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Live.

Good morning. Welcome to the

program. I'm Alicia Barry. In

'Business Today', changing

lanes, tough new fuel

efficiency standards for the US

car industry. Steady flow -

China locks up a decade-long

deal for Brazilian oil. And

future resolution - the dispute

over Australia's growth

projections. Those stories are

coming up shortly but first

let's take a quick look at the

market numbers.

Well, for more on the market

action I'm joined by Julia Lee

from Bell Direct. Good morning,

Julia. Wall Street stumbled

this morning? Initially it was

a good start to Wall Street, in

fact we saw the S&P 500 index

up by 0.7% during the session

but once again it was the last

hour of trade which really

dragged down on the different

indices. Moody's came out and warned commercial proper prices

have been plummeting, bad news

for financial stacks. We also

saw home builder hit by weaker-than-expected housing

data. In the end we saw the Dow

down 0.3%, the Nasdaq managed a

slight rise, up 0.1% and the

S&P 500 was down 0.2%. What

did the housing data show?

Housing data was quite good in

March, in fact in March we saw

housing starts up 510,000 so

analysts were expecting that to

rise to 520,000 in terms of an

annual rate in April. Instead,

we saw a very steep plummet to

just 458,000. Building permits,

a sign of future construction,

also fell by 3.8% to just

498,000 and there was an

expectation there for 530,000.

It does look like housing

finance still remains quite

scarce and there are fears

commercial property will

continue to be impacted so some

disappointing numbers flowing

through there. We're expecting

growth figures out of Japan?

After three consecutive

quarters of declines it doesn't

look like these numbers are

going to be much healthier.

What we're seeing in Japan at

the moment are consumers are

weak, we're seeing the jobless

rate the highest in five years,

businesses looking weak,

exporters hit by the global

slow-down as well as a

strengthening yen. We are

expecting to see a fourth

quarter of cracks, we're

expecting a contraction of 4.3%

in the first quarter, taking

the annual rate to a new record

low. Those numbers are expected

to be quite bad today in

Japan. How is the session on

regional markets shaping up

today? I think the big word

today is going to be

consolidation. We saw a

lacklustre finish in the US but

really the US markets didn't

move too much at all so Asian

markets are expected to just

drift sideways. We are seeing

the Nikkei futures up by 45

points at 9,003 90. The hang

seng futures have gained 625

points but the Australian

futures down by two points,

altogether looking like a

pretty flat session in Asian

trade. Oil has continued to

surge overnight. Where is it

turning now? Oil prices have

reached a 6-month high. If I

bring up the chart for oil

prices, you'll see they are

currently at their highest

level for a year so things are

looking good. Oil prices were

helped by a weaker US currency

which encouraged investment to

flow into commodities. We have

seen a fire at the Flint Hill

refinery which has a capacity

of 300,000 barrel as day. We

see the oil inventory report

out today and an aalists

sprkting to see ifventories

fall which helped oil prices.

We saw prices rise 5% to just

under US $60 a barrel. Thank

you. That was Julia Lee from

Bell Direct there. Now let's

take a look at what happening

with currencies and

commodities.

The US car industry is facing

a new challenge, President

Barack Obama has announced

tough targets for new fuel

efficient vehicles in order to

cut pollution and lower

dependence on oil imports. The

changes will push up car prices

but will also mean lower fuel

costs for drivers. By 2016, the

President said, cars sold in

the US will have to get an

average of 39 miles per gallon,

light trucks 30 miles per

gallon. We have set in motion

a national policy aimed at both

increasing gas mileage and decreasing greenhouse gas

politician for all new trucks

and cars sold in America. The

President provided vivid

illustrations of how much oil

he claimed the plan would save,

1.8 billion barrels over the

next five years. This is the

projected quve of taking 58

million cars off the road for

an entire year. The air will

be cleaner, it President said,

with greenhouse gas emissions

reduced over the lifetimes of

the new cars by 900 million

metric tons, comparable to

shutting down 194 coal-fired

power plants. This will mean

that cars will cost more to

manufacture and therefore to

buy, an average of $1300 per

car more by 2016. Yes, it costs money to develop these vehicles. But the President

says the cost will be more than

made up for by savings at the

pump. What was unprecedented

today was environmentalists

heralding the announcement were

joined by their former

opponents the auto makers. I

think the question is why now

and how did this all come

together? Auto executives say

they were eager to embrace one

national standard instead of

the current parkwork across the

country. De spite all kinds of

financial incentives, car

makers are finding hard to

attract new customers. This

week the UK introduced a new

scheme giving buyers a $3,000

rebate when they trade in their

old car but already Ford and

Honda have delayed their

involvement in the scheme. What

would get you to walk into a

dealership and buy a new car?

Dealers are offering zero per

cent finance, manufacturers

are offering massive rebates.

On Monday the UK joined the growing list of Governments

offering cash to those who

trade in older vehicle trz new

ones. The nature of the way

the schemes are set up which is

a fixed part of money, a

limited incentive, means people

are going to hopefully be into

the showrooms quickly in order

to secure a deal snrierchlt

worked well in other countries

with sales in Germany and

France jumping after similar

offers were launched. But with

so many other incentives

already given in the UK, some

question whether the UK plan

will do much. Some of the car

companies are not particularly

keen on it. I think it's very

early days here but I'm not

expecting the level of success

in the UK that we've seen in

Germany. Even though and

manufacturers have delayed

joining the UK plan because of

confusion over the amount of

tax to be paid, the Government

says that adding some $3,000 to

any dealer incentives will

create jobs. If dealers want

to go beyond the car strappage

scheme and compete even further

I'm not stopping them. I

believe in competition. Honda

had temporarily closed its UK

assembly plant to bring down

inventories. The line will

start up again in June. Toyota

hopes something else will get

you into the showroom, a

prevamped Prius. The entry level third generation hybrid

has been aggressively priced,

in part because Honda's cheaper

hybrid, the Insight, has been a

big hit. So cheaper cars, cash

incentives, cheap financing,

all ways the auto sector hopes

to see its worst days in the

rearview mirror. Japan's

biggest bank, Mitsubishi UFJ,

has forecast a return to

profitability this financial

year after taking a big hit

from global exposure to the

financial crisis. The bank

announced a loss around $2.7

billion for the year ended

March. The group's credit costs

more than doubled to $6.3

billion but despite Japan's

deep recession and rising

bankruptcies, the bank is

predicting a profit of $3

billion this year. Last year it

paid $9 billion for a 21% stake

in troubled Wall Street

investment bank Morgan Stanley.

China will lend a Brazilian

reesources company $10 billion

in return for a guaranteed

supply of oil over the next

decade. Other deals signed by

the countries' Presidents

covers ports and farm products,

a trend expected to continue as

trade links strengthen.

Brazilian buy ing Jose Roberto

Alves is check out handbags at

this trade show, trying to pick

designs that will appear to

shoppers back home. After two

years working in China, he now

exports an average of 15,000

bags every month, taking

advantage of low prices offered

by Chinese manufacturers. He's

forged close ties with local

suppliers even if their working

styles a-R a little bit

different. I have some of my

suppliers that we have a really

good relationship because I'm a

Brazilian so the Brazilian way

to do business is more

friendly. Alves and the other

buyers like had him make

possible the growing economic

ties between Brazil and China.

The Brazilian Government says

in April China overtook the

United States as Brazil's largest trading partner,

knocking the US off its

pedestal for the first time in

decades. Alves says 40% of his

goods pass through this ports.

While shipments to the US and

Europe dwindle, Brazilian

demand is still strong. In

2008, product shipped from

China to Brazil surged by 57%

from the year before. That's

welcome news for electronics

manufacturers James Wang, the

slow in global demand has forced thousands of other

factories in southern China out

of business but his company,

JWL, is prospering. Every year

he sells more and more products

to Brazilian customers. He says

they'll soon account for 15% of

his total business.

TRANSLATION: I pelt that the

Brazilian - felt that the

Brazilian market is quite an

energetic one. I feel the

purchasing power of Brazil is

going to be huge once the

exchange rate gets steady. For

now, Brazilian markets may not

match the size and scale of

other nations but Wang and his

workers are glad the orders are

coming in. I know it is tough

for him to run the business in

such a poor economy. It's not

easy for him to keep us all

during the global economic

storm. An established factory

in China, grateful for the

shelter provided by an

up-and-coming Brazil.

Australia's economic

heavyweights have defended the

growth forecasts in the Federal

Budget which have been

criticised by many commentators

as too optimistic. Treasury

secretary Ken Henry says there

are a number of historical

precedents to support the forecast while the governor of

the Reserve Bank says some

green shoots of recovery are

already evident and he expects

a return to slow growth by Christmas. Every year the

Treasury secretary gives a post Budget address to Australia's

leading market economists and

after one of the most dramatic

years financial markets have

experienced, he began with an

understatement. A lot's

happened sints I spoke to you

last year. But it was the

Budget on everybody's mind and

in particular these numbers, a

contracting economy this year

which no-one disagrees with

fall eoed by a return to

reasonable growth nexyeefrt and

then the controversial bit,

boom time growth for the

following six years. How

Treasury arrived at these

figures has puzzled many

economists and Ken Henry admits

the Budget may not have

adequately explained his

department's thinking. On top

of the challenge for designing

a Budget for the most difficult

macro-economic circumstances in

many decades, there is also

this communications challenge.

Some Budgets speak for

themselves, I guess. This one

apparently does not. Dr Henry

set about re-dressing that

situation, spending half an

hour of his presentation in

detailed explanation of how the Budget's forward growth

estimates were calculated,

including a look back in time

which Dr Henry says supports

those estimates. As it happens,

the 1960s produced seven years

of growth above 5%. For the

eight years 1962/'63 to

'69/'70, growth averaged

5.9%. Earlier in the bank the Reserve Bank Governor supported

the Budget's growth estimates,

Glenn Stevens telling business

leaders they were not crazily

optimistic. It is, I think,

quite feasible to expect

above-average growth for a

number of years at some point

during an economic upswing. Mr

Stevens's speech came on the

day the Reserve Bank released

the minutes of this months's

board meeting at which interest

rates were left unchanged

despite another cut being

considered. The minutes note conditions on financial markets

are improving and the rate of

slow-down in the global economy

is easing. As for a return to

growth... I thrintser a bit

early to say that is beginning

just yet. There certainly have

been a number of things

happening in a number of countries which are consistent

with the view that a new

international expansion will

get under way towards the end

of the year. Mr Stevens says

it's time now to start

preparing for the recovery and

he pointed to trade as a way to

maximise global expansion when

it arrives. He says all

countries must resist any

recession-inspired tendencies towards protectionism.

Countries like ours need to

keep making the points that

free trade is not a zero sum

game, it's a positive sum game.

It spurs innovation, it

increases global growth and it

raises living standards. And

on that point, Mr Stevens noted

that Chinese industrial output

was now back to the levels of

last July following four months

of contraction, although like the Reserve Bank board minutes,

he said it was too early to say

if that trend would continue.

In the United States, a

return to growth could be

hindered by a deflationary

forces which are beginning to

surface. To look at the impact

of falling prices and how

policy makers can guard against

t I'm joined by Tony Farnham, economist at Paterson Securities. Good morning and

welcome. Thank you. Firstly in

boom times inflation is often a

problem but at the moment it's

deflation? That's certainly

the case and unfortunately it's

not the good deflation either

caused by sustained

improvements in productivity,

this time around the primary

drive is collapsing energy and

metals prices, they have wash

thrued the PPIs and eventually

to the CPIs in terms of quite

significant declines and then

on top of that of course as well with the economic

slow-down we've been experiencing, retailers have

not had the nerve to go out

there and even hold prices

where they've been for fear of

losing market share as sales

levels fall. Why is deflation

such a negative thing if prices

are falling? Wouldn't that make

things cheaper? It does make

things cheaper but the down

side is it also make s asset

values fall. Think of the

situation where you have

deflation for a period of time,

you have nominal debt values

still the same but the asset

values declining. If you

borrowed debt to fund those

assets, you are losing equity

in that holding. As a result, you're experiencing wealth

dilution and eventually that

impairs your ability to spend.

Then on top of that as well,

deflation has quite significant

negatives too for monetary

policy setting. You've got the

situation now where Central

Banks currently have rates

around zero per cent . If

deflation picks up and then

happens for a period of time,

you're effectively getting an

increase in real rates. We've

just seen recently the biggest

drop in consumer prices year on

year in the United States since

1955. How concerning is this

some From a headline level,

yes, it is certainly concerning

and it did grab a lot of

headlines. US CPI headline

April on April fell 0.7%. Dig a

little deeper, though. If you

look at the core numbers, and

they're the numbers that

exclude energy and food, you

still had an annual increase

about 1.9%. Not the inflation

genie jumping out of the lamp

type stuff but it does indicate

at least at this point in time

inflation is not all

pervading. How serious do you

think deflation is in the US?

It is something that has to be

monitored very closely if we do

get a su stained period of

deflation in the US it will

hinder growth. US is still the

number one economy in the world

so if you have the situation

where they're struggling for

growth, the efforts of the rest

of the world to get over what's

going to be a tough 2009 will

be made all the harder. OK, so are there fears the Federal

Reserve will be too slow to

raise interest rates like it

was after the deflation scare

in 2000 flee? You're always

going to get the inflation

hawks saying when we start

seeing hints of economic

recovery, then's the time to increase rates again and also

as well cut back on fiscal

stimulus, but that ignores a

couple of complications. First

of all the political one, if

you're someone in parliament at

this particular point in time,

you don't want to be seeing a

run of interest rate increases

occurring on your watch. The

other complicing factor is

monetary policy impacts with a

lag. That being the case, more

often than not when monetary

policy adjustments occur they

go too far one way or the

other. From my perspective, I'd

be happy if inflation did

reappear. It really comes down

to this. It's a lot easier to

wring inflation out of a live

economy than deflation out of a

dead one. How does the Fed

guard against inflation and the effects of the financial

crisis? I guess it's just more

of the same. They've already

got interest rates at near

enough to zero in the US so

they'll be resorting to things

like quantitative easing but

for me, much more important

thing is what the Fed and other

financial regulators have to do

to ensure that financial

institutions in the US

adequately capitalise, if

that's the case, they then have

the scope further down the

track to deliver lending growth

and you never get GDP growth

without healthy increases in

lending growth. We've seen

policy makers talking about

green shoots in the US economy.

How will deflation impact a

recovery? I guess you've got

to be brutally honest about

this one. If you did have the

situation where deflation

reared its ugly head and got

worse as time goes by, the

green shoots would go and so

would a couple of bows on the

graph tree as well. It's really

that serious. Tony Farnham,

thanks for your time today.

Thank you.

Australia will soon have a

new fibre optic link to the

United States but it's not one

the major telcos are happy

with. Against the odds, a small

player called Pipe

International has raised $200

million to lay a new submarine

cable to Guam. The project

sparked a price war even before

the company and its backers

passed the first milestone. A

suburban soccer field seems an

unlikely place for a major new

broadband link to the world to

pop up but at today's official

landing, a small player has

taken on the big four

established providers. I've

got the family, wife and kids,

and even the father-in-law so

it's something that happens

once in a life so I'm certainly

not gonna miss it. I think it's

just pulling up now. There it

is. There it is. This end of

the fibre auntic cable has come

from a ship positioned off

Sydney's Collaroy Beach which

will now start laying cable to

Madang in Papua New Guinea

where it will be joined to

another being laid from the

telecommunications hub of Guam

in the Pacific. In all, a

6,900km link. The PPC1 cable

will enable an extra two terabits capacity for communications to the United

States. Industry analysts see

multiple benefits. It's about

five times Southern Cross in

terms of capacity so a big

increase in capacity out of the

country. I think the second

issue is structural. It's owned

by a company listond the

Australian stock exchange, it's

not a pipe which is owned by a

consortium of telcos. The

company was formed in 2002 by

two school friends who put up

$50,000 each. Three years ago

they came up with the idea of

laying the international

submarine cable. It hasn't been

all smooth sailing for this

ambitious project. Late last

year, cable-laying was halted

as financing was hastily

rearranged. In the middle of the global financial crisis,

the company needed to raise

$100 million US. We had to

scramble and look for a way in

which we could complete the

project. The funds were found

without the help of the banks,

with customers making

commitments so that the project

could proceed. We're looking

to get hold of the capacity as

soon as possible and everything

has been running smoothly,

we've been in contact with

Pipe, they've been very excited about the project and so are

we. I think the cable arrived

at exactly the right time for

the growth of the Internet in

Australia. Internode's demand

for bandwidth has doubled over

year for a decade. Once a

special adviser to the

Government on the economy, Paul

Twomey says the cable has

already increased competition

and driven costs down. I'm

hearing the pricing will be

almost half what people are

paying at the moment. While existing international

cablerise operating at less

than half capacity, it's stkt expected the Federal

Government's planned national

broadband will spark more

usage. If Senator Conrad wants

100 Meg bits per home and move

to the gig bit, which is what

the Singaporeans have got

RFPesses out for, that's going

to change the nature of

broadband in Australia. With

the land-based sections now

complete, the new cable is

expected to be laid and

operational by September. Women

in the troubled areas of India have taken their financial

futurener to their own hands

and opened a bank where men

aren't welcome. Tired of being

refused loans by existing loans

in the Kashmir capital, the

group opened their own, called

the Kashmir, women's

cooperative bank and says it

will provide loans to women in

need and give them advice on

loans and assets. So far had it

has made loans to 30 women, in

some cases to help them start

their own businesses. Loans

have been for as little as US

$420. Now let's take a look at

what's making headlines around

the region. The Standard

reports that the head of Hong

Kong's Central Bank will step

down in October after 16 years

at the helm. The 'Financial

Times' says investors in Shell

have taken part in one of the

biggest backlashes ever against executive pay and the Wall

Street journal says up to 900

small and mid-sized banks could

face huge losses caused by

commercial real estate loans.

That's all for this edition of

'Business Today'. If you'd like

to look back over any of our

interviews, please visit our

website at www.-Australia Network.com/business today. We

look forward to your feedback.

I'm Alicia Barry. Thanks for

joining me. Enjoy your day. Closed Captions by CSI