Copper futures spiked nearly 4 percent in 35 minutes on Tuesday, before retreating somewhat. The move was sufficiently powerful that it caused CME Group to automatically trigger a 10-second pause in trading. According to traders and metal experts, fundamental and technical explanations help to explain the surge.
"We're hearing from our institutional customers that on the European close, somebody's booking profits on a big trade. So what we saw is a spike that hit stops, and really, hedge funds have been short copper, and I think you hit some stops and the market rallies," Rich Ilczysyzn said on CNBC's "Futures Now."
The move automatically triggered what the CME refers to as a "stop spike event," according to spokesman Damon Leavell, whose company runs the exchange on which copper futures are traded. At noon EDT, trading in the copper futures market was automatically paused for 10 seconds.
Still, while the sudden move may be explained by a large trade followed by the triggering of stops, copper futures didn't fall far from their intraday highs after noon, indicating that traders are indeed looking more fondly upon the industrial metal.
Indeed, around the same time, a report from Sina.com that the Chinese central bank would provide liquidity to five banks began to make waves. This would be good news for the Chinese economy, and thus a boon for copper, which is closely levered to Chinese growth due to high levels of Chinese imports.
Of course, copper could also be reacting to the same headlines that sent stocks sharply higher intraday—reporting from The Wall Street Journal's Jon Hilsenrath that the Federal Reserve's statement on Wednesday would include the "considerable time" language regarding a rate hike. That's more dovish than some had been anticipating, and consequently good news for stocks and copper alike.
"On the realization that the Fed meeting may be more benign than expected, copper is following the jump in the Dow. A continued steady course by the Fed is very supportive to metals," RBC's George Gero wrote to CNBC.
—By CNBC's Alex Rosenberg.
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