China watch: May saw a faltering in the rapid rate of growth in China’s car sales with a noticeable fall from April reported. While sales in May were up 28.35% from the same month of 2009, the China Association of Automobile Manufacturers said they were down 7.5% from April. Car production showed a similar pattern; up 27.86% year-on-year to 1.42 million units last month, but down 9.4% from April. That means less steel, copper, lead, zinc and plastics were used last month. And Australian iron ore and coal? Car sales are the earliest of the monthly economic indicators to be issued in China; the bulk of the remainder will be out about midday, Australian time, on Friday.

Gold watch: given the rising tide of gloom, it’s probably not so surprising that gold prices hit new highs in New York overnight, despite Wall Street rising (a real dead moggy bounce). US bond yields eased a touch with the 10-year securities yielding 3.17% (another factor pointing to continued fears about the outlook, as well as Europe). Gold futures hit a intraday high of $US1254.50 an ounce, spot gold hit a new high of $US1251.20. It is up 12% so far this quarter.

Hedge funds watch: from the “should we cry” department. The Financial Times reports that May was the worst month since the October 2008 post Lehman meltdown for hedge funds.  “According to Hedge Fund Research information published on Tuesday, the average hedge fund lost 2.26% in May. Every single hedge fund strategy lost money during the month.” Nah, don’t weep, cheer.

Rio watch: Bloomberg tried hard to put a positive spin on Rio Tinto and its aluminium interests yesterday. Rio Tinto Group’s $38 billion takeover of aluminum maker Alcan Inc in 2007 is looking more like a money spinner for the world’s third-biggest mining company as forecasts show prices for the metal will increase. “The metal is going to go up because almost all of the people that use aluminum are using more of it, and lots more of it,” said Frank Lucas, a director of London-based fund manager and adviser Loeb Aron & Co, which holds Rio shares. “You are going to get a slingshot in the price and then because Rio doesn’t hedge it will be the biggest beneficiary.” The reason aluminium consumption is going to surge is driven by increased demand from plane makers and other industrial users.

Rio watch 2: but as in many cases, Bloomberg buried the real story: the same Lucas who was bullish, also qualified that comment. “While Lucas at Loeb Aron is predicting higher aluminum prices, he said Rio overpaid for Alcan and the purchase may take as long as 20 years to pay back. The acquisition caused Rio’s debt to balloon 19-fold, forcing the sale of assets and shares and prompting an abortive $19.5 billion investment from Aluminum Corp of China. The debt was also cited by BHP Billiton Ltd as a factor for scrapping its hostile takeover proposal for Rio in 2008. This combination of events angered shareholders”… “They paid too much,” said Olivia Ker, a London-based analyst at UBS AG. “Longer term you can kind of build a positive story, but I think it’s more than 10 years away.” Hmmm, 10-20 years to get a pay off from the Alcan deal, Now that’s what I call building value.

Rio watch 3: and that’s still the real story from Rio Tinto. The man who drove that overpayment is CEO Tom Albanese, who is still there and now warning about Australia’s increased sovereign risk because of the resources tax. He has a hide when he and most of the board have wasted more money and forced more asset sales and losses at Rio than it will probably will pay for years if the Australian super tax is introduced.  Some analyst should do a bit of research on the loss of value from the Alcan deal versus Rio’s probable higher tax payments under the resources tax, that’s if anyone can understand it at the moment. Rio’s financial health has been more challenged by managerial risk than sovereign risk fears in Australia.

US watch: US consumers took on $US1 billion more in debt in April, but credit-card balances fell for the 19th month in a row, according to the latest consumer credit figures from the US Federal Reserve. The rise of $US1 billion (to $US2.44 trillion) was only the second rise in credit in the past 14 months. Overall, consumer credit has fallen 5.5% since its peak in mid 2008. This rise could very well be temporary. The $US2 billion increase originally reported for March became a fall of $US5.4 billion in revisions in the April report.

Brazil watch: now this is growth: Brazil’s economy grew by 2.7% in the March quarter from the December quarter, or an annual 9%, with an 18% rise in investment, 17% growth in manufacturing and 15% rise in retailing. Oh, imports jumped 39% and inflation is running at a worrying 5.26% annual rate at the moment, up from the previous 4.17% (the target is 4.5%). There are forecasts the economy will grow by more than 6%, which seem pretty conservative. The central bank is expected to lift interest rates a second time this year after its current meeting tonight, our time. The Australian economy grew 0.5% in the March quarter, the eurozone by 0.2%.