Merger talk once again as BA and Iberia finally walk down the aisle. Cost savings are expected to be in the region of £400m but these might be difficult to achieve in an era of high (and rising) unemployment. We can expect fierce resistance from the unions to any cost saving package and, while the deal will probably go through (as any savings will be welcomed at this stage), it must be remembered that this deal which was first mooted from a position of strength for both parties is now finally consummated in an era of weakness.

The FTSE is looking to come in unchanged on the close last night after the US experienced some minor weakness through the afternoon and evening session. While the FTSE still struggles to make it above 5300 dealers will continue to look to the high 5200’s as a selling opportunity but the signals are now turning inexorably into the green for go range and more and more investors are finally putting a toe in the water. Yesterday’s announcement that even AGA had turned back into a profit must be seen as a positive indication as their ubiquitous product definitely comes under the heading of expensive and unnecessary luxury (although I must admit to being a fan).

The economy continues to show a two tier recovery though with some sectors (mainly manufacturing but incorporating some areas of recreation and services) still suffering badly while others (financial, mining and pharmaceutical) are storming away. The highest October retail sales for years were also a welcome boost and with the seasonal Christmas boost still to come there are reasonable hopes for a festive success for hard pressed high streets.

Having attained the 5300 highs again the FTSE has spent the last four days in a very tight trading range with the lows around 5230 and the highs at 5300. It must be admitted that today is not starting out looking much like changing things either. GDP numbers from Europe have come in slightly worse than expected but still on the right side of the gain line. This brings in the question about the strength of any recovery for the whole European region per se and whether the stimuli already announced and enacted will do much more than just keep us bouncing along the bottom rather than roaring away into a bright new future. We need growth in the 2pc region to start creating jobs and this looks as far away as ever just at the moment.

The Dow has drifted away from its new highs in the last couple of sessions but encouragingly has shown no signs whatsoever of returning below the old October 10140 highs. Unfortunately (and there is always a but in any argument) the S&P 500 is not joining in the general jollity and is continually failing to break above (and hold onto) any foothold above 1100.0. Should we continue to batter away at this level and then have some form of pull back some dealers will start to talk about double top formations.

Dollar weakness continues to mean strength in the equity markets and this morning is no different with a small bounce in the Euro vs the Greenback reversing the early morning weakness. The strength in the dollar yesterday sent Gold and Oil into sharp reverse but the overall buying remains in place.

Oil yet again bounced off the 76.50 level and the $77 to $80 dollar range is now becoming almost embarrassingly easy to trade. (famous last words!) having traversed the whole range no less than eight times in the last four weeks. Punters have been quick to identify the possibility and have moved from short over the last few days to long overnight. The increasing strength in data does not seem to be translating (just yet) into more demand for the black stuff and while ‘peak oil’ is a phrase on everyone’s lips it must be said that production from many parts of the globe are currently artificially constrained. Producers seem willing to turn on the taps above 75 bucks (as a sort of ‘profitable commitment’ to world growth). While everyone blamed the financial institutions for the collapse in the global economy the impact of $147 a barrel oil was not exactly a helpful factor.

Currency markets continue to two and fro with the Pound bouncing up and down under the influence of rating agency ponderings over the AAA rating of Gilts. Fitches fear that the UK is the worst placed for a downgrade while S&P have actually placed us on downward watch. The cost to the UK of a cut from AAA to AA would be considerable in increased borrowing costs and the reality is that credit rates have a nasty inclination to exacerbate problems.

Downgrading credit rating means increased borrowing cost which means that more of your economic output goes towards paying interest which can cause a worsening credit rating which means increased borrowing costs etc etc… If a country starts to go down this spiral the momentum can be very difficult to brake.

At the moment traders and investors seem sanguine as to the risks as the general opinion is that our political masters will grasp the public sector spending nettle after the next election (still eight months away). But any incoming administration (assuming it is not Labour but this is still a big assumption) will need some time to get to grips with the situation before making decisions. We might be looking at almost a year before any significant decisions are made. Quite a few bad things could happen before then.