The US GDP number was better than expectations at 3.5% annualised and brought some calm to a situation that good have resulted in a big sell off if the number had disappointed. The fourth quarter should generate a similar result and we will still have to see what revisions are going to be made to the Q3 figure over the coming weeks. The real issues will come in the second half of 2010 once the inventory cycle has played its part in helping GDP and the US is looking at ways to withdraw its stimulus measures. The cash for clunkers programme contributed 1.66% of the announced Q3 figure and we do not have this benefit going forward. A slip back to sub trend growth is almost a certainty and it remains to be seen how the market will react to that. In the meantime we appear to have an environment where world equity markets may well be able to rally a little more.

All eyes are on the US Q3 GDP number due at 12:30 today. Expectations are for an annualised rate of around 3.2% although it was notable that Goldmans rushed out a revision to their forecast yesterday reducing it to only 2.7%. Judging from the recent economic data a figure around the 3% is what should be published. Anything closer to the 2% level will be very disappointing for the market given that this should be a strong quarter with inventory restocking and increased investment playing a part.

Following on from my comments yesterday I was proven correct in terms of closing out our Imperial position ahead of the BAT trading statement today. BAT issued a slightly downbeat statement primarily due to a slowdown in organic sales volumes which were down 3% on this period last year. This was partly due to a poor contribution from the newly acquired Turkish business Tekel. In addition down trading in Central and Eastern Europe did not help. However, the key to tobacco volumes at present lies with pricing power and price increases will ensure profit growth over the next couple of years. BAT like Imperial offers the prospect of near 10% per annum earnings growth over the next two years which should drive valuations ahead further if we do not see any major slip in world stockmarkets.

The market is certainly struggling to make headway at the moment and lacks any short term catalyst that is likely to make a difference. Today we closed out another Imperial Tobacco trade although this time at no profit or loss. On some occasions it becomes clear that the trading range you expected does not materialise and it never hurts in that situation to close out and try again. In addition, BAT will be announcing a trading statement tomorrow and in the event that it disappoints it could hurt the Imperial share price. In all likelihood BAT will announce trading is in line with expectations but again from a risk perspective closing out ahead of any such announcements does ensure that capital is preserved even if the shares do rally on a positive statement. If the opposite occurs it can mean being stuck in a position for longer than anticipated and missing other trading opportunities. We are now focusing on Diageo as the next possible trade.

The UK GDP figure for the third quarter of -0.4% is bad whichever way you cut it. There are brokers arguing that current data suggests growth and the ONS figure is way out. Undoubtedly the figure will be subject to revision but the fact that we are already in negative territory suggests that at best we might get back to 0 or perhaps a very small positive figure. What there is no doubt on is that the UK remains in a mess and with the real prospect of fiscal tightening next year coupled with higher unemployment and the prospect of a return of at least some inflation means that real incomes are going to be declining at a time when consumer spending power is most needed. This is hardly the recipe for a V shaped recovery and next year is likely to see perhaps 1% GDP growth at best, nothing like what is required to start mopping up some of the excess capacity in the economy. The UK faces hard times indeed and the companies that are UK focused are going to have a tough time of it. I do believe that the retail sector could end up being hit hard next year although at least for the time being the market is giving them the benefit of the doubt.

The Bank of England Monetary Policy Committee meeting minutes were published yesterday, All members voted in favour of keeping policy unchanged with the base rate at 0.5% and £175bn to be spent on asset purchases. There was no mention of a possible expansion of quantitative easing which the Governor did mention at the previous meeting. It could be that the improving outlook will lead to the decision to pause the quantitative easing programme when they next meet in November. What remains clear is that interest rates are likely to remain at 0.5% for many months to come and any tightening will be very limited given the likelihood of a very modest economic recovery in the UK.

We are now seeing all the hallmarks of a market that is going to overshoot fair value. What fair value is remains a difficult question, but with still considerable uncertainty over what 2010 holds and with the prospect of sub trend world economic growth at best it is difficult to argue for a much higher valuation than what we currently have. That is not to say that there are not pockets of value out there and we are seeing this with certain stocks being chased ever higher as investors seek out quality. Given the amount of money that is flowing into the market at the moment I will not be at all surprised to see the FTSE100 near to the 5500 level before the year end, but that to me will be a short term overshoot and it could easily set us up for a nasty start to 2010 or earlier if the market continues to roar ahead.

It is not easy to trade a market which is rallying on the back of liquidity flows rather than a solid fundamental outlook and with many of our monitored stocks racing ahead it is again becoming a frustrating job. We have several stocks that need to fall around 1-2% before we will take a long position in them but at present that is looking like a slim possibility with the relative strength we are seeing.

A tale of missed trades today. We were very keen on Imperial Tobacco yet again and watched it open at around £18.17 and set the system to go long at £18.13 only for the stock to fly away yet again. It certainly has a lot of momentum behind it at present with many brokers in the last few weeks issuing buy recommendations. To us the stock does look cheap even after its rise from the low levels seen earlier in the year. With a trading update schedule for mid November we will soon take the stock off our trading list as we don't hold stocks on announcement days although we are fairly confident that Imperial will not disappoint. It is hard to say where the stock will go from here and we remain hopeful of trading it one more time over the next couple of weeks if it shows any weakness.

A new stock that we have just added to our monitor list is Diageo. A trade that we considered on Friday but with the shares weak that day and the possibility of an average open in the UK on Monday we felt there was time. In fact they have also roared ahead today! In a market which is clearly trending up it can be difficult simply from a psychological view point to pay more than you did for the last trade but this is clearly something we will all have to get used to if the rally continues and certainly judging from today's performance there is a lot of money entering the market at present and this looks set to continue at least in the short term.

The rumours surrounding Sainsbury today make interesting reading. It is hard to see the Qataris coming back for another go at Sainsbury purely because the likelihood of getting an agreement from the Sainsbury family is slim with a bid at around the £4 level which is what is currently being rumoured. Inevitably when the Sainsbury share price drops to relatively low levels the bid rumours always seem to resurface and I suspect that is all that has happened today. Nevertheless with the shares up 10% and sticking there may well be more to it. In the event that clarification is made and a bid is not forthcoming we will quickly see the Sainsbury share price move back to the £3.10-£3.20 level.

UK CPI

The UK CPI data for September announced today showed a sharp drop in inflation from an annualised rate of 1.6% to 1.1%. This is primarily due to the impact of lower energy costs as we compare to a period last year when energy prices were spiking higher. With this in mind it is unlikely that we will see much more downside in inflation over the short term especially with VAT set to rise again at the end of the year. Arguably with so much spare capacity in the UK economy it is difficult to see inflation taking hold for some time yet. With food price inflation now almost non existent it is unlikely that there will be any inflationary threat at least during 2010 leaving the possibility of the base rate staying close to the 0.5% level throughout 2010.

With America closed today the market has leaped up to new highs and looks likely to remain strong without any real news flow to drive it. The economic data in the US doesn't really kick off until Wednesday with publication of retail sales data for September which excluding auto sales is expected to show a modest improvement on the month of +0.2% according to the consensus. The overall results will inevitably be negative due to the demise of the 'cash for clunkers' programme. Also on Wednesday we get the minutes of the latest FOMC meeting. On Thursday in the US we will see the publication of the CPI data for September which is expected to show a modest +0.1% increase month on month. Also on Thursday we get a snapshot of the health of the US manufacturing sector in Philadelphia and New York both of which are expected to show an ongoing expansion. Finally, in the US on Friday we get the University of Michigan Consumer Sentiment data for October which is expected to show a modest improvement to 74 from the previous reading of 73.5.

In the UK look out for the September CPI data which is expected to show a 0.3% month on month increase which will bring the year on year rate down to 1.3%. On Wednesday we get the UK unemployment rate for August which is expected to tick up to 8.0% from 7.9%. In Europe look out for the ZEW economic sentiment survey for October due to be published on Tuesday. On Thursday we see the publication of European CPI data for September.

Last week I mentioned that we were again keeping an eye on the tobacco stocks and we did do another Imperial Tobacco trade on Friday when the shares were weak early in the morning. The strength in the market today has allowed us to take another 1% out of the stock and we have closed the position. Overall Imperial looks likely to become our most successful trading stock this year.

This week we are keeping a close eye yet again on the tobacco companies, BAT and Imperial. Having recovered along with the market they appear to be taking a breather and probably only temporarily have become range bound with the market likely to fluctuate around the 5000 level at least for the time being. This may again provide good trading opportunities and a lot depends on the movement of the market which may allow a swing trade in one or both.

The US payroll data announced on Friday ended a week in which we have seen plenty of poor economic data. The decline in payrolls of -263,000 in September was a lot worse than the anticipated decline of -180,000. The decline in service sector employment was -147000 compared to the previous monthly decline of -69000 whilst there was a worrying deterioration in the government employment number with a decline of -53000 compared to the previous monthly decline of 19000. This was disappointing although unlikely to be the start of any further deterioration with the unemployment set now to move up to around the 10% level.

On Monday the market was saved by the Non Manufacturing ISM data for September which came in a little ahead of expectations at 50.9 suggesting expansion albeit modest within the service sector which accounts for the majority of the US economy. Recovery is happening but is unlikely to take them form of a V and still looks increasingly like a U with the possibility remaining of a double dip recession.

The market has pushed back above the 5000 level during the last two trading days but we feel it is likely to hug this level above and below for sometime to come.

Yesterday we took a quick 1% out of GlaxoSmithkline with the shares having declined by 1% during the morning especially with the market nerves ahead of the ISM data. The strong opening on Wall Street quickly pulled the general market up and having bought in at £12.05 we closed out at £12.185.

The ISM Manufacturing data announced for September was disappointing with a decline to 52.6 from 52.9 the previous month. This was against expectations of a rise to anywhere between 53 and 55. The market is fixated with what today's Non Farm Payrolls figure will be. Looking at the employment element of the ISM data it was stuck at 46.2 from 46.4 the previous month suggesting little in the way of an improvement in the rate of job losses. The Non Farm Payrolls were expected to show a loss of around the 150-200K mark for September although Goldman Sachs changed their forecast yesterday to -250k. Anything worse than this level will be taken very badly by the market.

We have now had a plethora of poor economic data which has stopped the rally and at the time of writing brought the FTSE100 is back below the 5000 level. After today's Non Farm Payroll we have the all important Non Manufaturing ISM survey on Monday in the US which is currently expected to show an improvement and possibly a move above the key 50 level which would indicate expansion. Again any further disappointment in the shae of a month on month decline will be very bad news for market sentiment.