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Illustration: Aïda Amer and Sarah Grillo/Axios
Fixed income trading revenue fell double digits year-over-year at the big banks. On various earnings calls this week, CEOs explained lackluster results from their fixed-income trading business like this: volatility kept clients on the sidelines, dragging down their bond trading businesses, Axios' Courtenay Brown writes.
What they're saying:
The big picture: Fixed-income trading revenue has been slowing for years, Axios' analysis of annual filings shows.
What's going on: "The nature of the market has changed," Dick Bove, an analyst at Rafferty Capital Markets, tells Axios. "You're not doing these wild issuances that were very common prior to 2008."
Yes but: With more market volatility, the Federal Reserve reducing its $4 trillion bond holdings and a slowing global economy, some expect bonds to be back en vogue.
Teachers from the Los Angeles Unified School District display their On Strike signs in Los Angeles. Frederic J. Brown/AFP/Getty Images
As the U.S. government shutdown hits day 28, one largely overlooked story has been the massive teachers strike in Los Angeles, the nation's second largest school district. It follows walkouts by teachers in West Virginia, Oklahoma, Arizona, Kentucky, North Carolina and Colorado.
Why it's happening: State pension funds are embarrassingly under-funded, the result of fund managers who under-delivered on return targets for pensions and over-charged for doing so. There's also a shortage of fresh capital from future retirees.
What it means: Research shows there are economic consequences for students and future growth when teachers strike at high levels. The evidence comes from Argentina, which experienced 1,500 teacher strikes between 1983 and 2014.
The big picture: A study published in July by the Cato Institute found that being exposed to a high incidence of teacher strikes during primary school results in:
Buying emerging markets has become a major consensus trade for asset managers this year. Wells Fargo in November called emerging market stocks its “highest conviction recommendation."
Yes, but: Many analysts have pointed to the strong dollar as a possible impediment to a further rally this year, as well as the trade war between the U.S. and China. And there may be a bigger risk.
Be smart: With a slowing global economy, and more importantly a slowing China (the mothership for emerging markets' growth over the past decade), as well as big questions facing major EM economies like Brazil, South Africa, Russia and Argentina, this year's massive debt maturity schedule is certainly something to watch.
Conventional wisdom would suggest that borrowers in emerging markets, with their "emerging," or less developed, financial and banking systems, would hold a larger percentage of debt from sources other than banks.
However, mature markets like the U.S., Japan and the euro zone borrow far more from non-bank entities, a trend that has grown for more than a decade, with debt levels reaching 22.1% of total GDP.
Note: When excluding China, emerging markets debt rises to 20.2% of GDP.
"Over the last couple of months, everybody ... [was] talking about trade, tariffs, interest rates, what's going on with Brexit, government turbulence. 'All of these things ... must have some impact on the way you're running the business,' [but] we go back to the same place we were a few months ago; everybody, us and our customers, are still very optimistic about business in 2019 ... We have customers who are making long-term capital investments where they're going to be building and expanding their facilities into 2019 and 2020. And none of those projects are being pulled back."— CSX CEO Jim Foote on the company's strong quarter and announcing a $5 billion share buyback program
Why it matters: Transports are considered a strong gauge of economic health and are typically sensitive to any signs of a slowdown. As Foote also said on the company's earnings call, rails "touch every segment of the U.S. economy ... and so we have a very good feel and sense for what's going on."
The big picture: One of the factors driving CSX and other rails' strength is the ability to charge customers more for transporting freight. But that's having a ripple effect for other companies.
Days without a factual error: 3