The Greek situation deteriorated sharply and the IMF's hint higher possibility that the debt-ridden country may leave the Eurozone triggered deposit withdrawal of around 700M euro. Financial markets tumbled with stocks, high-risk currencies and commodities plummeted. On a positive note, economy in the 17-nation Eurozone proved to be better than expected in 1Q12. Yet, leading indicators showed that the region would not escape from contraction in the second quarter. In the US, investors appeared to be encouraged by retail sales and manufacturing data. This gave some support to the market.

Now that none of the political leaders succeeded in forming a government in Greece. A caretaker government is in place and another election will be held in mid-June. Analysts forecast that the SYRIZA party would have a greater chance to win the majority with its anti-austerity position. However, the actual situation is much more complicated given the fact that over 70% of the voters would prefer Greece to stay in the Eurozone and the victory of the SYRIZA party might in fact accelerate the pace of the exit. The IMF Managing Director Largarde indicated that if Greece does not honored its budgetary commitments, the appropriate revisions would be either supplementary financing and additional time or mechanisms for an exit, which in this case must be an orderly exit'. The comment suggested that the official sectors are becoming less against a Greek exit.

For investors, especially those holding Greek assets, were worried about the exit. It's reported that as much as 700M euro has been withdrawn from Greek bank since the May 6 election and the situation is expected to worsen. Meanwhile, as French President Francois Hollande takes office, he discussed with Germany's Chancellor Angela Merkel regarding measures to stimulate growth in Greece. Both Hollande and Merkel would like to see Greece to stay in the bloc provided the country agreed with the austerity demanded.

On the macroeconomic front, the Eurozone avoided falling to recession technically in the first quarter of 2012.Growth for the17-nation region as a whole was flat from the prior quarter, compared with market forecast of a -0.2% dip. Germany economy expanded +0.5% q/q, following a -0.2% contraction in the prior quarter. The market had anticipated a gain of +0.1%. French GDP growth came in inline with consensus of +0.0%. Yet, the preliminary data might be revised later and recent PMI readings have indeed suggested that the Eurozone economy will not avoid contraction in 2Q12.

In the US, the Empire State manufacturing index rose +10.5 points to 17.1 in May. This raised anticipation that the Philly Fed index due Thursday will also show some improvement. Retail sales climbed +0.1% in April after readings in previous 2 months were revised down to +1.0% and +0.7%, respectively. Retail sales excluding auto were also up +0.1%.