5 things you need to know before markets open in Australia and around the world.

Here’s 5 things you need to know as the markets open around the world.

1. Apple Falls Below $1tn Despite Revenue and Profit Rise

On Friday last week, Apple shares dropped by 7% taking out of the trillion-dollar club, of which it was the only member. The dip is absorbed by Apple since its high-priced products are proving to be a profitable model instead of reduced pricing and more sales. Sales remain strong, and demand remains in place.

Despite the dip, Apple financial status continued to show increased growth, their revenues rose 20% to $62.9bn year-on-year, and profits rose 31% to $14.1bn. What made the slide was the weaker sales warning. There is concern that weaker sales will lead to a domino-like a decline in performance, while Apple executives disregard this claim, stating that apart from hard sales figures there are also services figures such as income from App store, Apple Pay and Apple Music. These income sources generated a record $10bn in the quarter.

Basically, Apple claims that the weakness in phone sales is not a major issue or concern since this was due to fluctuations in currency exchange rates and not due to a weakness in their products performance.

2. Despite Khashoggi Killing, Saudi Crown Prince Set to Keep Power

With the recent press in a furor as one of their own has been killed while investigating a story, the truth be told that certain governments are not really beholden to the media, and that interpretation of action is defined by the environment and not the press.

When Crown Prince Mohammed bin Salman had Saudi dissident Jamal Khashoggi killed in their Embassy, the world went into a flurry of conspiracy theories with the press calling for sanctions of the Crown Prince in Saudi Arabia.

Geopolitics is different; it is not information or media, it is a perception of power and how that is used. The Crown Prince is still in line for the throne, as his actions are interpreted by those close to him, and his subjects (and enemies) as being the actions of one to placate not anger. He has increased his power base at home.

The democratic west will not go to war over the death of a reporter, and Saudi Arabia is still a key ally in the war against Iran and the general stability of the region. Add to this the fact the Khasshogi was considered to be a radical Islamic supporter in the guise of a reporter, which is according to Egypt and Israel.

The bottom line is that governments will milk this activity for their own benefit, the Crown Prince has solidified his position, and in Saudi Arabia, the King is all-powerful, which means the next in line has to show his strength and ability to lead at any cost. This is what he has done.

3. Is This as Bad as it Gets for the Big Four Banks?

Winning back customer confidence in the tarnished reputation of Australian banks is the current mainstay of NAB and ANZ.

The National Australia Bank views the drop in their “net promoter score” as the main trust indicator that customers have with their bank, this indicator is poor with all banks, including the ANZ. Confidence is low due to the number of scandals that have rocked the Australian banking world. Add to this is the profit results of the banks too.

In the last year, both the NBC and ANZ have been paying out hundreds of millions in compensation payments, compliance costs, and lawyers’ bills. As such, and in response to past actions, both banks are now restructuring their entire corporate structure and culture. They are both slashing jobs, reducing wealth-business services and rationalising their products. According to some analysts, the fines and compliance costs that have damaged banks incomes this last year will not have as much of an impact in the future, now that the banks are learning from their mistakes and restructuring for future profit optimization.

What does interest the analysts is how more stringent regulations will affect the overall profitability of the banks, such as; how will banks raise interest rates to improve profitability?

However, other analyses claim that it was the wealth management products that caused all the scandals, and when reduced or eradicated, banks will go back to their normal models of operation. As such, there is a sentiment that bank prices and customer confidence are now rock bottom, and there is only one way to go now, and that’s up.

4. Musk Backs Space Force Proposal

Elon Musk has decided to adopt the popular stance for a Space Force defense system. As such, he states that such a force is required on the moon, on mars, and in flight. The space force is a defensive team that will support and protect the space race.

Musk drew on the history of the Air Force as the argument for the creation of a space force. As such, he sees only benefits in a stand-alone space force similar to the Air Force, Navy, and Army. He also alluded to the necessity of a space force to help with the expansion of civilization across space.

His argument is supported by the Pentagon, although the government doesn’t seem to consider private armies as an approach, where government forces are already active in space, such as the national satellite grid for US defense purposes. Musk concludes that he hopes 2024 planned BFR (Big Falcon Rocket) mission will be manned and considers changing the name to “Heart of Gold” the spaceship from The Hitchhiker’s Guide to the Galaxy.

5. The Improving US Job Market

The latest US Labor Department report showed that wages grew at an annual rate of 3.1% in October, accelerating from a rate of 2.8% the month before. This wage rise went hand in hand with the recent rise in jobs, as the report specified that 250,000 jobs were added in the last month, and unemployment remained at a low 3.7%.

President Trump and fellow Republicans view the report with great confidence especially before the coming midterm elections. The report has its detractors too, Senator for NY Chuck Schumer stated that the figures might seem good, but when considering all the other changes in the US economy such as the rise in healthcare costs, the figures lose their meaning.

Economists without political agenda view the report as being a strong indictaor for the future of the econmic grotwth and stability of the US market. This is supported by the general confidence that economists feel for the current hiring climate, where private worker earnings rose by 83 cents to $27.30 against last year’s figures, the biggest rise since April 2009 that go hand in hand with the growth in employment figures.

The Fed will raise the interest rates again as expected; it has been a gradual, incremental rise to combat inflation. However, President Trump is not a great fan of the Fed and claims they are raising the rates too fast.

Andrew Mortimer
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