Swine Flu Concerns Grip Equity Markets

Concerns over a flu pandemic rocked markets around the world on Monday. The World Health Organization (WHO) is continuing to assess the global health threat, but has not issued any warnings yet.

Eight of the cases have been reported in New York, seven in California, two in Kansas, two in Texas and one in Ohio. Six cases of swine flu have also been reported in Canada, including four in Nova Scotia and two in British Colombia. According to media reports, the virus originated in Mexico.

GM Seeks to Convert Debt to Equity and Save $44 Billion

General Motors said the company plans to strengthen its balance sheet with a bond exchange offer and a slash in production, which would reduce its debt by $44 billion. The updated viability plan released Monday involves a proposed bond exchange offer of $27 billion in its unsecured public debt. The plan will convert $10 billion in U.S. debt to equity, and leave GM bondholders with 10% of the company.

The viability plan is subject to the co-operation of the U.S. Treasury and the United Autoworkers (UAW) union. The plan also involves the phasing out of the GM Pontiac brand, and a reduction in the number of U.S. dealerships from 6,246 in 2008 to 3,605 by 2010.

The company plans to produce at an industry volume of 10 million vehicles, against the average annual rate of 15 to 17 million recorded from 1995 to 2007.

Dallas Area Manufacturing Index Improves for Second Straight Month

Manufacturing in the Dallas Federal Reserve district posted a second consecutive monthly improvement, but is still within contractionary territory. The Texas Manufacturing Outlook Survey showed that 31.6% of business executives reported worsening conditions. Economists were expecting a 46% reading, against the 49.0% reading in March.

The production component grew to -8.9 from -22.3, capacity utilization climbed to -12.9 from -25.2, and new orders jumped over 15 points to -14.8. Texas produces more than 8% of all manufactured goods in the United States, ranking second behind California in factory production.

Treasury Announces Borrowing Intentions

The U.S. government expects to borrow $361 billion in the April-June quarter, more than doubling its original estimate, according to the Treasury Department.

The Treasury originally forecast $165 billion in borrowing in the second quarter -- a period during which the government historically posts a surplus -- but was expected to increase its estimate because of $200 billion in Federal Reserve borrowing in order to fund quantitative easing operations.

The Treasury estimates it will borrow $515 billion in the third quarter, including the $200 billion for quantitative easing programs. In the first quarter, the U.S. borrowed $481 billion, which was $12 billion less than the Treasury had forecast.

ECB's Trichet Sees Confidence Improving in Money Markets

There are signs of increasing confidence and other improvements in money market functioning, according to European Central Bank President Jean-Claude Trichet.

Speaking in New York on Monday, Trichet said actions taken to protect the banking system's access to liquidity have resulted in "considerable expansion" of the euro system's balance sheet, which he noted reached a peak of 19% of GDP at the height of the crisis at the start of the year.

Despite the improvements, Trichet still said 2009 will be a "very bad year," with the jobless rate likely to rise and no recovery until next year. On non-standard policy measures, Trichet said they would have to be implemented with the "active participation" of banks.

ECB's Hurley Doesn't Exclude a Further "Measured" Cut in May

A further "measured" cut to the European Central Bank's main refinancing rate cannot be ruled out at the ECB's meeting in May, Irish central bank Governor John Hurley said.

"While the governing council is never pre-committed, I cannot exclude the possibility that the council may, in a very measured way, further reduce the main policy rate," Hurley, a member of the ECB's Governing Council, said at a meeting of EU ambassadors on Monday.

Furthermore, a decision on non-standard monetary policy actions will be decided at May's meeting, Hurley added.

Canadian GDP Ekes Out 0.5% Growth in 2008, Four Provinces Post Declines

Canada's real gross domestic product grew just 0.5% in 2008, with four provinces posting negative GDP readings, Statistics Canada reported on Monday.

Of the provinces, Ontario saw the steepest contraction in GDP, at -0.4%, followed by British Columbia at -0.3% and Alberta at -0.2%. Newfoundland and Labrador saw its real GDP decline 0.1% following a solid 9.1% growth rate in 2007.

Saskatchewan's real GDP posted a strong growth rate of 4.4% during the year, followed by Manitoba, which saw its economy grow 2.4%. Of the territories, Nunavut's real GDP rose 5.5%, while the Northwest Territories posted 5.2% growth.

Canadian Commodity Prices Fall Further in March, Says Scotiabank

An index of Canada's 32 major commodities shows prices maintained their downward trend in March amid continued global economic contraction and tight credit conditions. Scotiabank's Commodity Price Index fell 2.8% in March from the previous month, bringing its annual decline to 32.7%.

The global economic contraction and tighter credit conditions are the leading causes for a 41.8% fall in commodity prices from their peak in July 2008, the report noted. The metal and mineral index led the decline, falling 4.3% month-over-month, while the oil and gas index fell 2.6%.

By Ernest Hoffman, This email address is being protected from spam bots, you need Javascript enabled to view it and Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it and Megan Ainscow, mainscow@economicnews, edited by Sarah Sussman, This email address is being protected from spam bots, you need Javascript enabled to view it

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