Picture your Future. Save for it by earning 1.5% on a 1-year Term Deposit Account! Learn more.

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.

The Digest

Global equities were fairly stable to start last week, but sold off towards the end of the week as concerns over headlines regarding US/China trade relations weighed on sentiment. The ongoing tensions have been a market driver for some time, and it looks like they will remain so indefinitely. Last week, investors were also concerned that we may face a second wave of the coronavirus, leading to a slower reopening of economies. With this, the STOXX Europe 600 Index closed the week down 3.8%, with all sectors in the red. The US S&P 500 Index closed the week down 2.3%, whilst the MSCI Asia Pacific closed down 1.2%.

In Europe, the rotation between recent winners/losers and momentum/value was a key theme, with this dynamic driving both single stock and index moves throughout the week. From a sector perspective, the defensive health care and telecommunication stocks outperformed on the week once again, whilst the banks had a torrid week, approaching all-time lows. Travel and leisure also suffered, unsurprisingly, as the true impact of the shutdown remains unknown. Health care is now the only positive European sector year-to-date, and playing a similar role to the S&P 500 FANG names in propping up the STOXX Europe 600 Index recovery.

Whilst the rotation we’re seeing does tie in with the daily noise surrounding the pandemic, it does feel like positioning, rather than anything fundamental, is driving this dynamic, especially as at times we see the direction switch day to day. With this being such a strong market structure theme at present and earnings so hard to predict right now, it really does feel like individual stock news and fundamentals can become lost, with performance primarily driven by which basket you fall in and what that basket is doing on the day.

US/China Trade Tensions

Trade rhetoric between the United States and China is now firmly back in focus, with inflammatory headlines from either side breaking last week. US President Donald Trump said he doesn’t want to talk to the President of China, Xi Jinping, right now and that he may consider cutting ties with China altogether. He also spoke about re-assessing Chinese companies that trade on US stock exchanges as they do not follow certain  accounting rules. There were reports that Chinese trade advisors were pushing for the initial trade deal to be re-negotiated as they believe the United States is in a weaker negotiating position given the current economic downturn. President Trump said there will be no re-negotiation.

The technology space was in particular focus as the United States Commerce Department announced new restrictions which prevent US companies from supplying Chinese technology companies with hardware and software. There was also a new rule that would mean any supplier to Huawei which uses US technology would be required to gain a license from the US government before it can sell to the company. At a time when we see supply chains severely impacted by coronavirus lockdowns globally, this will certainly add a further strain. The impact was clear on the US technology space, with the Philadelphia Semiconductor Index closing the week down 4.2%.

COVID-19 Update: Further Easing of Lockdowns

Government lockdowns across some key markets have eased slightly in the last week, but concerns over the potential of a second wave of infections still persist. There has also been a change in sentiment regarding how a potential economic recovery would look, moving from a V-shaped recovery to an L/U-shaped recovery. In other words, where previously market expectations were for a sharp bounce in economic performance, recent data suggests this recovery may be longer and more drawn-out than initially thought.

Firstly, we may consider the easing of lockdown measures we have seen so far.

France has begun to open some business, shops and schools for the first time in eight weeks. However, the country remains split into green and red zones depending on the rate of infection in these zones. The red zone areas, including Paris, remain under strict control. Masks are mandatory in all regions on public transport and in schools. Last week, the French government announced a €18bn fiscal package for supporting tourism – which represents around 9% of French gross domestic product (GDP).

Spain also began phase one of its plan. Some restaurants and hotels have opened with capacity constraints, whilst shops and food markets are also set to re-open with strict social distancing rules in place. Healthy people are allowed to gather in groups of up to 10.

In Germany, further easing was brought in over the weekend as restaurants and hotels were allowed to open with strict hygiene and social distancing measures in place. However, for three consecutive days at the start of last week, the rate of infection (the R number) rose in Germany back above 1.

German GDP was reported today, and it showed a sharp contraction of 2.2% in the first quarter (Q1)  of 2020, the worst result since 2008. The GDP for the fourth quarter of 2019 was also revised lower from zero to -0.1%, meaning Germany is now officially in a recession. Officials have predicted that the German economy will shrink this year by 6.3%, which would place Germany in its worst recession since quarterly GDP records began in 1970.

In the United Kingdom, Prime Minister Boris Johnson announced some easing measures for England, whilst Scotland, Wales and Northern Ireland remain in lockdown. Johnson’s update was met with some confusion, however the key changes from an economic perspective relate to the return of some construction and manufacturing workers. UK GDP results also showed a contraction for Q1 2020, down 2%. The services sector, which drives most of UK GDP performance, was down 1.9% on the quarter (more on this below).

Note, we also had eurozone GDP figures out today, which showed a 3.8% contraction in Q1 2020 – the largest quarter-on-quarter drop since 1995.

In the United States worryingly, daily cases were on the rise last week and there was also a small increase in the number of deaths, too. Whilst the infection curve has shown definite signs of flattening, it is concerning that the rate of infection is showing little sign of a steady decline. New cases and deaths certainly remain elevated; however, that may come as little surprise given how quickly some states have been to re-open.

As we noted last week, South Korea experienced a sharp increase in infections through last weekend. Meanwhile, Wuhan reported its first new infections last week, whilst Russia, Brazil and Turkey all reported an uptick in infections and deaths.

United Kingdom: Slowdown in Focus

In the United Kingdom we saw Q1 2020 GDP come in at -2% compared with the last quarter, with the Chancellor of the Exchequer Rishi Sunak stating: “It is now very likely that the UK economy will face a significant recession this year, and we’re already in the middle of that as we speak.” Digging into the data, there were “widespread” declines across the services, manufacturing and construction sectors , with a record 1.9% fall in services output.

UK consumer spending will be a key factor in any recovery, and the latest data on household spending showed it shrank at the fastest pace in more than 11 years (although there was a rise in spending on food, alcohol and new TVs!).

A survey this week showed a third of UK manufacturers don’t see a return to normal conditions for over a year, which doesn’t really tie into the Bank of England’s (BoE’s) narrative that we will see a sharp V-shaped recovery in 2021. Previously, the central bank said the economy could shrink by 14% in 2020, the biggest decline since the Great Frost of 1709, before firing back with growth of 15% predicted in 2021.

Finally, keep in mind the European Union/United Kingdom (EU/UK) Brexit talks are likely to come to a head in June, with the UK government reiterating it will not accept an extension of the transition deal beyond 2020. Today, UK negotiator David Frost says very little progress has been made, but he continues to believe an agreement is possible with EU.

Week in Review


It was a tough week for European equities as the tone of US/China negotiations deteriorated and concerns over the impact of the pandemic remain. Mixed economic data and a lack of progress in the EU/UK negotiations weighed on sentiment. Looking at sectors, health care and telecommunications outperformed, whilst the financials, automobiles and travel and leisure names struggled.

As we note above, it seems that with the current backdrop, rotation between baskets (value/momentum, winners/losers) is really driving markets, rather than individual stock fundamentals, even throughout earnings season. European stocks are currently trading near a record low vs. their US counterparts. The difficulty in agreeing on unified fiscal responses from EU member states likely exacerbated the dynamic. For its part, over the weekend the European Central Bank (ECB) said that it is ready to make further adjustments to support its policies.

With the travel and leisure sector one of the worst hit, last week the French government announced an €18bn fiscal package to support the tourism sector, as we note above. The industry represents around 9% of the country’s GDP and employs two million workers (almost all have been furloughed). Headlines over the weekend suggest there are hopes from Germany’s Foreign Minister Heiko Mass that talks with other EU members this week will make progress towards lifting a global travel warning and enabling members of the public to take travel on holiday this summer. This echoes commentary from France’s President Emmanuel Macron that individuals will be able to go on holiday in France in July and August. Importantly, Macron added that if new lockdown measures were implemented at this period, the government will reimburse bookings.

We are nearing the end of Q1 earnings season in Europe. The picture is mixed, with 51% of companies having beat consensus expectations on revenues and 49% beating expectations for earnings per share, although this is in the context of lowered estimates. The market’s upbeat performance does seem to indicate a willingness to look past poor results if the worst is avoided, but it’s important to remember that the second quarter is where companies are going to feel the main impact of the pandemic and related lockdowns.

United States

Faced with the headwinds of fresh US/China tension and some cautious comments from Federal Reserve Chair Jerome Powell, it was not too surprising to see US equities give up some ground. Last week, the S&P 500 Index traded -2.3%, but overall trading volumes were notably lower than recent averages, suggesting there wasn’t too much conviction behind the move. The FANGS yet again proved versatile, ending the week slightly positive.

Looking at sector performance, the health care sector outperformed, trading +0.9% on the week, whilst energy names were the laggards, -7.5%.

Powell Comments: Comments from Powell in a US television interview over this past weekend caught investors’ attention. He stated: “Assuming there’s not a second wave of the coronavirus, I think you’ll see the economy recover steadily through the second half of this year”. However, he was cautious over when the US economy might regain get back to pre-COVID-19 levels. He stated: “For the economy to fully recover people will have to be fully confident, and that may have to await the arrival of a vaccine”.

Despite ongoing pressure from the White House to push interest rates into negative territory, Powell poured cold water on this possibility, commenting: “I continue to think, and my colleagues on the Federal Open Market Committee continue to think, that negative interest rates is probably not an appropriate or useful policy for us here in the United States”.

Macro data continue to highlight the unprecedented impact of the COVID-19 crisis, with US April Retail Sales falling more than 16% from the prior month.

Asia Pacific

Markets were broadly lower on the week in the Asia Pacific (APAC) region, with just Australian equities in the green as the tensions between the United States and China weighed on sentiment elsewhere in the region. There has also been more talk aver a potential second wave of the COVID-19 pandemic. China has now encouraged trading firms and food processors to boost inventories of grains and oilseeds as worsening infection rates elsewhere and the possibility of a second wave raise concerns about global supply lines.

With lockdowns eased for some time now, China’s April industrial production came in better than expected at +3.9%, and the unemployment rate was also stable at 6%. However, whilst there are signs of a pick-up in the economy, retail sales for April came were lower than expected, showing that the consumer sentiment remains wary and far from normal.

Week Ahead

Monday 18 May

  • Economic / Political: BOE’s Silvana Tenreyro speaks; ECB’s Hernandez de Cos speaks
  • Data: UK: (May) Rightmove House Prices; Switzerland Total Sight Deposits, Spain May Economic Survey, Italy May Economic Survey, Germany May Economic Survey, France May Economic Survey, Eurozone May Economic Survey; Japan GDP

Tuesday 19 May

  • Economic/Political: ECB’s Chief Economist Philip Lane speaks
  • Data: Germany: (May) ZEW Survey; UK: (Apr) Claimant Count, Jobless Claims, (Mar) ILO UR;  Eurozone: (Apr) New Car Registrations; Netherlands May Economic Survey, UK May Economic Survey, Switzerland May Economic Survey, Spain Trade Balance, Eurozone Construction Output, Eurozone ZEW Survey Expectations; Japan Industrial Production

Wednesday 20 May

  • Economic/Political: BOE’s Andrew Bailey, Ben Broadbent and Sir Jon Cunliffe speak
  • Data: Eurozone: (May, Adv) Cons Conf; UK: (Apr) CPI; Netherlands Consumer Spending & Unemployment Rate, Sweden Industry Capacity, Italy Current Account Balance, EZ ECB Current Account, Eurozone CPI

Thursday 21 May

  • Economic/Political: Turkey CBRT Meeting; South Africa SARB Meeting
  • Data: UK: Markit Manufacturing & Services Purchasing Managers Index (PMI); France Composite PMI, Germany Composite PMI, Eurozone Composite PMI; US Jobless Claims, Flash PMIs; Japan Trade and Flash PMI

Friday 22 May

  • Economic/Political: ECB Publishes account of monetary policy meeting
  • Data: France: Markit Manufacturing & Services PMI; Germany: Markit Manufacturing & Services PMI; Eurozone: Markit Manufacturing & Services PMI; UK: (Apr) Retail Sales; Switzerland Money Supply, UK Public Finances (PSNCR) & Public Sector Net Borrowing, Sweden May Economic Survey, Norway May Economic Survey; Japan CPI

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 17 May 2020, 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.

Join MeDirect today to access the tools you need to put your money to work on your own terms.

Latest news articles

BlackRock - Why we keep leaning into risk
All News

BlackRock Commentary: Why we keep leaning into risk

Investment opportunities are emerging amid a unique macroeconomic backdrop, with U.S. equities leading gains, particularly driven by AI-related companies, and expectations of continued volatility. The focus is on overweight positions in U.S., UK, and Japan stocks, while favoring quality short-term fixed income and private credit investments.

Epic Investment Partners Weekly Article
All News

Epic Investment Partners Views: The Week Ahead

This week’s key events include China’s Third Plenum, the ECB rate decision, US bank earnings, and several significant economic data releases from the US, Eurozone, and UK.. Last week, Fed Chair Powell highlighted progress on inflation but emphasised caution in rate cuts, while China’s economic recovery showed signs of weakness with lower-than-expected inflation and GDP growth.

Experience better Banking

The sooner you start managing your money, your way, using the best-in-class tools, the sooner you’ll see results. 

Sign up and open your account for free, within minutes.



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 corporate@medirect.com.mt.

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