Ahead of Wall Street - July 23, 2012 - Ahead of Wall Street
23 Luglio 2012 - 10:49AM
Zacks
Monday, July 23, 2012
Europe is again in the news this morning, with Spain centric
fears reminding investors that the region’s problems are far from
settled. With yields on Spanish government bonds reaching Euro-era
highs, market participants are justifiably wondering whether the
government will need much more than a banking lifeline.
These fears are showing up in the government markets of Italy
and Germany as well, with yields on the former moving up and
shorter maturities of the latter now in negative territory. This is
a clear sign of heightened market anxieties that investors are
paying the German government for lending it money. It is not much
different this side of the Atlantic either, with yields on U.S.
Treasury instruments at historically low levels.
These low yield levels are likely key contributors to the Fed’s
hesitation to announce more QE despite market clamor. These calls
on the Fed will only increase in the coming days as more evidence
of economic slowdown shows up. We don’t have a particularly busy
economic calendar this week, though the first read on the second
quarter GDP on Friday morning will show sharp deceleration in
growth. Consensus expectations are for the GDP report to show a
growth rate of 1.3%, compared to 1.9% in the first quarter and 3%
in the fourth quarter of 2011.
Estimates for the second quarter GDP kept coming down in recent
weeks in response to soft incoming data, but the same for the third
quarter and beyond still remain north of 2%. Downward adjustments
to those expectations will be a key risk factor in the coming days.
Other major economic reports on deck this week include New Home
sales for June (Wednesday), Durable Goods Orders for June
(Thursday), Jobless Claims (Thursday) and the University of
Michigan Consumer Sentiment survey for July on Friday.
We also get into the thick of the second quarter earnings season
this week, with reports from more than 850 companies coming out,
including more than 160 companies in the S&P 500, taking us
past the halfway mark by the end of this week. The results thus far
have belied pre-season fears of sharp deterioration in corporate
earnings. In fact, by most measures, the second quarter earnings
season may not be that different from what we saw in the preceding
two quarters. That said, a couple of things do stand out. Companies
are finding it difficult to achieve top-line gains in the face of
the synchronized global slowdown. The strength of the U.S. dollar
relative to other major currencies, primarily a function of the
flight-to-safety trade, is proving as another headwind for
companies.
We have seen these two elements show up repeatedly in quarterly
reports in recent days, including this morning’s reports from
McDonald’s (MCD) and Eaton Corp.
(ETN). We will get results from a number of companies that
are effectively pure plays on the global economic outlook,
including Caterpillar (CAT), DuPont
(DD), and UPS (UPS). But it is perhaps
fair to assume that the mighty Apple (AAPL), which
reports after the close on Tuesday, is immune from these
trends.
Sheraz Mian
Director of Research
APPLE INC (AAPL): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis Report
EATON CORP (ETN): Free Stock Analysis Report
MCDONALDS CORP (MCD): Free Stock Analysis Report
UTD PARCEL SRVC (UPS): Free Stock Analysis Report
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