Brexit Extension and China Watch

The S&P500 has hit new all time high of 3041, while the DOW30 is 200 pts away from its own record. All indications suggest the EU will extend the Brexit deadline to January 31 and that will put the focus back on Westminster on later today. GBP is the day's best perfomer as cable hits 1.2877. Signals from a high level political meeting in China this week could have long-term implications. This week's major events include: Johnson's efforts to call for an election, FOMC meeting, BoJ meeting, China political meeting & US jobs report.

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France has been grandstanding about blocking the Brexit extension but Macron now appears to have relented. A draft declaration cited by reporters extends the deadline to Jan 31 but includes a provision allowing the UK to leave Nov 30 or Dec 31 if both sides ratify the deal.The EU meeting will take place shortly before a planned vote in UK parliament to force a December election. That effort appears as though it will fall short of the necessary two-thirds majority.

If it all unfolds as expected, we will find out if Johnson will redouble efforts to get a deal in November or continue to push for an election. A deal push would be more-positive for the pound.

On the weekend, data showed the extent of the slowdown in the Chinese economy. Industrial profits were down 5.3% y/y in September, an acceleration from -2.0% in August.

Reports on Friday indicated that the text of the US-China deal is largely done but that some US officials are pushing for tougher language in IP. This week, risks may be on Beijing's side with the annual four—day meeting of the Central Committee underway today. This is largely a political meeting and a draft communique focused on casting the Chinese political system as meritocratic and fostering ideological innovation. That sounds like it's more of a defensive posture and it's a closed door meeting but any shifts on trade or the economy afterwards could have far-reaching effects.

The weekend surge in cryptocurrencies has been  attribute to Beijing's backing of more govt investments in Blockchain technology.

CFTC Commitments of Traders

EUR -51K vs -75K prior GBP -52K vs -73K prior JPY -18K vs +7K prior CHF -11K vs -13K prior CAD +33K vs +13K prior AUD -48K vs -48K prior NZD -40K vs -40K prior

Pound shorts had been stubbornly hanging in over the past two weeks but cracks are beginning to show. Still, there is plenty of space for a squeeze. The other standout is the contrast between the Canadian dollar and the antipodeans. It's tough for them to diverge for any significant period of time.