Asian markets fall amid swine flu, US bank worries

Asian stock markets fell for a second day Tuesday as uncertainty over the economic toll of swine flu continued to mount and new doubts emerged about the health of U.S. banks.
The disease, which broke out in Mexico just days ago, has spread to Europe and testing of suspected cases was underway in Asian countries, including South Korea and New Zealand. As governments everywhere toughened their precautions, the World Health Organization raised its global alert level in a move that could lead to more trade and travel restrictions.
While the disease has been relatively contained so far — with all 150 suspected deaths and most of the some 2,000 infections in Mexico — investors seemed loath to take on more risk and pocketed gains from the market’s recent rally. Drug makers jumped while airlines and other travel-industry companies took another hit.
“Sentiment has improved a lot since March, but it’s still in a fragile state at this point,” said Kelvin Lau, regional economist at Standard Chartered in Hong Kong. “Many people are still pessimistic, and given the swine flu, sentiment could see another dip.”
A potential pandemic wasn’t the only distraction for investors, already uneasy about the results of the U.S. government’s stress tests to gauge the health of the largest 19 banks.
The reports are set for release Monday, though Bank of America and Citigroup have been told by regulators the two will likely need to raise more capital, according to a Wall Street Journal report.
“The report sparked fresh worry over the U.S. financial sector,” said Yutaka Miura, senior strategist at Shinko Securities Co. Ltd. in Tokyo.
Financial stocks lost ground amid the renewed banking worries. Mizuho Financial Group slipped 2.0 percent in Tokyo trade and HSBC retreated 2.5 percent in Hong Kong.
After wavering early on, most Asian markets trended lower.
Japan’s Nikkei 225 stock average, also undermined by a strengthening yen, lost 232.57 points, or 2.7 percent, to 8,493.77 and Hong Kong’s Hang Seng shed 269.38 points, or 1.8 percent, to 14,571.04.
Elsewhere, South Korea’s Kospi retreated 3 percent to 1,300.24. Shanghai’s main index was down 0.2 percent, Taiwan’s stock measure dropped 1.9 percent and India’s Sensex slipped 1.6 percent. Australia’s benchmark was down 0.6 percent.
In Tokyo trade, Japan’s No. 2 automaker fell 2.4 percent. After the market closed it announced a net loss of 186.16 billion yen ($1.9 billion) for the January-March quarter, more evidence of the global recession’s toll on major companies.
Airlines lost altitude for a second day amid concerns the spread of swine flu will dent travel, already reeling from the economic slump. Qantas Airways fell 1.1 percent in Sydney and Hong Kong’s Cathay Pacific Airways shed 1.4 percent.
Overnight on Wall Street, trade was cautious.
The Dow Jones suffered its first drop in three days, falling 51.29, or 0.6 percent, to 8,025.00. Broader stock indicators also closed lower. The Standard & Poor’s 500 index fell 8.72, or 1 percent, to 857.51.
U.S. markets were headed for more losses after Wall Street futures dropped sharply. Dow futures fell 102 points, or 1.3 percent, to 7,900 and S&P 500 futures lost 14.4, or 1.7 percent, to 842.40.
Oil traders, also mulling the fallout from swine flu, sent crude prices lower, with the June contract falling $1.15 to $48.99. Prices shed $1.41 overnight to settle at $50.14.
In currencies, the dollar weakened to 95.93 yen from 96.37. The euro slipped to $1.3018 from $1.3029.
Associated Press Writer Shino Yuasa in Tokyo contributed to this report.

By JEREMIAH MARQUEZ
http://www.google.com/hostednews/ap/article/ALeqM5h3kgMAkbLwyfxBdjzw8Pc4KZ7DhQD97RB1JO0

Bearish Mexico Stock Options Give Traders 200% Returns

Options traders who placed bets last week thatMexico’s outbreak of deadly swine flu would spur a stock-market sell-off earned 200 percent on their investments today.

Contracts giving the right to sell the iShares MSCI Mexico Investable Market Index Fund for $31 by May 16 jumped to $1.80 today from the 60-cent closing price last week, according to data compiled by Bloomberg. June $26 puts, the most-traded options today on the iShares fund, climbed 113 percent to 85 cents, Bloomberg data show.

The fund, which mimics the performance of the MSCI Mexico Index and changes hands on the U.S. exchange like a stock, lost 7.2 percent today to $30.73 after President Felipe Calderon declared emergency powers to fight the virus, which has killed as many as 149 people in Mexico. Mexico’s Health Minister Jose Cordova cancelled school classes on April 24 to prevent the spread of a “new strain of influenza,” according to an e- mailed transcript of a speech in Mexico City.

“You could have done it on Friday because the news was out and that’s when they started to announce the school closings,” Eric Conrads, a Mexico City-based hedge-fund manager at ING Investment Management SA, which oversees $12 billion in developing markets, said in an interview.

The iShares fund had climbed 20 percent in the past month after the government’s decision to seek a $47 billion credit line from the International Monetary Fund to help weather the global financial crisis.

Bolsa, Peso Drop

The benchmark Bolsa index fell 3.3 percent as retailers and airport operators tumbled on concern the flu outbreak will hurt travel and the tourism industry. Mexico’s peso today dropped 4.4 percent against the dollar, the biggest drop in six months.

Grupo Aeroportuario del Pacifico SAB, the country’s largest private sector airport operator, plunged 14 percent, while Wal- Mart de Mexico SAB, Latin America’s largest retailer, slid the most since November.

Mexico’s Finance Minister Agustin Carstens said “there’s no doubt” the outbreak will reduce economic output and that the virus has a “high potential for disruption.” Tourism attracted $13.3 billion into the economy last year, making it Mexico’s third-largest source of foreign currency behind oil exports and remittances from Mexicans living abroad.

Put Volume Climbs

May $25 puts were the best-performing options tied to the iShares fund today, jumping 320 percent from the last closing price on April 20, to 21 cents, according to Bloomberg data. Put trading climbed 26 percent on April 24 from the previous day to 4,964 contracts. Still, trading was below the 6,714 daily average during the previous two weeks.

Put-option volume on the fund climbed to 13,037 contracts today, compared with a weekly average of 7,353 this year, according to Bloomberg data. Those contracts outnumbered trading in bullish bets, or calls, by 2-to-1 today. Put options give the right to sell a security for a certain amount, the strike price, by a given date. Calls convey the right to buy.

Conrads, who’s betting on declines in Mexican shares, said some of the put options may have been bought by investors using the contacts to hedge against existing holdings of Mexican stocks.

To contact the reporters on this story: Michael Patterson in London atmpatterson10@bloomberg.net; Alexander Ragir in Rio de Janeiro ataragir@bloomberg.net.

By Michael Patterson and Alexander Ragir
http://www.bloomberg.com/apps/news?pid=20601086&sid=aDoQtvn4WL9Y&refer=latin_america

Mexican Peso, Stocks, Bonds Tumble as Swine Flu Outbreak Grows

Mexico’s peso tumbled the most in six months and stocks and bonds dropped as an outbreak of the deadly swine flu threatened to curb tourism and consumer spending, deepening the country’s recession.

The peso sank 5.1 percent to 14.0505 per dollar at 5 p.m. in New York, the biggest decline among all currencies tracked by Bloomberg. The benchmark Bolsa index dropped 3.3 percent, the most among Latin American stock markets.

The swine flu “has an immediate economic impact,” said Gerardo Margolis, a vice president for emerging markets at TD Securities Inc. in Toronto. “Investors will be cautious.”

The flu outbreak may scuttle a rebound in investor confidence in Mexico that was fueled by the government’s decision to seek a $47 billion credit line from the International Monetary Fund and tap a $30 billion swap line with the Federal Reserve. The peso has gained 10.8 percent after dropping to a record low of 15.5892 per dollar on March 9.

The currency had plunged 32 percent in the previous six months, the worst performer among the 16 most-traded currencies against the dollar, as the global recession eroded demand for the country’s exports and slowed migrant remittances from Mexicans working abroad.

“They’ve been doing all the right things,” said Cathy Elmore, who manages $450 million in emerging-market assets at Blackfriars Asset Management in London. “The swine flu is really bad luck. There has been a knee-jerk reaction to sell Mexico.”

Schools, Bars Closed

The flu outbreak, which has claimed more than 100 lives in Mexico and spread to countries including the U.S., Spain and Canada, prompted authorities across the Latin American nation to order mandatory closures of public places, including schools and bars. The spread of the disease will reduce dollar inflows from tourists and curb consumer spending at restaurants, theaters and other venues where crowds gather, Margolis said.

“There will be a drop in consumption and tourism and that affects the currency,” Margolis said.

Tourism attracted $13.3 billion into the economy last year, making it Mexico’s third-largest source of foreign currency behind oil exports and remittances from Mexicans living abroad. Private consumption accounts for about 50 percent of total demand for goods and services in Latin America’s second-biggest economy.

Retailers, Airport Operators

The Bolsa fell the most in almost a month, led by declines in retailers and airport operators.

Grupo Aeroportuario del Pacifico SAB, the country’s largest private sector airport operator, plunged 14 percent, while Wal- Mart de Mexico SAB, Latin America’s largest retailer, slid the most since November. The yield on the government’s benchmark peso-denominated bonds due in 2024 rose 18 basis points, or 0.18 percentage point, to a one-month high of 8.16 percent.

The peso earlier weakened to as much as 14.0610, the lowest since April 1. It depreciated 1.6 percent last week after the government first disclosed deaths tied to the virus and as faster inflation fueled speculation the central bank will slow the pace of interest-rate cuts.

The central bank bought $400 million worth of pesos at three separate auctions today to stem the currency’s slide. It has spent $23.1 billion from its foreign reserves since October.

“It’s a very significant risk factor,” said Alberto Ramos, an economist at Goldman Sachs Group Inc. in New York. “If the outbreak spreads and causes damage to the economy, then that could do damage to financial assets.”

Spain, Canada, New Zealand

Spain reported its first case today, while six people in Canada contracted the virus and more cases are likely, government officials said. New Zealand said as many as 13 students who recently visited Mexico may have swine flu.

The extra yield investors demand to own Mexican bonds instead of U.S. Treasuries widened 20 basis points to 3.39 percentage points today, according to JPMorgan Chase & Co.’s EMBI+ Index.

Mexico’s Finance Minister Agustin Carstens said “there’s no doubt” the outbreak will reduce economic output and that the virus has a “high potential for disruption.” The government doesn’t yet know the extent of the impact, he said at the IMF’s spring meetings in Washington.

The government earlier this month forecast the economy will shrink 2.8 percent this year, the first contraction since 2001, as the U.S. recession curbs demand for Mexican exports and slows dollar flows from remittances, foreign direct investment and tourism.

‘Very Bad Time’

The outbreak “comes at a very bad time,” said Benito Berber, an economist at RBS Greenwich Capital Markets in Greenwich, Connecticut. He predicted the peso will drop to 14 per dollar over the next two weeks.

UBS AG downgraded Mexican stocks to “underweight” from “top pick” on concern the country’s economic outlook may worsen because of the swine flu.

Sony Corp., Samsung Electronics Co. and Nokia Oyj are among companies that have told workers not to travel to Mexico, officials at the companies said. Japan, Malaysia, Australia, South Korea and Singapore are screening passengers at checkpoints for fever. The European Union advised travelers to avoid going to Mexico.

Mexico’s President Felipe Calderon declared a swine-flu emergency on April 25, giving him powers to order quarantines and suspend public events in the nation, where more than 1,600 patients have been hospitalized with flu-like symptoms.

‘Lot of Jitters’

The number of deaths from Mexico’s flu outbreak has risen to 149, Health Minister Cordova said. Not all deaths have been confirmed to be caused by swine flu, he said.

In the U.S., 40 people have confirmed cases of swine flu linked to the Mexican virus, the World Health Organization said today. It has called the outbreak a “public health emergency of international concern.”

“We don’t know what the magnitude of the flu outbreak will be,” said Mario Copca, a currency strategist at Metanalisis SA in Mexico City. “This is going to fuel a lot of jitters.”

Russia suspended imports of all meat from Mexico, the Philippines ordered a ban on imports of pork and hogs from the Latin American country, South Korea is boosting quarantines on pig and pork imported from Mexico and China has banned some imports of pork.

“We may start seeing an impact on exports,” said Margolis at TD Securities. “That could also hurt the currency.”

To contact the reporter on this story: Valerie Rota in Mexico City atvrota1@bloomberg.net.

By Valerie Rota
http://www.bloomberg.com/apps/news?pid=20601086&sid=aEQyIL11CsrI&refer=latin_america

British Airways, Air China, AMR Fall on Concern Over Swine Flu

British Airways Plc fell the most since 2001 and Air China Ltd. had the biggest drop in six months as airline stocks worldwide tumbled on concern that an outbreak of swine flu in Mexico will depress travel demand.

British Airways lost as much as 17 percent and Air China, the No. 1 airline by market value, sank 13 percent. Iberia Lineas Aereas de Espana SA, which has 12 weekly flights to Mexico, fell 8.6 percent and shares of American Airlines parent AMR Corp. declined 8 percent in European trading.

Airlines that are already losing custom because of the global recession face further declines as swine flu spreads. The disease has killed more than 80 people in Mexico and 20 in the U.S. have contracted it. The number is likely to rise, Dr. Richard Besser, acting chief of the Centers for Disease Control and Prevention, said at a White House briefing yesterday.

“At this point we don’t know how bad things are going to be, but the fear is that there’ll be a significant drop in air travel as people say ‘I don’t want to catch that,’” said Gert Zonneveld, a London-based analyst at Panmure Gordon with a “hold” recommendation on British Airways stock.

BA was trading down 7.4 percent at 151.7 pence as of 10:02 a.m. in the U.K. capital, where it is based. Europe’s third-biggest carrier is also the most reliant on travel to the U.S., which has declared a public-health emergency.

Beijing-based Air China closed down 51 cents at HK$3.49 in Hong Kong.Singapore Airlines Ltd., Asia’s most profitable carrier, fell 4.2 percent to S$10.16 in the city-state and Sydney-based Qantas Airways Ltd., Australia’s largest carrier, dropped 4 percent to A$1.90.

AMR Slides

AMR shares in Germany were priced at the equivalent of $4.95, compared with last week’s closing price of $5.42.

“It’s not surprising that there’s a rush to the door,” said Nick Cunningham, an analyst at Evolution Securities Ltd. in London. “There is clearly an enormous amount of earnings risk in airlines, and that was before this outbreak.”

Air France-KLM Group, Europe’s largest airline, fell 10 percent and was later down 8.6 percent at 8.21 euros in Paris, while Deutsche Lufthansa AG was off 3.1 percent at 8.65 euros after earlier dropping 7.4 percent. Madrid-basedIberia, with which British Airways plans to merge, was 7.9 percent lower.

“Swine flu poses a risk to global airlines as discretionary travel gets cut back even more,” said Ben Potter, a Melbourne-based analyst at IG Markets. “Customers look to avoid possible contact with infected persons and there’s the possibility governments may urge a cutback in flights to help control the spread.”

Tighter Checks

In Asia, Singapore has tightened checks at its main airport to screen arriving passengers against the flu outbreak, while authorities in Japan will examine flights from Mexico, where the disease was first detected.

American Airlines, Continental Airlines Inc. and other U.S. carriers are on “heightened awareness” for travelers with swine-flu symptoms, while maintaining flight schedules to Mexico, said Katherine Andrus, assistant general counsel for the Air Transport Association trade group in Washington.

Passengers are being given the option to rebook Mexico trips without penalties or fees, and U.S. carriers are awaiting further guidance from authorities including the World Health Organization, spokespeople for the companies said yesterday.

No Change

European airlines contacted by Bloomberg said they’ve yet to take any special measures. Iberia, the biggest European carrier to Latin America, said today that its Mexican flights are operating normally. British Airways will continue to fly to Mexico City four times a week and Air France is continuing services and has taken no steps related to the outbreak.

Cologne, Germany-based Lufthansa, Europe’s second-biggest airline, said the impact of swine flu seems unlikely to match that of Severe Acute Respiratory Syndrome, or SARS, which spread around the world in 2003 following an outbreak in China.

“Passenger behavior is unchanged,” Frankfurt-based spokesman Thomas Jachnow said today by telephone. “SARS was in a totally different league.”

Among airports, BAA Ltd., the owner of London Heathrow, Europe’s busiest, is working with the U.K. Health Protection Agency but hasn’t been advised of any need for changes, spokesman Stuart Butchers said today. Agency spokesmanDavid Daley confirmed that it’s not yet recommending extraordinary measures and that people who develop flu-like symptoms after travel should contact their local medical services.

Fraport AG, which runs Frankfurt airport, also said it won’t take special steps unless advised to do so by the German health authorities.

European discount carriers also fell, with Dublin-based Ryanair Holdings Plc, the region’s biggest, losing as much as 11 percent before trading down 4.6 percent at 3.29 euros. Luton, England-based EasyJet Plc dropped 6.3 percent and was later being priced 4.3 percent lower at 320.75 pence.

To contact the reporter on this story: Steve Rothwell in London atsrothwell@bloomberg.net.

By Steve Rothwell

http://www.bloomberg.com/apps/news?pid=20601102&sid=anCOXItkluhI&refer=uk

N.Z., Australian Dollars Decline for Second Day on Swine Flu

April 28 (Bloomberg) — The Australian and New Zealand dollars fell for a second day on speculation the spread of swine flu from Mexico will hurt tourism and deepen the global recession, spurring investors to sell riskier assets.

Demand for the currencies slid after Mexico’s peso tumbled the most in six months as the World Health Organization raised its pandemic alert to an unprecedented level. The Australian and New Zealand dollars also fell after European Central Bank Governing Council member Ewald Nowotny said the ECB is prepared to expand its range of policy tools if necessary to ease the flow of credit through the economy.

“Nowotny’s comments felled the euro and the New Zealand and Australian dollar are all down in sympathy,” said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. “The currencies will stay under pressure as things develop around those comments and the swine flu.”

Australia’s currency slid 0.4 percent to 70.74 U.S. cents as of 8:02 a.m. in Sydney from 71 cents in New York yesterday. The currency fell 0.7 percent to 68.26 yen. New Zealand’s dollar declined 0.3 percent to 56.43 U.S. cents from 56.57 in New York. It bought 54.44 yen from 54.74.

To contact the reporter on this story: Candice Zachariahs in Mumbai at czachariahs2@bloomberg.net

Source:

By Candice Zachariahs
http://www.bloomberg.com/apps/news?pid=20601081&sid=a1cOfpsYBeCE&refer=australia