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 closed generally higher last week with limited market catalysts at play. The MSCI World Index closed the week up 1%, while the S&P 500 Index closed the week up 0.6%, the STOXX Europe 600 Index was down 0.1%, and the MSCI Asia Pacific Index outperformed, up 3.9%.

There were very few developments in recent market themes; however, a couple late catalysts were noted on Friday. First, there was an announcement that current Japanese Prime Minister Yoshihide Suga will resign. We also had a large non-farm payrolls miss in the US monthly employment report; an increase of 725,000 payrolls was anticipated in August, but we only saw a rise of 235,000, which likely rules out a September taper from the US Federal Reserve (Fed). The small increase in COVID-19 cases seem to have impacted the US jobs report, as well as the latest Chinese Purchasing Managers’ Index (PMI) data.

Equities in Europe treaded water ahead of the European Central Bank (ECB) meeting this week, where any hints of tapering will be closely observed. Focus over the next few weeks will gradually build toward the German election on 26 September. According to Bank of America’s Flow Show report, last week saw the largest outflow of cash funds in seven weeks (US$23 billion). Meanwhile, US$19.2 billion went into global equity funds, US$12.7 billion into bonds and US$0.5 billion into gold. Within the report, Bank of America noted that European equities saw their largest outflow in six weeks (US$0.6 billion).

Focus on Central Bank Tapering

The monthly US employment report has always been keenly watched, not simply as a gauge of economic growth, but as an indication of monetary policy alterations. At the Jackson Hole Symposium in late August, Fed Chair Jerome Powell delivered a speech which was largely in line with market expectations for some kind of tapering announcement before year end and for the tapering to start in the fourth quarter 2021 or early first quarter 2022.

Job growth is a key input in the debate around when tapering will likely occur, and Powell said there had “been clear progress toward maximum employment”, but he also noted that the unemployment rate understates the amount of slack in the labor market, with job vacancies at all-time highs.

As noted, last week’s August US employment report showed an increase of 235,000 in nonfarm payrolls, which was a disappointment. The unemployment rate did fall from 5.4% to 5.2%, however. The latest increase in COVID-19 cases around the United States appears to be the driver behind the weakness.

Looking ahead, European equity markets will closely watch the ECB meeting this Thursday, with a potential tapering of bond purchases the key focus. There are expectations for a reduction in pace of bond buying within the pandemic emergency purchase programme (PEPP). There is roughly €500 billion left and a monthly spend of around €80 billion, with expiration planned for March 2022.

Some economists expect a small reduction to €70 billion per month; however, others are looking for something more significant, potentially down to €50-60 billion per month. The ECB only bought about €62 billion in bonds in August, so some argue that this tapering has already started.

Better-than-expected economic data, upward revisions and the potential that recent inflationary indications may be more enduring are all factors behind expectations winding down bond purchases. The ECB has been notably dovish in recent meetings, so it will need to be careful not to signal an extreme u-turn on Thursday. Communication will be key.

German Election

Polls remain close in Germany ahead of the election on 26 September with the CDU/CSU (22% support) actually lagging the Social Democratic Party (SPD) (23%). The CDU/CSU have seen declines in support over the last five weeks. A win for the SPD would represent a shift to the left for German politics. The Greens also remain close behind, with around 18% support.

There are a number of potential outcomes, but the most likely will be some form of coalition between SPD/Greens/Free Democratic Party (FDP) or CDU/Greens/FDP. Whatever the outcome, it seems likely the Greens will be involved, so focus on renewable/sustainability stocks is a market talking point and that space traded well last week, up nearly 3%. An SPD-led government is more likely to result in more tax and spend policy vs. a CDU/CSU-led government.

Some of the other key policies the market is watching out for will be corporation tax, making the European Recovery Fund bonds a more permanent structure (Eurobonds) and fiscal spending.

Whatever happens, current German Chancellor Angela Merkel will be stepping down at this election, so from a broader European perspective, it will be interesting to see how the election affects the dynamics within the eurozone. Several reports have noted that there is unlikely to be a dramatic policy shift, rather a fairly fragile coalition with a relatively weak Chancellor.

Week in Review


European equities showed some relative resilience again last week following their mid-August weakness, with the STOXX Europe 600 Index closing the week near flat, down nine basis-points (bps), even though equity markets did hit new all-time highs in dollar terms mid-week. Country index performance divergence was fairly muted. In terms of themes, focus is on the ECB meeting this week. After that, attention will turn to the German election on 26 September.

Eurozone inflation registered its highest level since 2011 in August, up 3% year-on-year, vs. 2.7% expected, and well above the ECB’s 2% target.

In terms of factors, momentum stocks outperformed value last week. Ongoing concerns around the spread of the Delta variant continue to linger, so “Stay-at-Home” stocks outperformed “Going Out” stocks. In terms of sectors, technology and luxury stocks saw mean reversion last week given an absence of further interventionist headlines out of China. As such, technology finished the week up 2.0%, whilst retail stocks overall were up 0.7%. In terms of the laggards, telecommunications underperformed, down 2.2% on the week, followed by real estate, down 1.8%.

United States

As the summer draws to a close, the S&P 500 Index edged on to new fresh all-times highs last week, with the main talking point Friday’s employment data and what that may mean for Fed thinking. Aside from that, it was quiet in terms of corporate news flow and market volumes, as the 6 September Labour Day holiday loomed large.

The US 10-year Treasury yield edged up 4 bps to 1.33% and, interestingly, we have not seen a weekly move over 10 bps in the last six months.

Elsewhere, Hurricane Ida impacted US crude production which is still halted in some states. With that, WTI traded up 0.8% at US$69.29 a barrel.

Defensives outperformed last week with health care and the staples leading as some viewed the disappointing employment report as an indication that Fed tapering is likely to be pushed further out. On the downside, the financials declined amid the prospect of lower yields for longer and energy weakened on some concerns over Hurricane Ida’s impact.

The spread of the Delta variant continues to weigh on sentiment, with August data showing COVID-19 hospitalisations are at record levels in 10 US states. There were signs that concerns over the Delta variant continue to weigh on other macro data, as US consumer confidence declined to 113.8, missing expectations, and the Chicago August Purchasing Managers Index (PMI) was also weaker than anticipated.

In terms of Fed speak, it was notable that Atlanta Fed President Raphael Bostic said “we’re going to let the economy continue to run until we see signs of inflation”, before moving on interest rates, reiterating the point that rates are unlikely to increase any time soon.

There were also concerns raised over US President Joe Biden’s US$3.5 trillion social spending plan from within his own party last week. Senior Democrats remain confident of getting critics onside, but the progress of this bill will be important to monitor in coming weeks.

Asia and Pacific

Asian equities were broadly higher last week, with the MSCI Asia Pacific Index closing the week up 3.9%. Japanese equities were the region’s outperformers, receiving a shot in the arm on Friday with news that Prime Minister Suga will resign over his handling of the pandemic. Japan’s Nikkei Index closed the week up 5.4%, hitting a 30-year high as Suga’s resignation fueled hopes of added stimulus. Suga was expected to run in the upcoming presidential election but cancelled those plans, stating that he couldn’t handle the pressures of an election campaign alongside the COVID-19 response.

Stimulus hopes boosted Chinese technology stocks, which have been weak recently. The government announced measures for small businesses to boost the economy, which fed into hopes of further support more generally to help tech stocks. The market was also on the lookout for further regulatory measures by the government and Beijing did tighten online gaming service rules for teenagers and minors, announcing it would strengthen inspections of online game providers and limit teenagers to three hours most weeks.

There were a few notable macroeconomic datapoints out of Asia last week. The Chinese PMIs were an early focus for markets, given the recent misses. Last week, the non-manufacturing PMI missed expectations, coming in at 47.5, the first contraction since March 2020. The main driver behind the miss was the weak services sector. The manufacturing PMI also missed expectations, coming in at 50.1. Overall, the composite PMI report notably weakened to 48.9 from 52.4 previous.

Elsewhere, Japanese industrial production (IP) fell 1.5% month-on-month in July, which was not as bad as feared. Employment data also looked better in Japan, with the unemployment rate falling to 2.8% vs 2.9% previous. Total employment rose sharply in seasonally adjusted terms.

Finally, a technical recession is expected in Australia following the economic slowdown there; economists are now expecting a quarterly contraction in the third quarter of 3%-4%, with the report due out on Wednesday of this week.

Week Ahead


  • Monday 6 September: US Labour Day

Key Events

  • Tuesday 7 September: China trade balance, eurozone gross domestic product (GDP), Germany IP (month-on-month) Germany ZEW Survey
  • Thursday 9 September: ECB main refinancing rate, ECB deposit facility rate, China Consumer Price Index (CPI) and producer price index (PPI)
  • Friday 10 September: UK monthly GDP (month-on-month), France IP (month-on-month)


Monday 6 September      

  • Informal meeting of the EU economy and finance ministers
  • UK (August) new car registrations
  • Germany (July) factory orders
  • Labor Day holiday in the United States and Canada. Markets will be closed
  • US President Biden will likely decide this week whether to renominate Fed Chair Jerome Powell to a second term
  • US federal emergency unemployment benefits and other aid expire today

Tuesday 7 September     

  • Germany IP
  • Eurozone (second quarter final) GDP
  • China trade balance, imports, exports

Wednesday 8 September    

  • France (July) trade balance
  • Italy (July) retail sales
  • US (July) JOLTS
  • Fed’s John Williams, Robert Kaplan speak
  • US Fed releases Beige book
  • US Mortgage Bankers Association (MBA) mortgage applications (September)
  • Japan gross domestic product (GDP)

Thursday 9 September     

  • ECB interest-rate decision
  • ECB President Christine Lagarde briefing
  • Germany (July) trade balance
  • UK (August) Royal Institution of Chartered Surveyors (RICS) house prices
  • US initial jobless claims (September), continuing claims (August)
  • Fed’s Mary Daly speaks
  • China CPI and PPI

Friday 10 September       

  • UK monthly GDP
  • UK (July) IP, (July) trade balance
  • France (July) IP
  • Italy (July) IP
  • Informal meeting of EU economic and financial affairs ministers (through 11 September)
  • Key speakers: ECB’s Olli Rehn
  • US (August) PPI
  • US wholesale inventories (July), wholesale trade sales (July)


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 8th September 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. 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

Staying dynamic in our strategic views
All News

BlackRock Commentary: Staying dynamic in our strategic views

BlackRock anticipates that the new macroeconomic environment, characterized by increased volatility, will lead to more frequent valuation changes across asset classes. While short-term outcomes may not always be influenced by valuations, they remain significant in the long run.

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.