Business conditions plummet in June quarter: Economy Roundup

Business conditions plummeted during the June quarter, with the decline caused by concerns for sales and profitability, although employment conditions remain high, the latest NAB business survey has found.

Confidence fell by a seasonally adjusted 14 points to three, while conditions fell by two points to six, according to the survey. The trading index dropped five points to four, while profitability also fell six points to three. Employment, however, gained two points to nine.

Regarding the next three months, expectations dropped by five points to 14, with expectations for the next year dropping three points to 28. Forward orders remained steady at two points.

NAB adjusted its growth forecasts in light of the survey, with GDP of 2.75% expected in 2010, and 3.5% in 2011. It also says interest rates rises will occur later this year due to inflationary pressures.

NAB said confidence fell to more “temperate” levels due to European bank troubles, along with the ongoing negotiations with the mining sector. However, it also notes the survey was conducted prior to Julia Gillard’s appointment as prime minister and a negotiation with the mining industry.

“Business conditions eased in the June quarter, driven by lower sales and profitability. Employment rose, possibility reflecting the strength of demand earlier in the year.”

The survey also noted retail prices “barely moved” during the quarter, with margins now the lowest out of any sector and they are expected to keep falling.

Inflation expectations also increased, with a total of 27% of respondents expecting inflation to remain below 3% during the medium term. Those expecting inflation to be in the 3-4% range increased to 73%.

“In Australia, cautious consumers, rising interest rates, the passing of the fiscal stimulus, falling and volatile equity markets and concerns about European debt…have slowed activity growth and new orders.”

“Core inflation should test the upper bounds of the RBA target range during 2011, so we expect rate rises to begin again in late 2011 [sic] (say 25 points in both November and December) and to peak at around 5.5% in mid-2011.”
Oil giant Santos has recorded total output of 11.9 million barrels of oil equivalent for the second quarter, down by 3% from the March quarter, Total revenue for the three months to 30 June was up 20% to $580 million from the second quarter of 2009.

“Gas and liquids production from the Cooper Basin improved in the June quarter and will continue to increase in the coming months as recovery from the flood events continues,” chief executive David Knox said in a statement.

“Production cost guidance has been increased primarily due to higher production from John Brookes and flood related impacts in Central Australia.”

Gold miner Newcrest Mining has also recorded a 26% increase in gold production in the June quarter, while copper production rose 2% during the quarter to 20,827.

“Cost guidance was achieved at each site except for Hidden Valley where commissioning delays during the year extended the period of cost capitalisation until May 1, 2010,” Newcrest said in a statement.

Sharemarket opens lower after Wall Street falls

The Australian sharemarket has opened lower today, following a weak performance on Wall Street where stocks dropped due to fears over comments from Fed chairman Ben Bernanke.

The benchmark S&P/ASX200 index was down 15 points or 0.36% to 4397 at 12.15 AEST, while the Australian dollar also fell slightly to US87c.

AMP shares lost 0.4% to $5.27, while Commonwealth Bank shares fell 1.1% to $50.57. Westpac dropped 0.4% to $22.42 as NAB declined 0.5% to $24.08.

Also in the mining sector, Bendigo Mining and BCD Resources have announced they will merger, after entering into a scheme implementation arrangement.

“The merger is unanimously recommended by the BCD directors and each of the directors of BCD (and each relevant entity controlled by a BCD director) intends to vote in favour of the scheme in the absence of a superior proposal and subject to the independent expert concluding that the scheme is in the best interests of BCD shareholders,” the companies said in a joint statement.

Linc Energy has said once again it has not finalised any terms with parties on the sale of its non-core coal assets, in response to a query from the ASX regarding an increase in its share price of 18% yesterday.

“The company confirms that it remains in detailed negotiations with a number of parties in relation to the sale of its non-core Queensland coal tenements,” it said in a letter.

Foster’s says internal earnings target for management only

Foster’s Group has said an internal finance report specifying a 2011 earnings target of $84 million was for management only, triggering an ASX clarification.

“Foster’s notes media reports this morning of an internal earnings target of $84 million for its Australia and New Zealand wine business,” the statement said.

“The number represents an internal management (earnings before interest and tax) EBIT target for the Australia and New Zealand wine business for the 2011 financial year presented to an internal sales conference yesterday.”

“Some of the materials from that conference were still in the room, which is where that number was picked up from,” a spokesman told AAP. “Someone’s picked up some conference material which has led to a media disclosure and hence our clarifying note.”

In the United States, stocks have continued to fall after Fed chairman Ben Bernanke said the outlook for the economy was “unusually uncertain”.

“We remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential in a context of price stability,” he told the Senate Banking Committee.

The new sent the Dow Jones Industrial Average down 109.51 points or 1.07% to 10,120.45.