Australian Stock Market Report – Midday October 7, 2014

Traders work on the floor of the New York Stock Exchange shortly after the market's opening in New York July 28, 2014. REUTERS/Lucas Jackson

 Australian shares are trading at their weakest levels in eight months, with the All Ordinaries Index (XAO) down 1.3 per cent at lunch. This follows slight falls on Monday in what was a quiet start to a holiday interrupted week. Global markets lost a little ground overnight with the DOW slipping by just 0.1 per cent.

 Locally, the mining sector is the lone improver with the S&P/ASX 200 Materials Index up 0.36 per cent following takeover speculation within the industry. Rio Tinto (RIO) is a standout after media reports that Swiss mining giant Glencore is considering a merger with RIO next year. This would create the world's largest miner. RIO this morning denied the claims however; confirming no discussions are taking place. RIO shares are still surging by 3.4 per cent. BHP Billiton (BHP) is up 0.5 per cent and the smaller Fortescue Metals (FMG) is up 2.2 per cent.

 Commodity prices improved overnight following a fall in the greenback (US dollar). Iron ore is steady at US$78.9/dry tonne. Gold rose by 1.2 per cent to US$1207.3 an ounce and oil is up 0.7 per cent to US$92.7/barrel.

 Despite gains from the miners, the major banks are slumping significantly which is holding back the broader market. The four big banks are wiping out around 30 points from the All Ords and accounting for approximately 40 per cent of the market's losses. National Bank (NAB) is down 2.3 per cent while the other three majors are down by around 1.5 per cent.

 The major event today will be the Reserve Bank's interest rate meeting with the RBA's decision made public at 2.30pm (AEDT). While a rate hike would certainly surprise the market and likely push the Australian dollar higher, market participants are expecting rates to remain unchanged at 2.5 per cent for the 14th month. Investors will be keen to read the RBA's accompanying one page statement. The Australian dollar has fallen recently, property prices are strong and employment picked up in August. However the Australian market has slumped in recent weeks following the fall in the Australian dollar and the strengthening greenback. Any change in commentary will be important.

 At lunch 874.7 million shares have been traded worth $2.53 billion. 301 stocks are up, 487 are down and 293 are unchanged.

 The Australian dollar has gained some ground and buys US87.4c after trading around its weakest level of the year yesterday.

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