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ASX 200 to open higher Monday

In Australia on Monday, SPI 200 futures on the Sydney Futures Exchange are pointing into a positive open for the S&P/ASX 200 (INDEXASX: XJO).

Last week on ASX 

Last week, the ASX 200 added 0.25% despite trade tensions with China and the worst week in the US for two months, falling 2.6%.

Despite being comparatively unscathed by the worst of COVID-19 the Australian sharemarket remains one of the worst-performing markets in the world, still down some 26% from February highs. That compares to the S&P 500 which is down just 11.92%.

With few overseas leads, comments from the Chinese Foreign Ministry overnight highlighting that both China and Australia have benefitted from the free trade agreement should be enough to the market rally after a week of increasingly aggressive trade accusations.

Featured video: how the ASX 200 is calculated

Retail = dead?

It won’t come as a big surprise but many commentators, including UBS, are suggesting COVID-19 will be the death knell for much of traditional retail that was previously in the ‘emergency room’. UBS analysts predict over 100,000 retail stores will close in the next five years, even those of more successful businesses. This call came as US retail spending fell 16.4% in April and department store JC Penney (JCP) filed for bankruptcy.

As reported as last week, US industrial production fell 11.2%, the lowest recording in 100 years. Meanwhile, unemployment surged to 14.7% with women the worst hit, increasing to 16.2%. With lockdowns easing the threat of a second wave begins to increase, which would be devastating for any sign of recovery.

From Xero to profits

Small business accounting platform Xero Limited (ASX: XROreported a maiden full-year profit, albeit just $3.3 million after-tax on revenue of $718 million. I think this is a very important sign for the market, but especially the investors who long doubted the company would ever make a profit. Importantly, Xero’s free cash flow improved over 30% to $27.1 million, ensuring the company has the cash to pay its bills.

Shaver Shop (ASX: SSG) shares rose nearly 30% last week as it announced online sales had quadrupled compared to previous years with same-store sales to April up a further 17.8%.

Another US tech giant managed to rally despite reporting weaker results, with Cisco’s (CSCO) revenue falling 8% and another 10% drop forecast in the June quarter. The company, which provides traditional communication infrastructure equipment including routers to very large businesses, happened to purchase Webex a video conferencing platform, for $3.2 billion just a few years ago. After poor performances, the company announced Webex had hosted 25 billion minutes of meetings in April, triple that of February and six times more than Microsoft’s Team’s platform.

This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners.

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