COPPER TECHS: (N5) Clears Resistance

Freidrich Merz faces a second vote in the Bundestag shortly at 1515CET (0915ET, 1415BST) as he seeks the required absolute majority to be confirmed as Germany's new chancellor. In a day of high political drama, in an earlier vote Merz won the backing of just 310 lawmakers, short of the 316 required. Should he prove unsuccessful in the second vote a third vote will take place immediately afterwards, in which a simple majority will suffice to see him elected. 

• FAZ reports "SPD party leader Lars Klingbeil was the first to speak: "It is important that Germany gets a reliable government." He expected "that the necessary majority will be achieved in the second round of voting for Friedrich Merz to be our country's next Chancellor.""
• The unprecedented nature of the unsuccessful vote (none of Germany's post-war chancellors have ever failed to win a first-round absolute majority) has meant a significant amount of speculation regarding the timing of the second vote, with initial expectations that it could take place this coming Friday proved wrong as Merz's centre-right Christian Democratic Union/Christian Social Union and the centre-left Social Democrats secured support from opposition groups for an expedited election process.
• Even if Merz wins in the second round, the initial failure to secure a majority will cast a shadow over the new gov't and highlights divisions within both participating groups. Some on the left of the SPD remain opposed to a deal with the conservatives, while Merz also has pockets of opposition within his own party. 

German paper is wider vs. Tsys across the curve, despite this morning’s political headlines out of Germany.

• German yields 0.5bp lower to 2.5bp higher, curve twist steepens.
• Bund futures around the middle of their 39-tick session range after respecting yesterday’s low, last 130.90.
• There hasn’t been much reaction to news that there will be a second vote in CDU leader Merz’s bid to become Chancellor later today (15:15 CET/14:15 BST)..
• A reminder that the move away from session lows that came after Merz’s failure to win enough support in the first vote was only shallow, signalling that the market either believed that he would still become Chancellor at some point or that the most viable alternatives wouldn’t have much of a downside impact on German fiscal spending.
• Looking at the voting backdrop, J.P.Morgan note that “one theory is that a few members of the CDU/CSU (and possibly SPD) were disgruntled by either the coalition treaty itself or because they missed out on some government/parliamentary roles. Perhaps such individual decisions by a few members of the parties exceeded the coalition’s majority in an unintentional way. Having sent that signal, they may now support Merz in a second vote. However, this is only speculation making the rounds in the German press”.
• They note that “this matters for the government’s stability in future. If this morning’s opponents are more structural in nature, rather than a protest vote to send a signal, they may also oppose the government in votes on general government policy. That would be a more significant problem”.

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