Notes from the Trading Desk – Franklin Templeton

Franklin Templeton’s Notes from the Trading Desk offers a weekly overview of what their professional traders and analysts are watching in the markets. The European desk is manned by eight professionals based in Edinburgh, Scotland, with an average of 15 years of experience 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.

Concerns over trade and UK politics have bubbled away throughout the past year and with progress in both of these areas last week, as well as benign central bank developments, markets received a welcome boost. European and US markets both hit record highs last week. All major markets in the Asia-Pacific (APAC) region also closed the week in the green, with stocks in Hong Kong performing especially strongly.

The Digest

UK Election: A Convincing Conservative Win

Last Thursday’s UK election resulted in a surprisingly large victory for Prime Minister Boris Johnson’s Conservative Party. It achieved a Parliamentary majority of 78 seats. This result, the Conservative’s strongest since 1987, provides a clear mandate for members of parliament (MPs) to deliver Johnson’s Brexit deal.

Following his win, Johnson pledged: “We will get Brexit done on time by January 31—no ifs, no buts, not maybe”.

The other notable winner on the night was the Scottish National Party (SNP). It won 48 of the 59 seats in Scotland, a result that galvanises its call for another Scottish independence referendum. That’s something we’ll be monitoring as a future market risk.

What happens next?

Parliament is scheduled to meet on Tuesday, December 16, when members will be sworn in. We expect a Queen’s Speech and formal state opening of Parliament on Thursday, December 19.

Friday, December 20, is the earliest that Johnson’s Withdrawal Bill can be introduced to Parliament. Reports on Monday this week have suggested the UK government is also planning to introduce a Brexit Bill to Parliament on Friday, looking for a “Canada-style” free trade agreement with the European Union (EU).

US President Donald Trump tweeted his congratulations to Boris Johnson, adding the United Kingdom and United States would be free to strike a “massive trade deal”.
Elsewhere, the President of the European Council, Charles Michel, said he hoped the UK Parliament would approve the Brexit withdrawal treaty as “soon as possible”.

Market Reaction

From a market perspective, this result was seen as an extremely positive outcome. Not only do the Conservatives have the majority to end the Brexit deadlock, Johnson’s majority is so large it gives him flexibility when dealing with internal factions within the Conservative movement.

With his majority, there is also a chance that Johnson could relax his existing Brexit proposals, leading to a softer exit overall.

Whatever individual opinions on the result and direction of the United Kingdom, markets need to be able to price outcome risk and for that they need certainty. While we do not have full visibility of how a Brexit deal (and additional trade agreements) will look, this is the most certainty we have had for the United Kingdom in years, and the market likes it.

UK assets surged on Friday as the result emerged. Sterling closed the week up 1.45% versus the US dollar at $1.33, having hit highs of $1.35 immediately following the exit polls. The pound was also up 0.95% versus the euro. We estimate the pound’s gains are likely to be contained around this level as the Brexit process plays out. We would note that a Conservative majority had been somewhat priced in ahead of the result.

Looking at equities, strength in larger capitalisation UK-listed stocks persisted into this week, with markets continuing to digest the result’s meaning. UK domestics were well-bid on hopes leading into the election, so we are now seeing those names with international exposure catch up.

The Response in Europe

Broader European equities also benefitted from the improved outlook for an orderly Brexit.

However, we cannot credit the election results with all of Friday’s moves. The additional backdrop of what appeared to be an imminent US/China trade deal and benign US Federal Reserve and European Central Bank (ECB) meetings also played into Friday’s risk-on bias.

In addition, European macro has been less concerning of late, which new ECB President Christine Lagarde noted.

With that risk-on tone, European banks, retail, basic resources, travel & leisure and airlines outperformed. Defensives, including food & beverage names, lagged.

This is a theme we have seen continue in early trading this week. It’s also worth adding that these moves were on elevated volumes, showing that even given the time of the year and temptation to lock in gains, investors are feeling bullish about the recent developments.

A Material Easing of Trade Tensions

On Friday, headlines suggested the United States and China had finally reached a “phase one” trade deal.

US Trade Representatives released a statement saying that the two sides had reached a “historic and enforceable deal” encompassing structural reforms and changes to both China’s trade and economic regimes.

Areas affected include intellectual property, technology transfer, agriculture, financial services and foreign exchange. The deal also includes a commitment from China to make sizeable purchases of US goods and services in the coming years. Crucially, the deal also established a strong dispute resolution system to aid smooth progress.

With all of these concessions from China, the United States agreed to ditch planned December tariffs (which had been due to go into effect on December 15).

The United States has left a 25% tariff rate on U$250 billion worth of Chinese imports, but the rate will be reduced to 7.5% on a further $120 billion of goods.

Looking forward, Donald Trump said the two sides would immediately begin negotiations on a “phase two” agreement, rather than waiting until after next year’s US election.

Markets embraced the developments; however, the details of the agreement were light on Friday, and it is worth noting that the number of ‘phases’ of the ultimate deal remains unknown. We don’t know, for example, if this is phase two-of-two or phase two-of-10. Regardless, US stock indices reached new record highs. Chinese equities also outperformed the rest of the APAC region.

Last Week


Last week was positive for the majority of European equity markets, with investors in good spirits thanks to the UK election result, benign ECB and US Fed meetings, and the US/China trade developments.

Swiss equities lagged as the country’s defensive-heavy index suffered from a broader “risk-on” tone to investor sentiment. Overall, defensives lagged and we saw rotation into value and cyclical names.

Italian equities also underperformed last week, as the Democrat-Five Star Coalition showed signs of strain already. The coalition is only a few months old, but three senators left the Five Star party to join their former collation partners, the League. This situation will be one to watch in the coming weeks and months.

The ECB meeting on Thursday garnered a lot of attention, but in reality, we didn’t get too much news from Lagarde’s first meeting as ECB president. As expected, there were no changes to policy, but she did press member states to implement more growth-friendly fiscal policy. That was in-line with her predecessor Mario Draghi’s outgoing message.

The ECB did tweak its growth outlook, with 2019 economic growth slightly higher at 1.2% versus 1.1% and 2020 economic growth slightly lower at 1.1% versus 1.2%.

The Swiss central bank also left its monetary policy and interest rates on hold and maintained an easing bias. The bank reaffirmed willingness to intervene in the foreign exchange market as necessary.

In terms of macroeconomic developments, a number of German data points caught attention last week. Trade data was better than expected in October, with surplus at €20.6 billion versus consensus €19.0 billion. Exports were up month-on-month compared with an expected fall.


US equities received strong support last week, buoyed by hopes around the phase one trade deal with China. Most of the gains were made on Thursday and Friday as the macro picture appeared to improve.

In terms of sectors, defensive stocks underperformed. Technology stocks were the outperformers on the week amid the risk-on sentiment. The US dollar was weaker amid sterling and euro strength.

The Federal Open Market Committee (FOMC) meeting was in focus last week. The FOMC decided to keep rates unchanged, as widely expected.

The post-meeting communique noted the committee had determined the current stance was “appropriate to support sustained expansion of economic activity, strong labour market conditions, and inflation near the committee’s symmetric 2% objective”.

The Federal Reserve’s “dot plot” chart of interest-rate projections was also updated, and it indicated a majority of the committee expect interest rates to be kept on hold through 2020, with only four members expecting a rate hike.

Any interpretations of a hawkish slant to the release were quashed during Fed Chair Jerome Powell’s press conference. He stated he could only support rate hikes in the new year once the country had seen inflation “that is persistent and that is significant”.

The communique showed the Fed is comfortable with current monetary policy, believing it to be completely appropriate for current market conditions. With no committee members anticipating any rate cuts in 2020, it seems, for now there would need to be some material change to the downside to convince the committee to cut again in the near future.

It was a fairly quiet week in terms of macro data releases. On Friday, retail sales came in below expectations for November. Meanwhile, core consumer price index (CPI) data was roughly in line with what forecasters were anticipating, increasing 0.2% on the month.


Asian equities were broadly higher last week as sentiment around trade improved.

In terms of equity market sectors, alongside the risk-on sentiment, technology stocks outperformed. The defensive sectors lagged on the week with consumer staples, health care and real estate investment trusts (REITs) the week’s laggards.

Outside of trade, it was a relatively quiet week in terms of newsflow in the region. It was a mixed week for macro-economic releases.

On Monday, China reported a 1.1% dip in exports in November from one year ago. There was also a 23% drop in shipments to the United States. On Tuesday, Chinese CPI inflation came in at the highest level since 2012 amid a surge in pork prices.

In Japan, upgraded third-quarter gross domestic product (GDP) growth figures came in at the top end of estimates. On Thursday, machinery orders in October had slipped for a fourth consecutive month and, on Friday, a Bank of Japan release showed manufacturers’ business sentiment had dipped to its lowest level in six years.

Week Ahead

This will likely be the last week of meaningful market volume for investors before the holiday season arrives next week. There are a few central bank meetings of note, as the Bank of England (BOE) and Bank of Japan (BOJ) meet on Thursday of this week.


  • Impeachment: In the United States, The House of Representatives will vote on President Trump’s impeachment. The Democrat-controlled House is vote likely to support the action, but a Republican Senate majority means it is unlikely the president will be convicted or removed from office.
  • UK: Focus will be on the new government and detail of its priorities as Parliament reconvenes.


  • Tuesday: US November industrial production
  • Wednesday: Eurozone CPIs
  • Thursday: Japanese CPI
  • Friday: UK third-quarter GDP

Central Banks

  • ECB President Lagarde speaks on Wednesday.
  • Thursday: Monetary policy committee meetings for BOE, BOJ, Norges Bank and Riksbank.



Franklin Templeton Key risks & Disclaimers:

What Are the Risks?

All investments involve risk, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. Past performance is not an indicator or guarantee of future performance.

This article reflects the analysis and opinions of Franklin Templeton’s European Trading Desk as of 16 December 2019, and may vary from the analysis and opinions of other investment teams, platforms, portfolio managers or strategies at Franklin Templeton. Because market and economic conditions are often subject to rapid change, the analysis and opinions provided may change without notice. An assessment of a particular country, market, region, security, investment or strategy is not intended as an investment recommendation, nor does it constitute investment advice. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy. This article does not provide a complete analysis of every material fact regarding any country, region, market, industry or security.

Nothing in this document may be relied upon as investment advice or an investment recommendation. The companies named herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton.

Data from third-party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user. Products, services and information may not be available in all jurisdictions and are offered by FT affiliates and/or their distributors as local laws and regulations permit. Please consult your own professional adviser for further information on availability of products and services in your jurisdiction.

Issued by Franklin Templeton Investment Management Limited (FTIML) Registered office: Cannon Place, 78 Cannon Street, London EC4N 6HL. FTIML is authorised and regulated by the Financial Conduct Authority.

MeDirect Disclaimers:

This information has been accurately reproduced, as received from Franklin Templeton Investment Management Limited (FTIML). No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment and may be deducted from the invested amount therefore lowering the size of your investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.


We strive to ensure a streamlined account opening process, via a structured and clear set of requirements and personalised assistance during the initial communication stages. If you are interested in opening a corporate account with MeDirect, please complete an Account Opening Information Questionnaire and send it to

For a comprehensive list of documentation required to open a corporate account please contact us by email at or by phone on (+356) 2557 4444.