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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. 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 higher overall last week, with existing themes providing some push and pull. Central bank hawkishness, persistent inflationary pressures and the war in Ukraine are all existing themes which investors are still trying to digest. Despite the uncertainty, the MSCI World Index closed the week up 1.3%, while regionally, performance was fairly mixed, as the S&P 500 Index closed the week up 1.8%, the STOXX Europe 600 Index closed down 0.2%, whilst the MSCI Asia Pacific closed up 0.5%. This week marks the end of the first quarter, and it has been a very eventful quarter for markets. Through the quarter, the S&P 500 Index has traded within a 14% range of its year-to-date (YTD) highs; the STOXX Europe 600 Index trading range has been 18%; whilst the MSCI Asia Pacific Index has traded down as much as 16% from its highs.

Ukraine Crisis Continues

There was little change in our key market themes last week; however, it is clear that the market remains poised for some more positive headlines out of Ukraine. It has now been over four weeks since Russia launched its invasion of Ukraine, and there are very few signs that the conflict will be coming to an end soon. But, it still feels like hope is a big driving factor behind relative equity market strength despite the clear headwinds.  Headlines throughout last week suggested that the two sides remain far apart in negotiations. Ukraine’s Deputy Chief of Staff Ihor Zhovkva said that the Donbas and Crimea territories are non-negotiable, and the country would never surrender them. The Kremlin also advised that there was no progress on the key issues. Questions about Russia’s intentions in Ukraine were raised again last week, with reports that Russia will focus (for now) on taking full control of the Donbas region. This appeared to show a scaling back of the ambitions of Putin. Earlier in the week, US President Joe Biden said that he believed Russia’s President Putin’s back was against the wall, increasing the chances of the use of chemical or biological weapons.

Yet, despite the continued violence and the lingering uncertainty for the global economy, equity markets are now approximately 5% above pre-invasion levels. Positioning had been extreme so far this year, and this positioning was occurring well before Russia’s invasion of Ukraine. We saw significant rotation in January, with some broad risk-off moves as investors moved out of growth and into value. So, sentiment was already bearish, and the invasion exacerbated this trend. Despite the technical reasons for a bounce in equity markets, the same headwinds still persist. Investors should be wary of more hawkish central bank rhetoric, as commodity prices rose again last week and the true extent of the impact on the global supply chain is yet to be felt.

So, what next? We could see a challenging second-quarter ahead, particularly in Europe. Sentiment has fallen to levels seen during other crisis periods, and inflation will likely stay elevated amid global supply-chain disruptions.

Week in Review


Last week, European equities actually finished one of the least-volatile weeks YTD, down 0.2% overall, following a late selloff. Equity markets had been fairly resilient all week in the face of continued headwinds. Yet, stock markets were fairly stable, with TINA (“There Is No Alternative”) apparently back in play. Intra-day volatility was lower again. European equities have now recovered more than half of their YTD losses and we saw risk appetite returning somewhat. Nonetheless, it was another week of outflows for European equity funds, although the pace of these outflows has been slowing. Market volumes have been poor, post the previous week’s expiries.

Sector performance divergence was large again last week Unsurprisingly, the YTD outperformers led the way again last week, namely basic resources and oil and gas stocks, tracking commodity prices. In terms of the laggards, construction and materials, travel and leisure, and retailing stocks all declined. Bond markets continued their YTD selloff, with investors taking note of the hawkish tones from central bankers throughout the week. Also, there was a comment from German Finance Minister Christian Lindner, who said we can no longer rely on the European Central Bank (ECB) to drive growth as it fights inflation.

Also, notably, the Russian market opened again to local investors last week, closing the week down 16% in US dollar terms. Foreigners (“non-residents”), who pre-crisis accounted for around 48% of all volumes traded on the Moscow Exchange are still banned from trading. There was also a ban on short selling. This means that trading is hugely skewed and unreliable (from a price discovery perspective), especially as it’s been well flagged that the Russian government has been an active buyer in both markets. Earlier in the week, the US White House slammed the reopening of the Moscow Exchange as a “charade,” saying it’s not a real market.

United States

Last week was a much quieter week for US equity markets, both in terms of trading volumes and headlines. The S&P 500 Index edged higher through the week, closing the week up 1.8%. Elsewhere, the Dow Jones was up 0.3%, the Nasdaq 100 Index up 2.3%, while the small cap Russell 2000 Index was down 0.4%. With the recent recovery in the S&P 500, the index is now just 5% away from all-time highs and sitting comfortably around its 200-day moving average, a key technical indicator.

Looking at sector performance, energy was a significant outperformer, gaining as West Texas Intermediate (WTI) crude oil traded up 10.5% following Yemen’s Houthi rebels’ attack on Saudi Arabian oil installations. Materials were also stronger amid higher commodity prices; the Bloomberg Commodity Index gained 5% last week. In terms of losers, health care was the only sector in negative territory.

One of the main talking points last week was Federal Reserve (Fed) policy, as Chair Jerome Powell stuck with a hawkish stance in comments earlier in the week. He stated his primary goal is to reduce inflation while preserving a strong labour market. He also noted the Fed will first remove the excess accommodation to move to a “neutral” rate stance but will shift to a “tight” stance if necessary. Importantly, when asked if anything would prevent a 50 basis-points (bps) hike at the next meeting, he answered “nothing.”

Following that, we saw some investment banks raise their interest-rate hike expectations. Fed fund futures now price in a 76.8% chance of a 50 bps hike in May, and futures markets now see eight 25 bps hikes this year. In this context, we have seen sharp moves in bond markets, with the US 10-year yield up 32.5 bps on the week, but notably up 14 bps last Friday alone. The US Treasury market has had its worst month since the election of President Donald Trump in 2016.


Last week was mixed in Asia, with new coronavirus cases, regional lockdowns, the ongoing accounting standards dispute between the United States and China, Japanese economic policy and of course the Ukraine-Russia war dominating headlines.

The MSCI Asia Pacific Index closed the week up slightly amid a strong showing from Japan, with strength in Japan as the Japanese Nikkei 225 Index closed the week up 4.93%, despite the market being closed last Monday.

The strong performance in Japan was mainly due to expectations of further economic stimulus and reassurances from the Bank of Japan (BoJ) that it will maintain its accommodative monetary policies. Last Wednesday, the market surged on reports of a stimulus package that sent the yen to six-year lows.

Japan’s Prime Minister Fumio Kishida is poised to order a package of measures as he seeks to address a deteriorating economic picture. Towards the end of the week, BoJ Governor Haruhiko Kuroda maintained his stance that a weaker yen is a plus for the Japanese economy, while recognizing some downside to the currency’s drop.

China’s mainland equity market closed lower last week as volatility continued amid heightened US-China tensions over Russia, risk of Chinese stocks being delisted in the United States and China’s new COVID-19 lockdowns. China’s government said last Tuesday that it will step up policy support for the economy and capital markets, reiterating earlier vows to shore up battered investor confidence in the face of weaker growth, a slump in property market and regulatory crackdowns on tech businesses.

Of note, the People’s Bank of China (PBoC) left the loan prime rate unchanged and trade in property developer Evergrande was suspended last Monday. China again denied sending military aid to Russia and repeated that it will help de-escalate tensions. However, it also noted its normal trade and economic relations with Russia, criticised sanctions on Russian oligarchs and said would not accept external coercion or pressure; so, mixed signals and actions continue. Last Wednesday, corporate developments lifted sentiment after online retailer Xiaomi followed Alibaba in making a buyback announcement, with some analysts thinking that Tencent could be next.

Surging COVID-19 cases continued to be a concern, with Shanghai reporting record new infections and China’s cabinet dispatching task forces to 10 provinces and municipalities, including Shanghai, to help oversee control. Chinese regulators continue to make efforts to avert delisting of Chinese stocks from US exchanges.

In Hong Kong, we saw a stronger start to the week, but that didn’t last, and the benchmark index there closed broadly flat, down 0.04%. Carrie Lam, the city’s leader, said she would lift a flight ban from nine countries starting 1 April, which will allow Hong Kong residents and travelers from countries including the United States and the United Kingdom to quarantine in a hotel for seven days, down from the current 14 days.

Macro Week Ahead Highlights

Monday 28 March:

  • The week starts with Bank of England (BoE) Governor Andrew Bailey scheduled to speak at a Bruegel event. Later in the day, UK Chancellor Rishi Sunak is due to appear before the Treasury Committee to discuss the Spring Statement.
  • US merchandise trade balance and wholesale inventories

Tuesday 29 March:

  • Germany consumer confidence
  • France consumer confidence
  • Spain retail sales
  • UK consumer credit

Wednesday 30 March:

  • BoE Deputy Governor Ben Broadbent speaks on ‘The MPC at 25’ at Niesr and the Money Macro and Finance Society.
  • Spain Consumer Price Inflation (CPI)
  • Italy industrial sales
  • Eurozone economic confidence
  • Germany CPI
  • US ADP employment
  • US gross domestic product and real consumption
  • Russia’s activity data for February (5pm) won’t capture much disruption from Putin’s invasion of Ukraine, which began 24 February. But weekly price data, due at the same time, will fill in the picture through March–expect inflation to spike to about 15% from 9.2% in the month prior.

Thursday 31 March:

  • UK GDP and current account (CA) balance
  • UK nationwide house price survey
  • France CPI and Producer Price Index (PPI)
  • Germany unemployment claims rate
  • Spain CA balance
  • Italy Harmonised Index of Consumer Prices (HICP) inflation
  • Italy unemployment rate
  • Eurozone unemployment rate
  • US jobless claims

Friday 1 April:

  • Eurozone CPI
  • US March employment report
  • US manufacturing – Institute of Supply Management

Franklin Templeton Key risks & Disclaimers:

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 28 March 2022, 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.

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