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Morning Update


This week a troika of international inspectors will come to Athens. The inspectors, from the European Commissions, the IMF, and the ECB will formally appraise Greece’s delayed overhauls implemented since the June 17 elections. Without gaining approval from the troika Greece risks being cut off from aid, the next round of which is due in September.

Domestically the focus of this week’s data will be Friday’s final revision of first quarter GDP. However, next week’s data is likely to rile markets more with both an FOMC meeting and Non-farms payroll report.
This morning McDonalds reported second quarter EPS of $1.32, down from $1.35 a year earlier. Revenue grew $0.01 billion to $6.92 billion year over year. This came against consensus EPS estimates of $1.37 on revenue of $6.94, which had already been revised down $0.08 in the preceding weeks. McDonald's U.S. generated comparable sales growth of 3.6% for the quarter, while the European division delivered comparable sales growth of 3.8% and a 3% decline in operating income.

One of the most anticipated earnings announcements this month will come Tuesday when Apple reports. Consensus estimates are for EPS of $10.38. Apple’s earnings are a significant proportion of the NASDAQ-100’s earnings and even the S&P 500’s, so the broad market is likely to react to the announcement. Analysts are split on whether Apple will be able to deliver another blow-out quarter or will fail to meet expectations. One way to gauge Apple’s earnings is to look to their suppliers earnings. Multi-Fineline Elecontrix, who derives 60% of their business from Apple, reported “strong demand from our customers for our flex assemblies for smart phones and tablets.” Skyworks Solutions is another major Apple supplier who reported a strong earnings beat and revised guidance upwards by 10% despite declaring a “general slowdown” of the smart phone market (SeekingAlpha). Verizon’s recent earnings report showed strong iPhone activation numbers. That said, Toni Sacconaghi of Sanford C. Bernstein & Co., a top-ranked financial computer analyst, saying today there’s a “reasonable probability that Apple will miss consensus revenue expectations due to macroeconomic weakness in China and Europe, a product cycle lull in the iPhone, a later than expected introduction of the new iPad into China, and the late quarter introduction of new Mac notebooks” (tech.fortune.cnn.com). Apple’s weekly options expiring Friday have by far the most open interest in the 620 calls, suggesting some traders may already be positioning for a bullish move in the stock.

Facebook earnings, due Thursday, are also highly anticipated. This will be the firm’s first quarterly earnings report since going public. Investors will be looking to see if the trend of revenue growth deceleration has been reversed and if the company has plans for profiting from their increasingly popular mobile platform.


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