European shares edged higher in early trade, with investors looking to the European Central Bank to support risk appetite by detailing plans for a new bond-buying programme to help bring down borrowing costs and revive risk appetite.
The onus is on ECB President Mario Draghi to back up his promise "to do whatever it takes" to preserve the euro at a news conference following the bank's monthly meeting.
Investors are looking for clues on the likely size and timing of the bond programme, on any specific cap on yields - seen as unlikely - and on whether the ECB will insist on a preferential, more senior status compared to the other bond holders in case of a default.
"The hope is out there," said Gerhard Schwarz, head of equity strategy at Baader Bank.
"It seems that ... there will be some details provided but so far I think that the ECB will leave its door wide open by refraining to mention specific caps at which it will act. Certainly it is helpful if there is an unlimited amount possible and also if the ECB will refrain from holding a preferred creditor status. But still we need a formal aid request from countries like Spain or Italy before the ECB will get busy."
The pan-European FTSEurofirst 300 was up 0.4 per cent at 1,083.97 points, having recovered from a one-month intra-day low of 1,074.05 points set on Wednesday.
The EuroSTOXX 50 index of euro zone blue chips, which tends to track the swings in sentiment towards the bloc more closely, added 0.6 per cent to 2,457.47 points.
Risk to upside
With EuroSTOXX 50 still up some 13 per cent since Draghi made his pledge on July 26, and euro zone banks nearly 24 per cent higher, the risk is that the ECB announcement could fall short of the markets' high expectations.
After all, with yields on 2-year Spanish and Italian bonds hitting their lowest levels in around five months, the ECB's rhetoric alone has already achieved some of its goals and the central bank may be in no hurry to follow the words with actions just yet.
But strategists reckon any downside pullback if the ECB disappoints could be limited, given the expectations that it will eventually act, the prospects for more stimulus from the U.S. Federal Reserve and the positioning in the equity market where investors are relatively well hedged to the downside.
Open interest on September EuroSTOXX 50 puts - options which enable investors to sell the index at a pre-set price and thus used as insurance against a market fall - has risen 15 per cent over the past month, according to Eurex exchange data.
Implied volatility on the euro zone blue chip index is up 17 per cent over that time even as the underlying equity market is broadly flat, while EPFR data shows that investors have continued to pull money out of European equity funds, leaving them relatively under invested in the market.
"The risks still tend to be on the upside, very few people are committed to the market," said Andy Ash, head of sales at Monument Securities.
"The likelihood is that the market will be disappointed that they are not getting any more (information), but when it comes off people will look at the overall performance of the market this year and think oh dear, equity markets are now sizeably up on the year, I don't have any positions ... So in the next week or two people will get long of the market."
With the euro zone economic woes hitting corporates hard, investors are rewarding those who manage to still turn a profit. Britain's No.4 grocer Wm Morrison Supermarkets led the FTSEurofirst 300 gainers, up 4.6 per cent after posting first-half profit towards the top end of forecasts and said it was on track to meet its expectations for the year even though it anticipated no let-up in pressure on the consumer.