Europe's economy contracted at the fastest pace in at least 13 years in the first quarter as companies cut output and jobs to survive the worst global slump in more than six decades.

Gross domestic product in the 16-member Euro region fell 2.5% from the fourth quarter, the biggest decline since the data were first compiled in 1995, the European Union's statistics office in Luxembourg said Friday. That exceeded the 2% contraction economists expected and followed a 1.6% drop in the prior three months.

The deepest global recession since World War II is curbing European exports and eroding consumer demand, forcing companies to cut spending and jobs. The German and Italian economies also contracted by the most on record. Hong Kong's economy shrank at the fastest pace since at least 1990, prompting the government to forecast a full-year contraction of as much as 6.5%.

France's economy shrank and lost jobs for the fourth straight quarter in the first three months as companies slashed investment and exports plunged.

The German economy is in its worst post-war recession after plunging 6.7%.

Gross domestic product has crashed 3.8% since the start of the year and 6.7% since the beginning of 2008, with economic growth decreasing in every quarter.

The decline from January to March is by far the biggest since 1970, according to the Federal Office. In the first quarter of 2009, GDP growth decreased by 0.1% compared to the fourth quarter of 2008 to -2.2%.

According to statistics, the unprecedented plunge in the GDP is due to a weak trading balance. At the beginning of the year, exports were much stronger than imports.

Germany is considered as one of the strongest countries in the world in terms of exports - but investment has also declined compared with the last quarter.

Only private and state consumer spending has risen.

Economists are shocked - even the 'experts' predicted a decline of just 3.2%.

In Belgium, KBC Bank was bailed out for a 'third' time by the Government - yes, THREE times now.

In the US, the number of initial jobless claims in the week ended 9 May rose 32,000 to 637,000, the Labour Department reported. It's the highest level since mid-April. The four-week average of initial claims rose 6,000 to 630,500.

Bank chief executives will be replaced in the next couple of months as the US scrutinizes financially troubled lenders, Federal Deposit Insurance Corp. Chairman Sheila Bair predicted.

"Management needs to be evaluated," Bair said Friday on Television to be broadcast this weekend. "Have they been doing a good job? Are there people who can do a better job?"

US regulators last week released stress-test results on 19 banks and ordered 10 including Citigroup, Bank of America and Wells Fargo to raise $74.6 billion in capital to withstand a "deeper and more protracted" slump than forecast. CEOs of Citigroup and Bank of America, which got a total of $90 billion in US aid, remain on the job, while top executives at Fannie Mae, Freddie Mac and General Motors Corp. were ousted after getting US aid.

Federal Reserve Chairman Ben S. Bernanke said demand for the central bank's loans to buy asset- backed securities is likely to rise next month from May's total as investors become more comfortable with the program.

The Treasury Department agreed to extend billions in federal bailout funds to six major life insurers. The move was positive because it means the insurers will get more capital, but negative because it implied that the insurers' problems posed a serious risk to the financial system.

Among the companies, the Hartford Financial Services Group said it is eligible for $3.4 billion from the Troubled Asset Relief Program, or TARP, while Lincoln National Corp. said it has been initially approved for a $2.5 billion injection.

General Motors Corp., facing a probable bankruptcy filing by June 1, is telling 1,100 "underperforming" US dealers they will be terminated as the automaker starts shrinking its retail network.

Most of the closings will occur by October 2010, and none are happening now, Detroit-based GM said Friday. The targeted outlets will have until the end of the month to appeal the decisions, GM said, without specifying the stores on the list.

The shutdowns are the biggest US automaker's first step to pare domestic dealers to a range of 3,600 to 4,000 from 5,969 by the end of 2010. With fewer retailers, the survivors may each be able to sell more cars at higher prices, boosting profit.

UK repossessions by mortgage lenders jumped by 51% in the first quarter from a year earlier as the recession deepened, the Council of Mortgage Lenders said.

Repossessions climbed to 12,800, compared with 8,500 in the same quarter in 2008, the group, which represents home-loan providers, said in an e-mailed statement Friday. The reading is up from 10,400 in the previous three months.

The Bank of England said this week that the economy may contract for the rest of the year and lending will take longer to resume than previously forecast. The bank left the key interest rate at 0.5% last week as unemployment jumped in the first quarter by the most since 1981.

The Bank of England's forecasts show Governor Mervyn King may need to print more money than the 150 billion pounds ($227 billion) currently authorized by Chancellor of the Exchequer Alistair Darling, Morgan Stanley said.

The bank may have to ask the Treasury to expand the asset purchase program after predicting this week that inflation will stay below its 2% target even if it prints the currently planned 125 billion pounds, Lauren Mutkin, Morgan Stanley's head of European fixed-income strategy, said in a note Friday.

King forecast "a relatively slow and protracted recovery," on May 13, saying that inflation is more likely to stay below the goal in the next two years than to exceed it. Policy makers have resorted to printing money and using it to buy securities in UK debt markets after they cut the benchmark interest rate to a record low of 0.5%.

Given all of the above, there was no way even in this 'whacky' market-sentiment that markets could have gone up this week no chance at all.  As I have said all along, whilst unemployment continues to rise, those fundamentals just are not there and the market had to do one of two things; it had to stop and pause, or it had to stop and start dropping.

"Which one is it then?" I hear you ask. Well, I have advocated the latter for the past 2 months but there are some interesting side-issues now coming into play that I am looking at and next week will be critical I feel.

If the market does not drop another 4-5% next week across the board, we may see a protracted period of flat/mildly negative movement and a sustained period of consolidation - but without the 20% correction I have been saying was on the cards.

But I am still leaning towards a 20% overall correction and back to testing the lows of March - but next week will be the key, further declines and I'll be right.  Flat on the week and we'll be into a flat summer period.

One thing that is worth looking at Ladies and Gentlemen currently is LIBOR.

The cost of borrowing in Dollars between banks fell, capping its biggest weekly decline in four months, as government cash injections and interest-rate cuts led by the Federal Reserve began to thaw credit markets.

The London interbank offered rate, or Libor, for three- month loans in Dollars decreased almost two basis points to 0.83% Friday, the British Bankers' Association said. The TED spread, the difference between what banks and the US Treasury pay to borrow for three months, narrowed to the lowest level since August 2007, when the credit crisis began.

Bank borrowing costs slid as the US government and the Federal Reserve committed $12.8 trillion to stem the longest recession since the 1930s and central banks around the world cut interest rates to near zero. Libor, used to set borrowing costs on about $360 trillion of financial products globally, according to the BBA, jumped to 4.82% in October, following the collapse of Lehman Brothers Holdings Inc.

The TED spread, the difference between Libor and the three- month Treasury bill yield, dropped three basis points to 67 basis points Friday, the least since Aug. 8, 2007, the day before France's BNP Paribas SA halted withdrawals from three of its funds because of losses related to subprime mortgages.

But as a measure of how far we still have to go in Banks becoming more 'normal' - The Libor-OIS spread, a measure of the unwillingness of banks to offer each other cash, narrowed three basis points to 63 basis points, its lowest level since 24 March 2008. Former Fed Chairman Alan Greenspan said in June last year he wouldn't consider money markets back to "normal" until the spread was at 25 basis points. The average in the five years preceding the credit squeeze was 11 basis points.

Food for thought indeed and as you can see, I never mentioned any "smoke and mirrors" this week because basically, it is all now coming out in the wash!

On to the numbers on the boards: