Index levels from this morning’s release of the June Case Shiller home price data were generally lower than many bid levels from the expiring Aug 2016 CME Case Shiller futures.
The table below shows Aug ’16 contract prices from yesterday and the actual index numbers below. In 7 of the 11 regions (i.e. those highlighted in red), the CS index numbers from this morning were lower than the bid side. ( I refer to these as “surprises”). In all such cases, a trader could have sold any of the 7 contracts yesterday and made money on settlement. (In fact, there were five trades yesterday including 3 in expiring Aug ’16 contracts all at even higher levels than these posted bids.)
One “surprise”, in the WDC contract, may have been to the almost 1 point adjustment in last month’s index. (See all adjustments in yellow section). Home prices data series are subject to revisions (as among other things, the index is moving average) but for some reason (unknown to me) the WDC region seems to always have the biggest revisions.
However, WDC seems to be the only negative surprise due to a revision. (I’d note that LAV had a positive revision.)
With these surprises, longer-dated contracts also sold off (to be covered in next blog), bid/ask spreads widened, and forward curves flattened slightly. There have been no trades (as of noon – NY – today).
There have been other traders involved in CHI, LAX, SDG and SFR contracts this morning (e.g. posting better quotes) so those might be good areas to focus if you have a trading axe.
Feel free to contact me (email@example.com) if you have any questions or would care to discuss this blog or today’s numbers.