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

1. The Nasa Mission Watched by a Billion People

Months before the Moon landing that changed the world, Apollo 8 blasted into space with the most powerful rocket ever; and a huge amount of uncertainty. Previous tests of the rocket had shown g-force levels that would have likely killed anyone on board. The survival chances of this mission are 50 per cent.

Yet on 21 December 1968 at 7.50am, the Saturn 5 rocket rook off to become the first manned spacecraft to leave Earth orbit, the first to orbit the Moon, and the first to return back to Earth. The gamble was pushed forward by the US authorities who perceived a necessity to outwit and outperform their Soviet counterparts.

Frank Borman, an astronaut involved on the day, said: “Everyone forgets that the Apollo programme wasn’t a voyage of exploration or scientific discovery, it was a battle in the Cold War, and we were Cold War warriors”.

Apart from being the first humans to see the far side of the Moon, the astronauts were told that about a billion people would be tuning into their Christmas Eve TV broadcast from lunar orbit. Faced with coming up with something appropriate to say, the crew read from the Book of Genesis.

On 27 December the crew returned to Earth with a near perfect landing. Ultimately for the US, the team, and scientific discovery, the gamble certainly paid off.

 

2. A Chaotic End to the Year for US President Donald Trump

Trump’s presidency faced its latest crisis point this week with the resignation of Defence Secretary James Mattis. In a poignant rebuke to the president’s foreign policy, Mattis released a letter highlighting fundamental differences between the two men, in particular highlighting Trump’s disregard for foreign allies.

Trump this week also resisted calls to stand down from his recent decision to withdraw US troops from Syria, made plans to pull American forces out of Afghanistan whilst also driving the US government towards a shutdown over resistance to his border wall funding plans.

Senior Republican lawmakers support for Trump was further tested by the tumbling of US share prices, slower economic growth, and the projections of further interest rate increases next year. As Trump has spent the initial years of his presidency claiming credit for the successes of the market, the focus may now shift to how he has been impacting the current decline.

With Democrats due to take control of the US House of Representatives in January, Trump’s ability to pass laws such as the corporate tax decrease will diminish. With the loss of support from key Republican allies, 2019 may be shaping up to be a more difficult year for Trump.

 

3. Global Stock Indexes Slide as US Government Shutdown Looms

World stock markets saw a continued week-log sell-off on Friday as Trump threatened a shutdown of the US government over funding for his border wall. Coupled with the risk of higher interest rates in the US, global investor anxiety has grown that global economic growth is slowing in a long-term manner.

Despite initial moves higher when Commerce Department data showed that the US economy is on pace to grow by 3 per cent this year, US stocks eventually ended up lower than their opening price.

The Dow Jones Industrial Average fell 101.31 points, or 0.44 percent, to 22,758.29, the S&P 500 lost 18.8 points, or 0.76 percent, to 2,448.62 and the Nasdaq Composite dropped 124.61 points, or 1.91 percent, to 6,403.80.

Index decreases are approaching bear market status with broad stock markets on pace for their worst quarter since the financial crisis in late 2008. Investors across the globe are also pulling money out of equity markets in a move that signals fears around current market performance.

With investor sentiment declining, the approaching US Fed rate hikes seem to have spooked capital markets further. Such activity represents an unsettling feeling for the ordinary citizen as it suggests that investors see little value in the real economy when cheap money is withdrawn. Political brinksmanship in Washington is only serving to heighten such tension.

 

3. Nasdaq Approaches Bear Status as Momentum Plays Run Out of Gas

The long-running bull market of a set of technology focused stocks has given way to a market that investors cannot leave quickly enough. More than $80.7 billion poured out of US-based stock funds in the two weeks through Wednesday, according to Lipper.

The FAANG components – Facebook (FB.O), Amazon (AMZN.O), Apple (AAPL.O), Netflix (NFLX.O) and Google parent Alphabet (GOOGL.O) – have dropped between 19 and nearly 30 per cent since the Nasdaq peaked in late August.

With the biggest players in the Nasdaq having their valuations set on expectations for distant future earnings rather than current revenues or profitability, investors may be focusing more on the value that these businesses add today. Growth stocks are being ditched in favour of value names.

The suggestion of increased interest rates from the US Fed in 2019 has only added to investor concern. By increasing the cost of capital, equity investors will be more willing to see an immediate return on their investment rather than the promise of future gains. The future of the Nasdaq index may depend on the ability of technology companies to show that they can start delivering concrete results today, rather than simply promising this for the future.

 

5. Huawei Shares Excerpt from Arrested CFO’s Diary

In a development to one of the most fascinating corporate arrests of the year, Huawei has offered an uncharacteristic look behind the scenes of its most sensitive areas. Following the detention of Chief Financial Officer Meng Wanzhou, China’s largest technology company has been in the global spotlight.

The company has since responded in a charm offensive designed to draw sentiment to both the individual and the corporation. The new lengths include invitations for foreign media to tour its Chinese campuses and opening its secretive “White House” research base to reporters.

Most intriguingly, Huawei enabled access to a 700-word diary entry it says Meng wrote entitled “There Is Always Good in People!”. Meng painstakingly outlined how the company went above-and-beyond to respond to the earthquakes that rocked Japan and Nepal.

The measures seem designed to maintain the company’s position as the technology leader in the lucrative 5G-network space. Conflict between the US and China places the biggest threat to the firm’s global ambitions.

 

 

Andrew Mortimer
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