Business-Insider

Given what happened today on Wall Street, expect to see further unwinding in equity/carry trade markets in the next Asian and European trading sessions.

Kind of a perfect storm for a bear market occured today, starting with Merill's downgrading several important financials. Citigroup, Lehman Brothers and Bear Stearns led all 93 financial companies in the Standard & Poor's 500 Index lower after Merrill Lynch reduced its recommendation on the shares saying earnings would be decreased due to the ongoing problems in the housing and commercial credit markets.

The FOMC minutes, though dated at this point, gave markets no indication that the Fed was closer to making a rate cut, despite the fact that the Fed's economic team had revised down their growth estimates prior to the last rate decision.

News that State Street was having problems in the ABCP market also upset market participants, who has gotten used to seeing a bit of easing there. The Consumer Senitiment report indicated that gas prices and falling home values were putting a dent in the all-mighty U.S. consumer.

There was a strong flight to quality today, as 3 mo T-Bills gained nearly 30 basis points on the day, a clear indication that traders want to get as far away as possible from anything related to asset backed paper.

As carry trades unwind, the dollar appreciates vs the high yielders and loses value vs. the Yen, meaning that currency pairs such as the GBP/JPY depreciate. You could see 225.5 there by the time the smoke clears.

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