Post July Case-Shiller release
Futures prices rose after the release of this morning’s Case Shiller numbers. Similar to last month, the market has demonstrated what we use to call the accordion effect where one side (the offers) moves up sharply, while the other side (the bids) increased by a much smaller rate.
As such, after two month of higher Case Shller numbers, the bid/ask spreads have widened dramatically to levels not seen since early 2011. (The opposite was the case then – in a falling market the bids fell away quickly and while the offers slowly reduced). This may have an impact on margins (at some brokers) and short-term volatility. Also (similar to early 2010), the wider bid/ask spreads have discouraged trading and there have been no trades today.
Finally, since closes are determined by last trade, better bid (or offer), I’d expect many new closing highs, but those changes will be smaller than changes in mid-market levels.
The indices with the highest month-on-month increases (CHI + 4.5%, SFR, +3.9%) saw the largest increases on the bid side (with the lower-priced CHI markets showing a much bigger % increase). The less robust indices (SDG +0.9%, NYM + 1.4%, MIA 1.4%) saw bid prices increase only a fraction.
With such wide bid/ask spreads it’s unrealistic to talk about relative value from contract to contract. More later should spreads contract.
