Ticker Tape: A Financial Briefing by Baruch College’s Investment Management Group
The crash of Ethiopian Airlines Flight 302 six minutes after takeoff on March 10 has led to the grounding of the entire Boeing 737 MAX fleet.
This was the second crash involving the 737 MAX 8 in the last six months. Lion Air Flight 610 crashed into the Java Sea 13 minutes after takeoff from Jakarta, Indonesia on Oct. 29, 2018. China was the first country to ground all 737 MAX aircraft, followed by the United Kingdom, Australia, Canada and the United States.
An issue relating to an anti-stall device in the nose of the plane has been linked to the Lion Air crash and recently recovered Ethiopian black boxes show the two crashes have a clear similarity. The 737 MAX is a brand-new plane and had just been delivered to both airlines just months prior to the crashes.
The Max program is critical to Boeing as it accounts for approximately 590 jets valued at between $27 billion and $30 billion in revenue this year alone, representing one-third of total projected 2019 revenues.
A grounding of all 737 MAX planes could cost the company between $1 billion and $5 billion, according to estimates from Wall Street firms Melius Research and Jefferies. Shares have dropped 12 percent since the Ethiopian crash.
Fidelity National Information Services agreed to acquire Worldpay for roughly $35 billion in cash and stock. The deal will create a global giant with worldwide reach in the payment and back-office financial services sector that will allow the company to reach more customers.
FIS engages in an array of tasks, ranging from storing and managing basic account information to complex back-office trading operations.
Worldpay connects merchants to the networks that process credit and debit card transactions and other types of payments.
As retail banks have started to get rid of their traditional payment management services, an increasing amount of smaller, technology-driven startups have filled the void.
The combined company expects to generate $500 million in additional revenue and save roughly $400 million by combining its one-stop shop services to process online and in-store payments and manage transactions in multiple currencies. The new company also expects to generate $12.3 billion in revenues.
Recent discussions of oil prices have revolved around OPEC production cuts, record-breaking U.S. output, turmoil in Venezuela and the United States-China trade dispute. However, U.S. sanctions on Iran’s oil exports will be the key factor that drives the price of oil in the coming months.
After imposing sanctions on oil imports in November 2018, the United States granted waivers to eight major Iranian oil clients, including the superpowers China and India, resulting in a supply increase that drove prices down.
Benchmark Brent crude futures fell 22 percent that month and the waivers influenced an OPEC decision to agree to cuts beginning in 2019.
Looking ahead, analysts believe that the price of oil itself will play a major factor in the decision whether to extend the waivers and demand additional reductions from Iranian oil customers.
If waivers are extended, analysts anticipate that India and China will be receiving the go-ahead to continue buying oil and the United States will not renew waivers to Italy, Greece and Taiwan in order to limit the supply of oil.
The Jan. 25 Brumadinho dam accident in Brazil that left 60 people dead and more than 300 people missing has resulted in Vale S.A. cutting production at an iron ore mine in the state of Minas Gerais that has an annual capacity of 12.8 million tons.
It will also suspend operations at its Doutor dam. This is in addition to a temporary closure of its Brucutu mine and other mines in southern states, which were expected to affect 70 million tons a year of production capacity.
The news caused Chinese iron ore futures to rise by more than 3 percent to a two-week high on Monday and pushed shares of Rio Tinto PLC and BHP, rivals of Vale, up by 1.8 percent pre-market on Monday.
This is Vale’s second dam disaster in the last five years, as the Samarco dam collapse in 2015 caused the deaths of 19 people and irreparable pollution of the entire Doce River basin.