Australian Stock Market Report – Afternoon October 7, 2014

IN PHOTO: Office workers are reflected as they walk past the Australian Securities Exchange building in central Sydney April 8, 2011. Singapore Exchange Ltd has terminated its $8 billion bid for Australia's ASX Ltd after the Australian government formally rejected the offer on national interest grounds and said changes to the country's financial systems were needed before the bourse could be bought by foreigners. REUTERS/Daniel Munoz

Impressive recovery staged in afternoon

 The Australian sharemarket staged an impressive comeback this afternoon, with the All Ordinaries Index (XAO) closing just 0.2 per cent lower. Putting this recovery in context, local shares were slumping by as much as 1.5 per cent this morning; making it one of the biggest tumbles of the year and hitting an eight-month low in the process. Strong gains from the miners and an easing in financial sector selling were the main drivers.

 The mining sector was the principal standout following merger speculation in the industry. Rio Tinto (RIO) surged by 4.3 per cent after media reports Australia's second biggest miner has been in merger talks with Swiss mining giant Glencore. RIO was quick to deny the claims saying that it was approached in July and considered the merger not to be in the best interests of RIO shareholders in August. BHP Billiton (BHP) rose by 1.6 per cent and Fortescue Metals (FMG) gained 4.2 per cent regardless as it confirms RIO was approached. Gold prices rose thanks to a softer greenback which helped Newcrest (NCM) add 0.4 per cent.

 The banks were down by more than 2 per cent this morning which was a major drag on stocks. By the close however; the four majors fell slightly, while National Australia Bank (NAB) slumped by 1 per cent. Regis Healthcare (REG) surged by 10 per cent on its market debut today, valuing REG at around $1 billion. Regis is an aged care provider with over 45 facilities. 2.5 months ago private hospital operator Healthscope (HSO) made its debut and it is up 18 per cent from its issue price. Medibank is the next big float expected in the sector.

 On the economic front the Reserve Bank decided to keep rates on hold at 2.5 per cent as expected for the 14th month. The market was a little disappointed with the shortage of information provided in relation to the weakening Australian dollar and strong housing market. The RBA still would like our currency to fall further while it barely acknowledged the strength of the housing market. Thursday's monthly employment report for September will be key for the RBA.

 The results of a weekly consumer confidence survey resulted in a 1 per cent fall in confidence while the number of tourists coming to Australia in August rose by 1.6 per cent. New Zealand is still our largest tourism market with over 1.2 million visitors coming to Australia in the past 12 months. China is expected to be our leading source of tourists in the next five years.

 At the close, 1.87bn shares were traded worth $5.98bn. 385 stocks finished firmer, 541 in the red and 350 ended unchanged. The Australian dollar strengthened to buy US87.7c. The Aussie is still around 7 per cent below its July peak of around US95c.

 Tonight two FOMC officials (Kocherlakota and Dudley) will be delivering talks. The FOMC is the branch of the US Federal Reserve (central bank) which sets monetary policy.

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