"It has been quite some time since something really shook the tree and caused a scare in the markets. Wall Street was tangibly due for a big down day: it was approaching several years since the S&P 500 had experienced a greater than 2% single-day decline. That ignominious milestone was achieved overnight, weighing on equities across the Asian region, including the ASX200, which broke through critical support around 7,900 today.

The price action is the typical risk-on/risk-off binary: stocks are down, commodities are down, high-beta currencies are down, and funding currencies are up. In particular, the Japanese Yen is soaring, with speculation that the rally has sparked a short squeeze. It would appear that this has subsequently forced deleveraging amongst investors, who've had to liquidate other positions, namely in equities and gold, to cover losses. Shorting the Yen has been one of the more profitable trades for traders for several years; the technicals signal that the uptrend of the USDJPY might be finally reversing.

China delivered another surprise rate cut today, this time to its 1-year MLF, which, for the time being, is the PBOC's preferred policy rate. The cut suggests that China is taking its anemic economic situation more seriously as doubts increase about whether it will achieve its "about 5%" GDP target. However, the reduction, like most recent measures to manage the economy, is incremental. There was limited reaction in the markets, although it may keep downward pressure on the Yuan and, therefore, the Australian Dollar."