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Good morning. Welcome to the program. I'm Whitney Fitzsimmons. In 'Business

Today' - steely resolve. China

holds out on iron ore

negotiations. Behind bars. No

escape for Sir Alan Stanford

ahead of his fraud trial. And

it's still the happiest place

on earth. Disneyland fights off

competition from Hong Kong.

Those stories shortly, but

first, a quick look at the

markets. Taking a look around

the region, where most major

indices were in the black.

For more I'm joined by Julia

Lee from Bell Direct. Good

morning. We've seen Wall Street

drop on falling confidence? It

was the last day of the quarter

and the last day of the half

year. We saw a negative one for

the US market. In fact the last

quarter has been pretty good.

If we look at the S & P 500,

you can see that we've seen a

massive gain there, 13.4%,

making it the best quarterly

performance in six years. But

overnight the session was a

negative one. Those consumer

confidence numbers were worse

than expected. In June we saw

consumer confidence fall to

49.3. That's from a reading of 54.8 and the market was

expecting to see a rise not a

fall. That weighed on stocks.

In Dow Katter pillar was down

by 5%, and John Deere shares

down on the back of an employee

buy-out. The Nasdaq lost half a

per cent. In the US, there has

been some neg tef news about

home mortgages. What can you

tell us? Mortgages aren't

looking too good at this stage.

If we look at delinquencies on

the least risky of mortgages in

the US, which are the prime

mortgages, we saw those prime

mortgages which were 60 days or

more overdue actually rising to

2.9% of all prime mortgages. If

we look at prime mortgages,

they make up two-thirds of the

total mortgages in the US. Also

first time foreclosures in the

first quarter jumped 22% from

the fourth quarter. So it does

look like Obama's plan to help

up to 4 million home owners

which was announced back in

February isn't having much of

an fkt against that rising

unemployment that we're

seeing. Over to the UK. The

economy there suffered a big contraction. What impact has

that had on the market? We saw

stocks in the UK fall on the

back of the GDP numbers. First

quarter GDP numbers were worse

than expected. In the fourth

quarter of last year we saw a

contraction of 1.9%. You the

market was actually expecting

to see a contraction of 2.1% in

the first quarter. So a much

worse number came in with a

contraction of 2.4%.

Construction was was the dig shocking Parliament with the construction numbers decreasing

by three times what the market

was expecting. If we look at

OECD estimates they're

expecting the UK economy to

contract by 4.3% this year.

That's compared to 4.8% in the

Eurozone and compared to the US

where they're expecting a con a

contraction of 2.8%. It wasn't a good session in terms of

stocks in the UK. More on that

story further in the bulletin

but let's move own to

commodities. How are gold and

oil performing? In the last

session we saw oil prices reach an eight month high but unfortunately it was a negative

session for commodity prices.

We sue oil, gold-based metal

price all declining. That was

on the back of the US currency

strengthening and the weak consumer confidence numbers

which really dashed hopes that economic recovery would be a

quick one. We also see some

higher risk events tomorrow, we

see the US non-farm payroll

numbers as well as the ECB

policy statements. Ahead of that, investors were moving

into safer assets such as the

US currency. How is the

greenback faring against the

other majors? We saw the US

dollar strengthening. If we

look at the euro against the US

currency this is a two-day

chart. It's been a negative one

for the euro it's dropped from

a two-week high. The US

currency strengthening. We saw

the high yielding currencies

like the Australian dollar

being sold off, investors

preferring to take less risk

because of those consumer

confidence numbers, the drop we

saw in stocks and commodity

price and also higher risk

events for the commodities

market in terms of those US

non-farm payroll. Thanks for

the update. Now let's look at what's happening with

currencies and commodities.

Is The world's major iron

ore miners are in uncharted

territory having failed to

settle on a price with Chinese

steel mills. For their part the

Chinese say they'll continue to

negotiate for a price below

what the Japanese mills agreed

to last month but until then

rolling contracts will revert

to the spot price, causing

uncertainty and instability in

the sector. While negotiations

have run up to the wire in the

past, never before has the June

30 deadline been reached

without agreement. The annual

benchmark system arose because

going back a few years ago, the

iron ore market was much

thinner and yesterday, volumes

were lower, prices were lower,

margin prs producers were

lower. At that time the

benchmark system suited miners

and also the steel producers as

well. But times have changed.

While Japanese, Korean and Taiwanese steelmakers have

locked in a 33% price cut,

China's mills are holding out

for more. I think the Chinese

negotiators have really painted

themselves into a corn corner

here. By being so intransigent,

I think they were surprised

that the Japanese, Koreans and

Europeans have settled at

levels they considered

unacceptable. They could end up

paying more if last year's

prices are repeated. In 2008/09

financial year, the benchmark

was $90 a tonne versus a spot

price almost double that of

$175. Since 2000 the spot

market has been growing. Last

year, it made up nearly 40% of

all iron ore sales. There are

conflicting views in the

industry with some analysts

saying that the upside of an

iron ore price driven by daily

supply and demand will benefit

producers, but others warn that

a complete switch to a spot

market price will damage the

industry's stability. It will

introduce more volatility into

vol loums, it will introduce

more volatility into the

revenues of the companies and

potentially erode some of those

characteristics that have made

iron ore such a great business

to be in. He said agreed

prices usually deliver better

outcomes for producers in the

long term. Whey suspect is it's

not the contract price but the

volume of contracts that go

along with that. If supply and

demand are growing pretty much

hand in hand than volume

contracts lock out new

entrants. But according to 20

year iron ore veteran Malcolm

Randall smaller players will

also struggle if the spot

market is dominant. You are

getting spot prices a lot lower

than benchmark prices in the

current markets, but I would be

what ... um ... concerned as a

junior producer in this current

market, given the enormous

amount of stockpiles being

built up in China. It

definitely would tend to favour

the buyers of iron ore over the

short-term period. The Chinese

think that iron ore prices

ought to be lower. Just because

they think that doesn't

actually mean that that is the

market. China's mules are

banking on this and are

continuing a game of

brinkmanship, saying they can

hold out due to the large

stockpiles they've built up in

recent months. An American

judge has ruled for Texan

billionaire Sir Alan Stanford

to remain in jail until his fraud trial. The judge

overturned an earlier decision

to allow bail after prosecutors

argued he was a flight risk.

The financier is facing trial

over allegations he ran a $7

billion scheme to swindle

investors. Mr Stanford's

lawyers say they're

disappointed with the decision

and will appeal against the

ruling. Sir Alan surrendered to

FBI officers in June and was

taken into custody. Chinese

holding off on a controversial

plan which requires all new

computers sold in the country

to come with Internet filtering

software. The filter, called

Green Dam Youth Escort was to

have been rolled out from today

but officials say computers

makers need more time. The plan

has sparked widespread approval

from inside China and criticism

from overseas. Officials say

it's designed to shield

children from pornography and

violence but free speech

activists say it's an attempt

to tighten the Chinese Government's already strict

controls on Internet usage. Turning to economic news now.

As we heard, Britain's commi

shrank during the first quarter

of the year by the fastest pace

in half a century. Gross

domestic product slipped 2.4%

in the first three months of

this year but there are signs

of improvement in the current

quarter. We thought the economy

had slowed right down. But it's

turned out to be even slower

than that. It had been

estimated that economic output

fell by 1.9% in the first

quarter of this year, but new figures show it slumped as much

as 2.4% over those three months. We haven't seen

anything worse in half a

century. And the pounds,

shillings and pence era. 1958

to be precise. The year the

parking meters were first

installed and 'Blue Peter' took

to the screens. One of the main

factors was construction, with

a plunge of 6.9%. A lot worse

than first estimated.

Mark Steiner runs a building

business in Northamptonshire.

He knows all about how bad

things things were. He

specialises in extension work

and that dried up completely so

he had to lay off almost all

his workers. The first half of

the year it dive bombed. I tried really hard to keep the

three lads on. Service

industries, including catering,

have seen a fall of 1.6%, once

again worse than the first

estimate. This cafe in

Northampton opened six months

ago just as the town turn was

accelerating. The owner who's

been in the business for more

than 30 years says customer

spending just fell

away. They've been so much more

careful with money. So I think

that sort of reflects on what

they bee on the menu these

days. This recession is so much

worse than the last one. The

strongest will survive. That

was then. The first quarter.

But what about now? We're

nearly at the end of the second

and we won't get official

figures on output over that

period till late July. There

have been one or two

indications of a slight

improvement in business

confidence and in the housing

market. House prices according

to the Nationwide have risen

for two months on the trot.

Many experts expect growth

across the whole economy to

return in a few months'

time. It's going to be a slow

grind, but we'll probably reach

some sort of positive albeit it very Mead yek growth in the

third quarter and then a very

slow grind into next year. A

slow grind. That, it seems is

the most any of us can hope for

as the economy moves from

recession towards recovery.

There are mixed economic

signals coming out of Japan.

The country's unemployment rate

has risen to its highest level

for five years. During May the

jobless rate reached 5.2%, up

from 5% in April. Retailers are

among those cutting jobs and

exports are also down. But

other figures released are more

optimistic indicating the

Japanese stimulus package is

work. Household spending is up

by 0.3%, the first increase in

15 month, and the Japanese

economy is expected to expand

for the first time in more than

a year.

Recent talk of a recover y

and that we're starting to see

global economies turn a corner

has sparked a rebound in

markets. But is this all

wishful thinking and hopeful

optimism or have we well seen

the bottom and the beginnings

of a solid recovery? For more

I'm joined by Shane Oliver from

AMP Capital Investors. Welcome

to 'Business Today'. Thank

you. So where are we? Are we

seeing the signs of a real

recovery in equity markets? I

think we are. What we every

seen over the last three months is exactly the sort of thing

you would expect to see at the

bottom of a business cycle. The

share market bottoms out

usually on the back of a few

straws in the wind of positive

economic improvement and that's

what we've seen over the last

few month the and then

gradually you get more signs of - more signs that the rate of

dedlin is slowing and that we

might be coming towards an

economic recovery. If I'm

right, that economic recovery

will be coming through from

later this year, then the share

market has probably predicted

that accurately by bottoming

out in March. Traditionally the

share market bottoms out about

six months before the recovery

commences that play-out seems

to be under way right now. It's

not going to go in a straight

line, though. We saw very

strong gains in share markets

from their lows in March to the

recent highs but as we're still

pretty well aware the reality is that we're still in the

midst of a recession. So that's

occasionally going to be a drag

on shaish markets but I think

the broad trend will remain

up. You wouldn't say then that

we're seeing a cyclical upswing

which is part of a longer

weaker trend then? I think what

we are seeing is we're seeing

the early signs of a cyclical

upswing in share marks. We've

had the initial easy gains as

markets priced out the prospect

of a depression. Now I think

investors are somewhat

cautiously optimistic, still a

bit of skepticism but at least

the depression type scenario

has been priced out which was

becoming more prevalent back in

March. And I think that rebound

in the share market has a lot

further to go over the next few

years. And in turn, the rebound

in the share market will

underpin, will lead a cyclical

economic recovery. Now of

course there's longer-term pressures which will constrain

the recovery in the US

associated with debt and a

couple of years down the track

central banks and government

also have to raise interest

rates and get their budget

deficits under control, which

again will constrain the rate

of growth and might give us

another down-swing, but that's several years down the track

before we need to worry about

that. Would you say that

investors would be wise to snap

up those bargains which are at

low prices or should they still

sit on those sidelines? A lot

of investors would've missed

out on the lows back in March,

because at that point in time

there was still a lot of

skepticism around. The trick

now would be use to any

weakness or correction in

markets and that's what we've

seen over the last few weeks,

the markets have been churning around, they're certainly off

the top, the trick would be to

use that correction as an entry

point to the share market.

Don't forget shares are still

way down on their previous highs. The Australian share

market topped outed a around

6,800. It's currently still

below the 4,000 mark. Likewise

across Asia and in the US,

markets are still below their

previous highs. There is still

plenty of upside which will

unfold over the next few

years. The broader global

economy now. We've heard a lot

tape about shape this rekufry

will take. I heard recently one

analyst went so far as to say

it would look like an inverted

square root sign. What shape

are you subscribing to? Well, I

guess there is another one you

could add in there, an L shaped

recovery or none at all. That

was I guess starting to become

more prevalent, that sort of

scenario, people were talking

about that back in March. The L

shaped recovery has given way

to this debate as to whether

it's going to be a V or a U.

History tells us that the

deeper the down-swing, the

bigger the stimulus on part of

governments, the greater the

chance of a V shaped recovery.

You can't rule out a V shaped recovery. That's where we come

in very steeply and come out

the other side steeply with

maybe 5 to 6% economic growth

in the first year. I don't

think you can rule that out. A more likely scenario is

something like the U where the

first year of recovery was more

of the order of 2% economic

grothd and the key constraint

on that will just be these

ongoing issues regarding debt,

the fact that banks will be

less willing to lend

aggressively as they have in

the past and people will be

less willing to borrow as

aggressive as they have in the

past. I would probably lean

toward as U shape recovery but

you can't rule out a V shape.

The W if you think about a W,

it's really just two Vs side by

side and that's the sort of

scenario that we get a nice

recovery and then central banks

have to slam the brakes on and

we come screaming down the

other side. To see that

scenario unfold would probably

take a couple of years though

and probably too early to start

debateing that one at the

moment. You don't subscribe to

the inverted square root model

then? (Laughs) Inverted square

root is a complicated model in

the sense that it does allow -

the first part of a square

root, the upside bit, does

suggest we'll get a deep V or a

very sharp recovery then go

sideways for a long time. It's

unlikely we'll see economic

activity in countries like the

US and Asia and elsewhere go

sideways. Either they'll keep

recovering or come back down. I

would probably rule ut the

square root shape red covery. A

couple of other things I want

to cover with you. We've just

seen this mixed dat a out of

Japan this morning. What's your

take on Japan's economy? Is it

on the up or is it s there more

bad news to come? The labour

market indicator is a lagging

indicator. Yes, unemployment is

still rising as it is in the US

and elsewhere at the moment. I

would be ebb focusing on

measures like business confidence, consumer

confidence, those sorts of

things are telling me that the

pace of decline in Japan is

slowing down and they should be

returning to positive growth

some time through the current

half year. Probably in the

December quarter. So I'm

reasonably optimistic that

Japan will start to see

recovery coming through later

this year. Australia's economy

narrowly missed a technical recession. Do you think that

will continue to be the

case? I'd like to say yes but

unfortunately, I think the

economy will slip into

recession or go into a negative

quarter in the September -

sorry in the June quarter ie

the quarter just ended and

likewise in the September

quarter. We will have the two

negative quarters. Main drivers

of that will be a fall back in

business investment. The

indicators on business

investment are very weak. It's

unlikely export volumes will be

as strong as they were inspect

March quarter. So I see growth

going back into negative territory for the June and

September quarter. I don't see

a big slump. Nothing as bad as

we're seeing in the UK and US

and Europe and nevertheless a

couple of negative quarters

ahead of a return to more sustainable positive growth

from later this year, driven by

a housing recovery. Shane

Oliver, we've run out of time

but thank you so much. My pleasure.

High-end Australian retailer

David Jones is tipping full

year profit group of 8 to 12%

well above previous estimates

but the company's chief the

improving results have more to

do with cost cutting than

booming sales. Blame it on the

recession or even the weather

but there was an air of gloom around this year's winter

sales. However it seems the

retail mood is lifting, with

Myer and JB Hi-Fi both recently

upgrading their outlooks. Now

David Jones has followed suit, forecasting earnings for the

six months to July will be 20

to 30% above last year. That's

well above the guidance it

issued less than two months

ago. The department store is

also tipping a bigger increase

in full-year profits than it

had previously anticipated. I

think you have to give credit

where credit is due. They have

done well in steering a

department store through the

most difficult retail

conditions for several decades.

But by the same token we have

seen a recovery in the share

market which has been a

signifier of a broader

improvement in confidence in

the general economy. David

Jones chof executive Mark

McGuinness says there was been

a significant shift in the

group's performance during May

and June. The stimulus package

has been good for confidence but equally important to us has been the stabilisation of the

stock market. As we've said for

some time, department stores

are first in and first out of

any downturn, including a de

recession. He says there has

been only a slight lift in

sales recently and the profit

upgrade is more the result of

David Jones' cost control and

focus on profit margins. He remains cautious about the

economic outlook but expects

consumer confidence to improve

in the second half of the

year. If you talk to other

people in retail, they will

tell you that they've been

beneficiaries of the

government's stimulus packages

and they're all now looking to

what happens after those

government stimulus packaging

wear off and you have a

situation where unemployment

starts to creep up and that's

probably concerning investors

still. David Jones' profit

upgrade sent its share price

soaring 10%, and took others

along for the ride, including

Harvey Norman and Clive Peters.

Tom Hodson says the earnings upgrade is a vindication of

David Jones' focus on costs and

prost margins. It's a bit

different to how department

stores are traditionally run.

Usually, a store would focus on

maintaining its market share by

maintaining its service levels

and running the cost line

noting a res yefly low but

maintaining a bit of fat in

there so that customers are

serve and retain their brand

loyalty. McMcGuinness says

last year's sale cleared the

chain's excess stock. This year

it's offering to clear any

overhang from suppliers at the

right price. Each year it seems

to be that the sales are

getting bigger and more heavily marketed. No doubt David Jones

and other retailers will be

trying to push product out the

door as quickly as possible,

but they will have to balance

that between how much margin

they give up in the way that

they do that. And if it turns

out that David Jones has

sacrificed market share in its

efforts to protect profit

margins, then that may mean the

company doesn't enjoy the full

benefits of any economic

recovery when it eventually arrives.

The Japanese electronics

giant Canon the maker of

printers copiers and digital

cameras is set to cut about 700

competers in its computer chip

division. The jobs will go from

the section which makes chip

steppers which are

multimillion-dollar machines

used in the production of

semiconductors. Canon is the

third biggest maker of chip

steppers and the 700 jobs equal

about a third of its employees

in that division. The company

doesn't expect its division to

turn profitable until 2012. The Walt Disney company has

announced expansion plans for its Hong Kong theme park worth

over $450 million. Disney will

be working in cooperation with

the Hong Kong government, which

announced the expansion plans

at a news conference.

Attendances at the Hong Kong

Disneyland have been flagging

and it could face competition

from a rival theme park in

Shanghai. The new Hong Kong

attractions will include two

not seen at any other Disney

park. Disney's new investment

will mean the government's

stake in the park will fall

from 57 to 52%. Now let's look

at what's making headlines

around the region. The

'Financial Times' reports that

China has agreed to delay

today's deadline for computer

makers to install controversial

censorship filters and the

'Wall Street Journal' says a

consortium led by BP has won

the rights to develop a giant

oilfield in south eastern Iraq.

That's all for edition of

'Business Today'. I'm Whitney

Fitzsimmons. Thanks for joining

me. Enjoy your day.

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