Amidst all the excitement around yesterday’s EU, UK Brexit deal it was easy to forget that the US and China are also trying to settle their own differences, at a time when China’s economy is showing a lot more stresses than the US economy.

 

This morning’s latest China data has merely served to reinforce the importance of trying to advance the progress of some form of limited trade deal after China Q3 GDP came in at 6%, below expectations of 6.1%.

 

There was a significant improvement in industrial production in September, from 4.4% in August to 5.8%, while retail sales came in at 7.8%, up from 7.5% in August, however both readings appear to show an economy that is struggling to generate demand on a domestic level, despite recent easing measures.

US markets managed to finish yesterday’s session on the front foot, helped by some decent earnings reports, even as European markets were trying to grapple with whether yesterday’s Brexit deal might herald the end of a long drawn out chapter, and the start of a new one.

Despite the optimism surrounding yesterday’s Brexit deal there still remain a number of key obstacles to its passage through the UK parliament, namely the current arithmetic, which saw Theresa May’s deal get voted down three times, and she at least had a majority.

Her successor Boris Johnson doesn’t have that luxury, which means that he is likely to struggle even more, given that the Democratic Unionists have said they will vote against the deal. This is because it doesn’t satisfy all of their requirements around consent, particularly around the lack of a veto, but this was never likely to fly in any case.

The maximum number of votes Theresa May got for her deal was 287, and she needed 320 to get the deal passed, as will Boris Johnson on Saturday. That’s the size of the task facing the PM..

European Commission President Jean Claude Juncker’s assertion that there would be no prolongation or extension to the 31st October deadline, as the UK has a deal is likely to be seen as an attempt to make MPs think twice about voting it down, in terms of making it a binary choice when it comes to a parliamentary vote, meaning that it is this deal, or no deal.

As with everything Brexit related it is unlikely to be as cut and dried as that, but if MPs do vote it down there may well be attempts to amend it, or attach referendum conditions to it.

If the bill is rejected then there is likely to be a gap of several days where an extension is applied for before being considered and/or granted. While President Juncker has stated that no prolongation is necessary, other EU leaders might well have other ideas, with some already breaking ranks saying that they wouldn’t oppose a request for an extension.

This might suggest that the pound and euro could move quite sharply in the days leading up the end of next week.

As far as the Benn Act is concerned the question now is whether the Prime Minister can be compelled to apply for an extension given that he did bring a deal to the House of Commons to vote on, as he was required to do so. Is it his problem if MPs then throw it out?

After all these are the same MPs who were opposed to leaving without a deal. There is now a deal on the table, which is precisely what they asked for.

In terms of the pound markets appear to be pricing in one of two scenarios, one being that the deal is passed by a narrow majority, and we go trade talks on 1st November, or two that the deal is rejected, and that after a delay an extension is granted.

In a sense this could be seen as a win, win for Mr Johnson. If MPs pass the deal, he gets to negotiate the next stage and if he is defeated, he can point to MPs as being wreckers and that they have once again thwarted his plans to push a deal through. He could then run an election campaign on this basis. There are some who might suggest that has been his plan all along which is why he decided to go without the DUP, knowing full well that the bill would fail to get passed.

EURUSD – gradually moving higher and away from the 50 day MA towards the 1.1200 area. Intraday trend line support from the lows this month comes in at the 1.1025 area, and below that at the 1.0920 area.

GBPUSD – moved up to 1.2990 before slipping back. The 1.3000 area is a big barrier to further gains. The pound looks well supported while above the 200 day MA, currently at the 1.2710 area, as well as the 1.2500 area.

EURGBP – once again briefly dipped below the 0.8600 area, before rebounding from 0.8572. This appears to be containing the downside for now, however the lows this year at 0.8415 remain a realistic prospect. Pullbacks need to stay below the 0.8715/20 area for further losses to unfold.

USDJPY – the 200-day MA and the 109.20/30 area appears to be capping gains for now. Support comes in at the 107.50 area, as well as the lows this month at 106.50.

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