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Oil prices also rose early Friday ahead of weekly inventory data.
Choppy Markets Threaten Bond-Trading Revenue
By Telis Demos, banking reporter
There’s a growing divide on Wall Street: Volatility is lifting stock-trading revenue at the biggest banks, but outsize swings in bond markets are starting to threaten their fixed-income businesses.
Equity-trading desks at the five biggest U.S. banks are set to record their biggest revenue year since the 2008 financial crisis, according to company reports and analyst forecasts.
Yet corporate-debt trading revenue at the dozen biggest banks globally is trending toward its lowest annual level since 2011 with interest rates climbing, according to industry tracker Coalition.
The division shows how much trading has been shaped by market conditions that were good to corporate clients, who enjoyed cheap borrowing, but tough for active investors and hedge funds, who struggled to make money without volatility.
Industry watchers say 2018’s shift was a long time coming. On stock-trading desks, banks have invested heavily in technology upgrades and engineering, slashing rank-and-file traders as they automate tasks.
Banks have been slower to upgrade bond desks, which are typically less centralized and have more trading done over the phone. Those desks may now have to adapt quickly to new conditions as rates increase. Issuance of new corporate debt via banks is on track to fall more than 25% this year, according to Dealogic.
Overall, equity-trading revenue at the big five U.S. investment banks—Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, and Morgan Stanley—is expected to jump 15% from a year ago, according to Credit Suisse. The same banks are expected to increase revenue about 5% in their fixed-income units.
But the most recent market moves, driven in part by concerns about corporate credit, could threaten even that small gain for fixed-income trading.
Plus, today’s boom years don’t resemble the precrisis heyday.
Wall Street trading desks now generate much less trading revenue than they did in the years leading up to the crisis. They also tend to consume less of the banks’ resources, as they move toward trading out of positions more quickly—in part by using technology and in part due to the Volcker rule, which limits taking bets with the banks’ own money.
“Some people thought once rates are back, it’s going to be 2006 again. But that’s not going to happen,” said Rick Lane, chief executive of Trading Technologies International, which sells algorithms and software to banks’ trading desks and investors. “Traders today look very different than they looked 10 years ago.”
The S&P 500 fell 2.8% at Thursday's intraday low before closing positive, the largest such swing to a positive finish since May 2010, according to Dow Jones Market Data. It was the largest similar percentage rebound for the Dow (2.7%) since October 2011 and the biggest for the Nasdaq (3.3%) since November 2008.
The S&P 500 materials sector was the broader index's best performer Thursday for the first time since Nov. 6 with its 1.8% climb. The group has led the S&P 500 15 times this year.
On this day in 1967, after 175 years, the New York Stock Exchange admitted its first woman member, Muriel Siebert of Muriel Siebert & Co.
International trade in goods, due out at 8:30 a.m. ET, is expected to show the goods deficit widened in November.
The Chicago purchasing managers index for December, slated for 9:45 a.m., is expected to fall to 60 from 66.4 a month earlier.
U.S. pending-home sales for November, issued at 10 a.m., are expected to rise 1% from a month earlier.
Natural-gas inventories will be released at 10:30 a.m. U.S. stockpiles are expected to have fallen by 50 billion cubic feet last week, per the average target of nine analysts and traders surveyed by the Journal.
U.S. crude-oil stockpiles are out at 11 a.m. Government data are projected to show a 2.6-million-barrel decrease for the week ended Dec. 21, according to the average estimate of nine analysts.
The Baker-Hughes rig count is scheduled for 1 p.m.
Apple and companies including Wells Fargo and Citigroup repurchased their own shares at rich prices, only to see their value decline sharply. PHOTO: DREW ANGERER/GETTY IMAGES
Buybacks come back to bite. Companies including Apple and Wells Fargo spent billions on repurchases this year, only to see prices sink.
Investors find an unlikely safe space. There aren’t many asset classes in positive territory as 2018 comes to a close. A rare refuge is Chinese bonds.
Our investment columnist's lessons from a wild December. James Mackintosh assesses what he got right and wrong this year, and gives his advice for 2019.
Shutdown seen stretching into January. Lawmakers and the White House made no progress toward a deal to end the partial government shutdown, likely leaving the wall-funding fight as the first order of business for the new Congress.
A gamble on carbon credits has yet to pay. Investors who bought natural resources hoping to make money from carbon credits and other responses to climate change have seen their bets flop.
McDonald’s bets on breakfast again. The fast-food chain is adding meatier sandwiches and $1 offers to its breakfast menu, focusing on mornings to address softer U.S. sales and rivals’ new breakfast offerings.
What We've Heard on the Street
“The U.S. trade deficit looks almost certain to expand in the year ahead, and that will have important consequences for the economy. But investors need to be just as mindful of the political consequences as well.”
International Business Machines: The technology company said in a securities filing that former American Express CEO Kenneth Chenault will retire from the company’s board next year after serving more than 20 years as a director.
Procter & Gamble: The seller of consumer products also said Mr. Chenault will retire from its board next year.
Advanced Micro Devices and Nvidia: The chip makers were among the market’s biggest laggards Thursday after RBC warned that slowing gaming sales could hurt them. AMD shares fell 2.3% Thursday, while Nvidia closed down 1.5%, though both stocks closed well off their lows of the day.
Some rival chip makers including Micron Technology led the market’s late-afternoon rebound.
Salesforce.com: The business software company has been among the market’s best performers the last two days, climbing 11% over that span.