- Pandemic swine influenza concerns continued to fester as the predominant market-driving force, with more reported cases sprouting in various global locations, despite the brief respite in risk aversion seen during US hours. Asian bourses had also traded to the upside early in the session, but buying is subsiding in latter part of the day. Nikkei225 fell into the red coming out of midday break and was last seen down 0.4%. Korea's Kospi traded down 0.8%, while S&P/ASX was off session highs but up 0.5%. In the more pandemic-sensitive Asian markets, Singapore, Hong Kong, and Taiwan indices were off by 0.3%, 0.4%, and 0.5% respectively. Most significant developments included WHO confirmation of upgrading its alert level to Phase 4 - sustainable human to human transition - and more cases reported in various parts of the world and US.
Chile, South Korea, Australia, and New Zealand were each rumored to observe cases of infection; in US, Dallas area confirmed 6 known cases, and in New Jersey, Health Dept officials commented on 5 probable cases of swine flu that have been identified in people who recently traveled to Mexico. WSJ "Heard on the Street" column made a compelling argument that the impact of the outbreak is magnified by the already poor state of the global economy, with the prospects of reduced consumption and trade coming at the least opportune point in time. The upside is that of the 20 confirmed US cases, all but one have responded to treatment and are getting better, suggesting the onus of a more dire situation in Mexico in terms of fatalities may well be with the poor response of their healthcare system.

- Economic calendar, light for the 2nd consecutive session, was limited to March retail sales from Japan. Y/Y figure declined at a slower rate of -3.9%, above estimates of -4.7%, but M/M number was a multi-month low of -1.1%, above -0.4% expected. Korea has once again produced evidence of being ahead in recovery after dodging recession late last week, with its April consumer confidence index coming in at multi-month high of 98 v prior 84. In speakers, Australian Treasurer Swan remained downbeat on the employment sector, forecasting recession to have a "brutal" impact on jobs. In other significant macro developments, IMF remarked that china's 2009 growth target of 8% is "challenging but possible", which is a more optimistic prognosis than those from the likes of other global bodies such as the World Bank, whose forecast was cut last month to 6.5%.

- Among individual companies, Tokyo financial Daiwa Securities negated press rumors of merger plans with Sumitomo Mitsui. Automaker Isuzu cut its FY08/09 forecast to a wider net loss of ¥26.9B from loss ¥15B and slightly lower revenue of ¥1.42T from ¥1.46T. In Japan's tech sector, Denso missed forecasts for Net but beat on sales, with former coming in at loss of ¥84.1B v loss ¥63.5Be and latter seen at ¥3.14T v ¥3.12Te. Elsewhere, Elpida was down 5% after confirming FY08 net loss of ¥180B, while Kyocera traded up 2% on better than expected earnings forecast, thanks to the company's aggressive cost cutting. In Sydney, National Australia Bank reversed early selloff with a strong 1H result, posting a net of A$2.66B v A$2.11Be on revenues of A$8.5B v A$8.2Be.

- In currencies, Japanese Yen preserved its bullish momentum across the board, reaching multi-month highs against USD and most of the crosses. Risk aversion stroked by swine flu concerns was also echoed by rumors that US banks may require additional capital after stress-tests, even though FDIC's Blair stated stress tests are not "pass/fail" and would not hurt any institution. USD/JPY fell to 96.00, EUR/JPY traded below 124.80, GBP/JPY breached 140.00, and AUD/JPY sold off to 67.20's. Of all the majors, NZD was shorted most heavily, as the implications of a pandemic arriving in New Zealand were particularly acute due to that economy's heavy reliance on tourism and agriculture livestock. NZD/USD fell below 55.40, NZD/JPY was at lowest level since mid-March at 53.20, and AUD/NZD rose over 150 pips to 1.2680. Mexican peso also fell to fresh April lows, with USD/MXN briefly testing 14.10 handle. IN US majors, USD strengthened against European and commodity FX, reaching 1.2980's vs EUR, 1.4550 in GBP, and briefly trading below 0.7000 vs AUD.

- Crude oil prices are lower in Asia and trading below $50/bbl. Oil prices are tracking the declines in Asian equities as the swine flu outbreak has raised concerns that travel demand will decline. Spot Gold is lower on the session and declining for the second consecutive day. Today's weakness in gold prices is coming as the euro has moved below the 1.30 level against the dollar. Additionally, the lower oil prices are weighing on gold, as the crude declines have reduced concerns regarding future commodity price inflation.