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With the domestic economic calendar essentially empty and nothing new on the ‘Fiscal Cliff’ front, the market’s focus today will likely be on developments beyond the U.S. shores. And on that front, we got some positive news about the Chinese economy and some disconcerting developments in Italy. Positive industrial production numbers out of China adds to other data in recent months indicating that the country’s economy may already be on the mend.

Offsetting the favorable news out of China is the negative spotlight on Italy, where the resignation of Mario Monti is raising questions about the country’s reform outlook. The resulting uncertainty is pushing yields higher on benchmark Italian government bonds and reminding investors that the Euro-zone picture remains far from settled.

We didn’t hear any details about the Sunday meeting between President Obama and House Speaker Boehner, but negotiations appear to be ongoing between the two sides. Stocks have held up quite nicely in recent weeks despite the fiscal uncertainty, hoping that some sort of deal will emerge at the last minute.

There appears to be growing support on both sides for a partial deal that will extend the so-called middle class tax cuts and defer resolution of other matters to early next year. But developments on the ground don’t show any progress towards that goal either.

We also have a two-day Fed meeting this week, with the central bank expected to come up with a replacement for the expiring Operation Twist with a new bond-purchase program. In Operation Twist, the Fed was buying longer maturity treasury bonds with the sale proceeds of shorter duration instruments, the goal being to keep long-term rates low. The hope is that the central bank will announce a new program in which it will continue buying longer maturity treasury bonds.

The Fed has been thinking aloud for a while about coming up with explicit economic targets that will make its conduct of monetary policy more transparent for the markets. We may not see any headway on that front in this week’s FOMC meeting, but this is definitely an issue that remains on the Fed’s to-do list.

In corporate news, Ingersoll-Rand (IR - Analyst Report) plans to spin-off its commercial and residential security business as a stand-alone company. And Honeywell (HON - Analyst Report) plans to acquire Intermec for $600 million. The broader stock market indexes will likely not do much in today’s session, though the Italian news will likely keep the bias to the downside.

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