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The FTSE is currently indicating a very weak opening, as the global equity sell off continues. Traders are pinning their hopes on the UK retail sales numbers, while analysts are expecting a year over year growth of 1.4%; the numbers could come out higher. While this could be good news for the retail stores, we don't believe that it will have enough affect to get the FTSE back into the green.

Oil prices continue to crumble with no end in sight, as world wide demand for oil and its by products evaporates. Analysts are now expecting oil to fall another 25%, even after taking into account that OPEC will cut an additional 2.5 million barrels a day before the year end. Oil is currently trading around the 53 dollars per barrel mark and will probably reach the 50 dollars mark by Friday.

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The FTSE is currently indicating a flat open, as traders stay out of the market until the release of Bank of England's minutes from their last meeting. Traders are hoping that the BOE has left the door open to another rate cut, as the crumbling economy needs even more help from the government. The tone of the day depends on how favorable the minutes are.

After spiking on the news of the hijacked vessel, oil is back to trading below the 55 dollars per barrel mark. Analysts anticipate another week of inventory growing in the US. This could send oil prices tumbling even more, possibly touching the 50 dollars per barrel mark. The inventory data will be released at 10.35am EST.

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World stock markets took another tumble last week with the major US indices penetrating the October lows intraday. The FTSE finished the week down around 4%, but it was UK plc that took a battering. The Pound fell to record lows against the European single currency, even breaking through the synthetic Euro/ Deutsche Mark lows from 1996.The week’s action was all the more damning considering the Eurozone’s admission that it too is in a recession. The Euro managed to end the slightly down against the dollar, but the pound plunged through the 1.5000 level for the first time since 2002. However there is still some way to go before the low of 1.3685 from 2001 is breached.

Financials were amongst the worst performing companies as Libor broke its 23 day decline. 3 month Libor increased to 2.15% and overnight Libor also pushed higher. The main catalyst was Paulson's announcements of changes to the Troubled Asset Relief Program. As this originally was seen as getting to the heart of the matter in terms of offloading toxic assets, investors are confused as to what this means for future prospects for financial firms in the US. In the US, the insurance giant AIG had its earnings estimates cut, as did Wells Fargo. Much worse are the rumours that Fannie May may have to tap into US government cash to avoid liquidation. Previously unaffected stocks such as HSBC were also down hard after poor results, and there was speculation that it too may need to follow Santander's lead in raising money through a rights issue. Until very recently HSBC and Santander were seen as being at arm’s length to the current crisis due to their relatively low exposure to the US housing market. However, with news of the UK property crash worsening and Asian markets faltering, HSBC is coming under increasing pressure.

More than anything market participants hate confusion or indecision, with the common reaction being "if in doubt, get out". This is reflected in the performance of financial shares across the globe. Even when the wider market attempted a rally, financials were weighing on sentiment, like a ship trying to sail with its anchor still deployed.

Although last week’s UK unemployment data and sales projections from various companies fell below consensus, European markets didn’t revisit the October lows and US markets managed to rally from beneath them . Despite the economic outlook arguably looking bleaker than it did just two weeks ago, markets haven’t capitulated. The optimistic interpretation of this scenario is that the bad news is starting to be priced in by the stock market. As markets are forward looking by at least 6 months, they could be discounting the slowdown that virtually everyone is predicting, and are looking for what happens after that.

The pessimistic interpretation of the current scenario is that markets are as over optimistic now as they were a couple of months ago. The default reaction to any impending disaster is in most cases denial then panic. The pessimist would argue that investors are still too optimistic about company’s future growth prospects, and so further falls are likely. The reality is that markets are flipping from optimism to pessimism almost by the hour and remain entrenched in a choppy mess. After repeated failed rallies over the last few weeks, the bulls would be forgiven for giving up the ghost.

The coming week kicks off with some middle tier US industrial production figures and Treasury secretary speaking late on Monday evening. On Tuesday there is a raft of UK and US inflation numbers followed by Fed chairman Bernanke testifying as US markets open. Wednesday sees the release of the last MPC meeting minutes and with Gordon Brown calling for further rate cuts, these minutes will be poured over closely for hints of future decisions. Later that evening the FOMC release the minutes from their last meeting and although many argue they are done for now, Wall Street is still calling for more cuts.

There have been many comparisons between current market action and the great depression of the 1930s, and in many ways these comparisons are valid. The last time markets were as choppy as they are today was indeed the 1930s. The world is a very different place to how it was 70-80 years ago, but the current extremes we’re seeing point back to this period as being a strong likeness. According to Rob Hannah of Quantifiable Edges, the stock market only recovered from this decade long malaise, once it switched from chop mode to trending mode. If a long period of chop is the worst we experience over the next few months, even years, although frustrating, there may be worse things that could happen. Ironically, a smooth decline which bottoms out to form a smooth rally may be the real harbinger of a recovery. This may be a moot point as we are still far from seeing smooth rallies or smooth declines.

Potentially more positive signs were pointed out by Jason Goepfert of SentimentTrader, who noted that until this week the S&P 500 has never swung up 5% one day then 4% down the next. This has happened three times on the Dow Jones, all dates between 1929 and 1932. None of them marked a low, but were within a week or so of one. Barry Rithholtz also noted that market bottoms are rarely completed without multiple retests of prior lows. This is arguably what we were seeing last week. While there is considerable risk of further selling, at least with fixed odds trading our risk is limited to our stake.

Therefore a Bull bet, which predicts that the market will be higher than a certain level in the future could offer an attractive risk reward. A bull bet predicting that the Dow Jones (Wall Street) will be higher than 9000 in 9 days time could return 187 at BetOnMarkets.

The FTSE currently indicates a flat opening, as comments from David Blanckflower, policy maker for Bank of England, hit the wire regarding an impending rate cut in UK. The main concern is if the BOE were to slash rates drastically, it could possibly result in a case of hyperinflation. However if no interest relief is offered UK could face the prospect of a relatively deep and long-lasting recession. After scanning the indicated opening prices of the major European equity markets, there is a strong chance that the FTSE will be in positive territory at the opening.

Commodities got a boost last night, as the value of the US dollar took a hit. Oil jumped 4 dollars per barrel, as traders are hoping that cheaper credit will jump start the economy and increase demand. Gold gained on after the rate cut, as investors are yet again running for the safe haven of precious metals, amid uncertainty in the US credit markets.

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 In the afternoon traders will be paying attention to the US consumer confidence report, which could have the possibility to lift the world wide equity markets out of the recent funk.

Oil has hit a 17 month low, on speculations that the global financial crisis may slash fuel demand. Oil is down more then 56% since its July 11th peak and it seems that prices are heading lower after OPEC cut oil demand projections for 2009. It seems that the traders that used oil as a hedge against the US economy are now feeling the pain having overlooked the fact that with the world being interconnected, a slowdown in US means a slowdown everywhere else. 

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