by Calculated Risk on 9/03/2012 11:55:00 AM

From CNBC: Europe Shares Close Higher on Asset Purchase Hopes

Traders are hoping the ECB will cut rates and detail a new bond-buying plan to ease the funding pressures on Spain and Italy. All eyes will be on the European Central Bank on Thursday as investors await news on its next policy move.

The ECB Governing Council meets on Thursday in Frankfurt with a press conference to follow. Analysts at Nomura are expecting a rate cut, but no bond buying yet for Spain and Italy. From Nomura:

• Having failed to cut in August, we now expect the ECB to cut the refi rate 25bp in September and leave the deposit rate at zero.

• We also expect the ECB to announce on 6 September that it is ready to intervene but only when help has been requested.

• We expect Spain and Italy to resist calling for help, prompting renewed market deterioration.

And from Jack Ewing at the NY Times: In Pivotal Week for Euro Zone, a Test for the Central Bank’s Leader

[T]his Thursday, when the central bank meets again, Mr. Draghi, the bank’s president, could have a far harder time reconciling the expectations of twitchy financial markets with the limitations of his power. Although investors are counting on bold action, analysts say the bank probably needs more time to resolve internal differences and deliver on a promise to use its financial clout to tame runaway borrowing costs for the most troubled euro zone countries.
...
Some analysts do expect the central bank to cut the benchmark interest rate to 0.5 percent on Thursday, from its already record low level of 0.75 percent.
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In any case, actual bond buying by the central bank is probably at least several weeks away. Mr. Draghi said in August that the bank would intervene in bond markets only in concert with the new European Union rescue fund, the European Stability Mechanism, or E.S.M.

Countries would need to ask the rescue fund for help, Mr. Draghi said, and the fund would take the lead in bond buying, with the central bank providing backup financial support. But the fund, meant to replace a temporary bailout fund, is in legal limbo at least until the German constitutional court rules Sept. 12 on a challenge to the country’s participation.