Is Italy Poised To Be The New Greece?

Investors watching the US Labor Department non-farm payroll report had reason to be optimistic, as the dip below 400,000 in unemployment claims seems to indicate a light at the end of the tunnel for the country’s ailing labor market.

The US labor market is showing signs of life, as a drop in the jobless rate to 9.0% – a six month low – and revisions upward to the previous months’ employment gains point to underlying strength in the jobs market.

Although non-farm payrolls missed economists’ predictions of a gain of 95,000, rising 80,000 last month according to a US Labor Department report, August and September figure were amended to indicate an additional 102,000 jobs than were reported previously.

The question that will remain in the coming weeks and month will be whether the data will show a consistent increase in job growth and a falling unemployment rate. Investors will also be keeping watch on how the Euro zone continues to handle their sovereign debt crisis, including the shift in focus from the crisis in Greece to the issues facing Italy.

Investors Turn Their Attention To Italy

ItalianFlagWhile the focus as of late has centered squarely on Greece, who announced that it will be shelving the plan initiated by Greek Prime Minister George Papandreou to hold a referendum on the bailout package (a move that was expected to exacerbate the debt situation for the country into a full-blown crisis) investors will be turning their attention the developments in Italy, as the country has agreed to have the progress on its long-delayed economic reforms monitored by the European Union and the IMF.

European stability will hinge on the coming actions in Italy, as there appears to be signs that the problems facing the nation have not subsided.  Friday morning saw the yields on Italy’s fixed rate 10-year bonds climb to 6.25%, and the Italian Prime Minister, Silvio Berlusconi was forced to accept the oversight of the IMF in the nation’s progress in employing austerity measures at the Cannes G20 meeting.

Surviving several rounds of confidence votes already, Berlusconi seems poised to call for another, and if he does not win the support of the Italian parliament, a new interim government may be formed.  Analysts predict that in addition to the country’s dissidents, a sizable portion of the ruling coalition may choose to support the interim government as well.

Households in Italy carry relatively low levels of debt, although, unlike other troubled economies in the Euro zone, Italy continues to have the highest debt-to-GDP ratio in the region besides Greece, and also has structural problems that are deeply ingrained.

Analysts predict that issues with Italy will move to the forefront, and remaining risk-off in Italy is the recommended course of action.  The Italian government will need to address the issues of labor market reform, as well as a large-scale plan for privatization to reduce the stock of debt in order for market sentiment to change.

A Long-Term Investment Plan May Be The Best Play On Further European Turmoil

As global markets will likely react with continued volatility to news coming from developments in Italy and the rest of the European Union, investing in equity markets in the coming months will require a long-term plan of action in order to realize profits.

It is a good idea to get your shopping list ready, as volatility will surely cause pullbacks in stock prices, leading to potential buying opportunities in the coming months.  Watch for high-quality companies with strong fundamentals and robust dividend yield to go on sale, providing opportunities to get great companies for a good price.  Remember that as share prices fall, dividend yield rises, making a play for dividend yield an excellent strategy in the months to come.

Keep in mind, that with more economic issues both domestic and global that still need to play out, a long time frame for investing may be necessary in order to profit in this environment.