The decline in US Producer Prices by 2.8% in October shows that deflation is likely to be the greater threat than inflation over the coming year. The rapid decline in gas prices and even food prices contributed to the fall, a trend which will continue for some time. In the UK the CPI posted a record fall to 4.5% from 5.2%. Even with prices falling rapidly I do not believe it will improve consumer confidence and spending will continue to decline. We are entering a new era where the saving rate will increase and any beneficial impact of falling prices via increased real disposable income is likely to be saved.

The market started in negative territory but did manage a reasonable gain towards the end of the day. My latest Tesco holding is now back at break even and I am hopeful that the shares will recover a little more over the next couple of days. With the market down this morning the shares were up which is encouraging and their defensive characteristics do seem to attract interest as the shares move closer to £3. I did open a very small CFD long position in Daily Mail today. I have always been a fan of the Daily Mail brand and with the shares yielding 6% I do feel that a lot of bad news is priced in. I am looking for a 5-10% move in the shares before banking a profit. If the market does rally tomorrow there may be a chance of this as they can be quite volatile.

A few more snippets today about the state of the US economy in the form of the Empire State Manufacturing Index and Industrial Production. The Empire State figure on the face of it didn't look too bad in the sense that it has not deteriorated much more than last month, but when you look at the underlying constituents the picture is grim with a significant decline in the employment index and capital expenditure intentions over the next 6 months. Industrial production increased by 1.3% in October, but this reflected a rebound in mining production after the enforced shutdown caused by the hurricanes. However, there was a revised 3.7% drop in September which was the largest since 1946. The Fed estimates that stripping out the impact of the hurricanes Industrial Production fell 0.7% during September and October. All of which paints a depressing picture and it will be some time yet before we see an upturn and more importantly it is clear that conditions in the US are going to deteriorate a good deal more over the coming 6 months, especially unemployment.

I took advantage of the weakness in the market today to close out the profitable shorts in Unilever and Next. I also took a long position in Tesco in the hope of a short term rebound in the market tomorrow. Unfortunately the shares lost around 7p in the last hour or so of trading so I may have to wait a little longer for a profit. The FTSE100 is moving closer to the 4000 level and it will be interesting to see if we get a bounce or if we are going to approach a new low over the next couple of weeks.

I am beginning to wonder if the Dow really needs to trade until the last hour as it seems at the moment that no matter what trends prevailed in the hours leading up to the last 60 minutes of trading the end result seems to be completely different. Yet again today the Dow completely unravelled having been just in positive territory with one hour to go and ended down 337 points.

Given the dismal retail sales figures in the US which were awful and the data we have had to contend with this week I am surprised to see such strong positive moves as we had yesterday, but realistically this just goes to show that we are still very much in a bear market. The initial jobless figures in the US this week point to a set of Non Farm Payrolls next month that are likely to be even worse than those we have just had, and I think the market is in for a rough time as we approach the year end. I am particularly concerned at present with the situation re the US car makers. If they do adopt a protectionist policy for these companies which are clearly not viable it really does open the flood gates for any company to come to the US government with a begging bowl. This would have far reaching implications. I am all for stabilising the financial system and trying to protect jobs in any industry, but you have to draw the line somewhere and any bail out will have far reaching implications as the recession claims further victims.

The initial rally in the FTSE100 this morning was eroded as the day wore on and the US opened, but we still managed reasonable gain. I took advantage of the strength in Tesco this morning to sell at a profit and I opened at the same time a short in Unilever as they again pushed over the £15 level which I think is at best fair value for a company that is going to have a very difficult 2009. My one remaining short in Next is in profit and I am hopeful that if we start the week in negative territory I will be able to close both out at a nice profit.

A 6% bounce in the S&P 500 in the last hour of trading sets us up for a good start to trading tomorrow. My latest Tesco holding closed nicely in profit and I am hoping that a bounce in the morning will give me the oppotunity to exit at a healthy profit. I have a remaining short in Next outstanding which is also in profit, but I am going to wait before closing that out as the retailers are going to fall further yet I feel.

Terrible unemployment data yesterday with lots of announced job losses again today suggests that the economic downturn is being felt hard in the jobs market quite early on and I think estimates of unemployment over the 3m mark before the end of the down turn seem quite realistic. Germany fell officially into recession today with the rest of Europe likely to follow suit very soon. I think fiscal stimulus packages will gain more headlines over the coming weeks as world governments find that monetary policy is not going to be as effective because of the credit crisis and cutting taxes will be an insurance policy against a deep recession turning into a depression. With a Pre Budget report due on the 24 November in the UK we can expect to see some serious tax cuts if the government wants to make a difference to what is now going to be a severe recession. What they will do is anyones guess, but a cut in vat seems an obvious way of injecting some life into the corporate sector. Any income tax cuts especially to low income families are more than likely to end up being saved and I don't believe will be as effective as cuts in corporate tax. I am sure there will be tax benefits to individuals in some way, but to what extent is open to debate.

BT anounced figures today which were a little better than revised forecasts after the profit warning concerning their Global Services division a week or so ago. The shares have suffered more I think due to the pension fund liability than the deterioration in the Global Services division. What was encouraging was the apparent commitment from Ian Livingstone to the dividend and whilst I would not rule out a cut, it does seem less likely unless there is a marked deterioration in cash flow. I think BT does have considerable scope for recovery if it does improve its cash flow position and if the stock market improves it will take some pressure off the pension liability. Without the Global Services division BT would be a supreme cash cow and if it doesn't turn this division around I believe it could be sold in the longer term. I am hanging on in with my holdings and I even added to my physical equity holding more recently. BT will have its day again, but for the time being I think the shares will tread water for a while.

After a good start to the day the market quickly lost its gains with bad unemployment data and the Bank of England inflation report which made it clear that 2009 offers little hope for a turnaround in economic conditions. It is amazing how quickly interest rate expectations are falling with most expecting a base rate of2% by the Spring and 1% or lower by the end of the year. Inflation by then is likely to be non existent.

The Dow has ended the day down 4% so we can expect a weak start again tomorrow. My latest Tesco holding did come back to what I paid at the close and I may have to wait for a better day than what tomorrow is likely to offer to take a profit on this one.

It is amazing the number of people that rushed out with forecasts of a year end rally as the markets started to push ahead last week, but already such forecasts are looking on shaky ground. There is simply too much bad economic data at the moment for markets to find the legs for a sustained rally.

Another bad day for world markets. Job losses in the UK will be on the agenda tomorrow with unemployment figures due. Retail sales figures today were bad and across the board we are seeing signs that a recession is hitting hard and quickly. There has been a lot of talk about the spread between the base rate and mortgages and it is clear that despite the hefty cut last week we are now going to see a good 200bp spread between the base rate and most mortgage rates providing little respite for the housing market which I think has a good 15-20% to fall before we start to see some signs of stability. It is interesting that most of the big banks are yet to unveil any new tracker mortgages having pulled them last week.

Today I was lucky with the market weakness to be able to close out my two shorts in Unilever and Next and towards the end of the day I went long of Tesco. The shares had fallen yesterday after slightly disappointing sales figures for their operation in South Korea. To me this is purely a reflection of the world economic slowdown and I am almost certain that Tesco will be one of the few international success stories over the longer term. The market seemed to be waking up to the fact that the shares were looking a little oversold in late trading and bounced quite nicely shortly after I had bought them. The futures are looking for a 60 point opening gain in the FTSE100 tomorrow and I am hoping to take advantage of this to sell the Tesco.

The day started well following the announcement yesterday of the $600bn Chinese stimulus package. I think fiscal stimulus packages will be popping up around the globe as governments decide not to rely solely on monetary policy to help reduce the impact of recessionary conditions. We ended the day in positive territory, but only just and with the Dow ending in negative territory tomorrow is unlikely to start well.

The Non Farm Payroll figures in the US on Friday have demonstrated just how quickly economic conditions are deteriorating in the US. A 240,00 decline in October with a downward revision of 180,000 for the previous two months gave us 420,000 job losses to contend with. The picture for the UK is starting to look similar and I think the labour market here is about to fall off a cliff as well.

I took advantage of the strength in the market this morning to short Next and Unilever. In the case of the retailers I cannot see how they will make any progress over the next 6 months and the recent boost to valuations from the base rate cuts has provided an ideal opportunity to short again. Unilever on the other hand is a lumbering giant and I think the slowdown in Asia combined with a decline in inflation is going to make life very difficult for Unilever to achieve much if any top line growth and I think the shares are going nowhere for the time being.

Plenty of comment over the weekend about the base rate cut. The key is whether the banks will continue to pass on rate cuts which undoubtedly will come and if as the Sunday Times reports the banks are unwilling to go any further having been bullied into it this time, the future impact of more rate cuts will be very limited. The government will have to look at a fiscal stimulus package, but I suspect that it will be focused on only the low income earners and very little will be available for business where arguably it is essential to provide help as the economy slides into recession.

This week we have the Bank of England quarterly inflation report which should show a very different toen to previous reports. The inflation rate is rapidly declining and now likely to undershoot the MPC target. I wonder how many would have predicted this even 3 months ago, certainly not the MPC! We can expect base rates to hit 2% and perhaps even 1% by the end of next year with deflation now a greater threat.

This week we have numbers from Vodafone which I will be looking at closely. Any further reduction to guidance from the company will weaken the shares and I may well look to buy some into my CFD portfolio if this happens.

The market last week was broadly unchanged despite some serious volatility and I think volatility is here to stay for some time yet. No one can predict where the market goes from here, but I still think earnings forecasts have to go down by some margin yet and we can expect to see a retest of the lows at some point over the next 3 months.

The cut of 1.5% in the base rate is quite something and is really a case of the MPC playing catch up. It is certainly to be welcomed, but despite the severity of the cut it will take some time for the benefits to the economy to start to flow through. What it almost certainly means is that the interest rate will hit 2.5% or lower.

The market reaction was typical in that there was a quick relief rally followed by a dose of reality check that the reason for the cut is an economy in serious trouble. Today will provide some relief to the retailers although not much I suspect over Christmas given the percentage of people on fixed rate mortgages.

I took advantage of the rally to sell my physical holding of Barclays and I am still sitting on the Next short which is running at a loss.

All eyes on the Bank of England today and the ECB. I think we can safely expect a 0.5% cut from the MPC, with a better than even chance of a 0.75% cut. I think 1% would probably be too much simply from the view point that the MPC will want to have further ammo at the ready. It is more of a psychological view point than anything as realistically rates need to be 2.5% now not in 12 months, but I can't see them changing their ways to dramatic action at this time. The Non Farm Payrolls in the US tomorrow could be a bloodbath. The ADP employment figures in the US yesterday which are a private reading of payrolls had a decline of over 150,000 and I think the read across to the Non Farm figures suggests comfortably over 200,000 month on month which isn't going to be good. Some stats I have been reading suggest that unemployment in the US will rise to 9% by the beginning of 2010, which is awful. I think the market will definitely sell off heavily again as it becomes clear that this will not be an ordinary recession and will be a lot worse than many are still expecting as to when this happens is anyones guess although I suspect the beginning of next year is most likely. There is still a lot of hope factor present with a new President and interest rates being sliced worldwide.

The two sets of ISM data this week have been dire. The Non Manufacturing Index hit 44.4 (against expectations of 47) whilst the manufacturing index announced on Monday fell to 38.9. Of greatest concern are the employment aspects of both indices which point to serious losses and this will have significant implications for the Non Farm Payrolls on Friday which could be a huge number - perhaps over 200,000. I don't think the market is yet to price in what is happening and we are going to be in for a rough ride although I still would not rule out a further rally before the year end as interest rates come down.

I have today closed the CFD holdings in Barclays and Tesco at a nice profit and I am waiting to see where my Next short is going as the shares did go better today on a slightly better than expected trading statement, but I still feel the shares will be heading south as the consumer slowdown gathers momentum.

The market is certainly showing better sentiment and another good US rally today in anticipation of the Presidential vote should mean another good day tomorrow. It is good to see the market rallying and it is possible that there is more to go for. My fear though is that analysts estimates for 2009 still need to come down a lot as the downturn becomes entrenched and profits start to fall. The question is whether valuations at present are generous enough to discount earnings downgrades and with the market rallying well I suspect not and I can't help but feel a final sell off will come before the market is able to make a sustained recovery.

I have today nevertheless started to buy some longer term stocks for my physical portfolio including my first bank in a long time, Barclays. I have also bought Vodafone and some more BT. In the CFD portfolio I bought some Barclays with the aim of taking around 12p out of it and also some more Tesco again with a view of taking around 4-5% out of the share price.

I can almost sense a degree of calm in the markets at the moment, but I am not sure how long this will last. I think at present the focus is on interest rates and after the Fed cut and the prospect of 0.5% cuts in Europe and the UK this week the market is gaining some optimism that we are headed in the right direction. Clearly to prevent a recession we need to see the decline in property prices slow or even come to a standstill. As negative equity becomes more common place it will inevitably provide a serious drag on economic activity over the coming months.

Apart from the central banks meeting we have both sets of ISM data in the US (manufacturing today and non manufacturing on Wednesday and the all important and market moving Non Farm Payrolls on Friday not to mention the small issue of a Presidential election on Tuesday so plenty to keep the market occupied.

I closed out one Next short on Friday at profit and have another running at present. The company issues and IMS on Wednesday and I suspect Marks and Spencer will set the tone tomorrow with their trading statement.

BT on Friday issued a profit warning focused on their Global Operations division where margins have fallen yet again. BT has been a disappointing performer this year and the shares have fallen significantly. The real issue relates to cash flow as the Global Ops division tends to eat up cash especially for early stage contracts and with a chunky dividend and a pension fund deficit to deal with the company will be under real pressure to cut the dividend unless the market rebounds quickly. I do have some physical BT and a small CFD holding which has not gone according to plan, but at current levels it is difficult to see much more downside even if a dividend cut does come. I think they will turn the Global Ops around although a better option would be to sell this division and leave the rump of the business which could be used as a cash cow for dividends and capex for the traditional business.

A GDP figure of -0.3% for the third quarter in the US was a little better than expectations of -0.5% and this helped the Dow to a 189 point gain on the day. This is an encouraging sign and with lots of bad news now being taken a little better by the markets does suggest that we are at least seeing a change in sentiment and perhaps the fear factor is becoming more subdued.

I have taken out a small short in Next today. Whilst the declining interest rate may well help the retail sector as we approach Christmas I do not believe that it will be enough to save the day and I am expecting nerves to set in towards the end of November, beginning of December, and I hope that I will have the opportunity to make money.

The Fed rate was cut another 50bp tonight bringing the rate down to 1%. It is encouraging to see another serious cut and I suspect there is further to go yet although I am not entirely sure it will make a huge amount of difference now to the final outcome. However, it was encouraging to see that the Dow did at least keep the serious gains made yesterday and with the MPC and ECB very likely to cut by 50bp each over the coming weeks we will at least see equities looking increasingly undervalued when viewed on a yield basis. For example, Aviva as of yesterday was on a prospective yield of 15% which is likely to be the true figure if the market doesn't lose another 20% or so. Whilst no one knows if this will happen, even a 50% cut would leave a generous payout and this is clearly one of the reasons for the serious buying in the stock today which climbed back over the £3 level. I think further rate cuts should start to make investors focus more on the available yields out there which are going to look increasingly attractive even in an environment where there will be risk of cuts to payouts.

I mentioned a while back about the bottoming out process for a market and whilst it is far too early to suggest that the UK is finding a base, there are some encouraging signs given that it has bounced around the 3,700 to 4,200 level. The next couple of trading days will be very interesting.

I sold the Vodafone today for a nice profit at £1.168 and will be looking to see where the market is going before making the next move on my CFD account. I think if we do see the market making further progress I may look to open a short in Next where I think there are still some very difficult days to come as we approach the key Christmas selling period.