April 27, 2009 10:39 am
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World stock markets fell Monday as investors worried that a deadly outbreak of swine flu in Mexico could go global and derail any global economic recovery, though a positive reaction to the restructuring plan from troubled U.S. automaker General Motors Corp. helped ease the selling pressure.
By mid afternoon London time, the FTSE 100 index of leading British shares was down 9.19 points, or 0.2 percent, at 4,146.80 while Germany's DAX fell 30.71 points, or 0.7 percent, to 4,643.61. The CAC-40 in France was 35.05 points, or 1.1 percent, lower at 3,068.80.
Meanwhile in the U.S., the Dow Jones industrial average was 10.59 points, or 0.1 percent, lower at 8,065.70 soon after the open while the broader Standard & Poor's 500 index fell 3.21 points, or 0.4 percent, to 863.02.
U.S. stocks opened far better than expected — at one stage Dow futures were pointing to a 150 point decline — while European markets clambered off days lows, after General Motors said it will cut 21,000 U.S. factory jobs by next year, phase out its storied Pontiac brand and ask the U.S. government to take company stock in exchange for half GM's government debt as part of a major restructuring effort needed to get more government aid.
Its restructuring announcement — seen as life or death for the company as it attempts to get more help from the U.S. government — was greeted positively in the markets, with the stock rising by a third at one stage.
"General Motors has gone down well as it's gone somewhat further than hoped and I think it deserves every inch of the support it is getting," said Howard Wheeldon, senior strategist at BGC Partners.
Despite the modest General Motors cheer, the markets remained lower amid worries surrounding the swine flu outbreak in Mexico as investors fret that a flu outbreak could set back already-enfeebled global trade and travel, just at a time when policy makers around the world have begun sounding more optimistic about the global economy's prospects.
Airlines and travel companies took the brunt of the selling amid concerns passengers could hold back from flying for fear of catching the virus, which has already reportedly spread as far as New Zealand. Authorities around the world are also preparing to issue advice to passengers — the European Union's Health Commissioner Andorra Vassiliou urged Europeans to postpone nonessential travel to the United States and Mexico "unless it is very urgent for them."
In the U.S., American Airlines owner AMR Corp. and United Airlines' parent company UAL Corp. slumped around 15 percent after the open. In Europe, Deutsche Lufthansa AG fell 9 percent, while British Airways PLC was down 8 percent. Earlier, Australia's Qantas Airways fell 4 percent while Hong Kong-based Cathay Pacific Airways slid 8 percent.
Elsewhere, travel and hotel companies were also sold off, with British cruise line firm Carnival PLC down more than 7 percent and German travel company TUI AG slid more than 5 percent as it revealed that it was suspending all trips to Mexico City as a precaution amid the outbreak of a deadly strain of swine flu.
BGC Partners' Wheeldon said airlines and travel companies were "easy prey" for worried investors but said the markets had managed to understand through the day that the world is far better prepared to deal with a big global outbreak than it was in the early part of the decade when SARS first reared its ugly head.
While airlines and travel-related companies tanked, pharmaceutical companies enjoyed a modest rally in falling markets amid expectations that demand for anti-viral drugs would rise. Both Swiss drugmaker Roche Holding AG — the maker of Tamiflu — and GlaxoSmithkline PLC, which manufactures the Relenza drug, rose 4 percent.
Mexico officials say the flu strain may have sickened 1,614 people since April 13 but laboratory testing to confirm that and how many truly died from it — at least 22 so far out of the 103 suspected deaths — is taking time.
Worries about the epidemic's spread will likely remain at the forefront of investors' mind over the coming days and overshadowed any hopes generated over the weekend by the announcement from the Group of Seven finance ministers that the worst of the world recession may be over and that recovery may emerge by the end of the year.
"Market worries over a flu pandemic have drawn attention away from ministerial meetings that took place over the weekend," said Stephen Lewis, an analyst at Monument Securities.
Earlier, most of Asia's markets were hit by the pandemic fears, with Hong Kong — one of the main focal points of the SARS virus concerns just six years ago — closing down 418.43 points, or 2.7 percent, to 14,840.42. Japan's Nikkei 225 stock average managed a gain of 18.35, or 0.2 percent, to close at 8,726.34 in back-and-forth trade.
Elsewhere in Asia, Australia's stock measure gained 0.5 percent while Shanghai's fell 1.8 percent. Markets in Singapore, Taiwan and India retreated.
Oil prices dropped sharply as investors considered comments from OPEC suggesting the price was too low for companies to justify new investments in crude production. Benchmark crude for June delivery fell $2.76 to $48.79. The contract jumped $1.93 to settle at $51.55 last week.
In currencies, the dollar weakened to 96.63 yen from 97.17 yen. The euro traded lower at $1.3105 from $1.3161.
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