(Bloomberg) — Traders from New York to Chicago to London will be glued to their screens Thursday morning waiting for the latest consumer price index reading from the Labor Department, which is due at 8:30 a.m. in Washington. 

In fact, many will be watching trading closely before the numbers even hit — because of what happened last month. 

On Dec. 13, the monthly CPI, one of the Federal Reserve’s favored inflation measures, was scheduled to be released precisely at 8:30 a.m. as usual. But something odd happened in the 60 seconds leading up to it. Trading volume in 10-year Treasury futures soared, reaching three times the level seen a minute before the release of any of the last 24 CPI reports, Bloomberg Economics analysis showed.

“The volume of trading was quite extraordinary,” said J. Christopher Giancarlo, head of the Commodity Futures Trading Commission during the first part of the Trump administration and now senior counsel at the law firm Willkie Farr & Gallagher.

The Labor Department dismissed the possibility of a data leak after conducting an initial investigation. There’s been no indication that regulators such as the Commodity Futures Trading Commission or Securities and Exchange Commission are digging into the situation. 

A CFTC spokesman said the agency watches market movements every day, in response to a question about how it plans to monitor the Treasury futures market ahead of the next CPI release. The SEC didn’t respond to a request for comment.

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Even so, no one has been able to explain what went on, and speculation remains that the trading spike was caused by a hack or leak.

“I think this demonstrates how important it is to have a release process that has the trust and confidence of market participants, especially during times of economic uncertainty, when the latest statistics are of pivotal importance,” said Graham Harper, head of public policy and market structure at Chicago-based DRW, one of the biggest trading firms in the world. “The current release mechanism for economic data introduces doubt about the integrity of the process.”

Taking No Chances

The report has spurred outsize market swings in recent months as an inflation surge gripped the public. A study by Barclays (LON:) Plc strategists including Anshul Gupta and Stefano Pascale last year found that over the past decade, stocks have never been so negatively reactive to an economic indicator as they are now to CPI. 

This next set of figures is even more crucial, since it will be a key determinant to whether Fed officials raise interest rates by a half percentage point for the second straight meeting or downshift to a quarter point. The median CPI forecasts of economists are for a 0.1% decline and a 0.3% gain in so-called core CPI, which excludes food and energy.

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Options traders are pricing in a 2% move by the in either direction on Thursday. While not small, the reading is still below a 3% realized move after the five prior inflation reports, data compiled by Bloomberg show.

From a regulatory perspective, the situation presents a good opportunity for government officials to do an internal probe to restore trust in the financial markets by taking an overall look at how CPI data are released — with the potential to reassure markets that the playing field is level, Giancarlo said.

Meanwhile, Themis Trading LLC’s Joseph Saluzzi isn’t taking chances. He said it’s worth being extra careful this time and he’ll scrutinize trading in the minutes before the report a little more closely than ahead of previous data.

“People are going be more on alert now in that minute before CPI, even as the official sector is saying ‘All is OK, there was nothing that really happened’,” said Chris Ahrens, strategist at Stifel Nicolaus & Co. “And in the wake of the payroll numbers, the onus now lies on the inflation numbers to sort of set the table for whether the Fed goes 25 or 50 basis points at their next meeting.”

 


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