Zacks_Analysts' Blog : Focus Shifts to Italy - Analyst Blog

With the economic calendar today and the rest of this week on the relatively thin side, the market will likely reflect developments in Europe. The Greek situation appears to have stabilized following the end of the referendum affair and the weekend decision by the prime minister, George Papandreau, to step down in favor of a unity government. Such a unity government is expected to rubber-stamp the latest bailout deal and get on with the politically unpopular act of implementing it.



Attention has now shifted to Italy, where the situation is no less dire. The market appears to be fast losing confidence in the Italian government's ability to take the structural steps needed to fix the country's economic outlook. These concerns have started showing up in heavy selling pressure on short-term government bonds, where yields have risen to Euro-era highs. Yields on longer-dated government bonds are also flirting with levels beyond which Ireland, Greece and Portugal had to ask for bailouts.



Italy is not in bailout territory yet, but the situation is not that good either. The only silver lining in the Italian situation is that it may force Silvio Berlusconi to let go of his hold on power. The prime minister is reportedly contemplating plans to step down. The Italians are not exactly famous for coming up with stable unity governments. But even then it is hard to find anything negative in Berlusconi's departure.



With respect to the domestic economic scene, we have few reports on the docket this week following last week's busy schedule. The broad take-away from the recent run of U.S. economic readings, including Friday's October jobs report, has been positive. In an absolute sense, the economy remains weak and soft. But relative to fears of another recessionary downturn, the data is pointing elsewhere.



The third quarter reporting season has turned out to be reassuringly strong relative to pre-season fears. Estimates for 2012 have been coming down. But even there, the revisions have been very orderly and not worrying. If anything, the negative revisions for 2012 have likely bottomed already.





The bulk of the major earnings reports have come out, but some important ones still remains. After the close today, we have Priceline (PCLN) reporting results. In other corporate news, American Dental Partners (ADPI), a $160 million market-cap provider of services to dentists, was acquired by a private-equity firm. General Dynamics (GD) is acquiring Force Protection (FRPT), a $300 million market-cap maker of blast-protected vehicles.
Read the full analyst report on "PCLN"
Read the full analyst report on "ADPI"
Read the full analyst report on "GD"
Read the full analyst report on "FRPT"
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