MPA’s Daily LME Metal Price & Spreads Report.
To help readers distinguish ‘signal’ from ‘noise’ the report first uses MPA’s in-house daily price models to track ‘expected’ or ‘fair value’ prices and spreads. Recalibrated daily, the twelve price and spread models behind the report are innovative in using three traditional industrial raw materials style price drivers and three investment allocation style price drivers.
The traditional price drivers used are LME stocks for the metal concerned, global industrial production growth (CHR’s series, but with monthly figures interpolated to daily), and the strength or weakness of the dollar as indicated by the EURUSD exchange rate. The investment allocation drivers are bond prices (which incidentally were key to last November’s LME price action), the USDCNY exchange rate which influences Chinese use of metals to hedge against yuan depreciation, finally the price of Brent crude, which influences speculative sentiment towards base metals (besides energy being an important input cost of metal production).
The new MPA report then goes on to chart the variation of actual prices and spreads around those modelled ‘fair value’ or ‘expected’ levels, revealing very clearly the processes of price and spread ‘discovery’. The report also shows the momentum and divergence between actual and modelled values: this may confirm whether mean reversion is beginning. Over the past 120 days (the report’s look-back period), both prices and spreads have tended to mean revert after moving beyond two standard deviations from modelled levels for between 1 – 3 days.
When combined with a market participant’s own knowledge, the new MPA report helps the reader to be clearer about strengthening or weakening trends, break-outs, mean reversion, support and resistance levels, over-bought and over-sold conditions.
MPA believes that the report is very powerful in that it deals both with prices and spreads and possibly unique in bringing together in a fully coherent way what are normally considered to be two separate strands of research: fundamental and technical analysis. This is particularly timely in a world where high frequency trading is starting to make the underlying pattern harder to hold on to in the ‘heat of battle’ between bulls, bears and algorithmic trading machines.
The daily report looks at the LME Base Metal 3M prices and the 3M minus Cash Spreads over a period of the last 120 days. These prices are then compared to price models that are constructed from fundamental drivers that move the Base Metal prices. As supporting material, price charts of the drivers along with correlation tables are also provided.
How the Daily LME Metal Price & Spreads Report can help you.
- Compare Actual Metal 3M Prices and Spreads with Modelled.
- Identify potentially overbought or oversold markets.
- Identify whether the Actual Price is moving away from the Modelled or starting to retrace.
- Five Day Forecast Support and Resistance Levels.
- Charts of LME Stocks and other Drivers considered in the Models.
- Overview of LME Prices along with their fundamental drivers.
- Correlation of the Actual Metal 3M prices along with the fundamental drivers.
The Price Drivers
The Price Drivers considered by MPA for the daily models are
- (i) LME exchange stocks
- (ii) the rate of global Industrial Production growth (source CHR’s Global IP Watch)
- (iii) Euro to Dollar exchange rate (EURUSD), for the strength / weakness of the dollar
- (iv) the price of Brent Crude oil (BZ), energy being a significant input cost in the supply curve
- (v) the iShares 10-20 Year Treasury Bond price ETF, as a proxy for Treasury Bond strength
- (vi) the Dollar to Chinese Yuan Exchange Rate (USDCNY).
The reports are produced Monday – Friday, 48 weeks per year and are delivered by e mail.
If for any reason a report is unable to be produced, an extra report will be credited.
The contents of the reports are not to be taken as trading or investment advice, but are the output of a mathematical model and must be viewed as such.
Every effort has been taken to present the correct information, however, neither Metal Price Analytics Limited nor its staff are liable to any error that may occur.