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Italian Auctions the Focus This Week

Italy is auctioning a series of three-, seven-, nine-, and 10-year government bonds this week, totaling about 7.5 billion to 8.5 billion euros ($9.8 billion to $11 billion). Italian banks took about 100 billion euros ($131 billion) in loans last week from the European Central Bank, so there should be at least some marginal buying by banks.

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How much? Not clear, but with Italian 10-year yields hovering around 7 percent, I can't believe the Italian government is going to be excited about selling a lot of that debt. If demand is really weak, and the prices are lowered, I wouldn't be surprised if they sold more short-term debt.

Why hasn't the Italian 10-year yields dropped? In fact, why hasn't there been much improvement in Italy's sovereign debt spreads in general? The ECB has certainly been active buying bonds, but they may be the only ones — and that's probably the source of the problem. I've also heard plenty of chatter that year-end flows are also an issue...that banks may be reluctant to commit additional funds going into the yearly close. If so, that should reverse soon.

Sorry to rain on the parade, but...

So, the big suspense is whether the S&P 500 index can close the year in positive territory (2010 close was 1257.64)...not for me. Consider this: On Feb. 11, 1999, the S&P 500 stood at 1,254.04. Last Friday, the index opened at 1,254. Can we close above the Feb. 11, 1999 highs? Can we stay above the 200-day moving average? Can we...oh, shut up already.

Elsewhere:

1) Chinese stocks slumped to a 33-month low to drag Asian markets down further Tuesday. The Shanghai Composite fell 1.1 percent — its lowest since March 2009. The index is down 22.9 percent for the year recently driven by worries about the country’s future economic growth.

2) Sears Holdings drops more than 17 percent in pre-market trading after the retailer said it plans to close 100 to 120 Kmart and Sears stores and expects its adjusted fourth quarter adjusted earnings will be less than half of last year’s $933 million. Sears expects store closures, the selling of inventory, and subleased space to generate $140 million to $170 million. Kmart's fourth-quarter comparable-store sales fell 4.4 percent versus a 1.8 percent decrease last year; Sears same-store sales fell 6 percent. Consumer electronics and home appliances drove down Sears’ sales.

3) MetLife shares rise 3 percent in pre-market trading after the company said it will sell about $7.5 billion in deposits to General Electric's GE Capital Financial. Financial terms of the deal were not provided. MetLife said about $3 billion worth of custodial deposits associated with the insurer’s forward mortgage business were not included, but will be removed from MetLife Bank within the next six months.

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