• Before writing this preview of today’s ECB meet, we re-read our April post-mortem (because we prefer to be consistent). Turns out we were half right. We had expected the ECB to step up bond purchase in Q2 in anticipation of greater selling pressure and in attempt to dampen the inevitable yield increases. Yield increases that are the result of reopening and the economic rebound. The increased purchase volumes are bang in line with our expectation (not a difficult call though) and on the yield increase we were right too. Where we were wrong, is our expectation that the ECB would announce a taper at today’s meeting for obvious reason. The pandemic’s latest wave (or is that last wave) is becoming a little blot in the rearview mirror. The economic recovery strengthened but financial conditions remained easy. However, Lagarde & Co decided for whatever reason that the inevitable taper decision should be delayed. We speculated that the ECB prefers the Fed to taper first. But judging from pricing action in USD OIS and the Treasury market, the thinking seems to be shifting back to a Fed that will be dithering too. But can Powell & Co put the taper genie back in the bottle? We heroically continue to believe they will give a taper warning next week. Warning as in that Powell will announce the taper at Jackson Hole and the September FOMC meeting if we continue to see payrolls increase similar to the May labor market report.

For the full report, click here