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 Equity 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.
Equity markets ended August on a positive note, with Chinese stimulus aiding sentiment, along with global macro data releases that increased hopes central banks would pause their rate-hiking cycles. Trading volumes were still relatively subdued, with the UK equity market closed last Monday and the US market closed for the 4 September Labour Day holiday. Last week, the STOXX Europe 600 Index closed up 1.5%, the MSCI World Index was up 2.7%, the S&P 500 Index was up 2.5%, and the MSCI Asia Pacific Index was up 2.9%.
Week in review
Equity markets in Europe traded higher into month-end, with volumes much better than the prior week thanks to a MSCI rebalance on Thursday. The STOXX 600 Index moved back above its 200-day moving average, a key technical indicator, and comfortably above support at 450. Some China-exposed sectors, such as EU luxury, continued to struggle.
Looking at fund flows, European equities have seen outflows for the past 25 weeks (US$0.3 billion in the latest week of data).
European inflation data was a focus last week, with a glut of European datapoints out. The eurozone Core Consumer Price Index (CPI) came in at 5.3%, in line with expectations and down from 5.5% prior. Headline CPI was a touch higher than expected, at 5.3%. With that, there was no strong indicator on what the European Central Bank (ECB) will do at its next meeting on 14 September and the market is unsure, currently pricing a 25% chance of a rate hike.
ECB speakers are keeping their options open, with ECB Executive Board member Isabel Schnabel saying: “Should we judge that the policy stance is inconsistent with a timely return of inflation to our 2% target, a further increase in interest rates would be warranted. Should our assessment of the transmission of monetary policy suggest that the pace of disinflation is proceeding as desired, we may afford to wait until our next meeting to gather more evidence”.
In the United Kingdom, house prices fell at the fastest rate since 2009, with the average house price declining by 5.3% last month compared to last year.
Last week was positive for US equities markets ahead of the Labour Day holiday, with the S&P 500 Index up 2.5%. Technology stocks led the way, with the Nasdaq 100 Index up 3.7% and the FANG+ Index up 4.3% (back close to all-time highs).
Several data releases out last week helped drive an increasing view the US economy may see a “soft landing”. Earlier in the week, ADP and JOLTS jobs data figures were both weaker than anticipated, and on Friday, the important US monthly employment report saw unemployment rise to 3.8% in August. Nonfarm payrolls came in at 187,000 (steady with the prior month) and average hourly earnings rose 0.2%. Investors took the view that these prints reduce the chance of a Federal Reserve (Fed) interest-rate hike in September. The market is now pricing in a 6% chance of a 25-basis-point (bps) hike in September versus 21% chance at the end of last week. In that context, the US 10-year Treasury yield fell 5.8 bps on the week.
Commodities were stronger, with West Texas Intermediate crude oil up 6.8%, hitting US$85 per barrel for the first time since November as Russia has agreed with its OPEC+ partners on further cuts to its crude oil exports.
Investor sentiment improved, with the CNN Fear & Greed Index edging into “Greed” territory.
Last week was a good one for equities in Asia, with the MSCI Asia Pacific Index up 2.8% and all major markets in the region up around 2%-3%. Sentiment that the US rate-hiking cycle may be coming to a possible end, along with China’s efforts to stimulate its economy, drove gains.
The Nikkei Index closed up 3.4% last week, and all sectors were positive.
On the macro front last week, employment data was a bit weak, with unemployment rising to 2.7% in July. Also, the government announced measures to control record high petrol prices and to extend its subsidy program—all good of course for helping to control inflation.
Mainland equities in China had a good bounce last week, closing up 2.26% after the China Securities Regulatory Commission (CSRC) rolled out supportive measures last weekend, including a 50% cut in the stamp duty to 5 bps, and tightening rules around IPO/refinancing/stake cutting by controlling shareholders.
It was a mixed macro data picture. China’s August official Manufacturing Purchasing Managers Index (PMI) came in at 49.7 (better than expected), while the non-manufacturing index was 51 (slightly worse than expected). The Caixin August Manufacturing PMI stood at 51.
Hong Kong’s equity market had a good week last week, closing up 2.37%.
Stocks started the week higher after China’s stamp duty cut, while multiple regulators vowed to prevent financial risks.
China’s Minister of Commerce met with US counterpart Gina Marie Raimondo and separately published statements after forming a joint working group on trade issues.
However, market momentum faded towards the end of the week after a government report showed that the slump in manufacturing activity persisted in August.
The week ahead
It looks like a quieter week ahead in terms of catalysts, starting with the US market close Monday for the Labour Day holiday. Of note, the Reserve Bank of Australia holds a policy meeting on Tuesday, and global PMI data, Chinese CPI, and Japanese gross domestic product (GDP) releases are due out later in the week.
Monday 4 September
- Germany Foreign Trade
- Switzerland GDP
- Spain Unemployment Change
- Eurozone Sentix Investor Confidence
- Japan All Household Spending
Tuesday 5 September
- Spain Services & Composite PMI
- Italy Services & Composite PMI
- France Services & Composite PMI
- Germany Services & Composite PMI
- Eurozone ECB one-year and three-year CPI Expectations
- Eurozone Services & Composite PMI
- UK Services & Composite PMI
- Eurozone PPI
- US Factory Orders and Durable/Cap Goods Orders
- Caixin Chine PMI
Wednesday 6 September
- Germany Factory Orders; Construction PMI
- UK Construction PMI
- Eurozone Retail Sales
- China: Trade Balance
- US Mortgage Apps; Trade Balance; PMI-Services (revision); ISM-Services; Fed Beige Book
Thursday 7 September
- UK Decision-Maker Panel Survey
- Netherlands Consumer Spending
- France Total Payrolls & Wages; Trade Balance & Current Account Balance
- Switzerland Unemployment Rate; Foreign Currency Reserves
- Germany Industrial Production
- Spain INE House Price Index
- Italy Retail Sales
- Eurozone GDP & Employment
- US Continuing Claims & Nonfarm business productivity (revised)
Friday 8 September
- Netherlands Industrial Sales & Manufacturing Production
- Sweden GDP Indicator, Household Consumption, Private Sector Production, Industry Service & Production Value, Initial Orders
- Germany CPI
- France Industrial & Manufacturing Production
- Spain Industrial Output
- Canada Labor Force Survey
- China CPI
- Japan GDP
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