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

1. $41 Billion Flash Crash of Jardine Matheson sees Goldman, Morgan Stanley Ask for Trade Cancellations

Jardine Matheson this week briefly lost $41 billion of market value, with those who sold losing approximately $9 million in minutes. Leading banks have responded by asking counterparties to cancel or amend trades.

Goldman Sachs and Morgan Stanley have reached out to counterparties in order to cancel or amend trades in Jardine Matheson Holdings Ltd., following a $41 billion flash crash on Thursday. Shares changed hands for far below the market level on the Singapore Exchange, and the firms have reportedly asked to settle the trades at a higher price.

It wasn’t immediately clear whether sell orders from Goldman and Morgan Stanley triggered the brief crash or if other factors were at play. Representatives from the two banks have declined to comment so far.

Rumours are mounting in Singapore as approximately 167,500 shares were traded at $10.99 compared to the previous day’s close of $66.47, providing an instant windfall for the buyers. Reports have stated that more than a dozen counterparties snapped up the cheaper shares.

Singapore Exchange Ltd decided not to cancel the trades, stating that sellers had “ample time” to withdraw their orders and avoid selling at the low price. The exchange sees the decline as a result of sell orders that overwhelmed bids during the pre-open session, with no blame apportioned to malfunctioning computer systems.

2. Small Businesses Feel Pain of US Government Shutdown

From losing out to customers to an inability to access vital services, small businesses are starting to feel the impact of the 800,000 federal workers who might be missing their second payday this month.

As US government shutdown threatens to linger on, 800,000 federal workers are set to miss another payday this month. The drought of cash flowing to these individuals is starting to impact the businesses that serve or rely on these individuals in a consumer or governmental context. This may represent the beginning of a domino effect that creates dangers for the broader economy.

While government workers will eventually get paid, businesses losing out on customers will not be able to recoup the money they have missed out on. Comically, AP reports there is a difficulty in monitoring the impact of the shutdown on consumer spending as “the Commerce Department, which compiles and reports such data, was itself closed by the shutdown.” Bank of America economists suggest that a sustained decline in sentiment will raise the probability of slowing consumer demand.

The reality of the situation is that 40 per cent of American adults are currently unable to afford a $400 emergency payment. The pressure is on the government to attempt to find a resolution.

The messaging from the government, however, does not create much hope for those impacted. Secretary of Commerce Wilbur Ross, who has a net worth in the hundreds of millions, spoke on CNBC to say he doesn’t  “quite understand why” federal workers are going to food banks instead of getting loans to survive the “liquidity crisis.”

3. New Goldman Sachs CEO Warns of UK Investment Hit from Brexit

The new chief executive of Goldman Sachs has said a “difficult” Brexit will negatively impact his company’s investment plans in the UK. David Solomon spoke with the BBC around his strategic UK plans.

Goldman Sachs has frozen its headcount in the UK while adding staff in the EU over the last two years, according to Mr Solomon. The final Brexit outcome will affect further decisions about Goldman’s people and resources, with the Wall Street giant currently employing 6,000 people in the UK.

Only a few of Goldman’s UK staff (in the dozens) have been asked to move to locations elsewhere in Europe, while hundreds of staff have been added to offices in Frankfurt, Stockholm, Paris, Madrid and Milan.

Top spot for the biggest global concern at the bank lies however with the difficult current relationship between the world’s two largest economies – the US and China. Mr Solomon has expressed sympathy with Donald Trump’s ambitions to create a new playing field.

“I think the administration has it right,” he said at the World Economic Forum in Davos, “I think there have been imbalances in the way the US and China have dealt with each other.

“We want to see a level playing field and we want to see our technology and our investment over a long period of time protected,” Mr Solomon told the BBC. He said he hoped the differences could be resolved before the US places a new wave of higher tariffs on imports from China in March.

The Goldman boss said that he did not believe a global recession was imminent, instead estimating a 15 per cent chance of a downturn in the US market this year, rising to a 50 per cent chance of it happening next year.

4. Pelosi Demonstrates Her Strength in US Government Face-Off with Trump

House Speaker Nancy Pelosi is displaying an ability to wield her power effectively as President Trump was forced to cancel the delivery of his State of the Union address.

Pelosi this week rescinded her invitation for the President to deliver in State of the Union address in the House chamber next week, citing security concerns as a result of the partial US government shutdown. Trump initially threatened to deliver the speech at an alternative location, only to back down hours later.

While Pelosi called the dispute “so unimportant” for many Americans, her actions this week demonstrated her appetite for directly challenging the President and succeeding where others have failed.

With deep knowledge of the institutions of Washington, a unified and invigorated party behind her, and being a woman in a position of power, Trump is facing an opponent with the ability and incentive to stand firmly and confidently.

Throughout her eight years as minority leader during the Obama and Trump administrations, Pelosi managed to keep the Democrats unified on every major vote. She is known on Capitol Hill for using soft power, maintaining good relationships across the range of the caucus, and also being unafraid to use retaliation as a tool.

Most recently, Reps. Kathleen Rice and Anthony Brindisi, two House democrats who voted against her for speaker and were vocally critical of her, were denied committee assignments that they have lobbied for. This kind of behavior has reportedly earned her the respect of Donald Trump.

5. SpaceX Edges Closer to Commercial Crew Launch

Following Thursday’s test firing, Space X may be merely a month away from a commercial crew launch. SpaceX is yet to confirm if the test was successful.

SpaceX performed a hot-fire test of the Falcon 9 rocket on Thursday afternoon, testing the rocket set to fly its first commercial crew demonstration mission.  Carrying no crewmembers initially, the flight will serve as a test of the launch system and its ability to dock safely with the International Space Station.

Confirmation on the success of the test is outstanding, however the test itself represents a significant step forward for SpaceX and NASA. Such firings typically take place one or two weeks before the launch of a rocket. Reports have placed the date at February 23.

Officials with the company and space agency must give the mission a green light during a final review process before the formal launch date is set. These reviews will still go ahead despite the partial US government shutdown, as key NASA personnel continue to work without pay in order to support the flight.

The most substantially changed piece of hardware in this mission is the spacecraft, which is a significantly upgraded version of the Dragon vehicle SpaceX has used for supplying the space station since 2012.

The Crew Dragon has several key upgrades that must be tested, including life-support systems for up to seven astronauts and solar panels built into the spacecraft.

If the first demonstration proceeds as planned, NASA and SpaceX will spend the next several months moving towards a second crewed demonstration flight, likely to be in the summer or early fall.

 

Andrew Mortimer
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