Commodities boost risk appetite

Risk appetite had the upper hand on Tuesday as decent corporate results and better than expected economic data boosted sentiment.

Commodity names were among the strongest performers after Glencore and Xstrata posted 2012 profits. The headline figures for the two companies, which are due to merge in the next few weeks, weren't very impressive.

Glencore reported net income for the full year of $1bn, down 75% from the previous year. A significant writedown on its investment in Rusal, a Russian aluminium producer, accounted for a large part of the earnings fall. Excluding writedowns, Glencore's profits were down 25% as its trading division offset a weak performance at its industrial segment.

It was a similar story at Xstrata. The Swiss mining group posted a 79% drop in net income and a 37% fall in earnings excluding writedowns. Despite the poor headline figures, the results were better than expected and Xstrata's spreads tightened 10bps to 145bps.

Glencore's earnings also exceeded expectations and its spreads rallied 10bps to 180bps. Spreads for the two companies have converged as the April deadline for the merger approaches, but the lengthy and complicated approval process from regulators means that there is still a differential.

Overall, the market was strong across the board, with the Markit iTraxx Europe tightening by more than 4bps to close at 112bps. A better than expected Markit UK Services PMI helped sentiment, as did the Markit Eurozone Composite PMI coming in slightly ahead of consensus estimates.

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