In 60 seconds before CPI hit, Heavy Trading ran Mystery Rally

(Bloomberg) — Karine Jean-Pierre, President Joe Biden’s press secretary, quickly brushed off the question when it came in toward the end of her daily press conference Tuesday. No, she said, there was no chance anyone in the White House had leaked the November inflation report before it was released at 8:30 a.m. There was too much fuss, as she saw it, about what were just “small market moves.”

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But there was nothing insignificant about the rally that took place in the seconds before the better-than-expected inflation figure appeared on the Labor Department’s website.

Equity futures suddenly jumped more than 1%. Trading in Treasury futures increased sharply, causing benchmark yields to fall by about 4 basis points. That’s big movements in such a short time – on some days bigger than swings during a full session. And they should be scrutinized by regulators, long-time market watchers say, even though a leak is just one of many possible explanations for why traders suddenly started buying right before the report was published.

Significant “trading activity prior to market-changing news is suspicious and typically worthy of regulatory agencies to conduct appropriate investigation,” said Jerome Selvers, chairman of the enforcement and litigation practice at Pashman Stein Walder Hayden. “This is unusual, especially given the drop in inflation that was reported, which was much higher than what markets had expected,” he said. “Someone will probably look at it, whether it’s innocent or not.”

Of course, it remains to be seen if and when such an investigation takes place. For its part, the US Bureau of Labor Statistics said it is not aware of any early release of its data.

Yet, during a 60-second period before the data went out, more than 13,000 March 10-year futures were traded (during a period when there is usually no activity) when the contract was bid. Stocks and bonds rose further immediately after the data was released, as investors speculated that the cooling of inflation meant the Federal Reserve would pause its tightening cycle early next year.

BLS spokesperson Cody Parkinson said by email that while the agency is not aware of any early releases, some state officials routinely receive the data before publication under federal guidelines.

Read more: Big purchases in Treasury Futures seen just ahead of CPI release

Excluding food and energy, CPI rose 0.2% in November and 6% from a year earlier. The median estimate in a Bloomberg survey of economists called for a 0.3% monthly increase.

–With help from Edward Bolingbroke and Reade Pickert.

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