Markets Overview: (Source: Bloomberg, FT, Reuters, DJ Newswires)

UK 100 called to open flat recovering from 2012 lows. Are the recent declines over? European bourses have been falling as the Greek political coalition stalemate pushes the country closer to more elections, prolonged instability and its possible exit from the Eurozone and Spain’s banking sector remains a nagging concern (is the nation doing enough?). Note that Moody’s also cut ratings on 26 Italian banks highlighting the tough environment in the country and region.

Contagion thus back to the fore with bond yields (inversely related to price) in Spain and Italy spiking to unsustainable levels (>6%) while dropping to new lows in safe-havens such as Germany, the US and UK. The question of whether Europe’s firewall would suffice should disaster spread to Spain and/or Italy also been dusted off, and the previously unthinkable (a country leaving the bloc) now being discussed very much openly (positively and negatively) by every politician and his dog.

Risk assets such as financials and commodities related assets (even Gold) being shunned in favour of safe havens (bonds, US Dollar). The “Sell in May and Go away…” adage may right for longer term holders, but you’d miss out on a lot of short-term volatility opportunities in the meantime.

Overnight Asian markets mixed, still worried by Europe’s woes but bouncing from the US close and rallying after GDP from France and Germany. The former disappointed, slowing more than expected, however, the latter confirmed its strength, posting better than expected growth, bouncing back strongly from the prior quarter’s contraction and thus avoiding recession (unlike the UK).

Later today we have GDP from Europe. Big focus after last quarter’s contraction. Could Germany’s better number rescue the region and boost risk sentiment from its current lows? Watch out at 10am. After Germany’s good GDP, could ZEW surveys also beat expectations for declines?

Overnight Macro Data: (Source: Reuters/DJ Newswires)

• Japan               Consumer Confidence     Worse
• France             Consumer Inflation          Better
• France             GDP                                         Worse
• Germany         GDP                                         Better
• See calendar for all details.

UK Company Headlines: (Source: Reuters/DJ Newswires)

• Russia’s Evraz says Q1 sales flat yr/yr
• G4S Q1 revenues rise, sees further 2012 progress
• Smiths Q3 sales rise
• JKX Oil and Gas sees better second quarter revenues
• Afren first-quarter profit rises
• Babcock Intl profit up 26 pct, bullish on 2012/13
• Drax says full-year expectations unchanged
• Renishaw sees profits ahead of last year
• Ophir Energy says strong balance sheet supports momentum

Morning Press Selection:

• Faith fades in eurozone firewall – FT.com – Markets http://on.ft.com/Je6Er0
• Dutch austerity consensus unravels – FT.com – Europe http://on.ft.com/JAQMBv
• China investment boom starts to unravel – FT.com – Asia-Pacific http://on.ft.com/Jq3DKx
• Moody’s cuts ratings for 26 Italian banks – FT.com – Banks http://on.ft.com/KnWsR5
• Facebook must adapt to rise of smartphone – FT.com – Technology http://on.ft.com/KWTRKL
• Greek fire could singe rest of euro – FT.com – Capital Markets http://on.ft.com/L30jp1