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 equity markets were in “wait-and-see” mode ahead of a week of macro catalysts. This week’s highlights include: US Consumer Price Index (CPI) (Tuesday); Federal Reserve (Fed) meeting (Wednesday); European Central Bank (ECB), Bank of England (BoE), Swiss National Bank (SNB) and Norges Bank (Thursday). As such, the debate about when we may see interest-rate cuts next year is front and centre for investors. With that in mind, the release of slightly stronger-than-expected US November employment data last week cooled some of the excitement around future Fed rate cuts. In Europe, dovish comments from an ECB hawk brought heightened expectations of rate cuts in 2024.

Amongst the major indices, the MSCI World Index was up 0.2% last week, the S&P 500 Index was up 0.2%, the MSCI Asia Pacific was down 0.4%, and the STOXX Europe 600 Index was up 1.3%.1

This week’s central bank meetings in focus

Rising market expectations of central bank 2024 rate cuts, fuelled by falling inflation data, means this week’s central bank meetings will be a key catalyst into year end. While no changes to rates are expected this week from the Fed, BoE or ECB, commentary from them on the 2024 rate path will be key for market direction.

Fed: Last week, some dovish commentary from Fed Governor Christopher Waller raised expectations of 2024 rate cuts. However, the slightly stronger-than-anticipated US employment report caused some of that excitement fade at the end of the week.

On Friday, the headline November nonfarm payrolls number showed an increase of 199,000 jobs. The October payroll number was left unchanged at 155,000. Also, there was stronger wage growth and a lower unemployment rate. The unemployment rate garnered attention, as it came in at 3.7% vs. 3.9% previously, and continues to hover around record lows. It has been used as a key indicator for labour market strength in recent times, so the fact it came in lower than expected maybe indicates that the market is getting ahead of itself in its forecasts for Fed rate cuts.

Following Friday’s data, the market now sees a 40% probability of a Fed cut on 20 March and 60% probability at the May meeting.2

ECB: Continuing with the rates theme, it feels that traders may be getting ahead of themselves in pricing how far the ECB will go to accommodate the economy. Currently, the market sees 140 basis points (bps) of cuts in 2024.3Core inflation is still running at 3.6%, so it seems unlikely that the ECB’s Governing Council will start slashing rates in the first quarter. The ECB has estimated that (HICP) inflation will average 3.2% next year and hold above 2% through 2025.4 We think it’s likely that the ECB will revise those estimates lower this week, but don’t expect a massive alteration.

Based on a Bloomberg survey taken last week, a majority of economists only predict smaller reductions, and in the second half of the year. There is less chatter around the BoE meeting, with the rate expected to stay at 5.25%. Market pricing of BoE rate cuts is more skewed to the second half of 2024.

Week in review

United States

US equities struggled for direction either way last week, closing near flat overall. The Dow Jones Industrial Average was up a measly 0.01%, the S&P 500 Index was up 0.2%, whilst the Nasdaq Index outperformed, up 0.5%. The VIX fell back again and closed on Friday at its lowest level since January 20205 as markets took stock following a 9% move in November and ahead of a big week for central-bank announcements.

The US Dollar Index was higher last week, a result of the divergence in market expectations for rate moves through the first half of 2024.6 The key market catalyst last week was the release of the November employment report on Friday, which came in ahead of forecasts. In other data, the latest Institute for Supply Management (ISM) Service Index came in at 52.7, with underlying components holding firm.

From the Bank of America “Flow Show” report, the Bull & Bear Indicator surged from 2.7 to 3.8 last week, its biggest weekly jump since February 2012.7 Also, in terms of fund flows, US-focused equity funds saw their eighth consecutive inflow, this time of US$5.5 billion.8

In terms of sector moves last week, communication services stocks were stronger as the mega-caps bounced back following some underperformance the week before. Consumer discretionary stocks were also higher. At the other end, materials were down as cyclicals came under pressure at the start of the week.  Energy was the week’s laggard, with West Texas Intermediate crude oil down 3.8% on the week.

Finally, there has been a lot of emphasis on how the “Magnificent Seven” stocks have powered US equity market moves this year—some 70% of the S&P 500 Index’s move can be attributed to those seven stocks.


Last week was another decent one for European markets, with the STOXX Europe 600 up 1.3% and the EURO STOXX 50 up 2.4%. It was the fourth week of positive performance. The STOXX Europe 600 Index is testing year-to-date highs, trading up 2% in December, up 4% quarter-to-date and up 10% year-to-date. In addition, Germany’s DAX made new all-time highs last week and is up 19.4% year-to-date.

Rate-cut pricing focus shifted from the United States to Europe this week as perennial uber-hawk Isabel Schnabel shifted her stance in a Reuters interview on Tuesday, where she described the decline in inflation as “remarkable.”9 The markets thus added another 12 bps of cuts to year-end 2024 pricing, so that means around 140 bps of cuts are priced in.

Bond yields continued their move lower; the UK 10-year bond is trading below 4% and the German 10-year bond fell below 2.2% for the first time since May.

Unsurprisingly, real estate stocks strengthened given the yield moves. In other sectors, travel and leisure stocks were also strong. Oil & gas was the worst-performing sector on the back of weakening oil—brent fell 10% and is trading below US$70 per barrel for the first time since June on the back of the lack of cohesion within OPEC+ and concerns over global growth.

In terms of investor flows, European equity saw another weekly outflow, making it 39 weeks in a row.

Finally, after a short period of outperformance, European stocks have resumed a pattern of long-term underperformance to their US peers. That’s widened the discount, in terms of forward price-to-earnings multiples, between European and US stocks, pushing it near a record at more than 30%.10


Last week was another muted and mixed week for Asian equities. The MSCI Asia Pacific Index closed the week down 0.43%, with India’s market again the outperformer, up 3.05% on the week amidst five state election results along with positive global sentiment helping the market hit record levels. Japan’s market fell 3.36% last week on comments from BoJ officials indicating that the central bank may abandon its negative interest-rate policy earlier than expected.


As noted, last week was a poor one for the Nikkei. Exporters got hit hard on growing speculation that the BoJ will end its negative interest-rate policy. Speeches from Governor Ueda and Deputy Governor Himino hinted at a policy change at the policy meeting next week.

Risk assets came under further pressure, as data showed that Japan’s economy contracted by more than initially estimated in the third quarter.

Japanese government bonds sold off hard and a very poor 30-year auction didn’t help matters, pushing yields even higher.


The Shanghai Composite Index closed the week down 2.05% on the back of weaker trade and inflation data and Moody’s downgrade of the country’s sovereign debt.

Trade balance data last week showed a very sharp decline in imports (0.6% year-over-year [Y/Y]), which suggests a domestic slowdown. Also, the latest inflation data was also weak, with the November CPI down 0.5% Y/Y and Producer Price Index (PPI) down 3.0%, with deflation taking hold and also pointing to domestic weakness.

Moody’s cut its outlook for China’s government bonds to “negative” from “stable” on Tuesday, saying that the country’s debt-laden local governments and state firms posed downside risks to the economy. This comes on the back of the country’s property crisis, together with waning consumer and business confidence.

Sector-wise, the worst performers were property and construction & materials, as November property sales were still weak.

Autos were also weaker on concerns about another wave of price wars targeting year-end sales, and the news that Shanghai’s “green plate” policy may be subject to change next year, which may reduce electric vehicle sales.

On Friday, the China Politburo announced that fiscal policy will be stepped up “appropriately,” raising the prospect for additional stimulus. It also declared that monetary policy should be flexible, appropriate, targeted and effective, with the previous wording “forceful” dropped from the statement. And finally, it introduced a new slogan: “use progress to promote stability”.11

Looking ahead, China’s social financing data and inflation data will be out this week, and the market is hopeful of some positive news out of the central economic work conference this month.

Hong Kong

The Hang Seng Index plunged to a 13-month low. Weak sentiment dominated the market amidst Moody’s downgrade of China’s credit outlook, along with a number of corporates.

Tech giants traded mostly lower after Moody’s downgraded some companies in the space.

The week ahead

There are only 13 trading sessions left in 2023, but this week offers a number of macro catalysts that will set the tone into year-end (as discussed). Starting with central banks, there are 13 policy meetings/interest-decisions this week, nine of which are on Thursday, the including Fed (Wednesday), and the ECB and BoE (Thursday). Macro will focus on US CPI/PPI, US Retail Sales, UK employment and Germany ZEW. In Asia, Chinese Industrial Production and Retail Sales on Friday are highlights.

Monday 11 December 

  • Japan PPI
  • US NY Fed One-Year Inflation Expectations

Tuesday 12 December                     

  • UK Average Weekly Earnings ex-Bonus/Jobless Claims Change
  • Eurozone ZEW Survey Expectations
  • Germany ZEW Expectations Survey
  • US NFIB Small Business Optimism; CPI and Core CPI and Real Avg Hourly Earnings; Monthly Budget Statement

Wednesday 13 December

  • UK Monthly gross domestic product/Industrials Production and Manufacturing Production
  • Euro-area Industrial Production
  • US Mortgage Applications, PPI and Core PPI; Federal Open Market Committee Meeting and Chair Jerome Powell’s Press Conference

Thursday 14 December   

  • SNB policy meeting and rate announcement
  • Norges Bank policy meeting and rate announcement
  • ECB Main Refinancing Rate & Deposit Facility Rate
  • UK BoE policy meeting and rate announcement ; GfK Consumer Confidence
  • China FAI, Industrial Production and Retail Sales
  • US Retail Sales, Initial Jobless Claims and Import/Export Index; Business Inventories

Friday 15 December

  • Euro-area Flash Composite PMI Survey
  • UK Flash Composite PMI Survey
  • Germany PMI-Manufacturing, PMI-Services and PMI-Composite
  • US Empire Manufacturing; Industrial Production and Capacity Utilization; PMI-Manufacturing, PMI-Services and PMI-Composite
  • China Industrial Production, Retail Sales

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

3. Source: Bloomberg. Rate cuts implied by swaps. There is no assurance that any estimate, forecast or projection will be realised.

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

5. 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, while higher readings suggest a period of higher volatility.

6. The US Dollar Index is a relative measure of US dollar strength against a basket of six other international currencies. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges.

7. Source: BofA Global Investment Strategy. The Bull & Bear Indicator is a measure of market sentiment.

8. Source: “Investors pile into cash, Japan equity funds see outflows – BofA.” Reuters. 8 December 2023.

9. Source: “Schnabel reconciles ECB with markets – until next fight.” Reuters. 5 December 2023.

10. Source: Bloomberg.

11. Source: “China Politburo Raises Expectations for Ambitious 2024 GDP Goal.” Bloomberg. 8 December 2023.

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