Capital Gold Group Report: Stocks, Commodities Plunge, Dollar Gains on Debt, Jobs Concerns

Feb. 4 (Bloomberg) -- Stocks plunged around the globe, with the MSCI World Index dropping the most in four months, and commodities tumbled on concern an unexpected increase in U.S. jobless claims and growing sovereign debt will derail the economic recovery. The euro slid to the lowest level since May.

The MSCI World Index of 23 developed markets sank 2.4 percent, the most since Oct. 1, while the Standard & Poor’s 500 Index fell 2.4 percent at 2:31 p.m. in New York and benchmark equity indexes for Brazil, Portugal and Spain plummeted the most in at least 11 months. Oil lost 5 percent, the biggest drop in six months, and gold tumbled the most since 2008 as a stronger dollar curbed demand for commodities as alternative investments. The euro sank 1 percent to $1.3759, the lowest since May 21.

U.S. equities added to the global slide as initial applications for unemployment insurance unexpectedly increased to 480,000 last week and companies from MasterCard Inc. to Monster Worldwide Inc. reported earnings that trailed analyst estimates. European shares extended earlier declines triggered when a disappointing Spanish bond auction added to concern some European nations will struggle to finance their budget deficits.

“Look at those initial claims,” said Diane Garnick, a New York-based investment strategist at Invesco Ltd., which manages $400 billion. “Unemployed people don’t spend money. That means the growth we’ve seen is not sustainable until people get jobs. Also, there are lots of uncertainties on a global basis. That’s certainly negative news for the market. I wouldn’t be surprised if we started to see dramatic increases in volatility again.”

Stocks Sink

Retreating shares in the MSCI World outnumbered rising stocks by almost six to one and by 16 to one on the New York Stock Exchange. Only 17 companies in the S&P 500 advanced and all but one of the 30 stocks in the Dow Jones Industrial Average declined. Monster Worldwide Inc., which offers help-wanted advertisements on the Internet, plunged 16 percent in its biggest decline since 2002. MasterCard lost 8.6 percent, the most since May 2009.

Brazil’s Bovespa index slumped as much as 5 percent as every company in the 63-stock gauge retreated.

Treasuries gained as investors fled to assets perceived as being the most safe, sending the yield on the benchmark 10-year note down 10 basis points to 3.61 percent.

The rally in U.S. government debt came even as Nassim Nicholas Taleb, author of “The Black Swan,” said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration.

‘No Brainer’

It’s “a no brainer” to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. “Every single human being should have that trade.”

Warren Buffett’s Berkshire Hathaway Inc. was stripped of its last AAA credit rating by Standard & Poor’s after the billionaire investor agreed to buy railroad Burlington Northern Santa Fe Corp. Berkshire, which is taking on debt to fund the $26 billion takeover, was cut to AA+ from S&P’s highest grade, the ratings firm said today in a statement. The downgrade concludes a review that S&P announced on Nov. 4, the day after Berkshire disclosed the deal for Burlington Northern. The company’s Class B shares slid 2.3 percent.

Europe’s Dow Jones Stoxx 600 Index sank 2.7 percent, the most since November, as national benchmarks from Britain to Germany tumbled more than 2 percent. Portugal’s PSI-20 Index slumped 5 percent and Spain’s IBEX 35 slid 5.9, the biggest plunges in 15 months for both.

Deficit Concerns

Greece’s ASE Index lost 3.3 percent on concern plans for a strike by the country’s biggest union show Prime Minister George Papandreou may not win enough support in parliament for spending reductions.

The European Union’s pledge yesterday to back Greece’s plan to cut the region’s biggest budget deficit prompted investors to shun securities of countries with the worst shortfalls.

Portugal led declines in government bonds, with the premium investors demand to hold the nation’s two-year securities instead of benchmark German bunds widening to 156 basis points, the biggest difference since 1997. Spain sold 2.5 billion euros ($3.5 billion) of three-year securities today to yield 2.63 percent, compared with 2.14 percent the last time the notes were issued Dec. 3.

Banco Santander SA, the biggest Spanish bank, slumped 9.4 percent.

Credit-default swaps on Portugal’s government debt soared 27 basis points to a record 223, according to CMA DataVision prices. Contracts on Greece jumped 14 basis points to 411.5, Spain increased 13 basis points to 165, Italy was up 7 at 138 and Ireland climbed 6.5 basis points to 169.5.

‘Focus Is Shifting’

“The focus is shifting toward Spain and Portugal, where the deficit-reduction plans have been far less ambitious than Greece,” said Kornelius Purps, a fixed-income strategist in Munich at UniCredit Markets & Investment Banking.

European Central Bank President Jean-Claude Trichet said he is “confident” that Greece is moving in the right direction to cut its deficit. He spoke at a press briefing after the ECB left its benchmark interest rate unchanged at a record 1 percent.

The MSCI Emerging Markets Index dropped 2.8 percent, snapping a three-day rally. Poland’s WIG 20 Index fell 3.9 percent after the European Commission said the government’s budget gap may widen to a 15-year high of 7.5 percent of gross domestic product in 2010, from 6.4 percent last year, without “sizeable” measures.

The dollar gained against 15 of 16 major counterparts, adding at least 1.5 percent versus the Brazilian real, New Zealand dollar and South African rand. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, climbed 0.6 percent to 79.876, the highest since July.

Gold fell the most since 2008, with April futures losing 4.1 percent to $1,066.60 an ounce in New York.

Crude oil for March delivery fell 5.6 percent to $72.68 a barrel, headed for the biggest daily drop since July 29.

Copper lost 3.2 percent to $2.8775 a pound in New York, while aluminum, nickel and lead slumped at least 1.9 percent in London.

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