• EU summit exceeds expectations.
• U.S. personal income rises 0.2% spending flat .
• Michigan consumer sentiment index falls to 73.2 from 74.1
• Chicago PMI at 52.9% better than expected
• European stocks close on the highs ,up 4.2% to 6.6%
• Fed’s Dudley: FOMC will act again if need .
• IMF “strongly welcomes decisions by the EU council”.
• Merkel : Direct ESM recapitalization could take a year .
• Merkel: We stand by the Euro, our stable currency.
• Merkel: Bailout assistance tied to conditionality.
• ECB’s Asmussen: EU summit wasn’t a showdown against Merkel .
• Asmussen: ESM can only fund banks directly once supervision is established (decision by year end).
• Asmussen: Joint euro bonds would make monetary policy much easier ,BUT only if fiscal controls are in place. Reminds market ESM can’t lend to banks yet.
• German Parliment holding it’s vote on a permanent euro zone bailout and budget rules . Both parties expect passage later tonight of ESM despite new elements .
• German Parliment approves fiscal pact as expected,wins two-thirds majority.
• Fed’s Bullard : “To get QE3 would need to see a sharp drop in economy: deflation risk. Doesn’t see this happening.
• S&P 500 up 2.49%
• U.S. 10-yr.Bond yield up 0.7bp to 1.6518%
• Gold at 1,598.10 up $ 45.48
• WTI at 84.78 up $ 7.08

NY market woke up to an EU summit surprise rally (Asia seeing the move in the euro over 1.2600). Buyers immediately surfaced in NY at 1.2580 ish  sending the EUR another big figure higher to 1.2692. All other currencies followed suit making new highs ( Usd/JPY being the exception now closing near resistance level of 80.00). GBP above 1.5700, USD/CHF .9459, USD/CAD 1.0162,and AUD at 1.0256 all recent highs before backing off the rest of the day in slow trade. Profit taking and players licking their wounds  from stop losses kept it a quiet afternoon session.  Euro closing around the 1.2650/55 level , GBP at 1.5665/70 ,  USD/CHF at94.95/99 .AUD at 1.0230/35 , USD/CAD at 1.0183/88 and last but not least USD/JPY at 79.90/95. Have a good weekend.

BERLIN (MNI) – Germany’s lower house of parliament, the Bundestag,
Friday approved with a large majority the bills on the European
permanent bailout fund ESM and the EU fiscal compact.

The bills reached the two-thirds majority necessary for
ratification. All parliamentary groups voted for the bills, with only
the post-communist Left party voting against.

Later this evening, the upper house, the Bundesrat, representing
the 16 states, will vote on the bills. A broad majority is assured there
as well.

Yet it likely will still take several weeks before the bills become
law. President Joachim Gauck said last week he planned to delay
signing the bills.

The Constitutional Court had asked him to wait until it had decided
on requests for preliminary injunctions that have been filed against the
two bills, Gauck said.

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

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

Futures traders added to their  EUR short positions in the most recent data. The short grew from 141,000 contracts to nearly 160,000 in the latest data, just released.

Betcha that number is MUCH smaller next week after the Friday stop-fest.

EUR/USD doesn’t even quiver, steady at 1.2656.

Passed with 2/3rds majority, Bloomberg reports.

One last event risk to pass the remainder of the session.

Friday afternoon, month-end…put a fork in it…

Nonetheless, there are still hundreds of you hanging around the site.

If we all got together I would suspect it would look like the bar scene from Star Wars.

–Congress Passes Compromise Package, Obama Expected To Sign
–House Approves Bill on 372 to 52 Vote; Senate Passes Vote 74 To 19

By John Shaw

WASHINGTON (MNI) – The House and Senate voted Friday to approve a
legislative package that includes an agreement on both surface
transportation and student loan measures.

Voting first, the House approved the package on a 372 to 52 vote.
Then, less than an hour later, the Senate approved the identical bill on
a 74 to 19 vote, sending it to President Barack Obama for his expected
signature.

The package would prevent a mandated increase in some student loan
interest rates from going forward.

Congress passed a bill in 2007 to temporarily reduce the interest
rate on subsidized Stafford loans to college undergraduates to 3.4% from
6.8%. That interest rate decrease is set to expire July 1. Extending the
interest rate reduction for a year would cost $6 billion.

The bill also includes a $120 billion reauthorization of surface
transportation programs that will extend for 27 months.

The measure would keep most Highway Trust Fund taxes, including the
18.4 cents a gallon tax on gasoline and the 24.4 cents a gallon
surcharge on diesel, in place through the 2016 fiscal year.

Congress will begin its July 4 recess later Friday and will return
to Washington July 9.

** MNI Washington Bureau: (202) 371-2121 **

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

The GBPUSD is hanging at the key resistance area as defined trend lines.

• As outlined earlier, the downward sloping trend line from the April 30th high connecting to the June 20th high comes in at the 1.56785. 
• The upward channel trend line which was broken last week comes in at the 1.56818. 
• The price is above the 38.2% of the move down from the April 30th high. That level comes in at the 1.56613. 
• The price is also back above what was floor support in February and March and part of May before breaking lower. That area came in 1.5634-53

This is all bullish for the pair as the weekend moves forward.

The next key target for next weeks trade will come in at the  1.5748 level. Above that 1.5783 (50% of the move down from April high) and 100 day MA at 1.5813. 

The bullish bias is hurt if the price were to move back below the 1.5661 level and then the 1.5634 level.  A move below this area would tarnish the bullishness from the move higher today. 

frm RTRS

Repeats Ms. Merkel’s statement from earlier this week.

Unique, except for Ireland getting the same deal, apparently.

Ireland is negotiating to have capital injected into its remaining banks by the EFSF/ESM, which will reduce Ireland’s sovereign debt burden. A deal should be done by autumn, FinMin Noonan says.

Spain gets a bank bailout and suddenly we can;t get oil from shale anymore?

I’m all for a bounce, but nearly 8% is ridiculous.  WTI is now $83.83.

By Johanna Treeck

FRANKFURT (MNI) – The Eurozone should drop senior status for public
sector creditors, and there are signs that it is ready to do so,
International Institute of Finance managing director Charles Dallara
told MNI on Thursday.

“As Europe tries to stabilize the sovereign debt environment, I
think it would be very prudent to reconsider the claims of seniority for
ESM and European Central Bank holdings,” Dallara said. “Of course I
realize that these are two different institutions but the seniority
issue is one that will need to be sorted out if confidence among private
investors is to be fully restored in sovereign debt in Europe.”

Dallara was speaking before Friday morning’s surprise agreement by
EU leaders to drop seniority for the ESM on loans it is expected to
provide to Spain for bank recapitalization. The potential senior status
on up to E100 billion worth of Spanish bank aid from the ESM had spooked
financial markets and was one of the principal factors driving Spanish
sovereign bond yields sharply higher in recent weeks.

The same issue also unsettled markets earlier this year, when the
ECB insisted on asserting seniority over private bondholders in the
Greek debt restructuring deal.

EU leaders said Friday that the decision to lift ESM seniority
applied to Spain only – a point that was duly noted and not particularly
well appreciated in financial markets. Nonetheless, the leaders’
willingess to forego the ESM’s senior status in the case of Spain does
show some understanding of the problems associated with it and could
provide a precedent for future behavior.

Dallara’s comments also suggest there could be a broader agreement
on the issue. He said that the IIF is “now engaged in discussions with
the Eurozone” on the issue of seniority. Due to the early stages of the
talks, he would not disclose details of the debates or who is involved
but said that he is “confident that discussions will move forward.”

“It is such an important issue and there is growing recognition in
the Eurozone official world that it is a real cloud and a cloud that
needs to be pushed off the horizon,” Dallara said.

Dallara warned that public sector seniority might keep private
investors out of the common currency region and that this would leave
the entire burden of funding deficits on the backs of Eurozone
taxpayers. “That is not a valid recipe for anyone, including the
Germans,” Dallara said.

On the topic of Spain, he said that recent reports by two private
auditors showing a recapitalization need of E51 to E62 billion for
Spanish banks seemed “quite reasonable to the IIF – if you can stabilize
the economy in the next year or so, and that is a big if.” Even under
adverse scenarios those number should remain “quite valid” in the near
term, but for them to hold over the medium term, “you need to have
renewed growth in Spain.”

Similarly, Dallara said that estimates showing Cyprus may need E10
billion to cover its banking sector needs “do sound in the right
ballpark.” While figures might be slightly on the high side now, “these
numbers a have a way of creeping out anyway,” Dallara said. “It is my
impression that this includes a small buffer, probably not a huge
buffer.”

Turning to Greece, for which Dallara negotiated the private sector
debt exchange deal, the IIF chief rejected calls for another round of
debt restructuring. Given the significant haircut the private sector has
already taken, talk about additional cuts are “rather absurd,” he said.

“As far as a haircut for the public sector is concerned, I think
that would be counter- productive. You cannot ask European taxpayers and
the IMF to provide continued financing while you are also asking them to
take a haircut,” Dallara argued.

“The key to debt sustainability is not debt reduction. The key is
to get growth going. If you don’t have GDP growth, you are never going
to sustain the debt in any country. This is the fundamental problem that
we have now, not only in Greece…but throughout the adjusting countries
and the periphery,” he said.

–Frankfurt Newsroom, +49-69-720-142; jtreeck@marketnews.com

[TOPICS: M$X$$$,M$$EC$,M$$CR$,M$S$$$]

The USDJPY started the month at the low, moved back above the 200 day MA on June 5th and apart from a one day close below that 200 day MA, spent the rest of the month trading between the 200 day MA and the 100 day MA.  The price tested the 100 day MA (blue line in the chart above currently at 80.56 ) earlier in the week and at the end of last week but could not close above. 

Looking at the hourly chart the price has moved above the 100 and 200 hour MA at the 70.50/79.60 levels respectively (bullish). Staying above this level keeps the bulls in control.  These moving averages will be stop loss levels for longs into next week.  Stay above remain long. Move below, the bullish bias disappears.

The next upside targets become the 80.044 (61.8% of the weeks range). 80.14 (38.2% of the move down from the March 2012 high- see daily chart), and the key 100 day MA at the 80.56 level. 

At some point the price will break out of the 100 and 200 day MA boundary.  A break above (or even below if the price can not stay above the 79.50-60 area), should be met with increased momentum. 

The pair would get boost if crosses would continue their bullish ways in the new month. The EURJPY moved sharply higher today but has a key resistance at the 101.616 level to get through to keep the bias moving higher. This is the 38.2% of the 2012 range.  GBPJPY is set to close the week above the 200 day MA and 38.2% of the move down from the high (at 124.23 and 124.37 respectively).  Stay above and it too is looking more bullish.  AUDJPY is also set to close above the 200 day MA at the 80.84 and 50% of the move down from the March high at the 81.529. 

From RTRS:

• EU leaders  summit is a “positive step that eases near-term pressure on EU sovereign rating”.
• Creation of ” single supervisory mechanism” for banks an important step for long-run viability of the Euro$.
• Decision to help Spanish banks with new convention will ease sovereign investor concerns over subordination.

From RTRS:

IMF says “strongly” welcomes decisions by EU council. Steps will help break feeback loop between banks and sovereigns. Also they are “the right steps” toward completing monetary union.

Guess now everyone is happy .

–Adds Comments From Merkel’s Government Declaration On ESM

BRUSSELS/BERLIN (MNI) – Any countries requesting sovereign bond
buys by the EU’s rescue funds will have to meet existing EU Commission
recommendations for reforms, including a timeframe in which to fulfill
the conditions to be worked out with the Commission, German Chancellor
Angela Merkel said Friday.

At a press conference in Brussels, Merkel said EU leaders had also
agreed on a pact of “great significance” on growth and employment.

Merkel stressed that her goal in the summit discussions was to
ensure that any new EFSF/ESM programs followed “existing procedures.”
She also reiterated that her stance against eurobonds remained
unchanged.

Merkel said it had not yet been decided whether countries would
have to formally request the bond-buying program, but any state
receiving such aid would have to agree a memorandum of understanding
with the Commission that would include the conditions and timelines.

Merkel also affirmed that a deal to remove senior creditor status
for the ESM was only valid in the case of Spain’s rescue program. She
said many countries had resisted the idea of removing the senior
creditor status in all future cases.

Any future plans for the ESM to be given the power to invest
directly in banks would only come after “good, intensive” joint bank
supervision was put in place in which the European Central Bank would
play a “special role,” she said

“Here, I have great trust in the ECB,” Merkel said.

She added that the expanded powers for the ESM did not come with
the promise of additional funds.

“The ESM’s size will remain completely untouched,” Merkel said.

Later on Friday in a government declaration to the German
parliament in Berlin, Merkel said it would take at least “several months
or a year” before joint bank supervision would be in place.

– Frankfurt bureau: +49 69 720 142; email: ccermak@marketnews.com

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

LONDON (MNI), June 29 – Bank of England officials made clear today
that steps to boost bank lending, via the new ‘Funding for Lending’
programme, easier liquidity and the easing of liquidity requirements,
could have a potentially significant stimulative impact on the real
economy.

Speaking at today’s press conference presenting the BOE’s June
Financial Stability Report, BOE Governor Mervyn King and his colleagues
refrained from putting any kind of a number on the likely lift that the
plans would give to bank lending overall to the real economy, but argued
the effect should be significant.

It will take time, however, for the impact of the schemes to become
clear and the BOE Monetary Policy Committee will have to set policy at
next week’s meeting with deep uncertainty surrounding the plans.

The schemes are intended to drive down the cost, and boost the
availability, of credit but business credit demand looks patchy.

The BOE’s June Agents Report said respondents “own appetite to
borrow often remained very low, with many firms still focused on paying
down existing debt.”

Executive Director for Financial Stability Andy Haldane stressed at
the press conference that even if banks were to exploit only a small
part of their new leeway to dip into regulatory liquidity buffers the
effect could be “chunky”.

The BOE estimates banks hold around 15% of their assets in liquid
form.

“What is clear is that … that stockpile of liquid assets is very
substantial, in excess of half a trillion pounds sterling, so maybe
three or four times the stock of lending to SMEs,” Haldane said.

Banks can also access the BOE’s Extended Collateral Term Repo
auctions, the first of which was for Stg5 billion, using collateral they
have ‘pre-positioned’ at the central bank.

“The amount of pre-positioned collateral at the Bank of England is
sufficient to generate cash of Stg150/160 billion … so without giving
you a precise number on how much of that might be releasable to support
lending – both of those are chunky numbers and, were an element of that
to be released, it would be enough to make a big impact on real economy
lending in the UK,” Haldane said.

Haldane’s comments about the potentially large scale of the schemes
underlines a point already made a by a number of MPC members, including
Martin Weale, Ben Broadbent and BOE Chief Economist Spencer Dale, that
the new lending plans will have to be factored into the decisions they
are due to take next week on whether to extend the Stg325 billion stock
of asset purchases.

At June’s meeting, the committee split 5-4 in favour of unchanged
QE, with King, Adam Posen and David Miles pushing for stg50 of extra
gilt purchases. BOE Executive Director Markets Paul Fisher backed
stg25bn.

With just one member needing to switch side to secure further QE,
it is unsurprising analyst are predicting QE3 is on the way. The hawks,
however, made clear in this week’s hearing with the Treasury Select
Committee that they were already weighing carefully the potential impact
of these new policy moves when they voted for to stay put in June.

In light of Haldane’s remarks about the large amounts potentially
involved in the schemes they could be just as wary in July.

In written TSC testimony, Dale made clear his preference for a
non-QE approach to any further monetary stimulus, given his concerns
over the supply side performance of the economy in recent years:

“I was also of the view that, were the economy to require
additional stimulus, I would like to explore the possibility that some
of that support be provided by measures designed to improve the flow of
bank credit. This would help to improve the availability of credit to a
large number of households and companies and has the potential to
bolster the supply side of the economy as well as demand”.

Broadbent too was unambiguous on the point that funding for lending
as well as the new flexible approach to tapping into liquidity buffers
could be seen as alternatives to QE. He told the TSC that news that such
schemes were under discussion between the BOE and UK Treasury had given
him pause over QE in June – “because, to some degree at least, one can
regard them as a substitute, or having similar effects as …
quantitative easing.”

In a recent speech Martin Weale went further and said the BOE’s new
initiatives were likely to be “pound for pound” more effective than QE.

While the governor himself has stressed that further QE would be
effective in terms of providing continuing stimulus for the economy,
others have their doubts.

King has argued conventional QE, centred on bulk gilt purchases,
will still work but with the euro area crisis intensifying when King met
with UK Chancellor of the Exchequer George Osborne on May 28 to discuss
the latest deterioration in the UK economic situation, it would have
been clear that more was deemed necessary than buying some more gilts.

The package of liquidity easing, and credit easing, measures were
subsequently unveiled and all the questions now are over the size and
impact.

At today’s press conference King also refused to put a precise
number on the amounts likely to be involved in the joint BOE/Treasury
Funding for Lending scheme.

But he said that the plan could amount to a serious lending boost –
if it works.

“I am not going to speculate on numbers here. What I would say is
that when you see the details of the Funding for Lending scheme I think
that you will see that it is a significant scheme which will provide
real incentives for banks to think carefully about the benefits to them
of expanding to the UK’s real economy,” King said.

While the sums involved in the various schemes look large, there
are widespread doubts over just how effective they will prove to be.

As well as the risk of weak demand for lower cost credit, previous
UK government schemes to boost bank lending have achieved little.

The BOE steered clear of getting too involved in ‘Project Merlin’,
the Treasury’s prior scheme to boost business lending.

This time round King seems to have been persuaded to lend the BOE’s
firepower to the Funding for Lending plan.

The move to ease liquidity requirements on banks, reinforced by the
availability of liquidity via the ECTR if it is needed, should also make
it easier for banks to lend, although no-one can force them to run down
liquidity buffers.

With the details of Funding for Lending still unannounced and with
the liquidity buffer changes having only just been made public, and not
yet implemented, the MPC faces a difficult decision next Thursday.

A Stg50 billion QE boost could be presented as an insurance move
while funding for lending, the new liquidity repo auctions and the
various regulatory liquidity moves are allowed time to work their magic.

-London newsroom; +44 20 7862 7492; email: dthomas@marketnews.com

[TOPICS: M$B$$$,M$$BE$]

EUR/USD dipped back to the mid1.2650s on Merkel’s comments that direct ESM bank bailouts could take a year but so far we’re holding that area of support.

A break targets a dip to the 1.2625/30 area.

–QE3 Would Require Sharp Economic Deterioration or Deflation Threat
–Sees Economy Growing by 2.4% 2012, a Little Over 3% 2013, 2014

By Brai Odion-Esene

LITTLE ROCK, Arkansas (MNI) – St. Louis Federal Reserve Bank
President James Bullard Friday said he is becoming worried about
interest rates being low for such an extended period of time, and the
central bank should raise rates towards the end of next year.

“I’m sticking to my projection that late-2013 will be about the
right time for the first interest rate increase given the outlook for
the economy as I see it today,” Bullard told reporters following a
presentation at the St Louis Fed’s Little Rock branch.

In his presentation, Bullard voiced his concern about interest
rates being at historically low levels for such a long period of time,
and he told reporters it is inducing investors to chase yields and get
involved in investments they do not have as much experience with.

This could possibly foster bubbles in the economy, he said,
responding to a question from MNI, and makes it an increasing concern as
it can be “a recipe for bad outcomes.”

Bullard was asked if the Fed’s policymaking Federal Open Market
Committee would engage in a third round of quantitative easing should
June unemployment data match May’s disappointing report.

He said though he already is expecting sluggish job growth, but to
get to QE3 “you’d have to see a drop-off in economic activity in the
U.S., or a clear threat of deflation.”

As things stand right now, however, “we don’t see either one of
those,” he said.

Following its most recent meeting, the FOMC chose to continue its
maturity extension program, announcing a $267 billion program that will
run till the end of 2012.

Bullard said he was in favor of ending the program, also known as
Operation Twist, “but I was willing to go with the Committee’s judgement
and the Chairman’s judgement that it was, maybe, the right move at this
particular juncture,” specially given the fact the economy has been
“somewhat weaker,” and the European situation is bringing more stress
onto the United States.

The FOMC’s extension of Twist should be seen as maintaining its
current accommodative stance, Bullard said, and he reiterated that a
sharp deterioration in the economic outlook would be required to cause
the group consider a change in policy.

During the audience q&a portion of his presentation, Bullard
cautioned against focusing solely on the gloomy outlook for the economy,
telling the gathering, “It’s possible that we could get a surprise on
the upside.”

And “policy will change,” he added, if the economy and inflation
begin to heat up. “It is contingent on the performance of the economy.”

Since January this year, FOMC participants provide projections of
what they believe the likely future path of the federal funds rate will.

The goal, Bullard said, is to provide “an assessment as best we can
about where we think policy will be two or three years into the future,
but the truth is we can’t really predict where the economy is going to
be any better than anyone else.”

So Fed policy, he said, is contingent on the performance of the
economy.

The Labor Department Thursday reported that initial claims for
jobless benefits were at a level of 386,000 last week, and Bullard said
usually when the number remains below the 400,000 threshold,
unemployment continues to decline.

“I’m sticking with my forecast that unemployment will continue to
tick down this year and through 2013,” he said.

Bullard said he has marked down his economic growth forecast for
all of 2012, noting that GDP data received so far is coming
weaker-than-expected for the first half of the year.

As a result, he sees the U.S. economy growing by 2.4% for all of
2012. For 2013 and 2014 Bullard said he only made slight revisions to
his outlook, and expects growth of “a little over” 3%.

“Just because you had some weaker data in the first half of 2012, I
don’t think is a reason to markdown the whole trajectory over three or
four years,” he said.

As for inflation, Bullard described himself as “an unabashed
inflation hawk,” but said the Fed is in “good shape” with regards to its
price stability mandate.

He is worried about the risk of soaring inflation should the Fed
maintain its highly accommodative policy for too long but said
everything is “okay for right now.”

In his prepared remarks, Bullard argued in favor of the Fed
releasing a quarterly monetary policy report similar to that produced by
the Bank of England, saying it would be a more “complete” option.

Bullard said there is interest within the Fed in producing such a
report because it is not clear that the current quarterly release of
FOMC’s participants’ economic projections “is the best long-run
outcome.”

“I think a quarterly monetary policy report is a distinct
possibility in future,” Bullard said, stressing, however, that it would
take while to put it together, test it, and make sure it works the way
the Fed intends.

It would be a more complete discussion of the state of the U.S.
economy, he argued. It would also have the advantage of being forward
looking — incorporating the forecast element of the SEP (Summary of
Economic Projections), discuss special factors impacting the economy,
and the diversity of views on the FOMC.

“What we’ve got now is just four variables and people putting in
numbers for the variables out into the future,” he said.

Commenting on current Fed policy and its swollen balance sheet,
Bullard said he would like the central bank to begin normalizing policy
but the U.S. economy “is not cooperating.”

Casting an eye over the global economy, Bullard said he is “a
little bit concerned” about a possible slowdown in the one country that
has been the engine of worldwide economic activity, China.

“China is more intimately tied with Europe than we’d realized,” he
said, adding that “as they get bigger, they become more subject to
market forces that maybe they have been in the past.”

Still, Bullard said he expects the world’s second largest economy
to continue growing at a “quite rapid” pace.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$X$$$,M$Q$$$,M$$CR$]

Hmm. I think the market was assuming sometime later this year…That might prompt some profit-taking among EUR/USD longs.

A lot can happen in a year…

If it takes a year for the ESM to recapitalize Spanish banks, Spain must hold the debt from the bank bailout on its balance sheet for the next year, keeping its debt/GDP ratio elevated.

Merkel also said:

• We stand by the euro, our stable currency