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What's going on?

Investors continued to ditch their stocks on Monday as companies – airlines and banks chief among them – struggle to escape the dreaded coronavirus pandemic.

What does this mean?

Given the global travel bans, most of the world’s airlines are now reducing their flights – if not parking their aircraft altogether. European carriers IAG, easyJet, and Ryanair have all announced major cuts to their businesses, while American Airlines and United Airlines have both drastically reduced their own timetables.

Major American banks like Morgan Stanley, JPMorgan, and Citigroup are looking just as nervous, having been hit by tremors in the short-term loans – or “repo” – market. Couple that with the growing risk that large borrowers mightn’t be able to repay their debts, and it’s perhaps no surprise some of those banks announced they’d halt share buybacks and save that cash for more important things.

Why should I care?

For markets: 2008 in reverse.
Lending between banks seized up in the 2008 crisis – and it was that shockwave that hit the wider economy. But it’s the other way around this time: the real-world economic impact of plummeting consumer demand is hitting the banks. And it shows: their stocks are suffering even more than the wider market, with Morgan Stanley and Citigroup down about 40% in the past month. The last crisis was eventually eased by coordinated government and central bank efforts – not to mention bailouts. And the same could be true this time around…

For you personally: There may be trouble ahead.
As economic activity slows, significant job losses are now looking likely. Highly paid bankers were on the chopping block last time around, but this time it’s service industry employees – think airline attendants and shop assistants with a potentially far smaller savings cushion – who are most at risk.

Originally posted as part of the Finimize daily email.

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