Could we be on the verge of a significant shake-up in the global auto industry?

Copper prices are up, so that will mean a positive start for the dream team merger twins, Rio Tinto and BHP Billiton, today.

So if inflation remains under control,does that mean the US economy is not facing a period of stagflation but is merely stagnating?

Are world oil prices about to repeat last year’s surge to record levels?

China has further loosened controls on overseas investments by Chinese domestic investors, a move that’s likely to trigger a sharp rise in the outflow of funds into markets in Asia and elsewhere.

No matter how you measure it the Chinese stock market is a bubble waiting to go pop.

Warnings have been issued from the government to leading brokers such as Goldman Sachs yesterday, but Chinese investors are not listening.

Investors are having too much fun: the fears of February 28 when the market fell 8.5 per cent in a day on sudden worries of moves to curtail speculation, have been long forgotten.

New share offerings are doubling in value on day one of the IPO listing and shareholder accounts are multiplying at a phenomenal rate, millions a months according to media reports in Hong Kong and international business papers.

So far this year, the domestic currency “A” share market is up 44 per cent and daily turnover exceeds $US30 billion, which is enormous when you consider how much we trade $A4 to $A6 billion on a big day here in Australia.

What to do is the big question for the Chinese Government.

As we have seen with the wider economy, three interest rate rises, a small rise in the Yuan and seven increases in the official reserve ratio which controls bank lending, have not stopped the boom in investment, property and the stockmarket speculation.

The market is rising by almost one per cent a day, sometimes more, so these official measures will have no impact unless interest rates rise very sharply and quickly.

Why would any one keep money in a bank and get at most three per cent or so when by the end of one week’s trading you could have earned five per cent?

For ordinary Chinese it is a no brainer; from the Government’s point of view it is a nightmare because they know that if the market takes fright or suddenly implodes, there will be economic and social unrest, demonstrations and possible worse.

Economic activity and confidence would be damaged. The stakes are high, very high.

It is why we here in Australian enjoying our sweet economy at the moment, should be casting a wary eye northward and starting to wonder if we should be a little more conservative.

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Goldman Sachs’ warning got a lot of play throughout Asia yesterday with all the major news services giving it prominence.

Whether it will be self-fulfilling is another thing but the fact that it has been uttered is interesting because it fits in with the official concern on the mainland.

Goldman Sachs would not have said anything if the Chinese Government and its officials had not already been expressing concern.

Goldman said that China’s shares may face a “correction” as earnings can’t justify the rally that’s made them the world’s star performers this year.

China’s CSI 300 Index, which tracks Yuan-denominated A shares listed on the country’s two exchanges.

It’s the world’s most expensive key stock index, at 42 times reported earnings, more than double the Morgan Stanley Capital International Asia Pacific Index’s at 19 times.

Goldman said yesterday that “Current valuations are demanding and seem to have outpaced the improvement in market fundamentals. The “risk of market euphoria is building up.”

China’s investors opened 385,121 new accounts at brokerages on May 8, that’s the highest daily number since records were first published by the China Securities Depository and Clearing Corp. in June of 2005.

But according to the official Chinese newsagency there were 4.78 million new stock trading accounts opened in China, and 4.5 million in April alone. That’s the best example of how the boom has become a bubble.

As the National Australia Bank completed the interim reporting season for most of our major banks yesterday the industry was casting a worried eye across the Tasman.

Developers like AV Jennings, Australand and a host of their competitors don’t need statistics to tell you how bad the Sydney property market is and NSW for that matter.

Developers are abandoning the state for Victoria and Queensland or de-emphasising the importance of housing in the state while pursuing other projects, such as small shopping centres and commercial properties.

There’s just no certainty in NSW or Sydney, which is hurting the housing industry across the board because the state (and Sydney in particular) is the biggest market in the country (like it is for so many domestic activities)

Sydney’s underperformance is showing up in official figures which measure house price movements.

The Australian Bureau of Statistics (ABS) said yesterday that average house prices grew by an average 1.1 per cent across the country in the first three months of 2007, but Sydney house prices again struggled to the point where they went backwards.

The ABS said its House Price Index, which takes the average of the nation’s eight capital cities, grew 8.6 per cent in the 12 months to March (which nearly matches the growth in the dollar value of retail sales. That’s not an accurate comparison but more confirmation of how sweet the economy is at the moment).

But prices in the nation’s biggest housing market in Sydney fell by an average 0.4 per cent in the first quarter, and grew at just 1.5 per cent over the year to march.

Here’s a perfect example of why accepting a takeover offer early (as many did in Qantas) can be self-defeating.

Hong Kong-based private equity group, Affinity Equity Partners (AEP) says it is offering $6.20 a share for the 16.4 per cent it doesn’t own in Brisbane-based retailer, Colorado Group.

The announcement came late Tuesday night as the country was preoccupied by the Federal Budget. When a trading halt ended yesterday the shares rose $1.09 to $6.02.

AEP’s Australian arm Australian Retail Holdings (ARH) said it believes “its offer provides the existing minority shareholders in Colorado with a compelling opportunity to crystallise substantial value from their shareholding without exposure to the significant execution risks faced by Colorado in implementing its current business strategy”.

This means they REALLY want CDO minorities to sell their shares.

The offer saw the CDO board call off a shareholder meeting yesterday that was going to consider a 52c a share capital return ($49.9 million), which would have benefited AEP with its 83.6 per cent stake in the retailer, and Solomon Lew, who holds a blocking 10.9 per cent stake.

The offer price is a 26 per cent premium to the closing price on Tuesday and a substantial amount above the cash price of $4.18 and 52c special dividend paid last October in the first offer last year.

That totaled $4.70 a share which was a substantial premium in itself above the CDO share price before the bid from AEP, which was notable for being the first hostile bid in this country from a private equity buyer who normally like to ‘hug’ and ‘hold ‘ their targets.

By holding out the prospect of a big gain, AEP is hoping to lure Lew into selling, but going by his stance at Country Road where he has remained a ‘locked’ in shareholder with around 12 per cent and an irritant for the South African owners, I wouldn’t be betting on him accepting too quickly.

After all he doesn’t need the money having sold his stake in Coles to Wesfarmers for more than $1.1 billion for his main company, Premier Investments.

In calling the now postponed meeting, Colorado said its capital structure was inefficient and the AEP local subsidiary ARH proposed the 52c a share capital return to create a more efficient capital structure for CDO.

CDO was in the process of completing a term debt facility to repay the $49.9 million borrowed from ARH to fund the share special dividend paid to shareholders on 6 October 2006.

The faint signs of recovery in the Australian home building market seem to have disappeared once again with the news of a sharp drop in March approvals, thanks to a slump in flats and home units.

The 2007-08 Federal Budget won’t cause too many problems.

Budget time tonight and it is really going to be a case of look for the fiscal measures because monetary policy has already been taken care of by the Reserve Bank and there are no nasties lurking anywhere, except if Mr Costello and Mr Howard prove to be too generous.

Qantas and not the Federal Budget tomorrow night will overshadow the market today and probably for the next few days while the tension is taken out of the share price.

Investors will be wondering what it means and whether it will damage overall market sentiment.

In contrast the bullishness of the Budget has already been factored in after the Reserve Bank’s good report card last week.

Certainly we have seen big takeover deals fall over in the past: Flight Centre’s attempt to go private with private equity buyers was one instance, while the takeovers for Colorado Group and Pacifica both fell short.

Flight Centre shares late last week regained the $17.20 price in the first offer: now that the private equity buyer is back with another proposal and with improving business conditions, the rejection of the offer by fund manager, Lazards, has been justified.

And with the likes of APN News and Media and Rinker facing shareholder opposition to their buyouts or takeovers, no one can discount those deals falling over.

But after Friday’s finish at yet another record of 6296, up 2.5 per cent, the opening today is going to be considerably less certain.

Leads from overseas from Wall Street and commodity prices won’t be enough to offset the uncertainty the Qantas bid situation has caused.

The US job creation machine closed to its weakest growth rate for more than two years in April: just 88,000 new jobs created, half the 177,000 created in March. The unemployment rate rose to 4.5 per cent from 4.4 per cent.

The Dow Jones closed 23 points higher at 13,264, in its fourth record close in a row. The Dow has now risen in 23 of the last 26 sessions, marking its longest bull run since the summer of 1927, according to US market watchers.

We all know what happened in the autumn of 1929!

The broader S&P 500 rose 3 to 1,505.The S&P 500 is not far from its all-time high of 1527.46 hit reached March 2000 at the end of the great tech boom.

The Nasdaq rose 6 to end at 2,572 a six-year high.

For the week, the Dow rose up about 1.1 per cent, the Nasdaq gained 0.6 per cent and the S&P about 0.8 per cent.

This week will be dominated by the Federal Reserve’s policy statement as well as reports on retail sales and wholesale inflation figures.

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Have no doubt, the Australian economy is now well positioned to continue its 16 year expansion well into its 17th and perhaps 18th successive year, unless we do something really stupid to blow it.

In its own, highly conservative way, the Reserve Bank has indicated there are no real barriers to the expansion continuing: only a wages break out financed or run by profligate companies, governments, or a surge in demand from an out of control Chinese economy, can wreck the expansion.

(The biggest unknown though is what happens if the Chinese economy continues to grow at breakneck pace, with domestic asset booms, over investment and despite more rises in interest rates and reserve deposit ratios? Financial chaos?).

In its second quarterly Monetary Policy Statement, issued on Friday, the RBA explained why interest rates didn’t move last week and laid out a fairly convincing case why there will be no need for a move for at least a year and possibly longer, if things don’t happen out of the blue.

Inflation has fallen faster than the RBA thought in February in its first statement for 2007, economic activity has picked up (as evidenced by stronger retail sales and a tentative rebound in some parts of housing), the terms of trade will decline this year, thanks in part to the stronger Australian dollar, and inflation in 2008 and 2009 is now seen as a bit lower than previously thought.

So all that speculation about interest rates will disappear for a while, although with March retail sales and building approvals out tomorrow (and will be overshadowed by the Federal Budget) and April Labour Force figures on Friday, it will be interesting to read the commentary from the analysts and others.

Normally stronger figures for any or all three sets of stats would be enough to bring the line ‘interest rate rise looms’ out of storage.

But with the RBA fairly firming shoving a rate rise off the agenda for sometime, there will be no mileage in adopting the chicken little approach to economic commentary (rate rise looms!).

These figures and especially retail sales, will be handy updates on how some key sectors in the domestic orientated part of the stockmarket are traveling: the retailers and the building supplies and homebuilders.

David Jones will release its third quarter sales on Wednesday and these will help fill out Tuesday’s ABS numbers in the department store sector.

For those really interested, comparing the outlook commentaries from federal treasurer in the budget papers, and the RBA’s MPS of last Friday will be instructive.

By issuing its statement ahead of the Budget the RBA has quietly asserted its policy dominance and revealed a forecast against which all other forecasts (from treasurer for example) will be compared.

And finally what now for the Australian dollar?

It pushed back over 82 USc on Friday night as the US dollar fell on that mixed economic news but it is now a fair way short of those 17 year highs reached in April of well over 83 USc (and closer to 84 USc).

Once the market had scanned and digested the RBA MPS on Friday the dollar was sold off by around half a cent or so on Friday afternoon and it fell well under 82 USc.

An attempt by Wesfarmers to snatch a greater stake in Coles Group has failed and lifted the potential bid price closer to $18 a share.