Stocks, grains and peso retreat on swine flu fear

Bloomberg

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Stocks declined around the world, while the yen, dollar and Treasuries gained as the swine flu outbreak spread. Mexico’s peso fell and grain prices retreated.

The Dow Jones Stoxx 600 Index of European shares dropped 1.3 percent, led by airlines on concern that the disease will reduce travel. The yen climbed more than 1 percent against the euro and the peso slid as much as 3.6 percent against the dollar. Corn fell the most in a week on speculation the outbreak may curb demand for pork and animal-feed grains.

The spread of swine flu from Mexico to as far as New Zealand prompted concern of a pandemic, snuffing out a rebound in stocks that had pushed the MSCI World Index up 27 percent since March 9. Shares also fell and Treasuries rose after Lawrence Summers, director of the White House National Economic Council, said the U.S. economy will continue to contract "for some time to come," in an interview on "Fox News Sunday."

"As if we didn’t have enough to contend with," Sydney-based Greg Gibbs and London-based Andy Chaytor, strategists at Royal Bank of Scotland Group, wrote in a report yesterday. "It’s just what we need now, a flu pandemic in the midst of the biggest financial crisis since the Great Depression." Yields on 10-year Treasury notes dropped six basis points to 2.94 percent. The yen strengthened to 127.05 per euro from 128.66 last week. The dollar advanced to $1.3163 per euro, from $1.3242.

The cost of protecting European corporate bonds increased for the first time in four days, with the Markit iTraxx Crossover Index of bonds with ratings below investment grade rising 17 basis points to 852, according to JPMorgan Chase prices at 9:15 a.m. in London yesterday. The Australian dollar fell 1.5 percent to 71.25 U.S. cents, and the New Zealand dollar dropped 1.6 percent to 56.34 cents.

First fall in five days
The MSCI World Index slipped for the first time in five days, losing 0.4 percent. The gauge of 23 developed countries gained 3.4 percent in the previous four days as 67 percent of S&P 500 companies that reported first quarter earnings beat analysts’ estimates. Equities had advanced as companies from American Express to Ford Motor posted earnings that exceeded analysts’ estimates.

Analysts predict that U.S. profits will decline through September, dropping 34 percent in the first quarter and 33 percent in the second. Worldwide losses tied to bad loans and mortgages may reach $4.1 trillion by the end of 2010, the International Monetary Fund said last week.

Air France KLM-Group fell 6.5 percent to 8.40 euros in Paris trading. Four people in France suspected of suffering from swine flu have tested negative for the virus. British Airways tumbled 11 percent to 145.2 pence.

Roche Holding, which said it has an ample supply of the Tamiflu treatment that can reduce swine flu symptoms, added 5.1 percent to 146.7 Swiss francs. GlaxoSmithKline, which said it is making the Relenza flu medicine at full capacity, added 4.2 percent to 1,048 pence.

Six people in Canada contracted swine flu and more cases are likely, government officials said. New Zealand said as many as 13 students who recently visited Mexico may have the disease. Australia, Japan, Singapore and South Korea are screening travelers for fever, while Hong Kong raised its swine-flu response level to "serious." Barack Obama’s administration declared a public health emergency after 20 people contracted the disease. More than 100 people have died of flu-related causes in Mexico.

The Mexican peso dropped as much as 3.6 percent to 13.83 per dollar, the lowest level in almost three weeks, before trading at 13.63. Mexican stocks were downgraded by UBS to "underweight" from "top pick" on concern the economy will worsen.

Corn for July delivery fell as much as 3.9 percent to $3.7075 a bushel in electronic trading on the Chicago Board of Trade. Soybeans for July dropped as much as 5.7 percent to $9.7525 a bushel.

Industrial metals fell on speculation that the outbreak may curb efforts to revive the global economy. Copper for delivery in three months fell as much as 3.7 percent to $4,305 a metric tons on the London Metal Exchange. Aluminum, nickel and zinc also declined. Crude oil for June delivery fell as much as 4.7 percent to $49.11 a barrel.