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BERLIN (MNI) – German Chancellor Angela Merkel’s center-right
CDU/CSU-FDP coalition scored a crucial victory in Wednesday’s election
for the German Presidency.

Their candidate, Christian Wulff, the state premier of Lower
Saxony, won the majority in the Federal convention in the third round of
voting — where a plurality of votes sufficed. In the first two rounds
none of the candidates received the necessary absolute majority.

The German President, who has a principally ceremonial role, is
elected by parliamentarians from the federal and the state governments
in the so-called Federal Convention.

In the third round, Wulff scored 625 out of the 1244 votes. That
means, again, not all of the 644 members from the ruling coalition voted
for Wulff. In the first round Wulff got only 600 votes and in the second
round 615.

The candidate of the center-left SPD and the ecologist Greens,
Joachim Gauck, scored 494 votes in the final round. The opposition had
named the prominent conservative in the hope of winning some votes from
the CDU/CSU-FDP coalition.

The post communist Left Party withdrew their own candidate Luc
Jochimsen in the third round but a majority of their delegates still did
not back Gauck and rather abstained from voting.

A defeat of Wulff would have been a severe blow to Merkel’s
up-to-now rather unfortunate center-right CDU/CSU-FDP government
coalition.

Ever since forming the government last autumn, the three coalition
parties have been arguing publicly among themselves on a wide array of
topics ranging from tax cuts to health sector reform.

A key problem has been that the coalition contract was agreed upon
hastily last autumn and several contentious issues have only been
papered over.

Opposition politicians argued today that Merkel’s standing had been
further damaged because she had not been able to close the ranks behind
Wulff in the first two rounds of voting.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

[TOPICS: MT$$$$,M$G$$$,M$X$$$,MGX$$$]

It took three ballots in the parliament, but Merkel got her man through. A failure to get her preferred candidate in place would have been a major show of weakness for the embattled Chancellor.

This was one of those asymmetric risks: No upside for the euro if she gets her way, probable modest downside pressure if she failed…

One of the secret agent men just skipped bail...

–Senate Banking Chief Expects Senate To Take Up Bill Week of July 12
–Sen Dodd: If Reg Reform Fails, New Effort Won’t Occur For ‘Generation’
–House Moves To Reg Reform Vote In Late Afternoon or Early Evening

By John Shaw

WASHINGTON (MNI) – As the House moved toward a late Wednesday
afternoon vote on financial regulatory reform legislation, Senate
Banking Committee Chairman Chris Dodd urged senators to approve the same
bill when the upper chamber returns from its Fourth of July recess.

In a speech on the Senate floor, Dodd said that he expects the
Senate to take up the sweeping financial regulatory reform bill the week
of July 12th, arguing that it is critical that legislation passes.

“Now is the time to act,” Dodd said.

In a lengthy statement, Dodd traced what he called “this rather
long journey” to craft a regulatory reform bill, adding that if this
package is defeated Congress will not revisit this issue “for a
generation.”

Dodd said the financial crisis of 2008 provided a powerful impetus
for Congress to reassess the nation’s financial regulatory structure.

“The crisis gave us an opportunity to respond,” Dodd said.

The Senate Banking chief called the bill a “truly inclusive and
collective effort” and cited the work of Republicans who helped draft
the bill.

“This is a complicated piece of legislation,” Dodd said. He said
its provisions related to systemic risk monitoring, resolution
authority, regulation of over-the-counter derivatives and hedge funds
and expanded transparency at the Federal Reserve Board are the bill’s
most significant.

The House passed earlier today a rule that allows for the lower
chamber to consider the regulatory reform bill later today. It is now
debating a rule that would allow for a two-hour debate on the package.

The House is likely to vote on the bill in the late afternoon
Wednesday or early evening.

The underlying bill would create a council of regulators to monitor
the economy for systemic threats. It would institute new regulations on
hedge funds and OTC derivatives and creates a Bureau of Consumer
Financial Protection that will oversee mortgages, credit cards and other
credit products.

The bill provides for expanded regular audits of the Federal
Reserve by the Government Accountability Act. It includes a variation of
the Volcker rule, banning banks from proprietary trading and limiting
them from investing in or sponsoring hedge funds and private equity
funds.

It limits bank investments in private equity or hedge funds to 3%
of a fund’s capital. Total investment in private equity and hedge funds
can’t exceed 3% of a company’s tangible common equity.

The bill would push most OTC derivatives through third party
clearinghouses and onto exchanges or electronic trading systems. It
would force banks to push some of their swaps trading into subsidiaries.

Under the bill, banks will be allowed to keep their derivative
trading operations as long as they are used to hedge risk or trade
interest rates or foreign exchange swaps.

The bill will give federally insured banks up to two years to send
instruments such as uncleared credit default swaps off to a separately
capitalized subsidiary.

While it will only require a majority vote in the House and Senate
to pass, Senate supporters will have to secure 60 votes to cut off the
debate in the upper chamber.

** Market News International Washington Bureau: (202) 371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$]

Have I ever written that headline before?  (Yes, 227 times since February…)

But there you have it. Stocks are back near break even and EUR/USD is lower in its range, now at 1.2245. Traders see small buying from US real money accounts while noting UK selling. (Maybe they’re lightening up on all that EUR/GBP bought earlier…)

By Steven K. Beckner

He went on to note that “there are sectors that remain in a very
depressed condition-housing, for example.” Indeed, he said “recent
numbers suggest a sharp slowdown of residential real estate market
activity with the expiration of the homebuyer tax credit.”

Lockhart called near 10%, “stubbornly high” unemployment “the most
sobering aspect of current economic reality.”

He said “the past few weeks … have seen a slight retrenchment
from the mind-set of optimism and growing confidence that prevailed
earlier in the year.”

Not only have the data been more discouraging, he said, but there
is a “heightened sense of uncertainty and risk surrounding the outlook.”

Lockhart said the “cone of uncertainty” which firms project forward
in making their forecasts and plans has recently “splayed wider.” He
blamed four factors, starting with the European sovereign debt crisis
and the liquidity pressures it has put on European banks.

“Our financial system here in the United States has rather small
and manageable direct exposure to the Greek government and the other
sovereign borrowers,” he said. “But as the situation has evolved,
exposure to European banks as well as foreign and local corporations in
the affected countries has complicated the estimation of risk.”

“The concern is that continuing and possibly escalating financial
market pressures will be transmitted through interconnected banking and
capital markets to our economy,” he continued. “There is also the
potential effect on our export markets of a stronger dollar and weaker
European economies.”

Fiscal tightening by state and local governments is “a second
source of uncertainty,” he said, estimating a $144 billion collective
budget gap that will need to be closed by “spending less and taxing
more.”

Lockhart said commercial real estate remains a third source of
uncertainty.

“Banks across the country, especially small and regional banks, are
heavily exposed to the commercial property sector and face a heavy
docket of loan restructurings that may require sizable write-downs…,”
he said. “Views vary on how severe a problem is developing and whether
it will require an organized comprehensive resolution effort to avoid
widespread damage to the economy.”

Finally, Lockhart cited the oil spill. Although its impact has so
far “been mostly local and regional,” he said it presents “two main risk
factors for the national economy-the impact on energy supplies and
transportation.”

“The economic effect at the national level has been limited,” he
said. “I’m prepared to believe, however, that this relentless
environmental disaster is an additional factor holding back consumer and
business confidence. The spill disheartens us all and, I believe, makes
the public a little more reticent to assume a smooth recovery path.”

Meanwhile, Lockhart downplayed inflation risks even more than he
has in the past, seeming to elevate the possibility of deflation, or at
least intensified disinflation.

“(N)o matter the measure, it’s difficult to discern much
broad-based price pressure today,” he said. “Recent retail price trends
have evidenced further disinflation, the intermediate condition between
rising inflation and deflation.”

“Commodity prices have fluctuated up and down in response to global
supply and demand, but again it’s hard to interpret the rise of some
commodity prices as a broad-spectrum, one-directional phenomenon,” he
said.

Lockhart also said “the measures we have of forward-looking
inflation expectations are stable and relatively low. Surveys of
households about their inflation concerns have shown little upward-or,
for that matter, downward-tendency over the past few years. Inflation
predictions that are priced into some government bonds also don’t seem
to signal a problem.”

He said “very few firms have much in the way of pricing power in
the current economy” due to “the weight of excess capacity … . (B)oth
the hard data and the consensus of the Atlanta Fed directors and many
other business contacts point to considerable slack at work.” Although
percent of capacity use in manufacturing has risen, “the current share
is quite low and still about 8 percentage points under pre-recession
levels.”

Meanwhile, he said “the high level of unemployment has limited
workers’ negotiating power.”

“To sum up, I don’t see inflation as much of a current worry,” he
continued. “If anything, there is a small risk of deflation that must be
monitored.”

“Limited inflation allows focused attention to recovery and
growth,” he added.

(2 of 2)

** Market News International **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$CR$,MT$$$$,M$$BR$]

By Steven K. Beckner

(MNI) – Reflecting a generalized shift toward greater Federal
Reserve concern and caution, Atlanta Federal Reserve Bank President
Dennis Lockhart said Wednesday that a recent “downshift” in economic
growth and disinflationary forces have made him “even more convinced”
that the Fed’s accommodative monetary policy stance is “appropriate.”

Lockhart said the Fed needs to exercise “caution” and “patience” in
the face of what he called a “heightened sense of uncertainty and risk
surrounding the outlook.”

He said the lack of wage-price pressures enables the Fed to focus
primarily on promoting growth and jobs.

Lockhart said the European debt crisis and the Gulf oil spill,
along with other factors, have exerted a dampening effect on growth,
which he said had already decelerated after a burst of “pent-up demand”
carrying over from the recession.

In remarks prepared for delivery to the Rotary Club of Baton Rouge,
Louisiana, he also warned that what growth forces there are could prove
“transitory.”

Though not a voting member of the Fed’s policymaking Federal Open
Market Committee, Lockhart’s comments reflect those made both publicly
and privately since the FOMC met last Tuesday and Wednesday.

The FOMC concluded that meeting by reaffirming its zero to 25 basis
point federal funds rate target and its expectation that the funds rate
will stay “exceptionally low … for an extended period.” In explaining
its decision, the Fed not only reiterated its concern about weak labor
markets, but announced that “Financial conditions have become less
supportive of economic growth on balance, largely reflecting
developments abroad. Bank lending has continued to contract in recent
months.”

Though Kansas City Fed President Thomas Hoenig dissented again,
other officials are known to be less inclined than ever to end that
extended period. And that was the drift of Lockhart’s comments.

“(A) recovery of the national economy is proceeding but not yet
with solid and sustainable underpinnings,” he said. “Inflation appears
restrained. The outlook from here is beset by somewhat more than normal
uncertainty.”

Lockhart said “there is a chance of overachieving forecasts of
moderate growth and gradual reduction of unemployment, but at the same
time there are notable risks.”

“In my view, these circumstances suggest caution in moving away
from policies designed to give the economy the best possible prospect of
recovery with full employment,” he concluded. “Adjustment of monetary
policy will be needed eventually, but this is not the time.”

“Recent developments make me even more convinced that current
policy is appropriate,” Lockhart went on. “Financial markets and many
businesses are more nervous today than a few weeks and months ago, and
it’s my view that monetary policymakers should hold to a guarded policy
stance and evaluate carefully the risk and reward of a change of
policy.”

“Normalization of interest rate policy and the size and composition
of the Fed’s balance sheet is much desired, but I believe conditions at
this moment call for patience,” he added.

Lockhart said the recovery is proceeding and anticipated it will
continue at a “modest” pace with “gradual” reduction in unemployment.
However, the overall tone of his remarks was distinctly gloomy.

“The central question is whether the recovery that is now well
under way will be sustained or will falter, resulting in a slowdown or
even a second recession-the so-called double dip,” he said.

After growing nearly 4% in the second half of last year, Lockhart
observed that “the economy has apparently downshifted a bit in the first
half of 2010″ to about 3%. He pointed to the downward revision to first
quarter GDP growth to 2.7%.

Lockhart said “stimulus spending is still at work but is much less
forceful in 2010 compared with 2009.” He said that rising consumer
spending “represented pent-up demand coming out of recession” and has
given way to a “pause” which he said “reflects the return of a more
cautious attitude influenced by stock market gyrations and other
worrisome developments, even including the oil spill.”

He said strong business spending on equipment and software also
reflected “pent-up demand following deferrals in 2009 when so many
businesses put a stop on everything but essential spending.”

Though manufacturing production has risen 8% over the past year,
Lockhart said it has been “devoid of much progress on unemployment” as
firms boosted productivity.

“Employers have increased hours of work recently but have been
hesitant to hire,” he said. “Businesses are making every effort to
squeeze as much production as possible out of their downsized
workforces.”

Lockhart summed up the ingredients of GDP rather pessimistically:
“Here’s a key point about these contributors to recovery-each could be
transitory. The economy has not yet arrived at a state where healthy and
sustainable final demand is underpinning growth.”

-more- (1 of 2)

** Market News International **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$CR$,MT$$$$,M$$BR$]

Atlanta Fed’s Lockhart downplays the need for further quantitative ease but says but he would never rule out the policy option completely. No specific planning for a deflationary scenario is occurring, he says.

A little late to the party, no?

Fitch cut their rating a month ago and S&P cut a month before that.

Moody’s blames deteriorating economic prospects for the review? What was their first clue? No wonder S&P put Moody’s on review for a downgrade earlier today. A cut could be one, or at most, two notches, Moody’s says.

EUR/USD dipped to 1.2240 on the headline and now trades at 1.2252.

BERLIN (MNI) – Germany’s post-communist Left party on Wednesday
said a majority of its 124 delegates will abstain from voting in the
third round of the Presidential election and not back the candidate of
the center-left SPD and the ecologist Greens, Joachim Gauck.

This makes it likely that the candidate of Chancellor Angela
Merkel’s center-right CDU/CSU-FDP coalition, Christian Wulff, will
emerge as the winner in the race for the presidency.

The German President, who has a principally ceremonial role, is
elected by 1,244 parliamentarians from the federal and the state
governments in the so-called Federal Convention.

Wulff could not muster an absolute majority in the first two rounds
of voting today. In the third round a plurality of votes suffices. Wulff
scored 600 votes in the first round and 615 votes in the second, meaning
that in both instances not all of the 644 members from the ruling
coalition voted for him.

Gauck, scored 499 votes in the first round and 490 in the second.
The opposition had named the prominent conservative in the hope of
winning some votes from the CDU/CSU-FDP coalition.

The Left party’s candidate Luc Jochimsen mustered 126 votes in the
first round and 123 in the second. The Left party has announced that it
will withdraw Jochimsen in the third round.

The withdrawal of their candidate and their abstention in the third
round means it is highly likely that Wulff will win the needed
plurality.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

[TOPICS: MT$$$$,M$G$$$,M$X$$$,MGX$$$]

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