While this morning's bout of ridiculous volatility, especially in precious metals, may be briefly over (but certainly not for long) after gold has surged by nearly $100 from overnight lows, the economic weakness persists despite what the futures are saying. As usual European liquidity is at the forefront, with 3M USD Libor rising per usual and every single day for the third straight month in a row, this time from 0.360% to 0.363%, leading to new all time wides in German, French and Belgian CDS to 111 (+3), 201 (+4) and 301 (+6) respectively, which no matter how hard the /ES frontrunning and momentum machines can try, there is little that can be done to dissuade the market that French banks will soon be in need of a full blown bailout.
Also, while we don't know yet how much in PIIGS bonds the EFSF bought last week (TBD shortly), or how much was borrowed from the FRBNY's swap lines, we do know that French banks, notably SocGen and BNP, were once again responsible for the deterioration in the interbank lending market, rising to 0.39% and 0.40%.
As usual the great white hope of the weekend, that the EFSF would be expanded to E2-3 trillion was roundly rejected after German Finance Ministry spokesman Martin Kotthaus told reporters at a regular press conference that the "German government sees no need to expand the EFSF, and reject leveraging the fund." This is not the first time this rumor has been refuted. Which means we expect the FT to come out with a brand spanking new rumor that the, wait for it, EFSF would be expanded, some time before either Europe or the US closes. In the meantime, expect the market to process this latest set of news and drop eventually.