively pushed European bond yields higher last week: The UK 10-year bond was up 4.7 bps, the German 10-year was up 7.2 bps, the Italian 10-year was up 6.5 bps, and Spanish 10-year was up 8.5 bps.


Asian equities were mixed last week. The MSCI Asia Pacific index closed the week down 0.53%, whilst Japan’s market outperformed again, up 1.93%, while Hong Kong’s market underperformed, down 2.61%.

Key news in Asia this week:

  • China’s Consumer Price Index (CPI) slipped into deflation for the second time this year, falling 0.2% year-over-year (y/y) in October. The Producer Price Index (PPI) stayed in annual deflation territory, falling 2.6% y/y in October.
  • The Reserve Bank of Australia hiked its key interest rate 25 bps to 4.35%, in line with expectations. The guidance continued to flag potential for more hikes, though this has become a bit more opaque and conditional.
  • Ping An refuted reports that China’s State Council has instructed the government of Guangdong province to ask Ping An to take a controlling stake in the developer, Country Garden. Ping An has offloaded its stake in Country Garden last quarter and has no takeover plans.
  • SoftBank’s Vision Fund reported a loss of US$1.7 billion with the drop in valuations at WeWork and other portfolio companies.


The Nikkei 225 Index closed last week up 1.93% on the back of further government stimulus, corporate earnings and a weaker yen, which hit its lowest level against the US dollar in about 33 years.

Speaking at a conference, Bank of Japan (BoJ) Governor Kazuo Ueda said that it is too early to determine what specifically the bank will do when it normalizes its policy stance. He added that the bank is making progress towards reaching its 2% inflation target. He also warned that normalizing short term rates would be challenging, due to the knock-on effect on the banks, borrowers etc.

This week, the government approved some further support for Prime Minister Fumio Kishida’s economic stimulus package, which includes cuts to income and residential taxes, as well as cash handouts to low earners to ease the impact of inflation on households and reinforce wage increases.


Chinese mainland equities rose 0.27% last week, despite economic data showing that consumer prices slipped back into contraction, reviving concerns that deflation may impact the economy. China’s October economic data was disappointing. Exports were a significant miss (-6.4%) due to decoupling threats; CPI came in -0.2%, indicating sluggish household demand (without meaningful stimulus from the central government). The latest readings add to concerns about the health of China’s economy.

The China Securities Regulatory Commission (CSRC) gave a warning to local brokers to restrict their leveraged short selling via swaps, after South Korea banned shorting until the end of June 2024.

Looking ahead, China’s President Xi Jinping and US President Joe Biden are scheduled to meet at the APEC summit this week. The market is hoping for warmer relations between the two countries.

Hong Kong

The Hang Seng Index closed last week down 2.61%, as US bond yields climbed across the curve, raising interest rates concerns.

Chinese banks underperformed after S&P highlighted the sector is grappling with bad loans. Consumption/food-related names dropped following China’s disappointing October CPI number.

Chinese Insurance names were weaker, led by Ping An, after media reports that the Chinese government has asked Ping An to take stake in Country Garden.

The Week Ahead

Some important inflation data points will dominate the narrative this week, with PPI and CPI prints from the United States, the United Kingdom and European Union later in the week. US politics will be a key focus, with the 17 November “fiscal cliff” deadline looming large. In addition, Jinping will visit the United States for the APEC Leaders Summit. Xi is expected to meet President Biden on Thursday.

Monday 13 November

  • Eurozone November Economic Survey
  • Germany November Economic Survey
  • France November Economic Survey
  • Italy November Economic Survey
  • UK November Economic Survey
  • Japan Machine Tool Orders

Tuesday 14 November

  • UK Claimant Count & ILO Unemployment Rate
  • Eurozone gross domestic product
  • US CPI

Wednesday 15 November

  • UK CPI & RPI
  • France CPI
  • Italy CPI EU Harmonized
  • Italy General Government Debt
  • UK House Price Index
  • Eurozone Industrial Production & Trade Balance
  • US Retail sales & Core PPI
  • China 1-year M-T Lending Facility Rate & IP & Retail Sales & Property Investment
  • Japan Trade Balance

Thursday 16 November

  • Italy Trade Balance Total
  • US Initial claims for unemployment insurance
  • US Industrial & Manufacturing production
  • US Housing Market Index

Friday 17 November

  • UK Retail sales Including Auto Fuel
  • Eurozone ECB Current Account
  • Eurozone CPI
  • US Building permits/Housing starts

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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 moving average is a technical indicator representing the average closing price of a security or index over the last 50 days.

3. Source: Board of Governors of the Federal Reserve System. 9 November 2023.

4. Source: “Wall Street and Beijing fight fallout of ransomware attack on China’s biggest bank.” Financial Times. 10 November 2023.

5. Source: “BofA’s Hartnett Says Cash Funds Set for Record Inflows in 2023.” Bloomberg.

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