Scotland independence poll puts banks on alert; Deutsche Bank warns "be afraid, be very afraid".

After being overshadowed by other greater geopolitical events - such as turmoil in Ukraine and the Middle East - next week's referendum on whether Scotland should secede from Britain is starting to get interesting.

An opinion poll has shown for the first time that a narrow majority of Scots might vote for independence and splinter the 307 year old union with the United Kingdom.

The poll points to a knife-edge result but already it has caused enough uncertainty to push the British pound to its lowest level since November.

Here's my report from yesterday's edition of The World Today.

Now some of the world's biggest banks have gone on alert given the implications of a "yes" vote which until now has been seen as unlikely:


DEUTSCHE BANK

• "Be afraid, be very afraid."
• "The implications of a yes vote would be huge, and are magnified by the sense of institutional unpreparedness. A 'yes' vote could easily derail the UK economic recovery.
• Could cause a "destabilizing crisis" in the banking system and at best leave the rest of the UK with an unstable currency union during talks on the new fiscal and monetary arrangement.
• "There is now no question that the momentum is now all with 'yes'."

GOLDMAN SACHS

• Near-term consequences of a "Yes" for the Scottish economy, and for the UK more broadly, could be "severely negative". In the long run, "little reason why an independent Scotland could not prosper: there is no evidence to suggest that smaller countries are richer or poorer, on average."
• Highlights risk that uncertainty over whether an independent Scotland would be able to retain sterling could result in an "EMU-style currency crisis" for the UK.

UBS

• "Significant risk" of bank deposits fleeing Scotland within days of a Yes vote.
• Investor concerns would likely focus on currency issues, EU membership and future Scottish economic policy. This could deter investment in Scotland from foreign and British companies.
• The increase in the net debt-to-GDP ratio for the rest of the UK if Scotland refuses to repay its debt is "relatively slight" and potentially a price worth paying for avoiding a dysfunctional monetary union. Scotland would pay more relatively for issuing its own debt as a result.

CITI

• The forex market's single biggest player made sell sterling its trade of the week on Monday. A "Yes" vote could drive the pound to $1.56 or lower.
• "With the lessons of the euro zone debt crisis still fresh in investors' minds, a currency union (after a "Yes" vote) may weaken sterling in the same way it weakened the euro."
• Concerned that a Scottish exit will raise the chances of Britain leaving the EU within years.

BARCLAYS

• Yes vote would prevent the Bank of England from raising interest rates, encourage "financial fragmentation risks across Europe".
• Negotiations on debt and North Sea oil to fuel volatility.
• "Yes" voters tend to underperform their pre-voting polls by a significant margin as minds change in the privacy of the voting booth.
• Lenders would likely ask for risk premium for borrowing to newly independent nation.

STANDARD BANK

• A quick 5 percent move, towards the high 0.80s for euro/sterling, is certainly possible after a Yes vote, and, with this, a move to the mid-1.50s against the dollar.

MORGAN STANLEY

• Yes vote could knock 10 percent off value of sterling.
• One of the few banks to focus earlier this year on the potential that Scotland might not take on its portion of UK public debt.
• Bank's economists chiefly concerned on Monday by the prospect of Scotland being refused EU entry and the rump UK following it out after a 2017 referendum on membership.

SOCIETE GENERALE

• "Market complacency on Scotland is shattered."
• Scotland leaving the UK would make the UK leaving the EU considerably more likely, which could reduce potential GDP growth by as much as 0.5 percent per annum.
• Sterling could drop as much as 5 percent against the dollar after a Yes vote.

BNP PARIBAS

• A transition to other currency arrangements would be complex, with "sterlingisation" or a fixed exchange rate likely to put upward pressure on Scottish interest rates.
• Still expect downside for the euro against the pound, but it "could be a bumpy descent" into the vote.
• Scottish bonds could yield between 50 to 150 points more than AAA gilts, depending on how talks on independence pan out.
• In an "unfriendly outcome" of such talks between London and Edinburgh, the 10-year gilt asset swap could cheapen by 20 basis points, consistent with a 1-notch credit rating downgrade.

BANK OF AMERICA-MERRILL LYNCH

•  "If elevated uncertainty receded fairly swiftly, the effects of any lasting decline in the currency might be the dominant consideration, potentially adding to the case for the BoE to begin raising rates."

Qantas $2.8 billion loss a record for the airline and one of the biggest in Australian corporate history. So is it time for CEO Alan Joyce to go?

I interviewed Qantas chief executive Alan Joyce for The World Today on the ABC.

Despite growing calls for his head, Alan Joyce says he has no plans to quit and that the Qantas board has no plans for succession.

Space junk deal sees Electro Optic Systems shares rocket more than 30 percent

Shares in a small company that tracks space junk have gone into orbit after it struck a deal with the US defence giant Lockheed Martin.

The strategic partnership announced this morning by Electro Optic Systems will see the development of a tracking centre in Western Australia to detect and monitor 25 percent of all space junk.

The massive problem of space junk was illustrated last year in the film "Gravity".

News of the deal with Lockheed Martin saw E-O-S shares rocket by more than 30 percent.

I spoke with chief executive of E-O-S, Dr Ben Greene, on the The World Today.

Actuaries call for review of retirement income system; worried about limited guidelines for reverse mortgages

The professional body representing actuaries is urging the government's inquiry into the financial system to recommend ways to make retirement income streams work better.

The Actuaries Institute says the current choices for retirees of lump sums, account-based pensions or annuities are not necessarily appropriate given the rapidly ageing population.

The Institute is also worried about the lack of regulatory oversight of reverse mortgages where retirees are able to access the equity in the family home.

Listen to my interview with Actuaries Institute chief executive David Bell.

Second round submissions to the Financial System Inquiry led by former Future Fund boss David Murray close later today.

Read the FSI's terms of reference which were announced in December last year.

Construction sector plagued by phoenix tax, pay dodges

Some of Australia's biggest construction projects are being probed by regulators in relation to claims of corruption and tax avoidance.

The Australian Tax Office (ATO) and the Australian Securities and Investments Commission (ASIC) are paying special attention to what is known as phoenix activity in the construction sector, where companies go into liquidation to avoid paying entitlements to their staff.

The ATO and ASIC have joined forces with the Fair Work Building and Construction directorate to examine illegal phoenix scams which are costing as much as $3.2 billion per year.

AUDIO: Listen to Peter Ryan's report. (AM)

The investigations will also examine allegations that some scams in the construction industry have links to organised crime.

ASIC commissioner Greg Tanzer told the ABC's AM program that the phoenix activity was focused on "off-the-books" sectors such as transport, security and cleaning services.

"Our intelligence suggests that there's a range of issues that arise in the construction industry," he said.

"What we're finding is that there is a disproportionately large number of cases perhaps because of the nature of the industry and the number of workers involved in those industries but, whatever the reason, it seems to be a target for this type of activity.

"We have found that the construction industry is a particular hotspot for phoenix company activity, and this affects not just the employees in the construction industry who might be affected directly because their superannuation entitlements might not be paid, or their leave entitlements might not be paid.

"But also, critically, other contractors - sub-contractors and sometimes head contractors - are affected by companies going out of business, doing so intentionally with the absolute deliberate intent of defrauding all of those creditors and employees."

Consulting firm PwC, in a study for the Fair Work Commission in 2012, found that illegal phoenix activity costs between $1.2 billion and $3.2 billion per year.

"From our perspective, we see just far too many individual problems that are caused by this type of activity, because it doesn't need to be a large amount of money if you've been gutted out of your leave entitlements or your superannuation entitlements," Mr Tanzer said.

ASIC has commenced a wide ranging program aimed at the construction industry in which 6,000 smaller companies were targeted, and hundreds visited, to be reminded that heavy penalties apply for proven phoenix activity.

Mr Tanzer said the investigations would examine claims that organised crime is involved in construction sector corruption.

"We are concerned that the construction industry in particular seems to be a target for this type of activity and it really can be quite pernicious and cause very serious effects for the employees and the other creditors of companies that phoenix," he added.

Phoenix activity, where a company "rises from the ashes" of liquidation, without paying taxes or entitlements, is constantly in the sights of ASIC and the ATO.

Greg Tanzer told AM that such activity appears to increase during softer economic times, such as those being experienced now.

Small bank shows up big end of town on boardroom diversity

Sometimes it takes a small player to prove that diversity is possible in company boardrooms and the ranks of senior management.

While the big end of town often often talks about diversity, the financial minnow Teachers Mutual Bank can boast four women from a Board of nine.

It's an important and interesting case study in a world where blokes still rule in the boardroom.

Although almost all ASX 200 listed companies have policies on improving diversity, only around 19 percent of companies have turned an unenforcable ambition into reality.

The Australian Council of Superannuation Investors (ACSI) last year expressed its concern at the slow progress and the Sex Discrimination Commissioner Elizabeth Broderick recently warned quotas might be necessary.

So how has Teachers Mutual Bank done it?

I spoke to chief executive Steve James on the ABC's "AM" program.

He says it's all about representing members - of whom 59 percent are women.

Bank of America pays US$16.6 billion to settle claims on role on subprime mortgage collapse

The Bank of America has paid almost $US17 billion to settle allegations about its role in the events leading up to the global financial crisis.

US regulators had been probing claims that the bank misled investors into buying dodgy mortgage-backed securities which exploded when America's housing boom went bust more than six years ago.

It is a record payout, but Bank of America was not on its own in spruiking these risky subprime mortgages.

There were trillions of dollars of bets that US housing prices would continue to rise.

However, at almost $US17 billion, Bank of America is paying a much bigger price than other banks to resolve around a dozen state and federal investigations.

This morning, the US attorney-general Eric Holder said Bank of America's unlawful, unethical and immoral behaviour in marketing dodgy products had taken to US economy to the brink of collapse.

"These loans contained material underwriting defects. They were secured by properties with inflated appraisals. They failed to comply with the federal, state and local laws and they were insufficiently collateralised," he said.

"Yet these financial institutions knowingly and fraudulently marked and sold these loans as sound and reliable investments."

AUDIO: Bank of America fined US$17b over role in subprime crisis (AM)

Around $US7 billion of the settlement will be used for what is being called "consumer relief" for Americans who found the value of their home was suddenly a lot less than the outstanding mortgage.

Some will see their mortgage debts reduced, others will get lower interest rates and some of the settlement will be used to build affordable rental housing.

While that is a long-awaited positive, there is criticism that, so far, no banking boss has faced criminal charges in relation to the subprime mortgage collapse.

Dennis Kelleher of US financial watchdog Better Markets says, while a $US17 billion fine for Bank of

America sounds like a lot, it might be only be a fraction of what banks made from marketing dodgy products.

"There's no way to evaluate whether or not it is a lot of money, or whether or not it's fair punishment, or whether or not it will deter or incentivise future crime unless you actually know how much money the Bank of
America actually made from its illegal conduct, how much money its investors, customers and clients lost," he argued.

"So, for example, if they paid $US17 billion but they actually made $US200 billion from illegal conduct, then that's not much money and not only won't it deter future crime, it actually incentivises future crime."

Fed softening world up for rate rise in early 2015

Throughout the year, the US Federal Reserve has been softening up for the world for what - at the moment at least - appears to be inevitable.

Once the US economy is on a firmer footing, inflation starts rising and the labour market has sufficiently strengthened - interest rates will need to move from their current emergency level of between zero and 0.25 percent.

But the big question has been one of "when".

The minutes from the Fed's July meeting released early this morning Australia time stoked anticipation about what will almost certainty be a dramatic event for global financial markets.

"Many participants noted that if convergence toward the committee's objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated". 

The unusually direct and optimistic tone from the Fed - almost six years after the Wall Street collapse - was fresh fodder for pundits who are now talking about a small rate hike early next year.

The changed language comes as the Fed's massive quantitative easing program is set to evaporate in October, having been reduced by a steady US$10 billion per month since late last year.

This time last year, the money printing program was pumping out US$85 billion per month as speculation began to build that an improving labour market meant the party of cheap and easy money was about to end.

Today's measured signal is not to say the messages from the Fed have always run to plan.

Back in March, in her first major appearance as the world's most powerful central banker, Federal Reserve chair Janet Yellen perhaps accidentally triggered the softening up strategy she told reporters that the first rate rise could be six months after the money printing ends. 

REPORTER: Could you tell us how long of a gap we might expect before the rate hikes do begin?

JANET YELLEN: You know, probably means something on the order of around six months or that type of thing but you know, it depends, what the statement is saying is it depends what conditions are like. 

Those surprisingly frank comments from Dr Yellen sparked a small fall on Wall Street as the prospect of an eventual rate rise began to take on some distant reality.

This morning's reaction was more subdued as investors focused on what they saw as positives - that the Fed will continue to support America's still-recovering economy for as long as needed and that any rate movement will be gradual.

While the US jobless rate is down from global financial crisis highs to 6.2 percent, there's growing scrutiny on hidden unemployment and whether the quality of jobs on offer amount to what America once regarded as a living wage.

BHP Billiton boss plays down Clive Palmer's "bastards" & "mongrels"swipe at China

The chief executive of BHP Billiton has played down Clive Palmer's comments that the Chinese are "bastards" and "mongrels" who shoot their own people.

Andrew Mackenzie says the relationship that BHP and the Australian government has with China remains warm and strong despite Mr Palmer's slap-down.

But the federal government has attacked Mr Palmer's comments about Australia's biggest trading partner as "hugely damaging" while the Chinese Embassy has branded them "absurd and irresponsible".

The diplomatic war of words overshadowed  a 23 per cent jump in BHP's full-year net profit to US$13.8 billion which in large part is from its trade with China.

Mr Mackenzie told AM that Mr Palmer's swipe, directed at the state-owned firm Citic Pacific, is unlikely to cause long term damage to either BHP or Australia.

"I believe that the strength of our company's relationships and the relationships that are enjoyed at government level and also many other companies are warm," Mr Mackenzie said.

"The mutual regard for the quality of our product, the security of our supply, are the ones that are going to rank more highly .. in the minds of the Chinese.

"China can see through that and the vast majority of Australians and how they relate to the Chinese people  and their country."

Mr Mackenzie sought to characterise Mr Palmer's comments on the ABC's Q&Aprogram as personal as the the federal government cautioned the mining magnate not to misuse his political postion.

"They're comments by an individual and you know, they're not on behalf of any other Australian supplier. And I do repeat that I think the quality of the relationships and the way in which companies like us and many others is what will actually be the bigger picture that'll be seen by most if not all Chinese. "

The head of the world's biggest miner also weighed in on the government's difficulty in getting key Budget measures though the Senate and agreed the impasse was a threat to business and consumer confidence.

Not surprisingly, Mr Mackenzie called for the urgent repeal of the minerals resource rent tax (MRRT) which was one of the Abbott government's key election pledges.

"I am concerned about that. I'm very supportive of the Government's agenda to build the competitiveness of Australia," Mr Mackenzie told AM.

"Something like the MRRT raises very little revenue, is highly volatile, and is no basis for strong fiscal planning in the country. And yet for many potential investors this is quite a disincentive to invest."

But Mr Mackenzie had a pragmatic response to growing calls for a Budget "reset" or a mini-Budget to smooth passage through the Senate - and to win approval from Clive Palmer's PUP which hold the balance of power.

"Look, I'm a businessman and they're politicians and politics is the art of the possible. I leave that to them."

Reserve Bank warns of "significant uncertainty" about economic outlook

The Reserve Bank says the outlook for Australia's economy appears uncertain and that the high exchange rate remains a key problem.

Underscoring the challenge of managing an economy in transition, the RBA has pointed to "a significant degree of uncertainty about the the outlook, given the number of forces working in different directions".

And in the minutes from its August meeting, the RBA says that despite a record low cash rate the exchange rate "remained high by historical standards".

The RBA also says the high dollar is "notable" given the decline in the prices of some key commodities.

Appearing to express some frustration in the face of a record low cash rate, the Board says the high dollar is "offering less assistance than it might in achieving balanced growth in the economy".

The RBA has cut the cash rate by 2.25 percentage points since November 2011 with the aim, in part, of lowering the currency.

In leaving the cash rate on hold at 2.5 percent at the August 5 meeting, the Board repeated that monetary policy "was appropriately configured" and that "the most prudent course was likely to be a period of stability".

The August meeting was held two days before the release of official employment figures for July where the jobless rate spiked unexpectedly to 6.4 per cent.

In its Quarterly Statement on Monetary Policy released after the surprise unemployment increase, the RBA signalled the result could have been a blip caused by a revised definition of employment.

However, the RBA's August board meeting was referred to "a notable degree degree of spare capacity" in the workforce with a relatively high unemployment rate and the participation rate remaining steady.

Echoing the quarterly statement, the Board was told that despite recent higher reading, inflation was remain within the 2 to 3 per cent target band over the next two years.

The minutes repeat that economic growth will be below average over 2014/15 before getting back above average pace in 2016.

Commonwealth Bank boss Ian Narev signals need for gov't compromise on budget woes; warns uncertainty not helping business and consumer confidence

The chief executive of the Commonwealth Bank has weighed in with advice on the government's budget woes, signalling compromise might ultimately be necessary.

Ian Narev has told the "AM"  program that the Prime Minister and Treasurer need to be pragmatic about what spending and cost-cutting measures will make it through the Senate.

Mr Narev says while the government's controversial paid parent leave policy "is ultimately a political judgement", in the eyes of voters it was a key part of Tony Abbott's election mandate.

"By and large, I think when people elect politicians they understand they stand for certain policies but we've also got to be pragmatic and understand that in a certain political environment that governments need to make compromises," Mr Narev said.

But Mr Narev rejected suggestions that a review of all budget measures in the form of a mini budget might be necessary to reset the debate.

"I'm not sure a mini budget is the answer. The Treasurer can make his own judgement on that. He has outlined what we consider to be a very appropriate high level vision which is to say over the medium to long term you need a government which is fiscally responsible," Mr Narev said.

"In order to achieve that, there's a series of  policies that need to be passed showing where the  allocation of that is going to happen in terms of cost cutting or revenue raising.

"That is a big political challenge in the context of the current makeup of the Senate." 

Mr Narev also warned that the uncertainly surrounding elements of the budget had the potential to harm business and consumer confidence.

"It doesn't help. But there's no doubt that to the extent we can get a very clear medium to long term policy picture of the environment, that most be good for confidence.

"The budget is a challenge. We've got a lot of a lot of political tensions still in Canberra, there's a lot of debate around individual policies and it is a tough time to be the government."

Mr Narev, who was speaking after the CBA revealed a full year net profit on $8.63 billion, said the government needed consider how its budget problems might be viewed by international ratings agencies.

Last week, respected economist Saul Eslake warned that a failure to get the budget deficit below $3 billion as forecast by 2017-18 could put Australia's AAA credit rating in the spotlight.

"He (Mr Hockey) has outlined  that he feels that is a risk and I think there's no doubt that there is a risk," Mr Narev told AM.

"The idea of getting  the fiscal balance sheet to the point where it is in balance has got to be a critical part of the economic vision.

"The ratings agencies in the long term are some of the important stakeholders you've got to bear in mind."

Commonwealth Bank record profit fails to quell heat from financial planning scandal

For Ian Narev, today's full year financial results presented a rare opportunity to accentuate the positive.

There was little else to do given the damage already done to the Commonwealth Bank's reputation over the scandal embroiling its financial planning arm.

So today, the full tool box of public relations spin was deployed as the results hit the stock exchange just after 8.30am.

Here's my analysis from today's edition of The World Today.

Not surprisingly, the CBA's team of media, investor and government relations advisors have spent recent weeks and days polishing messages and preparing Ian Narev and chief financial officer David Craig for the inevitably tricky questions on how they plan to defuse the fallout from the scandal.

This morning's investor briefing was a tame affair and Mr Narev was under little pressure to account for the conduct of his financial planners.

However, journalists are certain to pose harder questions at a media conference later today given the financial and reputational cost to the CBA, which over 102 years has been trusted for its conservative strategy and management.

The intensifying scrutiny is unavoidable, and today despite some hoarseness, Mr Narev will embark on print, television and radio interviews that will run until late in the afternoon.

And given the widespread concern about the financial planning scandal, Commonwealth Bank media minders are likely to have received interview requests from the range of media outlets across Australia.

As the CBA boasts in today's media release on today's results, there are nearly 800,000 households who own the bank's shares directly or through their superannuation schemes.

And in addition to employing 50,000 Australians, the CBA reminds us of its contribution to the economy and $4 billion pumped into local suppliers and partners.

The CBA brands itself with charities, sporting organisations and communities across the country with big financial contributions that are part of its charter for corporate social responsbility.

However, even another record result of $8.63 billion posted today will not be enough to deflect the glare of a concerned federal government and a corporate regulator under pressure to lift its game.

Ian Narev knows it will be a long road before the noise from the scandal begins to fade.

But it emerged on his watch when he was a key member of the CBA's senior management team and one that could partly define his legacy as chief executive.

Paul Zahra quits David Jones as South African owners take control

Paul Zahra has resigned as chief executive of David Jones a month after shareholders backed a takeover of the department store chain by the South African retailer Woolworths.

Mr Zahra will be replaced by Ian Nairn, the current chief executive of the Woolworths-owned Country Road.

Woolworths chief executive Ian Moir says apart from Mr Zahra's eventual departure and the appointment of a new chief operating officer, no other significant management changes are expected at this stage.

I spoke with Ian Moir this morning for "The World Today" on the ABC.

Banks have form on credit card penalty fee promises. Are they really in touch?

Banks like to say they listen to customers a lot more these days.

If you believe the advertising across print, broadcast and social media, banks are cosy and caring members of our families.

Massive advertising and marketing budgets have been stumped up in in recent years to tweak images and to show that banks understand the challenges that both personal and business borrowers face.

For example, ANZ - a target of the latest class action announced today - proudly declares "we live in your world" .

No one wants to see an unprofitable bank, and that of course is unlikely with Australia's biggest bank, the Commonwealth, tipped to reveal a full year profit of around $8.7 billion on Wednesday.

But is it fair, lawful, moral or sustainable for banks to continue charging late fees of up to $35 when the recovery cost to the bank is estimated to be about 50 cents?

It's a long running argument that goes to the balance of personal responsibility for credit card holders and how far banks will go to recover whatever they can.

However, some messages from banks over the years are more mixed and potentially conflicting than others.

Back in 2007, I witnessed a rare event when the ANZ's chief executive at the time, John McFarlane - a straight taking, folk singing Scotsman - admitted penalty fees were probably unsustainable.

Participants at the business lunch were surprised to hear a Big Four banking boss suggest he was making a little too much money from consumers.

At the time, the ANZ and the other major banks were under fire for allegedy unfair fees and facing class actions back by litigation funders like IMF Australia.

Here are the key memorable quotes, which I broadcast on the ABC's "AM" program thenext day.

 "It's interesting that the people who are the poorest pay the highest cost for borrowings and from money lenders and other forms of unregulated lenders. They also pay the most for their banking, you know, they're the least literate financially, and therefore they're at least capable of managing their accounts."

And Mr McFarlane even relayed a moment of personal embarrassment, that most would find unusual for a top banker on a multi million dollar salary, when his credit card was dishonoured at a checkout:

"I have to tell you it's a hell of embarrassing when you're a big shopper and you have to hand everything back at the till because they won't approve your credit card."

But more importantly, Mr McFarlane conceded that some penalty fees are not worth chasing, particularly with people who have limited or no ability to pay.

"Eventually they build up a negative balance, and all you do is write it off, so you never collect it anyway. So what is the point of upsetting everybody by charging it, when you're actually, on balance, not going to collect it."

Seven years have passed since John McFarlane signaled he was in touch with the penalty fees issue and the serious damage class actions can inflict on the carefully crafted images of banks.

Some banks have reviewed the level of penalty and dishonour fees but most still play hard in pursuing them and chief executives continue to push for record profit after record profit.

This has become more intense since the global financial crisis where banks continue to finely balance the interests of shareholders, who want greater dividends, and customers who know how to shop around.

The banks targetted by the Maurice Blackburn class action in the NSW Supreme Court will of course fight tooth and nail, especially given the partial victory inflicted on the ANZ back in 2010.

RBA warns - jobless rate could remain high until 2016

The Reserve Bank has signaled that Australia's jobless rate could remain high for the next two years.

In its quarterly update on the Australian economy, the central bank cautions that unemployment will be "elevated for some time yet" before gradually declining in 2016.

The RBA's statement released this morning was published taking into account yesterday's surprise increase in the official jobless rate to 6.4 per cent.

While the Reserve Bank was most likely surprised by the jobless spike for July, today's document reconfirms its broad expectations for a sluggish jobs market.

The comments also paint the picture of recent mixed signals in Australia's economy with headline inflation in the last quarter back at the top of the RBA target zone and the solid improvement in data such as retail sales.

"Some labour market indicators have improved a little since the beginning of the year, but overall conditions remain subdued," the statement says.

"Forward looking indicators of labour demand have generally improved since late last year, pointing to modest employment growth over the coming months.

"However, there remains a degree of spare capacity in the labour market."

The RBA also underscored to moving nature of the monthly employment report amid speculation that a changed measure of employment might be a factor behind the 6.4 per cent jobs rate.

"The measured unemployment rate has been quite volatile from month to month over the year to date," the statement cautions.

"This may in part reflect a notable change to the definition of unemployment in the month of July."

In recognition of the subdued outlook, the Reserve Bank has cut its economic growth forecasts slightly from 2.75 per cent in December 2014 down to 2.5 percent.

Growth is expected to recover by December 2016 when the pace could make a comeback as high as 4.25 percent.

In the same period, headline inflation has been downgraded from 2.75 per cent to 2 percent.

The slower outlook growth and inflation, combined with a subdued on jobs market could see the cash rate remain on hold for a longer period than many economists have anticipated.

However, today's statement is likely to reignite speculation that the Reserve Bank might cut interest rates again later in the year.

Russia retaliates against US and EU with initial "light touch" sanctions

Vladimir Putin has retaliated to western sanctions imposed over Russia's support for rebels in Ukraine.

The Russian president has signed a decree limiting or banning imports of agricultural products from countries behind the sanctions push.

The Kremlin's response is clearly targeted at the United States and the European Union, but also Japan and Canada.

While Russia's measures are limited to fruit and vegetables, analysts expect tougher sanctions could eventually be imposed such as restrictions on the use of Russian airspace.

Here's my report from The World Today.

Rupert Murdoch says he is "resolute" in abandoning Time Warner bid

Rupert Murdoch has reassured investors that he won't be making another offer for the rival media company Time Warner.

The media mogul made a rare appearance on a results teleconference with analysts this morning to say he was "resolute" about the decision.

Here's my report from this morning's edition of AM.

Some might be skeptical about Mr Murdoch's resolve given that he usually gets what he wants when it comes to big deals.

But in addition to being a very successful survivor, Mr Murdoch is also a realist and knew he had to be upfront with investors.

It's now clear that the US$85 billion bid for Time Warner was seen as too ambitious and some investors worried he was paying too much.

That had caused a fall on the 21st Century Fox share price so when the deal was pulled yesterday, Fox shares rocketed - helped in large part after Mr Murdoch and 21st Century Fox offered a US$6 billion share buyback.

While Mr Murdoch was clearly disappointed and frustrated with the attitude of the Time Warner board, he had a lot to smile about this morning after 21st Century Fox reported a sharp rise in fourth quarter revenue and returned to profitability.

Saul Eslake warns Joe Hockey - your budget is in trouble.

One of Australia's most respected economists says Joe Hockey's budget is in deep trouble.

Saul Eslake, chief economist at Bank of America Merrill Lynch, says if the government's cost-cutting measures remain blocked in the Senate, the budget will still be in deficit by over $18 billion in 2017-18.

The most recent budget forecast a deficit is less than $3 billion in 2017-18.

While that's not necessarily enough to jeopardise Australia's AAA credit rating, Saul Eslake says it could leave Australia exposed to any global shock.

Here's what Dr Eslake told me on this morning's edition of AM.

Boring as the new black. No surprises from Reserve Bank with "on hold" rates decision.

Even by Reserve Bank standards, it was eye-glazingly dry and predictable document.

But of course no one was surprised with the outcome given that money markets had factored in a zero percent chance of rates excitement.

In keeping the cash rate on hold at the historic low of 2.5 percent, governor Glenn Stevens convinced any doubters that boring is - and probably has always been - the new black.

Underscoring a year of rates stability, Mr Stevens used a post-meeting statement all but identical to last month's version to say that any movement in rates will be telegraphed to the market over a reasonable period.

The many tea leave readers - market economists, academics, journalists - have learned through trial and error that the most telling information can sometimes be found right at the end of the governor's statement.

Today's statement did not disappoint when it became apparent that the final two paragraphs matched last month's word for word:

                                                              August RBA Statement source: Reserve Bank of Australia

                                                               July RBA Statement source: Reserve Bank of Australia

A few market economists had pondered subtle or micro changes to today's statement, even the small possibility that the reference to "period of stability" might be removed.

But now we know. One of the most bland statements from the RBA sets the scene for a continuation of Glenn Stevens' "no surprises" policy.

Mr Stevens flagged the board's intention to take a gradual approach to winding rates higher when he spoke in Hobart in July:

"Long before any thought were to be given to an increase in rates, it would probably be sensible for the Board to cease references to a future ‘period of stability’ and revert to the more normal formulation that the stable policy settings ‘remained appropriate’ or something like that. 

"Such an evolution would amount to no more than a recognition that a ‘period of stability’ had in fact already been occurring and wasn't entirely in the future, but wouldn't imply any particular change in the Bank's views about the future course of policy.

"It should go without saying that those seeking to understand our thinking should, in any event, look not just at the wording in the post-Board statement, nor just that in the minutes, but also at the whole analysis of the economy and the outlook in the regular Statement on Monetary Policy."

Taking Mr Stevens at his word, Friday's quarterly statement will be an important document in getting a flavour of where the RBA sees the economy heading.

But before that, Thursday's official jobs numbers from the Bureau of Statistics will be the next important factor for pundits who are united pointing to a flatlined jobless rate of six percent.

Full agenda at today's Reserve Bank board meeting; key focus on changed language in Glenn Stevens' post-decision statement

                                                                                Key words from Reserve Bank July statement  source: RBA

Today's meeting of the Reserve Bank board will be anything but a dull affair.

Since August last year when the cash rate was cut to the historic low of 2.5 per cent, RBA watchers have quipped about quick decisions and an early lunch.

But on this first Tuesday of the month, it's unlikely that RBA board members will find themselves enjoying a mid-morning stroll down Sydney's Martin's Place.

Listen to my preview from this morning's edition of AM.

While it's close to certain that the cash rate will be held steady, there'll be a full agenda given the improving face of Australia's economy.

Signs of rising inflation could put the RBA's inflation hawks on a war footing, given that the headline figure in the most recent quarter was back up to 3 per cent annualised - right at the top of the RBA's target zone of 2 to 3 per cent.

And expectations that the official jobless rate looks set to remain at 6 per cent will have some members thinking the worst might have passed.

We'll know for sure that the Bureau of Statistics reveals the closely-watched result for July on Thursday.

The momentum towards a "glass half full" economy is underscored by positive private data out yesterday on inflation and jobs, capped off by a surprisingly strong 0.6 per cent increase in July retail sales.

However, the elephant in the RBA boardroom this morning remains Sydney's booming property market and rising concerns that a dangerous property bubble is building.

So yesterday's warning from former RBA board member Professor Warwick McKibbin might well be resonating this morning - that the cash rate has been kept too low for too long.

Economists and other RBA observers will be scrutinising the statement from governor Glenn Stevens when the outcome is revelealed this afternoon at 2.30 (eastern).

Tea leave readers will be looking for any changed language, subtle or otherwise, that could be seen as a the beginning of the RBA's "softening up" process for an eventual rate rise.

All eyes will be on the key final paragraphs that have led many (including this reporter) to read such statements backwards, aware that the lead can often be buried.

The last statement in July ended with the assuring words for some that "on present indications, the most prudent course is likely to be a period of stability in interest rates."

A removal of that statement, or a subtle rewording, will have market economists on rate rise alert or at the very least debating just when the hard decision will be made.

A shift in language could and force the Australian dollar higher although it is now clear the RBA believes it has used all levers to tame the still bullish currency.

While the Reserve Bank is selective about considering private data, today's meeting coincides with the release of Dun & Bradstreet's business expectations survey which only adds to the optimism.

The survey says nearly half the businesses surveyed are expecting increased activity in the coming months and that the outlook for sales is at its highest level in more than a decade.

So it appears that the initial hostile reception to the Federal Budget appears to be fading with businesses and consumers in a much more positive mood and willing to hire and spend.

The Australian economy remains fragile in some quarters, but a global shock aside, the Reserve Bank has little choice but to start sending the message that the recent period of low rates and cheap money for borrowers is about to end.

Reserve Bank "shadow" board warns of housing bubble risks; says rates kept too low for too long

While it's close to certain that the cash rate will be held steady at the historic low of 2.5 per cent, there will be a full agenda given the improving face of Australia's economy.

Headline inflation in the most recent quarter was back up to 3 per cent annualised - right at the top of the RBA's target zone of 2 to 3 per cent "over time".

That's normally enough to put the RBA's inflation hawks on a rate rise warfooting.

But also the official jobless rate looks set to remain at 6 per cent when the ABS reveals the official July numbers on Thursday.

The trend towards a "glass half full" economy is underscored by positive private data out today on inflation and jobs, capped off by a 0.6 per cent increase in July retail sales.

However, the elephant in the RBA boardroom tomorrow remains Sydney's booming property market and rising concerns that a dangerous property bubble is building.

The Reserve Bank "shadow" board - a project run by the Australian National University - says inflation and rising asset prices will force the RBA's hand over the next six months.

The former RBA board member Professor Warwick McKibbin is a key member "shadow" board and I spoke to him earlier today.

Here's my preview of tomorrow's RBA board meeting which includes an interview with Professor McKibbin.

Reserve Bank reassures borrowers that rates are on hold - for now

The Reserve Bank has once again reassured borrowers that interest rates will remain steady until it's convinced the economy is back on track.

In the minutes from its April meeting two weeks ago, the RBA Board said it was "prudent" to leave cash rate unchanged at its historic low of 2.5 percent.

"Members noted that the cash rate could remain at the current level for some time if the economy was to evolve broadly as expected," the minutes say.

"Developments over the past month had not changed that assessment."

The RBA said there had been "further signs that low interest rates were supporting domestic activity."

The cash rate has been slashed by 2.25 percentage points since the RBA's cutting cycle began in late 2011 when the Eurozone debt crisis showed signs of destabilising the global economy.

While the RBA says interest rates are "appropriately configured", many economists believe the central bank is softening borrowers up for a rate rise late this year or early next year.

The April meeting took place before last week's surprise drop in the official unemployment rate to 5.8 percent.

That result is in contrast the the minutes which refer to the March jobless rate of 6 percent and a "labour market that remained weak."

However, the minutes highlight the volatility of monthly jobs data from the Bureau of Statistics from earlier in the year.

"Members noted that while the February data may have overstated the improvement in the labour market, it was also possible that earlier data had overstated the weakness."

The minutes also refer to positive economic indicators with retail sales up 1.2 percent in January, housing prices in March up 10 percent nationwide in March and dwelling investment increasing moderately in the December quarters.

However, it also notes that motor vehicle sales declined in February and business conditions have been "somewhat mixed".

The Board also said while mining investment was down in the period, non-mining business investment was also weaker.

"Businesses were still somewhat reluctant to commit to major investments," the minutes say.

The RBA is also watching a continued easing of economic growth in China and the recent decline in prices for iron ore, steel and coal.

NAB boss Cameron Clyne retiring at 46 to spend more time with his family

Here's my interview with National Australia Bank chief executive Cameron Clyne who surprised the market by announcing his retirement this morning.

Property speculation warnings: we've heard it all before. But are investors listening?

Revelations about surging property prices in Australian capital cities have renewed worries that a dangerous real estate bubble might be emerging.

But while the warnings have been getting louder in recent months, they're hardly new.

The Reserve Bank governor Glenn Stevens has been on the front foot in recent years with a message that investors should not expect instant capital gains from property investment or speculation.

While avoiding the "bubble" word, the warnings have been straight-talking and jargon free - clearly designed as a reality check for unsophisticated property punters.

Back in March 2010, Mr Stevens took the unprecedented step of going on breakfast television to deliver a wakeup calls to a broad general audience.

For the usually reserved Mr Stevens, it was a significant departure from addressing the usual specialist suspects - economists, academics and finance journalists.

" I think it is a mistake to assume that a risk-less, easy, guaranteed way to prosperity is just to be leveraged up in to property. It isn't going to be that easy," Mr Stevens told Channel Seven's "Sunrise" program.

The not so gentle message came a few months after Mr Stevens declared the emergency from the global financial crisis was over and that interest rates were about to move higher back to a normalised level of around five percent.

In other words, Mr Stevens warned back then that with rates on the rise, investing in bricks and mortar was no longer the easy path to prosperity it was in the latter part of the 20th century.

Glenn Stevens' warning from that interview resonate now - four years later - amid signs that the cash rate could start rising from 2.5 percent as early as Melbourne Cup day.

Here's how he began the softening-up process in March 2010 for both borrowers and lenders who could be exposed to the fallout from rising rates:

"I think it would be not doing people any favours to have a prolonged period of very low rates and then hammer them unexpectedly," Mr Stevens told Sunrise.

"And of course the banks that are lending them the money should be - and I'm sure are - testing the potential borrower: can you handle some rise in interest rates?"

Fast-forward to March 2014 and the similarity of the warnings is striking.

Just last week, the Reserve Bank warned inits latest Financial Stability Review that Australian banks could fuel real estate speculation if they weaken their lending standards.

The RBA warned that the pick-up in lending for houses would be "unhelpful if it was a result of lenders materially relaxing their lending standards".

While the Reserve Bank did not refer to a property "bubble", it again warned investors about the risks of real estate investment and that low rates "have the potential to encourage speculative activity in the housing market".

And once again, the RBA warned investors that while house prices can rise, they can also fall:

"It is important for both investors and owner-occupiers to understand that a cyclical upswing in housing prices when interest rates are low cannot continue indefinitely.

"And they should account for this in their purchasing decisions."

The RBA's strongest warning yet follows concerns from the Australian Securities & Investments Commission that self-funded retirees were exposed to price falls by leveraging into real estate to boost returns.

And late last year the International Monetary Fund has cautioned that therecent surge in Australian property prices and rising investor expectationscould cause values to "overshoot".

In that Sunrise interview four years ago, Glenn Stevens described himself as "Sydney's most boring person, really."

But his early words of warning on housing could prove prophetic as the window of short memories appears to getting shorter.

Rupert Murdoch finally douses succession speculation by naming son Lachlan most likely heir

After years of uncertainty, Rupert Murdoch appears to have answered one of the biggest questions that have dominated in the media, corporate and regulatory world for years.

Just who will succeed him when he ultimately retires or goes to the big newsroom in the sky - and will their surname be Murdoch?

By naming his oldest son Lachlan as co-chairman of News Corporation and 21st Century Fox, Rupert Murdoch has not only doused the "succession" speculation.

Mr Murdoch, now 83, has also cemented the Murdoch family's control over the media empire he founded six decades ago.

Here's my analysis broadcast on this morning's AM program.

At last Mr Murdoch is able to say there is a future beyond him, even though there is no suggestion that he is anywhere near to relinquishing his day to day control of the company.

According to News insiders, Mr Murdoch is known to point to the longevity of his mother Dame Elisabeth (note "s") Murdoch who died aged 102 in 2012.

But ever the strategist, Rupert Murdoch has led journalists, investors and analysts in a guessing game over his true intentions.

Back in August 2011, as the News of the World phone hacking scandal began to emerge,  I asked Mr Murdoch in an investor teleconference if hehad any update on his succession plan.

Mr Murdoch appeared to acknowledge this his younger son James Murdoch was not the preferred choice and that his top lieutenant and President of News Corporation Chase Carey might be in line.

"Chase is my partner and if anything happened to me I'm sure he'll get it immediately -- if I went under a bus. But Chase and I have full confidence in James," Mr Murdoch said.

James Murdoch has been badly damaged by the phone hacking scandal and was eventually forced to resign as chairman of BSkyB after a British parliamentary committee said he had some "a wilful ignorance of the extent of phone hacking".

However, in last night's announcement James Murdoch was re-elevated as co-chief operating officer at 21st Century Fox which makes him the third most powerful Murdoch in the empire behind Rupert and now Lachlan.

But David Folkenflik, author of "Murdoch's World", says while the succession suspense is over, as always Rupert Murdoch has been working to a strategy.

"This is something that Rupert Murdoch has wanted tor a long time. He's always wanted these succession games to set his adult children against each other," Mr Folkenflik told Bloomberg.

"James Murdoch took a real hit during the phone hacking scandal and in 2011 when that was erupting  Rupert sought to bring his oldest son Lachlan back into the fold.

"He had left because there had been these backroom machinations where he had been fighting the top guy under Rupert Murdoch Peter Chernin and the with Roger Ailes the powerful chairman of Fox News."

"And yet Lachlan, who has had a rather middling to mediocre record in Australia, has come back into the fold once the companies have been split."   

Wall Street investors seemed uncertain about today's succession announcement with News Corporation shares falling 1.9 percent and 21st Century Fox down 1.35 percent.

Lachlan Murdoch is also stepping down as chairman of the Ten Network where he holds 8.8 percent of the broadcaster's stock.

A lingering question is whether he will push for a News Corporation takeover of Network Ten subject to the right price and a favourable change in media ownership rules.