Swine Flu depresses the market

The stock market had to absorb a number of unsettling headlines on financial and economic matters over the past several months. But it was news of an event outside the realm of finance—an outbreak of swine flu in Mexico and other countries—that rattled the market on Apr. 27.The outbreak of swine flu in Mexico and its spread to other countries has inevitably raised questions about the broader economic and market implications.The worst-case scenario is the sort of global flu pandemic that the World Bank estimated last year might eventually cost up to 4.8% of world gross domestic product (more than $3 trillion).

The positive sentiment in the market has been badly hit by this flu scare. Mexico is the epicentre of the crisis and the Mexican Peso has fallen in thin Asian trading, with the threat of bigger falls ahead.While the White House down plays swine flu as to not disrupt the financial system which has been seen as stabilizing over the last month it could back fire with dramatic consequences. A weak banking system who just underwent a stress test never anticipated an epidemic much less a pandemic.  A sheer drop off in spending by consumers might spell doom for retailers that have struggled to survive until now.

In a reprise of what happened with the SARS panic, airline and tourism stocks are under pressure in early European trading on fears that the swine flu pandemic will curtail travel.

This will deepen the global recession and will probably have a contagion effect on export-led economies in Asia such as South Korea, Thailand, Indonesia, Malaysia, China. All of them depend on the U.S. economy to recover. The stock market will suffer, but the bond market will not be affected that much.The swine flu is undermining confidence and contributing to risk aversion in an array of assets,This is going to hurt at a time when we've had a pickup in stock markets. On the other hand, it could just be an excuse for people to take money off the table.Hence,the market rises or falls according to its own cycle of fear and greed, not the history books.