Stocks, Grains, Peso Drop on Swine Flu; Treasuries, Yen Gain

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 1.5 percent, led by airlines on concern that the disease will reduce travel. Futures on the Standard & Poor’s 500 Index slipped 1.9 percent. 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 Plc, wrote in a report today. “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.

Australian Dollar

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 & Co. prices at 9:15 a.m. in London. 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.

Full article here