The UK’s trade deficit narrowed in March, driven in particular by stronger exports to the US, China and Russia.The seasonally adjusted trade deficit in goods and services was £2.7bn, against £2.9bn the month before, the Office for National Statistics said.

Car exports in March were worth £200 million more than the previous month.

The deficit on seasonally adjusted trade in goods was £8.6 billion in March, unchanged on February.

The ONS said that the surplus on trade in services was estimated at £5.8 billion in March- up compared with a £5.6 billion surplus the month before.

The deficit in trade in goods with EU countries widened by £700 million to £4.5 billion in March, compared with the deficit of £3.7 billion in February. Exports were virtually unchanged at £13.2 billion, and imports rose by £800 million, or 4.4%, to £17.6 billion.

Trade in goods with non-EU countries reached record levels, with both imports and exports at an all-time high in March.

Imports to the UK of goods from non-EU states rose by £700 million, or 4%, to £17.3 billion, while exports rose by £1.4 billion, up 12.1%.

That left the overall deficit on goods trade narrowing by £800 million to £4.1 billion, compared with February’s deficit of £4.9 billion.

The value of chemicals exported to non-EU countries rose by £200 million in March. The shipbuilding sector also saw the value of exports rise by the same amount.

European money markets have fallen as the continuing political uncertainty in Greece and Spain undermines investor confidence.Greek President Karolos Papoulias failed to form a coalition government through talks on Sunday and will continue discussions with political leaders on Monday evening.

Bank shares are worst hit, particularly in Spain and France, with Madrid’s Ibex index down 2.8% and the CAC down 2.3%. London’s FT 100 share index is down 1.7% and Germany’s Dax down 2%.

French banks were among the biggest fallers as investors worried about their exposure to other troubled eurozone countries. BNP Paribas was 3.4% lower, Societe Generale lost 3.3% and Credit Agricole fell 3.4%.

Spanish banks Banco Santander and Bankia were down 3.4% and 4.4% respectively, as they said they would set aside an extra £2.16 billion (2.7 billion euros) £1.68 billion euros respectively to meet new government requirements aimed at cleaning up the country’s ailing property market.

Meanwhile, both Spain and Italy carried out successful bond auctions on Monday.

Appetite for Spanish and Italian debt was more than strong enough, but the return demanded by investors in Spain’s debt was higher than in previous auctions, reflecting a dip in confidence.

The difference in the rate demanded by Spanish 10 year bond investors over the equivalent German bunds hit 4.83%, its highest level since the creation of the euro.

The yield, or interest rate, on Spain’s key 10 year bonds, which are traded on the market, jumped 23 basis points to a record high of 6.22%.

Greece’s lack of a government puts in doubt its ability to stick to austerity measures imposed as part of its financial bailout. Without holding to agreed cuts it will not get the rest of the support funds it needs to function.

Adding to the lack of clarity is the fact that anti-bailout parties did well in the elections.

Anti-austerity feeling may be growing in Germany as well as Chancellor Angela Merkel’s party suffered a defeat on Sunday in an election in North Rhine-Westphalia, the country’s most populous state.

Voters in France and Greece joined their counterparts in Ireland, Portugal, Spain, Italy and the Netherlands in forcing out leaders or ruling parties over the past two years. Changes in leadership across the eurozone have generally been Euro negative in the immediate aftermath as the markets digest the change in leadership and the euro is pushing towards the key level of 1.30 against the Dollar in early trading this morning.

The French public elected Francois Hollande, the socialist candidate, and a key pledge was to renegotiate the ‘fiscal pact’ agreed by members of the single currency.

The money markets remain nervous of the possibility of renegotiation mostly because of the uncertainty it would create and how it would affect the strong ties forged between Mr Hollande’s predecessor and the German Chancellor.

Also adding to negative euro sentiment is the non-result from the Greek election.

No party secured enough of the vote to form a government.

New Democracy, who polled the most votes of all the parties has not been able to persuade other to form a coalition so it now falls to second place – the radical Syriza party – to try to form a government.

As many in the market have worried, an anti-austerity party in a position of power brings a Greek exit from the euro that much closer.

Away from Europe, the Bank of England meets on Thursday to decide interest rates and the asset purchase scheme. No change is expected to either.

We also have the GDP estimate on Thursday expected to show a return to growth, and also the PPI figures on Friday.

There is little important economic data from the US this week but in Australia we have the budget and employment data out later in the week and given the ACB cut rates last month may turn out to be softer than expected.

A study completed by the National Institute of Economic and Social Research (NIESR) is predicting the UK unemployment rate will rise from the current 8.3% to nearly 9% by the end of 2012. The study blames low growth in the coming two years as the UK steers itself out of this technical recession.

NIESR recognized that later revisions may alter this, but said “small quarter-to-quarter movements of this sort are largely irrelevant to the broader picture of an economy that remains very weak”.

The big ticket data release this afternoon is the US non-farm payrolls.

It’s been a mixed bag data wise leading up to today’s announcement so there is a large degree of uncertainty over the actual number.

Consensus estimates are for 175K jobs created in April, initial jobless claims yesterday came in better than expected which point towards a positive number but at this stage it is difficult to call.

The Dollar has regained significant ground against Sterling in the last week and the risks remain to the downside, however if the number disappoints and we could be trading above 1.62 quite quickly.

The sterling/euro exchange rate has broken its correlation with movements in EUR/USD for the time being, with self-governing Sterling strength evident.

This is been confirmed by the shift in interest rate differentials between the UK and eurozone, a move which has gone in favour of GB Pound strength.

The view now points to some further downside potential in this currency pair, with a test of technical support around 0.8067 on the cards.

A surprise increase in the US ISM manufacturing survey yesterday evening was enough to push the Dow Jones industrial average to its highest level in four years, dragging European bourses higher this morning along with the high risk currencies. Due to the May Day bank holiday in Europe, markets on the continent are playing catch up with the US and UK and are performing very strongly in early trading.

Chinese manufacturing PMI also showed a slight improvement overnight, but is still below the 50.0 level, signifying a contraction in manufacturing output.

This afternoon the ADP employment report is released in anticipation of the non-farm payrolls on Friday with expectations of 175K jobs created in April, not quite the numbers we saw in the first three months on the year but positive non-the-less.

Portugal goes to the market today, issuing six and twelve month treasury bills.

The target amount is only €1.25-1.5 billion, but the auctions will be closely watched as ever and expect overblown hysteria if we any signs of weakness.

Ahead of the auction the spread between the benchmark ten-year bonds is slightly higher, sitting at 902 bps in current trading.

The euro is marginally weaker this morning against the US Dollar and Sterling.

From the data just out, French and German PMI were broadly in line with the flash estimates but German unemployment rose in April and it is this that is leading the Euro weakness this morning.

Fears in Europe have escalated a notch amid growing concern on both economic data and political cohesion.  This morning S&P have taken a negative rating action on 16 Spanish banks, in addition press reports out of Germany suggest that a Merkel-Hollande alliance will not be as straightforward as the Merkozy alliance.

At the moment the euro is holding up fairly well as the market has been selling the US Dollar on sentiment that the Federal Reserve will ease further, however the underlying negative tone will be a concern to the markets.

Later this week the ECB are expected to leave interest rates on hold, however Mario Draghi will face tough questions in the press conference on the strategy for Europe amid growing concerns for a growth compact.

USA jobs data will be a main data point to watch this week.

Friday’s non-farm payroll report will form important sentiment for the pace of the US recovery after last month’s disappointing number which followed a good run of jobs data.

The number is expected to be a good number and the feedback on this data will be a key factor for the Feds future strategy-a bad number and we can expect more easing.

In the UK, attention will focus on the PMI data tomorrow and Thursday which will offer a snippet of growth feedback following last week’s preliminary Q1 GDP which came in negative.

Again if data proves negative it could trip the Bank of England to pump more QE through the system- possibly at the May MPC meeting.

Yesterday European shares and the euro came under renewed pressure after confirmation that Spain’s economy was again in recession and German PMI for April was unexpectedly down. To add fuel to the growing fire the Dutch PM and entire cabinet resigned piling political worries on top of economic woes.

Along with a steep fall in shares we saw spreads widening between struggling sovereign Euro economies and Germany, in addition the Dutch/German spread widened.

Lots of risk aversion in afternoon trading yesterday with the main benefactors being the US Dollar and the Japanese Yen.

Today we have started a little brighter and bond spreads have narrowed slightly from yesterday- the main reason for this is that Dutch, Spanish and Italian bond auctions all went well helping to firm up the Euro from yesterday’s lows.

The main take from yesterday is just how quickly things can turn sour and this highlights the fickle position of the ailing euro.

Today we have seen UK data in the form of public sector net borrowing which showed that the government borrowed more than expected for March but still met its annual target.

Tomorrow we see the crucial preliminary first quarter GDP data.

We have seen some bright sparks in the UK economy of late in relation to unemployment data and retail sales.

However the data has been inconsistent and we have seen a weak performance in the construction sector which could lead to a negative number.

Tomorrow’s number if negative would be a huge blow psychologically to the UK’s recovery and will undoubtedly hit confidence in the UK’s recovery strategy and the pound.

Conversely if we see a stronger than expected number we could see the Pound rally further after a strong performance recently.

The International Monetary Fund’s (IMF) has raised an additional £268 billion ($430 billion) for the pot meaning another set of support for the eurozone when it will be required.However, several other uncertainties persist to bother markets signifying that any rally could be short lived.

There is plenty of data and events this week including central bank decisions in the US, Japan and New Zealand.

In addition, US corporate earnings will stay under the spot light while bond auctions in the eurozone will also provide market drive.

It is doubtful that the Fed meeting tomorrow and Wednesday will incite any change in the currently low FX volatility atmosphere given that strategy settings will stay unchanged, with the bulk of FOMC members likely to look for the first alterations at the earliest in 2014.

The Fed as a result is unlikely to stir the Greenback out of its daze and if anything a fall in durable goods orders, little change in new home sales and a pull back in consumer confidence will play in support to Dollar bears over the coming week.

Even a relatively firm reading for Q1 GDP will be seen as backward looking given the slowing expected in Q2.

Over to Europe and the single European currency will have to compete with political proceedings as it absorbs the outcome of the initial round of the French presidential elections.

The reality is that the political course will carry on to a second round on 6 May which will act as a limit on the euro.

A variety of ‘flash’ purchasing managers indices (PMI) readings and economic opinion gauges will present some primary direction for the Euro but mostly stable to softer readings suggest little stimulation.

As a result euro/ US Dollar will largely remain within its recent range although news from Spain and Italy and their debt markets will have the potential to bring into play larger moves against the euro.

The UK has offered just under £10 billion in loans to the International Monetary Fund (IMF) to help economies in trouble.It is part of a global effort to bolster the fund’s lending capacity, which IMF managing director Christine Lagarde wanted to increase by £250 billion ($400 billion).

The UK is not alone in funding the lifeboat. Japan will contribute $60 billion, Australia $7 billion, Singapore $4 billion and the Republic of Korea $15 billion.

The IMF had already received commitments of $320 billion.

Finance ministers from the G20 group of leading economies discussed boosting the IMF’s resources at a meeting in Washington.

Mr Osborne said the loan was important to the UK: “It’s in Britain’s interest that we have a stable and strong world economy – that creates jobs in Britain.”

He added that any loan made would bring in a return in the form of interest.

He can lend up to £10 billion without parliamentary approval because Parliament has previously approved £40 billion of loans, of which only £30 billion has so far been committed.

But this latest pledge is unpopular with some members of Mr Osborne’s Conservative Party, who had been urging him not to sign up to an increase.

Backbench MP Peter Bone described the decision as “bonkers”, describing any efforts to prop up the eurozone as a waste of time.

The UK Independence Party leader, Nigel Farage, said: “[Mr] Osborne must tell the IMF that he will not donate one more penny piece to the failed euro bailouts.”

The Treasury says its contribution to the IMF is not public spending. All UK loans to the IMF are financed from the UK’s Official Reserves, remain UK assets and do not contribute to public sector net debt.

The IMF hopes that if private investors think that countries in trouble can be rescued if necessary, they will be more willing to lend to them and any funding problems will not escalate.

It has already warned that the eurozone’s debt crisis poses the biggest threat to the global economy, and warnings about Europe are expected to top the eventual communique from the meetings.

The cost of borrowing for Spain has jumped above 6%- increasing fears of a bailout.The yield on Spain’s 10 year bonds reached 6.1%, ahead of auctions of debt on Tuesday and Thursday that could be increasingly expensive for Spain.

Investors have been worried by data showing Spain’s banks are entirely dependent on emergency ECB loans.

In comparison, the yield on 10 year bonds from Germany- the eurozone’s strongest economy, is only 1.73%.

Spain is suffering from a deep economic slump brought about by a bust in its property and construction markets and over spending by the autonomous regions on health and education.

The rise in Spanish bond yields adds to the evidence of storms returning to the eurozone.

Interest rates of over 6% are not affordable if sustained indefinitely, though Spain is still below the 7% threshold that has sometimes been seen as triggering the need for a bailout.

There are also worries that the government might face a large bill to prop up the country’s banks, which made heavy losses on loans to property buyers.

The Bank of Spain said recently that the county’s economy contracted in the first quarter of the year – but it did not say by how much. The economy shrank by 0.3% in the three months to December, so this additional contraction implies that Spain’s economy is in recession.

On Friday, the Bank of Spain – the central bank – said its net lending to its banks in March had risen to 228 billion euros (£188 billion), up from “only” 152 billion euros a month earlier.

The big jump was mainly due to a second auction of three year emergency loans carried out by the European Central Bank, which has given 1 trillion euros to banks since December.

This money was intended to be lent by the ECB to national central banks, which is turn lent to commercial banks who would buy their country’s debts and bring borrowing costs down.

But these loans are creating their own financial headaches- as Spanish banks are now sitting on rising loses as spanish government debts fall.