Trader Talk

What Will ECB Do Thursday?


Ever wonder what we're talking about when we talk about "volatility" on CNBC? Ever wonder what the VIX really measures? Read my article, Volatility: A Primer, and watch my story on Trading Volatility today at 4:40pm ET on Closing Bell.

The ECB Governing council will meet tomorrow (Thursday) in what is arguably a meeting almost as important as the EU Summit on Friday.

There are early reports that the ECB may loosen collateral requirements for loans. Remember, the ECB provides loans to sovereign countries. They give out money and take collateral (sovereign bonds) in return.

But there has been continuing pressure on the credit of sovereign countries due partly to threats of an S&P downgrade and the eurozone falling apart. To borrow from the ECB, more collateral would likely be required in the future.

The ECB may be moving to help out sovereign countries out by lessening collateral requirements.

The ECB is also reportedly considering two-year loans to banks. They do currently offer shorter-term loans to banks, but this is a longer-term loan. It is a sign that banks are having trouble getting longer-term money, either at acceptable rates or at all.

Remember the now-famous comment that Mario Draghi made last week about whether a new fiscal treaty would be enough to stabilize markets: "Our answer is that it is definitely the most important element to start restoring credibility. Other elements might follow, but the sequencing matters."

Since then, traders have debated what exactly "other elements might follow" means. Bulls say it means the ECB will step and begin large-scale bond purchasing programs, and perhaps even quantitative easing (printing). Bears say the ECB is prohibited by treaty from purchasing debt instruments in the primary market. Can they buy debt in the secondary market? That is the line that is being debated.


1) European markets were stronger overnight but weakened after their open, largely due to unsourced comments from a German official who gave a gloomy assessment of the prospect for the EU Summit this Friday. This seems to be largely a negotiating tactic, as the official said fellow EU members do not seem to appreciate the gravity of the situation and are reluctant to make necessary changes.

Read: the rest of the euro zone does not want to submit to German domination over their budgetary process.

Cynics are pointing out that the supposed EU "control" over national budgets is already an illusion: while the joint German-French proposal allows the EU to take countries that fail to meet budgetary guidelines to the European Court of Justice, they will only have the power to rule if they are in compliance or not; they will not have enforcement powers.

Will the Germans get more teeth in the proposals that are acceptable to the French, and everyone else? That's why there is still an air of uncertainty over the meeting.

2) Men’s Wearhouse climbed more than 8 percent in pre-market trading after it posted a quarterly profit of $0.77 per share, beating analysts’ estimate of $0.65 per share. The apparel retailer raised its full-year earnings forecast of $2.28 to $2.31 per share from its earlier adjusted EPS forecast of $2.13 to $2.20 per share. The company’s gross margin widened to 45.9 percent from 42.7 percent as it raised prices and filled bigger orders.

Bookmark CNBC Data Pages:


Want updates whenever a Trader Talk blog is filed? Follow me on Twitter:

Questions?  Comments?