Week Ahead – Earnings & Trade | Xero

23 July 2018

Global markets were flat or lower on Friday as President Trump renewed his criticism of China's trade surplus with the US, putting investors on the defensive heading into the weekend. Wall Street’s key benchmarks failed to advance even with Microsoft and Facebook resetting their record highs. 

For the week ahead, it is more of the same in focus – earnings and trade. As we highlighted last week, another strong round of US corporate profit announcements is a key reason to remain bullish on markets. As the second-quarter reporting season picks up steam, analyst forecasts have grown rosier with earnings growth estimates for the S&P 500 now expected to be at +22.0%. However, trade anxiety is likely to remain with Trump now threatening to impose tariffs on all $US500 billion of imported goods from China.
 

Stock in Focus: Xero (XRO:AX)
Accounting software business Xero said on Friday that it has stopped developing a payroll product in the US and will instead team up with existing payroll services provider Gusto, integrating their respective platforms


The decision to stop development will incur an impairment charge of $16.2 million in the first half of the March 2019 year, freeing up resources to work on payroll in other markets. Gusto already handles all aspects of payroll for small business owners across 50 US states, and Xero expects the tie-up will make its North American offering more attractive. 

The announcement once again highlights to us that the US market is proving to be a much more difficult (and competitive) market than initially anticipated as Xero struggles to gain significant traction in the States. Interestingly, it appears that the UK is currently the most promising market for Xero, particularly as the compulsory digitisation of tax returns is providing a tailwind for its rapid pace of growth. The UK division appears to be achieving scale in a market with a large number of small to medium sized businesses.

We currently have a BUY rating on Xero. 

Members should look out for a full update on Xero to be released in our weekly report.

 

Australia & New Zealand Market Movers

The Australian share market ended the week on a higher note (ASX 200 index +0.37%) with Afterpay being the standout performer for the week. In other news, AMP defended mortgage broker commissions as the industry faces reforms, saying it would be a "very poor" outcome for home loan customers if changes to mortgage brokers' pay model stopped brokers from pushing rival banks to compete fiercely for customers. 
 

The New Zealand market was higher on Friday (NZX 50 index +0.4%) with Fisher & Paykel Healthcare and Ryman Healthcare leading gains for the day. On the flipside, Pushpay was the worst performer, while shares in Vector also fell on Friday. The NZ dollar continued its downward trajectory last week driven primarily by strength in the US dollar, which will be aiding exporters, offshore earners such as Fisher & Paykel Healthcare, and the tourism sector.

 

3 Things Markets Will be Watching this Week

1.               US corporate earnings season continues as investors digest quarterly company profit announcements.

2.               Trade anxiety is likely to remain with Trump now threatening to impose tariffs on all $US500 billion of imported goods from China.

 3.              Key economic news flow includes – Australian inflation numbers out on Wednesday and US GDP data published at the end of the week.
 

Have a Great Day,

Team

Global markets were flat or lower on Friday as President Trump renewed his criticism of China's trade surplus with the US, putting investors on the defensive heading into the weekend. Wall Street’s key benchmarks failed to advance even with Microsoft and

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