Rio Tinto maintains 2012 guidance whilst Spain chatter boosts markets

<p>Spain led European markets higher in early trading on Tuesday as reports suggested that the country is getting close to requesting a formal bailout request. […]</p>

Spain led European markets higher in early trading on Tuesday as reports suggested that the country is getting close to requesting a formal bailout request. Consequently banks and resources firms drove the FTSE higher as risk on sentiment returned and Rio Tinto maintained its iron ore guidance for 2012, pleasing the market further. Strong results from Citigroup also helped support the rally in the financial sector.

Rio Tinto had a strong start to the morning after it confirmed that it is on track to produce 250 million metric tons of iron ore this year. Production in its global mines rose 5% to 67 million in the third quarter compared with the second quarter. This is welcome news, especially after the concerns of slowing growth in China – the largest user of raw materials. Sector peer Anglo American also rallied in early trading.

Europe is very much still at the forefront of investors’ minds. With the EU Summit on Thursday and Friday, investors are waiting to see what progress can be made. Yesterday Portugal unveiled its draft budget which included huge tax rises and spending cuts and will see Portugal into its third year of recession. However on a more positive note, Greek Prime Minister Antonis Samaras last night expressed his confidence that Greece will receive its next tranche of the bailout.

However it is Spain that the markets are really focused on right now. A media report last night said that Spain was ready to formally request financial aid, but was delaying any announcement due to concerns over the effect on other eurozone members such as Italy. The yield on the bench mark 10-year Spanish bond fell four basis points to 5.75% whilst the IBEX has rallied over 1.1%.

Markets will be keeping a close eye on the short term Spanish debt auction later this morning, the first issue since the S&P downgrade last week. A strong subscription will indicate that the market still has confidence in Spain’s ability to repay its debt regardless of whether the S&P has downgraded it to one notch above junk.

Elsewhere in Europe a gauge of German investor sentiment rose more than expected in October giving a reading of minus 11.5 compared to September’s reading of minus 18.2. It is likely that the index was held up by slightly calmer markets in recent weeks but still shows that the majority of analysts expect the economy to cool instead of improve.

Looking across the Atlantic, earning season continues with several components of the Dow Jones reporting later today: Coca Cola, Johnson & Johnson and Intel Corp. Outside the Dow, Goldman Sachs will also release results. Earning season does seem to be faring slightly better than what was initially expected – of the 34 S&P companies that have report so far, 59% have beaten estimates and 18% have come in line with expectation. Let’s see whether these statistics can continue.

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