Draghi Pours Cold Water On ECB Bond Purchases

The market is lower in early trading after a disappointing reaction to comments by ECB Pres. Draghi, who implied that the ECB would not step up its bond buying program beyond what has been discussed already. It's unclear to me why he is taking this tone, unless he is trying to get other players to get more involved. The EU summit is tomorrow (tonight actually) and maybe this is posturing ahead of it. We still don't know to what extent the IMF may get involved.

The ECB also cuts its main lending rate 25 bps to 1.00%. Draghi said there was no talk of 50 bps, and that the vote was not unanimous. The ECB also lowered its marginal lending facility to 1.75% from 2.00%. The Bank of England held its rate steady at 0.50%. And the Danish central bank cut its rate from 1.20% to 0.80%. So the liquidity spigot in Europe is opening, but I'm not sure even a fire hose can help more than just a temporary stop-gap.

The euro is lower on the rate cut news, and that is weighing on commodities also. Gold prices are lower near $1715, and oil prices are down to $98.75.

In the U.S., jobless claims fell more than expected to 381,000, but folks are already complaining that this figure was seasonally adjusted and is thus skewed.

The 10-year yield has eased back to 2.00%, that key level that we can never seem to hold above for too long. And the VIX is spiking +4% higher so far and has touched the 30 level again (currently 29.80).

Jon Corzine is testifying before Congress this morning about the MF Global disaster. He'll probably say that he just didn't know about the fund diversion. I don't expect them to get a lot of answers and clarity from him. What a fall from grace.

Trading comment: The biggest news item this week will be the announcement that follows tonight's EU summit. The market has recently rallied up to overhead resistance, so its normal to see a pullback from those levels. The hard part is gauging how the market will react to tomorrow's announcement. A positive reaction could result in a successful breakout above recent resistance. But a negative reaction could easily take the SPX back down to its 50-day average below. I'm betting we have a little more correcting to do, but hoping its not too big. I still think that most participants are in buy-the-dip mode into year-end. That said, I hope the EU officials bring out the howitzer.