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Notes from the Trading Desk – Franklin Templeton

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.

The Digest

Last week, global equities retreated from recent highs. The MSCI World Index closed the week down 2.0% as hawkish central banks and disappointing macroeconomic reports put pressure on risk assets and recession fears resurfaced again. The S&P 500 Index closed the week down 1.4%, the Stoxx Europe 600 Index was down 2.9%, and the MSCI Asia Pacific Index closed down 3.9%. The Bank of England (BoE) raised its benchmark interest rate by 50 basis points (bps) on Thursday, a larger hike than anticipated. The UK Consumer Price Index (CPI) reading for May came in stronger than expected, which raised the question on the possibility of another large hike.

In addition, the Swiss National Bank hiked rates by 25 bps (as expected), whilst Norges Bank raised by 50 bps (more than expected). Both spoke of further hikes to come. Meanwhile, Federal Reserve (Fed) Chair Jerome Powell doubled down on hawkish rhetoric, noting there was a strong majority within the Federal Open Market Committee (FOMC) for further rate hikes. Headlines noting delays to China’s stimulus rollout also weighed on market sentiment last week.

According to Bank of America’s “Flow Show” Report, last week’s fund flows were bearish. US equity funds saw their first outflows in four weeks last week, losing US$5.7 billion, while European equity funds saw their 15th consecutive week of outflows, shedding US$2.6 billion. UK stocks saw their 24th consecutive week of outflows. Last week, technology stocks saw their largest outflows in 10 weeks, totalling US$2.0 billion, while Chinese stocks saw their largest outflows since February this year, shedding US$1.6 billion.

The Bank of America Bull & Bear Indicator declined to 3.4 from 3.6 last week, the lowest level since 9 May amidst equity outflows, slowing bond inflows and worsening equity breadth.

Week in review


The Stoxx Europe 600 Index closed last week down 2.9%, notching its largest weekly decline since mid-March. Central bank action, combined with a worsening macro picture, were the key drivers.

All sectors closed lower in Europe, with cyclicals lagging defensives. Personal and household goods outperformed last week, albeit closing down 0.7%. Basic resources struggled as Chinese stimulus hopes, which had helped buoy European cyclicals through the first half of June, were dampened. Real estate stocks were also weaker as higher rates weighed on stocks in that space.

The BoE rate announcement was a focal point last week, with the market becoming increasingly split on whether there would be a 25 bp or 50 bp hike. On Wednesday, the May UK CPI report further weighed on investor sentiment, with inflation coming in higher than expected—the headline reading was 8.7% year-over-year (y/y), whilst the core was up 7.1% y/y. Food CPI is starting to slow, but still came in at a notable 18.7% in May. The CPI has now registered above the central bank’s 2% target for 22 months, with the annual pace still near recent 40-year highs.

As noted, the BoE raised interest rates 50 bps, to 5%. The vote was 7-2, with the two voting to keep rates unchanged. BoE Governor Andrew Bailey said: “If we don’t raise rates now, it could be worse later”. Meanwhile, the UK’s Chancellor, Jeremy Hunt, said the Bank of England has the government’s “full support”.

Resilient wage data in the United Kingdom remains a driving factor behind the high levels of inflation. The resultant interest-rate uncertainty is not helping UK financial markets either. Current yields on the UK two-year government bond remain above 5%, which compares to just above 3% in March.

Also, the domestically exposed FTSE 250 Index made a seven-month closing low on Friday, notching nine down days in a row. (Note: the index has not been down 10 consecutive days since the pandemic.)

The Swiss National Bank (SNB) and Norges Bank also raised interest rates last week. The SNB raised rates by 25 bps on Thursday morning and Chairman Thomas Jordan said that it is “most likely” that further hikes would be required. The Norges Bank announcement was more market-moving, as the Norwegian central bank raised rates 50 bps with officials stating that the rate will “most likely be raised further in August”. The committee was unanimous in voting to raise rates 50 bps.

Macroeconomic data last week was disappointing, pointing to further slowdown in economic activity in Europe. The Citi Economic Surprise Indicator for Europe fell again last week to levels not seen since the depth of the COVID-19 pandemic.

The latest Eurozone Purchasing Managers Indices (PMIs) were released on Friday and came in weaker than expected. The Eurozone June Composite PMI came in at 50.3, barely in expansionary territory. The disappointing print appeared to be driven primarily by a drop off in services activity, which is a worry, as services had been a relatively strong area of the economy recently. The outlook appeared to soften too, as Composite New Orders came in at 48.3 (vs. 50.3 previously), so in contraction territory. UK PMIs also surprised to the downside on Friday. The June Manufacturing PMI was dropped slightly to 46.2, while the Services PMI fell to 53.7.

United States

After five weeks of gains for US equities, last week finally saw a pullback for all major indices. The S&P 500 Index was down 2.9%. In terms of catalysts, some hawkish Fedspeak from Chair Powell was in focus. During his testimonies to Congress, he strongly emphasized the need for further rate increases. He also gave a cautious economic outlook, projecting US growth to fall below its long-term trend. Tighter credit conditions are expected to exert pressure on economic activity, hiring and inflation, although the extent of these effects remains uncertain.

In terms of sector performance, the defensive health care space was the only sector in positive territory, up 0.2%. The biggest laggards were real estate investment trusts and energy.

The FANG+ Index was down 2.5% last the week and the tech-heavy Nasdaq 100 was down 2.7%. Some strategists have highlighted that the sector could be due for a pullback given the Nasdaq 100 is on track for its best half since 1999.

From a macro perspective, US June PMI data was slightly weaker, with the composite falling to 53.0.

With the pullback in markets, it was unsurprising to see investor sentiment gauges also ease back from extreme levels. The CNN Fear & Greed index slipped back to “Greed’ territory (from “Extreme Greed” prior).


Last week was poor for Asian markets, with the MSCI Asia Pacific Index closing the week down3.94%.


The Dragon Boat Festival in China meant a shortened trading week for markets there, which declined. There was a lack of bullish catalysts, with no details surrounding a State Council stimulus package, a smaller-than-expected cut in the loan prime rate and no material improvement in the US/China relationship.

The market feels somewhat fragile and seems to be struggling with continued weak consumer and business confidence, a property slump and slowing exports.

Chinese banks lowered their one- and five-year rates by 10 bps (as expected) after the People’s Bank of China (PBoC) cut its medium-term lending facility rate last week.

On a more positive note, the auto space saw some good news last week, with the State Council Information Office holding a press conference to announce long-expected electric-vehicle purchase tax breaks.


Last week Japanese equities lost ground for the first time in 10 weeks, closing the week down 2.74%.

There was heavy profit-taking in technology/artificial intelligence stocks and other winners so far this year, and rotation into selective laggards/financials/defensive names. It seems like the market is rotating from growth to value names ahead of the next Bank of Japan meeting in July.

Japan’s core CPI rose by 3.2% in May, which was more than anticipated. The number slowed from the previous month but remained well above the Bank of Japan’s (BoJ’s) 2.0% target. This weighed on sentiment and fuelled speculation that the BoJ would revise its inflation forecasts upward in July.

The yen weakened toward the levels that prompted policymakers to intervene late last year to halt its decline, and Finance Minister Shunichi Suzuki said he was closely watching foreign exchange rates.

Japan retail sales and Tokyo inflation data are due out this week as well as industrial production numbers. BoJ Governor Kazuo Ueda will be speaking at the Sintra conference and is expected to maintain his dovish stance.

Hong Kong

Last week was poor week for Hong Kong’s equity market, which closed down 5.74%, its biggest weekly loss since October 2022.

The auto sector was in focus, with China extending tax breaks on electric vehicle purchases, but the sector ended the week in negative territory as losses deepened on Friday following the release of weak June sales data.

Health care services and the gaming companies were also notable market laggards.

Week ahead

The European Central Bank’s (ECB’s) global banking forum, the US Fed’s annual banking stress test, European Union (EU) CPI releases, China PMI and Japan CPI and Industrial Production (IP) reports could be key catalysts this week for the markets.

This week is another heavy week for central banks. The ECB’s global banking forum in Sintra, Portugal, will be held Monday through Wednesday. On Wednesday as Bailey, ECB President Christine Lagarde, Powell and Ueda will all speak on the same day.

On the data front, the key data releases include the Fed’s annual banking stress test release on Wednesday, and European CPI releases on Wednesday through Friday (Italy on Wednesday, Germany and Spain on Thursday, and France and EU on Friday). The CPI reports could be critical for the ECB’s next policy meeting on 27 July.

In Asia, markets will be watching  China’s June Composite, Manufacturing, and Non-Manufacturing PMI release on Friday and Japan’s Tokyo CPI and May IP releases on Friday.

Monday 26 June

  • Spain PPI
  • Germany IFO Survey
  • Japan May PPI
  • South Korea May Retail Sales
  • BoJ June MPM Summary of Opinions

Tuesday 27 June

  • Italy Consumer Confidence
  • US Durable Goods; Cap Goods Orders; House Price Index; New Home Sales; Consumer Confidence; Richmond Fed Manufacturing Index; Dallas Fed Services Activity
  • South Korea June Consumer Confidence
  • World Economic Forum in Tianjin

Wednesday 28 June

  • Germany Consumer Confidence
  • France Consumer Confidence
  • Spain Retail Sales
  • Italy PPI; CPI; Industrial Sales
  • UK Nationwide House Price Index
  • US Mortgage Applications; Wholesale Inventories
  • China May Industrial Profits
  • South Korea June Business Survey
  • BoJ Speak: Ueda

Thursday 29 June

  • Eurozone Consumer Confidence; Economic Confidence; Industrial Confidence
  • ECB Economic Bulletin
  • Germany CPI
  • Spain CPI
  • UK Consumer Credit
  • US gross domestic product, Core Personal Consumption Expenditures, Jobless Claims; Pending Home Sales
  • Australia May Retail Sales
  • Japan June Consumer Confidence, May Retail Sales

Friday 30 June

  • Eurozone CPI
  • Germany Import Prices; Retail Sales; Unemployment Rate
  • UK GDP; Imports & Exports
  • France CPI; Consumer Spending; PPI
  • US Personal Income/Spending; PCE Deflator
  • China June Manufacturing and Non-Manufacturing and Composite PMI, First-quarter Current Account Balance
  • Japan Jun Tokyo CPI, May Jobless Rate, IP, Housing Starts
  • Korea May IP, Cyclical Leading Index


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What Are the Risks?

All investments involve risks, including the 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.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

Past performance is not an indicator or guarantee of future performance. There is no assurance that any estimate, forecast or projection will be realised.

This article reflects the analysis and opinions of Franklin Templeton’s European Trading Desk as of 26th June 2023, 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.

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