What's Important in the Financial World (7/25/2012)

The recession in the United Kingdom deepened in the second quarter. The Office of National Statistics reported:

The chained volume measure of GDP decreased by 0.7 per cent in Q2 2012 compared with Q1 2012.

And:

GDP in volume terms decreased by 0.8 per cent in Q2 2012, when compared with Q2 2011.

The two numbers were markers that the government’s austerity decision will come under attack as a cause of the problem, and that a certain cause is the global economic slowdown beyond the U.K.’s borders that have damaged it financially. The figures come almost immediately after International Monetary Fund comments about China’s growth and reports yesterday of trouble with U.S. PMI.

What Hurt Apple Earnings?

Are Apple’s (NASDAQ: AAPL) poor earnings primarily the result of delay in iPhone sales because of the anticipated launch of the iPhone 5, or because of an economic slowdown in Europe? Traders around the world worry that the latter is true rather than the former. Optimists want the markets to hold judgement until the launch of the iPhone 5 to see if a surge in sales will override fretting about the effects of the global slowdown. Apple said nothing about iPhone 5 sales projections, as it never tells more about its financial future or product launches than it absolutely has to. That means Apple’s shares likely will trade flat to down until the day of the announcement of the iPhone launch, and the critical sales number from the first weekend after its release come in. The fortunes of Apple’s share price come down to one event.

Greece Goes “Off Track”

The odds that Greece can meet its financial commitments are in severe doubt. So its lenders, primarily its neighbors and the International Monetary Fund, are left to decide whether a further bailout is worth the risk. “Greece is hugely off track,” one official told Reuters, speaking on condition of anonymity. “The debt-sustainability analysis will be pretty terrible.” Nearly every economist fluent in Greece’s numbers agrees that the situation there has gone from a recession to a depression. Gross domestic product has dropped more than 5% recently, and forecasts are that the fall will accelerate. Greece could lose 15% or 20% of GDP in the next three or four years, unless an unanticipated event occurs. And no one has any belief that such an event is in the offing.

Douglas A. McIntyre