As the ASX 200 approaches the much watched 6000 line, commodities have responded with a powerful surge.

Banks, however, are responding grudgingly to hard riding, lumbering under the extra weight of the bank tax and increased capital requirements while drifting out under pressure of a possible housing downturn. Australia 200 is approaching the resistance of its 2015 high around 6016. However caution about the banks might mean that this Melbourne Cup Day won't see it push clearly through. 

The rally in oil is precautionary. Traders and short coverers are responding to the possibility that the increasingly fragile political situation in the Middle East might lead to supply disruption. Volatility now looks likely. Oil prices are rising to levels likely to attract increased shale oil production and lower prices if Middle East supply disruption does not eventuate.  

Mining stocks had been under pressure as investors built in risk premium for an ongoing downtrend in iron ore. However, rising steel prices now have investors alert to the possibility that iron ore might form a base around $60, justifying a rally in the major mining stocks

This morning’s positive mood has stopped the rot of yesterday’s selling in bank stocks. However, an underwhelming reporting season and concerns about the housing market leave banks vulnerable to further selling as they head into the ex-dividend period. This could limit any rally today

The risk for today’s RBA meeting could be on the negative side for the Aussie Dollar. Market focus will be on whether the RBA indicates a downgrade in inflation forecasts and acknowledges ongoing weakness in retail sales and consumer spending.