Dow Joins SPX Record, Asia Fault Lines Sharpen

The ASEAN summit in Thailand isn't going to get the headlines it deserves but 16 south east Asian nations agreed to the text of massive trade deal in an area that will be at the heart of the trade war. DOW30 joins SPX500 to to new highs a, helped by Chevron and Intel, while Friday's US jobs reports maintained the goldilock thesis for the economy and interest rates. Comments from US officials that Chinese firms would be granted licences to purchase from the US helped sentiment, but a formal announcement has yet to be made. CFTC positioning showed dollar net longs at the narrowest since June 2018 and GBP net shorts tumbled by the biggest percentage in 5 months. Markets turn to Christine Lagarde's first official speech in her capacity as ECB president at 17:30 London time.

Click To Enlarge

South east Asia is where the trade war will be fought and China made a major advance on the weekend as the group concluded the text of a market access deal called RCEP. A telling moment came in a meeting with Chinese Premier Li and Australian PM Morrison. Australia's finance minister recently had harsh criticism about Chinese human rights and Australia also accused China of cyber espionage on its parliament and three largest political parties. Yet both sides were all smiles.

China has been increasingly retributive in the face of criticism but for Australia, it turned the other cheek. China also agreed to a new comprehensive free trade agreement with New Zealand. It's all part of a push to shore up trade ties in the Indo-Pacific.

The US is undoubtedly watching. Indices were alse helped by comments from US Commerce Sec Wilbur Ross that licenses for US companies to sell to Huawei were expected 'shortly'.

After the conclusion of the talks, Trump invited ASEAN leaders to the US for a summit. At the moment, the market is cheering a US-China trade truce. In the short-term that's likely to continue as risk assets break out and USD/CHF falls to a two-and-a-half month low. The sense right now is that the truce will last until the US election.

In the bigger picture, both sides are angling for a long-term economic battle and south east Asia is the area to watch as the US pits its military, cultural and historal power against China's geographic and economic advantages.

If countries like Australia and New Zealand can parlay their importance into better trade deals and open market access to both countries, they will be the winners. That could come crashing down if they're forced to choose sides.

CFTC Commitments of Traders

EUR -53K vs -51K prior GBP -32K vs -52K prior JPY -20K vs -18K prior CHF -12K vs -11K prior CAD +44K vs +33K prior AUD -40K vs -48K prior NZD -40K vs -40K prior

The fall in cable shorts was the story even though the pound was virtually unchanged during the week ending Tuesday. That said, heading to the sidelines during any highly-charged election is prudent. If/when there are inevitable polling blips, there will be outsized reactions. It's tough to get an edge in that situation. At the same time, the fall in shorts may also reflect a collective belief that on Dec 13, Conservatives will wake up with a stronger majority.

The other notable change is the rise in CAD longs. Again, it demonstrates the importance of politics today. The rise in longs comes after the fog was lifted on the election and left what looks to be a stable minority for Trudeau.

In the bigger picture, the overall USD net long is now at the narrowest since June 2018.