Safe havens remain in demand this morning, with the US dollar showing potential to break above its 2008 highs (see chart below) while even the Japanese yen - which had briefly lost its inverse correlation with the DJIA - has surged.
These moves started early as the US government has moved ahead with their “stress test” assessment of Citigroup, and has decided to convert up to $25 billion worth of preferred shares into common shares. Furthermore, Citigroup agreed to reform its board of directors so that a majority of the members are new and independent. This is slowly bearing some resemblance to Sweden’s nationalization efforts in the early 1990’s, but as we noted in our special report, the plan may be too piecemeal to be truly effective.
The other issue high on the mind of investors: downward revisions to [B]US GDP[/B]. Indeed, growth in Q4 was revised down to -6.2 percent from -3.8 percent, which still remains just above the Q1 1982 low of -6.4 percent. A further breakdown of the Commerce Department’s summary shows that revisions to personal consumption were responsible for much of the decline, as spending fell 4.3 percent versus previous estimates of a 3.5 percent drop. Meanwhile, gross private investment was revised down to -20.8 percent from -12.3 percent thanks to dismal nonresidential and residential investment, suggesting that the commercial property market is taking a heavy hit. Finally, exports were revised down to -23.6 percent from -19.7 percent, and while the US isn’t nearly as dependent upon trade for growth as countries like Japan, the results indicate the conditions remain tough for American manufacturers.
Overall, the news works in favor of further US dollar gains as the currency remains the safe haven of choice. However, traders should be wary of counting on the Japanese yen to lose its inverse correlation with risky assets, as the currency has been the strongest of the major currencies this morning.
[B]DXY Index (Daily Chart)[/B]
[I]Source: Bloomberg[/I]