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 stronger across the board last week, with some order returning to markets following a few days of increased volatility the previous week. The MSCI World Index closed the week up 4.2%, the S&P 500 Index was up 4.7% on the week, whilst the STOXX Europe 600 Index was up 3.5% and the MSCI Asia Pacific Index was up 4.4%.

Improving sentiment around vaccination programmes, as well positive developments in Italian politics, were the focus in Europe. It was ‘bad news is good news’ in US stock markets as a weaker-than-expected employment report appeared to give support to President Joe Biden’s US$1.9 trillion stimulus package.

After a dramatic week prior for hedge funds, one eye was on positioning as the market recovered from some fairly widespread short squeezes. Hedge fund gross trading flow jumped last week, although market volatility was significantly lower last week, with the CBOE VIX down 37%. Equities continued to see strong fund flows, particularly in emerging markets.

COVID-19 Picture Improving in the United Kingdom

The timing of the reopening of economies in Europe was in focus last week. France and Germany have stated it’s too early to be easing lockdowns. Germany is likely to extend the current lockdown when state and federal leaders meet on 10 February. Chancellor Angela Merkel stated that ‘it makes no sense to call it off now’.

However, it seems the picture is more positive in the United Kingdom, where the vaccination programme is in ‘full steam ahead’ mode. The combination of the latest lockdown and the apparent success of the vaccine so far has seen infection rates fall in the United Kingdom over the last four weeks. It also seems that hospitalisations and deaths are now abating. Having been one of the worst-hit countries in the advanced world, the UK government is now expected to begin easing restrictions again from March.

We read one research report noting the United Kingdom was reaching the ‘moment of truth’. Positive trends indicate infection levels in the country could be at summer 2020 levels within the next two weeks; the change from winter to spring could bring a remission in seasonal respiratory viruses; and all high-risk groups should be vaccinated by mid-March.

The UK government is under societal, economic and political pressure to ease restrictions, so we could see reopening in stages soon, once high-risk groups are protected.

UK domestic stocks tied to reopening traded well last week, including stocks related to restaurants, entertainment and airlines. Markets last week showed how sentiment has shifted, and there is now a firm expectation for the economy to resume some level of normality through spring and summer. With household savings up dramatically in 2020, there is notable pent-up demand for discretionary products and services.

Outside the United Kingdom, global daily case counts continue to fall sharply. For the first time this year, China reported its first day with no new COVID-19 cases over the weekend.

The arsenal of vaccines and treatments against the virus has also grown. Last week, J&J’s Janssen Biotech submitted its application to the US Food and Drug Administration (FDA) for a single-dose vaccine, which will hopefully be approved. As it stands, the United Kingdom has vaccinated slightly more of its population (roughly 17%) than the United States (roughly 10%), but the eurozone countries lag far behind with single-digit rates.

However, the eurozone is expected to see a surge in vaccine supplies as we head towards the second quarter, with expectations of a further 300 million doses in that time. There is a sense that there is now a pathway to reopening in the first half of this year, which continues to buoy equity markets for the time being.

Messy Italian Politics Remained in the Spotlight

We mentioned last week that Italian Prime Minister Giuseppe Conte had resigned amidst a power struggle with his predecessor (Matteo Renzi) over the government’s handling of the pandemic. Following this, President Sergio Mattarella made two attempts to revive the centre-left coalition, but both failed. On Wednesday of last week, Mattarella asked former European Central Bank (ECB) President Mario Draghi to form a broad-based government in order to avoid snap elections. Draghi is likely to succeed, aided by his ‘high-profile’ status. The anti-Euro Five-Star party (largest in parliament) said last week that they will not back Draghi, leading to in-fighting.

Support from Matteo Salvini’s right-leaning Northern League party was also expected to be tricky; they prefer early elections and have been scathing about such technocratic governments in the past. It was reported over the weekend, however, that Five-Star and the League would both give Draghi their conditional backing. Both parties said their support would be dependent on Draghi’s policy proposals. The centre-right Forza Italian party had said on Friday that they would give Draghi their full backing.

Mattarella had appealed to all parties to give their support, given that a stable government is needed to continue to deal with the pandemic and to allow the European Union (EU) recovery fund to be implemented effectively. Whilst we are used to high government turnover (since WW2 Italy has had a new government on average every 1.14 years), fresh elections do remain a tail risk, particularly with the Eurosceptic Northern League continuing to poll well. In terms of markets, hopes that Draghi will be successful have helped the spread between Italian bonds (BTB) and other European government bond yields tighten, with the Italy/Germany 10-year spread now dipping below 100 basis points (bps) to a five-year low. We would expect further tightening here if Draghi does lock-in the support he needs, which would clearly also be supportive for Italian equities.

Italian equities did outperform last week, with the FTSE MIB Index up 7% on the week.

Week in Review


European equity markets traded higher last week, with a few different factors at play. The STOXX Europe 600 Index closed the week up 3.5%. As noted, Italian equities led the way after Draghi accepted Mattarella’s mandate to form a government, settling some nerves. Italy’s FTSE MIB index closed the week up 7.0% and is now outperforming major indices in Europe year-to-date.

Hopes around the success of COVID-19 vaccination programmes supported stocks tied to economic reopening, which saw value outperform momentum last week. Fourth-quarter earnings season is in full swing, with 80 of the STOXX Europe 600 companies reporting last week.

On Thursday of last week, the Bank of England (BoE) ruled out negative interest rates for the next six months and gave a hawkish tilt on its release with its unanimous vote. Some observers were expecting a vote or two for further easing, which triggered a decent wave of buying in UK banks.

There was sizeable divergence in sector performance last week. The banks rallied alongside a broader value rally, supported by the BoE announcement. News that the Spanish government is considering debt relief for companies hit by pandemic restrictions also supported banking stocks there. Friday was the fifth consecutive day of buying for bank stocks, the longest winning streak in more than a year.

Travel and leisure stocks and the autos were also strong last week on economic reopening hopes. In terms of the laggards, oil and gas stocks struggled to catch a bid despite strength in the oil price, with brent crude oil up 9.0% on the week. Defensive sectors were among the underperformers, including telecommunications, utilities and real estate, but nonetheless posted small gains.

It was a mixed week for European health care stocks, but health care stocks in Europe have been   significant underperformer recently for well-documented reasons; the sector is up just1.4% vs. STOXX Europe 600gain of 13% over the past six months.

The reflation trade was evident again in Europe last week, with bond yields higher and consumer price index (CPI) reports coming in stronger than expected. Eurozone CPI saw growth of 1.4% in January, the highest growth in five years. However, this was driven by some temporary factors, such as an expired tax cut in Germany and higher energy and food prices. Oil prices also surged back to pre-COVID-19 levels. At a meeting last week on Wednesday, the Organization of the Petroleum Exporting Countries (OPEC) forecast the oil market to remain in deficit for the remainder of 2021.

Inflation is likely to be a key market theme for the rest of this year and for the years ahead, in our view. Steepening yield curves typically signal higher inflation expectations but may also represent a bullish signal for equity markets, especially financials.

United States

US markets were also stronger across the board last week, recovering from the previous week’s weakness. Stimulus hopes boosted markets, which saw a reversal of the dynamics seen the prior week. Hedge funds had reduced their gross exposure as part of the retail-led squeeze, with the closing of consensual longs weighing on markets, but last week saw them ramp exposure back up to new highs. All S&P 500 Index sectors were higher last week, with energy leading the way on the back of an impressive move higher in crude oil prices (West Texas Intermediate +8.9%), which returned to pre-COVID-19 levels.

US macro data was positive overall, despite a miss in the January non-farm payroll (NFP) headline number. The Citi Economic Surprise Index was higher on the week, the ADP private jobs figures beat estimates, Purchasing Managers’ Index (PMI) figures were revised higher, and US auto sales showed a faster-than-anticipated pickup in demand.

In addition, there was some upward pressure on US wages, with average hourly earnings ahead of estimates, and the US ISM prices paid index was also very strong. The prospect for rising inflation did see steepening of the Treasury yield curve with the US two-year/10-year spread at its widest since 2017 (+10.4bps). The widening helped bank stocks, supporting financials in general.

It is looking more likely the US government will pass a US$1.9 trillion stimulus bill, with the House voting last week to approve a budget ‘blueprint’. This paves the way for Biden’s package to be passed without Republican support.  Biden said the biggest risk would be going too small on the stimulus package as it is ‘very clear’ the economy is still in trouble.

Asia and Pacific (APAC)

Equities in the APAC region were also higher last week, with mainland Chinese stocks up slightly, while Japan’s equity benchmark closed up 4%. There was a disappointing macro release from China early in the week. Despite remaining in positive territory, January manufacturing and non-manufacturing PMI numbers both declined more than expected month-over-month, as the virus affected traditional Lunar New Year travel plans. That said, there were some positive reopening headlines, with Hong Kong set to double its in-school teaching capacity following February’s Lunar New Year holiday. The government will allow schools to resume for half days of in-person classes if teachers undergo testing every two weeks.

Tensions between China and the United States were in focus again after new US Secretary of State, Antony Blinken, had his first high-level interaction with Chinese officials since Joe Biden’s inauguration. Blinken warned China that the United States would hold Beijing ‘accountable for its abuses’, adding that the United States would ‘stand up for our democratic values’ and press China over its human rights record. This follows some tough statements the Biden administration has made in the past couple of weeks, suggesting a potentially more hardline approach to Beijing than had been anticipated.

Outside of this, Premier Li attempted to move China-UK relations onto ‘firmer footing’ as tensions continue to build over Hong Kong’s future and the treatment of Uighur minorities in China. At a business conference last week, he said that ‘No matter how the regional and international landscape may evolve, China’s commitment to its relations to the UK remains as strong as ever’.

Late in the week, the BBC came under fire from Chinese officials and social media in an escalating diplomatic dispute after Britain’s media regulator revoked the TV licence of Chinese state media outlet CGTN.

Week Ahead

A quiet week this week, the highlights being Industrial Production numbers from Germany on Monday and eurozone on 12 February. We expect a quieter end to the week, with many market holidays in Asia for the Lunar New Year.

Monday 8 February

  • Data: Germany Industrial Production; Italy Industrial Production
  • ECB President Christine Lagarde is expected to participate in a debate about the ECB annual report at the European Parliament

Tuesday 9 February  

  • Data: German Trade Balance; US NFIB Small Business Optimism
  • ECB Chief Economist Philip Lane participates in a panel discussion

Wednesday 10 February     

  • Data: UK Industrial Production, Manufacturing Production, gross domestic product; Germany CPI; France Industrial Production; US Mortgage Applications, Wholesale Inventories
  • ECB Executive Board member Fabio Panetta speaks

Thursday 11 February

  • Data: US Initial Jobless Claims
  • The European Commission publishes new economic forecasts.
  • OPEC monthly Oil Market Report is published
  • Holidays: Lunar New Year public holidays begin across Asia. Chinese New Year is Friday.

Friday 12 February  

  • Data: UK GDP; Spanish CPI; Eurozone Industrial Production


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 1st February 2021, 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.