Zig Zag

Global markets slip as South Korea sees a spike in coronavirus cases.

The Express | Insight Before the Bell By Caleb Silver, Editor in Chief & Deborah D'Souza, News Editor  Friday's Headlines 1. Global markets digest virus news from outside China 2. Eurozone and U.K. PMI data 3. Checking in on investment banks 4. Airline traffic to decline for the first time since 2008     Markets Today Global markets are mostly in the red today after South Korea reported 100 new coronavirus cases. China has changed how it counts cases once again, causing some confusion about the rate at which the virus is spreading. The total number of confirmed cases in the country has reached 75,465 and 2,236 people have died. Analysts warn that so-called virus bonds could cause the country's credit risk to rebound. Companies have issued "epidemic prevention and control bonds" worth 33.51 billion yuan so far.   U.S. markets look set for another day of losses today with futures trading lower. On tap in the U.S. is flash PMI readings for February and existing home sales for January. Markets in India remained closed for Maha Shivratri, a Hindu festival celebrated to honor Lord Shiva, the patron god of yoga and meditation. We wish you the combination of inner stillness and energy he embodies. Happy Friday!    Headlines: The eurozone economy grew at the fastest pace in six months in February despite the coronavirus outbreak hurting demand and supply chains. The IHS Markit Flash Eurozone PMI rose to 51.6 from 51.3 in January. Growth was centered on the services sector, and while manufacturing remained in decline, new orders fell at the slowest rate since late-2018.  U.K. manufacturing grew at the fastest pace in 10 months in February with PMI at 51.9. It helped offset a slight loss of momentum in the service economy and keep the country's flash PMI reading steady at 53.3. Dropbox shares jumped in extended trading after the company reported earnings that beat expectations. Revenue in 2020 was $1.6 billion, an increase of 19% year over year, and it's expected to grow to around $1.9 billion in 2021. The data services company ended the year with 14.3 million paying users. The board has also authorized share repurchases of up to $600 million in Class A shares.  Sprint and T-Mobile have amended their merger agreement to give T-Mobile majority owner Deutsche Telekom a bigger stake in the combined company. The merger, announced June 2018, is expected to close on April 1 this year after overcoming several hurdles. Sprint shares, already up 82% YTD, are higher pre-market. Desert locusts are wreaking havoc and threatening food security in East Africa. The Food and Agriculture Organization of the United Nations called the situation in Kenya, Ethiopia and Somalia "extremely alarming." Moody's said the infestations will add to inflationary pressures in vulnerable nations and fuel the potential for social unrest in the region.         SPONSORED BY FIDELITY INVESTMENTS Investing in Women in More Ways Than One Hiring and retaining women is essential to making financial expertise broadly accessible. Here's why Fidelity is prioritizing women's career growth and potential. Learn More »           Image courtesy: 1091/Giphy The Big Story Investment Bank Revenues Lowest Since 2008 Days after HSBC said it would dramatically shrink its investment banking unit as part of a huge restructuring plan, data provider Coalition has released figures for last year that paint a bigger picture of what's happening in the industry. It identifies trends using an index of 12 banks, namely Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, Societe Generale and UBS.   Here are some investment banking stats from Coalition: Revenue in 2019 fell 2.5% to $147.5 billion, the lowest since 2008 Investment banking revenues fell 3 % to $40.2 billion. Equities trading revenue fell 10% to $41.1 billion Fixed income revenue rose 3% to $66.2 billion Front-office headcount fell 5.5% to 48,900, the lowest since at least 2012   The 3,000 front-office job cuts last year, mainly focused on equities units, were attributed to increased automation, unbundling of trading costs and pressure on margins. Equities revenues were hit by drops in derivatives and prime services.   "The one place we see recruitment on the trading floor currently is for quantitative finance experts, and specialist sales people for investment banks' technology platforms," said Youssef Intabli, a research manager at Coalition.   Investment banks are looking to diversify away from securities trading and investment banking and into other areas like consumer banking. Goldman unveiled its reorganization plan in January and yesterday Morgan Stanley said it's buying discount brokerage pioneer E*Trade for $13 billion. Global investment banks are spending an average of $72 billion annually on IT including retail infrastructure and applications "to protect their revenue from the threat posed by fintech companies, as well as stay competitive with their peers," according to Moody's. Read more: Roles and Functions of Modern Investment Banks     The Big Number: 4.7% That's how much the coronavirus outbreak will shave off global airline traffic this year, according to the International Air Transport Association (IATA). The epidemic could cause the first decline in demand since the 2008-09 Financial Crisis. The total global lost revenue in such a scenario will be $29.3 billion with $27.8 billion revenue loss for carriers in the Asia-Pacific region and $1.5 billion for those outside it.   "Airlines are making difficult decisions to cut capacity and in some cases routes. Lower fuel costs will help offset some of the lost revenue. This will be a very tough year for airlines," said Alexandre de Juniac, IATA's Director General and CEO.   IATA is assuming COVID-19 will have a V-shaped impact like SARS in 2003 (sharp decline followed by an equally quick recovery), but warned there is a possibility of underestimating impact since China's place in the global economy has changed and Asia Pacific airlines' share in worldwide RPKs have risen from 27% to 35% since then.   The chart below shows airlines' exposure to affected markets based on where they are registered. Outside of Asia Pacific, Middle Eastern airlines that transport a significant number of Chinese tourists every year to destinations like Dubai will be most hit.       Image Courtesy: IATA More coverage: Can Lagging Small Caps Play Catch-Up? The Russell 2000 small-cap index has failed to break out in the first quarter, despite a rip-roaring blue-chip rally. Read Now »   Facebook Stock Nears Historic Breakout Facebook shares have turned higher after a post-earnings sell-off and could break out above 2018 resistance in coming weeks. Read Now »   Morgan Stanley to Buy E*TRADE for $13 Billion E*TRADE, one of the original internet brokers, is being sold to legacy Wall Street bank Morgan Stanley in an all-stock deal worth $13 billion. Read Now »   Garmin Stock Breaks Out on Strong Earnings and Outlook Garmin shares moved sharply higher Wednesday on better-than-expected fourth quarter earnings and full-year outlook figures. Read Now »   How can we improve The Express? 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