Metals plunged along with stocks in reaction to a worse than expected Philly Fed reading of -10.7. What was unusual was that the plunge preceded
the official release by twenty minutes.
2012 Business Outlook Survey
Firms responding to the November Business Outlook Survey reported declines
in business activity this month following the disruptive effects of Hurricane
Sandy on the region. The survey’s indicators for general activity,
which had shown improvement in October, fell back into negative territory
this month. Firms reported slight declines in shipments, employment, and
hours worked. Indicators for the firms’ expectations over the next six
months were near their levels in the previous month, but expectations for
future employment and capital spending have weakened in the last two months.
Indicators Suggest Diminished Activity
The survey’s broadest measure of manufacturing conditions, the
diffusion index of current activity, decreased 16 points, to a reading of ‑10.7.
The fallback of the general activity index followed a single positive reading
in October that was preceded by five negative monthly readings (see Chart).
Nearly 32 percent of firms reported declines in activity this month, while 21
percent reported increases. The demand for manufactured goods, as measured by
the current new orders index, declined 4 points from last month and remains
in negative territory.
Shipments also fell this month: The current shipments index fell 7 points, to
‑6.7. Declines in inventories were also more widespread this month; 31
percent of firms reported declines compared with 21 percent in October.
As one might expect, the sharp drop in activity was related to the
effects of Hurricane Sandy. I have been expecting this, but I did not know
that the Philly Fed survey would pick it up so quickly.
What was initially confusing was that stocks began to decline sharply around
9:35 AM. Gold had a waterfall plunge from 1722 to 1705 from 9:35 to 9:45. I
had already completed the initial post of this before the Fed report hit the
The Philly Fed was officially released at 10:00 AM. I have not discovered if
it was officially released prematurely, or if the markets were just front
running the data for a quick 'wash and rinse.' They would suspect that the
data would be a 'miss' because of the devastating effect of the hurricane on
In the long run markets are a discounting mechanism, but in the short term
they are a pinball game, especially in these days of large leveraged players
and lax regulation.
So I think it was either a leak, or a 'trading idea' shared amongst several
of the trading desks, or a bit of both. The revolving door also has an
I had the opportunity to add to a growing silver position. I am sure the
wiseguys did much the same. I was not prepared for it, just lucky to be
watching it as it happened.
We may wish to bear in mind the knock on effect of Hurricane Sandy on
subsequent economic report for the fourth quarter. The devastation on this
most populated region of the US was profound. The data will no doubt provide
fresh opportunities to game the markets.