• Fed and other central banks extend swap lines to ease European bank funding crunch
  • ADP employment report: US private sector payrolls rise 206,000; far stronger than expected
  • Italy’s Monti: Budget measures to be approved by December 5; no discussion of ECB as lender of last resort; IMF aid for Italy not being discussed
  • UK government shuts down Iranian embassy in London
  • Chicago PMI rises to 62.6 in November from 58.4 in October
  • US pending home sales rise 10.4% in October; market expect a decline of 2.4%
  • Eurogroup’s Juncker: Investors avoiding Europe; EFSF capacity to be about EUR 750 bln
  • German FinMin: More resources could be made available for IMF, bilateral loans from European central banks possible also; knows nothing of discussions between Italy, IMF
  • EU’s Rehn: Europe will more deeply integrate or it will disintegrate
  • Finnish FinMin: IMF should take a more active role in crisis rather than ECB
  • Goldman sees Fed launching QE3 in first half of 2012
  • Merkel: To seek limited treaty changes needed to bring stability to euro zone
  • Fed’s Beige Book showed growth in 11 out of 12 districts
  • Egan Jones cuts France to A from AA-, remains on review for further downgrade
  • Portuguese PM expects GDP to contract 3% next year
  • S&P 500 rises 4.3& to 1247, DAX up 5%, CAC-40 up 4.2%
  • US 10-year note yield rises 9 bp to 2.08%; Italian 10s fall t0 7.07%, down 21 bp
  • WTI closes at $100.28, up 0.50; gold rises $30 to $1745

EUR/USD gapped about 2.5 cents higher at 8 am in New York as the Fed and a who’s who of global central banks cut the cost of lending to one another so that they can provide funding to their local banks. While this helped spur heavy short-covering in shares of European banks in particular and financial institutions in general, the cheaper liquidity will do nothing to end the sovereign debt crisis which rages across Europe. EUR/USD jumped to 1.3534 briefly this morning but then spent much of the rest of the session consolidating between 1.3420 and 50.

The dollar took a drubbing across the board in the wake of the news as traders immediately jumped to the conclusion that this was just another way for the Fed to prime the monetary pump. They also surmised that QE3 is a foregone conclusion. Very firm US data, from employment to manufacturing to housing calmed the quantitative ease concerns as the day wore on.

USD/JPY did not benefit from the hyper risk-on attitude as resting sell orders in JPY crosses like EUR/JPY, AUD/JPY and GBP/JPY put supply of USD/JPY into the market as the other side of the crosses roared higher.

AUD had a superb day, boosted by the Chinese reserve ratio cut (even though that is the clearest sign to date of a slowdown in the Middle Kingdom) as well as the strength in US data and the somewhat eased European jitters.

Still lots of work to be done in Europe, so don’t let today’s emergency measures give you too much comfort. We’ve seen sharp rallies falter quickly in the past. And by recent standards (1.4250 anyone?) this rally wasn’t so big to begin with.