• UK’s Cameron rejects EU’s 5% budget increase; Rejects financial transaction tax unless global
  • Merkel: Market worried whether euro will hold together
  • Spanish FinMin says can’t imagine asking for bailout
  • Belgian consumer confidence falls to -14 in November from -7 in October
  • Monti wins confidence vote in Italian lower house
  • DPA confirms Telegraph story that Germany considering more “orderly defaults”
  • US leading economic indicators rose .9% in October; stronger than expected
  • Ex-IMF Lipsky: IMF can borrow from ECB; Can borrow from anyone
  • Monti: No reason to change the ECB’s role
  • Swiss government says ready to do more, if necessary
  • Spanish yields spreads over Germany rise ahead of Spanish election; Conservative PP expected to win
  • EU Commission to propose tighter fiscal rules; if abided by, could lead eventually to euro bonds being issued
  • S&P 500 closes flat at 1216
  • US 10-year note rises 4 bp to 2.01%; Italy falls 20 bp to 6.72
  • WTI falls $1.00 to $97.93; gold rises $2 to $1724

A late European short-covering rally on talk that European officials were warming to the idea of the IMF acting as a conduit for loans to highly indebted sovereigns sputtered early in US trade. From 1.3615 highs we slipped back initially to the former area of resistance at 1.3555 before tumbling briefly back below 1.3500 at midday.

The market has come to the conclusion that there is only one way out of this mess and that is for the ECB to print trillions of euros in order to tide over the sovereigns until tighter budget rules and a more federal Europe replaces the present loose confederation.

In the meantime, European banks continue to bring money home, forsaking overseas investments to shore up very stretched balance sheets. The ECB is doing its part, becoming a constant participant in the Italian and Spanish bond markets, helping push yields down from historical highs earlier this week. Italy ends roughly 50 bp lower than its peaks and Spain about 45 bp below the worst levels of 6.85%.

Spain’s general election this weekend is the immediate focus with the US super-committee to follow close on its heels. Expectations for a big deficit cut from the committee are minimal. In fact late Friday, talk of a fallback plan of less than $1.2 trln in cuts over the next 10 years was making the rounds on Capitol Hill. It is a travesty that Congress can’t save a trillion dollars over a 10 year budget window that will likely see in excess of $46 trln spent.

EUR/USD ends the day at 1.3512, cable at 1.5795, AUD at 1.00 and USD/JPY at 76.95.