RANsquawk's  Instablog

· G8 leaders backed a 'strong and cohesive' Euro-zone including Greece and committed to boosting growth and demand.

· Fed's Lockhart says QE3 cannot be taken off the table.

· German govt. spokesman says position on Eurobonds has not changed and Germany are still opposed.

· German and French finance ministers will hold a news conference at 1530BST, according to the German finance minister.

· RANsquawk European Morning Briefing Video: http://youtu.be/m6qheZqimt0

Market Re-Cap

At the beginning of the week, European equities are seen modestly higher in the major indices with underperformance noted in the peripheral markets. Markets have sought some solace in the G8 summit over the weekend, with leaders agreeing that the optimal scenario would be Greece remaining within the European Monetary Union, and have furtively agreed that further measures may be necessary to return Europe to growth. The disagreements, however, continue to rollover as leaders fail to commit to a specific growth strategy.

The tentative risk sentiment is reflected in the fixed income markets, with the German Bund remaining in negative territory for much of the session and 10yr government bond yield spread between the periphery and the German benchmark tighter on the session. Touted bids by domestic accounts helped support BTPs (Italian paper), especially in the short end of the curve, where the spread between the German equivalent is trading tighter by around 3bps.

From Tokyo, comments from Fed's Lockhart have drawn attention, who commented that with the downside risks emerging from the Eurozone, it would be unwise to take QE3 off the table.

Looking ahead in the session, there is little in the way of US data to distract participants away from the European continent, so focus will remain over the Eurozone and any developments regarding Greek membership or growth strategies for the monetary union.

Global Headlines

- G8 leaders backed a 'strong and cohesive' Euro-zone including Greece and committed to boosting growth and demand, alongside measures to fix debt-laden fiscal balance sheets, although it is reported that leaders had different ideas on strategies to fight the economic crisis. (Sources)

- French President Hollande said he will make proposals for Eurobonds at an upcoming informal EU summit on May 23rd as part of his ideas to stimulate growth and help ailing Euro-zone economies. (Telegraph)

- German Chancellor Merkel maintained her stance of fiscal austerity, stating that curbing public deficits and boosting economic growth are both needed and 'should not be played off against each other', she also added that G8 leaders did not discuss any proposed measures to boost growth in detail. (Sources)

-Another proposal could include empowering the Eurozone's EUR 500bln rescue fund directly to recapitalize faltering European banks and mutually issued Eurozone bonds. (FT-More)

Asian Headlines

Chinese Premier Wen has vowed to make growth a bigger priority after the economy showed signs of weakness, although Wen said that authorities would maintain 'proactive' fiscal policy and 'prudent' monetary policy. (Xinhua)

US Headlines

The US jobs market will strengthen significantly next year, with monthly jobs growth expected to average 200,000, according to NABE survey. The report forecasts unemployment at 7.5% by the end of 2013. (Sources)

EU and UK Headlines

- The latest Greek poll showed the Syriza party in the lead with 21.7%, the New Democracy party had 20.2% and the Pasok party had just 11.7% of support. (Metro) Syriza party leader Tsipras said the party's opposition to the terms of Greece's financial-aid program does not mean the country would have to abandon the EUR if his party forms a government after the June 17th elections. The leader added that if elected, he would seek talks with the Troika on new terms for the country to stay in the currency. (Sources)

- The EU Commission, ECB and in-house experts are working on Greek Euro exit scenarios, and assessing the impact of such an event on the Euro-zone firewall and Euro-area banks, according to a source. The source added that the firewall should be increased if Greece does exit the Euro-zone. (Sources)

- Greece's central bank denied a national newspaper report that the institution was planning to impose capital controls on withdrawals and to restrict the movement of capital abroad. (Sources)

- Spain re-stated its 2011 budget deficit, noting it was 8.9% of GDP vs. 8.5% initially stated because of a change in regional budgets, where three Spanish regions revealed deeper than expected 2011 budget deficits, according to budget plan documents. (Sources)

- LCH.Clearnet increased margins on Spanish bonds by 10%, for 1.25-30y bonds, and the changes will be reflected in the margin calls on May 25th 2012. (Sources)

-The EU will this week send inspectors to ascertain the exact figure of Spain's public deficit for 2011, according to unnamed sources. (La Vanguardia)

EQUITIES

European stock markets inched up on Monday after G8 leaders backed a 'strong and cohesive' Euro-zone including Greece and committed to boosting growth and demand. However the price action was somewhat choppy, after comments from German government spokesman, who noted that position on Eurobonds has not changed and Germany are still opposed, raised questions as to whether French President's attempt to push for Eurobonds at an upcoming informal EU summit on May 23rd will succeed.

Spanish banks underperformed its peers, with Santander (-2.2%) and BBVA (-1.9%), as market participants reacted to Friday's margin hike by the LCH Clearnet, as well as various press reports which questioned the health of the domestic banking system:

- The Bank of Spain noted that Spanish banking sector holds EUR 147.19bln of 'doubtful' loans as of the end of March 2012, 32.7% higher than a year ago. (Expansion)

- Spain is seeking an ECB liquidity injection for its banks according to a report. (Sources)

Comments by Chinese Premier Wen, who vowed to make growth a bigger priority amid signs of weakening demand supported basic materials and industrials sectors. On that note, LME Copper advanced today on the back of a weaker USD, as well as technical buying.

**Note: For US equity news in detail, refer to the RANsquawk Daily US Equity Opening News report.

FX

EUR/USD was been trading in a tight range for the majority of the European morning session and sitting around a touted option expiry seen at 1.2780 for the 1000am NY cut (1500BST). GBP/USD has also observed some range-bound trading in European morning trade, following the lack of market moving events/news flow.

COMMODITIES

Both WTI and Brent crude futures are seen higher ahead of the NYMEX pit open, with the G8 Summit over the weekend providing upbeat commentary about support to the Eurozone growth including Greece.

Oil & Gas News:

· Saudi Arabia raised crude production by 0.7% to a near 31-year high at 9.92mbpd in March to become the world's largest producer for the first time in 6-years, exports rose 3% in response to the cut in Iranian shipments according JODI.

Geopolitical News:

· The head of the UN nuclear watchdog agency made an unscheduled visit to Iran on Sunday, spurring speculation that Tehran may have finally agreed to let inspectors visit secret sites and interview top nuclear officials. At the G8 summit, however, G8 leaders vowed to maintain pressure on Iran, but they acknowledged that US sanctions and an EU embargo in the coming months risked disrupting global oil supplies further.

· Iran is dedicated to annihilating Israel, the Islamic regime's military chief of staff declared Sunday.

**Note: For commodities news in detail, refer to the RANsquawk Daily Energy Commentary report.

LOOKING AHEAD

Economic Releases

Prices taken at 1147BST

**Note:

Market Closed Canada

**'Market talk' - Signifies information that has not been formally tested through traditional journalistic channels and therefore is to be treated as unsubstantiated. Any interpretation of the talk is taken at the readers own risk and is a representation of the rumours within the market place and never generated by ourselves.

With a lack of major data from Europe and the US this week, focus will likely remain on the macroeconomic difficulties facing the Eurozone as the fringe countries of Greece, Spain and Portugal wear away any progress made in the core economies. This weekend saw the G8 leaders' summit in Camp David wherein they have reiterated the primary importance and significance of the European economy to the global marketplace.

Although opinions remain divided among leaders, one very strong consensus is that action needs to be taken by the European governments against the dwindling recovery, which is becoming increasingly expensive for both the leaders' credibility and their country's balance sheets, as peripheral bond yields remain staunchly elevated above the benchmark Bunds of Germany. Unfortunately for some, that is where the agreements end, as those at the forefront of the austerity drive, namely German Chancellor Merkel, are becoming increasingly isolated against those who favour a shift in focus from fiscal responsibility and deficit targets and onto a far more interventionist growth strategy. One such proposal for growth that has garnered attention in recent weeks is the topic of common Eurobonds, sold by the Eurozone collectively and used to fund large scale infrastructure projects across the Euroarea in a direct move to inject growth. One of the main proponents of this strategy is the new French President Hollande, who is expected to propose the plans at an informal EU summit this week; however the approach will likely face fierce opposition from German parties, who foresee the concept as adding unnecessary additional strains to government balance sheets. Other such growth strategies that are being speculated upon include a boost in capital for the European Investment Bank, but recent commentary regarding ECB action has made the central bank the focal point for many investors, as leaders including the US President and the UK Prime Minister believe the institution can do more in order to return the area to growth.

Despite the few and far between data releases this week, the UK figures may garner focus in the light of the recent publication of the Bank of England's quarterly inflation report as markets receive an update on the expected fall in inflation rates in Tuesday's CPI figures. This release is swiftly followed by the central bank's minutes on Wednesday which may come under particular focus considering the recent return of Adam Posen to his dovish roots, as he claims he may have been premature in taking further asset purchases off the table. Additionally, Thursday sees the release of the second Q1 GDP print from the UK. Commentary following the release of the flash reading has speculated that the first estimate overlooked some of the modest strength underlying the UK economy over the first three months of the year, so any upwards revisions will gain attention. From the US, data is light, but markets will receive the latest existing home sales and new home sales data on Tuesday and Wednesday respectively.

In the middle-east, time is running out for Iran, as this week sees a meeting between IAEA inspectors and Iranian diplomats who are set to battle over the country's ongoing nuclear activities. Reports over the weekend that inspectors undertook an unscheduled visit may be seen by some as a signal that the nation is softening its stance on access, a sign that the looming wall of global sanctions is changing the government's way of thinking. With recent weeks seeing multi-month lows in the energy complex, any indication that the geopolitical tensions are easing further could see an extension to the declines observed recently. This weekend's G8 Summit saw a renewed commitment to sanctions on the country, so the pressure on Tehran to give in to inspection demands continues to build. G8 leaders also discussed the tactical release of strategic oil reserves, so any commentary regarding an increase in supply will more than likely be reflected in prices. It should be noted that any moves from the global powers are unlikely in the very-short term, but speculation that a release would happen before the US Presidential elections continues to spearhead current analyst's thought.

· Spain sells to the top of the indicative range in medium-term maturity bonds, yields sharply higher on all three lines.

· Moody's are to cut Spanish bank's debt ratings today, according to Spanish press.

· Contagion fears press peripheral 10-yr government bond yields against the German Bund wider throughout the European morning.

· RANsquawk European Morning Briefing Video: http://youtu.be/asGZwKWxLsg

Market Re-Cap

European cash equities are in the red across the board at the midway point, as the bourses fail to reverse the trend of the past few sessions. With data points very light today, participants continue to focus on the macroeconomic themes as speculation regarding a Greek exit maintains focus.

A medium-term maturity Spanish bond auction slightly eased fears, selling to the top of the indicative range, however the appearance of solid demand was countered somewhat by limited supply and sharply higher yields across all three lines. Following the auction results, EUR/USD saw some modest support and the Bund exhibited slight weakness, but this was short-lived as the macroeconomic concerns took over once more.

Unexpectedly, the 3-month Euribor rate fixing came in with its first increase since December last year, prompting some selling pressure on the Euribor strip. This move was retraced as it was rumoured that one bank had not submitted a rate due to the Ascension Day market holiday across certain European markets, prompting the incline.

The bad news for Spanish banks, particularly Bankia, continues, as overnight reports state that the troubled lender has seen EUR 1bln in deposits leave over the past week. As such, Bankia shares have been seen lower by 25% at some points and peripheral banks have dipped in and out of trade. Despite these reports being denied by the Spanish economy secretary, shares are still seen markedly lower.

Looking ahead in the session, US weekly jobs data and the Philadelphia Fed may come into focus as the US comes to market.

Asian Headlines

Japanese GDP (Q1 P) Q/Q 1.0% vs. Exp. 0.9% (Prev. -0.2%, Rev. 0.0%)

Japanese GDP Annualized (Q1 P) Y/Y 4.1% vs. Exp. 3.5% (Prev. -0.7%, Rev. 0.1%)

Japanese Nominal GDP (Q1 P) Q/Q 1.0% vs. Exp. 1.0% (Prev. -0.5%, Rev. -0.3%)

Japanese GDP Deflator (Q1 P) Y/Y -1.2% vs. Exp. -1.5% (Prev. -1.8%, Rev. -1.9%) (Sources)

Following the figures, the Japanese government may revise upwards its assessment of the economy for the first time in 9-months, according to unsourced reports. (Asahi)

US Headlines

Foreclosure activity on US homes fell to lowest level in nearly five years in April, according to RealtyTrac. (Sources) Foreclosures were reported to have fallen to 188,780, down 5% from March and 14% from a year previously, the lowest level since July 2007.

EU and UK Headlines

Spain have released their final prints for Q1 GDP, confirming that the country slipped back into recession during the first three months of this year, alongside market expectations.

Spanish GDP (Constant SA) (Q1 F) Q/Q -0.3% vs. Exp. -0.3% (Prev. -0.3%)

Spanish GDP (Constant SA) (Q1 F) Y/Y -0.4% vs. Exp. -0.4% (Prev. -0.4%) (Sources)

Elsewhere from Spain, the Spanish treasury EUR 2.49bln in medium-term bonds with mixed bid/cover ratios, with notably higher yields across all lines.

-Spain sells EUR 372mln 4.4% Jan'15 Bonds, bid/cover 4.47, Prev. 2.41 (yield 4.375%, Prev. 2.890%)

-Spain sells EUR 1.1bln 3.25% Apr'16 Bonds, bid/cover 2.38 , Prev. 4.13 (yield 5.106%, Prev. 3.374%)

-Spain sells EUR 1.02bln 4.0% Jul'15 Bonds, bid/cover 3.01, Prev. 2.88 (yield 4.876% Prev. 4.037%) (Sources)

According to reports in Spanish press, Moody's are to cut Spanish bank's debt ratings today. (Expansion) This is somewhat alongside expectations, as the conclusion Moody's Spanish banking review is due. The banking downgrade is rumoured to take place at 2000BST/1400CDT.

The government of Spain are to announce that they will appoint Oliver Wyman and BlackRock to independently value real-estate loans in the nation. The first stage is set to be completed within a month, with the second stage to be completed within three months. (Sources)

For the first time since December 19th 2011, the 3-month Euribor rate fixing came in higher than the previous reading by 0.001%. There was some speculation however that the sudden incline was due to some banks not submitting a fix due to the Ascension Day market holiday across the Nordic states and Switzerland (Sources)

Italy's financial revival has been strong and government forecasts can be met if reforms are fully implemented, but more needs to be done to stimulate growth, according to the IMF. (FT-More) The IMF's European department director said that following the assessment Italy should have the highest primary surplus in the Eurozone next year.

EQUITIES

Financials continue to weigh upon Europe as solvency issues arise from across Greece and Spain, with contagion fears dragging down firms from across the continent. Healthcare stocks benefit from their defensive status and tip over into positive territory on the day.

In individual stocks news, Bankia significantly underperform all others as overnight reports state that the bank has seen EUR 1bln leave its deposits over the past week or so, among solvency issues and flight from risk. As such, Bankia shares have come under notable selling pressure throughout the morning session, indicated lower by as much 25% at some points of the morning. The Spanish economy secretary has since denied the claims, but the share price has remained unresponsive, staying lower.

Among the few stocks trading in the green in Europe is FTSE-100 stock ICAP, who have taken to opportunity to move into discussions with the recently-troubled PLUS Markets Group. PLUS Markets have confirmed that the two companies are in talks concerning the sale of their Plus Stock Exchange unit to ICAP, but there has been no offer has yet been made. As such, ICAP shares now trade modestly higher above the UK index, currently up around 1.5% on the day.

US giant Wal-Mart have reported a beat on EPS and revenue expectations in their pre-market release:

Wal-Mart (WMT) Q1 EPS USD 1.09 vs. Exp. USD 1.04

- Q1 revenue USD 112.30bln vs. Exp. USD 110.44bln. (Sources)

**Note: For US equity news in detail, refer to the RANsquawk Daily US Equity Opening News report.

FX

EUR/USD has been observed floating lower throughout the European morning with the continued risk-aversion preventing the pair from any significant upside. Unconfirmed market talk of offers in the mid-1.27s have capped the pair from seeing significant gains and it now trades just below yesterday's low of 1.2681.

USD strength continues to be noted, going alongside the trend of the past weeks, with the USD-index reaching a four-month high in today's European session. As such, GBP/USD is seen lower throughout the session, hitting one-month lows of 1.5837 earlier today.

COMMODITIES

WTI crude futures were seen trading higher heading towards the NYMEX pit open rebounding from a six-month low, following the stronger than expected Japanese data overnight.

Oil & Gas News:

· Enbridge are to spend around USD 3bln to boost capacity of its mainline system and give Western producers access to refiners in the Midwest and Quebec. Elsewhere, Enbridge are to conduct the reversal of their Seaway pipeline today, alongside expectations. The pipeline now flows oil from the Cushing hub to the Gulf coast.

· The IEA Chief Economist said oil prices pose a serious risk to the global economic recovery, and the IEA is ready to release strategic stocks if the conditions warrant it.

· The White House declined to comment on a news report that the US will seek G8 support for a strategic oil release although the Obama Administration affirmed that all options remain on the table for an SPR release.

· Royal Dutch Shell's CEO has said he expects US natural gas prices to double by 2015, but remain under pressure in the short term.

· Turkey has said it is close to bring gas from the Caspian Sea to Europe, in a deal that could mark the end of a plan to combine gas from Azerbaijan with central Asian gas to reduce Europe's dependence on Russian imports.

· Further European refineries may face closure as US rivals become more profitable and leases begin to expire across the continent. Analysts speculate that the refineries will be converted into storage facilities.

Geopolitical News:

· Iran continues to develop its ballistic missile programme, launches missiles in violation of sanctions according to a UN expert panel. The panel noted that sanctions have slowed Iran's procurement of critical nuclear technology and a sanctioned subsidiary of an Iranian shipping line continues to operate vessels.

· The US Senate is to ask the chamber to approve a new package of oil and economic sanctions today aimed at further pressuring Iran to abandon its nuclear plans.

· U.S. plans for a possible military strike on Iran are ready and the option is "fully available," the U.S. ambassador to Israel said, days before Tehran resumes talks with world powers which suspect it of seeking to develop nuclear arms.

**Note: For commodities news in detail, refer to the RANsquawk Daily Energy Commentary report.

LOOKING AHEAD

Economic Releases

Prices taken at 1240BST

**Note:

Market closed Austria, Finland & Sweden

WTI Crude June options expiry (1930BST/1330CDT)

**'Market talk' - Signifies information that has not been formally tested through traditional journalistic channels and therefore is to be treated as unsubstantiated. Any interpretation of the talk is taken at the readers own risk and is a representation of the rumours within the market place and never generated by ourselves.